Keya Sarkar: Modes of micro-finance spending

OUT OF FOCUS

Despite a focus on the growth of micro-finance companies and a committee set up to find ways to regulate them, the relationship between micro-finance companies and the central bank has at best been one of distant truce. So it was indeed a red-letter day for the Kolkata-headquartered, micro-finance company, Bandhan, and in fact, for the micro-finance industry, when RBI Deputy Governor Usha Thorat, along with officials from the Rural Planning and Credit Department, visited the Bandhan headquarters earlier this month. 

Almost all bankers to Bandhan "" ABN Amro, Axis Bank, Standard Chartered, SBI and SIDBI "" were present at the time the deputy governor made her visit, thereby underscoring the importance of such a visit. Since a lot of RBI policy making for micro-finance companies has been till now influenced by its stronger and closer relationship with commercial banks, it is a great step forward to have a high-level RBI official actually meet the beneficiaries. 

LOAN INVESTED IN WHOSE ENTERPRISE?
Particulars	1st   loanees	2nd  loanees	3rd  loanees	4th loanees	5th  loanees
Member	38%	33%	29%	26%	70%
Husband	44%	47%	47%	41%	10%
Joint	15%	16%	20%	31%	20%
Son	3%	4%	4%	2%	-
Generation of employment opportunities
Particulars	1st  loanees	2nd loanees	3rd loanees	4th loanees	5th loanees
% of loanees who hire outside labour	13.50%	14%	23%	31%	20%
Form of compensation
Food and shelter	80%	85%	71%	73%	-
Wages	18%	13%	24%	15%	100%
Food, shelter & wages	2%	2%	5%	12%

This direct interaction would certainly enhance the RBI's understanding of ground reality and how exactly the micro-finance companies can be extended arms of mainstream banking. But more importantly, in the current context of a mushrooming of micro-finance companies, it will lend a first-hand feel of the supervision requirements of inclusive but runaway growth of lending to the poor. 

To me the deputy governor's visit seemed extremely significant. But what seemed even more was a mail from the Bandhan CEO, Chandra Shekhar Ghosh, which had attached a research report on effects of Bandhan's lending on beneficiaries.

Although an in-house effort today and therefore a little amateurish, hopefully in future it will form the basis of more in-depth research by unbiased researchers. What is heartening is that the survey seemed to ask the right questions restricting itself to the loan and the way it has changed the financial outflows for the beneficiaries over progressive loan cycles.

For the research, data were collected from 40 randomly selected branches from the total of Bandhan's 400 branches in West Bengal. The selection criteria were a) the location of the branch (rural/urban) and b) the age of the branch.

Once the branches were selected, 10 borrowers from each loan cycle were selected from each branch. Thus, the selection of borrowers from 40 branches resulted in a total sample base of 1,600 borrowers. Interviews were then through a questionnaire of primarily closed-ended questions.

In order to analyse exactly what effect the loan or loans from Bandhan has had on the beneficiaries, it was necessary to profile them before they were linked to Bandhan. True to Bandhan's stated mission of targeting the poor, it was found that 80 per cent of its beneficiaries belonged to families with a monthly income less than Rs 2,500 in rural areas and Rs 3,500 in urban areas. Of the sample, 91 per cent had used the loan for funding existing enterprises, a fact pointing to working capital being the most pressing need for beneficiaries.

But what is of interest and significance is where this working capital is being invested or rather in whose enterprise. There is a perceptible change across loan cycles.

The research has tried to capture how the beneficiaries have utilised the credit and in fact how their lives have been affected.

In trying to understand how the beneficiaries have utilised the increased income from utilising the loan from Bandhan, i.e what percentage of income has gone to daily expenses, ploughing back into business, children's education, children's marriages or medical expenses, it was found that as the beneficiaries graduate to higher loan cycles, a greater proportion of the increased income is used for education, marriage, medical and others.

There is also an effort to analyse the composition of the new assets that the beneficiaries tend to buy as their income increases and they graduate from one loan cycle to the next.

Sometimes the research has failed to show up any trend, as in the case of the compensation basket for employees of enterprises of the beneficiaries funded by Bandhan loans.

Like all micro-finance companies, Bandhan too hopes that the central bank will someday allow it to mobilise savings and in expectation the research has also analysed what percentage of beneficiaries save, where and what kind of needs or emergencies make them withdraw their savings.