Community Investment Fund (CIF)

The objective of the RPRP programme is to promote livelihoods and quality of life of the poor through their institutions. In the entire state, financial support to promote the livelihoods of the poor is based on micro credit planning by the S.H.Gs. Those project mandals, where UNDP-SAPAP project has enabled the S.H.Gs to implement microplanning process successfully, have been the source of inspiration in scaling up and universalizing this process across the state. A comprehensive micro-planning model has been designed and is being implemented across the state for delivering the community investment fund (C.I.F) under the project. The same process has also been very handy in mobilizing bank credit for SHGs. In the micro credit planning process there is a clear role and clear terms of partnership for S.H.Gs, V.Os and M.Ss. The micro credit plans of members are formulated at the S.H.G level, appraised by the V.O. The consolidated micro credit plan of the V.O is appraised by the M.S and approved by them for financing. Where it is a case of S.H.G accessing bank finance, the micro credit plans of the S.H.G are presented to the bank. The same process is adapted for designing programs for improving the quality of life of the poor. Various activities like dairy, health, gender, legal aid, sustainable agriculture, etc identified for promoting livelihoods and quality of life of the poor are implemented by communities themselves. Implementation of these activities demands not only the investment but also the capacity from the institutions. Therefore, budget requirement for these activities are drawn from both IHCB and Community Investment Activities. Capacity building activities and related budget are described along with investment plans in one chapter only.

1. Community Investment Fund (CIF) Implementation Process

CIF has provided resources mostly for implementing Micro Credit Plans (MCPs) of SHGs and marketing and food security initiatives of VOs. It has also funded for social development and creation of productive physical infrastructure. However, there is a dedicated CIF for land purchase and development, and disability initiatives. In the interest of empowerment and creating self managed institutions, MSs were allowed to manage their funds (Each MS in DPIP districts is entitled for Rs 97.50 lakhs and in RPRP districts for Rs 76.50 lakhs. However, MSs in TPMU areas are entitled for 50% more than that of the MSs in plain areas. Non-project MSs are also being capitalized by SGSY funds in a similar fashion). Therefore, a few policies related to the delivery of CIF had been recast to implement MCPs and achieve self management goal of MSs. They were as follows: 1. MS as Sub Project Implementing Agency (VO was SPIA earlier) 2. CIF was provided to VOs as a loan for implementing MCPs of SHGs and VO plans. Members who have received CIF repay to their SHG in 12-24 months; SHGs to their VO in about 40-50 months and VOs to their MS in about 80-100 months. (All the VOs, which had received CIF before the new guidelines issued, have been voluntarily repaying it to MS from a prospective date.) 3. MS did the appraisal of MCPs and DPMU sanctioned the CIF 4. Recovered CIF to be sanctioned by MS itself 5. Beneficiary contribution was removed members savings in SHG was reckoned as their contribution

6. Bank-linkages for all the SHGs in the VOs, where CIF was provided, were treated as funds from the banking for implementing MCPs The revised system is sound with several checks and it is more than adequate in fulfilling the fiduciary requirements in respect of the end use of funds.

1.1. Microcredit Planning (MCP)

1.1.1. SHG MCP All SHGs are encouraged to prepare MCPs for accessing credit from banks and their VOs. MCP at SHG level is the list of activities that members would like to take up and the cost of implementing these activities. It is an integral part of the financial management process of SHG. Members do self assessment of their SHG based on regularity in savings and internal lending of funds, book keeping, and regular meetings before further planning. As such it is an active microfinance process that seeks to seamlessly integrate social mobilization / institution building processes with that of livelihood enhancement at individual or community levels. MCP is a seven step process involving: 1. Household Investment Plan Since MCP is envisaged as a comprehensive tool to improve the levels of income and quality of life of members of SHGs and overall functioning of Self Help Groups and their federations, the members are to be sensitized about the process. Initially most of the loans taken by the members are for consumption purposes and to meet contingencies. MCP aims at orienting the members towards Income Generating activities. Discussion with family members about the activity they want to pursue is the first step and the decision should be collective. The proposed activity should augment the income of the family while existing economic activities pursued by the family are continued. Generally groups are homogeneous( BCs, SCs or STs may be predominant in each group) and livelihood activities chosen by members for financing are predominantly traditional family activities like agriculture, sheep rearing, basket making, weaving, stone cutting, cattle rearing, pottery, edible, oil extraction, tailoring etc. Therefore, it can be rightly called as Household Investment Plan. 2. Understanding the socio-economic status and needs by members In this stage the group members identify the socio economic status of each member themselves. This is unique in CBOs as the members discuss each members income and expenditure and identify the economic vulnerability. The rankings given by them are without dispute and bias and bear stamp of unanimity. The socioeconomic information should include such critical factors such as income, assets and liabilities, needs and problems, number of earring members and dependants, single women, physical disability amongst the members in their family, if any, health problems, livelihoods and opportunities, skills, saving capacity, social backwardness, literacy etc. 3. Appraisal of socio-economic status and wealth ranking by members

By the end of the analysis in step two, the members are categorized into three groups i.e. poorest of the poor, poor and others; based on their poverty status. Within these groups members from marginalized communities are ranked first. Therefore ranking of the members is based on socio-economic status if the member is from a marginalized community and also the poorest of the poor she will be ranked first. Those who are ranked first are the ones to get financial assistance first. In other words, relatively better off people wait until most vulnerable members receive assistance. This order of priority may change in special circumstances taking into account other factors such as households emergencies like sickness, likely expenditure on medical treatment etc. 4. Appraisal of Needs by members On completion of the ranking of the members, the members put-forth their credit needs to implement their Household Investment Plan. These are called Household Investment Plans (HIP) because all the family members decide upon the activity/ies. This envelopes the skill sets of the family members and a consensus to cooperate and participate in the income generating activity proposed. The whole exercise aims at augmenting the family income, reducing expenditure and risk. The needs may also be of any type and magnitude, including consumption, productive activities and investment purposes. The HIP may have the economics of the activity worked out along with repayment plan, time frame and cash flows. The group shall collectively examine all aspects and facts of each proposal. 5. Consolidation of needs and setting priorities The members needs thus finalized and appraised as above shall be included in the Micro Investment Plan of the group. This amounts to the approval of all the members of the group. The needs are prioritized based on the poverty ranking, besides the seasonality of the activity. 6. Financing the investments The sources of funding MCP are SHGs own funds, CIF and Bank finance. Banks directly lend to SHGs for implementing MCPs. Member borrows from its SHG for implementing Household Investment Plan and repays the loan amount in full on agreed terms and conditions. The repayments are also used to finance the next person in rank. Once the needs of all the members are financed, the second MCP of the group may be prepared and financed in a similar manner. 7. Evolving terms of Partnership During the appraisal and approval phase of the loan, certain conditions that are directly related to loan repayment such as interest rate, repayment period, penal interest etc are stipulated. However, at the time of disbursement of loan, an understanding between the group and the member on conditions stipulated will be reduced into writing. This is known as terms of partnership. The terms of partnership may be between the group and the member and between the federation and the SHG. The terms of these agreements bind either party to abide by

and fulfill certain obligations like acquiring assets for the value of the loan, insuring the asset wherever applicable, adhering to repayment schedule, and pay the agreed rate of Interest etc

1.1.2. VO Micro Plan (VMP)

Village Organisation (VO) also prepares the list of activities that are beneficial to all the poor in the village, which along with micro plans of SHGs become a VMP. VO does wealth ranking of all SHGs. Based on the VO entitlement micro plans of SHGs are included into VMP (prioritization is based on the wealth ranking of SHGs PoP SHGs, BPL SHGs and other SHGs. Such ranking is based on poverty status of members in the SHG (more than 50% of the members are PoP, then the SHG is PoP SHG) and status of the IB of the SHG.) The details of appraisal are provided in the revised CIF guidelines (annexure).

1.1.3. Terms of Partnership (MOU between different tiers)

The micro planning process should clearly bring out the terms of partnership between members and their SHG, between SHGs and their VO and, between VO and MS on strengthening the relationship and implementation of the plan. Though, technically, the relationship between all these parties is lender and borrower, the terms of agreement will also include the ingredients of healthy IB norms. Sources of funds to implement VMP : VMP will be financed by members equity, bank-linkage and the CIF/Recycled CIF/SGSY funds.

1.2. Repayment and Interest rate

Repayment: IG CIF provided to VO is a loan repayable to MS. This is also applicable for the IG CIF already released by the DPMU directly to the VOs in the past. VO has to repay the IG CIF to MS as per the repayment schedule fixed by the MS. Repayment period will be sufficiently longer (in the range of 80 months to 100 months) essentially to facilitate capital formation at the VO level. However, it cannot be longer than 120 months because the repayments would not be sufficient enough to cater the needs of left over villages. Repayment periodicity would be at monthly rest when the MS meeting takes place. The repayment terms between VO and SHGs has to be based on the cash flows of the members of the SHGs, so that more and more turnover of funds would be possible. In the absence of such assessment SHG will repay CIF loan in 50 monthly installments to its VO. SHG members may repay the CIF loan to their SHG in 20 monthly installments. Funds provided for executing SD and PPI subprojects are grants to VO and not repayable to MS. Rate of interest: The IG CIF released to MS is a revolving fund and therefore be treated as its corpus. The indicated lending rate from MS to VO is @ 6% per annum and from VO to SHGs @ 9% per annum and from SHG to members @ 12% per annum.

1.3. Utilisation Certificates (UCs)

Utilization Certificates have to be submitted at all levels in the prescribed formats as provided in the revised operational manual (enclosed) - SHG has to submit UC in a prescribed format to VO, the VO in a prescribed format to MS and the MS to DPMU. The DPMU has to submit the consolidated report of MS UCs to the SPMU. In addition to the submission of UC, the VO/MS will ensure the following process, which will suffice in fulfilling the fiduciary requirements in respect of the end use of funds: MS is required to get their accounts audited by the Chartered Accountant as per the common chart of accounts circulated by the SPMU, which clearly indicates the break up of CIF received and utilised. However, MS should also keep the records of Social audit done by the VO and the comments of MS on the CIF process followed for verification. (Social Audit: A team consisting of both VO & the Gram Panchayat Members must undertake social audit of all the sub projects after completion. The audit must be done to assess whether the money has been spent as planned or not, whether there was transparency in financial transactions and whether the target beneficiary (POP & poor) is covered or not. The Gram Panchayat must endorse the audit report. This should be verified on a sample basis by the internal audit wing)

2. More rigorous approach

Certain measures are being initiated to bring high levels of transparency and accountability at MS level, where the CIF is capitalized and the IB related budget is spent. Following initiatives are already in the pipeline: Project fund tracking: The project funds released to districts and from districts to MSs and VOs and from MSs to VOs will be tracked in RPRP districts. This exercise will be carried on in all the districts in the current year. Utilization of CIF: The UC formats are suitably designed to serve the purpose of getting not only the amount utilized certificate but also the information on funds accessed social category wise, poverty status wise and purpose wise. Districts have been providing UCs in the new format.