Microfinance for Poverty Reduction: The Kalanjiam Way

The Kalanjiam programme is a unique credit programme that goes beyond the narrow "financial delivery" approach. As this article explains, initiatives under this programme are flexible and tailored to the needs of the poor; the attempt is also to address existing "leakages" in the earlier system of moneylending so as to improve the borrowing capability of the poor. Working through self-help groups, the kalanjiam way also seeks to instil democracy by encouraging a grassroots leadership to emerge and ensuring the community ownership of public works.

Microfinance for Poverty Reduction: The Kalanjiam Way

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Economic and Political WeeklyMarch 31, 20071192ploughed back for further growth and development of theseinstitutions. The programme is successful in developing theseorganisations addressing institutional dimensions of local man-agement and linkage with other institutions to their federations.In addition to building the good governance through nurturingquality leadership programmes for the leaders, it promotes creationof “endowments” for health, education and village developmentinitiatives and institution building at group, cluster and federations.Many products developed by the kalanjiam model haveinnovatively integrated the existing indigenous practices of poor,which have enhanced the acceptability and ensured continuityof the programme. Through innovative product development, theprogramme has mobilised a total savings of Rs 75 crore fromthe members. Regular monthly savings are meant primarily tofacilitate internal lending in groups. “Special saving” is a con-tribution in addition to regular savings, meant to meet specificdevelopmental needs of members for health, education, marriage,etc. The programme has so far provided 8,20,516 loans amountingto Rs 300 crore in the last 16 years to its members for variouspurposes. The insurance services include life, health, accident,and housing and livestock coverage.The programme has linked a total of 17,000 groups; around170 bank branches of 29 different commercial banks and RRBsare involved in this linkage partners. The direct linkages bygroups has significantly contributed to increasing the profitabilityof these branches and resulted in institutionalising the collabo-ration. SHG federations facilitate and sustain this partnership atthe local bank branch level. In addition federations have estab-lished linkages with various apex banks like SIDBI, HDFC,HUDCO and the National Housing Bank to bridge the credit gapat the group level and promote income generation and housing.Bank linkages are sustained by making considerable efforts totrain and encourage awareness generation in about 4,000 branchmanagers and have contributed in designing and organising insimilar programmes by other commercial banks, NABARD,NGOs and state governments.As the needs and economic strength of the members increaseover time, demand pressure is constantly created to find inno-vative ways of providing substantial services to the members.Some of these services may require bulkier investments permember and may have longer repayment cycles (such as housingloans), which may effectively put them beyond the capacity ofa single SHG to provide. The programme has promoted 75federations, which are in different levels of the growth processin terms of addressing financial and social development needsof poor women. Federations existing for more than three yearshave initiated various social development programmes, whichinclude housing, infrastructure, health, education, sanitation,drinking water, skill building, insurance and business promotion.The notable initiatives include comprehensive reproductive childhealth programmes by 10 federations in Tamil Nadu. A few ofthem also offer health insurance. Group housing programmes forurban poor in the cities of Tirupati, Visakhapatanam and Maduraihave improved the livelihoods of the urban poor. Many federa-tions actively participate in promoting philanthropy in eachlocation by way of supporting education of children throughscholarships, donations to people affected by fire accidents,floods and other calamities, and for meeting major healthexpenses of other members – and their families.IVImpact of Kalanjiam ModelWith a view to have a comprehensive assessment of the impactof the Kalanjiam programme across all operational areas and toenable the actors involved in microfinance to have a betterunderstanding, the Centre for Research of DHAN Foundationundertook a study between August 2002 and September 2003.The objectives of the study were: (i) To assess the economicdevelopment of the family through credit and non-credit opera-tions; (ii) To assess the contribution made by the Kalanjiamprogramme towards empowering the marginalised group of womenand their family members and their social development.This impact study was done primarily to assess the effectivenessof the programme and to introduce mid-term corrections. A three-stage stratified sampling technique was applied for the selectionof kalanjiams. The study was restricted to 31 project locationswhich had been in existence for more than three years duringthe study period. Of these locations, 10 were selected on randombasis, which included six locations with kalanjiams that weremore three to five years of age and four locations having kalanjiamsmore than five years of age (Table 2).From each location five primary groups were selected usingthe stratified random sampling basis and from each group sixmembers were selected through random sampling. Apart from them,six persons who were not kalanjiam members, but who representthe socio-economic condition as that of kalanjiam members fromeach sample location were also selected and they have been treatedas control group in the study. In all, 240 members and 60respondentsfrom control group were selected. The selected respon-dents were personally interviewed using a structured interviewschedule. In each sample location, a panchayat presidentanda bank branch manager were interviewed using a checklist.Access to Affordable CreditOne major promise of any microfinance model is the deliveryof adequate and timely credit. The study found that the averageloan availed from the kalanjiam by a member increased as themembership in the kalanjiam increased. Moreover, the incomedrains in the form of paying interest at usurious rates to theinformal financing system decreased as membership in kalanjiamincreased. Normally, the kalanjiams provide credit to themembersat an annual rate of 24 per cent and less. As much asTable 2: Sampling Design for the StudyAge-wise stratum of locationNumber of ProjectNumberofNumber of SampleNumber of SampleNumber of ControlLocationsSample LocationsKalanjiamsKalanjiam MembersGroup Households(I stage) (II stage)(III stage)Locations having the groupsbetween 3 and 5 years of age1863219236Locations having the groups of more thanfive years of age13484824Total31104024060
Economic and Political WeeklyMarch 31, 2007119395per cent of the total members interviewed got a minimum loanamount of Rs 5,000, if they were with a kalanjiam for more thanthree years. On an average, a member in this age category ofkalanjiam was found to have taken a loan of Rs 19,975, whichincreased to Rs 38,476 in case of kalanjiams greater than fiveyears old. A major, proportion of the loans (28 per cent) providedfrom the kalanjiam were for redeeming members’ debt withinformal financing sources followed by productive and assetcreation purposes such as agriculture and livestock (15 per cent)housing (14 per cent) and small-scale economic activities (9 percent). Significantly, in kalanjiams that are more than five yearsold, the members were able to save Rs 13,851 on an averageas a result of reduced interest payments to local moneylenders.All the kalanjiams investigated had secured at least one loanfrom the local commercial bank and through these all of themsecured access to formal credit systems. Close to 68 per cent ofthe kalanjiam were found to have linked with the banks morethan once to get loan. The average amount of loan mobilisedby the kalanjiams studied from commercial banks was Rs 1,03,778.In addition, the kalanjiams got loans of Rs 65,281 on an averageper group, from the federations. The federations mostly mobilisecredit from apex financing institutions. On an average, a kalanjiamwas able to mobilise credit of Rs 1,75,310 from external sources,which is a significant addition to members’ own savings. It isevident from these figures that the kalanjiams studied haveeffectively utilised the facility of access to credit from formalfinancing institutions. Savings by the members influence thecredit mobilisation from formal financing sources. Unlike thegroups within the Grameen model or any other SHG models ofmicrofinance the outstanding advances of the kalanjiam memberswith their groups had a wide range, which indicates that not allthe members got equal amount of loans all the time.Moving Out of the Vicious Cycle of UsuryThe poor live with and die in debt. It is not so much debt perse, but the price paid for the debt, which makes them poorer.Predatory lending practices, such as the high usury chargedbyindigenous moneylenders have been a prime reason too. Usurycontinues to remain a significant causal factor in compoundingthe problem of poverty. The intervention of the kalanjiams wasobserved to have made some changes in the debt status of themembers with informal financing sources. These sources usuallyprovide credit at exorbitant interest rates ranging from 36 to 120per cent per annum. However these are the major sources of creditowing to the existence of very few options for the poor families.The results of the study indicate that slightly more than 81 percent of kalanjiam members interviewed had debt with theseinformal traditional sources while joining the kalanjiam. Thekalanjiams provide major emphasis on closing the debt with theinformal financing sources, by reducing the debt burden of themembers.Around 51 per cent of the members completely repaid their olddebts. After the intervention of the kalanjiams the members wereable to avail of more loans at affordable interest rates. This hasled to a significant decline in usury in the villages. The percentageof loans borrowed at 60 per cent annual interest rate by the memberscame down from 36 to 26 after the intervention of the kalanjiams.Similarly the loans borrowed at 120 per cent interest rate declinedfrom 17 per cent to 8 per cent. Lending at a rate of 275 per centper year was completely eradicated from every one.Thus, while with access to credit provided by the kalanjiamshas helped partly in addressing this age-old problem, much moreneeds to be done to find a lasting solution. Unshackling the poorfrom the clutches of usurious moneylenders will remain a chal-lenge. We need to develop debt consolidation packages alongwith supportive policy measures to take the poor out of financialbondage. This task needs to be addressed through special,customised products for debt swapping to take the poor out ofthe debt trap.The study findings prove that the kalanjiam unleashed thehidden potential of the members to save money. All the kalanjiammembers studied had savings in their kalanjiams. On an average,a member saved Rs 5,301 in case of the kalanjiams, which aremore than five years old, which was higher than the kalanjiamsof three to five years of age (Rs 3,590). However, 87 per centof the kalanjiam members interviewed stated that they had nothad the habit of saving in any of the sources. After the interventionof the kalanjiam they were able to save Rs 100 per month onan average. Around 72 per cent of the members saved Rs 100per month. Importantly, the savings rate per month of the membersincreased as the age of the kalanjiam increased. The savings bythe members is the instrument by which the group leverages fundsfrom external sources like banks.Creation of AssetsAround 74 per cent of the kalanjiam members were found tohave invested in assets after joining the kalanjiam. The assetsinclude productive assets such as agricultural land, livestock,pettytrade, etc, and non-productive assets such as jewellery, householddurables, etc. The proportion of members created assets and theamount invested increased as the age of the kalanjiam increased.Close to 55 per cent of the kalanjiam members, who were withthe kalanjiam for more than five years, were found to haveimproved their housing condition by constructing the new houseor upgrading the existing one. Around 24 per cent of the membersof three-five years old kalanjiams and 26 per cent of membersfrom kalanjiams more than five years old invested on livestock,worth of Rs 8,421 and Rs 13,954 respectively. Similarly 20 and33 per cent of the members from kalanjiams of three to five yearsold and those that were more than five years old respectivelyinvested on economic activities such as petty shop, tailoring,hawking, etc.Another interesting finding is that the members investing inassets were able to repay their previous debts with informal creditsources faster than members who had not invested. However,there is a danger here. They were also seen to borrow loans fromlocal moneylenders to supplement what they had got from thegroups. In case of members who have invested in assets, debtswith local moneylenders increased to 34 per cent and 44 per centrespectively for three to five years old kalanjiams and thoseTable 3: Members Who Repaid Their Debts with InformalCredit SourcesAmount RepaidMembers (Per Cent)Average(Per Cent)3-5 Year>5YearsOverallAmountGroupsGroupsRepaid (Rs)No change in the status8.2813.169.25-1 to < 5012.105.2610.7323,11850 to 9933.767.8928.588,696Closed completely45.8673.6851.4210,267
Economic and Political WeeklyMarch 31, 20071194kalanjiams that were more than five years old, there was asubstantial decline in the same figure for member who have notinvested on assets. The primary reason for this could be that thecredit from the kalanjiams is perhaps not sufficient to create anasset that the households want. It could also be partly due to theconfidence of the local moneylenders about easy recovery ofloans involving asset creation.Changes in Family IncomeThe results of the study show that there was an increase infamily income after the intervention of the kalanjiam. This changewas mainly attributed to the loans provided to income-generatingactivities. The increase in the income of the member familieshad positive relationship with the age of the kalanjiams. In caseof three to five year old category kalanjiams, the increase in theincome was slightly less than 30 per cent from the situation atthe time of joining kalanjiam. The same figure was around 45per cent in the kalanjiams of more than five years old. The risein the family income was observed in all the contexts.However,there was a substantial change in the income in theurban context (77 per cent) as compared to rural and coastal areas(65 per cent).Nearly 55 per cent of the members of kalanjiams of more thanfive years old reported that their housing condition had improvedafter joining kalanjiam. There was a significant increase in theproportion of the kalanjiam members who obtained social se-curity attributed to the schemes offered through the kalanjiams.The results show that around 48 per cent kalanjiam members werecovered under life insurance schemes in the post kalanjiamsituation while the same figure was merely 4.29 per cent beforethe intervention of kalanjiam.Status of WomenEffect of the Kalanjiam programme on women’s empowermentwas explored in areas such as domestic violence, sharing thehousehold works by the husbands, assets in the name of women,decision-making ability, personal skills, women’s share in thefamily income, exposure to outside world, interaction withcommunity, leadership ability and women’s space in the publicspace. The study compared the status of the kalanjiam womenwith that of the control group. The study findings have provedthat the intervention of the Kalanjiam programme has empowereda considerable proportion of women and led to a change in thegendered roles at the household level. Nearly 31 per cent ofkalanjiam members stated that their husbands always shared thehousehold chores while the same was merely 10 per cent in caseof the control group. As much as 12 per cent of kalanjiam womenhad assets such as house, land and savings in the post-office,banks, etc, apart from the savings in the kalanjiams as against5 per cent in the control group. Significant percentage of thekalanjiam members were to make independent decisions regard-ing health and hospital visits (38 per cent), expenditure oneducation of children (18 per cent), purchase and sale of assets(15 per cent) and purchase of durable consumer goods (25 percent). In all these aspects the proportion for the respondents fromthecontrolgroup was low. Moreover, the proportion of thehouseholds where jointdecision-making was seen between thehusband and wife was also greater in case of kalanjiam membersthan the control group.More than 80 per cent of kalanjiam members expressed thatthey had developed skills to solve issues at family, kalanjiamand village/slum levels, after becoming member of the kalanjiams.There was a considerable change in the level of communicationand community organisation skills of the members. More than50 per cent of the kalanjiam members were observed to havedeveloped the skill of organising and conducting kalanjiammeetings. As much as 40 per cent of the members stated thatthey developed basic accounting skills such as verification ofgroup account books and reading and understanding audit reports,after becoming kalanjiam members. It is important to note herethat only 11 per cent of the respondents had educated beyondtenth standard.Women living in the rural areas lack exposure to outside world.The intervention of Kalanjiam programme was found to havemade significant change in this situation as 80 per cent of thekalanjiam members visited the bank regularly. As part of groupactivities the women regularly visit neighbouring villages andtown for the purpose of attending meetings and trainings, meetingthe government and bank officials, etc. Participation in theKalanjiam programme also meant that women’s involvement inpublic activities changed dramatically. Close to 38 per cent ofthe members interviewed reported that they regularly approachedthe panchayat office for specific issues and were able to get workdone. The same was only 20 per cent in case of control group.Around 49 per cent of the kalanjiam members were observedto participate in the village/slum development activities as against9 per cent respondents from the control group The public activitiesinclude improving schools through appointing school teachers,providing blackboards, getting drinking water facility and elec-tricity connection, tree plantation, etc.Changes in PerceptionsSince the SHG-bank linkage is the central part of the Kalanjiamprogramme, it is important to know how banks view the programme.Many of the bankers interviewed reported that the kalanjiamswere regular in repayment. They felt that the collective respon-sibility by the kalanjiam members for loan repayment was themajor reason for prompt repayment to the banks. Moreover, therewas a change in the earlier mindset of the poor that the bankloans would be subsidised or written off, and they ensured thatloans were repaid in time. Some bank managers responded thatadvances to the kalanjiams occupied a major share in his branch.Bankers also felt that the dependency of the poor families onlocal moneylenders had declined after kalanjiam intervention.The bankers felt that the kalanjiam women were increasinglybeing exposed to the outside world as they frequently movedout of their villages for work. The bankers also mentioned thatthe kalanjiam women could get public works done by consultinggovernment officers and panchayat presidents. This change inattitude on the part of the banks assumes importance, since thekey to the success of the SBL programme lies in the extent towhich banks understand its power and implications.VEmerging Challenges and Way ForwardThe experience of DHAN shows that the microfinanceprogramme has achieved some success in the field. However,there are several emerging challenges and new opportunities,
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