Project OverviewSocio-economic transformation of India

Topic- Microfinance in the State of Jammu and Kashmir

Section C:

INDEX1. Microfinance, a brief overview2. Jammu and Kashmir3. Economy of Jammu and Kashmir4. Scope for Microfinance5. Current Statistics6. Analysis of the socio political conditions of the state7. Potential to produce8. Potential to absorb9. Problems at grass-root level10. How can microfinance intervene?11. Challenges12. Suggestions for improvement13. Conclusion14. References

Microfinance in Jammu & Kashmir:People were poor not because they were stupid or lazy. They worked all day long, doing complex physical tasks. They were poor because the financial institution in the country did not help them widen their economic base. ~Mohammad Yunus

Microfinance: A Brief OverviewInvestopedia says- Microfinance essentially is a type of banking service that is provided to unemployed or low-income individuals or groups who would otherwise have no other means of gaining financial services. Ultimately, the goal of microfinance is to give low income people an opportunity to become self-sufficient by providing a means of saving money, borrowing money and insurance.Microcredits began taking shape in the early 1700s when the well-known author Jonathan Swift started the Irish Loan Fund System that provided small loans to rural poor with no collaterals. The system began growing at a steady pace during the 1800s when microfinance became a widespread institution with more than 300 agencies operating across Ireland. Nobel Prize winner Muhammad Yunus, introduced the concept of Microfinance in Bangladesh in the form of the "Grameen Bank". NABARD took this idea and started concept of Micro Finance in India. The SHG-Bank linkage program, which was undertaken since 1992 in India, had financed about 22.4 lakh SHGs by 2006. It involved commercial banks, Regional Rural Banks (RRBs) and cooperative banks in its operations.Jammu and Kashmir: The heaven on Earth-Gar firdaus bar roo-e zameen ast,Hameen ast-o hameen ast-o hameen ast.Amir Khusrau, in his words described Kashmir in these timeless lines, roughly translated as,If there is ever a heaven on earth, its here, its here, its here...The Valley of Kashmir owes its fame, doubtless, not less to the wild grandeur of the barriers, which surround it than to its own intrinsic loveliness. It is this contrast which led the poets of all nations to speak of Kashmir Valley as "Emerald set in Pearls". The varied beauties of Kashmir appeal to every want and taste. For the cultivator of the soil, there is fertility of land, abundance of water, variety and plenty of natural products, whether grains or fruits. For the herdsman, there is rich pasturage and broad meadows. The sportsman finds game in the jungles and along the mountainsides.The fisherman finds ample use for the rod, the artist for his sketch block and colors, the archaeologist, linguist, botanist or geologist, may luxuriant vegetation, or the many geological problems awaiting their investigation; while they, who have neither hobbies nor inclinations, who want but rest and amusement in lovely Kashmir Valley and pleasant climate, can take their fill out of Nature's bounty.Amidst such seamless perfection, lies a tale of a state that struggles to sustain itself economically. With no dearth of natural resources or entrepreneurship skills, the state has suffered throughout the post-independence era due to highly unstable socio-political environment. The economy of the state has not grown along with rest of the country. The employment opportunities are restricted mostly to government sector as private investments are yet to make an impact on the state.Jammu and Kashmir- EconomyAccording to the Economic Survey Report, about one fifth of the population in J&K falls under Below Poverty Line (BPL) category, with about 98% living in the rural areas. The poverty ratio during past years has decreased by 14.06 per cent (3.54 percentage points) from the base year 1993-94, but the absolute poverty has shown an increase from 19.05 lakh (R), 1.86 lakh (U) and 20.92 lakh (C) in 1993-94 to 22 lakh, 2.21 lakh and 24.21 lakh respectively till in 2007-08.

The major sources of sustenance are: Agriculture Tourism Sericulture Papier-mch Saffron, Walnuts, Honey, Almonds Wood work, Carpet Industry, Woolens Industry, etcVarious other small/medium scale industries function across the state.

Investment in the state

Contribution of Various sectors in the economy of J&K

Per capita GSDP in J&K

During the past two decades, as the violence intensified in the valley, the unrest has affected the valley people, especially the urban poor, either by displacing them from their livelihoods or leaving them without any. Their poverty levels are aggravating and seek an urgent but long-term solution. Although some organizations have started working for the development of the area, there is ample scope for microfinance institutions to help the urban poor.Scope for Microfinance:Microcredit in Kashmir Valley has had a short history with few investors. The large microfinance firms currently operating across South Asia have yet to enter the Kashmiri market. In addition, limited research has been done on the range of organizations currently employing microcredit in this area. Microfinance could play an important role in poverty alleviation in J&K since majority of the urban population who fall below the poverty line (BPL) have no access to basic financial services, there is always the need to create opportunities for city dwellers to augment their income and to assist them through soft and hassle-free loans.Current Statistics:

Various states and SHG groups functioning

Currently, the four main financial institutions conducting microcredit programs in the Kashmir Valley are: Jammu & Kashmir Bank (J&K Bank) Jammu & Kashmir State Womens Development Corporation (JKSWDC) Jammu & Kashmir State Cooperative Bank (J&K State Cooperative Bank) National Bank for Rural and Agricultural Development (NABARD)

J&K BankJ&K State Womens Development Corporation

J&K Co-operative bankNABARD

Inception Year

2006199420001992

Funding Sources

RBI

GoI & RBIRBI & NABARDGoI & RBI

BorrowersAnyone in need who qualifies all criteriaSocially and economically weaker women between the age of 18 to 45

Women in rural areasMostly women

Method of Disbursing Loans

Individual & SHGsIndividual & SHGsIndividual & SHGsIndividual & SHGs via NGOs.

Interest Rate

17%-18% p.a4%-6% p.a9%-12% p.aVaries

Additional ServicesDifferent schemes of craft development, agriculture, etc. No frills account.Providing financial assistance, making the process smooth, assisting for 5 years after sanction, helping in establishing.

NACollaborates with NGOs for small problem solving sessions.

Repayment SchemeVaries with schemes20-28 installments, 5-7 years.

5-7 Years.Varies

Analysis of socio-political factors of the state:State policies for promotion of Small industries:J&K Government policies that are supportive of promotion of small scale industries can be listed as follows: Up to 15 per cent price and or purchase preference on government purchase from small scale industries. Small, medium and large scale industrial units to be provided relief under Value Added Tax (VAT). Exemption from paying central sales tax (CST) on sale of finished goods outside the state. A fully owned J&K Government Undertaking, J&K SMALL SCALE INDUSTRIES DEVELOPMENT CORPORATION LIMITED (SICOP) with the objective to promote and develop the Small Scale Industries in the State of Jammu & Kashmir. Priority sector lending by Banks and Financial Institutions. Reservation of items for exclusive production Emphasis now on promotion of quality, technology and efficiency Price & Purchase preference Infrastructure Development The State Government has set up many training centres for coaching young boys and girls in traditional arts and crafts.Potential to produce: Jammu and Kashmir is a state known for its cottage industries, handicrafts, as a large proportion of population is indulged in such businesses.The major produce of the state can be listed as follows: Carpets Namadas Lois Kangri Papier-mch Pashmina Shawl Silverware and imitation jewelry Walnut wood craft, furniture.Statistics showing the potential of J&K Handicrafts industry:

The contribution to economy:

SWOT Analysis of J&K Handicrafts industry:

Apart from these handicrafts, people also indulge in sericulture and livestock rearing.Sericulture is one of the traditional occupations of Jammu and Kashmir. It is the only traditional univoltine belt in India, capable of producing silk comparable to the fine qualities of raw silk imported in the international market.

Livestock rearing statistics:

Potential to absorb:Data of sales revenue and employment via Cottage industries in district Budgam, Kashmir

Problems at grass-root level:In a survey conducted by University of Kashmir, several general problems faced by the cottage industries/ small scale industries in J&K were listed down. The respondents were asked to rank the given issue according to the magnitude of the problem. The order of merit given by the respondents was converted into ranks by using the Garretts formula. The major problems are listed below:

How can Microfinance intervene?The factors like power and climate are beyond an individuals control, but other problems like availability of raw material, finances, infrastructure, and accessibility of the markets etc. can be tackled by efficient use of microfinance and SHGs.Microfinance generally serves two purposes, delivering MF and enabling MF. The purpose of Microfinance in J&K has to be enabling the people to engage in sustainable activities.1. Finance:a. Loans: Microfinance institutions can finance loans as well as help secure loans and credit limits from banks for the cottage industries and small scale industries.b. Insurance: MFIs can offer insurance products like Life insurance, Property insurance, Disability insurance and Health insurance. MFIs may enter into this market by partnering with a licensed insurer. (Legally, MFIs can offer just Life Insurance with loans)c. Pensions: Micro-pension services can also be launched in J&K. Ujjivan in partnership with IIMPS (Invest India Micro-Pension Services) has launched two micro-pension products for over 10 lakh urban poor women. A specialized product may be developed and launched in J&K.d. Savings: MFIs in India cant accept deposits but can encourage people to save and spread awareness about the importance of savings.2. Infrastructure: Microfinance institutions can help the poor community in the state to build up the needed commercial infrastructure and also can help the already existing craftsmen to scale up their operations. By providing the little extra financial assistance, MFIs can also ensure that quality goods are produced and taken into the market so as to deliver proper prices of goods.Apart from the commercial infrastructure MFIs through various programs can also help in building or improving the already existing services for the community. 3. Accessibility of markets:a. Primary producers groupb. Networking arrangements for ease of transportationc. Franchising with NGOs to increase the market reachd. Organizing fairse. Ensuring quality control to cater upscale market and export oriented productsChallenges: Illiteracy Organizing the activities with a system of constant monitoring. Winning the trust of the common man. Scarcity of Raw Material (due to geographic constraints of the valley.) Controlling the interest rates. Condition of women. Finding a market, beyond the boundaries of the state. Supply of the products manufactured in the small scale industries to the rest of the country via efficient modes. Lack of connectivity of the state to rest of India.

Sustainability:Successful Microfinance can be defined by three main characteristics: sustainability, outreach and impact. Sustainability refers to the ability of a program to continue over time without any subsidies. Outreach refers to number of clients reached. Impact refers to the ability of the programs to assist poor households to move out of poverty. Enterprise growth is much more than just providing credit, it also involves financing a viable business idea. Care has to be taken that borrowed funds feed into new business at the same time MFIs can help to felicitate capacity building of the already existing small scale enterprises.Suggestions for Improvement:Suggestion 1:People need to be informed about various options of accessing credit and benefit of savings through MFIs and method of availing these funds. Replica of BRAC model with added features of Micro savings and Micro insurance is needed while implementation.BRAC or Bangladesh Rural Advancement Committee was initiated in 1972 by Sir Fazle Hasan Abed at Sulla in the district of Sylhet as a small-scale relief and rehabilitation project to help returning war refugees after the Bangladesh Liberation War of 1971. The organization ever since has been working for the upliftment of the rural ultra-poor population and has been very successful in its ventures.BRAC has also expanded to various other countries such as; Pakistan, Afghanistan, Sri Lanka, Philippines, and many African countries as well.They function in areas like: Microfinance Health care and sanitation for the rural population Social Justice for the people Education Food safety Road Safety Health and Nutrition Agriculture, etc.Their Microfinance operations work in a very unique and innovative way. They not only assist the community financially but also help them reach the market. Local markets are catered by organizing fairs in the villages or nearby towns. They also take the produce of the rural poor to the affluent population by establishing lifestyle store Aarong. The rural produce after going through proper quality checks are sold in these stores at high price and the benefits are transferred directly to the community.

Suggestion 2:The existing structures in the state are inadequate to meet the housing and economic credit needs of the participating community. Hence, an institution that would combine the strength and the reach of the NGO and expertise of the financial institution with participation from the community will be appropriate. The concept of development association for savings and credit (DASC) could be utilized to address the issue for providing better access to housing finance and economic loans for participating community in the project area. DASC is built on the strength of informal groups to create and improve access to skills resources and markets. These groups mobilize savings from the constituent members and other formal informal sources, which are further used for meeting the credit needs of the members. The objective for the formation of DASC will be creating an alternate self-sustained financial organization to meet shelter and livelihood needs of the weaker section in the rural community.Suggestion 3:Community based financial institution (CBFI) linked to an NGO should be used to provide loans as their service costs are lower as compared to other cooperative societies because of decentralized loan administration and availability of voluntary stuff. Such CBFI operations are generally supported by grants from National and international donor agencies. CBFIs must aim at an adequate scale of operations such that dependencies on grants are reduced overtime. Adequate rate of interest must be available to meet the transaction cost. Suggestion 4:Establishing a Centralized Organization for the Coordination of Microcredit Operations is essential because no coordination exists between the different microcredit organizations operating within Kashmir. This results in unsuccessful programs being repeatedly attempted and best practices have not been shared to the larger microfinance community. In addition, job skill training organizations such as the Craft Development Institute have not been included within the training process for loan recipients. A centralized body that monitors microcredit operations within the Kashmir Valley would assist in coordinating various operations within the region, thereby achieving efficiency and disseminating lessons learned.Conclusion:Microfinance in the Kashmir Valley is a relatively new concept. The results of these efforts will not be apparent in the near future. However, the advantage of this late implementation is the lessons learned from microcredit programs in other areas. Recognizing that the Kashmir Valley is unique because of both geographical location and political instability, it is necessary to thoroughly plan execution of microcredit programs to meet local needs and conditions. While few financial institutions distribute microcredit loans within the Kashmir Valley, they operate in a complex manner, often overlapping each other in the services provided. To proceed with microcredit in this region, it is necessary to evaluate these existing programs to find a niche for further investment. Most microcredit programs in the valley work through SHGs. Individual loans are rare and do not receive the same attention. These SHGs are effective because they usually focus on women and provided the means to develop a skill. Most SHGs are composed of widows from the current conflict or divorcees with no access to a source of income; the formation of SHGs greatly helped to empower these women.Looking forward, there are three major obstacles to microcredit in Kashmir: First, the absence of communication between different microcredit institutions operating with the region. A coordination effort between microcredit institutions and job skill organizations would result in much greater efficiency, widening the client base through greater outreach and achieving more in terms of both width and depth of programs. Presently, with such few microcredit operations in the Kashmir Valley, centralizing operations would draw more investors into this emerging market. Second, self-sustainment of SHGs will be a recurring issue. This is not something isolated to the Kashmir Valley; microfinance projects world-wide is also having difficulty shifting the burden of managing and running the SHGs from the outside institution which originally setup the group to members of the group. Third, the political climate is will make attracting investors a difficult task. Given the ongoing conflict and insecurity within the Kashmir Valley, outside investment has not arrived to the area. This is in sharp contrast to neighboring regions which have experienced a large flow of investment and attention. The political climate also impacts the economic landscape there are frequent strikes, work stoppages, and even goods shortages when vital transportation links have been disrupted. This will be an ongoing challenge for any microfinance efforts within the Kashmir Valley.

References:For Data: Directorate of Handicrafts Jammu & Kashmir Ministry of Planning and Statistics Kashmir Corps Greater KashmirFor information: http://www.ibef.org/download%5CJammu_&_Kashmir_060710.pdf http://www.bracresearch.org/reports/poverty_outreach_of_brac_mf_interventions_pdf.pdf http://international.abhinavjournal.com/images/Management_&_Technology/Jul13/4.pdfFor various other insights: Jammu and Kashmir Bank Mrs. A Umarani, DHAN Foundation.1