Access to Finance in Andhra Pradesh Doug Johnson and Sushmita Meka IITM Research Park, A1, 10th Floor, Kanagam Village, Taramani, Chennai 600 113, Tamil Nadu, India. Tel: +91 44 66687000 Fax: +91 44 666 87010 Website: www.ifmr.co.in Contents ACKNOWLEDGEMENTS GLOSSARY EXECUTIVE SUMMARY 4 5 6 PART I INSTITUTE FOR FINANCIAL MANAGEMENT AND RESEARCH CENTRE FOR MICRO FINANCE AND CENTRE FOR MICROFINANCE RESEARCH BANKERS’ INSTITUTE OF RURAL DEVELOPMENT October 2010 INTRODUCTION MICROFINANCE IN ANDHRA PRADESH CATALOGUE OF FINANCIAL SERVICES PROVIDERS PART II OVERVIEW OF SAVINGS OVERVIEW OF BORROWING ACCESS TO FINANCE IN ANDHRA PRADESH BORROWING BY HOUSEHOLD TYPE AND SOURCE Doug Johnson and Sushmita Meka HOW DO BORROWERS USE THEIR LOAN MONEY? MULTIPLE BORROWING The views expressed in this note are entirely those of the authors and should not be attributed 7 8 10 IN-DEPTH LOOK AT SHGS to the institutions with which they are associated. MFI BORROWING OTHER FINANCIAL PRODUCTS CONCLUSION REFERENCES APPENDIX A – SAMPLING METHODOLOGY APPENDIX B – HOW TO ACCESS AND USE THE DATA APPENDIX C – DETERMINATION OF OCCUPATIONAL CATEGORIES 12 19 22 24 25 30 33 35 37 38 39 40 40 APPENDIX D – FIVE MOST FREQUENTLY CITED REASONS FOR NOT AVAILING A LOAN BY LENDER TYPE APPENDIX E – PROGRESS OUT OF POVERTY INDEX APPENDIX F – BORROWING BY HOUSEHOLD TYPE AND SOURCE 41 42 43 Glossary Acknowledgements The authors would like to thank the Bankers’ Institute of Rural Development at NABARD, whose generous assistance made this survey and report possible, and Justin Oliver, Shardul Oza, Santadarshan Sadhu and the rest of the Centre for Micro Finance community for helpful comments and advice. 4 TERM MEANING AIDIS All India Debt and Investment Survey, a decennial survey conducted by the National Sample Survey Organization to gather quantitative data on debt, assets and expenditures of households throughout India. Chit Fund A revolving credit fund in which members contribute a predetermined amount at specified intervals and auction the pool regularly. DCCB District Central Co-operative Bank, one level of the short term cooperative credit structure DWCRA Development of Women and Children in Rural Areas Program, a program launched in 1982 to promote the wellbeing of women through income-generating activities. A key feature of DWCRA was the formation of groups, through which members would receive a stipend and revolving fund to undertake group economic activities. JLG Joint Liability Group, JLGs are generally promoted by private MFIs and consist of fewer members than SHGs (usually 4-5). Members are responsible for repayments of their peers in case of default. KYC Know Your Customer norms, due diligence guidelines which must be followed by banks to identify account holders. MFI Microfinance Institution, any private organization that provides microfinance loans. MFIs can take many legal forms, including non-profit societies and for-profit NBFCs. NABARD National Bank for Agriculture and Rural Development, the apex development bank responsible for regulating credit flow and promoting integrated development in rural areas. Since 1992, NABARD has promoted India’s largest microfinance program, the SHG Bank Linkage Programme. NBFC Non-Banking Financial Company, a type of for-profit company which may offer financial products to customers and which is regulated by the RBI. Most of India’s largest MFIs are registered as NBFCs. No-frills account A basic savings account that the RBI encouraged banks to provide to unbanked customers with or minimal balance as part of its financial inclusion drive. NREGA National Rural Employment Guarantee Act, a centrally-sponsored government scheme enacted in 2005 that ensures a minimum of 100 days of unskilled, minimum-wage employment to all rural households. PPI Progress Out of Poverty Index, a simple proxy measure of the likelihood that a household is beneath a given poverty line. See Appendix E for a detailed explanation. RBI Reserve Bank of India, the central bank of India that controls monetary policy. RRB Regional Rural Bank. RRBs were established in 1972 to provide credit to weaker sections of society of rural areas, such as small and marginal farmers, artisans, and agricultural labourers. RRBs are regulated by NABARD. SBLP SHG-Bank Linkage Programme, a program sponsored by NABARD to promote and provide credit to SHGs nationally. Through SBLP, banks provide SHGs with credit after an initial period of saving and internal lending. SHG Self Help Group, one of the two major microfinance models in India. SHGs generally consist of 10-20 members that save regularly and extend internal loans through group savings. Groups may also be sanctioned external loans from banks, federations, or NGOs. SGSY Swaranjayanti Gram Swarojgar Yojana, a centrally-sponsored program launched in 1999 to support poor families through the provision of subsidies and bank credit distributed via SHGs. 5 Executive Summary Introduction In this report, we present results from the first • ever household survey on access to finance in India which includes information on microfinance, is representative of an entire state’s (Andhra Pradesh) rural population, and for which the data is publicly available. The key findings from the survey are as follows: BORROWING • Access to finance allows the poor to make investments to these surveys out-of-date. Currently, we do not have accurate increase their income, better smooth consumption, and protect estimates of the number of people reached by several types of this number is primarily driven by households that have against shocks such as bad weather or illness. multiple loans from informal sources. of access to finance for reducing poverty and allowing the poor (MFIs)). Despite concerns of overborrowing from microfinance (as well as those who have not been reached by any financial have other formal loans outstanding. This figure was 58% for policies since independence - from the creation of the service provider) vary. Nor do we know the reasons for or the households that have SHG loans and 74% for households that cooperative banking sector to the nationalization of private extent of multiple borrowing. This lack of knowledge about the have bank loans. sector banks in 1969 and 1980– were initiated with the aim of current state of financial inclusion hampers efforts to craft increasing access to appropriate financial products. Recently, the appropriate policies to further increase financial inclusion, makes SAVINGS government and central bank have set upon the task of it more difficult for financial institutions to choose appropriate • A high percentage (79%) of households in rural Andhra Pradesh increasing financial inclusion with renewed zeal. The central expansion locations, and introduces the risk that we are ignoring government has formed two high-level committees (the significant distress-induced multiple borrowing. Committee for Financial Inxclusion and the Committee for • Only a small proportion of savings accounts (14%) were opened Financial Sector Reforms) with mandates to investigate what can In this report, we present preliminary findings from a detailed for the purpose of savings. Many accounts were instead opened be done to increase financial inclusion;2 and the Reserve Bank of survey of access to finance conducted in rural areas of Andhra for the purpose of receiving government benefits or to help in India (RBI) has pushed banks to make basic “no frills” accounts Pradesh, the state in which microfinance has achieved its receiving a loan. available to low income households,3 allowed banks to reach out greatest success to date in India. The survey is, to the authors' 4 knowledge, the first survey which includes detailed information and relaxed restrictions on the placement of new ATMs. In on microfinance, which is representative of an entire state’s rural addition, with the rise of microfinance, a large number of population, and for which the data is publicly available.7 to customers through agents (or “business correspondents”), • Perhaps because they were not opened for the purpose of of households that had a loan outstanding from an SHG, 17% savings, a large share of savings accounts (approximately 41%) who had loans outstanding from a moneylender and 37% that appear to be completely dormant or are used only to receive non-bank organizations now seek to increase the poor’s access to had bank loans. government benefits. financial services. Yet even excluding accounts which represented a small share of overall borrowing and having appear to be dormant, the percentage of households with an more than one MFI loan outstanding at a time is quite rare. active savings account remains relatively high at 61%. Roughly three quarters (72%) of rural households had a member who belonged to an SHG. We do not know how the demographic and economic characteristics of the clients of different financial service providers (11%) had a loan outstanding from an MFI, compared to 54% For all household types, MFI loans financial service providers (in particular, microfinance institutions policymakers in India. Indeed, many of the country’s key banking institutions (MFIs), only a small share of rural households • The importance to lead more fulfilling lives has long been recognized by A high percentage (93%) of rural households in Andhra debt is from informal sources. 1 Of those households that have an MFI loan outstanding 82% • have access to a savings account. Pradesh have a loan from some source, though most of this • Multiple borrowing is very common – an estimated 84% of rural households had more than one loan outstanding – but • Many (36%) unbanked households own a mobile phone and most households who own a mobile use it regularly. This report is organized as follows: We first provide some context for the results by describing the Yet despite (and in part because of ) this focus on financial history of microfinance in Andhra Pradesh and the current inclusion,5 many questions about the state of financial inclusion landscape of financial services providers serving the poor. The in the country remain unanswered. While several excellent subsequent sections contain the main findings from the survey. surveys have been conducted in the past,6 increases in financial In the appendices, we provide an overview of the methodology access and the proliferation of new types of financial service used to conduct the survey and describe how researchers and providers have rendered much of the information gathered by other interested parties may access and use our data. 1. For a general discussion on the importance of access to finance see Armendáriz and Morduch (2005) and Beck and Demirgüç-Kunt (2008). For more detailed discussion of the specific financial needs of the poor see Collins et al (2009). 2. The reports of these committees are now publicly available. See references section for links to the reports. 3. For more information on the RBI’s push to make “no frills” accounts available to low income households see Ramji (2009) and Thyagarajan and Venkatesan (2008). 4. For more information on the RBI’s business correspondent model see Kobishyn et al (2009). 5. We use the term “financial inclusion” to mean convenient and affordable access to those financial products needed by a household. As this report seeks only to describe the current situation with regard to access to finance rather than to make statements as to what should be the situation with regard to access to finance, a more precise definition of the term is not necessary. 6. The National Sample Survey Organisation conducts a nationwide survey of access to several types of financial services (the All India Debt and Investment Survey or AIDIS) on a decadal basis which is available for a nominal fee. The AIDIS was last conducted in 2003 and does not contain information related to microfinance borrowings though. A private company, IIMS Dataworks, conducted a nationwide survey of access to several financial services in 2007. The survey, while excellent, does not contain detailed questions related to microfinance. 6 7 Microfinance in Andhra Pradesh Growth of SBLP in India versus AP For good reason, Andhra Pradesh has often been labeled the As the SHG movement was being scaled up in the late 1990s, “Mecca of Microfinance” in India. According to the best private microfinance institutions also began entering the state. estimates available, penetration rates of microfinance in Andhra In 1996, Vijay Mahajan created the MFI BASIX, with funding from Pradesh are far higher than in any other state in India; 8 several the Ford Foundation, the Swiss Agency for Development and 12 Cooperation and the Sri Ratan Tata Trust. Share are based in Andhra Pradesh and began operations in model and reliance on loans and equity rather than grants for the state; and the state is home to India’s largest state-led financing marked a first not just for Andhra Pradesh, but for microfinance initiative – the Velugu program. India as well. 13 Other major MFIs, including SHARE, Spandana, and SKS soon followed suit, converting from non-profit 500000 400000 societies to for-profit Non-Banking Finance Companies (NBFCs). 300000 to government-led attempts to form “Self Help Groups (SHGs),” or groups of 12 to 20 (mostly) women which collect regular savings Since 2000, the outreach of private MFIs in Andhra Pradesh from members and make loans internally to members. 200000 The has grown at a frenetic pace, with the total number of government first formed SHGs through the Development of borrowers more than doubling each year. In 2005, several of Women and Children in Rural Areas (DWCRA) program. Nationally, the fastest growing MFIs in the world were based in Andhra 2,73,000 groups (2.73 lakhs) were formed under the program until Pradesh. 14 At times, this explosive growth has led to tension its absorption into the larger Swarnajayanti Gram Swarojgar Yojana between MFIs, the clients they serve, and government (SGSY) program in 1999.9 However, the formation of SHGs on a officials. In 2006, Andhra Pradesh was the site of the first large scale did not take off until the creation of the SHG-Bank large-scale confrontation between microfinance borrowers Linkage Program (SBLP) in 1992. Under the program, India's apex and MFIs in the country. Borrowers in two districts of Eastern agricultural development bank, the National Bank for Agriculture Andhra Pradesh (Krishna and Guntur) protested against what Source: NABARD and Rural Development (NABARD) provided a set of incentives for they claimed were exorbitant interest rates and unfair Note: The India numbers exclude groups linked in Andhra Pradesh. In addition, these numbers only reflect new group linkages banks to lend to SHGs that adhered to certain guidelines, such as business practices. Local bureaucrats quickly intervened, provided by banks refinanced by NABARD - in reality, the number of SHGs in India and Andhra Pradesh will be much higher, including collecting regular savings from group members.10 shuttering several MFI offices and publicly stating that SHGs that have instead received funding from NGOs, banks that did not require refinancing, SHGs and SHG federations that extended borrowers need not repay loans. loans directly, and groups that have received repeat linkages. While the crisis was In 2000, SHG promotion in Andhra Pradesh was massively eventually resolved and an agreement was reached between expanded with the launch of the 5-year Andhra Pradesh District the MFIs and local government officials, the MFIs in the area Poverty Initiatives Project (APDPIP). The program, known locally suffered a huge write-off as a result of the crisis. 15 Since this as Velugu, was modeled after an earlier program led by United first crisis, the microfinance sector in Andhra Pradesh has Nations Development Program.11 The initiation of this program continued to grow at a rapid pace. At the time of publication marked a watershed for microfinance in the state. The formation of this report, Andhra Pradesh was in the midst of its second of SHGs increased immensely and, as a result, close to half of all crisis, fueled by stories that over-indebtedness and coercive bank-linked SHGs were originally located in Andhra Pradesh. collection practices have led to borrower suicides. 7. 8. 8 600000 BASIX's for-profit of India’s largest MFIs including SKS, Spandana, BASIX, and The origins of microfinance in Andhra Pradesh can be traced back 700000 Due to difficulties in surveying in one area of Andhra Pradesh, the survey results are representative of the entire rural population excluding Krishna district in which surveying proved impossible. See appendix A for more details on the sampling methodology and the reasons for this exclusion. Making comparisons of microfinance penetration between areas is difficult due to the lack of comprehensive information on the outreach of private MFIs. Yet based on outreach figures from the largest MFIs and official statistics on SHGs, microfinance penetration in Andhra Pradesh is far higher than in other parts of the country. (See the Centre for Micro Finance’s Map of Microfinance, located at http://ifmr.ac.in/map, for more information.) 9. Department of Rural Employment and Poverty Alleviation. “Annual Report: 1998-1999.” Ministry of Rural Development, New Delhi: 1999. 10. Fernandez, Aloysius P. “History and Spread of the Self-Help Affinity Movement in India: the Role Played by IFAD.” Occasional Paper Series, IFAD, July 2007. < http://www.ifad.org/operations/projects/regions/pi/paper/3.pdf> 11. Deininger, Klaus and Yanyan Liu. “Economic and Social Impacts of Self-Help Groups in India.” Policy Research Working Paper 4884, World Bank, March 2009. 12. Sriram, MS. “Commercialisation of Microfinance in India: A Discussion on the Emperor’s Apparel.” Working Paper No 2010-03-04, Indian Institute of Management, Ahmedabad, March 2010. 100000 INDIA AP 0 2002 2003 2004 2005 2006 2007 2008 13. Interview with Vijay Mahajan, Access Development Services, Contribution to the Sector Award, 2009. <http://www.microfinanceindia.org/download_reports/awards_brochure_2009_mahajan.pdf> 14. www.themix.org 15. The Andhra Pradesh crisis is often portrayed as either the natural outcome of the immoral behavior of overly profit-seeking MFIs or, alternatively, as the product of bureaucrat’s jealousy over MFIs’ success compared to the state-led SHG program. The reality is much more subtle and complex. For an excellent account of the crisis, see Prabhu Ghate’s analysis in the Microfinance India State of the Sector Report, 2006. < http://www.microfinanceindia.org/download_reports/state_of_the_sector_06.pdf> 9 Catalogue of Financial Services Providers ENTITY DESCRIPTION EXAMPLES OF PRODUCTS OFFERED The poor in India access financial services from a variety of regulated at all. Post office 17 different providers. We briefly describe the most important of between these categories is blurred. (For example, a few these providers and how they are regulated (if at all), the microfinance institutions such as SEWA and BASIX own types of products they offer, and their overall size and market registered banks. Some chit funds and even a few penetration below. We have loosely categorized financial moneylenders are registered as formal institutions. And the service providers into the groups “formal,” “semi-formal,” and cooperative banking sector and regional rural banks are In addition to delivering mail, India Post offers a variety of financial services such as money transfers and recurring deposit accounts. India Post is regulated and supervised by the Ministry of Finance rather than the RBI. “informal” below based on whether the entities are (typically) supervised by NABARD rather than by the RBI directly.) -Small Savings schemes– basic, recurring, time deposit, monthly income, national savings certificate, etc. - National Rural Employment Guarantee Act (NREGA) wage disbursal - Old-age pension disbursal -Money Transfer Insurance companies Public and private insurance companies offer a variety of insurance products. Insurance companies are regulated and supervised by the Insurance Regulatory and Development Authority (IRDA). - Various insurance products - health, life, accident, home, motor, travel - Pension plans -Life Insurance Corporation of India -ICICI Prudential Central and state governments In some instances, central and state government directly provide financial services to citizens. - Health insurance -Rajiv Gandhi Aarogyasri Community Health Insurance for BPL card holders -As of January 2010, 27,00,000 (27 lakh) screenings have been conducted and 5,00,000 (5 lakh) treatments have been provided under the Rajiv Gandhi Arogyasri health insurance program Deposit taking Non-Bank Finance Companies In addition to formal banks and the post office, non-banking finance companies which satisfy certain regulatory requirements such as maintaining a 200 lakh net owned fund may accept deposits from the public. - Fixed deposits minimum 12 months at a max interest rate of 12.5% - Recurring deposits - Sahara - Peerless - 314 such institutions as of January 201018 - Of these, 8 are registered in Andhra Pradesh EXAMPLES PENETRATION In many cases though, the distinction regulated by the RBI, regulated by some other agency, or not Table 1: Formal Financial Service Providers in India ENTITY DESCRIPTION EXAMPLES OF PRODUCTS OFFERED EXAMPLES PENETRATION 16 Public sector commercial banks Commercial banks in which the government owns a majority stake. Various State Bank of India - State Bank of Hyderabad - State Bank of India - 27 banks - 55,921 total branches Private sector commercial banks Commercial banks in which the government does not have a majority stake. Various - ICICI - Axis Bank - HDFC - 22 banks - 8,965 total branches Regional Rural Banks (RRBs) Special type of commercial bank with an explicit mandate to focus on rural operations. All RRBs are owned in part by the central government, in part by the government of the state in which they operate, and in part by a single commercial bank. RRBs may only conduct operations in a single state and are supervised by NABARD. Various, with focus on loans for agricultural purposes - Andhra Pradesh Grameena Vikas Bank - 86 banks - 15,144 total branches Second tier in the rural cooperative banking structure. In addition to serving as a source of financing for PACs (see below) by borrowing from State Cooperative Banks and on-lending to PACs, DCCBs also directly offer one product, Kisan Credit Cards, to farmers. DCCBs are supervised by NABARD. DCCBs’ only product directly offered to customers is the Kisan Credit Card, a line of credit which allows farmers to purchase agricultural inputs, such as seeds and fertilizers, in a timely manner. -371 banks (March 2008) Bottommost tier of the rural cooperative banking system. PACs focus primarily on providing credit for agricultural purposes and are regulated by NABARD. - Crop loans - 94,942 total (end March 2008) - Average of 7 villages covered by each PAC - 131 million members (79 million borrowers) District Central Cooperative Banks (DCCBs) Primary Agricultural Cooperative Societies (PACSs) - Andhra Pragathi Grameena Bank 16. All statistics taken from the Reserve Bank of India’s “Report on Trend and Progress of Banking in India 2008-2009” unless otherwise specified. 17. India Post Annual Report, 2008-2009 18. Reserve Bank of India, “List of Deposit Taking Companies Cat ‘A’” 19. Statistics taken from “Microfinance India State of the Sector Report 2009” unless otherwise cited 10 EXAMPLES PENETRATION - 154,000 branches - 174 million savings accounts - Rs. 5.64 trillion outstanding - 21 million NREGA accounts (Dec 2008) Table 2: Semi-Formal Financial Service Providers in India19 ENTITY DESCRIPTION EXAMPLES OF PRODUCTS OFFERED Microfinance Institutions (MFIs) Private providers of microfinance loans. May take a variety of institutional forms, but the largest MFIs are typically registered as NBFCs and as such are regulated by the RBI. Self Help Groups (SHGs) Groups of 10-15 which borrow - Various types of loans from (typically) a bank or (less commonly) other lender and lend internally to members. The SHG model of microfinance differs from the MFI model in that SHGs typically borrow from banks and lending decisions are made internally by the group itself. NABARD provides financial incentives to banks to support SHG lending. -Joint liability group loans – Group loans in which all members of a group (typically 5 members in size) are jointly responsible for all group members’ repayments. Tenure of loan is typically one year and repayments are most often weekly - SKS - Spandana - Share - Approximately 250 MFIs - 20 million clients in India (25 %, or nearly 5 million in Andhra Pradesh) - Rs. 117 million outstanding (2009) - Rs. 5200 average per capita outstanding -2.8 million SHGs -Rs. 241.9 million outstanding (as of March 2009) -54.3 million clients in India (29 %, or 15.8 million in Andhra Pradesh) 11 Table 3: Informal Financial Service Providers in India Table 4: Share of Rural Andhra Pradesh Households with a Savings Account by Bank Type Public Sector Bank 41 % 36 % Regional Rural Bank 14 % 13 % Cooperative Bank 14 % 12 % Post Office 42 % 11 % Any of the above 79 % 61 % *Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” % % 85 % 21 58 % 91 % % 78 32 % 96 % % 73 91 % 96 % % 53 88 71 % Figure 2: Financial Inclusion by Occupational Category % As of November 2009, 100 chit funds are registered under the Madras Chit Funds Act and another 70 under the 1982 Chit Funds Act.21 1% % - Shriram Chits 1% 98 - Chit loan Private Sector Bank % A type of revolving credit fund in which members contribute a pre-determined amount at specified intervals and auction the entire amount each meeting to one member.20 Large chit funds are typically formally registered while smaller chit funds often operate without any formal registration. SHARE OF HOUSEHOLDS WITH SAVINGS ACCOUNT (EXCLUDING 0 AND RS 50 BALANCE ACCTS)* 47 - Traditional cash loans - Agricultural input loans (direct provision of seeds, fertilizers, etc.) SHARE OF HOUSEHOLDS WITH SAVINGS ACCOUNT BANK TYPE 81 Any informal lender. There are a variety of types of moneylenders active in India – shopkeepers who lend in kind, crop traders who lend against purchase of harvest, landowners who lend to tenants, and jewellery merchants who lend against jewellery as collateral are just a few of the better known types of moneylenders PENETRATION % EXAMPLES % Money-lenders Chit funds EXAMPLES OF PRODUCTS OFFERED 90 DESCRIPTION 11 ENTITY 100% 80% Overview of Saving 60% A large proportion of households have a formal savings account. through a formal savings account (typically a post office 40% account). 24 While the primary motivation for using formal savings accounts to deliver NREGA wages was to reduce Over the past several years, the RBI has launched several corruption, the policy also had a substantial impact on access initiatives to increase access to savings accounts throughout to savings accounts because many NREGA participants lacked the country. First, in 2005 the RBI instructed banks to make a formal savings account prior to adoption of the policy. 20% 0% LANDLESS LABOURER basic “no frills” accounts with low or minimal balance requirements and usage fees available to the poor. Second, Results from the survey show that the cumulative effect of the RBI relaxed the Know-Your-Customers (KYC) requirements these policies has been a large increase in the share of rural for these no frill accounts to make it easier for poor households with a formal savings account. Table 4 shows the customers, who often lack identity documents, to open penetration rate of formal savings accounts by bank type. accounts (The other goal of the initiative was to reduce the Overall, a staggering 78% of rural households now have burden of paperwork for banks.) Third, in 2006 the RBI access to a formal savings account. While earlier estimates of launched a “100% financial inclusion drive” in which at least the share of rural households in Andhra Pradesh that have one district in each state was targeted for 100% financial access to a formal savings account are not available, a similar assigned study by the World Bank and NCAER in 2003 found that only responsibility for opening at least one basic savings account 41% of rural households in both Andhra Pradesh and Uttar for each financially-excluded household in a given area in Pradesh had access to a savings account (Basu and Srivastava, each district selected for the drive. Civil society and the 2005). Further, this same study found that access to savings media were engaged to create awareness of the program and accounts was concentrated in the hands of the relatively to highlight the benefits of having a bank account to the well-off: only 30% of marginal farmers and landless labourers inclusion. Under the drive, banks were Recently, the state government has also played a in rural Andhra Pradesh and Uttar Pradesh had a formal major role in increasing access to formal savings accounts in savings account. In contrast, our survey finds that at the time Andhra Pradesh. poor. 12 23 22 Over the past three years, the state of the survey over 70% of landless labourers and marginal government has made a concerted effort to deliver all wages farmers in rural Andhra Pradesh had access to a savings to participants in NREGA (a national workfare program) account. 25 FARMER (SMALL) FARMER (MARGINAL) SHARE WITH SAVING ACCOUNT COMMERCIAL FARMER (LARGE) SHARE WITH LOAN FROM FORMAL SOURCE OTHER SHARE WITH LOAN FROM ANY SOURCE Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” 20. An example may serve to make the concept clearer: 20 members join a “chittie” and agree to pool Rs. 200 monthly. Each month, an auction is held in which members bid for the pool. The highest bid will translate to a percentage deduction from the entire amount (example a bid of 20%). The winner will receive the pool minus the deduction amount (Rs. 8000), while the remaining members will receive an equal percentage of the deduction amount (Rs. 2000). This would continue for 20 months, and the final member would receive the entire pool without penalty of deduction. 21. Department of Chit Funds. (2009). “List of Chit Fund Companies Working Under the Chit Funds Act, 1982.” 22. While initially only one district in each state, selected by the State Level Bankers’ Committees, was to be included in 100% financial inclusion drive later the drive was expanding to include many more districts. See Thyagarajan, S and Jayaram Venkatesan (2009). 23. The following districts in Andhra Pradesh have claimed to have achieved 100% financial inclusion under the drive: Srikakulam, Nizamabad, Rangareddy, Chittoor, Warangal, Kadapa, Nellore, Prakasam, Kurnool and Ananthapur. Out of these districts, three (Nizamabad, Kadapa and Prakasam) were included in this survey. 24. While all state are technically required to deliver NREGA wages via a formal account by the Ministry of Rural Development the extent to which states have adhered to this mandate has varied greatly. 13 other than savings may still be used for saving at a later date. account is high, only a small minority of these accounts (14%) Indeed, instilling savings behaviour in beneficiaries is a much were opened for the purpose of savings. The vast majority of cited reason for delivering government benefits through accounts (79%) were opened either to receive government formal savings accounts. 26 80% While the share of rural households with access to a savings 100% Figure 4: Stated Reasons for Opening Savings Account by Bank Type A large portion of savings accounts are not used for saving. Yet a closer look at savings account balances reveals that a of which were opened for the purpose of receiving large percentage of savings accounts held by rural government benefits, and savings accounts at co-operative households remain dormant: 13% have a balance of 0 rupees banks, most of which were opened for the purpose of and 29% have a balance of 50 rupees. 27 obtaining a loan. account dormancy is driven primarily by accounts opened for 40% especially so in the case of post office savings accounts, most 60% benefits or to increase the chances of receiving a loan. This is 20% The high rate of In light of the policy initiatives described earlier, these results accounts opened to receive government benefits had a are hardly surprising. Most post office savings accounts were balance of Rs. 0 or Rs. 50. Column 3 of Table 4 displays the likely opened for the express purpose of receiving NREGA share of households that hold a savings account with a wages while many bank accounts were likely opened as part balance not equal to Rs.0 or Rs. 50 from each type of bank, the of the 100% financial inclusion drive, not due to a customer post office, and overall. While the overall rate of access to a directly requesting an account. These findings do not necessarily formal savings account, at 61%, is still very high when imply that the account holders do not use their accounts for dormant accounts are excluded, it is significantly lower than savings. An account opened for a purpose the unadjusted figure which includes dormant accounts. 0% the purpose of receiving government benefits – 76% of PRIVATE BANK DON’T KNOW PUBLIC BANK TO RECEIVE LOAN RRB CO-OPERATIVES RECEIVE INSURANCE RECEIVE GOVERNMENT BENEFITS POST OFFICE SAVINGS WON’T SAY RECEIVE SALARY Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” Cooperative banks perform relatively well in reaching out to marginal farmers while public banks and the post office perform well in reaching out to landless labourers. Figure 3: Stated Reasons for Opening Savings Account Figures 5 and 6 display the proportion of clients from each farmers among their clients compared to other types of banks. The average Likewise, public sector banks and the post office count a score of clients of different bank types on the Progress out of relatively large share of landless labourers among account Poverty Index (PPI) is shown in Figures 7 and 8. 29 holders. broad occupational category by bank type. 0.1% 28 This finding does not change when zero balance accounts are excluded from the analysis, indicating that the 14% 31% The graphs reveal that cooperative banks, true to their policy of opening post office accounts for NREGA workers is mandate, have a disproportionately large share of marginal not the primary driver of these results. 5% 1% Financial Exclusion DON’T KNOW TO RECEIVE LOAN RECEIVE INSURANCE 48% Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” 14 SAVINGS Given the importance of financial exclusion, our report included. This is demonstrated visually in the box plots below. investigates the nature of financial exclusion and major In addition, the difference between the mean PPI of unbanked reasons leading to the financial exclusion of the households. households and the mean PPI of banked households is Financial exclusion is often characterized as an outcome of statistically significant, 30 regardless of whether zero-balance poverty fueled by unavailability of appropriate service accounts are included. Similarly, the difference between the WON’T SAY providers catering to the need of the poor. Unsurprisingly, mean PPI of households that have an account at a private bank RECEIVE GOVERNMENT BENEFITS unbanked households tend to be poorer than the banked and and the mean PPI of households without an account at a clients of private banks tend to be richer than clients of other private bank is also statistically significant, 31 regardless of banks, regardless of whether zero balance accounts are whether zero-balance accounts are included. RECEIVE SALARY 25. An explanation of how households were assigned occupational categories may be found in Appendix C. Please note that the methodology for assigning occupational categories used in this report differs slightly from that used by Basu and Srivastava (2005). 26. See, for example, comments made by PC Jaffer, former district program coordinator for NREGA in Gulbarga District of Karnataka, available at http://www.solutionexchange-un.net.in/NREGA/documents/NREGA-Gulbarg.pdf 27. “No frills” accounts commonly have either zero balance or a Rs. 50 minimum balance requirement. 28. For an explanation of how occupational categories of households are determined please see Appendix C. 29. The Progress out of Poverty Index (PPI) is a simple poverty scorecard developed by the Grameen Foundation. A household’s score on the PPI may be used to determine the likelihood that the household falls below various poverty lines with lower scores corresponding to a higher likelihood that the household falls below a poverty line. PPI scores may be averaged across households to arrive at a poverty rate for the entire group. For more information on the progress out of poverty index see www.progressoutofpoverty.org. 30. At the 1% level of significance based on a two way t-test. 31. At the 5% level of significance based on a two way t-test. 15 Figure 7: PPI of Account Holders by Bank Type* 0% 20 20% 40 40% 60 60% 80 80% 100 100% Figure 5: Client Profile by Bank Type PRIVATE BANK PUBLIC BANK RRB CO-OPERATIVES POST OFFICE COMMERCIAL FARMER (MARGINAL) OTHER FARMER (LARGE) 0 UNBANKED LANDLESS LABOURER FARMER (SMALL) UNBANKED PRIVATE BANK PUBLIC BANK RRB CO-OPERATIVES POST OFFICE *Middle lines within boxes correspond to median PPIs for respective bank type. Lower edges of boxes correspond to median PPIs for respective bank type. Lower edges of boxes correspond to 25th percentile and upper edges of boxes correspond to 75th percentile PPI value for respective bank type. Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” Figure 6: Client Profile by Bank Type (excluding 0 balance accounts)* 80% 100 100% Figure 8: PPI of Account Holders by Bank Type (excluding 0 balance accounts)*^ UNBANKED PRIVATE BANK PUBLIC BANK RRB CO-OPERATIVES POST OFFICE LANDLESS LABOURER COMMERCIAL FARMER (MARGINAL) FARMER (SMALL) OTHER FARMER (LARGE) Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” 0 0% 20 20% 40 40% 60 60% 80 66% UNBANKED PRIVATE BANK PUBLIC BANK RRB CO-OPERATIVES POST OFFICE * Accounts with Rs.50 balance also excluded. ^Middle lines within boxes correspond to median PPIs for respective bank type. Lower edges of boxes correspond to median PPIs for respective bank type. Lower edges of boxes correspond to 25th percentile and upper edges of boxes correspond to 75th percentile PPI value for respective bank type. Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” 16 17 Households without a savings account cite insufficient savings, lack of awareness of savings products, and lack of need as their primary reasons for not opening an account. Overview of Borrowing Investigating the reasons leading to financial exclusion, we documentation required for opening an account, fees/expenses The overall rate of indebtedness is extremely high. found interesting results that show while 37% of the excluded etc.). A large percentage (28%) cited lack of awareness of the households cited the insufficiency of funds as a reason for not banks and their products as their reason for not opening an having a savings account, almost half of the excluded account while 16% cited lack of required documentation. households (49%) cited a reason related to banks or the Surprisingly, very few unbanked households cited distance to a procedure of opening an account (such as having little bank branch, trustworthiness of the bank, or the attitude of knowledge about banks/their products, not having proper bank employees as reasons for not opening an account. Our survey reveals that overall rates of indebtedness, from It is unclear how much of the discrepancy between our virtually all sources, are much higher than previously estimated. estimates and that of the NSSO is due to differences in According to the 2003 round of the All India Debt and survey methodology and how much is due to actual Investment Survey (AIDIS) conducted by the National Sample changes in rates of indebtedness between the survey Survey Organization, 33% of rural households in Andhra Pradesh periods. 32 Nevertheless, our data indicate that actual rates had a loan outstanding from any source, 11% had a loan from a of formal source, and 25% had a loan from an informal source at estimated. indebtedness are much higher than previously the time of the survey (2003). Data from our Access to Finance Table 5: Stated Reasons for Not Availing Savings Account among Financially Excluded survey shows that the current overall rate of indebtedness in The average and median amounts of total outstanding rural Andhra Pradesh (to any source), at 93%, is much higher than loans from all sources (formal, semi-formal, and informal) PERCENTAGE OF HOUSEHOLDS CITING REASON previously estimated. Additionally, we find that 37% of were also relatively high. Table 8 displays these amounts, households have a loan from a formal source, 82% have a loan broken down by household occupational profile as well as No or not enough savings for bank account 37 from an informal source, and over half have a loan from either a by religious/caste affiliation (scheduled caste, scheduled Don’t want/need 24 MFI or an SHG – a loan category that was so negligible at the tribe, and Muslim households). Notably, large farmers Save through other means 1 time of the AIDIS that it was not included in the survey. borrowed an average of well over Rs. 1,00,000 (1 lakh). Bank / Procedure related 49 • Have no idea about banks or bank products 28 • Don’t have proper documentation 16 • Fees/expenses 5 • Applied but rejected 3 • Procedures/application too difficult to understand 2 • Takes too much time 1 • Banks not trustworthy 1 Private 1% • Branch officials not friendly/courteous 0.5 Public 20% • Branch too far 0.2 Other reasons 2 REASON Table 6: Percentage of Rural Andhra Pradesh Households Indebted by Source MAJOR SOURCE Over half (51%) of rural households have mobile phones. Almost all households who own a mobile use the phone regularly. ESTIMATED SHARE OF HOUSEHOLDS WITH LOAN FROM SOURCE BASED ON ACCESS TO FINANCE SURVEY Banks Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” Many unbanked households own mobile phones. SUB-SOURCE RRB 9% Coop 10% Government Program 0.1% All Banks 38% SHG 54% MFI 11% Informal Interestingly, 36% of households with no savings account own at least one mobile phone. (If Rs. 0 and Rs. 50 balance accounts are excluded, this figure does not change.) These figures suggest that mobile banking may hold significant potential as a method of providing financial services to the unbanked. Any loan source Moneylender 17% Friends (with interest) 57% Friends (no interest) 9% Employer 3% Landlord 21% Unknown sub-source 1% All informal sources 82% 93% Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” 32. 18 Despite significant effort by the authors to identify substantive differences in the methodologies of the two surveys (e.g. – a definition of what constitutes a loan), we were unable to uncover any differences significant enough to account for these discrepancies. 19 Table 7: Percentage of Rural Andhra Pradesh Households Indebted, other sources MAJOR SOURCE SUB-SOURCE SHARE OF HOUSEHOLDS WITH LOAN FROM SOURCE Over half of rural households borrow from SHGs, but only around 11% have an MFI Loan. 33 Since the crisis in Krishna and Guntur in 2006 (see section allow us to compare rates of indebtedness to microfinance Credit card 1% “Microfinance in Andhra Pradesh” above for more information), lenders with indebtedness to other types of lenders. Overdraft 0.1 % many in the microfinance community have expressed concern In kind agriculture input loan 12 % Without commitment 6% With commitment - portion of harvest must be sold at fixed price to lender) 7% Routinely purchases from shop on credit 37 % Member of chit fund 8% Figure 9: Total Loan Amount Outstanding by Source 1% 5% that several areas in South India, the state of Andhra Pradesh in Data from the survey show that indebtedness to SHGs is indeed particular, have become oversaturated with microfinance and quite high at 53%. Indebtedness to MFIs, at 11%, is significant that borrowers are taking on more debt than they can handle but relatively modest when compared to indebtedness to other (See, for example, Rozas and Sinha (2009)). While data from this major loan providers. (See section “Borrowing by Household survey does not permit us to assess the truth of this statement as Type and Source” below for more detail on indebtedness to MFIs we are unable to determine absolute borrowing capacity, it does by household type.) Non-routine expenditures are common and are typically due to a need for medical treatment or festivals. Non-routine expenditures are overwhelmingly financed through savings or informal sources. A majority (64%) of rural households were forced to make a informal sources to finance these non-routine expenditures. This non-routine expenditure of some type during the six months may be due to a reluctance on the part of formal lenders to lend prior to the survey. By far, the most common reason for incurring for non-productive purposes or alternatively, the increased a non-routine expenditure was to pay for medical treatment. 34 speed or flexibility of informal lenders. Table 10 shows that households relied almost exclusively on 18% Table 9: Top 5 Non-routine Expenditures NON-ROUTINE EXPENDITURE MFI 75% SHARE OF HOUSEHOLDS WHICH INCURRED MAJOR EXPENDITURE ON GIVEN ITEM IN PAST 6 MONTHS Health 36% Festival or special event aside from marriage 11% Marriage 11% BANK Buy agricultural machinery or inputs 10% SHG Home improvement/repair/construction 7% INFORMAL Any non-routine expenditure 64% Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” Table 10: Top 5 Sources of Financing for Non-routine Expenditures SOURCE Table 8: Loan Outstanding per Household by Occupational Category HOUSEHOLD PROFILE % WITH OUTSTANDING LOAN MEAN OUTSTANDING MEDIAN OUTSTANDING Landless Laborer 89% INR 36,933 INR 21,600 Commercial 90% INR 57,948 INR 33,680 Farmer - Marginal 97% INR 54,446 INR 37,450 Farmer - Small 96% INR 77,728 INR 53,000 Farmer - Large 95% INR 110,534 INR 82,000 Other 85% INR 48,412 INR 29,500 Scheduled Caste 94% INR 49,861 INR 31,220 Scheduled Tribe 91% INR 65,026 INR 30,100 Muslim 84% INR 55,794 INR 40,200 SHARE OF NON-ROUTINE EXPENDITURES FINANCED THROUGH A GIVEN SOURCE IN THE PAST 6 MONTHS Loan from friends/relatives 43% Own income or savings 29% Loan from moneylender 13% Loan from landlord 11% Loan from MFI/SHG 6% 33. In the Access to Finance survey and in this report, microfinance lending is divided into two primary categories: Self Help Groups (SHGs) and Microfinance Institutions (MFIs). Given the sometimes subtle distinction between these two forms of microfinance, surveyors were given extensive training on how to distinguish between MFI groups and SHGs. If the categorization was not immediately clear from the name and description of the group and organizing entity (which sometimes respondents did not know), surveyors probed further to understand the number of members of the group, management of any group savings, and process for managing and distributing credit. It should also be noted that this distinction between MFIs and SHGs slightly oversimplifies the ground reality of microfinance in India in that MFIs also occasionally lend to SHGs. In cases where a household was a member of an SHG that was created and lent to by an MFI we have classified the loan as an SHG loan. Also, any loan that is received through an SHG is categorized as “SHG” and not as “Bank,” although SHG loans themselves frequently originate from banks through the SHG Bank-Linkage Programme. 34. This result is especially salient in light of the state government’s generous health insurance program which allows any BPL household to receive treatment for a variety of ailments for free at a wide range of both public and private hospitals. See the section on the Arogyasri Health Insurance Scheme below for more details. Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” 20 21 Borrowing by Household Type and Source Average poverty levels of clients reached by different types of lenders are relatively similar. responses which suggest that there is high pent-up demand for loans from banks.36 A large majority of households with no loans from MFIs cited the inability to make regular payments or to save MFIs reach relatively more landless labourers and fewer farmers than other lenders. Microfinance institutions are widely perceived to reach out to regularly as a key reason for not taking an MFI loan. Many Microfinance lenders, especially MFIs, reach significantly fewer shows that farming households of all types (marginal, small, and households which are poorer than those reached by banks or households that abstained from joining SHGs also cited an farming households and significantly more landless labourer large) are not as well represented among MFI or SHG borrowers other formal lending sources (Morduch, 1999). Yet surprisingly, inability to save regularly as a barrier, though they did so far less households than banks. group but these households make up a relatively larger we find almost no difference in the mean PPIs of clients of frequently than those who abstained from MFI loans. Several percentage of households borrowing from banks. different types of lending institutions. While the mean PPI of households with no loan from an SHG also cited potential for households with no loan from any source is statistically group conflict and an inability to find a group willing to accept significantly lower than the mean PPI of households with a loan, them. Interestingly, these reasons are nearly absent from the list there is no statistically significant difference between the PPIs of of reasons for not taking a loan from an MFI. Figure 10 displays the share of households of each occupational type by lender type. The graph 100% the set of households borrowing from different lender types. 80% Due to the limitations of the data on which the index is based, payments as a reason for not taking a microfinance loan is hardly the PPI score is not as accurate an indicator of poverty as surprising. Microfinance loans, especially MFI loans, often have 60% measures based on detailed consumption surveys. Further, a rigid and frequent repayment schedules. More surprising is the simple test of means may hide interesting differences in the fact that households without a loan from an informal source also 40% distribution of the poverty scores of households which borrow cited an inability to make regular repayments as a major reason from different sources. Nevertheless, this result shows that the for not taking such a loan nearly as frequently as households 20% Figure 10: Profile of Client Occupations by Lender Type difference in the poverty profiles of borrowers of different lender without loans from MFIs, and more frequently than those types may not be as large as many believe. without loans from SHGs. This suggests that we should be The fact that respondents cited an inability to make regular 0% cautious in inferring that inflexibility of repayment schedules is a NO LOAN BANKS LANDLESS LABOURER MFI COMMERCIAL FARMER (SMALL) OTHER SHG Households abstain from borrowing for a variety of different reasons. INFORMAL FARMER (MARGINAL) major hurdle to households joining SHGs. A similar pattern emerges in the responses of those who did not FARMER (LARGE) Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” Appendix D lists the top five reasons households cited for not participate in a chit fund. This group did not cite lack of trust in taking a loan from a specific source. In the case of bank loans, chit fund operators, who have been frequently labelled households often cited external factors such as lack of land, lack dishonest in the press, as a major reason for their of a guarantor, a rejected application, and lack of documents, non-participation. For all household types, MFI loans make up a very small share of total debt. Shortly before the publication of this report, the government of have at least one loan outstanding from that source). Andhra Pradesh passed an ordinance requiring that, among example, column 1 in Figure 19 displays the mean outstanding other things all MFIs: register with the state government, submit from banks for all landless labourer households who have at least a list of all borrowers with outstanding loans, and obtain one loan from a formal source. Figure 18 shows that the share of approval in writing before lending to SHG members with loans the poorest households – landless labourer households – with at outstanding from the SHG (Andhra Pradesh State Government, least one MFI loan is only slightly higher than the share of these 2010). The ordinance was prompted, in part, by news reports same households with a loan from a bank. Further, Figures 19 suggesting that levels of indebtedness to MFIs are unsustainable. and 20 show that the average (median) outstanding in MFI loans Many of these reports also claimed that MFIs charge usurious for these households is relatively modest compared to the total interest rates and employ immoral collection techniques. 35 For outstanding from other sources. Similarly, Figures 21, 22 and 23 reveal that MFI loans make up only a modest share of the total 22 While this survey is unable to shed light on the latter two claims, borrowing for marginal farmer households. For both of these the data clearly shows that MFI loans, for all household types, household types, as well as for the other wealthier household make up only a small portion of overall debt. The figures in types, overall borrowing, both in terms of the share of Appendix F display levels of indebtedness by source and households with at least one loan from the source, as well as total household type along with the average and median outstanding amount outstanding, continues to be dominated by loans from for households of each type by source (provided that households informal sources. 35. Lack of documents was the sixth most common reason for not taking a loan from a bank. An estimated 9.7% of rural households without a loan from a bank did not take a bank loan for this reason. 36. For a detailed account, please refer to the “India Microfinance State of the Sector Report, 2009.” 23 How Do Borrowers use their Loan Money? Multiple Borrowing Loans from different sources are used for different purposes. In January 2009, microfinance operations in Karnataka were disrupted The lack of hard data on multiple borrowing has led to wildly when the Muslim clergy in Kolar district called for a halt in microfinance divergent claims on how common the phenomenon is and Data on loan usage reveals that loans from different sources The data also reveals that a large percentage of loans are used to are used for different purposes. For example, bank loans are repay old debt. While this finding may appear alarming (since it used to finance the purchase of agricultural inputs to a could suggest that households are entering a vicious debt cycle), it much greater extent than loans from other sources. Loans may also be the case that households are simply using new loans from informal sources are used for health and with lower interest rates or better terms to pay off older loans. marriage-related expenses much more than loans from (Unfortunately, the survey did not include a question on why the other sources. And SHG loans are disproportionately used new loan was used to repay the old and thus we are unable to to finance consumption. distinguish between these two cases.) 37 The resulting Kolar crisis sent the microfinance whether it should be a source of concern for the microfinance community-in India and abroad-abuzz with talk of debt fatigue and sector. In one camp, there are those who claim that multiple over-borrowing. A Wall Street Journal article declared India to be facing borrowing is widespread and may cause a whole-scale crisis in an imminent “credit crisis,” implying that the sector was approaching the sector. Some have even gone so far as to compare the state bubble conditions (Ghokale 2009). The Kolar crisis was highly of the microfinance sector in South India with that of the reminiscent of the Andhra Pradesh crises, and these events raise serious sub-prime mortgage market in the United States prior to the questions about whether microfinance clients are taking on more debt recent financial crisis (Rozas 2009). Those in the second camp than they can handle and about the extent of multiple borrowing. claim that reports of multiple borrowing are exaggerated and, repayments. to the extent that it exists, multiple borrowing is caused mainly Table 11: Usage of Loan Money by Lender Type BANK MFI SHG INFORMAL Unfortunately, prior to this survey, there was very little data available by borrowers’ inability to fulfil their complete credit needs on the prevalence of multiple borrowing. In the absence of reliable from a single source. Below we attempt to bring hard data to data on multiple borrowing, researchers have been forced to rely on this debate. Start New Business 2% 3% 2% 1% indirect methods of estimating multiple borrowing (see, for example, Buy agricultural inputs 58% 13% 19% 20% Krishnaswamy 2007) or on surveys conducted in small areas with a Purchase stock 3% 10% 4% 3% known high incidence of multiple borrowing (see, for example, Repay old debt 15% 25% 20% 7% Kamath, Mukherji, and Ramanathan 2008, or APMAS 2006). While Multiple borrowing is extremely common, with an estimated Health 11% 11% 19% 25% such studies may provide a general range for the extent of multiple 84% of households having two or more loans from any source. borrowing overall, or precise estimates for specific areas, they do not Surveyed households reported a median of four loans answer the much larger question of how prevalent multiple outstanding from all sources. borrowing is overall. distribution of total loans per household from all sources. Marriage Funeral Other festival 4% 5% 2% 12% 0.1% 0.2% 0.5% 2% 1% 4% 4% 5% Home improvement 10% 22% 13% 14% Unemployment 0.0% 0.0% 0.1% 0.8% Purchase land 1% 1% 1% 1% Education 4% 4% 6% 5% Purchase jewellery 1% 1% 2% 0.4% Consumption 27% 32% 50% 25% Buy livestock 3% 6% 6% 2% Multiple borrowing is extremely common. Figure 11 shows the Figure 11: Distribution of Total Loans per Household Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” Note: Totals may be greater than 100% as loans may be used for more than one purpose 37. 24 These figures include both major models of Indian microfinance, SHGs and MFIs. 25 Multiple borrowing is driven mainly by multiple loans from informal sources. When the source of loans is taken into consideration, the When we look at the instances of multiple borrowing from the same situation related to multiple borrowing does not appear nearly source we find that the incidence of multiple borrowing from same so dire. Much of the recent debate regarding multiple borrowing source is most prominent among those who borrowed from the has been over the extent to which microfinance clients, informal sources. The data (Figure 12A) shows that 3% of all particularly clients of MFIs, borrow from multiple microfinance households have two or more loan outstanding from MFIs, while 70% lenders at the same time. of them have at least two loan outstanding from informal sources. Figure 12B: Distribution of Total Number of Loan Outstanding for Households with at least One Loan Outstanding by Source Figure 12A: Percentage of Households with Multiple Loans from a Given Source 80% 70 70% 60% 50% 40% 30% 20% 10 9 10% 3 0% BANK Median Outstanding (RS.) 40000 MFI SHG 11250 9175 INFORMAL SOURCES 40000 Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” When we look at the distribution of total loans outstanding for a given source (Figure 12B), we find that among those who borrow from MFIs there is a slightly higher tendency to have multiple loans outstanding compared to those who borrow from SHGs: nearly 30% of rural households who were active MFI borrowers had more than one loan outstanding at the time of the survey. In comparison, only 16% of active SHG borrowers had more than one loan outstanding at the time of survey. Yet both of these figures pale in comparison to the tendency toward multiple borrowing exhibited by those who borrow from informal sources: of households with at least one loan from an informal source outstanding, 85% had more than one informal loan outstanding. 26 27 Figure 13: Progress out of Poverty Score by Number of Loans Outstanding* 80 60 40 20 0 PROGRESS OUT OF POVERTY SCORE 100 Figure 12B: Distribution of Total Number of Loan Outstanding for Households with at least One Loan Outstanding by Source 0 1 2 3 4 5 6 7 8 9 10 Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” *Middle lines within boxes correspond to median PPIs . Lower edges of boxes correspond to 25th percentile and upper edges of boxes correspond to 75th percentile PPI value for respective bank type. *Households with more than 10 loans outstanding excluded due to small sample size. Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” Many cases of multiple borrowing appear to be driven by an inability to obtain sufficient credit from a single source. Whether multiple borrowing should be a cause for concern or could not obtain sufficient credit from a single source. A large not depends greatly on the reason why the borrower has share of households with multiple loans outstanding taken multiple loans. If a borrower takes more loans because borrowed two or more loans in the same month for the same she cannot make repayments on an existing loan, then multi- purpose. Bundling loans together from different sources at ple borrowing is indeed a cause for concern. If, on the other the same time appears to indicate a credit constraint - no hand, she borrows from multiple sources because she is single source supplies what borrowers require, forcing them unable to obtain sufficient credit from a single lender, then to look elsewhere. This also suggests that a large portion of the borrowing is much less distressing. multiple borrowing is due to this constraint, rather than people using a loan to pay off another. While it is difficult to ascertain the true reasons for multiple borrowing based on a relatively short survey, the timing and The average total amount borrowed in these cases was Rs. 45,280. purpose of loans suggests that many households borrowed The main loan usages for such borrowings mirror the overall from multiple sources for the latter reason – because they usage of informal borrowings: Table 12: Usage of Multiple Loans taken out in the Same Month LOAN USAGE Health 20% Multiple borrowing appears to be more common among the better off. Buy agricultural inputs 18% Home improvement/construction 18% of households borrowing from both at least one MFI and at least On average, households with more loans outstanding appear Marriage 17% one SHG was only 7%, indicating only a slight correlation in the to be better off than those with fewer loans outstanding. propensity to borrow from these two sources. Our analysis also Figure 13 displays the PPI scores of households according to Household consumption 17% indicates that as compared to a household which does not have the number of loans they have outstanding. a loan outstanding from an SHG, a household with an SHG loan exhibits a clear upward trend, indicating that a household’s outstanding is approximately 6% more likely to have a loan PPI score is strongly correlated with the number of loans it outstanding with an MFI. has outstanding. In addition, the histograms above slightly oversimplify the state of multiple borrowing in that they do not take into account multiple borrowing across different loan sources. Yet the share 28 SHARE The graph Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” 29 In Depth Look at SHGs Table 14: Year of Most Recent Loan among SHGs with No Loans Outstanding LAST LOAN YEAR Indebtedness to SHGs in rural Andhra Pradesh is quite high but not as high as some previous estimates. Principal loan amounts received by SHG members increased significantly with membership years. PERCENTAGE 2008 26% 2007 25% 2006 15% Estimates of microfinance penetration 38 of the target population The median principal loan amount received by members (those households just below the poverty line) in Andhra was Rs. 6,800, while the average came to Rs. 9,417. These Pradesh have recently been as high as 224%, implying that each amounts are comparable with industr y estimates of an 2005 8% household below the poverty line belongs to at least two groups, average loan size of Rs. 7,344 in Andhra Pradesh and an 2004 or earlier 9% if not more (Rozas and Sinha, 2010). Andhra Pradesh has even average of Rs. 5,544 for India. 40 been deemed the most saturated microfinance market in the world, even surpassing Bangladesh.39 Our study found penetration to be Loan amounts differed significantly with duration of group significantly lower. Approximately 72% of rural households have membership: a member who belongs to a self help group. Table 13: SHG Members’ Principal Outstanding by Duration of Membership MEMBERSHIP YEARS AVERAGE PRINCIPAL MEDIAN PRINCIPAL 0-5 years INR 7,965 INR 5,000 6-9 years INR 10,855 INR 9,000 10+ years INR 13,211 INR 10,000 Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” Regular savings, the defining aspect of self-help groups, was overwhelmingly strong. minutes and the average time spent traveling to and from The primary component of SHGs is regular savings-from these the bank to deposit or withdraw savings is 192 minutes. From savings, groups generate a common pool through which they these figures, we may infer that the member in charge of bank can extend emergency loans and avail bank loans. Almost all transactions (usually the president or treasurer) spends an groups (99%) reported collecting regular savings: about 96% average of 5 hours monthly, or nearly an entire working day, collect Rs. 50 in savings per individual per month, while 4% of on SHG business. meetings is 20 minutes. The average time spent traveling to groups save weekly at an average of Rs. 17 per week (Rs. 66 Reports of dropouts and defaults were limited. monthly). Nearly 74% of groups had no dropout members. The mean age Regular group meetings were common, despite the fact that many groups had not received a follow-up loan. of groups with no dropouts was 4.4 years, while the age of An estimated 87% of groups meet monthly while 7% meet members moving to new locations. A large number (88%) of The average age of groups was 5.2 years, while average membership was 4.8 years. Slightly more than a third (37%) of groups had weekly. Only 2% of members reported that their groups no groups have had no member defaults. Only 2% of groups have been formed in the last 2 years, while 32% of groups were older than 8 years. longer meet. The average time spent per meeting is 80 seen a member default and drop out of the group. Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” The majority of SHG members had an outstanding loan at the time of survey. those with one or more dropouts was 7.9 years. The top reasons for dropping out were repayment problems and Table 15: Stated Reasons for Leaving SHG among Drop-outs REASON PERCENTAGE QUOTED Of all SHG members, 72% had an outstanding loan, and only 17% Of groups that have received at least one bank loan, 89% of members belonged to groups that had never received a bank currently have a group loan outstanding. Within these groups, Repayment Problem 34% loan. Of these groups, 35% were formed in 2007 or earlier, 96% of members had individual loans outstanding. For those Moved 32% implying that some groups faced a slight delay in receiving their groups that did not have loans outstanding, just over half of first loan, if in fact, these groups had been formed primarily to the previous loans were repaid during the prior two years. Old Age 23% access credit. Generally, groups save for 6 months to 1 year and Only 10% of these groups had not been issued a new bank Group Conflict undergo rating by a bank before they are offered a bank loan. loan in the past five years, as shown in Table 14. 9% Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” 30 38. Rozas and Sinha (2010) estimated microfinance penetration in Andhra Pradesh to be 17.2% as opposed to 16.4% in Bangladesh. These numbers include both SHG and MFI membership. 39. Estimates based on state-wise SHG average savings and loan amounts, taken from the Microfinance India State of the Sector Report 2009. 31 Multiple SHG/MFI memberships by individual SHG members seem to be driven by credit need. six percent of all SHG members reported having no multiple no idea of whether multiple borrowing was taking place. As we saw in the multiple borrowing section, only 9% of households had two or more SHG loans. Looking specifically at multiple memberships by individual Capture by elites was not evident, either in terms of leadership or household profile. borrowers in their groups, while another 18% claimed to have Although groups were overwhelmingly government-formed, most members did not receive SGSY subsidies. The average principal amounts for loans taken by group remained largely identical across occupational profile and leaders was only slightly higher than the principal of caste/religious affiliation (Scheduled Caste, Scheduled member loans, at Rs. 9804 versus Rs. 9371. Tribe and Muslim households). Notably, there was considerable variance for households in the Other In addition, average and median loan amounts borrowed category. 42 members, we found 13% of SHG members and 67% of MFI members belonged to at least one SHG and one MFI 95% of SHG groups were government-formed-we can assume that simultaneously. Twenty-three percent of these individuals had they were formed under the DWCRA or Velugu programs. Of these no outstanding SHG loans, and half of this group had never groups, only 2% received SGSY subsidies. The average individual received a loan from their SHGs at the time of survey. Dual subsidy received amounted to Rs. 12,739. Interestingly, only 7% of membership, therefore, may be driven by the need for more rural members reported that politicians had approached their immediate loan sanctions, which MFIs often provide. On the groups to ask for political support. other hand, continued membership in SHGs may be preferred as a means of saving (which MFIs are not permitted to provide) and as a vehicle through which to receive flexible, emergency Group credit was overwhelmingly extended by public sector banks. loans from fellow group members. Only 3% of SHG members belonged to more than one SHG. Over 50% of group loans were issued by Public Sector Banks, followed by Regional Rural Banks at 28%, as illustrated in Figure Group members were asked to estimate the extent of multiple 14. These numbers align with industry calculations of 2009 memberships within their groups to establish whether public national bank linkages which estimate that commercial banks perception reflected the actual rate of dual membership. Sixty issued 55% of group credit, while RRBs issued 27%. Figure 14: Break up of Lending to SHGs Table 16: Borrowing Rate and Principal Outstanding of SHG Members Broken Down by Various Categories SHG LOANS HOUSEHOLD PROFILE PERCENTAGE WITH OUTSTANDING LOAN AVERAGE PRINCIPAL MEDIAN PRINCIPAL Landless Laborer 52% INR 11,029 INR 9,500 Commercial 51% INR 13,014 INR 10,000 Farmer - Marginal 56% INR 12,078 INR 8,800 Farmer - Small 59% INR 11,182 INR 8,800 Farmer - Large 54% INR 10,920 INR 8,700 Other 47% INR 12,677 INR 6,733 Scheduled Caste 58% INR 11,462 INR 9,750 Scheduled Tribe 55% INR 11,825 INR 9,000 Muslim 58% INR 11,744 INR 8,575 41 4% 10% MFI Borrowing Borrowing from MFIs was much lower than anticipated for rural Andhra Pradesh. Only 12% of rural households belonged to a joint liability group formed by a private microfinance institution, and 95% of joint liability group members 52% had microfinance loans outstanding at the time of interview. The average years of membership in a MFI was surprisingly low. DON’T KNOW The average duration of membership in joint liability groups was only 1.6 years and nearly 64% of members had been in their groups for one year or less (as shown in Table 17 below). This could be due to the inability of households that borrow from MFIs to repay loans GOVERNMENT PROGRAM 28% OTHER SOURCE RRB consistently over a longer period of time, compared to SHGs, where members borrow only according to credit need. Alternatively, this data could also reflect the continued rapid expansion of MFIs in the state. PUBLIC SECTOR BANK 5% Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” 32 40. See Microfinance India State of the Sector Report, 2009. 41. This could be explained by the fact that many households in the “Other” category were retired and, thus, probably had a lower credit requirement. 33 Figure 15: Incidence of MFI Borrowing by District 1 27% 2 11% 3 12% 4 4% 5 4% 6 3% 7 1% 8 1% 9 0.2% 10 1% 15% 37% 10% 0 5% % 0% YEARS OF MEMBERSHIP WITH MFIS 20% Table 17: Distribution of Years of Membership in MFI Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” Loan sizes, unsurprisingly, increased with membership more rapidly in MFIs than in SHGs. NIZAMBAD VISHAKPATNAM MEDAK CUDAPAH PRAKASAM VIZIANGARM MAHBUNAGAR NALGONDA Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” MFI clients received an average of just under Rs. 10,000 during their first year but their average loan size gradually increased to just over Rs. 13,000 after five years of membership, half the time it would take to receive a comparable amount in an SHG. Average loan sizes in rural Andhra Pradesh were significantly higher than the national average outstanding amount of Rs. 5,200. Table 18: : Average and Median Principal Outstanding by Age of MFI Group MEMBERSHIP YEARS AVERAGE PRINCIPAL MEDIAN PRINCIPAL 0-1 years INR 9,541 INR 10,000 1-2 years INR 10,361 INR 10,000 2-3 years INR 10,511 INR 10,000 3-4 years INR 11,711 INR 10,000 Other Financial Products Chit Funds Membership in chit funds remained limited to a small portion of the population. Our data shows that only 8% of households reported having membership in a chit fund. 4-5 years INR 12,787 INR 12,000 5 years INR 13,083 INR 10,000 Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” Only 5% of groups were required to provide documentation in order to join their chit group-we can assume that the remaining groups are unregistered. Initial payments varied widely according to household profile. The average initial payment was Rs. 2,363. This rose to Rs. 6,653 for registered groups. Initial payments varied from as little as Rs. 50 to a maximum of Rs. 32,000. The mean chit pool (the average total amount which was auctioned at regular meetings) came to Rs. 53,553. Broken down by household profile, the averages varied considerably: Borrowings were greatest in districts close to Hyderabad. Nalgonda and Mahbubnagar, two districts bordering Hyderabad, the capital of Andhra Pradesh, led in MFI memberships. Prakasam, which borders the saturated Guntur district, followed closely behind. Unsurprisingly, Vishakapatnam and Vizianagarm districts, both with large populations of Scheduled Tribe and Scheduled Caste populations, had the lowest outreach. 42. 34 Microfinance India State of the Sector Report 2009 35 Figure 16: Average Chit Pool Size by Occupation of Member 80,000 Other Insurance Products Many households have life insurance but few have any other insurance product. 60,000 Nearly half (43.8%) of rural households have life insurance but, not including the Arogyasri health insurance scheme, few have any other 40,000 form of insurance. Table 19: Take up of Various Insurance Products 20,0000 20,0000 INSURANCE PRODUCT LANDLESS LABOURER COMMERCIAL FARMER (MARGINAL) FARMER (SMALL) OTHER FARMER (LARGE) SHARE OF HOUSEHOLDS WITH PRODUCT LifeLife 44% Health (not including Arogyasri) 2% Crop or weather 0.5% Accident 0.4% Cattle 0.3% Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” Conclusion Remittances The results contained in this report reveal that the actual levels of relatively low and, for most households, MFI debt is a relatively financial inclusion of rural Andhra Pradesh households are far small share of total debt. different from what we previously believed. A much greater share A significant portion of non-BPL households have Arogyasri cards. of rural households have access to a formal savings account than The results from this report illustrate that recent government did only ten years ago, though many of these accounts are not initiatives as well as the expansion of the microfinance sector have Only 3.68% of rural households receive money from a actively used for savings. Similarly, a much larger proportion of had an enormous impact on financial inclusion of rural households household member living outside the household. Households Despite the fact that only BPL households are eligible for the households are indebted, many of them from multiple sources, in recent years. which received remittances reported that bank transfers and Arogyasri, a small but significant portion of rural households than were ten years ago. Despite the concern about indebtedness changing landscape of financial inclusion in other states across the cash were used as methods of delivering funds more frequently who do not have BPL ration cards (3.0%) have the Arogyasri to MFIs, the share of households with a loan from an MFI remains country. than cheques or postal money orders. card. Arogyasri Health Insurance Scheme Many households received treatment under Arogyasri but a significant portion were forced to pay out of pocket expenses. Very few households receive remittances. In 2007, the government of Andhra Pradesh launched a More effort is required to understand the comprehensive health insurance scheme for poor households – the Rajiv Arogyasri Health Insurance Scheme. The scheme 36 A significant percentage (4.7%) of rural households has provides BPL card holders with up to Rs. 1,50,000 (1.5 lakh) in received medical treatment under the Arogyasri program since coverage for major health procedures such as surgeries or the launch of the program. Yet, despite the fact that the cancer treatments. Beneficiaries may receive treatment free of program is intended to be free for patients, a large portion charge (at any hospital, public or private, participating in the (36%) of patients who had received treatment under Arogyasri scheme). reported having to pay out-of-pocket fees. 37 References  Andhra Pradesh State Government. (2010) An Ordinance to protect the women of Self Help Groups from exploitation the Micro Finance Institutions in the state of Andhra Pradesh and for matters connected therewith or incidental thereto.  APMAS. (2006) "Voice of the People on the Lending Practices of Microfinance Institutions IN Krishna District of Andhra Pradesh.” Mimeo.  Armendáriz, Beatriz and Jonathan Morduch. (2005) The Economics of Microfinance. The MIT Press  Basu, Priya and Pradeep Srivastava. (2005) “Scaling up Microfinance for India’s Rural Poor” World Bank Policy Research Working Paper 3646, June 2005.  Beck, Thorsten and Asli Demirgüç-Kunt. (2008) “Access to Finance: An Unfinished Agenda” World Bank Economic Review 2008 22(3):383-396; doi:10.1093/wber/lhn02. Stage Total Number Selected  Chaudhuri, Siladitya and Niveditya Gupta. (2009). “Levels of Living and Poverty Patterns: A District-wise Analysis for India” EPW Vol XLIV, No 9. District 8  Collins, Daryl, Jonathan Morduch, Stuart Rutherford, and Orlanda Ruthven. (2009) Portfolios of the Poor: How the World's Poor Live on $2 a Day. Princeton University Press, 2009  Committee on Financial Sector Reforms. (2008) A Hundred Small Steps: Report of the Committee on Financial Sector Reforms. Available at http://planningcommission.gov.in/reports/genrep/report_fr.htm  Committee on Financial Inclusion. (2007) Report of the Committee on Financial Inclusion. Available at http://www.nabard.org/report_comfinancial.asp  Deininger, Klaus and Yanyan Liu. (2009) “Economic and Social Impacts of Self-Help Groups in India.” Policy Research Working Paper 4884, World Bank.  Department of Chit Funds. (2009). “List of Chit Fund Companies Working Under the Chit Funds Act, 1982.”Available at http://chitfund.delhigovt.nic.in/  Department of Rural Employment and Poverty Alleviation. “Annual Report: 1998-1999.” Ministry of Rural Development, New Delhi: 1999.  Fernandez, Aloysius P. “History and Spread of the Self-Help Affinity Movement in India: the Role Played by IFAD.” Occasional Paper Series, IFAD, July 2007.  Available at http://www.ifad.org/operations/projects/regions/pi/paper/3.pdf  Ghate, Prabhu. (2006) Microfinance India: State of the Sector Report 2006. Sage Publications, New Delhi.  Ghokale, Ketaki. “A Global Surge in Tiny Loans Spurs Credit Bubble in a Slum.” New York Times, August 13, 2009. http://online.wsj.com/article/SB125012112518027581.html>  Kamath, Rajalaxmi, Arnab Mukherji, and Smita Ramanathan. (2008) “Ramanagaram Financial Diaries: Loan repayments and cash patterns of the urban slums.” IIMB Working paper 268.  Kobishyn, Alexandra, Binith Rath, and Minakshi Ramji. (2009) “The Business Correspondent Model: A Preliminary Exploration” CMF Working Paper Series No. XX.  Krishnaswamy, Karuna. (2007) “Competition and Multiple Borrowing in the Indian Microfinance Sector.” CMF Working Paper Series, Chennai: IFMR Centre for Micro Finance.  Microfinance Information Exchange, Inc. (2008) “2008 MIX Global 100 Composite: Rankings of Microfinance Institutions.” Available at http://www.themix.org/sites/default/files/2008 %20MIX %20Global %20100 %20updated %20March %202009.pdf  Morduch, Jonathan. (1999) “The Microfinance Promise.” Journal of Economic Literature, Vol. XXXVII, December 1999.  NABARD. (2008) “Report of the Committee on Financial Inclusion,” Chaired by Dr. C. Rangarajan. Available at http://www.nabard.org/report_comfinancial.asp  NABARD. (2004) “Annual Report, 2003-2004.”  NABARD. (2005) “Annual Report, 2004-2005.”  NABARD. (2006) “Annual Report, 2005-2006.”  NABARD. (2007) “Annual Report, 2006-2007.”  1920 households were randomly selected for surveying using a three stage sampling design in which first 8 districts, then 64 villages, and then 1920 households were randomly selected. Details of the method of selection at each stage are provided below. Table 20: Overview of Sampling Strategy Selection Strategy Districts were selected using stratified random sampling. The 22 districts of Andhra Pradesh containing at least one rural area (one district in the state, Hyderabad, contains only urban areas) were divided into four strata based on the following two variables: • The estimated share of rural households falling under the official poverty line obtained from Chaudhuri and Gupta (2009) • The estimated share of adult women belonging to a microfinance group based on data collected from MFIs by the Centre for Microfinance. Within each stratum, two districts were selected with simple random sampling without replacement. Village 64 Within each district, villages were selected using stratified random sampling. In all districts except for Ranga Reddy, villages were divided into four strata based on the distance to the nearest bank branch according to the village directory data of the 2001 census. In Ranga Reddy district, where a bank branch is present in all villages, villages were divided into four strata based on the distance to the nearest town. Within each stratum, two villages were selected with probability proportional to size (based on number of households) without replacement. Households 1920 Within each village, 30 households were selected using simple random sampling without replacement. A village mapping exercise was conducted to enumerate all households living in the village. In cases where the survey team was unable to locate a sample house hold a replacement household was randomly selected from the list. (Replacement households may be identified by use of the variable “replacement” in the dataset.) In the course of surveying, the surveying team encountered Rigorous quality checks were undertaken throughout the significant difficult in conducting surveys in one of the districts survey, both in the design of the field team structure and selected, Krishna district. In the weeks before the surveyors arrived through supervision by CMF staff. Prior to surveying, staff NABARD. (2008) “Annual Report, 2007-2008.” there had been a spate of robberies perpetrated by thieves received intensive training, both in a classroom setting and  NABARD. (2009) “Annual Report, 2008-2009.” fraudulently posing as surveyors. After several encounters with in the field, to ensure accurate data collection. In addition  Ramji, Minakshi. 2009. “Financial Inclusion in Gulbarga: Finding Usage in Access.” CMF Working Paper Series No.26. Chennai: IFMR Centre for Micro Finance. angry villagers, the survey team decided to abandon all attempts to to thorough scrutiny of each survey by all levels of the survey in Krishna district and instead randomly selected another team (surveyor, supervisors, and monitors), supervisors  Reserve Bank of India, “List of Deposit Taking Companies Cat ‘A’” Available at rbidocs.rbi.org.in/rdocs/Publications/DOCs/59260.xls district from the same district strata to conduct surveys in. and  Rozas, Daniel. (2009) “Is there a Microfinance Bubble in South India?” Microfinance Focus, September 2009. Available at http://www.microfinancefocus.com/2009/10/10/is-there-a-microfinance-bubble-in-south-india/  Rozas, Daniel and Sanjay Sinha. (2010) “Avoiding a Microfinance Bubble in India: Is Self-Regulation the Answer?” Microfinance Focus, January 2010. Available at http://www.microfinancefocus.com/news/2010/01/10/avoiding-a-microfinance-bubble-in-india-is-self-regulation-the-answer/  Srinivasan, N. (2009) Microfinance India: State of the Sector Report 2009. Sage Publications, New Delhi.  Sriram, MS. (2005) “Expanding Finacncial Services Access for the Poor: The Transformation of SPANDANA.” Indian Institute of Management, Ahmedabad. Available at http://www.iimahd.ernet.in/~mssriram/spandana-wp.pdf   38 Appendix A – Sampling Methodology Sriram, MS. (2010) “Commercialisation of Microfinance in India: A Discussion on the Emperor’s Apparel.” Working Paper No 2010-03-04, Indian Institute of Management, Ahmedabad. Thyagarajan, S., and Jayaram Venkatesan. 2009. “Cost–Benefit and Usage Behaviour Analysis of No Frills Accounts: A Study Report on Cuddalore District.” Pune and Chennai: College of Agricultural Banking and IFMR Centre for Micro Finance. monitors accompanied surveyors or conducted backchecks on at least 50 % of surveys collected daily. Due to the omission of surveying in Krishna district, the data Further surprise backchecks and accompaniments were collected as a result of the survey is not representative of the rural undertaken by both the CMF Research Associate and areas of the entire state but rather the rural areas of the entire state Regional Field Coordinator throughout the length of the excluding Krishna district. Often in this report, the authors use the field work. In case of any doubts, either the Research phrase “rural households in Andhra Pradesh” in place of the more Associate or Project Assistant conducted re-visits before accurate but less concise “rural households in Andhra Pradesh completing data collection in a district. The rate of excluding Krishna district.” Readers should note that all estimates non-response was extremely low, and in such cases, presented here in this report are strictly valid for rural households replacement households were randomly selected. in Andhra Pradesh excluding Krishna. 39 Appendix B - How to Access and Use the Data The questionnaire and all data used in this report are available for download at: http://ifmr.ac.in/cmf/resources.html Rules for how occupational categories were assigned • If agriculture on land owned by the household was one of the household’s two main sources of income the household was classified as a farming household. • Farming households owning less than one acre of land were classified as marginal farmers. Farming households owning Appendix C – Determination of Occupational Categories Households were assigned to one of five occupational categories and the residual category “other” based on the rules described below. Please note that the definitions used to determine occupational categories, especially the distinction between marginal, small, and large farmers, varies by context and that the definitions used here may not match those used by other researchers or government agencies. (In particular, the definitions used here do not match the definitions used to determine eligibility for the recent loan waiver.) Appendix D – Five Most Frequently Cited Reasons for Not Availing a Loan by Lender Type between one and four acres of land were classified as small Table 21: Top 5 Reasons for Not Availing a Loan from a Formal Source REASON SHARE farmers. Farming households owning more than four acres of land were classified as large farmers. • Non-farming households which relied on salaried employment Have no idea about these sources or their products 19% Lack of land 13% Already had or could get loan from another source 12% Lack of guarantor 11% Application rejected 11% or an own business as one of the household’s two main sources of income were classified as commercial. • Non-farming, non-commercial households which relied on wage labour (either via agriculture, as a coolie, or in NREGA) as one of the household’s two main sources of income were classified as landless labourers. Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” • All households not falling into any of the categories above were classified as other. This includes households that were retired or reported remittances or transfers as their main source of income. Table 22: Top 5 Reasons for Not Availing a Loan from a MFI REASON Figure 17: Progress out of Poverty Scores by Occupational Category SHARE Irregular income flows or repayment capacity 60% No MFIs are close enough to join 24% Have no idea about MFIs or how they function 19% Can’t save regularly 12% Don’t know any MFIs or members 6% Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” Table 23: Top 5 Reasons for Not Availing a Loan from a SHG REASON Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” SHARE Irregular income flows or repayment capacity 29% Can’t save regularly 10% Tried but was unable to join 9% Don’t want group conflict 9% Have no idea about SHGs or how they function 5% Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” Table 24: Top 5 Reasons for Not Availing a Loan from an Informal Source REASON SHARE Irregular Income Flows/ Repayment capacity 45% No need 15% Already had or could get a loan with other source 13% Interest rates are too high 7% After cultivation 7% Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” 40 41 Table 25: Top 5 Reasons for Not Availing a Loan from a Chit Fund REASON SHARE Irregular income or repayment capacity 71% Can’t save regularly 16% No chit funds close enough to join 14% No idea about what chit funds are or how they work 9% Not trustworthy 3% Appendix F - Borrowing by Household Type and Source The graphs below display indebtedness and loan size (for those with at least one loan) by household type and source (where the “Formal represents Banks and JLG represents MFI”). Error bars indicate confidence intervals at 95 % level. Figure 18: Percent of Landless Labourer Households Indebted by Source Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” Appendix E - Progress out of Poverty index PPI scores were calculated using the India Poverty Scorecard designed by Mark Schreiner. The Poverty Scorecard is a proxy survey which estimates the likelihood of a household’s being under a given poverty line (in our case, we use India’s National Poverty Line). The scorecard was created using data from Round 62 data of the National Sample Survey Organization’s (NSSO) India Socio-Economic Survey. The table below lists the likelihood of being under the poverty line for the specified PPI ranking. Table 26: PPI Ranges and Corresponding Likelihood of Falling below Poverty Line PPI LIKELIHOOD OF BEING BELOW NATIONAL POVERTY LINE 0-4 77% 5-9 59% 10-14 51% 15-19 36% 20-24 29% 25-29 21% 30-34 19% 35-39 15% 40-44 10% 45-49 5% 50-54 5% 55-59 6% 60-64 6% 65-69 4% 70-74 2% 75-79 2% 80-84 1% 85-59 1% 90-94 0% 95-100 0% Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” Figure 19: Mean Outstanding by Source for Landless Labourer Households with at Least One Loan from Source Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” Source: www.progressoutofpoverty.org 42 43 Figure 20: Median Outstanding by Source for Landless Labourer Households with at Least One Loan from Source (un-weighted) Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” Figure 22: Mean Outstanding by Source for Marginal Farmer Households with at Least One Loan from Source Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” Figure 23: Median Outstanding by Source for Marginal Farmer Households with at Least One Loan from Source (un-weighted) Figure 21: Percent of Marginal Farmer Households Indebted by Source Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” 44 45 46 Figure 24: Share of Small Farmer Households Indebted by Source Figure 26: Median Outstanding by Source for Small Farmer Households with at Least One Loan from Source (un-weighted) Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” Figure 25: Mean Outstanding by Source for Small Farmer Households with at Least One Loan from Source Figure 27: Share of Large Farmer Households Indebted by Source Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” 47 48 Figure 28: Mean Outstanding by Source for Large Farmer Households with at Least One Loan from Source Figure 30: Share of Commercial Households Indebted by Source Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” Figure 29: Median Outstanding by Source for Large Farmer Households with at Least One Loan from Source (un-weighted) Figure 31: Mean Outstanding by Source for Commercial Households with at Least One Loan from Source Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” 49 50 Figure 32: Median Outstanding by Source for Commercial Households with at Least One Loan from Source (un-weighted) Figure 34: Mean Outstanding by Source for “Other” Households with at Least One Loan from Source Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” Figure 33: Share of “Other” Households Indebted by Source Figure 35: Median Outstanding by Source for “Other” Households with at Least One Loan from Source (un-weighted) Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” Source: Centre for Micro Finance, IFMR Research. "Access to Finance in Rural Andhra Pradesh 2010.” 51