A NOTE ON MICROFINANCE IN UTTARAKHAND

Manab Chakraborty
Mimo Finance, Dehradun
Mobile: 9837001388; manabc@gmail.com

MICROFINANCE SITUATION IN NORTH INDIA

Microfinance serves about one fifth of poor households in India and has helped
to widen the reach of financial services to the population of 1.1bn, 80 per cent of
whom have no access to banks, says the 2006 report on Microfinance in India, a
joint initiative of the Swiss development agency, the Ford Foundation and Care,
the humanitarian organization. It is widely agreed that microfinance is
underdeveloped in North compared to South and Western States of India.

“Microfinance in the north is difficult for the reasons that any development work is
difficult: the nature of the work of this kind is that those who most need it are the
most difficult to get it to” (Malcolm Harper). Underdevelopment, poor
infrastructure and governance, force of illegitimate interests, and lack of strong
community-based development institutions has made it hard to reach the poor in
North India.

SELF HELP GROUPS (SHGs) AND MICROFINANCE

There are two core models for microfinance in India. In one, the self-help group
model, groups of about a dozen women in a village pool their savings, and
practice in-group lending. After several months of managing and disbursing their
money, they are eligible for a bank loan of up to four times that amount.

According to a paper by the Institute for Financial Management and Research

http://ifmr.ac.in/cmf/20070105/microfinance-changing-rural-india/ up to March
31st 2005, a grand total of 1.62 million SHGs representing in total 24.3 million
poor families or approximately 121.5 million people have received cumulative
loans of over Rs.68 billion (US$1.51 billion) from commercial banks. The amount
of loans disbursed by banks to SHGs during 2004-05 is Rs.29.94 billion
(US$665.37 million), averaging Rs.37, 546 (US$834) per SHG during fiscal year
2004-05. 58% of NABARD’s clients live in one of the four states that make up
South India and 78% of loans facilitated by NABARD were distributed in South
India.

In the second model, banks loan money through multi-finance institutions, usually
non-governmental organizations with a track record of rural development work.
There are about 800 multi-finance institutions with an estimated loan portfolio of
Rs16bn ($347m). 8 of the top 10 MFIs work in South India. In North India,

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Cashpor, Varanasi, Sonnatta, Allahabad, Ajeevika, Delhi, Jeevika, Jabbalpore
are some of the recent entrants into microfinance field in North India.

MICROFINANCE IN UTTARAKHAND

The State of Uttarakhand, which came into being as the 27th State of the Union of
India on 9 November 2000 has a population of 8.489 million. The density of
population is less than 51 persons per sq. km in Upper Himalayas and 51 to 200
persons in Middle Himalayas, and more than 200 persons per sq km. in Shivalik
& Terai regions of the State. Overall population density is less than 159 per sq.
km. 58% of the work force in the State depend on agriculture dominated by small
and fragmented land holdings. Per capita income of the State is Rs. 15,186
(US$337). 36.4% of the State's population lives below poverty. The level of
poverty varies extensively from district to district, being as low as 17.6% in
Haridwar district and as high as 68.5% in Uttarkashi district.

The formal banking structure in Uttarakhand is made up of a mix of nationalized

banks (1097 branches), regional rural banks (176 branches), 9 private banks (38
branches), 10 district cooperative banks (184 branches), and cooperative
agriculture and rural development banks (20 branches). Of the total network of
branches, 56 percent are located in rural areas, 25 percent are in semi urban
areas and 19 percent are in urban areas. Uttarakhand has one of the lowest
credit-deposit ratios in India – only 20% of the total deposit of Rs. 155,210 million
(US$ 345 million) was lent in the region1. The loan disbursement to weaker
sections was only Rs. 4799 million in 2002-032 . As on 31st March 2005, the
average population per branch in the State was 7739, which compares well with
all India average of 15,438. Within the state it varied between 5938 in Pauri
Garhwal to 12060 in Haridwar district. The Agricultural Credit availability on per
ha basis is similarly estimated at Rs. 9455 in the State as against the all India
average of Rs 7438 during 204-05.

After the formation of Uttarakhand, vigorous efforts have been made to promote
self-help groups with a view to tackle a myriad of Uttarakhand’s problems.
NABARD estimates that about 26,000 SHGs have been formed in the State
(2005) and 5,550 about SHGs have been credit linked with banks as on 31
March 2006. 79% of these SHGs were formed under the Swarna Jayanti Gram
Swarojgar Yojana (Village Self Employment Plan) by District Rural Development
Agency. Externally aided projects such as Uttaranchal Diversified Agriculture
Support Project (6.67%), Swashakti (5%) and SWAJAL (4%), contributed to
growing number of SHGS.

1
CD ratio increased from 24.26% as of 31.03.2002 to 46.56% on 31.03.06. This is in large measure due to lending to
new industrial establishments attracted by the liberal tax incentives recently provided by the Government. This spurt in
CD ratio is unlikely to be sustained.
2
Uttaranchal at a Glance 2003-04, Directorate of Economics and Statistics, Government of Uttaranchal
http://ua.nic.in/uaglance/15.htm

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Though SHG movement has taken roots in all districts of the State, the spread,
however, is uneven. Dehradun, Nainital, Tehri Garhwal, and U.S. Nagar has 70%
of the SHGs formed and linked with the banks. The average loan disbursement
size is highest with the lead banks (SBI, Punjab National Bank, and Bank of
Baroda), and lowest among Cooperative Banks.

Progress Under SHG's Linkage with Banks as on March 2006

No.of Groups Linked Amount Avg. Amount
Banks formed Disbursed, amount outstanding
million Rs Disbursed, as % to
Rs. amount
disbursed
Lead Banks 3 3259 2785 203.24 72,977 212%
Non Lead 21 587 481 39.44 81,996 289%
Banks
Regional Rural 5 928 383 36.11 94,282 221%
Banks
Cooperative 2 4003 1901 58.80 30,931 176%
Banks
Private 10 0 0 0 0 0
commercial
banks
Total All Banks 41 8777 5550 337.59 60,827 217%

At present 37 NGOs have been extended a total grant assistance of Rs. 4.5
million for promotion and credit linkage of 2370 SHGS from NABARD on an add
on basis since 2000-01. The IFAD-assisted Uttaranchal Livelihoods Improvement
Project for the Himalayas (ULIPH) –Ajeevika in Hindi - will promote SHG among
the 'ultra-poor' in 17 blocks of the State. The projects livelihood finance arm will
set up a Social Venture Capital Company (SVCC) with a view to promote
enterprises in Uttarakhand using cooperatives. SIDBI has recently approved term
loans for Pahal, Kotdwar and ATI-sponsored Uma Matt in Uttarakhand.

INTERVENTION OF MIMO FINANCE, UTTARAKHAND

Mimo Finance (www.mimofin.com) is a professional microfinance institution that

commenced its operation on November 9th, 2006. It aims to provide credit,
insurance, money transfer, pension products and micro-equity services to poor
women, tiny and small enterprises. It aims to reach a million household by 2015.
Currently, Mimo serves 2400 clients in Dehradun district. Debt capital has been
arranged from major banks, and FWWB. With support of a venture capital fund,
Mimo has initiated the process of acquiring a non-deposit taking non banking
finance corporation.

Mimo expects to appoint over 1000 agents spanning across Uttarakhand to

provide door step financial services in all villages having a population over 500
persons.

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SOME SUGGESTIONS
• The banks, particularly private banks, should extend linkages with SHGs
• Nationalized banks may support emerging MFI’s in the State with near-
market loans and credit for on-lending.
• The State Government should publish on-line full contact addresses of all
SHGs that exists in the State which will help development agencies to
establish direct links with SHGs
• The extent and quality of member-promoted SHGs should be
independently monitored, and if possibly, quality parameters checked
through annual sample surveys.
• State of the art MIS such as FINO or Bankers Realm may be subsidized
for deployment in hill districts to reduce transaction costs
• A strong commercial institution should be promoted to provide quality
Business Development Services and market linkages. Cooperatives,
NGOs, SHGs, and other development agencies may collectively own the
BDS institution. Revenue stream may comprise of membership fees, and
charges for advisory and technical assistance.
• The Government may assist in developing innovative financial products
and services suitable for mountain communities; carbon copying MFIs of
the plains cannot address the unique requirements of Uttarakhand