A Study on Micro Credit in Eastern Uttar- Pradesh with Reference to Cashpor
Journal of Commerce & Management Thought II - 3 ISSN 0975-623X(print)0976-478X(online) Downloaded From IP - 18.104.22.168 on dated 16-Apr-2012 A Study on Micro Credit in Eastern Uttar- Pradesh with Reference to Cashpor Members Copy, Not for Commercial Salewww.IndianJournals.com Dr. Amit Kumar Dwivedi, Dr. Punit Kumar Dwivedi, Ms. Nivedita Dwivedi Introduction “Microfinance is certainly not the silver bullet that will wipe away poverty, however it is undoubtedly making an impact on the socio-economic status of those who avail it and use it well.1” The micro-credit sector in India is characterized by a variety of credit service providers. These include various apex financial institutions like Small Industries Development Bank of India and NABARD financial institutions, Commercial Banks, Regional Rural Banks (RRBs), in accumulation to member-based institutions like Cooperative, SHG, private sector companies like specialized NBFCs, etc. Beside the existence of such a large number of players in the organized/semi-organized sector, the rural credit market in India is still largely dominated by the all pervading network of indigenous money lenders. There are a huge number of Non-Governmental Organizations (NGOs) which can be practically found in all villages and blocks of India. Most of these NGOs have compatible origin in that they started off as social service and welfare organizations with a focus on helping the poor and needy in
A Study on Micro Credit... 339 times of disaster, famine or any other social outbreak. The growing popularity of micro-credit in India, these NGOs have also taken up micro- credit movement as a part of their overall service approach. While some have adopted micro-credit as their core movement. A large number of such institutions, have adopted multiple operations with a limited investment in micro-credit (Planning Commission, Govt. of India). Micro-credit is defined as the prerequisite of credit services to clients who have otherwise been neglected by the majority credit/finance industry. These clients are excluded from mainstream financing primarily for reasons such as lack of education, living in a remote location, poverty, etc. Many Downloaded From IP - 22.214.171.124 on dated 16-Apr-2012 kinds of Non-Government organizations participate in providing micro-credit of short-term financing services. These include non-profit regional and Members Copy, Not for Commercial Sale international both organizations, private companies, financial institutions andwww.IndianJournals.com registered banks. The micro-credit industry also includes other participants - such as state, local and national governments, independent rating agencies and other third-party observers. A significant amount of the underprivileged people in India is somehow able to tailor their financial resources in a way that they can realize their ambitions vis-à-vis their houses or other plans. However with the introduction of micro finance in India, the standard of living of the poor section of the population is expected to improve (Patil et al., 2008). From an obscure experiment in Bangladesh 30 years ago, microfinance has become a worldwide movement as a development activity, a way of helping poor people out of poverty (Ditcher, 2006). Singh, (2008) highlighted that, "Micro finance services are designed to help the underprivileged to increase their earning, consolidate their properties and even gain a decent financial stability in life. The advantage of availing the micro finance credit over the more traditional means is the unwillingness of the later to serve the underprivileged people. In light of its prominent role in development economics, Buckley (1997) described it as the newest darling of the donor community, while Karnani (2007) portrays it as the newest silver bullet for alleviating poverty and Greer (2008) and Gupta and Aubuchon (2008) claim that microfinance shines as a proven way to improve the lives of the poor. Aguilar (2006), Ausburg (2008) argues that there is the need for a plus
340 Journal of Commerce and Management Thought II - 3 component (training in financial management, marketing and managerial skills and market development) for microfinance to succeed. In India in recent times, new types of Microfinance Institutions (MFIs) are being launched. They concentrate exclusively in the field of microfinance and adopt products, policies and procedures which can enable them to deliver these services in a profitable manner. The number of such MFIs is estimated to be less than a hundred. These credit institutions have larger canvas and microcredit is one among their major activity. The MFIs adopt diverse methodologies in reaching the poor. Cashpor Financial and Technical Services Pvt. Ltd in Uttar-Pradesh is one of those which are adopting a Downloaded From IP - 126.96.36.199 on dated 16-Apr-2012 combination of approaches. Research Methodology Members Copy, Not for Commercial Salewww.IndianJournals.com Cashpor Micro Credit (CMC) is a leading micro-credit institution in eastern Uttar-Pradesh region. It was observed that the CMC is increasing the outreach in extensive manner. The data set of past 10 years have been used for this study and we obtained those from the annual report of CMC and MIX-market a database that compiles information on MFIs. Created in June 2002 as a private non-profit organization, the MIX (Microfinance Information Exchange) promotes the exchange of information within the microfinance sector. The mission of the MIX is to help create a microfinance market by offering data collection services, performance tracking tools, sector comparisons and specialized information services. Micro-Soft (Excel) was used for data analysis and charts preparation. Research Objectives The aim of this Paper to show that a micro-credit facility can change life style of poor as well as strengthen the rural economy. This paper discussed the CMC’s performance in region as major micro-credit institution. The focus points of the paper are as follows: 1) To evaluate the business policy and systems of CMC. 2) To analyse the Efficiency, Productivity and Profitability in CMC. 3) To analyse the relationship between the financial results and other non financial issues.
A Study on Micro Credit... 341 Importance of Study In this study an attempt has been made to focus on financial as well as non-financial factors of Cashpor Micro-Credit. It also examines business policy, plans followed by CMC to maximize the outreach of the firm. In the study the past 10 year-data have been analyzed. It has also analysed financial and non-financial factors of micro-credit business. Cashpor Micro Credit (CMC) : Management of Operations The Cashpor Financial & Technical Services Pvt. Ltd (CFTS) has started operations in Mirzapur District in September 1997, as an experimental fast- Downloaded From IP - 188.8.131.52 on dated 16-Apr-2012 track, commercial approach to establishing a Grameen Bank-type institution. In the first six months of establishment and field operation only 100 women Members Copy, Not for Commercial Sale have chosen this as credit institution and by that time CFTS has opened sixwww.IndianJournals.com branches in the area2. The second six month period was more challenging because there was no addition in the clients and at the end of the year the number was only 100. In February, 1998 CFTS called 10 selected clients3 (Centre Chiefs) for a formal meeting at Mirzapur, CFTS paid them all the transport charges and arranged formal Lunch with their families. In meeting, officials of CFTS discussed the objectives of the firm to the clients that CFTS wants to provide micro-credit facility to them with continual, timely and honest access to service for as long as they needed."4After this meeting CFTS started its journey to success which has become remarkable. The Objective of the CMC is reduction in poverty through the sustainable financial services to poor women. The task is taken by indentifying at the village level poor households that are CMC’s potential clients. CMC begins its work in village that has a sufficient number of poor household to make it possible to establish a full center that is one with 15 to 20 women each. The Housing Index (HI) has only two indicators: 1. Height of the wall and material used Points • More than 5 feet and made of brick 4 • More than 8 feet and made of mud 2 • More than 4 feet but less than 8 feet and made of mud 1
342 Journal of Commerce and Management Thought II - 3 2. Material of the roof • Concrete/new tiles 2 • Old tiles/GI sheet 1 • Thatch/Straw/Plastic/leaves 0 Maximum Score 6 The Poverty Status is decided on Housing Index. The classification is made as under : • Very Poor - 2 or less • Moderate Poor - 3 • Non Poor - 4 or more The Housing Index is used to identify households with less than 4 score. The second step is to take brief interview with occupants that scored less Downloaded From IP - 184.108.40.206 on dated 16-Apr-2012 than 4 on the HI. It determines the poverty status of household from sources of income/ no. of earners and ownership of productive assets. Members Copy, Not for Commercial Salewww.IndianJournals.com Business System in CMC The Cashpor Micro Credit (CMC) has developed Centre Manager (CM) as chief player in the organization. CM has to attend centre meetings in the villages, ensuring about collection, taking new-loan proposals from existing borrowers and also do some exercises for new clients. He has to check the deployment of loan funds by borrowers and about timely loan disbursement also. CMC has a unique system of "Mini Branch System"6. There are 4 supervisors at the bottom level and they are responsible for Branch and Area level operations. The Branch Manager supervises four Centre Managers with requirement of surprise visiting at least once in a day, and the Area manager supervise four branches in the same way of surprise visiting for whole week. The district manager has to visit 12 branches on monthly basis and if the number of branches is more than 12, then the Deputy District Manager will cover rest of it. In CMC the Zonal manager is at the pinnacle of the field supervisory structure. He has to coordinate in 3-4 districts and has to report to managing Director of CMC. CMC has special type of funds for branch management. In the branch offices they are providing residential and food facilities for Branch Manager and Area Manager. Similarly District Manager and Dy. District Manager have to live at District office. The CMC’s objective for this provision is,
A Study on Micro Credit... 343 (i) to motivate new prospective borrowers, (ii) To recovery of given loans, and (iii) to achieve their targeted business plan timely. Area of Operation Eastern-Uttar Pradesh is also known as Poorvanchal, it is bounded by Nepal in north and Bihar state of India to the east, Vindhya hills to the south and Awadh region to the west. Poorvanchal consists mainly of three divisions; (i) the eastern Awadh region in west, (ii) the western Bhojpuri region in the east, and (iii) Northern Vindhya region in the south. It lies on the Indo-Gangetic plain, together with western Bihar, which is Downloaded From IP - 220.127.116.11 on dated 16-Apr-2012 the most densely populated area in the world. The rich quality of soil and the high earthworm density in the soil than adjoining districts of U.P. is Members Copy, Not for Commercial Sale favourable for agriculture. Cashpor Micro-Credit spread out in few districtswww.IndianJournals.com of Eastern Uttar-Pradesh as well as Western Bihar. The districts which are getting facilitated by CMC are Varanasi, Chandoli, Ghazipur, Jaunpur, Mirzapur, Deoria, Gorakhpur, Kushinagar, Azamgarh, Ballia, Sonbhadra of Eastern U.P and Buxar, Bhabua-Rohtas, Siwan and Saran of Western Bihar. Currently CMC has operation in 15 districts of India. The total number of active clients in these districts are 4,17,039 (cumulative) as on March 2010.7 Fig. 1 : Area of Operation of Cashpor Micro Credit Head-Office (Varanasi) BCJS BMV BGSS ADGK (ZONE) (ZO NE) (ZONE) (ZONE) Districts Districts Districts Districts Bhabua Rohtas Buxar Ballia Azamgarh Chandauli Mirzapur Gazipur Deoria Jaunpur Varanasi Siwan Gorakhpur Sonbhadra Saran Kushinagar
344 Journal of Commerce and Management Thought II - 3 CMC has weekly reporting system by Branch Manager at district office and upto head office through information media as well as documented form. The Managing Director (MD) and Chairman have to read the weekly reports and their remarks make new-targets for subordinates. Every month, CMC officials have to sit together and assess theirs achievements in the month. In the same meeting they have to finalize the next month business plan according to need. The whole system is equipped with mobile phones and internet facility. The Zonal Manager (ZM) has to prepare action plan for proposed target of coming month, and also secure its approval by the coordinator of the Downloaded From IP - 18.104.22.168 on dated 16-Apr-2012 Operations whose action plan is approved by MD, at the end of each month. The action plan is assessed by MD and provides proper feedback to Z.M. Members Copy, Not for Commercial Sale Similarly district offices have also to prepare the action plans for theirwww.IndianJournals.com targets.8 CMC has quarterly, half-yearly & annually monitoring and evaluation process in their business system. The system of monitoring is quite sound and foolproof. Data Analysis In the year 2010 the Cashpor Micro-Credit (CMC) achieved Rs. 43 Crore (US$ 1 million) after paying all losses. From this surplus CMC is going to build-up their own capital fund. This surplus will help to improve outreach of the firm. The successful business plans of the previous year have made this fruitful surplus to the firm. CMC targeted to increase their portfolio by Rs. 219 Crore but in actual they achieved Rs. 267.3 Crore (about US$ 58 million) i.e.122% of the targeted amount. In this section of the paper, the major financial data has been analysed and presented in tables and figures. A) Efficiency and Productivity Analysis : Efficiency and productivity indicators are performance measures that show how well the institution is streamlining its operations. Productivity indicators reflect the amount of output per unit of input, while efficiency indicators also take into account the cost of input and /or the price of outputs. In micro-credit institution, administrative cost may be Rs. 15, to 30 for each
A Study on Micro Credit... 345 hundred rupees loan portfolio, so the efficiency ratio is 15% to 30%.9 Operating Expenses Ratio, Cost of borrowers is the major analysis for assessment of efficiency and productivity of a firm. Operating Expenses Ratio (OER): This ratio provides the best indicator of the overall efficiency of a micro-credit institution for this reason it is also known as efficiency ratio. In case of CMC operating expenses ratio appeared very high around 23 per cent but slowly its came down when portfolio of lending increased year by year. In the Fig. 2.1 it is shown that the management of CMC controlled OER and after 2008 it is very close to 10 percent, which is showing remarkable Downloaded From IP - 22.214.171.124 on dated 16-Apr-2012 efficiency in CMC. Members Copy, Not for Commercial Sale Fig. 2.1 : Operating Expenses Ratio (OER)www.IndianJournals.com Cost per borrower Cost per borrower is calculated by dividing operating expenses by average no. of active borrowers. This ratio is also a component of measurement of efficiency by focusing the average cost of maintaining active borrowers. In CMC cost per borrower was quite high at the beginning around Rs. 5,600 because of less no of borrowers and high-per borrowers operating cost, but with incremental effect in no. of borrowers it reduces very quickly and in previous year it was observed that per borrowers cost is around Rs. 700, that is good signal for CMC.
346 Journal of Commerce and Management Thought II - 3 Fig. 2.2: Cost per Borrower and No. of Active Borrowers Downloaded From IP - 126.96.36.199 on dated 16-Apr-2012 B) Profitability Analysis Members Copy, Not for Commercial Salewww.IndianJournals.com Profitability measures, such as return on equity and return on assets, tend to summarise performance in all areas of the firm. Return on Assets and Equity (ROA & E) ROA is an overall measure of profitability that reflects both profit as well as loss margin and the efficiency of the institution. It is calculated by dividing net income (after tax and excluding nay grant or donation) by average assets. In beginning days ROA was in negative10 in CMC but it was improved year by year after that now it is 4.94 per cent. Fig. 2.3: Return on Assets and Equity
A Study on Micro Credit... 347 C) Portfolio Yield: Portfolio Yield is the initial indicator of an institution’s ability to generate revenue with which to cover its financial and operating obligations. Credit Institutions tend to disguise their interest rates, but portfolio yield is an easy way to calculate the actual rate obtained by the institution.11 Portfolio Yield is calculated by dividing total cash financial revenue (all income generated by the loan portfolio, but not accrued interest) by the period average gross portfolio. It measures how much Cash interest actually institution is receiving from its clients. Portfolio Yield in CMC is constant from year 2006 till previous year in between 15 to 20 percent. With Downloaded From IP - 188.8.131.52 on dated 16-Apr-2012 appositive growing rate in no. of active borrowers and competition it has a good pace of growing. Members Copy, Not for Commercial Salewww.IndianJournals.com Fig 2.4 Portfolio Yield and No. of Active Borrowers Results and Discussion 1. Capital Cost to Assets Ratio (CCAR): It is calculated by dividing Operating Expenses (Rent, Depreciation, office, other) by Total Assets of the institution. From starting it was observed very high in CMC due to expansion cost and establishment of new offices but after reaching up to optimum level of clients it came down and currently it is showing standard rate in CMC.
348 Journal of Commerce and Management Thought II - 3 2. Loan to Assets Ratio (LAR): Loan to Total Assets Ratio is calculated by dividing loan portfolio by total assets of the firm. In beginning days of CMC also LAR was in good position i.e. 55.56 percent in 2001. It means that from very beginning CMC has got optimum no. of clients and it has a better policy regarding asset management due to this only CMC has maintained standards of this ratio and currently it is on 72.3 percent. 3. Return on Assets (Adjusted) Ratio (ROAR): ROAR is a percentage, which measures the net income earned on the assets of a MFI. It’s an Downloaded From IP - 184.108.40.206 on dated 16-Apr-2012 overall measure of profitability that reflect profit and loss margins. It indicates financial performance of the institution. In CMC it is Members Copy, Not for Commercial Sale negatively correlated to Cost of Capital to Assets Ratio (CCAR). andwww.IndianJournals.com positively correlated with Operating Self-Sufficiency Ratio (OSSR) and Portfolio Yield (PY). These relations show positive because the firm has been growing at right path and it had got a proper level of self- sufficiency. In the very beginning it was negatively high but with business growth it became positive and now following the business standards. 4. Operating Self-sufficiency Ratio (OSSR): Operating Self-Sufficiency Ratio is a percentage, which indicates whether or not enough revenue has been earned to cover the MFI’s total costs-operating expenses, loan loss provisions and financial costs. It is an important measurement of sustainability of the credit operation. If credit-institution does not reach operational self-sufficiency, eventually its equity (loan fund capital) will be reduced by losses (unless additional grants can be raised to cover operating shortfalls). CMC shows negative relationship with Capital Cost to Assets Ratio (CCAR), whereas it is having a positive strong relationship with Return on Assets ratio (ROAR). 5. Portfolio at Risk > 30 Days (PAR): PAR is calculated by dividing the outstanding balance of all loans with arrears over 30 days, plus all
A Study on Micro Credit... 349 refinanced loans12 by the outstanding gross portfolio as of a certain date. Since the ratio is often used to measure loans affected by arrears of more than 30 days. In CMC, PAR>30 days has positively relationship with Portfolio Yield. Table : Corrélation Matrix (CCAR, LAR, ROAR, OSSR, PAR, PY) CCAR LAR ROAR OSSR PAR LAR -0.440933398 1 ROAR -0.993325703 0.413826348 1 Downloaded From IP - 220.127.116.11 on dated 16-Apr-2012 OSSR -0.832844087 0.393051201 0.861195018 1 PAR -0.167529282 0.395828629 0.145300162 0.1254385 1 Members Copy, Not for Commercial Salewww.IndianJournals.com PY -0.593445491 0.385241488 0.578362157 0.6827013 0.50816165 From the above analysis it can be observed that CMC has controlled its major costs and now able to generate its funds for self-sufficiency. It was found that for any micro-credit institution costs at the beginning are very high, but if that institution maintained the optimum level of borrowers with less number of loan losses that can turn into a positive position. Conclusion Cashpor Micro Credit promoted by Cashpor Financial Technical Services Pvt. Ltd. (CFTS) is working with a mission to alleviate the poverty in eastern-U.P. region has made positive impact on the clients. The financial management of CMC shows that it achieved self sufficiency level. Business policy being followed in CMC is more client oriented and Institution is getting benefited because of pro-poor plans; specially like CHI Housing Index. The Efficiency, Productivity and Profitability levels show optimum position and are equivalent to business standards. The growing ROAR and decreasing CCAR show the effectiveness and improvement in business activities.
350 Journal of Commerce and Management Thought II - 3 Endnotes 1. Annual-Reports (2009, 2010) Cashpor Microfinance Revolution: An Overview. Micro-Credit, Varanasi India Federal Reserve Bank of St. Louis 2. Aguilar, V. G. (2006). Is Micro-finance Review, 90(1), 9- 30. reaching the Poor? An Overview of 8. Karnani, A. (2007). Microfinance Poverty Targeting Methods. Misses its Mark. Stanford Social www.globalnet.org (accessed on Innovation Review Summer 2007. 01/08/09) 9. Pati, A.P. (2008), .Subsidised Micro 3. Augsburg, B. (2008) Microfinance Plus Financing and Financial Sustainability – Impact of the ‘plus’ on customers’ of SHGs., The Indian Journal of income in Rural University Maastricht, Commerce, Vol.61, No.4, pp.137-149. Downloaded From IP - 18.104.22.168 on dated 16-Apr-2012 the Netherlands 10. Patil, Ganesh, Govind, P.S. and 4. Buckley, G. (1997). Microfinance in Bhamare, Priyanka D. (2008), .Micro Members Copy, Not for Commercial Sale Africa? Is it Either the Problem or the Finance: A Combat Against Poverty,www.IndianJournals.com Solution? World Development, 25(7): The Indian Journal of Commerce, 1081-1091. Vol.61, No.4, p.169. 5. Dichter, T. W. (2006) "Hype and Hope: 11. Singh, Lakshmeshwar Pd. (2008), The Worrisome State of the Microcredit. .Micro Finance. The Emerging Horizons http://conservationfinance.wordpress.co for Poor and weaker Section, The Indian m (Accessed on 30/08/09) Journal of Commerce, Vol.61, No.4, 6. Greer, P. (2008). Hitting its Mark: p.173. Microfinance and the Alleviation of 12. Technical Note on Microfinance Poverty. Institution: Performance Indicators for 7. Gupta, S. and Aubuchon, C. (2008). The MFI-Micro Rate, Washington, D.C. Appendix-1 : Cashpor Micro-Credit : Ratios
A Study on Micro Credit... 351 Appendix - 2 : Variables defined Variable Name Proxy Definition/Description Variable Capital Cost to Asset Ratio CCAR Operating Expenses/ Total Assets Loan to Asset Ratio LAR Loan Portfolio / Total Assets Return on Assets(adjusted) Ratio ROAR Net operating Income / Total Assets Operating Self Sufficiency Ratio OSSR Net Operating Revenue / (Financial Expenses + loan loss portfolio + operating expenses) Operating Expenses Ratio OER Operating Expenses / Gross Loan Downloaded From IP - 22.214.171.124 on dated 16-Apr-2012 Portfolio Portfolio-Yield PY Total cash financial revenue (all income generated) / Loan portfolio Members Copy, Not for Commercial Sale Portfolio at Risk > 30 days PAR The percent of the total loanwww.IndianJournals.com portfolio that has at least one payment overdue by more than 30 days, by methodology. The Authors Dr. Amit Kumar Dwivedi is a Faculty in the Entrepreneurship Development Institute of India, Gandhinagar, Gujrat. He also worked in IIM-A as Academic Associate (F&A Area). Dr. Punit Kumar Dwivedi is Reader-Head of the Faculty of Management Studies in Modern Institute of Professional Studies, Indore (M.P.) Ms. Nivedita Dwivedi is a Lecturer in College of Home Science Narendra Dev University of Agriculture & Technology, Kumargunj, Faizabad (U.P.) Email : email@example.com ● Received on : Jan. 20, 2011