Micro Credit

Micro-Finance is the arm of NEED (Network of Entrepreneurship and Economic Development), a highly respectable Non-Governmental Organization (NGO) located in Uttar Pradesh, North East India.

NEED was established in 1995 with the vision to promote economic development through human empowerment. It is an internationally and domestically respected NGO and has been recognized to have successfully empowered and facilitated women and children in rural villages to be self-sufficient through entrepreneurships. It currently has 2,100 Self Help Groups (SHGs) consisting of approximately 32,500 members, mostly women, in 2,200 villages. It has succeeded in changing the lives of multitudes of women and men from marginalized communities in one of the most impoverished state in India.

NEED MF was only officially born in 2005. After years of working to plant and restore self-confidence and provide skills for women and men across Uttar Pradesh, NEED saw the undeniable need of capital for these micro-entrepreneurs to grow. With this in mind and armed with his wealth of knowledge and contacts from his many years of experiences in the Indian banking sector, NEED’s CEO, Mr. Anil Singh, was determined to help these entrepreneurs to provide this need through the formal financial institutions1. After all, the Indian government had made rural development and poverty eradication a priority for its banking institutions. If anyone were to succeed in helping these micro-entrepreneurs to obtain loans from these institutions, it would have been Mr. Anil.

However, after a few years of pursuing through the formal institutions, he saw many difficulties that cannot be addressed immediately First is the preconceived notions within these institutions regarding the most marginalized members of Indian society; that is these people are uneducated, mostly illiterate, and irresponsible, and thus loans given to these people have very little chance of being paid back. This, undeniably, led to prejudice, reluctance, sub-standard services and unwillingness to help from these institutions. Secondly, from the viewpoint of the poor themselves, having been frequently disappointed, prejudiced, and exploited, they are skeptical of members of these institutions. Additionally, illiteracy of the members of this class of society also presents big problems for the bureaucracy of these institutions.

VISION: Filling the gaps by Meeting Fair Financing (F3) requirements to the poor section of community in a very Transparent, Timely and Target Oriented (T3) manner is at the nucleus of NEED MF.

MISSION: Drawing the strength of vision, NEED is vested with the mission of realizing cherished dreams of the poor people in the rural areas and to convert their inherited dreams into reality by providing fair, efficient and timely financial services in a manner as to promote their entrepreneurial skill while paving way for a sustainable growth of NEED as a Micro Finance Institution.


NEED FOR MICRO FINANCING IN INDIA

It is estimated that almost 260m people are living in poverty in India. Under internationally accepted poverty line of 1 USD per day, adjusted for purchasing power, 39 % of India’s population would be considered as poor. The Govt. of India, since independence, has been making concerted efforts to provide financial services to the poor at affordable cost in its endeavor to solve the problems of poverty and unemployment. It laid special emphasis on expanding network of banks all over the country in order to provide credit to the poor and weaker sections of society. In addition, the Government also launched several subsidised wage and self-employment programs for the benefit of the poor.

Despite all these efforts, there still exist massive gap between demand for credit by poor households and supply of credit by formal financial and social institutions. of the 75m poor households, of which 60m are rural households and 15m urban households, it is estimated that the total annual requirement of credit for rural households would be at least Rs.120 b on the basis of Rs.2000 per family. Another estimate for micro finance services, excluding housing, is Rs.500 b assuming that annual average credit usage is Rs.6000 per rural poor household and Rs.9000 per urban poor household. Housing credit requirement is estimated at Rs.10 b every year. In addition, the clients require saving and insurance services. The dependence of poor on informal and non-institutional sources of credit still remains very high. Source: SIDBI

Potential rural women borrowers are in a conversation with NEED MF Officials.

International team with borrowers of NEED

Anil K. Singh, Ashoka Fellow, as Social Entrepreneurs addressing a huge gathering of Rural Women Community on “How Micro-Finance can Change the Daily Life of Poor Women and bring them out of poverty”

Noble Peace Prize winner Prof. Mohd Yunus & NEED’s CEO Mr. Anil Singh in a Micro-Credit Submit held in Canada

Dairy based women entrepreneurs supported by Grameen Equity


NEED MF CREDIT PRODUCT

S.No. Product Volume Of Credit Repayment Loan
A Economic Enterprise
1 JLG & SHG Loan for livelihoods 1st 5-10 Thou. 2nd 15-25 Thou. 3rd 30-35 Thou. Cash flow based Monthly Repayment Exif_JPEG_PICTURE
2 Community Producer Company 25-50 Cash flow based Monthly Repayment Exif_JPEG_PICTURE
3 Individual after completion of 3 cycles of loan with NEED 25-30 Cash flow based Monthly Repayment Exif_JPEG_PICTURE
B Social Enterprise
1 Pregnancy Loan (only through SHG) 5000 Cash flow based Monthly Repayment Exif_JPEG_PICTURE
2 Housing Loan (only through SHG) 20-30 Thou. Cash flow based Monthly Repayment
3 Energy Conservation (only through SHG) 6000 Cash flow based Monthly Repayment Exif_JPEG_PICTURE
4 Community School financing (only through SHG) 15-20 Cash flow based Monthly Repayment Exif_JPEG_PICTURE

A total interest 10% overall for loan period is applicable to be paid on Cash Security amount.

NEED MF statistics upto March 31, 2011
Branches 13
Staff 178 (126 Livelihood Advisor; 25 Unit Manager, 8 Branch Manager, 3 Principal Investigation Officer (PIO) cum Risk Manager, 3 MF Manager, 1 Internal Auditor, 7 MIS Officer, 4 Accountant, 1 General Manager)
Avg. Loan Amount Rs. 9252 i.e. $205
Total Loan Outstanding Rs. 26,45,27,737 i.e. $ 5878394
Disbursed Portfolio Rs. 71,13,59,000 i.e. $ 15807977
Recovery Rate 98%
Total Active Borrowers 37726
Total Potential Members 300000
No. of Groups 9113
No. of Villages 1425
No. of Districts 09
No. of State 02, Uttar Pradesh & Bihar


Profile of a typical MF borrower

A typical borrower for NEED is a micro-entrepreneurial member of a Self Help Group (SHG) or part of JLG2 (Joint Liability Group), who in order to pursue an business idea, need to borrow a certain amount of money. These entrepreneurs typically fall into two major industry categories: Non-farm enterprises (40%), Animal husbandry (29%), Agriculture (17%) and other professional services (14%).

  • We have been rated MFR 4 by CRISIL.
  • Good asset quality. – Well diversified borrowing profile.
  • Self-sustainable operation.
  • Overall performance of MF in NEED is much better than that of most similar sized Non-Profit Organization engaged in micro-finance. CRISIL International 2008

MF internal operations

NEED MF Livelihood Advisor are responsible to educate potential borrowers on NEED’s terms and conditions. These potential borrowers are either eligible SHG members or individuals who are interested to take out loans through JLGs. These educational efforts are done repeatedly and in person to ensure full understanding of borrowers on loan terms and agreements. Group meetings and village meetings are also organized to answer questions from borrowers.

Livelihood Advisor are then responsible to submit an application to Finance Executives, who then have the authority to make decision on the loans up to certain amounts. For amounts above then set limits, Finance Executives have to consult the General Manager.

Livelihood Advisor, Unit Manager and General Manager are given incentives based on NEED profitability, thus ensuring accountability on decisions made on these loans.


Ways to reduce risks

A large part of NEED’s success is attributable to the ways that it is able to reduce non-payment risks. These include:

  1. Credibility check (reputation check, sources of income, assets owned, head of family approval, etc). NEED also performs ratings on these SHGs and only loans to “A” rated SHGs.
  2. Business plan scrutiny
  3. Cash Security – To ensure repayment, NEED requires 10% cash deposit at the time of fund disbursement. This deposit will be returned when the loan is repaid. The purpose of this is twofold, first is to encourage repayment3 and second is to ensure eligibility of borrowers.
  4. Life insurance – NEED requires purchase of composite insurance from ICICI Lambards and LIC.
  5. Utilization checks – After one week of fund disbursement, loan officers will check whether the fund is being used properly for the intended purpose.
  6. Other preventive measures, such as two members of the same family cannot borrow at the same time.

Why fund NEED

  • NEED’s reputation guarantees its credibility as a borrower.
  • Only < 10% of NEED’s SHG members are active borrowers, thus it presents large untapped market potential
  • Through NEED, NEED is not only providing funds necessary for these micro-entrepreneurs, but also providing the necessary support and facilities to help these businesses to succeed (for example: training programs, education programs, health and sanitation programs)
  • The Founder of NEED CEO’s management and corporate background with years of banking experiences provides the skill and competence to run NEED sustain-ably.

Honorable President of Peru with NEED Micro-Finance & Livelihood Managers in a micro-credit summit in Bali, Indonesia


Villagers in the rural Northern state of Uttar Pradesh where EMpower grantee partner, Network of Entrepreneurship and Economic Development (NEED) works, experience India’s most crushing poverty. They are unable to secure credit from mainstream financial institutions, and suffer from poor health, social isolation, high rates of illiteracy, lack of access to social and educational institutions, and a scarcity of support networks that would enable them to weather periods of crisis. Women and young people are particularly affected: they tend to have little deciding power within their homes, less mobility, and minimal representation in the public sphere.

In response, over more than 10 years, NEED has built a micro-finance program that provides much more than loans, savings and thrift schemes, and financial literacy. According to Anil Singh, NEED’s founder and director, providing people with only micro-credit and skills training is not a sustainable strategy for lifting them out of poverty.

Low-interest rate loans can give women and young people direct access to the credit that they are denied by mainstream financial institutions and enable them to steer clear of local moneylenders who charge exorbitant fees, and skills training can given them a means of generating a small income—but neither activity will bring people into the mainstream of India’s development and markets. Instead, NEED’s model is based on building social capital—a sense of solidarity, mutual accountability, and common purpose—among participants in the 10- to 20-person self-help groups that NEED organizes throughout hundreds of villages in Uttar Pradesh and beyond. Drawing on the collective social resources of their groups, villagers can become savvy social and economic entrepreneurs, with huge dividends for their families and communities.

NEED MF is an exclusive Micro-Finance Organization with professional excellence dedicated to promoting human development through service driven credit accessibility including insurance products, entrepreneurship and economic development in many villages of Northern India. Its work aim at increasing human productivity and creating economic value in goods and services through new entrepreneurial efforts and project. That will help people gain more control of their economic environment and upgrade their standard of living through income generating activities and participation in community development projects.——The Family of NEED MF

Focused operations

  • Capable leadership
  • CEO’s involvement and a comfortable
  • Second line of leadership -Qualified managerial staff
  • Good management systems including loan appraisal and
  • Recovery systems, staff incentive system, MIS and tracking
  • System for overdues
  • Good asset quality and diversified portfolio

Excellent portfolio quality: NEED portfolio has grown by 49% p.a. in its three years of operation to Rs262.1 lakh as on 31 March ‘07. During this period, its active client base has also grown by 49% p.a. It is commendable that the organisation has been able to maintain a good portfolio quality along with the growth, as indicated by a PAR0 of 0%.

Good management systems: The organisation has been able to develop good management systems (like loan appraisal and recovery system, staff incentive system and MIS). This is reflected through its improved OER of 17.1% in Mar ‘07 and substantial increase in the operating margins (though it has reported a marginal operational loss for 2006-7)—-MCRIL Rating 2008


Loan Terms

Term 18 months
Prepayment allowed without penalties
Minimum amount Rs. 5,000
Maximum amount Rs. 50,000
Rate 18% for SHG; 24% for JLG in reducing balance
Fees 2% of loan processing fees

A Comparative Financial Analysis of NEED MF

Particulars 2007-08 2008-09 2009-10 2010-11
Man power 57 95 163 178
Disbursement 104730000 270145000 433850000 711359000
O/s 75980000 174453414 202454418 264527737
FI linkages 7 7 9 11

Table-1
A Comparative Analysis of NEED MF Portfolio upto March 31, 2011

Portfolio Indicators 31/03/2011 %age Growth 31/03/2010 % age Growth 31/03/ 2009
No. of Members 68555 156 44072 153 28886
No. of Groups 15180 160 9513 159 5993
No. of SHGs 434 121 359 107 337
No. of JLGs 14746 161 9154 162 5656
No. of Active Groups 9113 123 7405 139 5324
No. of SHGs 130 100 130 62 211
No. of JLGs 8983 123 7275 142 5113
No. of Loans Disbursed (Cum.) 63781 159 40123 159 25179
No. of New Clients Joined 24483 161 15186 90 16923
No. of Dropouts (Cum.) 30829 272 11354 284 3991
No. of Active Loans End of Period 36296 116 31288 139 22574
No. of Active Borrowers End of Period 37726 115 32718 131 24895
No. of Districts Covered 13 130 10 143 7
No. of State Covered in the Country 2 100 2 100 2
No. of Field Staff 126 115 110 116 95
No. of Villages / Towns Covered End of Period 2000 118 1700 113 1500
Gross Loans Disbursed– (Rs. Million) 711.36 164 433.89 161 270.15
Loan Outstanding – (Rs. Million) 260.59 129 201.36 116 172.96
PAR > 90 Days 0.25 -58 0.70 212 0.33
Amount O/S at Risk (Rs. in Million) 0.66 -64 1.42 245 0.58
Average Loan Disbursed (Rs) 10376 105 9845 105 9352
Average Loan O/s per Borrower (Rs) 6907 114 6154 89 6948
Borrowers per Field Staff 299 75 401 132 304
Average O/S per Field Staff 2068175 115 1830545 101 1820632

Table-2
A Comparative Team Building and Credit Funding Institutional Analysis in NEED

Particulars 2005-06 (From Oct. 2005) 2006-07 % of Growth 2007-08 % of Growth
Man Power 9 30 333 80 888
No. of Financial Institutional Linkages 2 5 250 7 350
  • % age Increase in the year is over previous year data.
  • % age Growth is vis-à-vis the year 2005-06 (which has been taken as the base year so far as microfinance operations of NEED are concerned).

Table-3
Cumulative Livelihoods and Micro-Enterprise upto March 31, 2011

Total No. of Micro-Enterprises (approx) 370880
Total No. of Units in Farm Sector Including Conservation Linked Livelihoods 180000
Total No. of Units in Service Sector 90000
Total No. of Units in Mobile Sector 30200
Total No. of Units in Repairing work 8200
Total No. of Units in Allied Sector 22500
Total No. of Units in Manufacturing Sector 9600
Total No. of Units in Craft Sector 21400
Total No. of Units in Jute Sector 1400
Total No. of Units in Zardozi Sector 7400
Total No. of Units in Hand-made 180

Table-4
Cumulative Glance of Livelihoods Promoted by NEED upto March 31, 2010

Spectrums of Livelihood Direct Employment Indirect Employment Total
Farm Sector 4,75,000 85,000 5,60,000
Off Farm Sec 6,65,000 65,000 7,30,000
Total 11,40,000 1,50,000 12,90,000

Rating Status of NEED

Rating Institutions 2006-07 2007-08 2008-09 2009-10
M-CRIL ß ß+ - -
CRISIL - - mfR4 mfR4