A Report on the Prospects and limitation of microfinance institutions in Indian farming sector

Submitted to:

Mr. Anup Singh (C.E.O.)

Sonata Finance Private Limited

1/1 A, Rai Bahadur Ram, Charan Das Road

Balrampur house, Allahabad (UP) -211002

Submitted by:

Vinay Kumar Mishra

MBA-Rural Development 3rd semester

Govind Ballabh Pant Social Science Institute, Allahabad

(A constituent Institute of University of Allahabad)

Contents

1
Topic name Page no.

Acknowledgement 3

Executive Summary 4

Introduction 5-6

Literature Review 7-12

Objective of the study 13

About the organization 14-19

Research methodology 20

Questioner used for survey 21-25

Findings 26-31

Case studies 32-33

Conclusion 34-35

Suggestions 36-37

Summary 38

Acknowledgement

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This evaluation study is a humble effort to understand the concept of Joint liability Group in
Micro Finance Institution. The study would not have been completes without the priceless
support of those involved in the study.

It was essentially programme to find Prospective and limitation of microfinance institution in

Indian farming sector. First, I would like to express my deepest gratitude to Mr.Anup Singh of
Sonata Finance Private Limited (Allahabad) for their continual involvement in our work. I
extend my highest indebtedness to Mr. Ashish Kumar Area manager. I am also thankful to other
staff member of Sonata Finance Private Limited for support whenever we needed it.

I would like to thanks Professor Pradeep Bhargava Director Govind Ballabh Pant Social Science
Institute, Allahabad for his motivational and guiding support during the period of summer
internship.

I also like to thank Dr.Sunit Singh Co-ordinatotar MBA (Rural Development), G.B.Pant Social
Science Institute Allahabad, whose valuable academic guidance and suggestions have always
been helpful to me during the internship period. I am grateful to Mrs. Rewa Singh for scheduling
our visit to Sonata Finance Private Limited.

My heartfelt thanks to all volunteers who gave their time and support in our endeavor to collect
information. Indeed, without their support tasks would not have been complete. In the Last but
not the least, I would like to thanks Mr. Ajay Singh Branch Manager (Phoolpur) who
accompanied me and provided Cooperation & necessary support in smoothly conduct of study.

Executive Summary

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Three out of four poor people live in rural areas, and the majority of rural inhabitants depend on
agriculture. Access to appropriate financial services is a critical factor for agricultural
development in the India Yet, due to the specific constraints that come with financing agriculture
(reaching isolated rural areas, working with highly seasonal activities, agro-climatic risks, price
variations, etc.) The financial sector seeks to increase impact on agricultural finance by adapting
microfinance “models” (cooperatives, village banks, self-help groups and solidarity guarantees)
to the specificities of agriculture, by developing innovative products and methodologies that help
reduce vulnerability of rural households improve the management of agricultural risks and
encourage agricultural investment.
Efficient financial systems are vital for the prosperity of community and nation as whole. To
ensure that poor people are included in the benefits of development, it is necessary that these vast
numbers have consistent access to financial services, access that can translate into a key element
of economic growth and poverty alleviation. My study tried to find Prospects and limitation of
Microfinance Institutions in Indian Farming sector. In our endeavor, we found that it has become
one of the most important tools for increased the production of crops. Microfinance Institution
provides the loan in every season during the year so farmers fulfill their requirement in right
time. Microfinance Institution is doing well for women empowerment. The element of
participation, Kinship and peer-group control over group proceedings were something that poor
always believed.

Introduction

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Microcredit is the extension of very small loans to the unemployed, to poor entrepreneurs and to
others livening in poverty who are not considered bankable. These individuals lack collateral,
steady employment and a verifiable credit history therefore cannot meet even the minimal
qualifications to gain access to traditional credit. Microcredit is a part of microfinance, which is
the provision of a wider range of financial services to the very poor.
The concept of sustainability has viewed from broader perspective and multiple dimensions.
These include eco-social and political Micro Enterprise with various sub-systems for balanced
development. Eradication of poverty is ultimate goal of sustainable ultimate goal of sustainable
development. Poverty stems from numbers of factors, which are region specific and linked to
socio-economic conditions and contextual dimensions. Strategy towards poverty incorporates
multiple initiatives that require a comprehensive framework encompassing physical, structural,
economic, social and political aspects. There is growing evidence across the globe regarding the
role of rural financial services for alleviation of food insecurity and poverty.
Joint liability Groups (JLG`s) based on “capitalization of honesty “has been defined as “small
and informal association of poor having preferably of similar socio-economic background and
who come together to realize some common goals based on principle of self- help and collective
responsibility”. JLG`s becomes relevant because of following reasons:
• A JLG`s working on the principle of solidarity helps the poor together to pool their
savings and access credit facilities.
• A JLG`s is important tool for empowering the women members.
The participation in JLG`s and access obtain to savings and credit can play a transformational
role for women, socially and economically. The continued participation in JLG`s is further
likely to enhance the awareness, skills and other abilities of women resulting in building of
individual self-esteem and in getting due social recognition .Essentially JLG is based on
unleashing the energy of its people and get them to perform. Sonata started out as a facilitating
agency for empowering poor rural communities by operating watershed projects. Sonata has
continued it is in member villages resulting in improvement of agriculture activities on marginal
lands and the reclamation of wastelands. Sonata quickly observed that savings and credit
programs held the greatest potential for improving the economic status of large number of rural
women and they made this their main program activity. Sonata now focused to provide
individual loan. Rural households that are partially or entirely reliant on agricultural income face
many risks. Climatic (drought, flooding, cyclones, etc.) and market risks (price instability,

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payment conditions at harvest time) are among those that render rural households particularly
vulnerable. They can be individual or covariant, i.e. they can effect an entire population in a
given zone simultaneously. Individual risks include unforeseen events (sickness, marriage, death,
travel) that compromise the proper functioning of agricultural operations or expose the
household to extraordinary expenses. For farmers, these kinds of incidents or accidents translate
into reduced harvests, cash flow difficulties, and loss of production tools, hunger or even famine.
Farmers and rural institutions in general have always sought out strategies to reduce these rises
to limit their negative effects on income. The strategies may be preventive, withdrawing children
from school, borrowing money formal or informal moneylenders. While these forms of risk
management can be effective in some situations, they are rarely effective when confronted with
covariant risks. This Study aims to better understanding of the vulnerability of rural households.
It will analyze the difficulties that come with setting up insurance systems and assess the
potential of existing agriculture insurance products to help improve the risk management of
southern farm

Literature Review

Microfinance: Microfinance services are financial services that poor people desire and are
willing to pay for, the term also refers to the practice of sustainably delivering those services.

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More broadly, it refers to a movement that envisions “a world in which many poor and near poor
house holds as possible has permanent access to an appropriate range of high quality financial
services, including not just credit but also savings, insurance, and fund transfers.”

1. How can microfinance services are better organize to respond to the specificities of
agriculture?

The growth of microfinance has emerged out of the failure of development financial institutions
and national commercial banks to sustainable meet the needs of poor rural populations in
developing Countries. Conventional banks have thus far proven unable to finance agriculture and
rural activities due to difficult Micro Enterprise environments where small transaction size
combined with insufficient institutional and physical infrastructure increase transaction costs.
While all microfinance institutions share the characteristic of small-scale transactions, their
organizational structures and level of formality widely vary: from mutuality models, saving and
credit cooperatives, Self-Help Groups and non-government organizations that have transformed
into formal financial institutions.
Each of these approaches has strengths and weaknesses in terms of targeting the poorest, offering
adequate products and covering operational costs. Hence, financial cooperatives and mutuality
Entities often federate to offer a wider range of services and reduce costs, for had better reach
more populations that are isolated. In light of such diversity, is it possible that one particular
institutional model is better adapted to financing agricultural activities than another? For
example, does the concentration of mutuality systems in agricultural contexts offer a key for
better understanding the specificities of financing? Agriculture and overcoming the difficulties
inherent to this sector, nevertheless is the institutional focus relevant? Isn’t it better to enlarge the
focus towards to the adopted approach (agro Micro Enterprise, faire trade, etc) or according to
developed interactions with others actors in agriculture (such as farmers organizations) as well as
according to financial products’ quality?

2. Respond to agricultural finance Needs through innovation:

Financing family farms and producer organizations involves many particularities: unreliable
harvests, low profitability of activities financed, climactic risks, epidemics and unstable selling

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conditions (“Imperfect” market conditions, price variations that depend on local economic agents
and international markets).
The financing required for agricultural activities is highly diversified in terms of amounts and
terms. Seasonality of activities and income flows makes financing even more difficult, since the
monetary income for reimbursement is irregular. This requires financial agents to adapt their
credit procedures to the agricultural calendar. Finally, assessing repayment capacity of a
borrower is often challenging, given lack of separation between the farm and household finances.
In light of these difficulties, the microfinance and agriculture sectors are innovating to better
respond to the specific needs of agriculture. This study seeks to demonstrate their creativity and
will address the potential for different forms of innovation to better-fit farmer’s needs, including
1. Products and procedures
2. Non-financial tools such as marketing, communication information systems, etc.

3. What agriculture-related non-financial services would increase the impact of

microfinance?
The profession of farming involves combining a variety of factors to produce one or more
outputs, and to add value to the resulting products. The economic result of this activity,
fundamental for the Farmer depends largely on his or her capacity to access simultaneously and
coherently these factors. These factors include such as technical expertise management capacity,
information and economic techniques. the physical, such as land, equipment and inputs; the
organizational such as mutual organizations to purchase, sell and manage equipment; and finally,
financial factors which are somewhat particular since they directly and/or indirectly effect access
to most of the other factors, and the access conditions to the other factors determine the financial
factors’ own effectiveness.
Indeed, access to finance is not enough to make these other factors both available in quantity and
quality and efficient. This observation raises the following questions: Must microfinance limit
itself to financing or should it consider non-financial services that are appropriate to enhance its
own effectiveness? What are the limitations and/or strengths of microfinance that justify the
choice?

4. What are the roles of professional agricultural organizations in microfinance?

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The gradual reduction of state intervention over the last twenty years has considerably
diminished support services for agriculture (input provision, commercialization, advisory,
financing, information, etc. Consequently, professional agricultural organizations (PAOs) have
emerged in force in most southern countries with a dual mission: to defend the interests of
agriculture and provide the support Services farmers need to develop and modernize their
operations. Access to adequate financial services continues to be a major problem for most
PAOs. The demand for such services is particularly complex as it is two fold: PAOs are not only
confronted with the financial needs of their members, but their own (financing input stocks,
working capital for commercialization activities, equipment, buildings, etc.).
Despite twenty years of “rural financial market” development, the agricultural sector in general
and agricultural organizations in particular has yet to integrate fully into these markets. How do
formal financial intermediaries currently assess this demand? Has the gradual consolidation of
rural microfinance finance institutions, the increasing interest of commercial banks in the rural
sector and the “rebirth” of development and solidarity banks created a new forum for
partnerships with PAOs?

5. What public policies can expand the role of Microfinance in agriculture?

This part will discuss the public policies necessary to developing efficient agricultural
microfinance.
Three aspects will be address.
1) Public policies that enables for the development of efficient financing for agriculture via
microfinance.
2) The role of national and international public authorities and funds in reducing interest rates on
agricultural loans, often poorly adapted to the real profitability of agricultural activities.
3) The role of government has changed considerably since the paradigm of financial
liberalization has emerged, accompanied by the growth of microfinance. Public authorities are
increasingly implementing programs designed to compensate for market failures in the name of
“financial inclusion”, by encourage private players namely microfinance institutions to broaden
outreach (rural areas, family farming, etc.).Sometimes, governments would like to go even
further, establishing direct or indirect public intermediaries. However, will this new generation

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of solidarity and agricultural development banks learn the lessons from the agricultural bank
failures of the 1970-80s?

6. Under what conditions is agricultural Microfinance financially viable?

Agricultural activities present many particularities: considerable volumes of financing,

seasonality that leads to cash flow problems, high production risks (due to climate) and sales
risks (due to unstable Price & markets). The risk of borrower default is particularly high. In
addition, financing agricultural activities engenders contextual constraints and costs: the
inaccessibility of rural areas, insufficient Infrastructure, low population density, etc. At the same
time, the low profitability of agricultural activities makes it difficult for financial institutions to
apply sustainable interest rates that cover costs and moderate the high risks of agricultural
lending. Yet interest rates should not be a burden to micro-entrepreneurs nor wear away profit
margins excessively. The microfinance sector’s emphasis on sustainability challenges
agricultural finance providers to adopt strategies that will ensure financial viability, so as not to
pollute the financial sector with inefficient institutions. This study will analyze the conditions
necessary for microfinance institutions financing agriculture to achieve sustainability.
Participants will present and analyze the strategies used to confront the various risks discussed.
The different forms of financing adopted by “agricultural” microfinance institutions will be
assess.

7. Institutions moving into rural finance for Agriculture:

Microfinance institutions (MFIs) have tended to avoid less densely populated or diversified rural
areas, and financing of seasonal or long enter crop and livestock activities. However, a few
innovative MFIs have recently led the way in adapting their operations and products expand into
agricultural lending. Techniques used have included tailoring procedures and products to
agricultural seasonal needs, applying risk management techniques & adopting new technologies.

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Successful MFIs have important strengths, such as financial sustainability, excellent portfolio
quality, financial products that fit diverse client needs, and a clear commitment and orientation to
the poor. Prudent risk management techniques can increase the outreach of MFIs to less affluent,
more remote rural areas and more diversified farmers. Rural financial services have benefited
significantly from treating the rural household as a unit with diverse activities and sources of
income and financing, instead of maintaining a narrow focus on agricultural credit. However,
financing for agriculture still tends to fall outside the scope of the mainstream microfinance
industry. Rural areas that are not densely populated, or that are dependent on a few principal crop
and livestock activities, tend to be avoiding by MFIs, because of higher transaction costs, price
and yield risks, seasonality, and collateral limitations in the agricultural sector. Conventional
microcredit relies heavily on short-term loans with frequent, regular repayments, which does not
fit well with seasonal crop production or livestock production.

Objective of the study

Project Title: Launching Individual loans to the Indian farming sector by Microfinance
Institutions: Prospects and limitations

About the study: The study explores the viability of individual loans in the farming sector
advanced to member of a joint liability Group created by MFIs for non-farm Income Generation
activities. The study find that Individual loans in the farming sector could be viable if (a)

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members of JLG complete at least 4 cycles of repayment, (b) the income generated from non-
farm activities is regular and increasing; and (c) there are other sources of Income Such as
NREGA. The studies also find that a successful JLG could consider for joint loans in the farming
sector.

About the organization

Sonata Finance Private Limited:

SONATA Finance Private Ltd (Sonata) is a microfinance company registered as an NBFC under
Reserve Bank of India Section 45 IA. Sonata began microfinance operations in January 2006
with its head office at Allahabad, Uttar Pradesh. In the month of August 2007, it acquired the

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microfinance portfolio of Jeevika Livelihoods Support Organization based at Jabalpur in M.P.
establishing its outreach to two major states in Central India.

Vision: The vision of Sonata is “to help build a society that contains an opportunity to develop
the minimal socio-economic conditions needed to live a life of dignity.” To work towards this
vision, the three main goals of Sonata are:

• Providing financial resources to enable poor women to come out of poverty and
connected with formal financial institutions.
• Providing returns to its investors to make it an attractive investment opportunity.
• Sonata offers income generation and emergency loan products complimented with loan
linked insurance.

Sonata Over view:

Particulars Urban Rural Total

Branches (Nos.) 14 16 30

Loan Clients (Nos.) 30,137 41,961 72,098

Amount Loan Outstanding (INR Cr) 17.4 24.6 42.0

Portfolio At Risk (%) 1.39 0.13 0.72

Product of Sonata: Sonata offers credit products with linked life insurance for the period of
loan. The average loan sizes of clients in different cycle of loan are available in the table below:

Loan cycle Amount of Installments (Rs.) Loan amount (Rs.) No. of terms

L1 200 8500 50

L2 250 10500 50

L3 300 12700 50

L4 350 14900 50

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Induction and Training Programme: A two days Induction and Training programme held to
welcome the new employees of Sonata Family. A two days Orientation and Training programme
was conduct for the promoted field staff.

Path of Group Formation

Group Structure: There are 10 to 20 members in every group from them on member chosen as
group Pradhan

Pradhan- Pradhan of the group is the one who keeps the records of the group. The Pradhan is
the best owed with the responsibility of collecting the money from the Group members and
depositing it in the Branch of Sonata in Phoolpur or Deposited in the favor of Sonata Finance
Private limited Phoolpur. The Pradhan of the group changes after definite period.

Members- The other members of the group are actively involved in the working of the group.
They work in cohesion and repay the loan installments on time. It could be necessary for
members to attain the weekly meeting by which Staff member of company decide for their next
Loan.

Business Development Activist:

Main work of Business Development Activist (BDA) is group forming and providing basic
education to newly formed group so that they may able to do their signature and gives one week
training to the newly formed group. Before forming groups, he uses to conduct 3-4 meeting with
different communities and trying to find group having same economic background. After finding
his desired group, he tells to B.E. (Business Executive), Unit manager and Branch Manager also
conduct a meeting with the group. After approval of branch manager, the group selected as JLG.

Business Executive:

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Business Executive (B.E.) is the backbone of organization. His professional as well as personal
activities in the field reflects image of organization. Major works of Business Executives are as
follows-

• Loan recovery
• Create a peer pressure group by which the group members will be able to return their loan in
time
• Trying to complete the target set by company
• Conduct weekly meeting of Center.
• Pass out the Group for Loan on the basis of their socio economic condition and their past
record of financial activities after BDA Completed their task

Cashier: The role of cashier is collect the Installment of loan whoever come in Branch office
and provide them receipt. Some times on the absence of many B.E., he also goes in field and
conduct the meeting.

Unit Manager: Unit manager is the head of Branch Unit. He can manage all the activities under
unit. He can plan with manager for extension of unit. He can responsible person for recovery of
loan under their unit.

Branch Manager: Branch manager is the head of Branch. He can manage all the activities under
Branch .Works of Branch manager are as follows-

• To appraise the performance of the Branch staff in a timely and fair manner and ensure
safekeeping of the filled Appraisal forms and ensure the punctuality and regular attendance
of the staff
• To sanction staff leave and ensure proper maintenance of leave/ service /contract records of
each employee
• To ensure that the Branch programmes are plan as per the Association’s Strategic Plan.
• To supervise all the Projects implemented by the Branch.
• To ensure that the Accounts Officer is maintaining proper books of accounts like daily
verification of cash in hand, daily entry of cash & bank vouchers, Bank Reconciliation
statements, accounting of Receipts / Payments correctly.
• To prepare the Annual Programme and Budget (APB) and Annual Report of the Branch with
the help of the Accountant and concerned unit heads, supported by the volunteers.

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Area Manager:

• To ensure all Audits take place smoothly and all statutory requirements by law applicable to
the branch met appropriately, wherever applicable.
• To ensure timely submission of various periodical reports, highlights of the previous months
reports.
• To prepare Project Proposals and submitted to the Head office, to help in the implementation
of special Projects sanctioned to the Branch.

Pilot testing on individual Loan Product:

Sonata, since its inception has been offering single product of "group loan". Eventually, the need
felt to offer a product to the client, which was the demand of need and time. Sonata partnered
with Micro save to pilot test their "Individual Loan Product" from Allahabad, in order to test the
feasibility. The pilot test would be commencing from 1st December’2008.

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 Research Methodology

The survey was conduct through random sampling and chose locations. These locations had
more than 150 Center. We selected thirty Center based on random sampling and then five
members from each group again based on random sampling. The questionnaire was design in the
English language. The aim of the study was to examine patterns of change over time in several
domains of impact. These include:

1. Livelihood base-income earning sources, work assets and conditions, livelihood practices and
Agriculture Sector.
2. Savings and Debt positions, debt levels, house holds savings levels, use of microfinance
loans.

Tools for Primary Data collection: The tool for Data collection was the questionnaire.
Questionnaires were prepared to capture socio-economic profile of the members, to find patterns
of loans taken from the group, asset created and their level of information about schools,
Knowledge about MFI, Banks etc. The Questionnaire had questions were close ended. The
schedules were conducted one-by-one in the sample area.
• Semi structured interview
• Transect walk with community and staff members of organization
• Prepare a Questioner with 6 helpers
• Study based on Birds and warms eye view
• Use the PRA/PLA Tools
• Use the techniques of Rapport Buildings

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 Questioner used for survey

Impact assessment of Group (Sonata Finance Private Limited) in Phoolpur Branch

districts of Allahabad

1. General details of respondent:

Name of Client-

Father’s name /Husband name-

Village Name-

District Name-

State Name-
Age
Educational status-

(a) literate (b) Illiterate

If Educate then: (a) Primary

(b) Metric(c) High school

(d) Intermediate (e) Technical

(f) Graduate (g) Postgraduate

Sex : (a )Male (b)Female

2. Demographics:
Religion-
Caste : ST / SC / OBC / General /Other

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 Marital Status -Unmarried /Married /Widow
/Divorced
Physical Disability : Yes / No

(3) Family Details of the Client:

Name of the family Head -

Total member in family -

Type of Family - Joint / Nuclear / Single

Total members in a family -

No of earning member

(4) Livelihood base:

Size of Land holdings :

(Acres/Bisswa/ Hectare/ Square feet/Bigha)

Type of Land (i) Fertile (ii) Non fertile iii) Waste

(iv) Dry (v) Some land fertile and some not fertile

Do you come under the BPL Family (a)Yes /(b) No

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 Annual income from all sources :

(5) Give details about assets position:

Assets position Pre(sonata finance Post(sonata finance

private limited) private limited)

No. of Cow
No. of buffaloes
No. of Goats

No. of sheep
No. of poultry

No. of work animals

No. of Consumer

durables like Stove

No. of Sewing machines

No. of Bicycle

No. of TV

No. of Transistor

No. of Watch

(6)Give details about assets creation Post MFI:

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 (i) Domestic assets (House, pumps, televisions, cycles and radios)--
Increase/Decrease/No change

(ii) Productive assets (Land, Shop, animal, Rickshaw, Tractor etc)--

Increase/Decrease/No change

(7) Occupation of Group members:

Sources of income :
(i)Agriculture (ii) Micro Enterprise(small scale Business)(iii) Dairy (iv)
Poultry(v)Others (vi) Daily labor
Have you received the training from MFI for the activity
chosen? (Yes/No)
Has your monthly net income increased after taken loan under MFI?
(Yes/No)
If yes then specify the pattern of increase in income
(i) less than Rs.250(ii) Between Rs.250 to 500
(iii)Between Rs.500 to 1500 (iv) More than Rs.1500
Do you think that the employment opportunities For your family has been
increased Post Sonata Finance Private Limited?(Yes/No)
If no then Reason:
(a) Lack of financial assistance from their groups
(b) Lack of proper awareness
(c) If others (than please specify)
Are you involved in some kind of Micro Enterprise activities?
(Yes/No)
If yes than please give the following details :Name of your
Micro Enterprise
Micro Enterprise Establishment year

Total Income from Your Micro Enterprise (Yearly)

Timing of Micro Enterprise

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 Name of product that you product Market Place
How many Person involve in your Micro Enterprise

(8) Impact assessment of on Social condition of the members:

22
What do you think about the effectiveness of Loan under SONATA (i)
Useful(in terms of improvement in your Social status)
(ii)Useful (for start new Micro-Enterprises/IGAs and up gradation of pursuing
I.L.)
Increase Self confidence (Post –Sonata Finance Private Limited)
(Yes-1, No-2)
How is the treatment the family members to The respondent?
(Usual -1, more respectful-2)
How many officials She communicate in the meetings
(Freely talk-1,sometimes talk-2,Talk only if asked-3 ,does not talk-4)

Awareness of Anganwadi
Where is School?
Up to which standard
Do you attend GS meeting?
Have you fought election?
Where is bank?
Heard about NREGA
Wage rate of NREGA
Where is PHC?
Knowledge about JSY

Findings

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1. Average age: The average age among the sampled women members is 30 years. 2. Marital
status: for the sampled respondents' represents 90 percent married, widows were 8 percent and
Unmarried were 2 percent.

3. Education, literacy, and Skills: Sampled results points literacy rate as merely 35 percent
.Only 4 women out of sampled members had passed Graduation, 20 was Intermediate, 30 were
passed out high school and in which 3 of them are teacher in private school.

4. Livelihood base: Agriculture is the mainstay of their livelihood for nearly seventy percent of
our population so with the respondents. When farmers of the country as a whole are suffering
due to one reason or other how can poorest of the poor respondents left. Lack of Education
combined with low productivity and because of dry-land region and small size of land; they are
living in very position of destitution. As such apart from little produce taken from their field,
they move to relatively developed regions. Livestock are poor in terms of milk capacity.

5. Annual income: Average annual income of the respondent is 30,000. This figure may
overstate, as we have put our assumption based on their response.

6. Average size of family: With average, size of family approximately seven

7. Per-capita income comes: The per-capita income comes out to be near 31thousand yearly.

8. Land Size: The land size of the farmers having less than four hectares (10beegha) of land are
not financially viable, if they depend wholly on income from the land. Thus 90 percent of
farmers in India are not financially viable. This region being dry-land region combined with
average size of land holding of our sample four and half, population represent core poor section
of society.

9.Occupation of members: On the basis of questioner it was found that 15%Clients involve in
Agriculture sector ,25%clients whose have his own micro enterprises, 30% Clients belongs to
dairy activity, 5%Clients belong to Poultry Farming,15%Clients work as daily labor and
10%Clients involve in other type of activities.

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10. Occupation of Respondent and their monthly Income: Based on questioner it found that
more than 50 percent people from Daily Labor have their monthly income between 1500-2500.
On the other hand the respondents have their own Micro Enterprise, have maximum number of
people with monthly income more than Rs.3500

Table showing occupation of Respondent and its monthly income

Calculated monthly income of the

family

1500- 2500- 3500- Above

2500 3500 5000 5000 Total
Occupation Daily labour 16 7 4 3 30
59.3% 43.8% 30.8% 25.0% 44.1%
Company worker 1 1 1 0 3
3.7% 6.3% 7.7% .0% 4.4%
Small scale bussiness 9 8 8 8 33
33.3% 50.0% 61.5% 66.7% 48.5%
Unemployed 1 0 0 1 2
3.7% .0% .0% 8.3% 2.9%
Total 27 16 13 12 68
100% 100% 100% 100% 100%

11. Respondent heard about MFI: This is good that 81% respondents have heard about MFI.
However, a majority thinks that it is only a group of women. There are also groups of respondent
who think MFI can avail loan.

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12. Membership terms: 30 percent, had less than one-year term, 28 percent had membership of
more than one year and less than two years, and 26 percent had membership of more two year
and less than three years while 16percent had membership of more than three years.

13. Present Need for Credit: Credit is also an essential need. The 35% respondents said they
need credit to expand an existing Micro Enterprise, while the 65% need it to start a new one. The
reason is palpable, Avalahali has good scope for Micro Enterprise and therefore most of the
people want to do their own Micro Enterprise, rather than to work at other places as daily
laborers. Maximum number of respondent thinks that the Micro Enterprise of cloth or general
store is profitable. We noticed in our field visits that all the markets we visited had had
maximum number of cloth shops. The general stores have items of the daily uses. Therefore, this
is also a good option. Besides these two, we have different type of views from the respondent.

14. Activities: The members of JLG of Sonata Finance belong to the poor sections of the society.
Earlier, they had no source of income generation but after joining the Sonata JLG their quality of
life has greatly improved. The group takes loan from Sonata Microfinance on regular intervals to
invest it into their microenterprises. The group members have invested the loan given by the Co.
in the following activities-buffalo purchasing, vegetable selling, “pan shop”, bangles trading,
general store,” rickshaw purchasing”, tea shop, sweets shop, PCO centre, book binding shop etc.

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15. Timeline of Activities: Meeting of group members with B.E. is scheduled every weak not
Sunday and time for meeting is deciding by group and collection of loan installments have done
by Pradhan at one day before of meeting.

16. Culture of Group: The group works on the concept of joint liability group which means that
if a client of a group is not able to repay his/her installment due to some reason in time then it
would be the liability of the other members of the group to repay his/her installment. The group
has positive attitude towards their group and organization.

17. Leadership Style: The joint liability group of Sonata microfinance at every Center is much
strong, women having same economic background. There are 10 to 20 members in-group
including Pradhan of the group. Center Pradhan has excellent team leadership style as seldom
any disputes occur within the group ever since its formation.

18. Women’s Role in Group: Group member’s (all women) have mutual understanding and
they work on joint liability Concept. The women in the group take active participation in the
group meetings and hence it can be say that their role in the organization is paramount. The
women fulfill the criteria of basic education.

19. Achievements of the Branch: The Branch has been running successfully since its inception.
Achievements of Branch are as follows-

• The members can now fulfill their basic requirements of food, clothing and shelter
• Mutual understanding among the group
• Reduction of social disparities
• Women empowerment is a major achievement. The group members feel that they have
earned prestige in the society and importance in their homes after joining the group
• Women empowerment
• Promoting income generation activities with the help of Sonata Microfinance
• Many women members have been given basic education and use their signature instead
of thumb impressions

20. Strengths of the Group:

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 • Their joint liability among group members
• Cooperation between members

21. Weakness and Constraints: According to the Group members, the biggest weakness as well
as the constraint of this program is its system of weekly payment of loan installments.

22. Opportunities: If group members complete their four cycles of loan then they can take
individual loans up to Rs.40, 000. This would give them an opportunity to set up their own
enterprises and develop entrepreneurial skills existing among the group members and their
families.

Case studies

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Case study: 1

A client name Usha her age is 21. One year ago She did marry .She joined the group 6 months
ago and taken Rs8600 loan from sonata, and bought a cow. She repays her 20 Installments at
time but one month before, she is quarrel with her husband for some daily work. She returned to
her father house. Usha husband went to his father in laws house so many times and says for
returning then she was not ready for come back so her husband was very disappointed. One day
on the time of Meeting day he come in meeting and told his problem to business executive and
Group members then the B.E. suggested a way i.e. if all the members of group will go to meet
with Usha and try to compromise between them then definitely she will return back . Finally, her
Husband arranged a vehicle and all the group members went together then by the help of
community pressure and Peer pressure group, she was ready for Return back to her Husband
house. Present time they are living together and enjoy their marriage life and them thanks to
Sonata bank for their kindly support.

Case study: 2

A client name Sangita her age is 32. She joined the group 2 years ago. In that period, she was a
bidi maker and find order and raw material through mediator. She was doing work hole day but
earn only Rs 50 to 60 In that period so she decided to take contact her self for which she taken
loan from Sonata and taken order herself and make a team for completing the assigned task
.Now She completed her four loan cycle and present time she earn Rs.150 to 200 Daily. Present
time she is owner of her own enterprise and under her six women is doing work, and earns
money Rs.70to80 daily. Now she is eligible for Individual loan and He want to open whole
supplier shop in Phoolpur Market.

Case Study: 3

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A client name Vimala her age is 19. She and her husband were lazy .They were totally depend on
their father and mother .Vimala and her husband were not doing any work on that time.5 month
ago Vimala father in-law and mother in-law were die. She and her Husband was surrounded by
many economical problem then 3 month ago, She joined the group and take loan Rs.8600 from
Sonata and bought a buffalo and Vimala was stating the selling the milk to dairy man and earn
money but she was not find much money to repay the weekly installment of loan. The B.E of
Sonata provided knowledge to her husband and told them about NREGS wage rate and work.
Vimala Husband applied for job card and applies for job within 15 days he fined job in his
village and start to doing work. Present time he is doing work under NREGS and repay their
installment in time. Now Vimala and her husband are very happy.

Case Study: 4

I want to describe process of a Sonata death claim by a case study -A client name Sangeeta 27
year old woman and her husband name Ashok Kumar Yadav 30 year old lived In Ishipur
(Malava khurd) village. They had one son name shivam, 10year old and one daughter name
Shaloo 12 year old. Sangeeta become a member of group and take loan from Sonata. One day
(20/06/09) night she and her husband were sleeping, in mid night, Sangeeta realize any thieve
has entered in her house. She walkup and search out Chimany(small lamp) for light but oil was
poured and fire has been catch her clothes so she would burning, her husband come and try to
save him but fire has also catch him and Ashok would also burning and both were die. However,
till now (20th july2009) death claim could not find her family. Above case, reflect negative image
of company so it would be require more focus and try to reduce these types of problems.

Conclusion

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From this study, we can conclude that an overall development in their regions by the
organizations like Sonata Microfinance is working to bring about a sustainable uplift in the
income of the rural population. Public investments can help microfinance providers meet the
challenges of financing for agriculture. These require adaptations to conventional financial
products and delivery mechanisms, including the following:

1. Matching disbursements and repayment to agricultural production cycles: Flexibility in

loan Disbursement and repayment needed, with finance made available when farmers need it and
repayments matching income from produce sales.

2.Flexibility in collateral requirements: Land may hold little value as collateral, as land-use
rights may be difficult to prove, clients may not own land, land markets may be weak, or cost of
registering land as collateral may be high.

3. Investments in rural finance for agriculture: Livestock, personal guarantors, land without a
title, household items, and Micro Enterprise equipment. Since women may be disadvantage.

4. Using technology: Technological innovations can increase operational efficiency and lower
costs of operating in rural areas, while improving financial services available to rural clients.
ATMs, point-of-sale machines, and smart/debit cards provide flexible payment options are more
convenient to client accounts.

5. Flexible delivery mechanisms: This Mechanisms also holds potential for rural women whose
opportunity cost of Engaging in financial transactions, due to time constraints, not only involves
lost income but also internal household substitutions (for example, child labor for female labor).

6. Risk management techniques: principal factor discouraging MFI lending to small farmers is
the systemic risk inherent in much smallholder agriculture. Most MFIs that have successfully
moved into agricultural lending have used a diversification strategy to reduce lending risk, both
in their portfolio and at the household level.

7.Policy environment: Expansion by sustainable microfinance providers into financing for

agriculture will ultimately be limited by underlying constraints arising from poor infrastructure,
high-risk or low-return agriculture, deficient client information, poorly functioning property
registries and markets, and policy biases/distortions

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8. Services for the poor: Even those MFIs that have successfully expanded into financing for
agriculture have mostly been limited to farmers with diversified household incomes in less-
remote areas.

9. Investments in rural finance for agriculture: Risk management strategy although effective,
it has a clear drawback, from a poverty reduction.

10. Term finance: Term finance is more costly and risky than short-term finance, since it ties up
larger amounts of money for longer periods, and requires the mobilization of long-term funding.
It requires screening that is more careful and selection of borrowers, increasing transaction costs.

11. Liquidity management: Disbursement in several installments over a cropping period,

repayments at harvest, and a lean time characterized by repeated requirements for cash, all
present a liquidity management challenge to providers.

Suggestions

➢ It would be require a big meeting or seminar of star clients. This type of meeting would
hold three times in a year in which 20 clients would call from every Branch for
participate in seminar.

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➢ If a magazine would be, publish based on their interview in which details of client like
their socio economic background would be mention in the magazine.
➢ The success story of star clients would be mention in magazine
➢ A power point presentation would be show in seminar by which the unknown client
would be aware and much emphasis towards Sonata.
➢ Meeting and Magazines would reflect the strength of the organization as grassroots level.
➢ The present life insurance structure has very weak because so many death claims has in
Pending.
➢ If we compare Insurance Sector of Sonata with other MFIs then it would find that Sonata
does not provide any Emergency support to client family on the death time.
➢ If we sea the death claim of other MFIs like Grameen Koota and S.K.S then These MFIs
they don`t take the remaining Installments and also provide Rs.1000 on that day and try
to effort as soon as possible for return the Amount of death claim.
➢ The Company should try to increase the time limit of the repayment of loans.
➢ Principal lessons learned for supporting MFIs to move into agricultural finance are;
limiting the length of loans to agricultural smallholders. However, this can result in a lack
of term finance important to agriculture, for such investments as tree crops, erosion
control, some livestock activities, and equipment and machinery.
➢ Testing a new rural market before investing in a branch office, this reduces the risks
involved in expanding rural finance outreach. Rural branches are set up only if the
portfolio size merits the investment in infrastructure and human capital.
➢ Flexible disbursement and repayment schedules are the method to successful agricultural
lending, although they may increase default risk and present liquidity management
challenges.
➢ It can also restrict access to financial services for farm households dependent on
agriculture. Nonfinancial interventions to improve market access and infrastructure may
make these clients more attractive in the longer term.
➢ Technology can help lower costs and expand rural finance operations, but a careful cost
benefit analysis should first be conducted, and the MFI’s management information
system (MIS) may first need to be upgraded.
➢ The conditions needed to create a more efficient and effective overall environment for
farmers that will permit the optimal use of microfinance.

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 Summary

Increased MFI activity is more difficult in rural areas and in financing agriculture, results in
increased competition, higher volumes of finance, and a wider range of financial services
available to farmers and their households. The rapid growth of the agriculture portfolio of MFIs
suggests that there was significant unmet demand for financing for agriculture. MFIs can offer
credit not just for agriculture but also for nonfarm, household, and emergency needs, as well as
savings and transfer payment services (if they are appropriately licensed). Increased competition
between financial service providers operating in rural areas (such as product-market credit

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providers, moneylenders, and credit unions) can lead to more favorable and transparent terms of
access for the poor. Good practice MFIs can also bring a commitment to efficiency, transparency
in reporting, high portfolio quality, and sustainability

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