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Project Overview
Socio-economic transformation of India




Topic- Microfinance in the State of Jammu and Kashmir












Section C:





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INDEX
1. Microfinance, a brief overview
2. Jammu and Kashmir
3. Economy of Jammu and Kashmir
4. Scope for Microfinance
5. Current Statistics
6. Analysis of the socio political conditions of the state
7. Potential to produce
8. Potential to absorb
9. Problems at grass-root level
10. How can microfinance intervene?
11. Challenges
12. Suggestions for improvement
13. Conclusion
14. References















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Microfinance in Jammu & Kashmir:
People were poor not because they were stupid or lazy. They worked all day long, doing
complex physical tasks. They were poor because the financial institution in the country did not
help them widen their economic base. ~Mohammad Yunus

Microfinance: A Brief Overview
Investopedia says- Microfinance essentially is a type of banking service that is provided to
unemployed or low-income individuals or groups who would otherwise have no other means of
gaining financial services. Ultimately, the goal of microfinance is to give low income people an
opportunity to become self-sufficient by providing a means of saving money, borrowing money
and insurance.
Microcredits began taking shape in the early 1700s when the well-known author J onathan
Swift started the I rish Loan Fund Systemthat provided small loans to rural poor with no
collaterals. The system began growing at a steady pace during the 1800s when microfinance
became a widespread institution with more than 300 agencies operating across Ireland.
Nobel Prize winner Muhammad Yunus, introduced the concept of Microfinance in Bangladesh
in the form of the "Grameen Bank". NABARD took this idea and started concept of Micro
Finance in India. The SHG-Bank linkage program, which was undertaken since 1992 in India,
had financed about 22.4 lakh SHGs by 2006. It involved commercial banks, Regional Rural
Banks (RRBs) and cooperative banks in its operations.
Jammu and Kashmir: The heaven on Earth-
Gar firdaus bar roo-e zameen ast,
Hameen ast-o hameen ast-o hameen ast.
Amir Khusrau, in his words described Kashmir in these timeless lines, roughly translated as,
If there is ever a heaven on earth, its here, its here, its here...
The Valley of Kashmir owes its fame, doubtless, not less to the wild grandeur of the barriers,
which surround it than to its own intrinsic loveliness. It is this contrast which led the poets of all
nations to speak of Kashmir Valley as "Emerald set in Pearls". The varied beauties of Kashmir
appeal to every want and taste. For the cultivator of the soil, there is fertility of land, abundance
of water, variety and plenty of natural products, whether grains or fruits. For the herdsman, there
is rich pasturage and broad meadows. The sportsman finds game in the jungles and along the
mountainsides.
The fisherman finds ample use for the rod, the artist for his sketch block and colors, the
archaeologist, linguist, botanist or geologist, may luxuriant vegetation, or the many geological
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problems awaiting their investigation; while they, who have neither hobbies nor inclinations,
who want but rest and amusement in lovely Kashmir Valley and pleasant climate, can take their
fill out of Nature's bounty.
Amidst such seamless perfection, lies a tale of a state that struggles to sustain itself
economically. With no dearth of natural resources or entrepreneurship skills, the state has
suffered throughout the post-independence era due to highly unstable socio-political
environment. The economy of the state has not grown along with rest of the country. The
employment opportunities are restricted mostly to government sector as private investments are
yet to make an impact on the state.
Jammu and Kashmir- Economy
According to the Economic Survey Report, about one fifth of the population in J&K falls under
Below Poverty Line (BPL) category, with about 98% living in the rural areas. The poverty ratio
during past years has decreased by 14.06 per cent (3.54 percentage points) from the base year
1993-94, but the absolute poverty has shown an increase from 19.05 lakh (R), 1.86 lakh (U) and
20.92 lakh (C) in 1993-94 to 22 lakh, 2.21 lakh and 24.21 lakh respectively till in 2007-08.

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The major sources of sustenance are:
Agriculture
Tourism
Sericulture
Papier-mch
Saffron, Walnuts, Honey, Almonds
Wood work, Carpet Industry, Woolens Industry, etc
Various other small/medium scale industries function across the state.

Investment in the state
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Contribution of Various sectors in the economy of J&K

Per capita GSDP in J&K
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During the past two decades, as the violence intensified in the valley, the unrest has affected the
valley people, especially the urban poor, either by displacing them from their livelihoods or
leaving them without any. Their poverty levels are aggravating and seek an urgent but long-term
solution. Although some organizations have started working for the development of the area,
there is ample scope for microfinance institutions to help the urban poor.
Scope for Microfinance:
Microcredit in Kashmir Valley has had a short history with few investors. The large
microfinance firms currently operating across South Asia have yet to enter the Kashmiri market.
In addition, limited research has been done on the range of organizations currently employing
microcredit in this area.
Microfinance could play an important role in poverty alleviation in J&K since majority of the
urban population who fall below the poverty line (BPL) have no access to basic financial
services, there is always the need to create opportunities for city dwellers to augment their
income and to assist them through soft and hassle-free loans.
Current Statistics:


Various states and SHG groups functioning

Currently, the four main financial institutions conducting microcredit programs in the Kashmir
Valley are:
Jammu & Kashmir Bank (J&K Bank)
Jammu & Kashmir State Womens Development Corporation (JKSWDC)
Jammu & Kashmir State Cooperative Bank (J&K State Cooperative Bank)
National Bank for Rural and Agricultural Development (NABARD)
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J&K Bank

J&K State
Womens
Development
Corporation


J&K Co-
operative bank

NABARD

Inception Year


2006

1994

2000

1992

Funding
Sources


RBI


GoI & RBI

RBI &
NABARD

GoI & RBI

Borrowers

Anyone in need
who qualifies all
criteria

Socially and
economically
weaker women
between the age
of 18 to 45


Women in rural
areas

Mostly women

Method of
Disbursing
Loans


Individual &
SHGs

Individual &
SHGs

Individual &
SHGs

Individual &
SHGs via
NGOs.

Interest Rate


17%-18% p.a

4%-6% p.a

9%-12% p.a

Varies

Additional
Services

Different
schemes of craft
development,
agriculture, etc.
No frills account.

Providing
financial
assistance,
making the
process smooth,
assisting for 5
years after
sanction, helping
in establishing.


NA

Collaborates
with NGOs for
small problem
solving sessions.

Repayment
Scheme

Varies with
schemes

20-28
installments, 5-7
years.


5-7 Years.

Varies
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Analysis of socio-political factors of the state:
State policies for promotion of Small industries:
J&K Government policies that are supportive of promotion of small scale industries can be listed
as follows:
Up to 15 per cent price and or purchase preference on government purchase from small
scale industries.
Small, medium and large scale industrial units to be provided relief under Value Added
Tax (VAT).
Exemption from paying central sales tax (CST) on sale of finished goods outside the
state.
A fully owned J&K Government Undertaking, J&K SMALL SCALE INDUSTRIES
DEVELOPMENT CORPORATION LIMITED (SICOP) with the objective to promote
and develop the Small Scale Industries in the State of Jammu & Kashmir.
Priority sector lending by Banks and Financial Institutions.
Reservation of items for exclusive production
Emphasis now on promotion of quality, technology and efficiency
Price & Purchase preference
Infrastructure Development
The State Government has set up many training centres for coaching young boys and
girls in traditional arts and crafts.
Potential to produce:
Jammu and Kashmir is a state known for its cottage industries, handicrafts, as a large proportion
of population is indulged in such businesses.
The major produce of the state can be listed as follows:
Carpets
Namadas
Lois
Kangri
Papier-mch
Pashmina Shawl
Silverware and imitation jewelry
Walnut wood craft, furniture.
Statistics showing the potential of J&K Handicrafts industry:
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The contribution to economy:


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SWOT Analysis of J&K Handicrafts industry:

Apart from these handicrafts, people also indulge in sericulture and livestock rearing.
Sericulture is one of the traditional occupations of Jammu and Kashmir. It is the only traditional
univoltine belt in India, capable of producing silk comparable to the fine qualities of raw silk
imported in the international market.


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Livestock rearing statistics:















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Potential to absorb:
Data of sales revenue and employment via Cottage industries in district Budgam, Kashmir


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Problems at grass-root level:
In a survey conducted by University of Kashmir, several general problems faced by the cottage
industries/ small scale industries in J&K were listed down. The respondents were asked to rank
the given issue according to the magnitude of the problem. The order of merit given by the
respondents was converted into ranks by using the Garretts formula. The major problems are
listed below:


How can Microfinance intervene?
The factors like power and climate are beyond an individuals control, but other problems like
availability of raw material, finances, infrastructure, and accessibility of the markets etc. can be
tackled by efficient use of microfinance and SHGs.
Microfinance generally serves two purposes, delivering MF and enabling MF. The purpose of
Microfinance in J&K has to be enabling the people to engage in sustainable activities.
1. Finance:
a. Loans: Microfinance institutions can finance loans as well as help secure loans
and credit limits from banks for the cottage industries and small scale industries.
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b. Insurance: MFIs can offer insurance products like Life insurance, Property
insurance, Disability insurance and Health insurance. MFIs may enter into this
market by partnering with a licensed insurer. (Legally, MFIs can offer just Life
Insurance with loans)
c. Pensions: Micro-pension services can also be launched in J&K. Ujjivan in
partnership with IIMPS (Invest India Micro-Pension Services) has launched two
micro-pension products for over 10 lakh urban poor women. A specialized
product may be developed and launched in J&K.
d. Savings: MFIs in India cant accept deposits but can encourage people to save and
spread awareness about the importance of savings.
2. Infrastructure:
Microfinance institutions can help the poor community in the state to build up the needed
commercial infrastructure and also can help the already existing craftsmen to scale up their
operations. By providing the little extra financial assistance, MFIs can also ensure that quality
goods are produced and taken into the market so as to deliver proper prices of goods.
Apart from the commercial infrastructure MFIs through various programs can also help in
building or improving the already existing services for the community.
3. Accessibility of markets:
a. Primary producers group
b. Networking arrangements for ease of transportation
c. Franchising with NGOs to increase the market reach
d. Organizing fairs
e. Ensuring quality control to cater upscale market and export oriented products
Challenges:
Illiteracy
Organizing the activities with a system of constant monitoring.
Winning the trust of the common man.
Scarcity of Raw Material (due to geographic constraints of the valley.)
Controlling the interest rates.
Condition of women.
Finding a market, beyond the boundaries of the state.
Supply of the products manufactured in the small scale industries to the rest of the
country via efficient modes.
Lack of connectivity of the state to rest of India.


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Sustainability:
Successful Microfinance can be defined by three main characteristics: sustainability, outreach
and impact. Sustainability refers to the ability of a program to continue over time without any
subsidies. Outreach refers to number of clients reached. Impact refers to the ability of the
programs to assist poor households to move out of poverty.
Enterprise growth is much more than just providing credit, it also involves financing a viable
business idea. Care has to be taken that borrowed funds feed into new business at the same time
MFIs can help to felicitate capacity building of the already existing small scale enterprises.
Suggestions for Improvement:
Suggestion 1:
People need to be informed about various options of accessing credit and benefit of savings
through MFIs and method of availing these funds. Replica of BRAC model with added features
of Micro savings and Micro insurance is needed while implementation.
BRAC or Bangladesh Rural Advancement Committee was initiated in 1972 by Sir Fazle
Hasan Abed at Sulla in the district of Sylhet as a small-scale relief and rehabilitation project to
help returning war refugees after the Bangladesh Liberation War of 1971. The organization ever
since has been working for the upliftment of the rural ultra-poor population and has been very
successful in its ventures.
BRAC has also expanded to various other countries such as; Pakistan, Afghanistan, Sri Lanka,
Philippines, and many African countries as well.
They function in areas like:
Microfinance
Health care and sanitation for the rural population
Social Justice for the people
Education
Food safety
Road Safety
Health and Nutrition
Agriculture, etc.
Their Microfinance operations work in a very unique and innovative way. They not only assist
the community financially but also help them reach the market. Local markets are catered by
organizing fairs in the villages or nearby towns. They also take the produce of the rural poor to
the affluent population by establishing lifestyle store Aarong. The rural produce after going
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through proper quality checks are sold in these stores at high price and the benefits are
transferred directly to the community.


Suggestion 2:
The existing structures in the state are inadequate to meet the housing and economic credit needs
of the participating community. Hence, an institution that would combine the strength and the
reach of the NGO and expertise of the financial institution with participation from the
community will be appropriate. The concept of development association for savings and credit
(DASC) could be utilized to address the issue for providing better access to housing finance and
economic loans for participating community in the project area. DASC is built on the strength of
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informal groups to create and improve access to skills resources and markets. These groups
mobilize savings from the constituent members and other formal informal sources, which are
further used for meeting the credit needs of the members. The objective for the formation of
DASC will be creating an alternate self-sustained financial organization to meet shelter and
livelihood needs of the weaker section in the rural community.
Suggestion 3:
Community based financial institution (CBFI) linked to an NGO should be used to provide loans
as their service costs are lower as compared to other cooperative societies because of
decentralized loan administration and availability of voluntary stuff. Such CBFI operations are
generally supported by grants from National and international donor agencies. CBFIs must aim
at an adequate scale of operations such that dependencies on grants are reduced overtime.
Adequate rate of interest must be available to meet the transaction cost.
Suggestion 4:
Establishing a Centralized Organization for the Coordination of Microcredit Operations is
essential because no coordination exists between the different microcredit organizations
operating within Kashmir. This results in unsuccessful programs being repeatedly attempted and
best practices have not been shared to the larger microfinance community. In addition, job skill
training organizations such as the Craft Development Institute have not been included within the
training process for loan recipients. A centralized body that monitors microcredit operations
within the Kashmir Valley would assist in coordinating various operations within the region,
thereby achieving efficiency and disseminating lessons learned.
Conclusion:
Microfinance in the Kashmir Valley is a relatively new concept. The results of these efforts will
not be apparent in the near future. However, the advantage of this late implementation is the
lessons learned from microcredit programs in other areas. Recognizing that the Kashmir Valley
is unique because of both geographical location and political instability, it is necessary to
thoroughly plan execution of microcredit programs to meet local needs and conditions. While
few financial institutions distribute microcredit loans within the Kashmir Valley, they operate in
a complex manner, often overlapping each other in the services provided. To proceed with
microcredit in this region, it is necessary to evaluate these existing programs to find a niche for
further investment. Most microcredit programs in the valley work through SHGs. Individual
loans are rare and do not receive the same attention. These SHGs are effective because they
usually focus on women and provided the means to develop a skill. Most SHGs are composed of
widows from the current conflict or divorcees with no access to a source of income; the
formation of SHGs greatly helped to empower these women.
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Looking forward, there are three major obstacles to microcredit in Kashmir: First, the absence of
communication between different microcredit institutions operating with the region. A
coordination effort between microcredit institutions and job skill organizations would result in
much greater efficiency, widening the client base through greater outreach and achieving more in
terms of both width and depth of programs. Presently, with such few microcredit operations in
the Kashmir Valley, centralizing operations would draw more investors into this emerging
market. Second, self-sustainment of SHGs will be a recurring issue. This is not something
isolated to the Kashmir Valley; microfinance projects world-wide is also having difficulty
shifting the burden of managing and running the SHGs from the outside institution which
originally setup the group to members of the group. Third, the political climate is will make
attracting investors a difficult task. Given the ongoing conflict and insecurity within the Kashmir
Valley, outside investment has not arrived to the area. This is in sharp contrast to neighboring
regions which have experienced a large flow of investment and attention. The political climate
also impacts the economic landscape there are frequent strikes, work stoppages, and even
goods shortages when vital transportation links have been disrupted. This will be an ongoing
challenge for any microfinance efforts within the Kashmir Valley.















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References:
For Data:
Directorate of Handicrafts Jammu & Kashmir
Ministry of Planning and Statistics
Kashmir Corps
Greater Kashmir
For information:
http://www.ibef.org/download%5CJammu_&_Kashmir_060710.pdf
http://www.bracresearch.org/reports/poverty_outreach_of_brac_mf_interventions_pdf.pdf
http://international.abhinavjournal.com/images/Management_&_Technology/Jul13/4.pdf
For various other insights:
Jammu and Kashmir Bank
Mrs. A Umarani, DHAN Foundation.