IIM Ahmedabad FII Project Submission

MICROFINANCE IN
BIHAR

Achal Jain

Farman Memon

Nilay Bang

Shobhit Shubhankar
Table of Contents
1. Introduction ................................................................................................................ 3
2. Credit Hotspots ........................................................................................................... 4
Bihar: An Overview ....................................................................................................................... 4
a) Secondary Research Based ................................................................................................. 5
b) MFI-Based Approach........................................................................................................... 5
Client Outreach .......................................................................................................................... 6
Analysing MFI’s current Operations in Bihar ............................................................................... 9
c) Indirect Approach ............................................................................................................. 12
Introduction of Additional Variables ......................................................................................... 13
3. Heat Maps ...................................................................................................................... 15
i) Percentage agricultural labour district-wise ......................................................................... 15
ii) Literacy Rate District-wise ................................................................................................ 15
iii) Gender Gap in Literacy Rate ............................................................................................. 16
iv) Percentage of households availing bank services ............................................................. 16
v) Percentage households availability of latrine facility ........................................................ 17
vi) Total disbursements district-wise.................................................................................... 17
vii) SHG District-wise .............................................................................................................. 18
4. Share of Bihar in the Eastern Region Portfolio ............................................................... 19
5. Growth in Credit Portfolio .............................................................................................. 21
MFIs ............................................................................................................................................ 23
i) Financial Inclusion Plan...................................................................................................... 24
ii) The Committee on Medium-Term Path on Financial Inclusion ........................................ 24
iii) MUDRA .......................................................................................................................... 24
Recent Trends ............................................................................................................................. 25
6. Customer Profiles ........................................................................................................... 28
Customer 1 .................................................................................................................................. 28
Customer 2 .................................................................................................................................. 29
Customer 3 .................................................................................................................................. 30
7. Customised Loan Products ............................................................................................. 31
8. Conclusion ...................................................................................................................... 33
9. References ...................................................................................................................... 34
10. Appendix ...................................................................................................................... 35

2
1. Introduction
Micro finance is has hence hailed as an important instrument of poverty alleviation across the
globe. Jeevika, a collaborative effort by World Bank and Government of Bihar to enable
financial inclusion to the needy and inaccessible population. With the help of women Self-help
Groups (SHG’s), it aims to infuse credit at the bottom of the pyramid, supporting livelihood
generation, utilities and other needs, in a run-up to the larger goal of poverty alleviation.

Instilling and maintaining discipline among the users is one of the key principle which the
model builds upon. Beginning with aiding in group formation, Jeevika aims towards achieving
an independent self-functional SHG in an ideal state. The credit obtained is the name of SHG,
and the group is the primary decision making body for decisions on borrower, amount of
borrowing and the repayment terms. With external help to begin with, the group evolves by
learning to manage disbursal and receipt accounts, leveraging the powerful social capital.
Empowering the groups end-to-end across the entire value chain ensures optimal allocation of
resources where there are needed the most, and where they can create the most impact.

With the model achieving enthralling success across decades, positively impacting numerous
families, it has a great potential to be replicated in regions where there’s a significant credit
requirement. A large number of MFI’s have thrived in the last decades, and have been proactive
in establishing their foothold across the remotest of the remote regions. Identifying
microfinance hotspots, can give us a sense of understanding credit sweet spots. In such regions,
there not only lies a high credit demand, but a possibility of transforming lives via people
friendly initiatives like Jeevika. The intent here is to provide an additional choice of credit
medium for the populations, and enable them to make the right choice.

Additionally, understanding the point of view of the borrower gives us valuable insights about
benefits derived and sought, and also understanding pain points in the current process. An on-
ground field visit helped us in understanding the various sources of credit for an average rule
household, and the criteria of evaluation for the same. Moreover, it also helped in
understanding the various credit needs for households and how access to it could positively
transform their lives.
The report begins with a deep dive into identifying the regions with high MFI activity,
based on secondary research coupled with statistical analysis. This is followed by an

3
exploration into the various credit needs of prospective users, and their through process for
evaluation. The report ends with providing an overview of a few borrower profiles (use-cases),
and a discussion on the future outlook for the system.

2. Credit Hotspots
Bihar: An Overview

Bihar is a landlocked state situated in the eastern most part of the north Indian politico-
geographical zone. The state is the 12th largest in terms of geographical size (94,163 sq. km)
and 3rd largest by population (103.8 crore) in the country. It has the highest population density
of any large state in India, with only the Delhi National Capital Territory and a few union
territories exhibiting higher population densities.

The state remains one of the poorest states in the country since independence. The GDP per
capita for Bihar is ₹63,200, the second lowest in the country after Manipur. The state is also
predominantly rural. 88.7% of the population of the state lives in rural areas, which is the
highest in the country. Therein lies the crux of the issue.

Bihar: A Financial Overview

Socio-Economic Profile Bihar India

Population 103 million 1.15 billion

Poverty ratio 42.56% 37.2%

Overall literacy rate 47.50% 65.20%

SC population 15.70% 16.20%

ST population 0.90% 8.20%

Avg. land holding 0.75 ha 1.57 ha

Human development index 0.367 0.472

Infrastructure development index 91.31 100

In order to identify the regions with high credit appetite, we have adopted a 3-step approach to
understand the same.

4
 a) Secondary Research Based

We have attempted to identify and get access to prominent databases and reports by credible
sources to gain information on the credit demand in Bihar. We have browsed through the
preview of a few prominent databases in this field, like IFMR Lead, MIX Market, BiharStat,
MFIN, CRIF to name a few, that could provide us regional level data on MFIs, financial
inclusion and analytics. We have successfully convinced Vikram Sarabhai Library to
obtain subscriptions to these databases, as well as a few other valuable reports and data
sources. The data from these resources will be available to the team as well as to Jeevika as
soon as the office completes the process of formal subscription.

b) MFI-Based Approach

MFIs currently operate in 29 States, 4 Union Territories and 588 districts in India. The reported
166 MFIs with a branch network of 12,221 employees have reached out to an all-time high of
39 million clients with an outstanding loan portfolio of `63,853 crore. This includes a managed
portfolio of `16,914 crore. Out of managed portfolio, BC portfolio accounts for `7,984 crore.
The average loan outstanding per borrower stood at `11,425 and 94% of loans were used for
income generation purposes

Below table shows the number of MFIs operating in each state, their total number of branches
in the state and the number of districts with microfinance operations. 25 MFIs with a large
outreach and portfolio have operations in more than five states, out of which five leading MFIs
are operating in more than fifteen states.

5
Table 1: Number of MFIs in Indian States/UTs and Number of Districts with MFI Operation

Client Outreach

The total number of clients served by MFIs stood at 399 lakh as on 31 March, 2016. Client
outreach of MFIs had grown substantially from 2005 to 2011, reaching a level of 317 lakh.
This trend slowed down during 2012 and 2013 and the number of clients slumped to 275 lakh.
The trend reversed in 2014 with a growth and reached a level of 330 lakhs. This trend continues
in 2016 with a huge rise in clients/borrowers to an all time high of 399 lakh. Majority of these
clients are being served by NBFC-MFIs (84.94%), primarily the larger ones. MFIs with
outstanding portfolio above `500 crore are responsible for reaching out to 85.41% of the clients
in the industry.

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Table 2: Outreach (in lakh) of MFIs across States/UTs – 2015 & 2016 (decreasing order)

As can be seen from the table that the outreach of MFIs in Bihar has not grown over the last 2
years. While states like Karnataka has a much wider reach, it is also growing at a much faster
pace than Bihar.

We also decided to break the borrowers down on the basis of gender and caste. 97% of the
borrowers are women, as expected. The overall SC/ST borrowers are 30% of the total. Bihar

is at 5th position among all the states in terms of the loan outstanding.

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Table 3: Loan Portfolio Outstanding Across States/UTs – 2015 & 2016 (Deceasing Order)

We tried to estimate the potential microfinance clients in Bihar using 2011 census data.
Estimate of No. of Poor Households in Bihar (2011)

Population of Bihar in 2011* 103 million

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Total no of Households** 20.61 million

Number of Rural Households (89.54% of total) 18.46 million

Number of Urban Households (10.46% of total) 2.15 million

Number of Rural BPL Households (42.1% of rural population)*** 7.76 million

Urban BPL Households (34.6% of urban population)**** 7,46,167

Total BPL Households 8.50 million

*Assumed annual growth rate of 1.63% p.a. during 2001-11 as per national average for India 1991-
2001, All India census data 2011.

** Assuming five people per Households.

*** Rural poverty ratio in rural Bihar is 42.1% for 2004-05 (Source: CSO, NSSO Survey Reports)

**** Rural poverty ratio in urban Bihar is 34.6% for 2004-05 (Source: CSO, NSSO Survey Reports)

Analysing MFI’s current Operations in Bihar

There are a total of 34 MFI operating in Bihar -

Annapurna Microfinance, Arohan, ASA International, Basix, BMC, Cashpor, CDoT, CPSL,
Dhosa, ESAF, Intrepid Finance, Jagaran, Janalakshmi, KDS, Margdarshak, Mass Care, NBJK,
NEED, Prayas Jac, Saija, Sarala, Satin Creditcare, Seba Rahara, SKS, SMGBK, SVCL,
Ujjivan, Utkrash, Uttrayan, Vedika, Village Fin, Sonata, AML, SML

DISTRICT MFI

ARARIA 4

ARWAL 2

AURANGABAD 6

BANKA 4

BEGUSARAI 8

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BHAGALPUR 7

BHOJPUR 10

BUXAR 8

DARBHANGA 9

EAST CHAMPARAN 9

GAYA 11

GOPALANJ 7

JAMUI 2

JEHANABAD 5

KAIMUR 5

KATIHAR 9

KHAGARIA 7

KISHANGANJ 7

LAKHISARAI 3

MADHEPURA 2

MADHUBANI 2

MUNGER 3

MUZAFFARPUR 3

NALANDA 11

NAWADA 8

PATNA 16

PURNIA 9

ROHTAS 8

SAHARSA 2

SAMASTIPUR 12

SARAN 10

SHEIKHPURA 1

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 SHEOHAR 1

SITAMARHI 2

SIWAN 6

SUPAUL 1

VAISHALI 15

WEST CHAMPARAN 4

Clearly, the districts with maximum number of MFI will have the maximum demand. Patna,
Vaishali, Gaya, Saran, Samastipur, Nalanda, Gaya are the districts with more than 10 MFIs
operating.

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 c) Indirect Approach

A substantial amount of information was additionally obtained using indirect proxies to get a
reasonable sense of the regional credit demand variations. The indirect method aimed at
extrapolating the credit growth with industry proxies multiples, which served as credible
signals for the same.

We undertook a literature review to understand the studies undertaken by researchers to analyze

the impact of various indirect factors on MFI activity. A recent research titled ‘A study of
microfinance Penetration imbalance in India’ conducted at University of California, Berkley
concluded that female literacy rate significantly affects the MFI activity in the Indian districts.
Building on with the linear regression model, as shown, the study has quantified the effect of
relationship between the factors

.
Where
Yit= MFI dummy over district and time
Xi= Female literacy rate
eit=Error term

Using the current demographic data of Bihar districts, from IndiaStat, coupled with results
from the study, we aim to extend it to current period, to comment on the MFI activity. While
the detailed calculations have been shown in appendix, a few districts that the model identifies
as having high propensity for microfinance, supported by secondary data are

District Score
Rohtas 0.700794
Patna 0.690492
Siwan 0.656832
Vaishali 0.637146
Muzaffarpur 0.616134
Saran 0.613584

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Introduction of Additional Variables

Building upon the findings of the paper, we went ahead to do an explanatory data analysis
exercise (multivariate regression) to study if the surge in credit activity can be explained by
using additional demographic, economic and infrastructural factors. The hypothesis here was

β0+β1*(BPLFamLakhs)+β2*(AgrEmpPerc)+β3*(SexRatio)
Credit Activity= +β4*(PopDens) +β5*(FemLit) + β6*(BankBrPerLakh) +
β7*(MobilePhone) + β8*(ElectLight)
The description and the data summary of the statistics can be seen as follows.

Variable Explanation Min Max Average Sd

SHG Number of SHGs 913.0 24632.0 8547.4 5338.3

LoanAcct Number of Loan Accounts 943.0 25002.0 8904.9 5495.7

Response Variable

AmtOuts Amount Outstanding (Lakh) 325.0 16990.0 3508.5 3137.4

SHGNorm SHGs per 1 lakh population 91.9 594.5 319.4 144.6

LoanAcctNorm Loan Accounts per 1 lakh population 92.7 653.8 335.5 155.2

AmtOutsNorm Amount Outstanding/ Population 19.8 410.9 134.5 94.5

BPLFamLakhs Number of BPL Families (Lakh) 0.4 3.4 1.7 0.8

AgriEmpPerc % of Agricultural Employment 0.2 62.3 29.5 22.5

SexRatio Females per 1000 male population 876.0 1021.0 918.2 27.5

PopDens Population Density 488.0 1880.0 1146.8 351.6

FemLit Female Literacy Rate (%) 41.7 63.0 51.3 6.4

Predictor Variable

BankBrPerLakh Number of Bank Branches per Lakh 2.6 6.7 3.6 0.7

MobilePhone % Households with Mobile Phone 32.7 70.3 51.1 9.0

% Households with Electricity as

ElectLight 5.8 57.1 16.2 9.6
primary lighting source

Post the data preparation and cleaning exercise, we a generalised exhaustive model was built
to study the explanatory power of the predictor variables. Non-significant variables were
removed one-by-one in decreasing p-values to move towards a parsimonious model.
The results for predictor AmtOutNorm, are shown as below

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 Standard P- Lower Upper Lower Upper
Coefficients Error t Stat value 95% 95% 95.0% 95.0%
Intercept 275.36 112.53 2.45 0.02 45.86 504.86 45.86 504.86
BPLFamLakhs -27.08 21.60 -1.25 0.22 -71.13 16.97 -71.13 16.97
AgriEmpPerc 1.57 0.83 1.88 0.07 -0.13 3.27 -0.13 3.27
PopDens -0.15 0.04 -3.30 0.00 -0.24 -0.06 -0.24 -0.06
BankBrPerLakh 55.91 22.74 2.46 0.02 9.54 102.28 9.54 102.28
MobilePhone -3.36 2.21 -1.52 0.14 -7.86 1.15 -7.86 1.15

The variables marked green are the ones that are significant at 10% two-tailed confidence
interval. As we see, higher the proportion of workforce in agriculture, higher is the loan
outstanding, indicating a significant contribution of agricultural activities in credit enabled
livelihood generation. A higher population density and mobile phone penetration can lead to
availability and easy connectivity of alternate credit source (friends, relatives and
acquaintances), leading to lower outstanding through this route. A higher bank penetration
would mean a smooth and healthy credit ecosystem leading to an overall growth in the pie.

14
3. Heat Maps

The following heat maps depict the MFI penetration in the districts of Bihar, in terms of
penetration as a percentage of the population, as well as disbursals. This gives a macro
understanding of how various districts are placed with regard to MFI activity. Penetration in
terms of disbursals provides a far more realistic account of activity.

i) Percentage agricultural labour district-wise

ii) Literacy Rate District-wise

15
iii) Gender Gap in Literacy Rate

iv) Percentage of households availing bank services

16
v) Percentage households availability of latrine facility

vi) Total disbursements district-wise

Legend (in lacs) 500 2500 7000

17
vii) SHG District-wise
Legend 1500 4000 6500

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4. Share of Bihar in the Eastern Region Portfolio
The recent report by NABARD on the status of Microfinance in India throws additional light
on the significant role of Bihar in the eastern as well as the national portfolio. As we see Bihar
accounts for 31% of total SHGs and 28% of the total loan disbursals in the eastern region.
While the number of SHGs is 8% on a national level, share of loans disbursed is only 3%,
indicating a lower average loan amount (Rs. 85,000 as compared to national average of Rs.
2,05,000)

Table 4: bank loans disbursed during 2016-17

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To understand the trend here, we can delve deeper into the outstanding amount at the snapshot
in time. We see that Bihar currently has 27% of SHGs and 18% of disbursal amounts in eastern
regions. Comparing this with most recent one-year period, we see that Bihar is gaining an
increasing significance in the eastern region. Also, the average loan disbursal amount last year
(Rs. 85,000) is nearly twice that of average till date (Rs. 43,500). Bihar, however, has been on
a higher side in terms of NPA (13.06%) as compared to eastern (8.95%) and national portfolio
(6.50%)

Table 5: Loans outstanding as on 31st March 2017

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5. Growth in Credit Portfolio
India’s financial markets and institutions have not served poor people well; despite
improvements in the delivery of financial services over the past four decades, the vast majority
of Bihar’s poor households, who are concentrated in rural areas, do not have access to formal
finance. The supply of formal finance appears to be biased against the rural population. On
average, while a rural bank branch in India serves almost three times the number of people
served by a non-rural branch, the volume of deposits and credit in rural areas is much lower
than in urban areas (Basu, 2006). The quality and choice of products and services provided by
rural bank branches are also generally lower than their urban counterparts, both in terms of the
staff capabilities and the product and services mix. Compounding these aspects, the banking
penetration itself in Bihar remains a cause for concern. While demographic penetration has
increased during 2006-15 in India, Bihar is relatively less penetrated in terms of the number of
branches in relation to its population.

It is well understood that access to finance, especially for the poor, is empowering because
financial exclusion often leads to broader social exclusion. The inadequacies of the formal
financial system to cater to the needs of the poor has led to an increased demand for easier
sources of finance. Herein, the role of microfinance institutions has been significant, both in
providing an alternative as well generating demand through awareness creation.

21
Figure 1: India Population Density

22
Figure 2: Bank Branch Density; Source: Report of the Committee on Medium-term Path on Financial Inclusion

An important driver of credit demand in Bihar, as in large parts of India, is the reliance of MFIs
on women SHGs. It is important to note here that the female literacy rate in Bihar at 53.33% is
one of the lowest in the country. However, what is heartening to note is that the decadal growth
between 2001 and 2011 was the fastest among all states in India. Women are increasingly
playing the role of rural entrepreneurs as they come together in small groups and communities
to supplement household income. As they look to create enterprises, the demand for credit is
significant and growing.

MFIs

The number of MFIs in Bihar has grown steadily, generating awareness regarding regarding
microfinance and benefiting from demand generation, thereby operating along a virtuous cycle.
There are 33 microfinance institutions operating in Bihar, spread across 37 districts and 692
branches. While the number of branches has fallen from 856 in 2016, it is still large. In terms
of sheer presence of MFIs, Bihar seems to be among the best-served states in the country. With
such significant presence of MFIs, their interfacing with local communities is also fairly
significant. As their workers have moved around in villages generating awareness and creating
SHGs, the generation of demand for easy access to microfinance has rapidly risen in the state.

23
In addition, the following initiatives have had, and would continue to have, significant
influence on microfinance initiatives:

i) Financial Inclusion Plan

The Financial Inclusion Plan (FIP) initiated by RBI has seen steady growth. This plan (FIP)
provides a structured and planned approach to financial inclusion with a commitment at the
highest echelons within banks in terms of Board approval of the plans. Out of 2,259 rural bank
branches opened during April 2015-March 2016, 1,670 branches were opened in unbanked
rural centres under FIP. Around 71 million basic savings bank deposit accounts were added
taking the total to 469 million by March 2016. The total number of small farm sector credits
(Kisan Credit Cards) and small non-farm sector credits (General Credit Cards) stood at 47
million and 11 million, respectively.

ii) The Committee on Medium-Term Path on Financial Inclusion

The RBI Committee on Medium-Term Path on Financial Inclusion, Chaired by Mr Deepak

Mohanty identified significant gaps in terms of usage, inadequate ‘last mile’ service delivery,
exclusion of women and small and marginal farmers and a very low formal link for micro and
small enterprises. Against this background, the committee has set a much wider vision of
financial inclusion as ‘convenient’ access to a basket of basic formal financial products and
services that should include savings, remittances, credit, government-supported insurance and
pension products to small and marginal farmers and low-income households at reasonable costs
with adequate protection progressively supplemented by social cash transfers. The Committee
also suggested increasing micro and small enterprises’ access to formal finance with a greater
reliance on technology to cut costs and improve service delivery, such that by 2021 over 90 per
cent of the hitherto underserved sections of society become active stakeholders in economic
progress empowered by formal finance.

iii) MUDRA

Micro Units Development & Refinance Agency Limited (MUDRA) and Pradhan Mantri
MUDRA Yojana (PMMY) were launched in 2015. The guidelines of PMMY issued by

24
Department of Financial Services (DFS), GOI indicated that all banks are required to lend to
microenterprises engaged in manufacturing, processing, trading and service sector activities
for a loan upto 10 lakh. This is an important initiative that has the potential to inject substantial
finance into small and rural enterprises.

Recent Trends

The client outreach in Bihar decreased by 6% from 2016 to 2017. The loan portfolio
outstanding in Bihar barely increased in Bihar from 2015 to 2016, rising from 3526 crores to
3541 crores, a mere 0.4% increase. Moreover, the loan disbursement in Bihar saw a decrease
of 4% from 2016 to 2017, falling from 4496 crores to 4309 crores, the second consecutive year
it witnessed a 4% decline (Sa-Dhan, 2017). This is an interesting development, for there is little
evidence to suggest that credit demand would have decreased in society at large. And therefore,
there might a possibility that Jeevika’s initiatives might have led to demand moving away from
traditional MFIs and towards Jeevika, especially since it is understood that this is the period
during which Jeevika’s activities expanded substantially.

Testing Mechanism: To study the strength of factors and the extent to which they’ve
contributed to credit growth, we need to perform an explanatory data analysis on the historical
trends. While the dependent variable here is the credit disbursed, the independent variables can
be classified as follows.

We undertook a literature review to understand the studies undertaken by researchers to analyze

the impact of various factors on MFI activity. A recent research titled ‘A study of microfinance
Penetration imbalance in India’ conducted at University of California, Berkley concluded that
female literacy rate significantly affects the MFI activity in the Indian districts. Building on
with the linear regression model, as shown, the study has quantified the effect of relationship
between the factors

Where

Yit = MFI dummy over district and time

25
Xi = Female literacy rate

Eit = Error term

Using the current demographic data of Bihar districts, from IndiaStat, coupled with results
from the study, we aim to extend it to current period, to comment on the MFI activity. While
the detailed calculations have been shown in appendix, a few districts that the model identifies
as having high propensity for microfinance, supported by secondary data are

District Score
Rohtas 0.700794
Patna 0.690492
Siwan 0.656832
Vaishali 0.637146
Muzaffarpur 0.616134
Saran 0.613584

b) Unsystematic factors- Primary sources. Unsystematic factors are those which locally
affect the measured variable and are more specific to that particular geography.

Testing Mechanism: To study the idiosyncratic effects, we aim to conduct a survey among
the current as well as prospective customer base.

https://docs.google.com/forms/d/1fpPvGQnIuyajlBCra6nN3RW6qZGfqrueBjMty5LXuXE/e
dit

The survey would be administered to a large chunk of people (~1000) who belong to our target
group and can be our prospective customers. The survey would also be administered to current
customers (~100), to understand the perception and product satisfaction. It aims to get the
following information

 Demographics
 Reasons for credit growth
 Prevalent Credit Sources
 Comparison between credit terms for SHGs

26
 Factors affecting borrower’s choice of lender
 Perception about Jeevika among non-customers
 Satisfaction level of current customers

27
6. Customer Profiles

Customer 1

She would typically be aged 24 years, with a household of five members, comprising of herself,
her husband, and children. Her husband would typically be engaged in odd jobs, with limited
income. The family would typically not own land on their, and would have an annual household
income below INR 1 lakh. She would be looking at starting her own business, perhaps as a
vendor of vegetables or other such occupation with low entry barriers. She would be requiring
small to medium credit amounts in the range of INR 10,000-20,000. If she has borrowed earlier,
she would typically have loan outstanding in the range of INR 5,000.

28
Customer 2

She would typically be aged 32 years, with a household of seven members. Her husband would
typically be engaged in a regular job, but with limited income. The family would typically own
a small patch of land, and would have an annual household income in the range of INR 1-2
lakhs. She would be looking at expanding her business, as well as diversifying income sources
if possible. She would be requiring small to medium credit amounts in the range of INR 20,000-
30,000. If she has borrowed earlier, she would typically have loan outstanding in the range of
INR 10,000.

29
Customer 3

She would typically be aged 45 years, with a household of eight members, comprising of
herself, her husband, in-laws, and children. Her husband would typically be working in
agriculture or other forms of rural occupations, and contributing substantially to the household
income. The family would typically own land, and would have an annual household income in
excess of INR 2 lakhs. She would be a small entrepreneur, requiring medium to large credit
amounts to infuse into her business. She would be well-experienced with MFIs and SHGs, and
might even borrow from multiple sources. She would have borrowed large amounts in the range
of INR 50,000 and above in the past, and would have loan outstanding in the range of INR
15,000.

30
7. Customised Loan Products
Product development is an area which must be focussed upon. Much of the portfolio growth so
far has come from the standard income generation loans. MFIs need to be cognizant of the fact
that clients need credit for various purposes including water and sanitation, housing and
education. Limited experience of various MFIs in these needs to be documented and shared.
There is also a greater need for MFIs to expand their portfolio to credit plus products like
microinsurance and micropensions. It is important to note that both in terms of microinsurance
and micropensions, the number of providers in Bihar is extremely limited. This is especially
the case for non-health microinsurance.

The poor face large risks which affect their investment decisions and contribute to the
perpetuation of poverty. Insurance products targeted at the poor are seen as having substantial
promise, as opportunities both to make profit and to improve efficiency and social welfare. The
marketing of insurance products to the poor has faced two obstacles, however. First, demand
for insurance products is generally low. Second, insurers have been worried about adverse
selection and moral hazard. It is therefore crucial that these aspects be accounted for and solved
based on local considerations, before full-fledged programs are rolled out.

Jeevika can divide loan needs of the poor into three broad categories:

 Lifecycle financial needs: The life cycle approach to finance is based on the fact that all
human beings need financial services of various kinds throughout their lives.
 Investment finance for farms and non-farm enterprises, natural resources and
infrastructure: financial instruments like 7-10 year long term loans so that the uncertain
cash flows and smaller cash flows can be adequate to repay these loans. There is also a
need of a restoration approach which is based on natural boundaries, such as watershed and
river basins, ridges and valleys, and not on rural administrative boundaries
 Risk management products: Insurance, Cat Bonds and Commodity Options

Jeevika should start maintaining data on credit worthiness of the SHGs on parameters like
group discipline, regularity of meetings, savings, rotation of funds, maintenance of books of
accounts, group record keeping, repayment of loans etc. Making these transactions online will
require huge amount of effort and time, but will eventually open a lot of other doors as well.

31
While SHG is a great way to make sure that the rural have funds to support their needs, a quick
donate option may be introduced which can directly relate an urban borrower to a person in
need. It requires an IT infrastructure that can maintain the portfolios of all the stakeholders.

By offering an online peer-to-peer lending platform, Jeevika can connect deserving students,
entrepreneurs, and farmers in rural India with the resources and funds to overcome the myriad
obstacles they face. However, these loan terms cannot be rigid and has to customise. For
example, if the purpose is education, then the repayment schedule should take into account
graduation date, job placement services as well as the student’s first pay check. If the purpose
is farming, then it should take into account crop cycles. That way, Jeevika can create an
ecosystem that offers flexibility without sacrificing likelihood of repayment.

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8. Conclusion

As we see, a comprehensive study across secondary databases along with statistical analysis
gives us triangulated overview of the MFI hotspots across Bihar at a district level. These can
aid the team in identifying focus areas for the team in the short term as well as long term, and
decide the optimal mechanism of resource allocation

With the final results of the exhaustive survey, the team can achieve a thorough
understanding of the factors leading to a growth in credit demand, the current choices available
to a prospective members, and how she can be encouraged to get the benefits from SHG’s. An
additionally valuable insight can be to carve out bespoke solutions suiting their needs.
As a future long-term thought, one can look into the possibility of leveraging the system for
added social benefits. While it is definitely aiding significantly in serving the credit needs,
enabling livelihood generation and contributing in poverty alleviation, the independently
smooth functioning machinery built on the principle of trust and discipline can served a larger
purpose as well.

To start with, it can definitely help in becoming a medium of benefit transfer for various
Government schemes, thus eliminating the need for middlemen and the resulting inefficiencies.
With the strong network effects and social capital already built in, it can additionally be used
to create awareness about social initiatives and campaigns (building washrooms, school
enrolments, birth control, anti-smoking etc.). Facilitating discussions of issues relating to
health, education and socio-economic status can further aid in initiating participatory activities
like trainings and awareness programs. On a macro level, the increased confidence and social
status for women increases their inclusiveness in political and social matters catalyses stronger
community development.

Thus, we see that creating a disciplined approach towards savings ensure that the core
engine keeps running smoothly, while creating powerful positive externalities. Empowering
rural women and making them a front-runner in a household’s credit dynamics and livelihood
generation activities with go a long way in achieving the goal of poverty alleviation.

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9. References

[1] Official Website, Bihar Government, (http://gov.bih.nic.in)

[2] National Rural Livelihood Mission (http://www.nrlm.gov.in)
[3] Database, IndiaStat (www.indiastat.com)
[4] Niti Aayog, Govt. of India (http://niti.gov.in)
[5] National Bank for Agricultural and Rural Development, Status of Microfinance in India
2016-17 (www.nabard.org/)
[6] Basu, P. (2006). Improving Access to Finance for India's Rural Poor. World Bank.
[7] Sa-Dhan. (2017). Bharat Microfinance Report 2017. Sa-Dhan.

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10. Appendix

Female
Districts Literacy Propensity Score Active Flag Recommended (Stage 1)

Rohtas 62.97 0.700794 1 1

Patna 61.96 0.690492 1 1

Siwan 58.66 0.656832 1 1

Vaishali 56.73 0.637146 1 1

Muzaffarpur 54.67 0.616134 1 1

Saran 54.42 0.613584 1 1

Munger 62.08 0.691716 1 0

Aurangabad 59.71 0.667542 1 0

Buxar 58.63 0.656526 1 0

Kaimur (Bhabua) 58.4 0.65418 1 0

Bhojpur 58.03 0.650406 1 0

Begusarai 55.21 0.621642 1 0

Jehanabad 55.01 0.619602 1 0

Bhagalpur 54.89 0.618378 1 0

Arwal * (Jehanabad) 54.85 0.61797 1 0

Gopalganj 54.81 0.617562 1 0

Sheikhpura 53.4 0.60318 1 1

Gaya 53.34 0.602568 1 0

Nalanda 53.1 0.60012 1 0

Lakhisarai 52.57 0.594714 0 0

Samastipur 51.51 0.583902 0 0

Bihar 51.5 0.5838 0 0

Khagaria 49.56 0.564012 0 0

Nawada 48.86 0.556872 0 0

Banka 47.66 0.544632 0 0

Jamui 47.28 0.540756 0 0

Kishanganj 46.76 0.535452 0 0

Madhubani 46.16 0.529332 0 0

Sheohar 45.26 0.520152 0 0

Darbhanga 45.24 0.519948 0 0

Purba Champaran 45.12 0.518724 0 0

Supaul 44.77 0.515154 0 0

Pashchim Champaran 44.69 0.514338 0 0

Katihar 44.39 0.511278 0 0

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Districts Female Literacy Propensity Score Active Flag Recommended (Stage 1)

Araria 43.93 0.506586 0 0

Sitamarhi 42.41 0.491082 0 0
Purnia 42.34 0.490368 0 0
Madhepura 41.74 0.484248 0 0

Saharsa 41.68 0.483636 0 0

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