Project Report on

“Micro Finance to Poor women for sustainable development”

Organization: CASHPOR MICRO CREDIT

Submitted to:
Learning Centre: 1815 of
Sikkim Manipal University
of Health, Medical & Technological Sciences Manipal

SUBMITTED BY Guidance By
Mr. Bragesh Bahadur Prem Kumar
(Roll No. 510934083) District Accounts Manager. NRHM, Kheri.

1
 Student Declaration

I here by declare that the project report entitled “Micro Finance to Poor women for
sustainable development” its policies, to provide micro loan to rural & urban women”
with special reference / purview of CASHPOR MICRO CREDIT submitted in partial
fulfillment of the requirement for the degree of Masters of Business Administration to
Sikkim Manipal University, India, is my original work and not submitted for the award
of any other degree, diploma, fellowship or any other similar title or prizes.

Place :

Date :
(Bragesh Bahadur)
Reg. No. – 510934083

2
 CERTIFICATE

Certified that Mr. Bragesh Bahadur of Master of Business Administration

(MBA, Final Semester) has completed his dissertation entitled “Micro Finance to
Poor women for sustainable development”, its policies, to provide micro loan to
rural & urban women” from CASHPOR MICRO CREDIT under my supervision.
To the best of my knowledge and belief the work is based on the investigation
made, data collected and analyzed by him.

We want to wish him every success his life.

Prem Kumar
District Accounts Manager. NRHM, Kheri.

3
 ACKNOWLEDGEMENT

For successful completion of this report, I extend my sincere thanks to my

teachers without his support this success would not been possible.

I would like to thanks to Mr. Mithilesh Maurya (Deputy General

Manager-Finance) and Mr. Bipin Kumar Singh (Asst. General Manager-
Operation) of CASHPOR MICRO CREDIT Varanasi.

In addition to this, I would also like to extend my heartiest gratitude to my

family and friends who has supported me a lot to complete this project.

Also, I would like to thanks to my class fellows who also extended their
help when ever it was needed. All of above deserve credit what is right about
this project any error or omissions are my self alone.

(Bragesh Bahadur)

4
 INDEX

• Introduction

• Role of Microfinance in social uplifting

• Commercial Banking and Microfinance

• The CAHSPOR India Brand of Micro Credit

• Organizational Culture and Values

• Identification and Motivation of poor

• Operational & Financial performance

• Product or Service Offering

• Group formation & Process

• The Lending Process

• Strict Credit Discipline

• Delinquency Management

• Monitoring and Supervision

• Accounting Process

• Individual Loan - a new Concept

• Microfinance in India

5
 PREFACE

Marketing research is a systematic design, collection, analysis and

reporting of data findings relevant to specific marketing situation faced by the
company.

This project a written presentation with observation and inferences derived

from the market research conducted in Mirzapur and Ghazipur District in order
to search the "Individual Loan”

This report starts by giving an industry profile, internal view about the
company its product line then follows the marketing research concept,
methodology, recommendations and its limitations which remind every reader of
the value of the research in business and also help in better understanding of
report.

In order to achieve the objective and better understand the problem of

industry, it was decided to conduct a market survey.

The study has possible due to the cooperation of consumers. It has had
been a lot to learn about the problems faced during the market survey. Moreover
it was a new experience and a lot of exposure doing this project.

6
 Microfinance in India became known mainly through NABARD SHGs
bank linkage program and the Microfinance Institutions working through
Grameen and JLG models. Microfinance has been used as an important tool for
poverty alleviation. It refers to making financial services (credit, saving and
insurance) available to the poor who don’t have access to regular banks or
finance/insurance companies. The recent Task Force on Micro Finance defined
Microfinance as "provision of thrift, credit and other financial services and
products of very small amounts to the poor in rural, semi urban or urban areas,
for enabling them to raise their income levels and improve living standards".
However, at present credit forms the bulk of micro finance activity. The term
“Micro” literally means “small”, but RBI’s recent guidelines for priority sector
have defined loans up to Rs. 50,000 as micro-credit.

7
Rural Credit Scenario
Performance of public sector banks in particular, along with their
sponsored RRBs, has indeed been satisfactory in increasing flow of credit to
farm sector, improving recovery and containing over dues & NPAs. Their
involvement in financing weaker sections of the society and beneficiaries under
Differential Interest Rate scheme & Government sponsored programs [SJGRY
&PMRY] has also improved. However, the share of institutional credit declined
to 57% in 2001 as compared to 64% in 1991. Moreover, debt sourced from
money lenders, the very informal agents the institutionalization of credit was
designed to replace, increased in overall share of rural debt from nearly 18% in
1991 to nearly 30% in 2001. According to recent Survey, formal institutional
credit provision in India now accounts for just 27% of total cultivator debt &
that this reduces to just 20% if data for the five States reporting the highest
proportion of formal rural debt are removed. Moreover, nearly 90% of
households reporting no debt, either formal or informal are headed by small &
marginal farmers suggesting institutional –rather than self-exclusion.
Intriguingly, Andhra Pradesh, the State with the highest concentration of SHGs,
MFIs & banks, reports the highest proportion of rural non-institutional debt
[nearly 73%] and the highest proportion of rural money lender debt [nearly 57%]
for all States in India, according to All India Debt & Investment Survey, 1991 &
2001.

The genesis of Microfinance

The term "microfinance," originated from an instance in 1976, when the
Nobel recipient for peace, Prof. Muhammad Yunus, and his students met a
woman named Sufiya Begum in a village in Bangladesh. She used to make

8
bamboo stools and had to borrow the raw materials from a trader, who dictated
the price he paid for the final product.
Faced with this "micro"-level example of the vicious cycle of poverty, Yunus
gave a total of less than $27 from his own pocket as a loan to forty-two poor and
individual basket weavers. Looking at the success of his initiative which inspired
the women to lift themselves out of poverty, he began providing "microloans" to
the very poor in neighbouring villages. Later on he formed the Grameen Bank.
Since then a number of people in various countries have followed Yunus’
example and microfinance became an effective tool for poverty reduction.

Why Microfinance?
Lack of capital has been identified as the single most important obstacle in
helping poor come out of poverty. But providing money as a charity or subsidy
has failed to have any appreciable impact. If the poor get money for free, they
will not have any accountability for it. They rarely use such money for any
productive purpose. To some extent it also makes the poor lazy till the money
lasts. Besides, charity cannot be sustained for all the poor or for very long.
Additionally, a one time capital injection is unlikely to bring a person out of
poverty. Poor need consistent and incremental source of credit and insurance.
The customer unfriendly procedures and lack of collateral excludes the poor
from banks. The provision of financial services is manpower intensive and banks
do not have the manpower to support a large number of very small transactions.
The only source available to such people is the local money lender. But the
moneylenders charge heavy interest rates ranging from 5% to 10% per month.
Microfinance provides the solution. It not only provides the poor with capital on
easier terms, but makes him learn to utilize it.

9
There is huge demand for micro-credit estimated to lie between 75,000 to
100,000 crores. The role of micro finance institutions (MFIs) in providing
services to the poor and helping them come out of poverty in a sustainable
manner is vital and the potential impact is immense .

2. Role of Microfinance in Social Uplifting

Unrest in society has many reasons; the economic reason is the most
import one. People who are poor and unemployed are more vulnerable to
exploitation. They can invest little in the education of their children. These
illiterate children and youth are adding to the unskilled labor of the urban
centers. Unskilled labor has little opportunities in the market and there start a
struggle for survival, which minimizes the difference between good and bad, and
lawful and lawless.

The role of microfinance in poverty alleviation and economic uplifting is

being discussed since long, but there is more to it than just poverty alleviation.
Its role in social uplifting is as important as in economic uplifting. Looking at
the changing political scenario of the world and the increasing extremism and
fundamentalism in different societies, its link to the economy cannot be
overlooked. From the concept of participatory development we know that
ownership of the community cannot be ensured unless we make them
stakeholders in development through making them involved in the whole
process. In the same manner if we want a sustainable peace in the society, we
must make people stakeholders in a peaceful society.
Microfinance, a recognized tool of poverty alleviation, can play a very important
role in this situation.

10
By providing skill trainings and small loans to these unskilled and unemployed,
these people can be
involved in economic activities. This will not only make them earn their bread
and butter, but it will
also make them think responsibly about the rest of the society. In simple words,
a person having
shop in a market will never set that market on fire. Similarly a person having a
vehicle plying on road
will never throw stone on vehicles on road.

Microfinance play an imperative role in:

• Reduction in poverty because poverty is the root cause of social evil.

•  E conomic empowerment of women, which leads to social and political
empowerment.
•  S kill enhancement, which leads to sustainability of entrepreneur and
reduces abuse of resources.
•  R educes income gap.
•  P romoting participatory development approach, which makes it sustainable
in the long run.
•  E nsuring social security through Micro Saving and Micro Insurance.
•  E ngaging people in economic activities thus making them stakeholders in a
peaceful society.

11
 3. Commercial Banking and Microfinance

The Government of India controls the majority of the commercial banks,

and it has been generally recognized, at least since liberalization began in 1991,
by the Government, and by the Reserve Bank, that the country's massive rural
branch network is ideally suited to bring modern' micro-financial services to the
rural poor. Earlier subsidized programmes have generally failed, the banks
desperately need new clients who will repay their loans, and the regulatory
framework which constrained profitable banking has largely been dismantled.
Nevertheless, only 4% of the commercial banks' rural branches have entered the
market, even in a very small way.

This paper attempts to explain this; the reasons include institutional, social
and economic constraints, but the paper concludes that they can be overcome,
providing that the process is well-managed and driven by strong political
conviction.

Commercial banks in India have been lending small amounts to poor

people for many years, but this has mainly been under government schemes such
as the IRDP which are both heavily subsidized and unprofitable. This is not
micro-finance' as it is nowadays defined.
The programme of linking Self Help Groups (SHGs) to banks, for savings
and loans, is a case of modern' micro-finance, even though it has generally been
dependent on cheap refinance from NABARD. This programme has been
operating for some seven years, but the rate of expansion has been slow, and the
degree of market penetration, at less than 0.05% of the population, has been
disappointing.

12
 There are a many reasons for this disappointing performance, relating to
the SHGs themselves, NGOs, the banks and policy makers. The constraints lie
mainly within the banks. Some skills are lacking, some staff attitudes discourage
entry to this new market and some organizational weaknesses inhibit any
innovations of this kind. There are also some legitimate concerns as to whether
this business is right' for every bank, and whether it is genuinely profitable.
SHG members themselves also have some well-founded doubts as to the real
benefits of dealing with banks, and the NGOs which in most cases prepare the
SHGs for linkage to banks can also improve their performance. Certain policy
changes, such as the discontinuation of subsidized refinance and complete
decontrol of interest rates, would also facilitate more rapid expansion.
The constraints are not such, however, as to prevent any banker who wishes to
enter or expand his involvement in this market from doing so.
The commercial banks in India have been heavily involved in micro-
finance at least since the early 1970s, and earlier. It may seem absurd, therefore,
to pose the question as to why they are not involved; they are, and have been,
very substantially and for many years. The critical word in the question which is
the title of this paper, however, is market'. The great majority of the banks'
business in what is now called micro-finance' has been under a variety of
government sponsored schemes', the largest, best known (and perhaps most
notorious) of which is the Integrated Rural Development Program, or IRDP.
It is significant that the banks' customers for these schemes are usually known
not as customers but as beneficiaries'. Whatever may, or may not, have been the
benefits which they have gained from their participation, it is generally accepted
that these schemes have not represented a market' for the banks, in the sense of
being an opportunity for profitable business. They have been heavily
subsidized, through a combination of grants, cheap refinance and

13
below-market final borrowing rates, but this subsidy has not
benefited the banks. The modest spreads which have been allowed
have probably not covered even the expected transaction costs, and
the rates of recovery have been such as to destroy any hope of
profitability.

It would be difficult to disaggregate the total non-performing assets of the

banks in order to find out what proportion of these were related to schemes such
as the IRDP, but it is not an exaggeration to suggest that such schemes must bear
a major part of the responsibility for the effective bankruptcy of so many banks
in this country, and in particular of the rural banks; some have been rescued by
government recapitalization funds, while others remain technically insolvent, but
government-sponsored micro-finance' must be blamed for a substantial part of
the problem.

This Indian experience with heavily subsidized finance schemes, not tied
to savings, and heavily influenced by bureaucratic and political interests, is not
unique, although it has been of longer duration, on a greater scale and at greater
institutional and financial cost than in any other country. It does not, however,
fall into what is generally known as new generation' micro-finance, which is
characterized by new forms of intermediation, market or higher than market
rates of interest, a focus on female customers, and a recovery climate where 95%
is considered rather poor, 97% is normal and 100% is not uncommon.

14
Self Help Group
Lending to or through self-help groups (SHGs) is an apparent exception to
the above statement. These groups mobilize savings from their members, and
may then on-lend these funds to one-another, usually at apparently high rates of
interest which reflect the members' understanding of the high returns they can
earn on the small sums invested in their micro-enterprises, and the even higher
cost of funds from money lenders. If they do not wish to use the money, they
may deposit it in a bank. If the members' need for funds exceeds the group's
accumulated savings, they may borrow from a bank or other organization, such
as a micro-finance non-government organization, to augment their own fund.
This form of intermediation is by no means the only approach which is used in
micro-finance, and is in fact less common than the quite different Grameen Bank
Bangladesh system, where the groups facilitate the savings and borrowing
operation, but do not actually themselves lend or borrow. This requires the bank
to maintain individual savings and loan accounts for each member, and to
authorize and monitor each individual loan. The bank worker has to attend the
weekly meeting of each group, and although the group members guarantee each
loan, and offer a first line' appraisal and recovery service, the bank's transaction
costs are much higher than under the SHG system.
The Grameen Bank system is not only expensive. It also requires the bank
to organize itself around the regular meetings and other routine procedures on
which successful operation of the system depends. This requires a specialized
and dedicated management and organization system, which makes it difficult for
the bank to undertake business of any other kind.
The SHG system, however, is more flexible. The group aggregates the small
individual saving and borrowing requirements of its members, and the bank

15
needs only to maintain one account for the group as a single entity. The banker
must assess the competence and integrity of the group as a micro-bank, but once
he has done this he need not concern himself with the individual loans made by
the group to its members, or the uses to which these loans are put. He can treat
the group as a single customer, whose total business and transactions are
probably similar in amount to the average for his normal customers, because
they represent the combined banking business of some twenty micro-customers'.
Any bank branch can have a small or a large number of such accounts, without
having to change its methods of operation.
Unlike many customers, demand from SHGs is not price-sensitive.
Illiterate village women are sometimes better bankers than some with more
professional qualifications. They know that rapid access to funds is more
important than their cost and they also know, even though they might not be able
to calculate the figures, that the typical micro-enterprise earns well over 500%
return on the small sum invested in it (Harper, M, 1997, p. 15). The groups
thus charge themselves high rates of interest; they are happy to take
advantage of the generous spread that the NABARD subsidized bank
lending rate of 12% allows them, but they are also willing to borrow
from NGO/MFIs which on-lend funds from SIDBI at 15%, or from new
generation' institutions such as Basix Finance at 185 or 21%.
The following table gives the on-lending rates charged by 19 typical SHGs
which were studied in four different states in India during 1997.
1 Group charged.......... 18%
9 Groups charged........ 24%
5 Groups charged......... 30%

16
1 Group charged......... 36%
1 Group charged .......... 50%
2 Groups charged ........ 60%
Source: Harper, Esipisu, Mohanty and Rao, 1998.
The transaction costs are thus similar to those for any other customer, the
recovery rate is good or even excellent by Indian standards, they are willing and
able to pay high rates of interest, and banks can satisfy their social mandate by
doing business with them. India does not need new financial institutions, since it
has an urban and rural branch network which is unrivalled for any country of a
similar level of development. The SHG approach appears to be the right choice
for Indian banks.
In most but not all cases, there is a third party to the transaction between a
bank and an SHG. This is the NGO, which has sometimes initiated and has
trained and developed the SHG to a level where it can do business on equal
terms with a bank. Even though the most remote communities. Except perhaps in
the mountain areas of the North, are within a day's travel at most from a bank
branch, social and communication barriers often make it necessary for the NGO
to introduce the group to the bank, and to foster the relationship for some time.
Large numbers of NGOs have responded to this new market', since it is a
powerful method of empowering their clients and making them independent of
future assistance. SHG linkage is also fashionable, so it offers an effective route
for NGOs to acquire funds from local and foreign agencies.
This form of micro-finance is thus beneficial to all parties. The members
can access the funds they need at a cost they can afford, the banks can access a
new market for profitable savings mobilization and advances, and the NGOs can
facilitate the linkage process. Surely this should have been the fastest growing
banking product of the 1990s?

17
 The record of lending through SHGs.

Many papers have been written, and many conferences, seminars and
workshops have been held, about linking SHGs to banks. The Indian experience
in micro-finance is less well known internationally than that of Bangladesh,
Indonesia or some countries in Africa and Latin America, but the SHG linkage
concept might be considered as the uniquely Indian contribution to the field.
We should. However, look carefully at the figures, and ask whether the
achievements so far should be a source of satisfaction, or of concern. The
following figures compare the coverage that has been achieved by a small
number of NGO/MFIs in Kenya, without any commercial bank participation at
all, with the Indian achievement. They show that the level of market penetration
the NGOs have achieved in Kenya, although very small, is actually almost four
times that which has been achieved in India by all the banks and NGOs put
together.
The figures for India include the SHGs which have been financed by
NGO/MFIs which have borrowed from SIDBI or other sources, as well as those
which have borrowed direct from a bank; the figures would be even less
impressive if they only included the pure' cases, where a group has borrowed
directly from a bank.
The growth rate has accelerated, but not dramatically. The following
figures give the numbers of SHGs which borrowed from banks in each of the
four years from 1992, when NABARD first introduced its SHG linkage
programme:
These transactions were undertaken by 28 commercial banks, 60 Regional
Rural Banks and 7 co-operative banks, and many branches financed several
groups. There are, however, about 75000 commercial and rural bank branches in

18
India, quite apart from the even larger network of co-operative bank outlets.
Even if each of these SHGs was the only one which had been financed, this
would mean that barely 3% of the total number of bank branches has entered this
market, even in a small way.
One leading NGO/MFI (Fernandez, 1992) estimated that some 15 million
SHGs would be needed. The figure may be over-estimated, but even if it is ten
times too large, the rate of growth has been very slow. The successful marketing
and rapid coverage achieved by totally new brands such as Kitkat, or new
concepts such as the privately owned Public Call Offices, shows that the Indian
consumer can react swiftly and massively in response to well marketed
innovations. If there is a national market of this size for this new financial
product, and after five years of intensive effort the sales have reached so small a
number, something must be wrong with the design and profitability of the
product, its prospective customers or the institutions which are trying to deliver
it.
2. What explains the poor sales of the SHG product?
It is too easy for banks to complain about the weaknesses of NGOs, for
NGOs to complain about the inertia of the banks, and for the SHG members to
resign themselves to yet another government scheme which has failed. We must
look more systematically into the reasons why the uptake has been so slow,
when the product appears prima facie to be so attractive to all parties.
2.1. The SHGs and their members.
If a marketing-oriented business is confronted with poor sales, it should
look first at its customers, not to blame them but to find out if there is any way
in which the product or its marketing is failing to satisfy their needs. The long
history of subsidized schemes has, paradoxically, weakened the marketing skills
of financial institutions. If a product is heavily subsidized it is natural, albeit

19
erroneous, to assume that its beneficiaries will want it. The problem is perceived
as one of ensuring that only those who deserve' it get it, not to market it.
There are in fact a number of reasons why many SHGs do not come forward as
banking customers.
The SHG members have bad experiences of earlier schemes which
promised all manner of benefits but which ended in disappointment; they do not
wish to waste their time again.
The SHGs may not know that banks are willing to take their savings, and
to lend them money; the banks have not marketed the new product successfully
to them.
The SHG members may resent or be frightened of the intimidating or
arrogant behaviour of bankers or even the appearance of their offices. They feel
that such places are not for them.
The SHGs may have sufficient uses for their own savings, and the rate of
capital growth, because of the high interest rates they charge themselves, may
build the fund at a rate which is commensurate with the growth in their
investment opportunities; they do not need the banks.

20
Micro Finance – A Business Concept

The world has recognized the gravity of rural indebt ness in developing
and underdeveloped countries and a consensus emerged for designing and
implementing poverty alleviation schemes in such a manner that the poor would
be encouraged to take loans for productive economic activities of their own. The
poor in these countries are encouraged to form small groups of people having
relatively equal economic status where mutual thrift and credit activities are
initiated for meeting their emerging credit needs.
Microfinance is recognized as a key strategy for addressing issues of
poverty alleviation and women’s empowerment. Access to financial services and
the subsequent transfer of financial resources to poor women enable them to
become economic agents of change. Women become economically self-reliant,
contribute directly to the well being of their families, pay a more active role in
decision making, and are able to confront systemic gender inequalities.
Microfinance has given women in India an opportunity to become agents of
change. Poor women, who are in the forefront of the micro credit movement in
the country, use small loans to jumpstart a long chain of economic activity.
It can effectively generate employment and sustain the income of the household
by giving them opportunities of work. The activity for which the loan is taken is
generally of uncomplicated nature and the repayment schedule is short, simple
and fixed by the members themselves.

Commercial Viability and Feasibility of the model

The basic objective of any Microfinance program is poverty alleviation but

it cannot ignore its economic self-sufficiency, which is a must for its survival.

21
CASHPOR with the same intention do not work for profit motive and as it
impedes its basic objective. Thus we have to depend on leveraged capital to a
certain extent unless we break-even. It takes about 2.5 to 3 years to break-even
in any new district where we propose to commence our operation. We will
finance our loss in those initial years through medium to long-term subordinated
debts available at confessional rates and through working capital loans at Prime
Lending Rates available from Development Agencies and commercial banks. For
on lending purpose, we borrow both from private and public financial
institutions / banks at interest rate below PLR as microfinance forms an integral
product of their priority sector lending portfolio. Once we become a profit
making organization, we can plough back our profits into the business for further
expansion.

22
4. The CASHPOR India Brand of Micro Credit

Genesis of Cashpor and its objective

CASHPOR started its operation in year 1997 by disbursing its first loan on
15th September 1997 in Mirzapur District of Uttar Pradesh. The entity was
CASHPOR Financial and Technical Services (CFTS) Ltd, working with an
objective to reduce poverty in eastern U.P. and western Bihar through the
provision of Micro finance services to the rural poor women in a timely, honest
and efficient manner. Its first six branches were set up in July 1997, to cover the
southern part, which was poorer part of the district. Its next six branches have
been opened in October 1998, to cover rest of the District.
Few of its branches having acute poverty level were finding it difficult to
become financially viable, because of little demand of loan amount, less
population density and frequent casualties in the client’s family leading to high
portfolio at risk. The lack of market infrastructure limited the avenues of
profitable enterprise for the poor. To make the branches viable it was decided to
merge three branches Hallia, Dramandganj and Lalganj into one branch
(Lalganj) and two branches Gayapura and Hargarh into another one (Bihasara
branch). After the mergers one more branch was opened to take the number to
10.
CASHPOR worked with same infrastructure until it’s breakeven. It broke
even first time in March 2003, in five and half years against its projected break
even in five years. In its journey CASHPOR evolved a sustainable model for
micro finance for the poor. However, the break even time had been relatively
high. Insufficiency of lending fund was one of the reasons of delayed breakeven.
To deal with this issue, CASHPOR in collaboration with ICICI bank pioneered
the partnership model. Under this model CASHPOR is working as an

23
intermediary between clients and bank, while the transactions are recorded on
the books of the bank. This does not limit the availability of the on-lending
funds. With this new approach and learning from past, CASHPOR increased its
efficiency and reduced the breakeven time in new district to 4 years despite
reduction in the lending rate from 20% flat to 26% declining. From the year
2003 onwards CASHPOR undertook its expansion plan and started adding minimum
two districts every year and reached to 13 districts by year 2006.

Vision and Mission

Vision:
“We see the day when all poor women in rural India have access
to efficient and sustainable microfinance services, and many are
utilizing them to reduce the poverty of their households, while gaining
self respect and better social position for themselves”.

Mission:
“Our mission is to identify and motivate poor women in rural
areas and to deliver financial services to them in an honest, timely and
efficient manner so that our vision is realized and our organization
becomes a financially sustainable microfinance institution for the
poor”.

24
5. Organizational Culture and Values

Kind of work
CASHPOR is engaged in providing micro finance services to the poor
women in rural areas. The Managers have to manage and supervise the credit
operations of the area under them. They have to support and mentor Center
Managers (CM) who mobilize poor women, and help them access small loans.
The Managers are equally responsible for the recovery of these loans. Therefore,
the work demands close association with their subordinates and poor women.
The managers must always be vigilant that nothing goes wrong in their area. If
any thing does, it must promptly be brought to light.

Place of Work

The Managers have the dual responsibility of managing office and

field. However, the success of a supervisor depends on the frequency and duration of
time spent in the field. They will have to frequently travel to remote village locations
and visit poor habitations. Our supervisors spend most of their time in the field
locations and manage the office affairs in the remaining time.

Legal Status
CASHPOR India is a brand of sustainable financial services
exclusively for the poor. It is the property of CASHPOR Trust (CT), a Public

25
Charitable Trust, registered with the Registrar of Trusts at New Delhi. CT is the
owner of CASHPOR Financial & Technical Services Limited (CFTS), which is a
holding/investment company, registered with the Registrar of Companies in
Hyderabad India. The CFTS holds two subsidiary Companies, registered with
Registrar of Companies, in Kanpur:
1. CASHPOR Micro Credit (CMC), a section 25 company
2. CASHPOR Financial Services (CFS) Ltd.
So far CMC is the only driver for microfinance in CASHPOR Group however,
CFS is non financial services company. The organizational chart for CASHPOR
group is as follows-

Fig. 1.1: Organizational Structure

CASHPOR TRUST (C
CASHPORT)Financial &
Technical Services
(CFTS) Ltd

Technical ServicesCASHPOR
CASHPOR Micro Credit Ltd. Financial
(CMC) Services (CFS) Ltd

26
Operational Model:
On the basis of operational structure, CASHPOR
operating model has been divided into two categories. First is the Branch model
and second one, the unit model. On the basis of funding arrangements with the
banks these models are further divided into two, term loan and partnership
model.

Branch Model
It is a conventional model of banking where banks have
branch offices under a controlling office. CASHPOR has setup its operation
district wise. under this model, there is a district office and each district office
has 10 branch offices in its command area. Each branch has its independent
office equipped with complete infrastructure like computer, printer, generator
and furniture etc. District is headed by the District Manager (DM) who is
assisted by two Area Managers (AM); each area manager looks after 5 branches.
Branch is headed by Branch Managers (BM), who supervise 8 Center Managers
(CM) at each branch. CMs are our front line staff who deal directly with clients,
create and carry on business. CMs reports daily to branch office. The branch reports
once in a week to the district office, while the district office sends out weekly reports to
head office. Hierarchy under the operational structure under this model is as follows-

District Manager

Area Manager

Branch Manager

Center Manager
27
 Branch
Office
Branch Branch
Office Office

District
Office
Branch
Branch
Office
Office

Branch Branch
Office Office

Branch Branch
Office Office
Branch
Office

Unit Model:
This model was pioneered under partnership funding arrangement1 with
ICICI bank with an idea to develop low cost delivery model. Under this model entire
district has been divided into 4 units, units are headed by Unit Managers, who don’t
have separate offices. The entire team operates from district office only. Unit managers
reside in their unit area and are supposed to supervise 20 Center Managers. Center
Managers are residing in the near by market of their operating area and they operate
business from their rented rooms. Unit Managers with their Center Managers report
once in a week to the district office, to update their weekly transaction in the MIS and
to take Collection and Disbursement Sheets (CDS) and cheques for the amount to be
1

28
disbursed in the next week. District office also report head office on weekly basis.
Supervisor’s hierarchy and operational structure under this model are as follows

District Manager

Unit Manager

Center Manager

Unit - 1

Unit - 4 District Unit - 2

Office

Unit - 3

29
Mini Branch Model:
Unit model had been developed after introduction of cash
less system in CASHPOR. Meaning CASHPOR clients will be linked with various
RRBs/Nationlized bank in their proximity through CASHPOR accounts, through which
they will be served with financial services. The model has been introduced with a
notion to keep Center Managers free from office and let them devote their max. time in
the field, reduce overhead cost of setting up district operation, increase staff efficiency
in terms of conducting center meetings, mitigate the cash transit risk on staff and to
reduce the interest burden on clients. Initially this model worked well but with
increasing volume of business servicing banks feels overburdened and stop cooperating
and refusing CASHPOR clients to service. After bank non cooperation this model fired
back and lost the operational and financial control system. Huge cash balances were
parked in current accounts which put company financial efficiency in dearth, staff were
completely unsupervised as Unit Mangers were busy in managing the banks. To
overcome this problem CASHPOR Management decided to further split a unit in to 4
mini branches to have better control system and assuring good services to its clients. At
the same CASHPOR senior management have visited ASA, Micro Finance Institution
in Bangladesh and found by having smaller unit, supervision over field staff can be
increased that in turn will increase productivity per staff. Having these points in mind
CASHPOR got a team of consultant from ASA Bangladesh and piloted 4 ASA type
mini Branches 2 in Siwan and Gorakhpur Districts each. After having initial success on
the ground CASHPOR started transforming unit model in to Mini Branch Model in
phased manner (Pls. refer Mini Branch guideline for understanding Mini Branch
operational procedure in details). Supervisor’s hierarchy and operational structure under
this model are shown in fig1.6 & 1.7 respectivly –

District Manager
30
 Unit Manager

Mini Branch Manager

Center Manager

Fig. 1.6: Supervisor’s Hierarchy

DO
Unit Unit Unit
Unit
Mini Branch Mini Branch Mini Branch
Mini Branch

CM
CM

CM

CM

Fig. 1.7: Operational Structure – M.B Model

6. Identification and Motivation of Poor Women in their Villages

31
 The overriding objective of the Cashpor Group is reduction of poverty
through the provision of sustainable financial services to poor women. Care must
be taken in identifying at the village-level poor households, that is, our potential
clients. If this work is not done properly much of our subsequent effort (and
money) will be wasted through leakages to the non-poor. To ensure that we are
reaching the poorest households (VP), they must be distinguished from the
Moderately Poor (MP) and the Non-Poor (NP). However, this must be done in a
cost-effective manner, so as not to maintain institutional operating self-
sufficiency - the point at which all the operating costs of the Cashpor Group are
covered by its interest income, without which we will not be able to make a
significant impact on poverty. Generally the poorer a household the more
reluctant they are to borrow. They are worried about weekly repayment, and
about what may happen to them if they can't pay. Motivation work is often
necessary to open their eyes to the opportunity that is being offered to them.

Selection of Villages

Following the CASHPOR Training Manual on Cost-effective Targeting, we

begin our work in villages that have a sufficient number of poor households to
make possible the establishment of a full Center, that is one with 15-20 poor
women each. As we expect only about half of poor households will become
clients, there should be at least forty poor households in the village.

Identification & Classification of Poor Households

32
 The number of poor households in a village is determined by
use of the CASHPOR House Index (CHI). Each house in a village is viewed
systematically from the roadside. Large houses made of brick or concrete and
having re-enforced
concrete or tile roofs that are unlikely to contain poor
households are excluded. Small houses made from inexpensive materials and not
having a permanent roof, that is houses that score of three or less on the CHI are
listed. The whole village is covered in this way, and the number of potentially
poor households is determined. If this number is forty or more, step two in our
process of cost-effective targeting of the poor can commence.
The CHI has been further adapted for use in eastern UP and
Bihar. As it is an area of long established settlement, houses tend to be larger
than in more recently settled areas. Double-storey houses are still excluded, but
otherwise, size of the house is not a critical indicator. Rather height and
materials of the walls and materials of the roof have become the key indicators.
(Staff Circular No: 99/04/24 below). Further in view of the recent Government
policies, various State Governments have been issuing patta land and/or one-
room houses to the poor people. Such land and houses are to be ignored,
provided their occupants fulfill the asset norms of the Company.

1. New Housing Index for Identification & Classification of the Poor

33
 If any household member has any type of motor vehicle, like a
motor bike, car, jeep, van, tractor, hand tractor, etc.; or a house is built with
brick walls and a re-enforced concrete roof (excluding the Government allotted
houses), then automatically the household is not eligible for our program. No
Form No.1 is to be filled-in for such cases, unless they appeal that despite their
motor vehicle or big house they are below the poverty-line income (BPL). In
such cases, fill-in Form No.1, tell them that the Branch Manager/Unit Supervisor
will come to interview them; and continue with your work. Hand over the appeal
case to the Manager/Unit Supervisor when you return to the Branch/District
Office.
The revised Housing Index has only two indicators:

a) Height of the Walls and Materials Used: Score

i) More than 5 feet and made of brick 4
ii) More than 8 feet and made of Mud 2
iii) Less than 8 feet but more than 4 feet Mud 1
b) Materials of Roof:
i) Concrete/Pucca/Patia/New Tiles/GI Sheet 2
ii) Old Tiles/GI Sheet 1
iii) Thatch/ Straw/ Plastic/Leaves 0
c) Maximum Score 6
d) Poverty Status:
i) Non Poor 4 or more
ii) Moderately Poor (MP) 3
iii) Very Poor (VP) 2 or less

34
 e) If the House Index Score is equal to or less than 3 and for the
occupants of Government allotted houses, you must conduct the
Asset Interview.

Step two is a brief interview with the occupants of houses that scored less than
four on the HI. It determines the poverty status of the household from its
sources of income/no of earners and ownership of productive assets. These,
along with the score on the HI are recorded on Form No.1 Together they
determine whether the household is classified as Very Poor (VP), Moderately
Poor (MP) or Non-poor (NP). If at any time during the interview, it becomes
clear that a household is NP, the interview is politely terminated, and the Form
No.1 discarded.
Households that score two or less on CHI and have only sources of income
that are traditionally low, like agricultural, domestic or casual labor or artisan
fisheries or forest gathering, etc., and which have no more than 2 earners, and
which own no irrigated agricultural land nor large farm animals or a Dependency
Burden (no. of household members/no. of income earners) of 4 or more are classified as
VP. If the wife regularly does agricultural labor, the household is usually VP.
Households with the following characteristics are classified as Moderately Poor
(MP):
• 3 on the CHI, or
• At least one source of income from self-employment, or
• More than 3 income earners, or
• Irrigated land, or one or more large farm animals, or
• A Dependency Burden of less than 4

35
 Moderately Poor and Very Poor households should be motivated so that the
wife can become their representative. After explaining our micro finance
program carefully, the CM should encourage her to try to form a Center with
15 to 20 members households of similar socio-economic status, no close kin
relations and whom she can trust in matters of money. She should inform him
when the Center has been formed.

Appeal cases: sometimes when you are interviewing in houses that scored less
than four points on the CHI, occupants of neighboring houses that scored four
or more, will ask to be interviewed, saying that they are also poor. In such
cases, fill-in a Form No.1 for them and tell them that their request will be
referred to the Branch Manager/Unit Supervisor who will call upon them as
soon as possible. Hand the Form No.1 for the appeal case to the Branch
Manager/Unit Supervisor.
Fill up the surety agreement and get the same duly signed by the members,
which is to be counter checked by the Branch Manager/Unit Supervisor.

GRT is to be conducted as detailed in the prescribed format.

(Exclusively for poor women: timely & honest delivery of credit in a financially-
sustainable manner)
• Up to Rs. 14,000 loans for additional income generation.

• Exclusively for BPL women Hassle-free procedures:

- Form a self-help Group (SHG) with 15 other BPL women that you can trust in
matters of money, and who agree to verbally cross-guarantee each other;
- Apply verbally at the SHG meeting for the loan you need;
- The loan will be disbursed within 2 weeks of approval by the SHG, at the

36
 nearest Branch of the Company;
- Affordable interest paid by clients: 27% p.a. on declining weekly balance;
- Easy weekly repayment in small, equal amounts (of principal & interest) for one
year.
- Eligibility for a subsequent (larger if necessary) loan on the same terms upon
completion of regular weekly repayments.
-Rs.I000 loan upon demand, for emergency, consumption needs, after first year
of regular weekly repayment.
A good opportunity for BPL women to work for a better life for their children
and themselves!

7. Operational & Financial Performance

(a) Out reach to the Poor

Overall, the Company achieved 93.14 % of its Business Plan target for
cumulative Active Loan Clients at 201,692, and 85.59% of its BP target for cumulative
Loans Outstanding, at Rs.86.12 crore. Among the Districts, Siwan performed against its
BP targets, with 221% achievement on Active Loan clients, and 224% on Loans
Outstanding. Gorakhpur performed against its BP targets, with 199% achievement on
Active Loan clients, and 175% on Loans Outstanding. Interestingly it was in Siwan and
Gorakhpur Districts that the ASA-type Branches were tested and became highly
productive.
Saran District also performed well against its BP targets, with 113% achievement
on Active Loan clients, and 108% on Loans Outstanding. Jaunpur District, as we have
seen above, set a new CASHPOR growth record for outreach in a new District,
recruiting 9,777 ALC, which was 106% achievement on its Active Loan clients BP
target, and 97% on Loans Outstanding. Ghazipur performed well against its BP targets,

37
with 101% achievement on Active Loan clients, and 98% on Loans Outstanding., as did
Mirzapur against its BP targets, with 100% achievement on Active Loan clients, and
93% on Loans Outstanding.. Bhabua-Rohtas was the seventh District (out of 13) to
achieve a 100% or more of its BP target for ALC; but it was able to reach only 85% of
its BP target for loans outstanding.

(b) Loan Portfolio Quality

Portfolio at Risk (arrears> 4 weeks) was satisfactory overall at the end of the
Fiscal, at 2.6%; but it was unsatisfactory in Ballia at 5.14%, in Buxar at 4.47%, and in
Mirzapur at 4.40%. Chandauli at 2.77%, Sasaram at 2.42%, and Azamgarh at 2.17%
were worrying; but Ghazipur at 0.58% and Deoria at 0.0014% were good. The
relatively new Districts of Saran, Jaunpur, Varanasi, Gorakhpur and Siwan had
excellent portfolio quality, with zero arrears.

(c) Institutional Efficiency

Targets ACR Achievement Targets Achievement
District Name
(%) ACR(%) TCR (%) TCR(%)
Mirzapur 9% 12% 23% 20%
Buxar 14% 17% 24% 22%
Varanasi 22% 26% 34% 38%
Ballia 13% 15% 23% 21%
Chandauli 10% 11% 16% 18%
Ghazipur 11% 11% 26% 29%
Bhabua-Rohtas 25% 24% 29% 39%
Azamgarh-Mau 30% 27% 36% 41%
Saran 32% 28% 32% 47%
Jaunpur 43% 37% 54% 59%
Deoria 43% 33% 47% 62%
Gorakhpur 91% 36% 45% 110%
Siwan 91% 27% 35% 110%

ACR = Administrative Cost Ratio = Total Administrative Cost/Average Portfolio

TCR = Total Cost Ratio = All Operating Costs including Cost of Funds and Loan Loss
Provision/Average Portfolio

38
(d) Financial Performance

Overall, CMC performed well in Operational self-sufficiency, with 86% of

its operating costs being covered by operating income, exceeding the Business Plan
target of 82%. This represented an increase of 22 percentage points in OSS over the
Fiscal. Funders and other stakeholders should take comfort from this good progress
toward financial sustainability, indicating that the basic business model is sound, and
that financial break-even is attainable as projected by the end of Fiscal 08/09.

District Name Age in Years Age Rank Target OSS( %) Ach OSS(%) OSS Rank
Mirzapur 10 1 130% 112% 1
Ghazipur 4 2.5 89% 91% 2
Chandauli 4 2.5 112% 83% 3
Ballia 3 4.5 91% 64% 4
Buxar 3 4.5 87% 62% 5
Saran 2 8.5 48% 59% 6
Deoria 2 8.5 37% 55% 7
Bhabua-Rohtas 2.5 6.5 55% 48% 8
Jaunpur 1 11.5 43% 44% 9
Mau-Azamgarh 2.5 6.5 53% 42% 10
Siwan 1 11.5 24% 41% 11
Varanasi 1 11.5 40% 37% 12
Gorakhpur 1 11.5 24% 32% 13
CMC 81% 86%

39
Operational Self-sufficiency

Non- Operating Costs 137,536 111,104 111,104 111,104

Non- Operating Income 10,735,760 17,848,501 27,670,298 5,867,340

Excess (Deficit) of Total

Income over Total Expenditure (9,585,646) (17,740,546) (27,823,737) (22,433,664)
Average Loans Outstanding 114,239,490 205,144,947 389,241,474 684,364,951
Average Assets 81,713,931 215,804,763 323,983,118 587,746,845
Secured Debt 161,791,845 171,153,944 280,988,943 531,405,781
Unsecured Debt (Tier II cap) 18,000,000 25,500,000 67,133,250
Total Debt 247,995,930 290,981,955 748,829,606
Tier I Capital 15,763,000 30,000,000 53,900,000 53,900,000
Total Capital 467,149,874 651,370,898 1,401,268,637
Total Risk Wgtd Assets 137,669,090 393,283,686 378,671,477 765,428,704
Capital Adequacy 11% 8% 14% 7%
Adj Return on Assets 0% -8% -5% -4%
Adj Return on Equity -78% -69% -41%
Internal Rate of Return -8% -9% -4%
Tangible Net Worth -3,648,458 20,423,879

The soundness of the business model and its good prospects for financial

40
sustainability can be seen also in the apparent high positive rank order correlation
between the age of the District and its degree of OSS. However, it is of concern that
Ghazipur and Chandauli Districts did not break-even as projected by the end of their 4th
year. As mentioned earlier, the reasons are different in each District. In the case of
Ghazipur growth and portfolio quality have been excellent; but cash management was
weak, resulting in unnecessarily high total cost of funds which caused the projected
break-even to be missed. In Chandauli, growth and portfolio quality have been
disappointing, with large shortfalls compared to Business Plan targets, and hence the
planned break-even could not be achieved in a timely manner. Cash management must
be improved in Ghazipur for it to break-even during the next Fiscal. In the case of
Chandauli, we are planning to change the District Manager for one that has proven his
ability to grow our business.

Overall, as Business Plan Targets have been achieved or over-achieved

slightly, there is no need to consider any changes to the Business Plan targets for the
next Fiscal. The Company is expanding according to Plan.

Growth in CASHPOR

41
 Active Loan Clients
250,000

200,000
Number of Clients

150,000

100,000

50,000

-
2000 2001 2002 2003 2004 2005 2006 2007
Year

Loan Portfolio (Rs '000)

Loan Portfolio (Rs '000)

1,000,000
900,000
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
-
Year 00 01 02 03 04 05 06 07
20 20 20 20 20 20 20 20

Year-wise growth in Active Loan Clients

Year-wise growth in Loan Portfolio

42
 160% Cost Ratios

140%

120%
ACR

100%
TCR
Percentage

80%

60%

40%

20%

0%
Year 2000 2001 2002 2003 2004 2005 2006 2007

Sustainability
120%
OSS
100% FSS

80%
OSS, FSS

60%

40%

20%

0%
Year 2000 2001 2002 2003 2004 2005 2006 2007

Year-wise Cost Ratios

Year-wise Sustainability Ratios

43
 9.0% Portfolio At Risk
8.0%
7.0%
6.0%
PAR %

5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
00

03

04

05

06
01

02

07
Year
20

20

20

20

20

20
20

20

160,000,000
Interest Income
140,000,000

120,000,000
Interest Income

100,000,000

80,000,000

60,000,000

40,000,000

20,000,000

-
2003

2004

2005

2006

2007
2000

2001

2002

Year

Year-wise Portfolio at Risk Year-wise growth in Interest Income

44
Target Market
Microfinance sector in India is characterized by a huge market that has around
350 million potential clients. However, the present outreach is just around 20 millions
(largely done through SHGs). The estimated credit demand met so far is only to the
tune of 700 millions US dollars.

Our reason for existence is to reduce poverty significantly in the poorest part of
the country. In order to do so, we must reach large numbers of BPL households as soon
as possible. By implementing a standardized model CASHPOR has reached large
numbers of rural poor in one of the most backward northern areas of India where there
are very few organizations offering microfinance services. CASHPOR is further
deepening its poverty outreach by expanding operations into Bihar, one of the least
developed and most difficult states in the country. There are about 20 million BPL
households in eastern UP and Bihar. If we reach a million by 2010, still that will be
only 5%! An estimated seventy percent of CASHPOR clients are living below the
international ‘dollar a day’ poverty line. Nearly all of them had no previous access to
low-cost credit.

Eastern UP and Western Bihar, where CASHPOR is working and proposes to

deepen its impact, have large concentration of poor households.

Microfinance in India has largely focused on woman. Research shows that

women invest a larger portion of their incomes in the households and family well being,
particularly in the well being of their children. Women have proven to be more
financially responsible and more peer pressure mechanisms which leads to better
repayment performance.

Cashpor proposes to deepen its impact and increase its outreach year by year and
district by district. It has adopted the business model in which every district will have

45
80 front line staffs (center managers). Each staff will be given a target of 25 members
per month.

8. Product or Service Offering

CASHPOR has identified the financial constraints of poor women in the rural
areas of eastern UP and Bihar and, developed two basic credit products and an
insurance product which may fulfill both of their family and business needs. All these
products can be promoted to clients based on reasonable interest rate, lack of security
requirement, minimum waiting time and a promise for a bigger loan in future if they
show a good credit discipline. CASHPOR in order to minimize credit risk, has chosen
to render financial services through a peer based lending model using joint liability
groups (JLG); a loan to one group member must be guaranteed by her peers that trust
her ability to effectively use credit for income generating purposes and repay the same
to the organization in a timely manner. A group comprises of 15 to 20 members with
one of them being the group leader who is chosen unanimously by the members. The
brief description of the products is given below: -

1. Income Generating Loan (IGL) – Poor people need financial services as credit
for developing their enterprise. The Income Generating Loan (IGL), with a term of 50
weeks and weekly pro-rata repayment of principle and interest. The average loan size of
the product may vary from Rs.1, 000 up to the maximum limit of Rs.14, 000.

2. Emergency Loan (EL) – The average loan size of the product will be up to
Rs.1, 000 available on demand, for those clients only who repay back their first loan in
full on time. There will be five-week grace period, during which only interest need to be
paid followed by 20 weeks of repayment of principal. Theoretically, the clients in need

46
can get up to two emergency loans per year. This fits with the facts that there are two
lean periods each year, in terms of income and food, October/November and April/May.

For both of the above credit products CASHPOR will charge an interest of 26 percent to
be charged on declining balance, which is equivalent to 13.5 percent as flat. The
rationale of the interest rate is given below:

Interest charged to the Borrowers

Average Cost of Fund = 11%

Average Administrative Cost = 10 %

Average Loan Loss Provision = 2%

Average Margin = 3%
Total = 26%

2. Insurance - The average sum insured in the insurance plan is from Rs. 5,000 to

Rs.20, 000, available on demand. The term of the plan is one year and the
premium is collected one time during the beginning of the policy.

47
Execution Strategy
Cashpor will manage its operation with a systematic approach. It classifies its
area of operation from center to region. Each center will constitute of 15 to 20
members. 20 centers will form one unit. 4 units will operate in each district and three to
four districts will constitute a region.
In this way 80 center managers will be required for complete staffing of a district.
There will be one district office in each district. District manager will be the incharge of
this office. The four Unit managers and eighty center managers will report in this office.
Organizational Structure for Operation: - The microfinance Operation of the company is
executed by the officers who are classified into four categories. They are: -

Regional Managers

District Managers

Unit Managers

Center Managers

Center Managers: - Center Managers are the frontline staff of the company.
They manage the Centers under their responsibility so that their share of the Business
Plan (BP) targets of the Company are achieved, particularly for Active Loan Clients,
Loans Outstanding, Interest Income and Loan Portfolio Quality. To succeed in this
work they will have to get the confidence of the BPL women and their husbands, by
giving honest, timely and efficient service to them.

48
Unit Managers: - Unit manager is the head of a unit. He supervises the team of 20
center managers. The main responsibility of a unit manager is to increase the outreach
of the unit for the attainment of financial viability in a cost effective way. He has to
supervise the field staff working under him including their work in the field and to
ensure that the targets allotted to each field staff and unit as a whole are achieved
positively.To get the daily records updated and necessary periodical reporting made to
the higher authorities. Preparation and submission of Periodical monitoring and
financial reports/statements for the unit to appropriate authorities also comes within the
purview of his responsibility.

District Manager: - District Manager supervises over the whole district. He reports to
the Regional Manager.

Regional Manager: - Regional Manager supervises over a region which comprises of

three to four districts. He reports to the Managing Director.

The Pattern of Staffing: - To commence operation in a new district we will not

provide the full staffing at the beginning but we will form one unit in each quarter
because that will restrain the expenses within control. In this way 20 center managers
and a unit manager will be provided in each quarter and the staffing will be completed
in a year.

The overriding objective of the CASHPOR is reduction of poverty through the

provision of sustainable financial services to poor women. Care must be taken in
identifying at the village-level poor households, that is, our potential clients. If this
work is not done properly much of our subsequent effort (and money) will be wasted

49
through leakages to the non-poor. To ensure that we are reaching the poorest
households (VP), they must be distinguished from the Moderately Poor (MP) and the
Non-Poor (NP). However, this must be done in a cost-effective manner, so as not to
maintain institutional operating self-sufficiency - the point at which all the operating
costs of the Cashpor Group are covered by its interest income, without which we will
not be able to make a significant impact on poverty. Generally the poorer a household
the more reluctant they are to borrow. They are worried about weekly repayment, and
about what may happen to them if they can't pay. Motivation work is often necessary to
open their eyes to the opportunity that is being offered to them.
Following the Cost-effective Targeting, we begin our work in villages that have a
sufficient number of poor households to make possible the establishment of a full
Center that is one with 15-20 poor women each. As we expect only about half of poor
households will become clients, there should be at least forty poor households in the
village.

CASHPOR House Index

The number of poor households in a village is determined by use of the
CASHPOR House Index (CHI). Each house in a village is viewed systematically from
the roadside. Large houses made of brick or concrete and having re-enforced concrete
or tile roofs that are unlikely to contain poor households are excluded. Small houses
made from inexpensive materials and not having a permanent roof, that is houses that
score of three or less on the CHI are listed. The whole village is
Covered in this way, and the number of potentially poor households are determined. If
this number is forty or more, step two in our process of cost-effective targeting of the
poor can commence.

50
The CHI has been further adapted for use in eastern UP and Bihar. As it is an area of
long established settlement, houses tend to be larger than in more recently settled areas.
Double-storey houses are still excluded, but otherwise, size of the house is not a critical
indicator. Rather height and materials of the walls and materials of the roof have
become the key indicators. (Staff Circular No: 99/04/24 below). Further in view of the
recent Government policies, various State Governments have been issuing patta land
and/or one-room houses to the poor people. Such land and houses are to be ignored,
provided their occupants fulfill the asset norms of the Company.

Housing Index for Identification & Classification of the Poor

If any household member has any type of motor vehicle, like a motor bike, car,
jeep, van, tractor, hand tractor, etc.; or a house is built with brick walls and a re-
enforced concrete roof (excluding the Government allotted houses), then automatically
the household is not eligible for our program. No Form No.1 is to be filled-in for such
cases, unless they appeal that despite their motor vehicle or big house they are below
the poverty-line income (BPL). In such cases, fill-in Form No.1, tell them that the Unit
Supervisor will come to interview them; and continue with your work. Hand over the
appeal case to the Manager/Unit Supervisor when you return to the District Office.

The Housing Index has only two indicators:

c) Height of the Walls and Materials Used: Score

i) More than 5 feet and made of brick 4
ii) More than 8 feet and made of Mud 2
iii) Less than 8 feet but more than 4 feet Mud 1

51
 d) Materials of Roof:
i) Concrete/Pucca/Patia/New Tiles/GI Sheet 2
ii) Old Tiles/GI Sheet 1
iii) Thatch/ Straw/ Plastic/Leaves 0

c) Maximum Score 6

e) Poverty Status:
i) Non Poor 4 or more
ii) Moderately Poor (MP) 3
iii) Very Poor (VP) 2 or less

e) If the House Index Score is equal to or less than 3 and for the occupants of
Government allotted houses, you must conduct the Asset Interview.

Step two is a brief interview with the occupants of houses that scored less
than four on the HI. It determines the poverty status of the household from its
sources of income/no of earners and ownership of productive assets. These,
along with the score on the HI are recorded on Form No.1. Together they
determine whether the household is classified as Very Poor (VP), Moderately
Poor (MP) or Non-poor (NP). If at any time during the interview, it becomes
clear that a household is NP, the interview is politely terminated, and the Form
No.1 discarded.

Households that score two or less on CHI and have only sources of income
that are traditionally low, like agricultural, domestic or casual labor or artisan

52
fisheries or forest gathering, etc., and which have no more than 2 earners, and
which own no irrigated agricultural land nor large farm animals or a Dependency
Burden (no. of household members/no. of income earners) of 4 or more are
classified as VP. If the wife regularly does agricultural labor, the household is
usually VP.

Households with the following characteristics are classified as Moderately Poor (MP):

• 3 on the CHI, or
• At least one source of income from self-employment, or
• More than 3 income earners, or
• Irrigated land, or one or more large farm animals, or
• A Dependency Burden of less than 4

Moderately Poor and Very Poor households should be motivated so that the wife can
become their representative. After explaining our micro finance program carefully, the
CM should encourage her to try to form a Center with 15 to 20 members, households of
similar socio-economic status, no close kin relations and whom she can trust in matters
of money. She should inform him when the Center has been formed.

Joint-Liability Groups
Once the BPL women in a village are identified, they are motivated to form
Joint-Liability Groups (JLG) of at least 15, from among those whom they know and
trust in matters of money. The members of the JLG cross-guarantee each others loans. It
is therefore important for them to know each other well, and to be able to choose who
they want in their JLG. In the process of selecting their sister members, the BPL women
actually indicate to our field staff, who among the BPL women in the village are

53
creditworthy. This is of course valuable information for CASHPOR India. Another
reason why it is important for the women to form their own JLG is that they may not
take collective responsibility otherwise. If the MFI staffs were to form the JLG, or
suggest some members, and subsequently some of its members refused to pay, the rest
of the JLG might blame the staff for putting those persons in the JLG, and refuse to take
collective responsibility for them.

Compulsory Group Training and Group Recognition Test

After forming their JLG, the members inform the CASHPOR field staff who then
provide continuous group training (CGT) until all of the members know the purpose
and rules of the program, can sign their names and know the effective interest rate that
will be charged and why. The Branch/Unit Manager then tests the group members
verbally to ensure that they know each other, that they know and agree with the
program rules, and visits their house to verify their poverty status and that the husband
is in agreement with their joining CASHPOR India. If the BM/UM is satisfied, the JLG
is recognized. Hence this quality control check on the targeting and training of the
clients is called the Group Recognition Test (GRT). If any of the proposed members of
the JLG fail the GRT, then the whole group has to undergo further training until they
pass.

Service Delivery Approach:

CASHPOR exclusively targets poor women. Members are organized into groups
and village-based Centers consisting of member not exceeding 20. The methodology
includes weekly meetings and “stepped” loans that can grow each time a client takes
out and successfully repays a loan (providing they demonstrate the capacity to repay the
larger loan). All individual loans are approved by the clients’ Center, who then takes

54
collective responsibility for repayment of the loans. CASHPOR reserves the right to
reduce the loan amount if it is deemed to be too high. Loan term is 25 (for emergency
loan) and 50 weeks (for income generating loan), with repayment of principal and
interest on weekly pro-rata basis.

Information and Communication Technology –

In response to the challenges of reducing cost and attaining operational

efficiency, CASHPOR has set up its central office at Varanasi for processing and
administration and technology. The company has adopted for the centralized processing
of all data recording, transaction processing, preparation of reports and storing
documents. The management of CASHPOR is aware that the highly efficient operation,
technology and process characteristic of modern retail financial institution are necessary
for capacity building and achieving economies of scale. As a operational support is
readily provided to those working in front end operations, including standardization, an
efficient and scalable processing center, and all the facilities needed for data entry,
processing transactions, maintaining customer records, checking service quality, and
control system for auditing.

Competitive Advantage

During the last ten years, the number of microfinance institution has increased
remarkably. Although the proliferation of institutions generally (1) improves the quality
of service offered, (2) drives innovation, and (3) forces institutions to examine and re-
examine current products and processes, there can be negative consequences for those
institutions facing stiff competition and market saturation in some areas. India’s villages
offer significant opportunity for microfinance. As a result, it is worth noting that there
are millions of individuals who are not served or underserved by mainstream financial

55
institutions. Microfinance market is large enough for multiple players, and each
organization has a responsibility to further develop the market in order to improve the
poor’s access to financial services as quickly and effectively as possible. The northern
part of India, particularly Uttar Pradesh and Bihar still remains untouched with such
situation.

CASHPOR definitely enjoys the competitive advantage not only because we are
mainly concentrating our operation in Uttar Pradesh and Bihar which is the poorest part
of the country, and provides enough market potential, but also for our unique targeting
approach as discussed above. We try to have our access in those areas where can really
contribute to the poverty alleviation and also where other MFIs / Financial Institutions /
Banks would not ready to risk their money.

Challenges & Opportunities in the industry

The path ahead is obviously scattered with challenges. Scaling up of projects and
bringing millions of people within the fold of microfinance is no mean task. The most
convincing feature of this form of financing, that justifies its admittedly higher costs, is
the near perfect repayment rates. The expansionary zeal of microcredit practitioners
should be balanced with the quality of loans – indeed a momentous challenge.

Microfinance sector takes the challenge to develop it as a profitable investment

opportunity so as to lure investments specifically private equity as well as investments
from foreign and domestic corporates. It is evident that Indian corporates have
demonstrated the potential and also the responsibility to become sensible players in the
area of microfinance.

56
 Suitable Regulatory Framework and Legal Entity – The world recognizes
microfinance sector as an emerging and fast growing sector. With the fast growth of
microfinance in India, there appears a need to establish a microfinance development and
regulatory authority to ensure proper control, transparency and accountability in the
sector. Attaining a suitable legal identity for an MFI is very crucial. It enables to realize
its mission and also determines its extent of operation. Cashpor is a section 25 company
(registered under section 25 of Companies Act 1956), which makes it as a not for profit
organization. Cashpor is doing micro credit business and not accepting public deposits
as per the norms laid by RBI for a section 25 company.

Financial Management and Sustainability – Financial management is key to any

financial institution. Microfinance industry definitely forms a part of finance industry.
One of the major challenges of MFIs is obtaining funds at a lower cost so that they can
attain self-sufficiency without putting too much of a burden of a burden on the
members. MFIs borrow from banks and financial institutions for their onlending.
Obtaining funds at lower rate of interest is a difficult task.

In addition to cost of funds, many MFIs are also finding it difficult to adequately meet
the credit needs of all their members due to fund constraints.

MFIs are further constrained by the lack of equity and lack of credit guarantee to access
commercial funds from banks.

There are basically three aspects of sustainability. They are:

 Sustainability of Mission and Goals,

 Financial Sustainability, and
 Organizational Sustainability

57
 Regarding the first aspect, i.e., the sustainability of mission and goals, the sector
has developmental roots but it suffers the risk of mission drift. It faces a major
dichotomy of approach and purpose. There may also be tension between social function
and financial intermediation function. Therefore it is very important for an MFI to have
clarity in approach, targeting the right group and maintaining its core values. With the
growth of microfinance, mainstreaming social agenda within MFI is becoming difficult.
There is dilemma of ensuring empowerment of the community in relation to the
financial sustainability. CASHPOR visualizes ‘the great day in the future, when all BPL
women in the eastern UP-Bihar region, would have access to efficient and sustainable
microfinance services, of which many were availing to pull themselves and their
families out of poverty’.

The second aspect of sustainability pertains to financial sustainability. Three

levels of financial sustainability can be visualized as:

Level-I Subsidy Dependence Interest and fee income does not operating costs

Level-II Operational Self Interest and fee income at least cover operating
Sufficiency (OSS) cost

Level-III Financial Self Interest and fee income covers all costs including
Sufficiency (FSS) inflation and subsidy adjustments

The Indian microfinance sector is still in the level-I of financial sustainability. Attaining
the level-II and then level-III is very important for the sector at macro level so that the

58
sector itself become self sufficient and self-dependent in the move to alleviate poverty.
Cashpor is moving fast towards attaining the operational and financial sustainability.

The third and final aspect of sustainability is the organizational sustainability,

which depends upon the legal form, the governance and the human resource of an MFI.
The legal form determines the overall purpose or mission of the organization and also
the extent of its operation, i.e., whether it will be a not for profit organization, a profit
making organization or will act as a cooperative for the mutual benefit of the
organization. As discussed earlier Cashpor is a section 25 company (registered under
section 25 of Companies Act 1956), a not for profit organization. It is doing micro
credit business and not accepting public deposits as per the norms laid by RBI for a
section 25 company. The governance structure in an MFI is determined by the
ownership of the MFI, the professionalisation of the board, and the professionalised
management of the MFI. The development of the human resources depends upon ability
of MFIs to attract qualified staff, deploying them properly, and building right attitudes
and skills. Cashpor undoubtedly fulfills this condition as the company has a well-
experienced and erudite, focused and dynamic board of directors from diverse fields. It
has most of the senior staff have been with the program since its inception. Senior staffs
at headquarter and field have the postgraduate degree/diploma in rural management or
business administration and long experience in micro finance.

Operational Risk Management – The microfinance sector faces several types of risks,
which can be categorized as:

59
 i. Operational risks relating to credit, fraud and security. MFI handle large no. of
clients and transactions. Safety of cash and staff becomes important.
ii. Institutional risk relating to social mission vs. commercial mission and
dependency.
iii. Financial Management risks which arise with regard to asset and liability
management, inefficiency and system integrity.
iv. External risks which are related to regulatory constraints, competition,
demographic constraints, nature of physical environment and macroeconomic
policies.
Professionalism – Professionalism is an essential condition for the success and
sustainability of microfinance sector. MFIs need committed professionals who can stay
longer. There is a dichotomy between core values of development and professional
values. For professionalising a development sector we can move ahead with a concept
of Empathetic Professionalism. It implies - “Addressing Empowerment through
Professionalism”. Here, the whole thrust of professionalisng should be to primarily
empower the members.

Capacity Building – The thrust of capacity building work has been on developing a
common perspective and knowledge of microfinance practices amongst practitioners.
This becomes imperative in terms of the enormous diversity existing in the sector in
methodologies, mechanisms, appropriate roles etc. A need has been felt for an
increasing no. of organizations which work for poverty reduction by supporting MFIs
through quality assessment, research and advocacy in microfinance. An experienced
and skilled cadre of professionals is required who can render effective technical and
managerial solutions to the key microfinance issues, thereby strengthening the
microfinance movement and leading it towards long-term sustainability.

60
 Management Information System – MIS is major challenge area for the MFIs.
Identifying and putting in place a systematic MIS itself has been a major challenge.
MIS is required to maintain database and records properly.

Cash and Liquidity Management – Cash is a very peculiar stock in trade. There
are security related issues in handling cash like transit safety, fidelity and destination
safety. For MFIs, the collections are in small denominations while disbursals are not.
Proper handling of cash is very necessary as cash management is an important aspect
for MFI’s functioning. An MFI needs good information system that is cutting edge and
ensures transparency. The information system should allow MFIs to route cash
properly. Coordination with banks is equally important in this regard. MFIs need to
handle accounts and transactions with banks suitably. MFIs are facing the challenge to
manage the liquidity of their funds efficiently. The main source of funds for most of the
MFIs is the external source, which they have to borrow from external funding agencies.
These are the leveraged funds, which bear a cost in the form of interest. Thus most of
these funds should be disbursed and least of it should be kept idle, as it becomes a non-
performing asset for the industry.

Challenges due to prevailing socio economic environment – Apart from the

internal managerial problems, MFIs also are confronted with many operational
challenges that arise due to prevailing socio economic factors. Since these problems are
related to local socio-economic conditions, there are variations in the nature of
problems faced by MFIs. Lack of awareness about micro credit among the local
community is one of the problems MFIs face in some regions. At the entry time the
target groups look at the MFI with suspicion and are hesitant to deal with the MFIs for

61
fear of being cheated. MFIs have to put in extra efforts to convince people about their
credibility.

Widespread prevalence of moneylenders is another challenge MFIs. These

moneylenders often make attempts to break the groups, as microfinance intervention is
a threat to their business.

Since MFIs target disadvantaged sections it becomes difficult to reach out to the
poorest living in remote areas. Lack of transportation and communication facilities
further hamper smooth monitoring and follow up.

Low level of education and illiteracy among target group becomes a problem.
Member from these groups find it difficult to manage their group. This becomes a
bottleneck in achieving expected growth of groups. Poor are also reluctant to deal with
MFIs and bank because of many pre-conceived notions. In areas with caste
differentiation, it becomes difficult to bring together different communities under same
group. Existing gender relations also come in the way of smooth functioning of the
group.

62
 9. Group Formation & Process

What is Group?
A human group is usually defined as a collection consisting of a number of people who
share certain aspects, interact with one another, accept rights and obligations as
members of the group and share a common identity.
For CASHPOR, 10 -20 (depending upon operating model2) self selected like minded
poor women of same economic status, living in the same village for minimum three
years, of same age group, almost of same educational level, having no more than two
kin/relatives, who can trust each other in financial transaction, coming together to
access the financial services constitute a group.

Why is Group important?

1. The group gives courage and inspiration
The group inspires the poor women to come forward for accessing the financial services
to start income generating activity. Alone a poor woman would not dare to take credit
and start any enterprise. But, if they are in the group of some experienced women, they
gather the courage to start the enterprise with small loans and gradually move towards
sizeable enterprise.
2. The group helps in instilling credit discipline
The norms imposed on the group help in instilling credit discipline. This discipline
helps the poor client’s in making perfect and on time repayment, which keeps their
credit line open for higher loan size.

63
 3. The group acts as a substitute for collateral
Microfinance, though for a social cause, is a business and has to be conducted with a
business approach. Normally in a business one would not lend to anybody without
security. But the poor do not have collateral. The group provides a social security a
substitute for collateral.

Points to remember while forming a group –

1. All the group members should be poor women
Generally people raise the question why the clients should be women? The answer
is, men do not realize poverty in the sense as women do because most of the time, they
are out of the family. While, women live with their hungry all the time. They are the
first to feel the lack of necessities in their households. Therefore, by and large women
are more sincere than men in using any opportunity for the betterment of their family.
Since they run the household, they are also more adept at managing and saving small
sums of money. This in turn translates into their credit worthiness.
2. Members should be self selected and like minded
All the group members should be selected by the members themselves, because they
know each other very well (better than you). They are the best to judge who can be
trusted and would share the responsibility. This also shifts the responsibility on them in
case of aberrant behaviour by a member later. Self selection gives them the confidence
to take responsibility and enforce credit discipline at the center.
3. Equal economic status
Homogeneity in economic status avoids the inferiority or superiority complex in the
members that lead to strong group binding and equal participation of the each member
in group decision. Otherwise well off members dominate the group decision making.
There is another possibility that group will always have clash in decision making. It is

64
also difficult for members of lower economic status to enforce collective responsibility,
discipline and group norms on the members economically better members.
4. All the group members should be resident of the same village, for minimum
three years
Members from the same village who have lived together for some time will have
better understanding of each other therefore they can trust each other. They can exert
peer pressure on such members in case of any crisis, which will maintain credit
discipline at the center. Also it is easier and less time consuming for members of the
same village to assemble for the center meetings. If the woman has lived for less than 3
years, there is no surety for her permanence.
5. The group member should be of same age group
Elder members do not like to be supervised by the member of younger age group.
They also impose their opinions on the younger members due to their more respectable
status in the society. Younger group members may feel shy in expressing their opinion
in presence of older women. On the contrary if there are only one or two old women,
they may be left out. This divides the center into two groups, reducing the peer
pressure, which in turn breaks the credit discipline. The other reason is member of
different age group will not have same level of thinking that will always be a hurdle for
the group to reach on consensus.
6. The entire group should be of almost same educational level
Like other parameters of homogeneity, same educational level keeps the members
on equal footing. Otherwise, there will be feelings of superiority or inferiority which
will weaken the group.
7. Kin relations within the group should not be more than two
Allowing kin relation within the group will reduce the group pressure on group
members and weaken discipline. Group members favour their kin relatives, even if they
are wrong. Therefore, if they will be significant numbers, they will always try to hijack

65
the group. Therefore CASHPOR has allowed only two pairs of kin relatives within a
group, provided separation of the households has happened at least three years ago.

8. Group members must have trust on each other

When poor women are joining the credit program, they keep themselves in extra
financial burden; it is quite possible that they may face some financial crisis during the
year. It is important for each of the members to have trust on each of them in financial
transaction therefore they can help their peers financially in time of crisis.

Continuous Group Training (CGT)

After being organized in a group, group members have to be trained on the

objective of the credit program, rules- regulation, systems and procedures. There is a
provision for providing 7 days Continuous Group Training (CGT) to newly formed
group.

Points to remember while conducting the training

• CGT requires attention and interest of each member of the group. Therefore, the
training should not stretch more than an hour in a day.
• The training must be continuous for 7 days (not a single day gap)
• Training program should start in presence of all the members. Not a single
absenteeism should be allowed during the training, because it is a platform for
creating discipline among the group members.
• All the members should be present by the decided time.

66
Verbal Contract
Every Center meeting begins with a verbal contract between Centre Manager (Co.
representative) and clients. The contract from the clients is nothing but the 5 steps that
need to be strictly followed by the clients in the weekly meetings. It plays a great role in
assuring 100% repayments from the center, therefore it is important for the center
managers to explain explicitly the importance of the 5 steps.

Client’s Contract
“We pray to god that
1. we will come to the center on time
2. will utilize the loan for the purpose we have taken
3. will pay installments timely
4. will utilize the surplus for wellbeing of the family
5. and will take collective responsibility”
Centre Manager’s Contract
“If you will follow your commitments, I promise to keep providing you the credit
services timely, honestly and in an efficient manner.”

Day wise schedule of the training is as follows-

Day - 1
a. Signature on attendance registers (Members who do not know how to sign will be
trained to put their signature)
b. CM’s introduction
c. Introduction with the company and the objective of the credit program
d. Prerequisites of becoming member
• Poor residing for more than 3 years

67
• Houses close together
• No close relatives
• Trust among members
e. Introduction with verbal contract between clients and staff
f. Explaining the verbal contract in detail and start the learning process
g. End of the first day with verbal contract
Day - 2
a. Opening of the day with verbal contract by both the parties; clients and staff
b. Check the learning status
c. Signing of the attendance register by the members, check the signature of the
learner and guide them accordingly
d. Revision of the first day
e. Detail information of source of income, possession of assets and history of the
family members
f. Introduction to loan products
g. Introduction to interest rate
h. Close the day with verbal contract by both the parties
Day - 3
a. Beginning of the session with verbal contract by both the parties - clients and
staff
b. Check the learning status
c. Signing of the attendance register
d. Revision of the second day’s learning
e. Loan amount and its instalment
f. Explain a group’s objective and role
g. Rules for group operation and role of center leader and secretary

68
 h. Election of group leader and secretary
i. End the day with verbal contract by both the parties
Day - 4
a. Start off the day with verbal contract by both the parties- clients and staff
b. Signing of the of the attendance register
c. Revision of the third day
d. What is a financially sustainable credit program
e. Loan amounts and its installments
f. Collective responsibility
g. Loan proposal process
h. Selection of first 60% clients
i. End the day with verbal contract
Day-5
a. Starting of the day with verbal contract by both the parties- clients and staff.
b. Signing the attendance register
c. Revision of fourth day
d. What is a Center? Operating center and role of center leader and secretary
e. Weekly center meeting and its importance
f. Loan disbursement process
g. Loan ceiling in different years
h. What will happen if verbal contract is breached by the clients
i. Close the day with verbal contract by both the parties
Day-6
a. Starting of the day with verbal contract
b. Signing the attendance register
c. Revision of fifth day
d. Loan utilization check and its importance

69
 e. Loan repayment process
f. Record keeping at the center and knowing loan balance of each members
g. End of the day with verbal contract by both the parties
Day-7
a. Start the day with verbal contract
b. Signing of the attendance register
c. Revision of the sixth day
d. Branch Manager conducts GRT and gives his/her recommendation/decision to
pass the group, if found satisfactory. Else the group fails and the training is extended
for few more days.
e. End the day with verbal contract by both the parties

GRT (Group Recognition Test)

It is a process by which a supervisor checks the group formed by the Center
Manger. The process is recorded on a prescribed format, the GRT Form (Annex - ??).
The supervisor ascertains the poverty status of the clients and their acquaintance with
products and services offered by the company, loan disbursement process and other
terms and conditions.

70
 10. Lending Process at CASHPOR
Is the
attendance YES CM fills the loan
at least proposal for 60%
90%? members
Loan proposal
submitted in
CM visits the first Centre
meeting after GRT with , Branch/Unit for
Loan proposal postponed sanction
loan proposal form
for the next meeting
In Branch In Unit
Amount
Amount up to up to Rs.
Sanction 10,000
Rs. 10,000
by BM

Amount more than

2 weeks for 1 st
Amount up to
Rs. 10,000
Proposal of next 40% disbursement Rs. 12,000
Sanction
members, if min. by AM
attendance is 90% CM watches
discipline for
the first week

1 week for
subsequent
In the Centre disbursement
CM collects the bank Meeting
receipts and matches
DM sanctions
with demand in the CDS
amounts up to Rs.
14,000.

Disbursement at the
Weekly repayment of Sanction
Branch and at Centre
the disbursed loans in by UM
Meeting by CM, in Units
nearby banks by clients
through bearer cheques

71
 Credit discipline is nothing but following the 5 steps of the
verbal contract strictly. Experience says that if Center Manger is able to
implement the verbal contract then he will never face the repayment crisis at
his/her center.
Since the poor survive with very thin margins. Credit increases
their financial burden and disturbs their normal routine. Many a poor have not
been able to pay up for their debts and had to lose some of their asset or forced to
do labour for a very long time. Credit discipline helps the clients to become
habituated to a routine which includes making small savings. Following a strict
routine forces them to manage small sums of money to repay their instalments.
This discipline alone helps the poor family to absorb the increasing loan amount
and raise themselves out of poverty.
How to create and maintain credit discipline?
Creating discipline is just like creating a good habit. Creating
good habit requires attitudinal changes and disturbs the routine of the poor
women. Therefore, it is a time taking process. Have patience, but do not yield.
Stick to your demand for complete discipline. The lesson of discipline starts with
client selection. Following are some tips on creating and maintaining credit
discipline:
a) Do not allow non poor members in the group. Experience is
that the poorer the women the higher her repayment rate, contrary to conventional
wisdom. This is because the poorest women usually have no other opportunity to
acquire capital, and will do almost anything to keep our credit line open.
b) Rigorous client training that emphasizes the importance of
the verbal contract.
From the very first day of the CGT, the Center Manger needs to ensure

72
• timely and full attendance
• proper sitting arrangement
• keeping commitments
c) Opening and closing meetings with the client and staff pledges.

d) Unanimous approval of loan applications by the Center

e) Thorough loan utilization check by the Group leader and CM
The best way to enforce discipline is by leading through example. The CM must
honour all his/her commitments. Maintaining discipline is as important, as
creating it. A single negligence may break the discipline, so consistently insist on
maintaining discipline.

73
10. The Lending Process

Loan Proposal
1. Loan proposal is always filled in weekly Center meetings.
2. At the time of loan proposal minimum 90% attendance is
compulsory.
3. Center Manager starts the Center meeting with the pledge, after
requisite attendance
4. The CM enquires about the loan instalments if any loan is
outstanding.
5. For the first proposal, only 60% members are eligible. These

members are selected during the CGT on the 4th day.

6. The proposals of the first 60% are filled in the first meeting after
the GRT. The proposal of the rest of the members is taken in the
fourth meeting.
7. The selected Clients propose their loan demand with the purpose
to the Center in the weekly Center meeting with prior consent of
her husband.
8. Center assesses the genuineness of her demand by analyzing her
absorption and repayment capacity.
9. The Center/group members and Center leader may reduce the loan
amount. On consensus the Center leader will recommend the loan
amount
10. Center leader finally proposes the amount to the Center
Manager.

74
 11. Center Manager fills up the loan proposal form and gets the
signature of the Center leader and clients whose proposal has been
taken.
12. The CM should enquire the husband’s approval for the loan.
13. Based on his own judgment, the Center Manager will
recommend the loan amount. The CM can reduce the loan amount,
if he/she feels that the proposed loan amount is more than the
client’s capacity. But the CM cannot increase the loan amount
under any circumstance.
14. The Center Manager recommends the loan amount to Branch
Manager for approval.

Loan Sanction
1. The recommendation is placed before the BM for approval. The BM
takes the decision of sanction amount.
2. The UM/AM sanctions the amounts.
3. Only the DM is empowered to sanction loans above the criteria.
4. The Supervisors should not blindly sanction the amount but verify
randomly at least 10% of the proposals in their routine Centers
Visit.
5. They should not only verify the client who has made the proposal,
but must do a loan appraisal as well.
6. The appraisal should try to determine the following:
a. Real demand to see that there is no over financing
b. The economics of the project- investment, returns, cash flow
etc.

75
 c. Other sources of funding the project, if the loan is not
sufficient
d. Capacity of the client to undertake the project

Loan Disbursement
1. All disbursements are to be scheduled post lunch so that the
CMs and members can complete their meetings.
2. Minimum 90% attendance is compulsory in the meeting after
which loan will be disbursed. If the attendance falls short, the
disbursement should be deferred.
3. As always, the meeting should start with the pledge which is
followed by ensuring the due collections.
4. The Center Manager should carry Collection and Disbursement
Sheet (CDS) in duplicate copies for every meeting. The approved
amount appears as To Be Disbursed (TBD) on the CDS.
5. The CM should ensure the utilization of previous loan and no
outstanding arrears. CM should then ask the members to come to
the branch office with the Center leader.
6. At the branch the CM completes the Demand Promissory (DP)
note and gets it signed by the client before loan disbursement.
7. The BM enquires the members about their loan amounts and
end use. He should seek clarifications to see whether the first time
borrowers have understood the program. Before giving the amount
BM must clarify all the terms and conditions and stress on the
following:
i. This loan is being given by CASHPOR and it is not the
decision of any one individual.

76
 ii. The amount has been given on verification for their
purpose and they must not hand it over to anybody else.
iii.Since they are taking the loan from the branch of the
CASHPOR, they must return it there and no other person
or place.
iv. The repayment has to be in 46 weekly instalments over 50
weeks period with two weeks extension in emergencies.
v. The weekly instalments of the members and the
Group/Center
8. The Loan amount in cash is given to the client by the Branch
Manager in presence of the concerned Center Manager. The
disbursed amounts are entered on the CDS and sent for entry into
the MIS during daily/weekly reporting.

Loan Repayment
1. Each loan is for a term of 50 weeks with 4 weeks holiday.
2. The MIS breaks up the loan repayment into equal weekly
instalments.
3. The weekly instalment of every member is reflected in the CDS.
The CM informs each borrower of the amount of the instalment.
4. In every meeting, the CM reminds the Center Leader of the total
instalment that is due from the Center for the next week. The CM
hands the Center leader the advance receipt with the due amount
and Centre details written on it. One of the CDS is left with the
Center, while one is carried by the CM for record.
5. It is the responsibility of the Center to deposit the instalment at
the Branch before the next meeting.

77
 6. The Center Leader collects the due instalment of each member. By
rotation every member is responcible to visit the branch in
different weeks with the aggregated amount for depositing it.
7. The Cashier/BM collects the cash from the members along with
advance receipt with the Centre id and village name. The
transaction is recorded in the cash register and the receipt is
stamped and returned to the members.
8. In the next meeting the CM has to collect the receipts with paid
stamp and paste it at the back side of the CDS for record. He must
write the amount of collection for each client in the CDS.
9. The Center copy of the CDS has to be left at the Center, while the
CM must take the updated office copy and deposit it at the Branch
in case of unit model it will send to DO for entry in the MIS during
weekly reporting.

Reporting and MIS

1. The MIS is maintained at the branch and district level depending

upon the operational model. In case of unit turn mini branch
model the MBMs report all the data to be entered into the MIS,
weekly. The MBM enters the data into the MIS with help of MIS
officer and prints the CDS for next week Center Meetings.

78
2. However in branch model Center Manager enter the data into the
MIS on daily basis at branch office and produce the report.
3. The Center Managers must report to the Branch every day. If a CM
fails to report explanation should be sought for his absence. Action
may be taken as per the rules mentioned in the Operations Manual.
4. The CM must carry the office copy of the CDS with details of
repayment to the Branch office.
5. The Cashier/BM collects the CDS and Form no.1 and GRT forms
from the all the CMs and maintains them in the Branch office.
6. The Mini Branch Manager reports to the District on a specified day
every week. During his/her visit, the MBM carries all the CDS with
recovery and disbursement details and the GRT forms of the new
groups and replacements.
7. In Branch model daily reporting and MIS entries takes place at
branch office. BM is responsible to send his branch weekly
transaction database to the district office on specified day of the
week.
8. The BM also carries a reporting register, in which he mentions all
the reports submitted and received at the District Office. This
Register is signed by the AO.
9. A similar reporting register is maintained at the district where the
BM signs on reporting.

79
11. Strict Credit Discipline

What is credit discipline?

Credit discipline is nothing but following the 5 steps of the verbal
contract strictly. Experience says that if Center Manger is able to
implement the verbal contract then he will never face the repayment
crisis at his/her center.

Why credit discipline is necessary?

Since the poor survive with very thin margins. Credit increases their
financial burden and disturbs their normal routine. Many a poor have not
been able to pay up for their debts and had to lose some of their asset or
forced to do labour for a very long time. Credit discipline helps the
clients to become habituated to a routine which includes making small
savings. Following a strict routine forces them to manage small sums of
money to repay their instalments. This discipline alone helps the poor
family to absorb the increasing loan amount and raise themselves out of
poverty.

How to create and maintain credit discipline?

Creating discipline is just like creating a good habit. Creating good habit
requires attitudinal changes and disturbs the routine of the poor women.
Therefore, it is a time taking process. Have patience, but do not yield.
Stick to your demand for complete discipline. The lesson of discipline
starts with client selection. Following are some tips on creating and
maintaining credit discipline:

80
a) Do not allow non poor members in the group. Experience is that the
poorer the women the higher her repayment rate, contrary to
conventional wisdom. This is because the poorest women usually have no
other opportunity to acquire capital, and will do almost anything to keep
our credit line open.
b) Rigorous client training that emphasizes the importance of the verbal
contract.
From the very first day of the CGT, the Center Manger needs to ensure
• timely and full attendance
• proper sitting arrangement
• keeping commitments
c) Opening and closing meetings with the client and staff pledges.
d) Unanimous approval of loan applications by the Center
e) Thorough loan utilization check by the Group leader and CM
The best way to enforce discipline is by leading through example. The
CM must honour all his/her commitments. Maintaining discipline is as
important, as creating it. A single negligence may break the discipline,
so insist on consistently maintaining discipline.

81
12. Delinquency management

What is Delinquency?
A situation when the borrower fails to repay the full instalment on the
due date, i.e., the loan falls in arrears. Delinquent loans are loans on
which any payments are past due. This is the ringing of alarm bell for the
CASHPOR team. The CM has to take immediate steps to recover the
arrears. A Manager must strive to attain 0% delinquency in his area of
supervision. The Organization has zero tolerance for delinquencies and
this is reflected in its policies. The performance and incentive of all the
staff is affected by arrears.

Causes of delinquency
The aphorism “Prevention is better than cure” holds good for
Microfinance as well. The major causes of delinquency are lapses during
the group formation or training stage or lack of discipline by the CM.
Thus if the Manager strictly follows all the procedures and keeps a close
monitoring, most of the problems can be avoided. Following are some of
the causes of delinquency
• Adverse selection- including a non deserving member in the group
• Over financing- Amount lent to member was higher than she could
manage
• The loan was not utilized for the purpose it was taken
• Members not homogeneous- due to which peer pressure cannot be
imposed
• Inadequate training

82
• Irregularity by the CM
• Unavoidable conditions like death or severe illness

Why should we check delinquency?

The success of a micro-credit program depends on the credit discipline
of the clients. The poor clients have no other means to prove their credit
worthiness for larger loans. On time repayment is absolutely necessary
for sustaining the microfinance programme and enhancing fund
management skills of the clients. There are various reasons because of
which the MFI cannot afford delinquency (arrears)3:
• destroys credit discipline among clients
• delays revenues and decreases operating spreads
• slows down rotation of the portfolio
• increases collection costs (visits, analysis, and recovery campaign
costs)
• threat of losing credibility and long-term institutional viability

How to measure delinquency

The measures of portfolio quality are a measure of delinquency:

Repayment rate=
Total repayment received – (Arrear payment + Prepayments)
Total Amount due for the period
Portfolio At Risk (PAR) =
Amount of loan outstanding with arrears more than 4 weeks
Total loans outstanding (Portfolio Outstanding)
3

83
The repayment rate provides a measure of performance and portfolio
quality. All CMs should strive for a 100 % repayment rate. However,
repayment does not give the estimation of the actual risk. PAR is the
best indicator for assessing the risk of potential losses.

Measures to deal with delinquency

No Tolerance of Arrears Policy (NTAP)

Our organization strictly follows the NTAP. If it is implemented fully and
consistently right from the time of the first arrears, it will prevent their
spread and, before long, result in their elimination, due to the group
pressure generated on the defaulters.
• The CM must immediately report the first arrears in a Center.
• There should be no further disbursements in Centers with arrears.
• The CM must visit the Centers with arrears in a team of other
neighbouring CMs for recovery
• If the efforts of the CM are not successful, the BM must make visits to
the erring Center with the CM. The responsibility later shifts to higher
officers.

Clients usually oppose the NTAP strongly, and make all kinds of threats.
But the Center Managers must be instructed to keep patience. They must
remind the Center members of their promises to pay in full every week
and to assist sister Center members who are having difficulty in paying.
The CM must remind the clients that they have only their word, through
the Surety Agreement/Verbal Contract, that they will take collective

84
responsibility for all the loans to Center members. If they break their
promise, how can Cashpor do any more business with them?
The clients will definitely not like this, but if the CM stays firm they will
understand and accept it. The CM must report any arrears to their
Branch Manager/Unit Supervisor as soon as possible by telephone.

Rehabilitation of Centers with Arrears

1. Identification of Wilful Defaulters
The first step in Center rehabilitation is the identification of defaulters
who have the ability to pay but have decided not to. These wilful
defaulters can be identified with the help of the clients still in good
standing. Make a list of defaulters with arrears of 5 weeks or more, and
go through it client by client asking the members in good standing to
identify the wilful defaulters. They know and will reveal the information
for the sake of resumption of loan disbursement.
2. Letter of Expulsion for Wilful Defaulters
In most circumstances, wilful defaulters with arrears of 12 or more
weeks of age should be expelled from the micro-finance program.
However, District In charge may wish to give one last chance to them by
means of a letter requesting them to resume attending the Center
Meeting and paying their instalment in full by a specified date. In
experience, such letters have had little effect in terms of improving
repayment, but in some cases they have made the subsequent expulsion
of the client more socially acceptable.
Ultimately a letter of expulsion will have to be sent to most of the wilful
defaulters with arrears of more than 4 weeks. It should make clear that
they are no longer entitled to attend the Center meetings or to

85
participate in the financial services offered by the MFI, but their debt to
The MFI continues and interest on it continues to accrue. It would be
best for them to settle it by paying what they can at any subsequent
meeting of their Center. Otherwise, the MFI will have no choice but to
try to collect the debt at their house, with all the attendant
embarrassment.
3. Write-off of Debt of Expelled Members
Clients are expelled only when the age of their arrears is such that the
chances of their collection are near zero. Such debt should be put up to
the Board for being written-off at its next meeting. Loans written-off
should be reported separately in the Loan Portfolio Quality Report.
4. Motivation for Wilful Defaulters with Arrears of less than 12 Weeks
Wilful defaulters with arrears of less than 12 weeks may decide to clear
them if they are motivated well. If their arrears cross 5 weeks, they
should be asked to resume attendance at Center Meetings, if they have
stopped attending, and then they should be motivated first not to allow
their arrears to cross 12 weeks and to clear them gradually. In such case
they should be eligible for a subsequent loan smaller than the previous
loan by the total amount of instalments that they missed, prior to
settling the loan.
5. Restructuring for non-Wilful Defaulters
Non-wilful defaulters can be identified with the help of the Center
members still in good standing. They will be clients whose earning
capacity has been reduced suddenly by means of an accident, serious
illness or loss of an important productive asset (e.g., death of a milk cow

86
or buffalo that was purchased with the loan and for which there is no
insurance). Or they could be clients with children that are seriously ill.
They should be motivated first to resume attendance at Center
meetings, and then a plan should be developed with them for their
rehabilitation. It could include refinance (disbursement of
supplementary funds) or lengthening the loan term or both. Such
restructuring can be done only with the approval of the CEO, for which
sufficient evidence must be provided, and must be reported in the Loan
Portfolio Quality Report, to the next meeting of the board and on the
next audited Balance Sheet. Prior to any restructuring, the Center must
cover the arrears of any non-wilful defaulters.

13. Monitoring and Supervision

Strict Supervision: Key to Success

Cashpor is organized to facilitate attainment of its Vision and
Mission. Essentially it involves District-level operations under the
supervision of a District In-Charge who reports to the Regional
Manager. Supervision of subordinate staff is a central process in the
running of an effective and efficient micro finance institution. It is
perilous to assume that work is being carried out by the subordinate
staff, as directed. Each supervisor has the responsibility of
continuous check to ensure that the work is being carried out
properly, i.e., procedures and internal controls as outlined in the
Operations Manual are being complied with. If a supervisor does not
check the work of his/her subordinate staff thoroughly and

87
frequently, they will assume he does not really care how they do
their work. This results in reduced motivation and incentive for
good work and exposes the area to the hazards of frauds.
Generally, good supervision involves issuing clear instructions
(written if possible) to subordinate staff, making a record of them
(say in your diary), carrying out both planned and surprise
visits/checks to ensure that they have been carried out as directed.
If not, asking why and changing the original instructions if
necessary.
Brief, summary, written reports of surprise visits should be
made on the prescribed form to the supervisor of the manager who
carried them out. A copy should go into the personal file of the
officer-in-charge of the unit that received the surprise visit.
Surprise visits should not be taken personally. They are a normal
and essential part of the supervisory work in a micro finance.

Reporting Structure
All District In-Charge report to the Regional Managers
The Regional Managers has responsibility and authority for all District-
level operations and the following:
a. Attainment of company business plan in his region.
b. Assuring adherence with laid down policy and procedure.
c. Keeping organisation reputation in good shape.
d. Final recommending authority for termination of personnel
in his jurisdiction.

88
 e. Final recommending authority for appointment of Center
Manager in his jurisdiction.
f. Final recommending authority for disciplinary Action for
staff under his supervision that could result in termination or
transfer.

District In-charge (DIC) has responsibility and authority for all the
personnel, assets and activities in their Districts, except for:
a. As regards transfer of personnel working under him, he
had to act as per provisions of Transfer policy
b. Expenditure in Excess of the approved budgets
The District In-Charge supervises the Area/Branch Supervisors. He should
receive weekly reports from them on their planned and actual
supervisory activities, including copies of their Surprise Center and
Branch Visit Reports that require his attention. In cases of serious
violation of operating procedures as described in the Operations Manual,
the District In-Charges should schedule as soon as possible a surprise visit
to the concerned Center/Branch to ensure that corrective action has
been taken.

Area Managers/Unit Managers (AM/UM) are responsible for supervising

the Branch Managers/Center Managers placed under their authority by
the District In-Charge. The Area/Unit Managers should make both
planned and surprise visits to Branches and their village-based Center
meetings, where most of the business of the financial service program is
carried out. Each Area/Unit Manager should make a surprise visit as per

89
their quota given in operation manual. Before the surprise visit to the
Branch, the AM/UM should make surprise visits to at least two of its
Center meetings, under different CMs. AMs/UMs give their Surprise Visit
Reports to the BM for follow-up action. Copies of Reports showing serious
violations of operating procedures, such as following must be given to
the District In-charge, by the end of the week:
- The Center meeting not taking place on the scheduled time and day,
- Attendance below 80%
- Any suspected cases of phantom loans or under-disbursement
- Loan utilization of less than 90%
- PAR > 5%

Surprise Center Visit (SCV)

The AM /UM/BM/Officer carrying out SCV should arrive at the Center
Meeting place ten minutes before the scheduled time for the meeting.
Whether or not the CM arrives on time should be recorded, as is whether
he/she is wearing a crash helmet. Attendance of Center members should
be observed and recorded; and the Center Attendance Register should be
checked to determine if it is being kept properly and to calculate the
average weekly attendance over the past month. If it is less than 80%,
the AM/UM/BM should bring it to the attention of the Center members.
1. The following points during conduct of the Center Meeting should be
observed and recorded:
• Are the members seated correctly? Does the Center Chief run the
meeting?

90
 • Is the Group Chairperson queried about any absentees, and sent to
fetch any that are unexplained?
• Are the official receipts handed out, and do the GCP check for the
CM's signature, and for any alterations not signed by him?
• Are the receipts kept neatly in a folder, according to date?
2. The officer performing the SV should receive the Deposit Slip from the
Center Chief, so as to spot quickly any irregularities. Is the deposit
complete? If not, the Supervisor must find out why? Does each CDS
circulate independently on its own clipboard for signature, to save
client time? How long does the meeting take? The Supervisor’s
observations should be entered on the Surprise Center Visit Report.
3. After the Meeting, the visiting official should check loan disbursement
and utilization at the houses of the clients who have received loans
since the last Surprise Visit (based on the CDS report).
4. The Surprise Center Visit Report should be completed by the visiting

officer during the Center Meeting and discussed with the CM and the
Center Chief, and immediately after the meeting all should sign in the
designated spaces.

Disbursement from records Observation/Finding

Supervisor: Signature:

91
• When the Officer visits the Branch after the SCV, a photocopy of the
report should be made by the BM for his follow-up action.
• Another copy should be submitted to the Supervisor of the visiting
Officer, in case of serious violations of operating procedures and rules
(see above).
• The Supervisor should schedule a surprise visit to the Center, and
carry the SCV Report with him during the visit.
Frequent Visits are necessary for Mentoring BMs
Branch Managers are in a difficult position. They are part of the
management of Cashpor but they are posted in the field alone. They
interact daily with their subordinate staff, and may come to take their
point of view rather than that of the management, unless visited
frequently and motivated by their Area/Unit /District Managers.
The Branch Manager must ensure the following:
1. To take day-to-day responsibility for all the work to
establish/successful functioning of branch where ever posted.
2. To implement the CASHPOR model branch plans by following the
procedures/systems being in vogue at various existing/proposed
Districts.
3. To increase the outreach of the branch for the attainment of
financial viability in a cost effective way.
4. To supervise the field staff working under him/her including their
work in the field. He must make extensive field visits. His success
depends on this.

92
 5. To ensure that the targets allotted to each field staff and branch
as a whole are achieved positively and also to ensure that net
increase as per target is achieved positively.
6. To get the daily records updated and necessary periodical reporting
made to the higher authorities.
7. To conduct all GRTs with rigour and sincerity. GRTs may be
postponed but quality should not be compromised.

Surprise Branch Visit (SBV)

Checking Cash
• Upon arrival at the branch to be visited, the officer carrying out
the SBV should ask for the key register, cashbox, cash book, vault
register and bank registers.
• He should check to see that the keys are with the designated
persons, and obtain them.
• The cashbox contents are to be checked against the cashbook and
the vault register, and any discrepancies recorded, with the
explanation(s) of the staff responsible. If the closing balance was
not nil and preceding day was not a Wednesday, then the BM
should be asked for an explanation, and instructed to follow the nil
balance rule in future.
• The officer must have received the details of any payments of
funds, by cash, cheque or transfer, from the District Office to the
Branch since the last visit, and verify their proper receipt through
the cashbook or bankbook.
Estimating Idle funds

93
The officer conducting the SBV must check to see that there are no “idle
funds” in the Branch bank account(s). “Idle funds” are any that the
Branch will not need in the next week. The amount needed over the next
week can be estimated by verifying the branch due disbursement report.
Prospective salary and incentive payments to Branch staff must be
considered. After assessing the estimated total fund requirements of the
Branch for the next week, any excess funds in the bank(s) should be
transferred inter-bank to the District Office account of the respective
Bank.
Verification of Loan disbursements & Checking for Pending Loans:
The officer doing the SBV should ask for the Due Disbursement Report for
the Branch for the previous week to be printed out and should check the
appropriate CDS to ensure that disbursement actually took place. If not,
the case should be reported in the SBV Report, including the reason(s)
and what happened to the funds. Any pending loan applications, i.e.,
those that were approved by the Center more than a week ago and have
not yet been approved/ disbursed should be identified and each case
reported in the SBV Report.
Verification of Salaries & Incentives Paid: The officer doing the SBV
must check the incentives and salaries paid to the staff for the previous
month against original documents, including the Branch Staff Attendance
Register, the Monthly Staff Productivity Report and monthly staff
movement register (for reimbursement of local conveyance purposes.)
Verification of Monitoring Data: The officer making the SBV should carry
with him a copy of the latest Branch Monthly Data Report from the DO.
Items on Active Loan clients, Total Loans Outstanding, Portfolio at Risk

94
and Interest Income Received should be verified against the appropriate
original documents. Any discrepancies should be brought to the attention
of the Branch Manager and should be recorded in the SBV Report.
Compliance with Staff & Office Rules: the officer doing the SBV should
have familiarized himself with the Office Rules. Any violations observed
during the visit should be brought to the attention of the staff concerned
by means of a verbal warning & recorded in the SBV Report.
Feedback to BM from Surprise Center Visit: A Surprise Branch Visit
should always follow a Surprise Center Visit, and the Officer who carried
out the SCV should brief the BM on it and a photocopy of the SCV Report
be handed over to him for follow-up action.
Surprise Branch Visit Report:
Completed SBV forms should be filled out in duplicate, discussed with
the Branch staff collectively before the supervisor leaves and a copy left
with the Manager. The original should reach the respective DIC within a
week.

GRT and Poverty Status

The GRT must be conducted by an authorized officer not below the
rank of a Branch Manager/ Incharge. All questions must be put to
prospective clients. The Client Pledge must be recited individually by
each prospective client, and the Group must not pass until its members
can do so.
Poverty Status Verification is to be done by the IAD during their
regular internal audit visits. Initially 20% GRTs are to be checked for
each Branch Supervisor. Client's houses are to be visited and the CHI

95
score on Form No.1 is to be verified. Rest of the items on Form No.1 are
to be checked to verify the poverty status of the household. If more than
one non-poor household is discovered in a Center, then all other Centers
of that Supervisor must be checked and follow-up action taken through
the District Incharge. All cases of leakage must be reported to the RM
with copy to Managing Director and Chairman.

Revenue Model and Financial Plan

Interest income is the main source of revenue for CASHPOR. The two loan
products that we offer (discussed earlier) are Income Generating Loan and
Emergency Loan. For both the loan products we charge an interest of 26 percent,
on declining basis.

The Proposed expenses are discussed below:

Staffing and their remuneration:

The remuneration of the staff has been classified as: -

• Basic Salary,
• Provident Fund
• Medical Allowance
• Mobile Allowance
• Earned Leave for 30 days in a year.
Incentives based on performance, the company also requires support staff in
addition to the staff for operation. Each district needs some support staff to carry
on the operation. They are paid their remuneration in same fashion as for the
operation staff. The different support staffs with their basic salary are as follows:

96
Administrative Expenses:

The list of Administrative expenses to be incurred in one of the district office is as

follows:

Traveling & Conveyance This expense is proposed to be incurred for field

visits by center managers, Unit managers and the
District manager.

Rent The rent of the district office is assumed to be

Rs.8000 per month.
Utilities Utilities include the expenses for water and electricity
bill. The utilities expense is assumed to be Rs.1, 000
per month.

Generator Expenses The fuel for generator will be Rs.3000 per month.

Postage Telegram & This expense is also assumed to be Rs.1, 000.

Telephone

Printing and Stationery This expense constitutes the major part of

administrative expense. It is proportional to the no. of
clients. We assume it to be in the range of Rs.4500
and Rs.5000.

Repair and Maintenance This expense will be Rs. 1,000 per month.

Entertainment Entertainment expense includes the entertainment

expense for office and visitors. We assume Rs.500

97
 per month for this expense.

Depreciation Different assets are depreciated in different rates.

Miscellaneous Expenses This expense includes newspaper, Photograph and

film, daily wages, guest room expense etc.

Bank Charges This expense is proportional to the amount of

disbursement and repayment.

Financial Expense: - The Company will borrow funds for onlending and working
capital. It is assumed that Banks/Financial Institutions will charge different rate of
interest for both of them. As microfinance comes under the priority sector lending
of banking portfolio, we can assume that we can obtain funds for onlending below
the PLR (Prime Lending Rate). We assume that the term loan for onlending will
bear an interest rate of 11% and the working capital loan will bear an interest of
12.5%.

As it is well acknowledged that financial viability is necessary for the survival of

any microfinance program, we cannot ignore it. In the Business Plan we have
tested our financial efficiency and financial viability through the calculation of
varied ratios. Operational Self-Sufficiency and Financial Self-Sufficiency are the
two ratios which measure our viability and the ability to sustain.

We have tried to develop the model plan i.e., the plan for one district (Annexure
1) and adopted it for the district wise expansion to reach the consolidated plan.
The five year projection of all the new districts which has been proposed to be
opened is shown in Annexure 2.

98
Financial Analysis

The financial viability of the plan can be checked by testing it under

different parameters. We adopt a thorough ratio analysis for this purpose. There
are different types of ratios calculated to measure the different dimensions of the
operational and financial performance. These ratios are discussed here under:

Portfolio Quality:

Portfolio at risk: The portfolio quality of the company can be measured by

ascertaining the proportion of portfolio outstanding that remains under the risk of
default. We call it portfolio at risk (PAR) or value at risk (VAR). The PAR adds to
the non performing asset of the company and should remain as minimum as
possible. We have assumed that the PAR, in any case, will not exceed the ceiling
of 5% of portfolio. We create a provision of 5% against the PAR.

Loan Write-Off Ratio: This is the ratio of loan write off amount and
portfolio outstanding. We should write off a certain percentage of provision every
year.

Loan Loss Reserve Ratio: Loan Loss reserve is the amount left writing off out
of the provision. This is the difference amount of provision created and written
off. The loan loss reserve ratio compares the loan loss reserve with the portfolio
outstanding.

Profitability Ratios: This is a very crucial ratio. It measures the self sufficiency
of the MFI to meet its expenses both operational and financial.

99
Operational Sustainability (OSS): OSS measures the ability of an MFI to meet
its operational expenses which includes both, the administrative expenses as well
as the cost of borrowed funds. To calculate OSS, we compare the operational
income with operational expenses. It is assumed that the interest income from our
products is the only source of income. An MFI can be fully sustainable if its
operational income (interest income) is sufficient to meet all of its operational
(administrative and financial) expenses. But, as an MFI we do not work with
profit motive, we struggle to attain it. According to the business plan, we are
under sustainability with 68% OSS in the first year. We become fully sustainable
in the second year of operation and the OSS ratio is on increasing trend following
the principle of economy of scale.

OSS is calculated as follows:

Financial Income (Interest income)

Total expenses (Administrative & Financial)

Financial Sustainability (FSS): Financial sustainability measures the financial

soundness of the company under prevalent market conditions. To calculate the
ratio, in addition to the total cost, the cost of capital is also considered.

To find the cost of capital, inflation rate to average equity (@ of 5%) and market
rate of borrowed funds (@ 15%) is added to the total cost.

FSS is calculated as follows:

Financial Income (Interest income)

Total expenses (Administrative & Financial) + cost of capital

100
Efficiency and Productivity Ratios: The efficiency ratio measures the ability of
the MFI to perform with increasing rate of return and cost effective manner.

Yield on Portfolio: This ratio measures the return on average portfolio

outstanding. It is calculated by comparing the interest income to the average
portfolio outstanding.

Administrative Cost Ratio: This ratio compares the total administrative expenses
(field & head office) with the average portfolio outstanding. In the plan, the ratio
shows the declining trend due to the principle of economy of scale.

Operating Cost Ratio: This ratio compares the total expenses (administrative &
financial) with the average portfolio outstanding. In the plan, this ratio also shows
the declining trend due to the principle of economy of scale.

Borrowers per Credit Officer: This ratio measures the efficiency of the field
staff in terms of number of loan clients. In the plan, the ratio shows the increasing
trend as the number of loan clients accumulates every year and thus the credit
officers has to enhance their efficiency.

Loan Portfolio per Credit Officer: This ratio measures the efficiency of the field
staff in terms of portfolio outstanding. In the plan, this ratio also shows the
increasing trend as the portfolio accumulates every.

CASHPOR has commenced its operations in 1997. From its very inception, it has
concentrated its operation in the states of Uttar Pradesh and Bihar. The
performance of the company for the past two years i.e., as on 31st March 2005 and
31st March 2006 is shown below:

101
Years No. of No. of Loan Portfolio Operational
Districts Clients Outstanding Self
Sufficiency

2005 6 68,229 27 Cr 65%

2006 10 123,359 50 Cr 62%

The District wise performance for the previous year is shown below:

Name of Performance against targets Performance against targets

Districts for active loan clients for portfolio outstanding

Financial Financial Financial Financial

Year 2005 Year 2006 Year 2005 Year 2006
Mirzapur 101 % 102 % 88 % 98 %
Ghazipur 91 % 111 % 112 % 105 %
Chandauli 75 % 95 % 85 % 87 %
Ballia 104 % 106 % 127 % 116 %
Buxar 67 % 122 % 84 % 119 %
Bhabua - 66 % - 85 %
Mau 65 % 54 %
Deoria 114 % 94 %
Saran 140 % 135 %
Jaunpur 56 % 42 %
Overall 91 % 100 % 93 % 98 %

102
Funding Requirements

As per the consolidated Business Plan (Annexure 2), we require the funds for
three purposes, namely –

a) For on lending
b) For Working Capital, to finance the loss in the first year
c) Equity Investment – To cover the negative equity in the first two years, we
need an investment in the form of quasi equity / medium to long term
subordinated debt.
There are number of bankers which can provide us funds for on lending and
working capital.

For getting the funds sanctioned from the funding agencies, we submit a loan
proposal showing our projections of portfolio outstanding and the no. of
members / loan clients. After going through their due diligence, the funding
agencies sanction us the funds.

Human Resource Development

The Company is aware of the critical importance of our staff, our human
resources, to the success of our mission. It is through our field staff, in particular,
that we interact with the poor. If our Center Managers (CM) are trained and

103
motivated to do their work efficiently and effectively, then we shall succeed.
Otherwise failure will be out lot. It is as simple as that.

Training of CM is mostly in the field where they learn by observing the

experienced CM in their work, asking questions and trying to do it themselves.
The Head Office for each training module supplies a list of important questions
and trainees have to try their best to prepare themselves to answer them. How they
do this at the branch-level, however, is mostly up-to-them.

Motivation of CM to work efficiently and to attain their share of the

Business Plan targets of the Company can be achieved only by offering them an
attractive package of benefits/incentives. No doubt job satisfaction comes partly
from seeing the results of their labor, that is seeing poor households come out of
poverty as a result of the micro finance services provided; but there is no
substitute for an attractive and competitive package of material benefits. Key
components of this package are salary, productivity-related incentive payments
and promotion/career prospects.

CFTS Ltd/CMC/CG has two core HRD policies that underlie the package
of specific benefits: 1) an open promotions policy in which paper qualifications
determine only the entry point into the organization. Thereafter actual work
performance is the main determinant of promotion. 2) Priority to filling positions
by promotion from within the organization. Only when there is no suitably
qualified candidate within, and nobody who can be trained in time, do we look
outside the organization.

104
 14. Accounting Process

Objective of Accounting
The objective of accounting can be stated as follows:

1) to maintain systematic records

2) To ascertain net profit or net loss of the business
3) To ascertain the financial position of the business
4) Provide information for taking actions to improve business
5) To provide accounting information to interested parties

105
Parties Interested in Accounting Information
Owners: Owners contribute capital and assume the risk of business

Managers: Accounting information is of immense use to managers. It

helps to plan, control and evaluate all business activities.

Lenders: Institution like bank and other financial organization who

provide money for business.

Creditors: Those who supply goods and services on credit are called
creditors.

Prospective Investors: A person who wants to become a partner in a

firm or a person who wants to become a share holder of a company.

Tax Authorities: Tax authorities of the Government are interested in the

Financial Statements as to assess the tax liability of the enterprise.

Employees: The employees of the enterprise are also interested in

knowing the state of affairs of the organization in which they are
working

Accounting Activities
Transactions and Accounting Principles in MFIs

Transactions
It can be seen that in any type of organization whether commercial,
financial or social, many types of events, business, exchanges and give

106
 and take process takes place. These processes are termed as
Transaction.

Types of Transactions

Commercial and financial Non Financial

Transactions Transactions
1. Disbursement of Weekly Center Meetings
loan to the center Staff Meeting
2. Collection of
Installment from the
Center
3. Salary payment to
staff

Basic accounting principles for MFIs

Double Entry System

Every business transaction has two parts; (1) the receiving aspect, and
(2) the giving aspect. For example, when you purchase goods for cash,
goods come in and cash goes out. Thus, a transaction affects two items
(also called accounts) at the same time. When you record the
transactions in the books of account of a business, it would be better if
you record the effects relating to both the items. In the above example
the items affected are goods and cash, stock of good increases and cash
decreases. So we would record the increase in the stock of goods and

107
also record the decrease in cash. This involves two entries, one in goods
account and other in Cash Account. This method of recording business is
called ‘Double Entry System’. It recognizes and records both the aspect
of every transaction.

Conservatism and Prudence

Conservatism means recording financial transactions such that assets,
revenues, and gains are not overstated and liabilities, expenses and
losses are not understated. It is intended to result in the fair
presentation of financial results.

Materiality
Each material item should be presented separately in the financial
statements. Material items are those that may influence the economic
decision of a user.

Realization
Realization requires that revenue be recognized in the accounting period
it is earned, rather than when it is collected in cash. It defines the point
at which revenue is recognized.

Matching
Organizations incur expenses to earn revenues. Expenses should be
reported on the
Income-Expenditure Statement during the same period as the revenues
they generate.
3.0 Types of Accounts

108
 Types of Accounts

Personal Account Real Account Nominal Account

Natural account Artificial Account Representative Account

Vouching and Primary Books of Accounts

In a Micro finance institution accounting procedure starts with the

recognition of the nature of transaction. The first step is to identify the
dual aspect of the transaction and then to prepare a proper voucher for
the corresponding transaction. After preparing the vouchers entries are
made in primary books of accounts in a manual system. However, if the
accounts are computerized, on passing an entry the corresponding book
of account is automatically updated.

Vouchers
The whole process of accounting starts with the recording of the day to
day transaction of the organization and this process of recording and
classifying starts with the preparation of a voucher. As we know that

109
each transaction has two identities and it is the voucher on which these
two different identities are identified and recorded as Debit and Credit.

Types of Voucher
Depending on the necessity of accounting procedures every organization
use many types of vouchers but in most of the micro finance
organizations mostly two types of vouchers are used. They are

1) Cash voucher
2) Transfer Voucher
Cash Voucher: In this type of voucher only those type of transactions
which are only cash in nature are recorded

Financial Statements

The MFIs usually start with the trial balance and finally prepare Balance
Sheet and Income-Expenditure Statements.

Trial Balance
After posting the journal entries into the ledger and balancing all
accounts, we prepare a statement called Trial Balance. This statement
shows the balance of all the accounts, which appear in the ledger. The
debit balances are shown in one column and the credit balances in the
other. It is usually just before preparing the final accounts. The purpose
is to check the arithmetical accuracy of the books of account.

We know that under the double entry system for every debit there is an
equal and corresponding credit. So, the total of debit given to different
accounts must be equal to the total of credits given to different

110
accounts. Similarly, the total of debit balances in different accounts
must be equal to the total of credit balances in different accounts. Now,
if the Trial Balances Tallies i.e., the total of its debit balances column is
equal to the total of its credit balances column, it would mean that both
the aspects of each transaction have been correctly entered in the
ledger. If, however, the two totals do not tally it implies that some
errors have been committed while posting the transactions into the
ledger.

The fourth and the final stage of accounting is preparation of Income and
expenditure statement and Balance sheet with the help of Trial balance.

If the organization has adapted computerised method of accounting then

in this case all the transactions taking place daily in the organization are
identified as debit or credit entries and a manual voucher is prepared
with proper supporting. After the manual voucher has been prepared and
verified by the proper person it is screen fed. As soon as the voucher is
entered in the system it automatically updates it in the various books of
account i.e., journal, day book, cash book and bank book etc. Not only it
updates all the books and ledgers it also prepares trial balance, Income
and expenditure statement and finally the balance Sheet.

Balance Sheet
A balance sheet is a summary of the financial position of the MFI at a
specific point in time. It presents the cumulative economic resources of
an organization and the claims against those resources.

Assets = Liabilities + Equity

111
Assets

• Represent what is owned by the organization or owed to it by others

• Are items in which an organization has invested its funds for the
purpose of generating revenue
Liabilities

• Represent what is owed by the organization to others

Equity

• Represents the capital or net worth of the organization Includes

capital contributions of members, investors or donors, retained
earnings, and the current year surplus

Sample Balance Sheet

Accounting Period

Assets
1. Cash and due from banks
2. Reserves in central bank
3. Short-term investments in money market instruments
4. Loan portfolio
5. (Loan loss reserve)
6. Other short-term assets
7. Long-term investments
8. Net fixed assets

9. Total assets

Liabilities
10. Savings/Deposit accounts if any
11. Loans from commercial banks (ICICI, HDFC, SBI)
12. Loans from SIDBI
13. Loans from FWWB
14. Other short-term liabilities
15. Other long-term liabilities

16. Total liabilities

Equity

112
19. Paid-in equity from shareholders plus members
20. Donated equity—prior years, cumulative
21. Donated equity—current year
22. Prior years retained earnings/losses
23. Current year retained earnings/loss
24. Other capital accounts
25. Total equity

26. TOTAL LIABILITIES AND EQUITY

113
 Income-Expenditure Statement4
An income-expenditure statement reports the organization’s financial
performance over a specified period of time. It summarizes all revenue
earned and expenses incurred during a specified accounting period. An
institution prepares an Income-Expenditure Statement so that it can
determine its net profit or loss (the difference between revenue and
expenses).

Revenue Expenses

Refers to money earned by an organization for
goods sold and services rendered during an
accounting period, including
• Interest earned on loans to clients
• Fees earned on loans to clients
• Interest earned on deposits with bank, etc.
Represent costs incurred for goods and
services used in the process of earning
revenue. Direct expenses for MFIs include
• Financial costs
• Administrative expenses
• Loan loss provisions

An Income-Expenditure Statement
• Relates to a balance sheet through the transfer of cash donations and
net profit (loss) as well as depreciation, and in the relationship
between the loan loss provision and the reserve
• Starts at zero for each period (in contrast to the Balance Sheet which
is cumulative since the beginning of the organization’s operation)

114
Sample Income-Expenditure Statement
Accounting Period

Operating Income
1. Interest and fee income from loans
2. Income from other finance-related services
3. Income from investments
4. Total operating income
Operating Expenses
5. Interest and fee expense
6. Loan loss provision expense
7. Administrative expense – personnel
8. Other administrative expenses
9. Total operating expenses
10. NET OPERATING PROFIT (LOSS)
Non-operational Income and Expenses
11. Cash donations
12. Other non-operational income
13. Total non-operational expenses

14. TOTAL CONSOLIDATED PROFIT/LOSS

Progress/Portfolio Reports
A portfolio report provides information about the operations of an MFI.
It provides timely and accurate data about the quantum, the outreach
and the quality of the portfolio. It may also include other key
performance indicators (e.g.,).
Information usually includes
• Number of Staff
• Number of Center Managers
• Number of Centers
Number of active loan clients
• Value of loans outstanding end of period

115
• Total value and number of loans disbursed during the period
• Value of outstanding loan balances in arrears, value of payments in
arrears
• Portfolio aging analysis
• Value of Portfolio at Risk
A report which contains all the above is called a portfolio report. Reports
where the achievement is compared against the planned are called
progress reports

15. Individual Loan - a new concept

Looking at the increasing demand of clients in the field, Company raised

the maximum amount of loan up to 50,000/- for the mature clients only and
decided to give the name of Bada loan to this product / loans under the scheme.
The main conditions for getting this loan are that clients should have the past
clean track record with minimum 3 loan cycles but without any arrears or defaults
in repayments of any Installment / Interest in the past.
Under these loans the repayment period fixed by the Company is 46 to 52
weeks with six weeks grace period & weekly repayment with interest @ of 27%
p.a. as applicable in the loans under the main scheme of the Company i.e. Income
Generating Loan (IGL). The other requirements under this loan are, the clients
should have a clean past history, age below 50 years and she should provide a
letter of her recommendation from other members of her existing group for
providing her the bada loan as per the scheme of the Company.

116
For processing and monitoring of these loans the Company has made a policy to
appoint the Bada Loan Officers. These Bada Loan Officers verify the cash flow,
business proposal and also the experience of the clients for running the proposed
business. While processing the proposal, they also see the likely effect of the bada
loan on their cash flow to ensure the timely repayments of loans.
In the cases of bada loan Company has also made policy to obtain one
guarantee after evaluating the willingness & credibility of the guarantor. In
addition to this additional guarantee of son/ husband is also obtained.
For the regular monitoring of these loans, bada loan officer remains in
constant touch with borrowers. They visit the borrowers’ work place within 15
days from the date of release of loan to ensure the proper end use of funds / loans.
Area / Senior Manager also visits him within the period of one month from the
date of disbursement of loan to see the proper utilization of loan amount.

117
 16. Microfinance in India

Evolution of Microfinance in India

• Microfinance has been in practice for ages (though informally).
• Legal framework for establishing the co-operative movement set up in
1904.
• Reserve Bank of India Act, 1934 provided for the establishment of the
Agricultural Credit Department.
• Nationalization of banks in 1969
• Regional Rural Banks created in 1975.
• NABARD established as an apex agency for rural finance in 1982.
• Passing of Mutually Aided Co-op. Act in AP in 1995.

The Profile of Microfinance in India

The scenario

• Estimated that 350 million people live Below Poverty Line

• This translates to approximately 75 million households.
• Annual credit demand by the poor in the country is estimated to be about
Rs. 60,000 crores.
• Cumulative disbursements under all microfinance programmes is only
about Rs. 5000 crores.(Mar. 04)
• Total outstanding of all microfinance initiatives in India estimated to be Rs.
1600 crores. (March 04)
• Only about 5 % of rural poor have access to microfinance

118
Motivation behind Starting with Microfinance –

It had been observed through various researches that most of the poor had been

born into poor, rural families, and for one reason or another had missed out on the

opportunities that had enabled most rural dwellers to come out of poverty. Yet

they had ideas of what they could do to pull themselves out of poverty – if only

they could get access to the required capital. This became the motivation for us to

try our hands at banking with the rural poor and to form a network that became

known as CASHPOR, Credit and Savings for the Hardcore Poor.

Thanks!
Bragesh Bahadur
Reg. 510934083

119