Cmf access to_finance_rural_powerpoint_march14_final[1]


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  • Districts 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 selection: 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. Household selection: 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 household a replacement household was randomly selected from the list. (Replacement households may be identified by use of the variable “replacement” in the dataset.)
  • Median indebtedness including all loans =42000
  • 70% of all households have at least two loan outstanding from informal sources while 3% of all households have two or more loan outstanding from MFIs 10% of all households have at least two loan outstanding from Banks while 9% of all households have two or more loan outstanding from SHGs
  • Where do households finance these expenditures. 43% of them borrow from friends or relatives 29% use their own income or savings, 13 percent of them take a loan from a moneylender, 11% from a landlord and 6% loan from MFIs and SHGs.
  • Where do households finance these expenditures. 43% of them borrow from friends or relatives 29% use their own income or savings, 13 percent of them take a loan from a moneylender, 11% from a landlord and 6% loan from MFIs and SHGs.
  • Rates of borrowing for all groups are high (Generally above 90%) Savings access seems related to socioeconomic status with landlless labourers having the lowest access relative to other groups. Large farmers disproportionately use formal sources for borrowing.
  • As you can see only 14% of respondents opened a savings account so that they could save. Instead 31% and 48% opened an account in order to access loans or government benefits. You might think, Why does it matter why somebody opened an account. Sure enough we find that those who oepned an account to receive government benefits are more likely to have dormant accounts.
  • 5% of the households with Arogyasri health insurance received medical treatment and one third of them paid out of pocket expenses
  • Cmf access to_finance_rural_powerpoint_march14_final[1]

    1. 1. Centre for Micro Finance at IFMR Research Access to Finance in Andhra Pradesh Doug Johnson and Sushmita Meka Presented by: Santadarshan Sadhu and Ajaykumar Tannirkulam
    2. 2. The Survey <ul><li>First survey of household access to finance which: </li></ul><ul><ul><li>includes detailed information on access to finance including microfinance </li></ul></ul><ul><ul><li>is representative of an entire state’s (Andhra Pradesh) rural population </li></ul></ul><ul><ul><li>discloses data publicly </li></ul></ul>
    3. 3. Objective <ul><li>We wanted to learn more about: </li></ul><ul><ul><li>The state of financial inclusion in rural areas </li></ul></ul><ul><ul><li>The number of people reached by various types of financial service providers </li></ul></ul><ul><ul><li>The levels of overall indebtedness and sources </li></ul></ul><ul><ul><li>The demographic and economic characteristics of the clients of various financial service providers (as well as the unbanked). </li></ul></ul>
    4. 4. Microfinance in India <ul><li>Models of microfinance in India </li></ul><ul><ul><li>Self Help Groups (SHG) </li></ul></ul><ul><ul><ul><li>Groups of 12 to 20 (mostly) women which collect regular savings from members and make loans internally to members. The groups are linked to a Bank which provides loans to the group to be disbursed among the members </li></ul></ul></ul><ul><ul><li>Joint Liability Group (JLG) </li></ul></ul><ul><ul><ul><li>Groups of (mostly) 5 members which are generally formed to receive loans from the Micro Finance Institutions (MFI)where the members are jointly held liable for repayment of loans </li></ul></ul></ul><ul><ul><ul><li>Followed by most of the MFIs </li></ul></ul></ul>
    5. 5. Why Andhra Pradesh <ul><li>Andhra Pradesh is the state where microfinance achieved its greatest success to date in India having </li></ul><ul><ul><ul><li>25% of all Self Help Groups and 39% of total loan outstanding of the groups </li></ul></ul></ul><ul><ul><ul><li>21% of all clients and 30% of total loan outstanding of MFIs </li></ul></ul></ul><ul><ul><li>The state is home to India’s largest state-led microfinance initiative which is targeted to promote the Self Help Groups </li></ul></ul><ul><ul><li>Several of India’s largest MFIs including SKS, Spandana, BASIX, and Share are based in Andhra Pradesh and began operations in the state </li></ul></ul>
    6. 6. Why Andhra Pradesh (continued) <ul><li>A state where both models of microfinance (SHG and JLG) have been working side-by-side and experienced phenomenal growth </li></ul><ul><ul><li>SHG promotion in Andhra Pradesh massively expanded since 2000 </li></ul></ul><ul><ul><li>Since 2000, the outreach of private MFIs in Andhra Pradesh has grown at a frenetic pace, with the total number of borrowers more than doubling each year. </li></ul></ul><ul><ul><li>In 2005, several of the fastest growing MFIs in the world were based in Andhra Pradesh. </li></ul></ul><ul><ul><li>Experienced explosive growth-led tension between MFIs, the clients they serve, and government officials. In 2006, Andhra Pradesh was the site of the first large-scale confrontation between microfinance borrowers and MFIs in the country raising the debate regarding the excessive interest rate charged by the MFIs </li></ul></ul>
    7. 7. Methodology <ul><li>Survey details: </li></ul><ul><ul><li>8 districts (randomly selected from 22 districts of AP) </li></ul></ul><ul><ul><li>64 villages (8 villages randomly selected from each of these 8 districts) </li></ul></ul><ul><ul><li>1920 households (randomly selected from the 64 villages) </li></ul></ul>Survey conducted in June to November 2009 using a rigorous random sampling methodology
    8. 8. BORROWING
    9. 9. Overview of Borrowing <ul><li>Overall indebtedness is extremely high - 93% of all rural households in AP are indebted to at least one source including: </li></ul><ul><ul><li>Banks (State, Private) </li></ul></ul><ul><ul><li>Self Help Group (SHG) </li></ul></ul><ul><ul><li>Micro Finance Institutions (MFI) </li></ul></ul><ul><ul><li>Money lenders </li></ul></ul><ul><ul><li>Friends and relatives (with and without interest) </li></ul></ul><ul><ul><li>Employers </li></ul></ul><ul><ul><li>Landlords </li></ul></ul>Formal Informal
    10. 10. Indebtedness by Source <ul><li>Informal loans are predominant source of rural credit </li></ul><ul><li>Indebtedness to SHGs is much higher than indebtedness to MFIs </li></ul>
    11. 11. Extent of Indebtedness by Source: Median Loan Outstanding (INR)
    12. 12. Informal Loans Major Source Sub-source Estimated Share of households with loan from source based on Access to Finance Survey Informal Moneylender 17% Friends (with interest) 53% Friends (no interest) 9% Employer 3% Landlord 21% unknown sub-source 1% Any one of the informal sources 82%
    13. 13. Share of Total Loan Outstanding by Source <ul><li>Predominant share of loan outstanding is with the informal sector </li></ul><ul><li>MFI loans make up a very small share of total debt </li></ul>
    14. 14. Debt Outstanding by Occupation Household Profile Percentage with outstanding loan Mean Outstanding Median Outstanding Landless Laborer 89% 36,933 21,600 Commercial 90% 57,948 33,680 Farmer - Marginal 97% 54,446 37,450 Farmer - Small 96% 77,728 53,000 Farmer - Large 95% 110,534 82,000 Other 85% 48,412 29,500
    15. 15. Usage of Loan Money by Lender Type <ul><li>LLoans from different sources are used for different purposes </li></ul>Bank SHG MFI Informal Buy agricultural inputs 58% 19% 13% 20% Consumption 27% 50% 32% 25% Repay old debt 15% 20% 25% 7% Health 11% 19% 11% 25% Home improvement 10% 13% 22% 14% Start New Business 2% 2% 3% 1% Marriage 4% 2% 5% 12% Other festival 1% 4% 4% 5% Education 4% 6% 4% 5% Purchase stock for existing business 3% 4% 10% 3% Buy livestock 3% 6% 6% 2% Purchase land 1% 1% 1% 1%
    16. 16. Multiple Borrowing <ul><li>Multiple borrowing is extremely common </li></ul><ul><ul><li>84% of households having two or more loans from any source. </li></ul></ul><ul><ul><li>Median of 4 loans outstanding per household </li></ul></ul><ul><li>Multiple borrowing is driven mainly by multiple loans from informal sources </li></ul>
    17. 17. Multiple Borrowing
    18. 18. Households with Multiple Loans from a Given Source
    19. 19. Multiple Borrowing by Active Clients of a Given Source
    20. 20. Multiple Borrowing <ul><li>Multiple borrowing also prevalent among the better off (represented by higher PPI scores) </li></ul><ul><li>Many cases of multiple borrowing appear to be driven by an inability to obtain sufficient credit from a single source </li></ul><ul><ul><li>A large share of households with multiple loans outstanding took two or more loans in the same month for the same purpose indicating that they are unable to fulfill their credit needs from one single source </li></ul></ul>
    21. 21. Non-Routine Expenditures Top 5 Non-routine Expenditures Non-routine Expenditure Share of Households which Incurred Major Expenditure on Item in past 6 Months Health 36% Festival or special event aside from marriage 11% Marriage 11% Buy agricultural machinery or inputs 10% Home improvement/repair/construction 7% Any non-routine expenditure 64%
    22. 22. Non-Routine Expenditure: Source of Funding Top 5 Non-routine Expenditures Source of Funding Non-routine Expenditure Share of Households which Incurred Major Expenditure on Item in 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%
    23. 23. Financial Inclusion
    24. 24. State of Financial Inclusion in Rural AP
    25. 25. Occupational Classification Category Description Farmer (Marginal) Farming households owning less than one acre of land Farmer (Small) Farming households between one and four acres of land Farmer (Large) Farming households owning more than four acres of land Commercial Non-farming households which relied on salaried employment or an own business Landless Labor Non-farming, non-commercial households which relied on wage labour Other All households not falling into any of the above categories
    26. 26. Access to Formal Savings - 2003 vs. 2009 Percentage of Households with Savings Account
    27. 27. Overview of Savings <ul><li>Government policies such as providing NREGA benefits </li></ul><ul><li>through savings accounts lead to sizable increase in the share of rural households with access to formal savings. </li></ul><ul><ul><li>78% of rural households have access to a formal savings account but only 14% opened for the purpose of savings. The vast majority of accounts (79%) opened either to receive government benefits or to increase the chances of receiving a loan. </li></ul></ul><ul><ul><li>A high percentage of accounts remained dormant (41%). Most of these accounts were post-office or cooperative accounts. </li></ul></ul>
    28. 28. Stated Reasons for Opening Savings Account
    29. 29. Share of Rural AP Households with a Savings Account by Bank Type Share of Households with a Savings Account Share of Households with a Savings Account (excluding 0 and Rs 50 balance accts)* Private Sector Bank 1% 1 % Public Sector Bank 41 % 36 % Regional Rural Bank 14 % 13 % Cooperative Bank 14 % 12 % Post Office 42 % 11 % Any of the above 78% 61 %
    30. 30. Financial Exclusion <ul><li>Unbanked households tend to be poorer than the banked and clients of private banks tend to be richer than clients of other banks </li></ul><ul><li>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 </li></ul>
    31. 31. Stated Reasons for not having a Savings Account
    32. 32. Reasons for Not Having Savings Account Reason Percentage of Households Citing Reason No or not enough savings for bank account 37 Don’t want/need 24 Save through other means 1 Bank/Procedure related 49 <ul><li>Have no idea about banks or bank products </li></ul>28 <ul><li>Don’t have proper documentation </li></ul>16 <ul><li>Fees/expenses </li></ul>5 <ul><li>Applied but rejected </li></ul>3 <ul><li>Procedures/application too difficult to understand </li></ul>2 <ul><li>Takes too much time </li></ul>1 <ul><li>Banks not trustworthy </li></ul>1 <ul><li>Branch officials not friendly/courteous </li></ul>0.5 <ul><li>Branch too far </li></ul>0.2 Other reasons 2
    33. 33. Mobile Phone Ownership <ul><li>Over half (50%) of rural households and approximately 36% of financially excluded households own at least one mobile phone </li></ul><ul><li>The vast majority of those who own a mobile phone use it regularly </li></ul><ul><li>Potential for mobile banking </li></ul>
    34. 34. Access to Insurance <ul><li>Penetration of life insurance is quite high, while the penetration of voluntary (private) health and other non-life insurance is very low </li></ul><ul><ul><li>44% of rural household have life insurance </li></ul></ul><ul><ul><li>2% have private health insurance </li></ul></ul><ul><ul><li>51% of rural household have state-sponsored Arogyasri health insurance (for BPL households) </li></ul></ul><ul><ul><li>Penetration of other non-life insurance such as crop, weather, cattle or accident insurance is less than 1% </li></ul></ul>
    35. 35. Reasons for not having insurance Reason Percent of household Expensive 73 Not useful 4 Don’t know how to obtain 11 No idea 8 Too difficult 2 Documentation 2
    36. 36. Some Key Takeaways from Access to Finance <ul><li>Savings – Many households have access to savings accounts though high rates of account dormancy suggest that more can be done to promote savings. </li></ul><ul><li>Borrowing - Overall rates of indebtedness in rural Andhra Pradesh are high – informal debt dominates MFI, SHG, and formal sector debt. </li></ul><ul><li>Insurance – Half of households have access to life insurance and government-sponsored health insurance but very few have other types of insurance. </li></ul><ul><li>Need for better access – Though many rural households in Andhra Pradesh have access to formal savings and informal and semiformal credit institutions, more can be done to improve their access to a variety of formal finance. </li></ul>
    37. 37. Thank you