TO STUDY THE SCOPE AND POTENTIAL OF SETTING UP A

MICRO-FINANCE INSTITUTION

By

Alok Modi (25002)

Organisational Traineeship Segment

PRM 25

Faculty Guide

Prof. H.S. Shylendra

Submitted To

Bhoruka Charitable Trust, Bhorugram

Churu (Rajasthan)

July 2005

INSTITUTE OF RURAL MANAGEMENT, ANAND

 Acknowledgements

The two months OTS with Bhoruka Charitable Trust (BCT) was a memorable experience to
consolidate the knowledge gained at IRMA. I am grateful to IRMA for providing me with such
an opportunity. I thank the organization for providing me the opportunity to gain from their
experience about working and expansion needs of a microfinance institution. The long
experience of BCT in the development field was an added advantage to my learning.

I thank Dr. Ashok Agarwal (Trustee, BCT) for showing a strong sense of commitment towards
the project. I express my sincere thanks to Mr. Amitava Banerjee (Executive Director, BCT),
who has a discerning and objective approach and provided a clear picture about the working of
the trust.

Thanks are due to Dr. R.P. Bisht, (Project Manager, BCT and my Reporting Officer) who was a
continuous source of inspiration and feedback during my stay. Thanks to Mr. Balwan Singh
(Project Co-coordinator, BCT) for sharing his long and varied experience which was also a story
of his dedication and commitment to the cause of development in this area.

Soman, Shyamsunder, Roshan, Dr. Vimla Sahoo, and Darshana provided valuable inputs.

Thanks to Mr. Rakesh Dubey, CASHPOR and Mr. Neeraj Verma, ARAVALI for providing
valuable inputs and insights on microfinance operations.

Thanks to Dr. R.P. Singh, Principal BRJD public school, for providing computing facilities, and a
comfortable stay.

Sincere thanks to Professor H.S. Shylendra, my faculty guide, for his inputs, guidance and the
confidence showed in me.

Alok Modi (25002)

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 Abbreviations

A.P.O. Assistant Project Officer

BCT Bhoruka Charitable Trust
CASHPOR MFI in U.P.
CIG Common Interest Group
DPIP District Poverty Initiative Programme
ECB External Commercial Borrowing
FI Financial Institution
FNGO Field Level NGO
HR Human Resource
ICDS Integrated Child Development Scheme
IGA Income Generation Activity
MF Microfinance
MFI Microfinance Institution
MFO Microfinance Organisation
MIS Management Information Systems
MKGB Marudhar Kshetriya Gramin Bank (RRB)
MNGO Mother NGO
NGO Non Government Organization
P.O. Project Officer
RMK Rashtriya Mahila Kosh
RRB Regional Rural Bank
SBBJ State Bank of Bikaner and Jaipur
SHG Self Help Group
TCI Transport Corporation of India (A Private Company)

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 EXECUTIVE SUMMARY

I. Project Title: To study the scope and potential of setting a Micro-finance Institution
(MFI)
II. Organisation: Bhoruka Charitable Trust (BCT), Bhorugram, Churu, Rajasthan
III. Reporting Officer: Dr. R.P. Bisht, Project Manager, BCT
IV. Faculty Guide: Prof. H.S. Shylendra
V. Student’s Name: Alok Modi

Objectives: 1) To study the scope and potential of creating a microfinance institution to cater
to the needs of different SHGs engaged in rural micro-enterprise activities in the villages of
Churu 2) To study the present MF operations of BCT and study the reporting procedures,
need for training and capacity building, and possible procedure for upscaling.3) To find a
suitable structure for the proposed MFI, which is self-sustaining.

Scope of the study: 1) Study of potential, present operations, and suitable structure for
viability of present operations. 2) Geographically the Rajgarh and Taranagar blocks of Churu
district of Rajasthan are covered.

Methodology and data sources: The study was approached using as base the present MF
operations of BCT. The method used for the study included field visits, case studies,
questionnaire, interviews and informal discussions with BCT staff, interaction with bankers,
focus group discussions with SHG members, and interaction with non-beneficiaries.
Literature survey from IRMA workshop on ‘Governance Issues in Rural Finance,’ and
Internet were also used. The Primary data for the study was collected from the SHGs, BCT
staff and other stakeholders using the above methods. Secondary data was gathered from
records of the SHGs and BCT, and some published articles on BCT. The analysis part uses
the description of the present operations and comparison with standard procedures as
gathered from various sources.

Major Findings: The present MF operations of BCT fall under onlending activity. They are
run in conjugation with the developmental activities of the trust. The onlending operations
are not financially viable to recoup own cost. There is a potential to do so by putting a
focused approach and by increasing the base of operations. However attaining this potential
will take a long time given the present status of SHGs promoted by BCT. The SHGs though
have grown in numbers but have not graduated to a stage of forming a federation. The
member awareness about the group activities is low and scattered. In about half the groups
the Aanganwadi workers of BCT are the key person of the group and also the beneficiary in
terms of availing the loan. The present level of MF operations do not permit establishment of
a full fledged MFI. Out of the total 6115 members in SHGs only 155 are having loans at
present. Most of the lending is done for non-productive purposes. There are virtually no
linkages of SHGs with micro-enterprise activities and BCT itself is concerned about it.
Further BCT wants to continue the onlending activities as an NGO and avoid probable tax
liabilities arising out of interest income. For the purpose, BCT plans to carve out a separate
entity to carry out the micro finance activity. This MF activity will be separate from their
other developmental works. Though there is scope for creating a MFI, the potential is
currently limited. BCT is working in this area since 1973 on developmental issues. From
1999 it is trying to create awareness among the people of this remote area through SHG
formation and is also trying to cater to their credit needs. Thereby BCT also becomes a party
to the lack of awareness for livelihood activities among its target population. It can not
simply wash off its hands by shifting the entire responsibility to the people. This is
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particularly of relevance as now the BCT is engaged in onlending activities to this
population. BCT is facing bottleneck constraints on the issues of remoteness, non-awareness
of IGAs among the target population, recruiting and retaining professionally trained
personnel, lack of standardized codified working procedures, and lack of proper reporting
systems in the absence of an MIS support. The broader and long-term objective of starting
the MF activity is to provide banking facility at a lower spread to the target population. The
present view of BCT in helping the target population is restricted to charging lower rates of
interest. BCT wants to provide cheaper credit even below its present rates of 12% to reach
the poorest of the poor. BCT shifts the blame to the financial institutions, which are
providing funds at an average of 9%. BCT opines that the financial institutions have failed to
appreciate its specialized needs given the low population density in this remote rural area,
and consequent increase in operations cost. A working structure to separate the MF
operations of BCT has been worked out. The structure scales up to have a dedicated and
properly trained staff for MF activities. The staff strength and the complexity of the structure
can grow with the increase in operations.

Conclusions: The BCT is engaged in onlending activity and the SHGs are virtually not
linked with any IGA. The BCT wants to create a separate MFI to carry out their microfinance
activity under SHG model, in addition to other developmental works. This is not financially
feasible for the MF operations, as dedicated and properly trained staff is needed for
sustainable MFI operations to a proper scale. There is a scope for creating an MFI by the
BCT looking into the number of SHGs formed by the BCT, but the potential for the same is
limited. The SHGs are under the process of graduating to linkages with IGAs and this
process needs a fastening up. There is lack of standardized codified working procedures, and
lack of proper reporting systems in the working of BCT. A structure for proposed MFI
operations of BCT has been worked out but the same may be adopted by BCT with
subsequent improvements in the MF procedures.

Recommendations: The suggestions for the BCT are to focus on Capacity building of the
SHG members, to fasten up the process of linkages to IGAs by use of demonstration effect,
and separating out the MF operations. The BCT can attain break even by looking for better
credit terms and generating the repayment capacities of the target population to pay the full
cost of the services. In order to enable upscaling, broadening of base, and enforcing a strict
credit discipline the BCT need to inculcate professionalism in its approach.

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 Table of Content
Page No.

1 Bhoruka Charitable Trust 1

1.1 Introduction 1
1.2 Mission 1
1.3 Area Of Intervention 1
1.4 Administrative Structure 2
1.5 Expansion Phase 2
1.6 Projects Run By BCT 3
1.7 Organisation Nesting 4
1.8 Concept For Microfinance Programme 5
2 Framework For Project Work 6
2.1 Introduction 10
2.2 Objectives 10
2.3 Scope of the study 10
2.4 Methodology and data sources 10
2.5 Relevance Of Microfinance At BCT 11
2.6 Framework Used For Assessment Of Scope And Potential 11
2.7 Inputs Received 20
2.8 Focus Group Discussion 26
2.9 Interviews 28
2.10 Limitations Of Study 31
2.11 Chapter Scheme 32
3 Potential of SHG Intervention On Community 33
3.1 Introduction 33
3.2 The Community 34
3.3 Present Status Of SHGs 34
3.4 Funding Agencies 36
3.5 Reporting System of SHGs 37
3.6 Micro Finance Outreach 39
3.7 Case Studies 39

Page No.

4 Carrying Forward The Microfinance Programme 44

4.1 Choice of the Appropriate Legal Form 44
4.2 Possible Structure For Operations 45
4.3 Costing of Present MFI Operations of BCT 45
4.4 Costing of Proposed MFI Operations of BCT 47
4.5 Costing of Intermediate Upgradation of MFI Operations 49
4.6 Findings 51
4.7 Conclusions 53
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 4.8 Recommendations 58
5 References 62
6 Appendix-I (Questionnaire Administered on various Stakeholders) 63

List of Tables
Page No.

1 Time Line Of Expansion 3

2 Present Status Of Savings And Bank Loaning 6
3 Linkages Of SHGs With Banks 7
4 List Of Members Participating In Focus Group Discussion 27
5 Details Of Bank Charges For Transfer Of Funds 29
6 Block wise Present Status Of SHGs 36
7 Present Level Of Support By Financial Institutions 37
8 Number, Frequency, And Agenda Of Meetings 38
9 Frequency and Content of Reports to Funding Agencies And Trustees 38
10 Micro Finance Outreach and Portfolio Information 39
11 Trend Analyses Of Members After Formation Of SHG 43
12 Costing Sheets For Present MFI Operations Of BCT 47
13 Costing Sheets For Proposed MFI Operations Of BCT 48
14 Costing Sheets For Intermediate Upgradation Of MFI Operations 50

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 List of Figures
Page No.

1 Organogram Of BCT 2
2 Organisation Embedding 4
3 Organizational Structure Of BCT In SHG Project 35

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