Ajai Nair

Sustainability of Microfinance Self Help Groups in India: Would Federating Help?

The major form of microfinance in India is that based on womens Self Help Groups (SHGs), which are small groups of 10-20 members. These groups collect savings from their members and provide loans to them. However, unlike most accumulating savings and credit associations (ASCAs) found in several countries, these groups also obtain loans from banks and on-lend them to their members. By 2003, over 700,000 groups had obtained over Rs.20 billion (US

Rural Banking: The Case of Rural and Community Banks in Ghana

425 million) in loans from banks benefiting more than 10 million people. Delinquencies on these loans are reported to be less than 5 percent. Savings in these groups is estimated to be at least Rs.8 billion (US

Reaching Rural Areas with Financial Services: Lessons from Financial Cooperatives in Brazil, Burkina Faso, Kenya, and Sri Lanka

170 million). Despite these considerable achievements, sustainability of the SHGs has been suspect because several essential services required by the SHGs are provided free or at a significantly subsidized cost by organizations that have developed these groups. A few promoter organizations have, however, developed federations of SHGs that provide these services and others that SHG members need, but which SHGs cannot feasibly provide. Using a case study approach, Nair explores the merits and constraints of federating. Three SHG federations that provide a wide range of services are studied. The findings suggest that federations could help SHGs become institutionally and financially sustainable because they provide the economies of scale that reduce transaction costs and make the provision of these services viable. But their sustainability is constrained by several factors-both internal, related to the federations themselves, and external, related to the other stakeholders. The author concludes by recommending some actions to address these constraints.

Innovations in rural and agriculture finance.

This case study describes the history and business model of the Rural and Community Bank (RCB) network in Ghana, analyzes its performance, identifies key issues, and makes recommendations on the way forward. The study analyzes the service delivery and financial performance of the RCBs. Before the establishment of RCBs in the late 1970s and the subsequent expansion of other service providers into rural areas, access to institutional credit for farm and nonfarm activities was scarce. The main sources of credit were moneylenders and traders that charged very high interest rates. In many rural communities, secure, safe, and convenient savings and payment facilities hardly existed. The first RCB was established in a farming community in the central region of Ghana in 1976. Rural communities showed tremendous interested in the community ownership and management features of RCBs, and by 1984 the number of RCBs reached 106. The introduction of a check payment system for cocoa farmers also spurred the establishment of local banks in many communities. The financial performance of many RCBs started to decline, however, for several reasons, including a drought that affected the country in 1983, weak governing ability, conflicts within boards of directors, and ineffective management in many RCBs. By the end of 2008, 127 RCBs were in operation with a total 584 service outlets. RCBs are regulated by Ghanas central bank, the Bank of Ghana, and thereby form part of the countrys regulated financial sector. RCBs are the largest providers of formal financial services in rural areas and represent about half of the total banking outlets in Ghana.

Leasing: An Underutilized Tool in Rural Finance

This paper presents four cases of financial cooperative networks in developing countries with significant rural outreach. The four cases are SICREDI (Sistema de Cooperativa de Credito) in Brazil, SANASA in Sri Lanka, RCPB (Reseau des Caisses Populaires du Burkina) in Burkina Faso, and KERUSSU (Kenya Rural Savings and Credit Cooperative Society Union) in Kenya. These cases represent examples of FC networks with significant outreach in rural areas, but operating in widely varying economic contexts. Access to financial services contributes to rural development and poverty reduction by promoting income-enhancing and vulnerability-reducing investments, enabling better management of cash flows and risk, and facilitating remittances. However, financial access is limited in most rural areas in developing countries because of high transaction costs and risks attributed to low levels of economic activity, poor infrastructure, high levels of production and price risks in agriculture, and poor public policies, such as interest-rate caps and debt write-offs. Through a case study approach, this paper attempts to answer such questions as: Can FCs provide financial services in rural areas in developing countries and still be profitable? Do FCs provide services to low-income clients? How does the regulatory environment affect FC performance? How does the business model of FC networks affect FC performance?