P r o j e c t s

National Micro Finance Support Programme

Over the years micro-finance has evolved slowly but steadily as a key instrument for poverty alleviation in India. In the last three decades, the government has made concerted efforts to provide financial services to the poor through the formal financial institutions, first by nationalising all major commercial banks in 1969 and thereafter by introducing a number of credit-linked subsidy-driven poverty alleviation programmes since early 1980s. Despite these efforts, micro-finance is yet to grow to any significant scale. As a result, there is a huge unmet demand for microfinance services, especially among those who are the poorest and most disadvantaged. For example only a quarter of the annualised credit usage of all poor families is met by formal sources. To meet the unmet demand, a two pronged strategy – strengthening of micro-finance institutions (MFIs) and formal financial institutions (FFIs) and mainstreaming the micro-finance sector – is required. This is supported by the fact that several retail micro-finance institutions have emerged in the recent past and their efforts are promising.

Objectives and Scope

The overall goal of the programme is to expand the horizontal and vertical outreach of micro-finance institutions and programmes, and mainstream them in terms of their access to resources available in the financial sector so that the poor have enhanced access to the microfinance services. The programme will contribute to development of a more formal, extensive and effective micro-finance sector on a national scale serving poor women and men and to assist in the evolution of an appropriate enabling environment for the development of sustainable micro-finance institutions.

Programme Area and target group

The coverage of the programme is all over India. The target group under the programme will cover all categories of the poor in rural and urban areas who are in need of micro-finance – both savings and credit. As poverty is a dynamic process, the programme would also include in part the not-so-poor but very vulnerable households who are in danger of falling back into poverty trap. Emphasis, however, will be placed on ensuring that the poor are at the centre of the programme.

Implementing Agency

The Small Industries Development Bank of India (SIDBI) is the principal executing agency for this programme. The programme will be implemented through the SIDBI promoted SIDBI Foundation for Microcredit (SFMC). SFMC will be responsible for planning, coordinating and monitoring the programme activities at the national level.

Design approach and components

The programme will adopt a flexible and demand driven approach whereby the MFIs and FFIs determine their priorities, and with some external assistance, acquire the resources needed for their effective implementation. The programme design focusses on two key themes:

• capacity building to create adequate institutional capacity amostst the various players within the sector

• on-lending to MFI/FFIs

The programme components are as follows:

• Capacity building of the Micro-finance sector

• Credit funds for micro-finance programmes

• Policy, Advocacy and Action Research

Programme Costs and Financing

The total programme cost over seven years is estimated at INR 6 606 million (USD 134 million). The programme is funded by IFAD, DFID and SIDBI. The IFAD loan of USD 22 million would finance 16.4% of the total programme cost. SIDBI would provide USD 86.2 million for credit funds and USD 2.3 million for equity financing. While IFAD and SIDBI would jointly finance the on-lending funds, DFID would be funding the entire capacity building component including training, technical assistance etc.

Innovative Features

• Leverage :This programme with an input of USD 22 million has been able to leverage total loan funds of USD 141 million to the micro-finance sector.

• Commercial Focus The programme has been built on the clear vision of moving towards commercial principles in a sector, which is still subsidy-oriented.

• Institutional Transformation A two-tier institutional transformation is incorporated into the programme. Firstly at the SIDBI level to develop capacity in a mainstream financial institution to focus on micro-finance and secondly, at the level of intermediary institutions, to convert socially oriented NGOs into specialised, professional financial intermediaries operating on commercial principles.

• Policy and advocacy Strong support for policy and advocacy to provide a more conducive and enabling environment for the micro-finance sector.

• Impact at the Household level The programme has built-in a client panel system of simple impact monitoring at the household level to understand both quantitatively and also qualitatively the impact of micro-finance on the poor households in general and women and children in particular.