Financial Literacy for SHG Leaders and

NGOs

A Joint Initiative of Canara Bank,

NABARD And Inafi India

 Foreword

Financial literacy is recognized as an important component for sustained

financial inclusion process. In India financial inclusion process is about
connecting people with Banks/Insurance Companies for financial services.
The literacy includes awareness and understanding about the affordability in
availing financial services in a sustained way and more importantly safety
and security aspects of the services people avail from various institutions.
With increasing sophistication of financial system and the services available,
the challenge is becoming greater in updating their knowledge level to
effectively make use of the opportunities provided by the larger financial
system.

In the context of the financial inclusion, public at large, particularly those

excluded from the formal financial system comprising of the banks/insurance
companies, financial literacy assumes crucial importance. The choices
people make with respect to choosing financial product, their pricing will
depend on the knowledge about the financial markets and products,
institutions with specific reference to their own needs and financial plans.
There is a vast segment of population who (excluded from the formal
financial system) suffer from lack of financial literacy in terms of utilizing
their own money/earnings and also safe and secure place to avail savings,
credit, insurance or remittances with each of the service addressing specific
purpose for an individual. The SHG Bank linkage over the past decade has
connected many poor women with banking system. Yet, SHGs also need to
be imparted financial literacy for sustained financial inclusion.

Therefore, to further the financial inclusion process, INAFI India in concert

with Canara Bank is launching a joint initiative to promote financial literacy
among the SHG leaders and the field staff of NGOs. It is fervently hoped
that the NGOs and SHG leaders will be the torch bearers in dissemination of
financial literacy among the vast segments of excluded population including
SHGs, small and marginal farmers.

M.Kalyanasundaram
Chief Executive, INAFI India

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 Contents

1. Introduction to Financial Literacy

2. Savings

3. Investment

4. Credit

5. Insurance

6. Pension

7. Remittances

8. Banking Facilitators and Banking Correspondents

9. Financial Planning and Financial Counseling

10. Leadership role of SHG leaders in spreading financial

literacy

11. Business opportunities guidance

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 Financial Literacy to SHG Leaders and NGOs

Module 1: Introduction

Preamble: Financial literacy deals with financial awareness, knowledge,

skills, attitude and behavior required to make sound financial decisions and
achieve individual financial well-being. Better financial literacy enables the
people to access, effectively use and derive maximum benefit from financial
services. This is a continuing process by which financial consumers improve
their understanding of financial products, concepts and risks, develop skills
and confidence to be more aware of financial risks and opportunities to make
informed choices. There is a vast segment of population in India who suffer
from lack of financial literacy in terms of utilizing their own money/earnings
and also safe and secure place to avail savings, credit, insurance and
remittances.

The SHG Bank linkage programme has connected many poor women with
the Banking system and has been promoting financial inclusion in a big way.
The Women members of SHG, however, are found to have inadequate
knowledge and holistic understanding of all financial services. Therefore,
there is a need to educate and to improve the literacy levels of SHG leaders,
Women members of SHG and what is more the field staff, animators of
NGOs promoting SHGs. This would help the process of sustaining the linkage
and relationship with Banks.

a. What is meant by financial literacy?

Financial literacy is concerned with providing knowledge and skills to poor
people in order to help them make decisions about expenditures, savings,
investments, credit and insurance and other financial services such as
remittances, pension in an informed manner.

b. What is the need for financial literacy in SHGs?

SHG is a development institution that is owned and managed by the poor
women. SHGs work with a mission of alleviating poverty and facilitating
overall development of the poor families. Financial services being a critical
factors determining poverty, SHGs provide financial services to their
members. These financial services include, savings, credit for consumption
and microenterprise and insurance. In addition to these services, it is also
noted that the members are getting these services from various other
sources like, post office, local chit (for savings), money lenders, land lords
(for credit) and so on.

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Money being a scarce commodity for poor, making, executing a financial
plan is important for them. Such a planning and execution needs decision
making in every stage. Every one of us are doing such plans and make
decisions although not very explicitly. But now in the context of various
needs of poor and various sources of saving and borrowing money, it is
important for the poor household to take appropriate decision on what
should I do with my money and where should I get money for my needs. For
taking such decisions they need information related to various choices/
alternatives, how to evaluate these alternatives and how to make a choice
finally. This is the concern of financial literacy programme.

c. How financial literacy is related to poverty alleviation?

To find an answer to this question let us imagine what would happen if the
poor don’t make well informed decisions.

Poor financial decisions may lead to exploitation by persons collecting

savings informally in the name of chits and finance; exploitation by money
lenders due to high rate of interest; distress sale of precious assets; getting
highly indebted due to unexpected losses (loss of life of earning member,
loss of assets like cattle, crops, etc, loss of health of persons and cattle and
so on); denial of education to children and subsequent child labour; failure
of businesses; not spending enough on basic needs leading to poor health
and future health risks; neglect of old age people; poor spending for treating
the illnesses and so on.

All these consequences mentioned above may further lead the family deep
into poverty. So helping them to consider and weigh all those critical
parameters would help them to take better decisions which would prevent
them from falling further into poverty. Besides when they know how to
handle their money in a way that gives them the maximum benefits and
help them to improve the current situation of poverty.

d. How is financial management done in a family?

Financial management in a family usually involve putting aside the money
from their income, taking loan when needed, buying assets, etc. But being
poor they have limited choices and also limited access to formal financial
institutions. Under such circumstances, they should know how to manage
their money to match their financial goals. This module explains about the
needs and wants of people and the ways of fulfilling these.

e. What are needs and wants?

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Needs refer to those most important things needed for the survival of the
human beings. Food, water, shelter are examples of needs. Want refers to
things that are needed to live life in a better way; it can be seen as a luxury
in the context of poverty, which should be fulfilled only after satisfying the
‘needs’. Motor bike, television are examples of ‘Wants’. As the households
progress economically it happens that some of the wants transform to
‘needs’ gradually. Example: Television.

f. What are the different types of needs?

Needs can be broadly classified into 4 types. They are:

Lifecycle Needs: such as weddings, funerals, childbirth, education, house

construction, widowhood, and old age.

Personal Emergencies: such as sickness, injury, unemployment, theft,

harassment or death.

Disasters: such as fires, floods, cyclones and man-made events like war or
eviction of dwellings and displacement.

Investment Opportunities: include expanding a business, buying land or

equipment, improving housing, etc.

g. How do people fulfill their (financial) needs?

Poor people find creative and often collaborative ways to meet these needs,
primarily through creating and exchanging different forms of non-cash value.
Common substitutes for cash vary from place to place but typically include
livestock, grains, jewellery and precious metals.

The basic problem the poor people as money managers face is to gather a
‘usefully large’ amount of money. Building a new home may involve saving
and protecting diverse building materials for years until enough are available
to proceed with construction. Children’s schooling may be funded by buying
chickens and raising them for sale as needed for expenses, uniforms, etc.
Because all the value is accumulated before it is needed, this money
management strategy is referred to as ‘saving up’.

Often people don’t have enough money when they face a need, so they
borrow. A poor family might borrow from relatives to buy land, from a
moneylender to buy rice, or from a microfinance institution to buy a sewing
machine. Since these loans must be repaid by saving after the cost is
incurred, it is called as ‘saving down’.

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However, savings, credit and combination of both could offer solutions only
for expected, planned needs. They would not be enough in addressing risks
and vulnerabilities of the poor. Hence a mechanism of ‘saving through’ is
needed to safeguard the families from uncertainties. So that, a family sets
aside money regularly and contributes to a common pool from which it is
supported at the time of loss in such a way to bring back to its original
financial position.

h. What is the difference between saving, credit and insurance?

The difference can be given in the following illustration.

Savings Diwali

Jewel

Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

Note: The graph shows ‘savings up’ strategy used to meet the expenditures
for festivals & jewel

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Credit

Agri

Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

Note: This shows the ‘savings down’ after availing the loan for education and
agriculture

Insurance

Claim

Death
of
cattle

May Jun Jul Aug Sep Oct Nov Dec

Note: This graph shows the ‘saving through’ to need meet the financial
losses arising out of occurrence of risk.

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The following table further explains the differences.
Saving Credit Insurance
Putting aside money Making the expenditure Setting aside money
in small amounts at upfront and then paying for premium payment
intervals to fulfill a money in small amounts later to meet the risk
future need with interest consequences and
thereby compensating
the uncertain loss

Best solution for Best solution for productive Best solution for health
unproductive expenses; Credit should not expenses, loss of
expenses; spending be taken for unproductive assets, loss of life.
on ‘wants’ expenses because credit
comes with a cost (i.e.
interest). Unless and
otherwise the expenditure
promises to generate enough
revenue to cover the cost,
credit should not be sought
out as a solution.

At the end of the module important learning points will be

recapitulated for better registration in the minds of the participants.

 Importance of Financial literacy

 Relevance of Financial literacy for SHG leaders and SHG
members
 Relevance of Financial literacy and poverty issues
 Relevance of Financial literacy for financial management
 Fulfilling needs through various financial services

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Module 2: Savings

Savings is the first and foremost of all financial services and access to
financial services starts with “savings first” approach. The SHG programme
has demonstrated that poor can save and wants to save. In this module on
savings the facilities and products available for the poor to save has been
elaborated.

a. Why should poor people save?

There may be many reasons for undertaking savings by people. But there
are four important things poor people consider as the basis for saving their
hard earned money.

1. Saving for emergencies

2. Saving to meet the cash flow needs- Lifecycle needs that can be planned/
predicted.

3. Savings for asset creation/ capital formation

4. Saving for planned investments.

Further, saving money inculcates a financial discipline which results in wise

spending. The habit of saving makes a person credit worthy. Savings is a
virtuous habit that brings financial discipline and helps gain control over the
financial resources in the long term.

b. Why the saving should be regular and continuous?

The regular savings whether it is weekly or monthly is a reflection of the
virtuous habit being formed. It is also a reflection of the diligence of the
individuals in dealing with the money and project the financial discipline or
otherwise. This also presents a picture of how responsible and conscious a
person is about the financial security and credit worthiness.

c. How can one save?

People can save in many ways. The savings can be in the form of
currency/rupee notes or kind. Savings in Kind (grains, fibre, oil, seeds etc) is
a phenomenon related to primitive agricultural communities. As the
economy is fully monetized (except with a few tribal communities), savings
in cash is the popularly followed practice. When it comes to savings,
Savings should not be treated as income minus expenditure. Instead savings
should be the first ‘expenditure’ of the household. Here expenditure should
not be taken in its literal sense rather it refers to the payment, or money
kept aside from the pool which is meant for spending. However, if the
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income is very meager and not enough for meeting the basic survival needs,
then it may not be possible to think of savings.

The period of saving is another factor that one should consider. The period
of savings should be planned in such a way that the savings accumulated in
those points of time coincide with satisfying the planned needs. A portion of
savings must be meant for meeting unexpected needs/ losses or
emergencies. Savings can also be used for paying insurance products.

d. How much should one save?

There are no hard and fast rules as to how much money one should save. It
varies with individuals/ households. However it should be decided based on
your future needs (child birth, house construction, education, marriage,
investing in business, festivals etc), current needs –both expenditures and
payments for liabilities (consumption needs, loan repayment) and your
income. However at least a minimum of 25% of the household income
should be saved for future needs. The following illustration gives an idea
about the extend of spending for various purpose including savings

Food - 30%

Rent/Housing - 20%

Education - 10%

Health - 5%

Festivals - 10%

Savings - 25%

e. Where should we save?

There are many choices available for the poor people to save. There are
many indigenous savings practices followed by poor like, putting the money
in vessels, savings in local chits, informal groups etc. These are called
informal ways of saving. Post offices have been acting as a widespread
formal mechanism available for the poor people. Savings in small volumes
permitted in post office savings schemes are highly suited for the poor
communities. However it does not provide any credit facilities keeping the
saving as collateral.

Nationalised Commercial banks are the best and safe option for
savings and the convenience of the savings operations in the
Commercial Banks has been enhanced by technology and last mile
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connectivity initiative like BCs and BFs. Savings of the SHGs in the
Bank besides safety and convenience, they help them to leverage their
savings, in availing loan facilities from Commercial Banks.

SHGs have provided the last mile connectivity with Commercial Banks
besides, being an alternative platform virtually at the doorsteps to save tiny
amounts within the group itself in the initial stages and thereafter linking
with the Commercial Banks.

f. What are the criteria to be considered for choosing a particular

savings product or institution?
People consider various factors before choosing a particular savings product.
Safety, liquidity and returns are the prime factors that need to be considered
for Savings.

Given below is a list of factors contributing to a savings decision. It is not an

exhaustive list but gives an account of the criteria which are considered as
most important by many people.

1. Safety/security of the money saved

2. Closeness to their places of living

3. Preserving the value of money/ Scope for generating revenue

4. Simple and easy procedure for depositing and withdrawing money

5. Should be available to fulfill their cash flow requirements

6. Facility to take loan leveraging the savings.

g. What are the Savings schemes in Commercial banks?

Keeping the above factors in view, the best and most convenient
institution and place, to keep the savings is the Commercial Banks.
Savings are absolutely safe guaranteed by the Govt., (up to one lakh),
available for withdrawal in times of need, and provides a interest of 4% per
annum on the basis of daily balance in SB a/c.

g.i. Savings bank account

Savings deposit account is meant for individuals who wish to deposit small
amounts out of their current income. It helps in safeguarding their future
and also earning interest on the savings. A saving account can be opened

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with or without cheque book facility. There are restrictions on the
withdrawals from this account. Savings account holders are also allowed to
deposit cheques, drafts, dividend warrants, etc. drawn in their favour for
collection by the bank. To open a savings account, it is necessary for the
depositor to be introduced by a person having a current or savings account
with the same bank.

g.ii. Documents required for opening savings bank account:

Accounts of individuals

1. Legal name and any other names used

(i) Passport (ii) PAN card (iii) Voter’s Identity Card (iv) Driving
License (v) Job Card issued by NREGA duly signed by an
officer of the State Govt., (vi) The letter issued by the
Unique Identification Authority of India (UIDAI) containing
details of name, address and Aadhaar number (vii) Identity
card (subject to the bank’s satisfaction) (viii) Letter from a
recognized public authority or public servant verifying the
identity and residence of the customer to the satisfaction of
bank

2. Correct permanent address

Telephone bill (ii) Bank account statement (iii) Letter from
any recognized public authority (iv) Electricity bill (v) Ration
card (vi) Letter from employer (subject to satisfaction of the
bank)

(any one document which provides customer information to the

satisfaction of the bank will suffice)

g.iii. BASIC SAVINGS BANK DEPOSIT ACCOUNT:

(known earlier as No Frills Account)
1. Eligibility : Individuals of 18 years and above earning a gross income
of Rs. 5,000/- per month or less.

2. Mode of Operation : Single / Joint

3. Initial deposit amount: Rs. 50/- to open the account.
4. Minimum Balance : NIL.
5. Rate of Interest : As applicable to Savings Bank Accounts.
6. Cheque Facility : Not available.

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 7. ATM-cum-debit card: Will be issued, without charges
8. Number of Accounts: a customer will not be allowed to open more
than one basic banking account.
9. Statement of Accounts: Will be provided.
10. While there will be no limit on the number of deposits that can
be made in a month, account holders will be allowed a
maximum of four withdrawals in a month, including ATM
withdrawals.
11. Nomination Facility: Available
12. Product available at : Both the branches of our Bank

Basic Savings Deposit account of the commercial banks are primarily meant
for initiating familiarity with banking services and also to undertake
transactions with respect to the Government schemes. In a long run the
account holders might get to know about and gain confidence in using other
services of the bank which would inculcate more financial discipline in them.

g.iv. Recurring Deposit account

Recurring Deposits are gaining wide popularity these days. Under this type
of deposit, the depositor is required to deposit a fixed amount of money
every month for a specific period of time. Each installment may vary from
Rs.5/- to Rs.500/- or more per month and the period of account may vary
from 12 months to 10 years. The minimum installment amount, period and
the interest rate vary with various commercial banks. After the completion of
the specified period, the customer gets back all his deposits along with the
cumulative interest accrued on the deposits.

g.v. Fixed deposit account

The term ‘Fixed deposit’ means deposit repayable after the expiry of a
specified period. Since it is repayable only after a fixed period of time, which
is to be determined at the time of opening of the account, it is also known as
time deposit. The period usually ranges from 15 days to 5 years. The rate of
interest on fixed deposits depends upon the period of deposits.

g.vi. Other types of Deposit accounts:

Banks have introduced several deposit schemes to attract deposits from

different types of people, like Home Construction deposit scheme, Sickness
Benefit deposit scheme, Children Gift plan, Old age pension scheme, Mini
deposit scheme, etc.

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Cooperative banks offer similar services as that of commercial banks.
However the interest rate on savings would be slightly higher than
commercial banks (on par with Post office savings schemes); interest rate
on loan would be slightly less than the commercial banks.

h. What are the Savings products available in SHGs?

The savings products vary from SHG to SHG. Many a time it depends on the
promoting organization. However, the range of savings products is given
below. All SHGs may not have all of them.

h.i. Regular savings

Each member of the SHG should have a regular savings account in their
SHGs. This is equivalent to Post Office Savings Account or Savings Bank
Account of Commercial Banks. Members can save any amount as small as
Rs.5 and there is no upper limit for this. Unlike Bank SB Accounts, the
amount saved in Regular savings can not be withdrawn frequently. It should
be accumulated for a specified period of time or volume after which
withdrawals are permitted. The period of savings or the permissible volume
would be decided by the SHGs in consultation with their respective
Federations.

Regular savings accrue interest based on the interest rates fixed by the
SHGs. This interest rate would be revised from time to time considering the
financial position of the SHG, its liabilities, interest rates in the market and
so on. Interest accrued in an account would be added to the savings
accumulated in that account at the end of every financial year.

h.ii. Diversified Savings

It is more like recurring deposits of the commercial banks. Members have to

save a particular amount regularly in this account. The installment amount
and the period are decided by the respective member at the time of opening
the diversified savings account. They can decide this based on their specific
needs (education fees at the time of school reopening, marriage, jewel,
Diwali and other festivals etc.) and the income of the family members.
Diversified savings also accrue interest based on the period of savings which
would be decided by the SHG from time to time. Members can withdraw
their savings in this account only after completion of the specified time. If
they fail to continue their saving, then the money from this account would
be transferred to their Regular savings account and interest would be
accrued as per the norms of Regular savings.

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h.iii. Current savings

It is same as the Current savings account of the Commercial banks. In

commercial banks, this facility is given for the business men who may need
to deposit and withdraw money frequently. In SHGs this facility is available
for all the members invariably where in which the members can save and
withdraw money whenever they need. This facility poses a challenge to SHG
as it is required to have some money available for the withdrawals by the
members. This is also a reason for not giving any interest to the money
saved in this account. However SHGs do not charge any fees towards the
withdrawals from this account as in the case of commercial banks.

All the transactions with regard to regular, diversified and current savings
are recorded in a single member Passbook (under the Savings section) that
is available with the members.

Besides members would also receive a receipt for the payments they made
in SHGs in which the money saved by them under different Savings accounts
would be recorded.

i. What are the additional benefits poor people would get by

savings in SHG?
1. SHG is Peoples’ own institution. Members are the owners. The money
saved is managed by them directly.
2. Savings can be done locally near the doorsteps. They need not spend
time and money in travel and waiting in long queues; they need not
forego a day’s wages.
3. The members themselves can decide how to use the money collected
for their collective objectives.
4. The members can decide the interest on savings considering the
financial costs and benefits of their SHG
5. Volume, installment and regularity of savings can be some of the
criteria for giving priority for credit.
6. When poor members start saving more in SHG, it would increase the
cumulative savings at SHG level. Since this accumulated savings is
treated as collateral for bank loans, SHGs can borrow more money
which would be on lent to members.
7. The procedure for savings in SHG is very simple. The members need
not fill in any forms like in the case of banks and post office.

j. What are the Savings schemes available in Post Office?

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Post office is one of the commonly used places to save small amounts of
money especially by rural poor. There are many small savings schemes
available in the post office.

There are following savings schemes suitable for the poor households.

j.i.Post office savings Account

This is like a savings bank account in a commercial bank. A person can
deposit any money in this account. Withdrawal is possible at any time. But
the interest on savings is relatively less than a recurring deposit. This may
be suitable for saving for emergencies.

j.ii.Post office recurring deposit

This is a savings product that involves planned savings that should be made
at regular intervals for a specified period of time. The interest rate depends
on the intervals of savings and the period of savings. This is a product
suitable for making some minimum amount of savings for a specific planned
expenditure in the future.

k. Post office time deposit

These are similar to fixed deposits in commercial banks. A person can
deposit money in bulk at the periods of huge cash inflows. The interest rate
on such deposits would be relatively higher than POSA.

l. How to open a Post Office Savings Account (POSA)?

POSA account may be opened with a minimum of Rs.20. Further deposit
into the account may be as low as Rs.5/- Accounts can be opened by an
individual, or jointly by 2 or 3 adults. For opening of new account (whether
cheque or non cheque account) the introduction of depositor will be
necessary. All such accounts will be opened after proper introduction of the
depositor through an introducer known to the Post Office who has a account
(with cheque facility) in the same post office.

At the end of the module important learning points will be

recapitulated for better registration in the minds of the participants.

 Why savings?
 Why save regularly and continuously?
 Why save with Banks?
 What are the savings products?

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Module 3: Investment

Households who are graduating from their poor economic conditions, those
who are involved in self employment should be aware of the importance and
method of investing their money. This module gives a brief overview about
investing in the context of poverty

a. What is meant by investing?

Investment in the context of poverty refers to using a part of savings for

buying assets such as land, tools and implements, precious metals like gold
with an objective of getting handsome financial rewards by appreciation and
or sale thereof.

Poor households tend to save money for some time and invest them in
income generating activities/ enterprises like buying land, digging well,
setting drip irrigation, establishing an orchard, buying a petty shop, setting
up a mechanic shed, buying machineries, tools, equipments for renting out,
buying gold etc.

b. What are the differences between saving and investing?

Savings is a solution to meet short term demands of a household especially

the consumption needs; whereas investment refers to parking money in
order to earn money for increasing future consumption which would lead to
better quality of life.

The following table explains the difference between saving and investing.

Saving Investing

Saving is done on the Under investment, returns are given more

principles of safety, importance than safety, liquidity and
liquidity and availability availability

Putting aside money for Using the savings to buy property, share, stock
current consumption and or bond in the hope of getting long term higher
18
emergency needs returns in the future

Money is put in assured safe Risk is taken in the expectation of getting

custody; no or low risk returns in future; how much return is not
known until it is realized

The highest goal/ consideration The consideration is to earn maximum returns;

is to see that the value of so the rate of return is higher.
money is not eroded by
inflation. Usually the rate of
return is lower

Savings is relatively liquid Under investment, money is converted to not

because it is in the form of so liquid form such as land, agriculture
financial assets such as bank implements, etc; so converting it into cash is
deposits, savings in SHG. not very easy. This is because the purpose is
not to convert the capital into cash but to get
the cash revenues from the capital invested.

Savings is a regular practice as Usually done only when current consumption

and when income is received and emergency needs are met. In the absence
through salary or from of an arrangement for contingencies, the
business household may be required to dispose their
investment when it is not appropriate (like
distress sale of assets) by which they might
not be getting the actual value of the money
invested

However savings is the preliminary activity to be done by the poor

households which can be invested later. This is because poor don’t inherit
large amount of money or properties; if they do so, then they are not poor!

Any specific purpose in life that will require a large amount of cash in five
years or less should be savings-driven, not investment-driven. Among
various types of investments, the decision about which investment to choose
is influenced by factors such as return or yield, risk, and liquidity.

At the end of the module important learning points will be

recapitulated for better registration in the minds of the participants.

19
  What is the difference between savings and investment?
 How savings helps investment?
 What are the purposes for which investments are made?

Module 4: Credit

Credit is the most important financial service. Lack of access to affordable

credit at nominal interest rates leads the poor households into debt trap and
sometimes to suicides. This module talks about the need for credit in poor
household and the main considerations for choosing the right source of
credit by the poor.

a. Why do people need credit?

People need credit,

1. When they do not have money at the time of emergencies. Example:

Sickness, death of cattle, etc
2. When they have a deficit cash flow during a particular period. For
example, a dairy farmer does not get income from the milk all round
the year. During the dry period he may have to spend money on
regular expenses. (feed, fodder, health expenses, etc)
3. When they need money for investing in a business venture/income
generating activity.
4. When they are affected by disasters. Example: Crop failure due to
drought/flood.
Disasters are also emergencies because of their sudden occurrence. But
emergencies refer to an event that leads to personal losses to one person or
a family. Whereas disasters are uncertainties that cause large scale losses to
the entire local community.

b. Where do people get credit?

People get credit from various sources including,

1. Money lenders
2. Friends and relatives
3. Associations, societies
4. Commercial banks/ Cooperative banks
i. Short term loan
ii. Term loan- Agriculture
iii. Cash credit
iv. Over draft
5. SHGs
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Out of all these borrowing money from formal institutions like commercial
banks, cooperative banks and semi formal structures like SHGs are advisable
because of affordability and not being exploitative coupled with good,
healthy lending and recovery practices. Hence we would discuss about these
sources elaborately.

c. Where should poor households avail credit from?

Poor households can get small credit for consumption needs and small
livelihoods needs they may get it from SHGs; whereas for bigger loans for
enterprise loans they could get it from commercial banks and cooperatives.
SHGs provide ease of access and affordability while the commercial banks
are good for affordability.

d. What are the loan products available in Commercial

banks/Cooperative banks?

We have already seen three types of credit needs of poor namely,

consumption, livelihoods and enterprise needs. Commercial banks offer
three types of loans to fulfill all the three types of needs- term loan, cash
credit and over draft.

d. i. Short term loan is also called as demand loan which is repayable on

demand. In other words it is repayable at short notice. The entire amount of
demand loan is disbursed at one time and the borrower has to pay interest
on it. The borrower can repay the loan either in lumpsum (one time) or as
agreed with the bank. Loans are normally granted by the bank against
tangible securities including securities like N.S.C., Kisan Vikas Patra, Life
Insurance policies and U.T.I. certificates.

d.ii. Long term loan: Agriculture, purchase of animals, SSI like food
processing, Education, Housing, Business, Vehicle
Medium and long term loans are called ‘Term loans’. Term loans are granted
for more than one year and repayment of such loans is spread over a longer
period. The repayment is generally made in suitable installments of fixed
amount. These loans are repayable over a period of 5 years and maximum
upto 15 years. Term loan is required for the purpose of setting up of new
business activity, renovation, modernization, expansion/extension of existing
units, purchase of plant and machinery, vehicles, land for setting up a
factory, construction of factory building or purchase of other immovable
assets. These loans are generally secured against the mortgage of land,
plant and machinery, building and other securities. The normal rate of
interest charged for such loans is generally quite high.
21
d.iii. Cash credit
A cash credit is an arrangement whereby the bank agrees to lend money to
the borrower upto a certain limit. The bank allocates/ earmarks the limit to
the borrower and the borrower draws the money as and when he needs.
Interest is charged only on the amount actually drawn and not on the
amount placed to the credit of borrower’s account. This is a very popular
method of lending in our country.

d.iv. Over draft

Those who own small enterprises may require working capital for their
operational expenses. Over draft facility helps them to get credit for such
needs. Although this may not be applicable for very poor member, when the
poor graduate in the economic ladder and own an enterprise this facility
might be of use to them.

Overdraft facility is more or less similar to cash credit facility. Overdraft

facility is the result of an agreement with the bank by which a current
account holder is allowed to withdraw a specified amount over and above
the credit balance in his/her account. It is a short term facility. This facility is
made available to current account holders who operate their account
through cheques. The customer is permitted to withdraw the amount as and
when he/she needs it and to repay it through deposits in his account as and
when it is convenient to him/her.

Overdraft facility is generally granted by bank on the basis of a written

request by the customer. Sometimes, banks also insist on either a
promissory note from the borrower or personal security to ensure safety of
funds. Interest is charged on actual amount withdrawn by the customer. The
interest rate on overdraft is higher than that of the rate on loan.

e. What is the cost of credit/What is the interest rate for loans?

Traditionally, money lenders are the informal sources for providing credit
and they not only charge higher rate of interest than Commercial Banks but
also flat. The rates will be doubly higher because of flat method. And also
being high rate, these rates charged by money lenders are usurious as they
are exploitative and one of the main reason for poor losing their hard earned
money and thereby remain in poverty.

We all know that interest on loan is the primary factor contributing to the
cost of credit. There are primarily two ways of charging interest on loan.
They are flat rate and diminishing balance. Although flat rate of interest is
22
easy to understand for the poor people, often it is costlier than the interest
on diminishing balance. In the flat rate method, interest is charged on the
principal borrowed by the person throughout the loan period.

In the case of diminishing balance method, interest varies every month

because interest is calculated on the basis of the outstanding balance of the
principal amount.

In addition to interest on loan, there are other factors contributing to the

cost of credit such as documentation fee and other charges. These are direct
costs of credit. The indirect cost of credit is borne by the buyer because of
the transaction time involved in availing and payment of loan. This is known
as opportunity cost. The member should ask for information from the credit
sources before applying for the credit. She must see if the overall cost is
affordable and she can also negotiate with the lender (banks/ SHGs) for
reducing this cost.

f. How do SHGs provide credit to their members?

SHGs offer credit services to the members at their doorstep. Members can
take short term or term loans for any purpose starting from emergencies
(health, food, etc) to redeeming high cost debts, construction of houses and
starting a small scale business etc. Loan is offered based on the lending
policies of the SHGs. Lending policies are largely governed by the
development mission of the SHGs. The salient features of lending policies of
SHGs include,

a. Eligibility of members for taking loans

b. Interest rates (percentage and type- diminishing balance or flat)

c. Repayment scheduling (Installment amount, monthly, quarterly, shot

payments, EMI)

d. Loan graduation

e. Number of loans per member

f. Loan ceiling

g. Priorities in lending (based on purpose, savings)

h. Savings to loan ratio

i. Documentation related to loan

23
j. Portfolio at risk (PAR)

k. Action against defaulters

l. Provisioning for Non Performing Assets (NPA)

g. What are the benefits for the members in availing credit from
SHGs?
 The members get credit on a nominal/ optimal interest rate
 The credit procedures are simple and easy
 Repayment schedule and frequency could be fixed according to the
pattern of cash flow of the member
 No transaction cost involved as the credit is provided at the doorsteps
 In a long run it builds the confidence among the bankers about the
member which may result in the member getting a loan directly from
bank
h. What are the criteria to be considered for choosing a particular
institution/source of credit?

A household may consider a combination of the following criteria for

selecting a particular institution for taking loan.

a. Timely availability of credit

b. Lower rate of interest

c. Simple and easy procedure of application

d. Distance from their living place and the place where they can get credit

e. Flexibility in fixing repayment schedule (in accordance with the cash flow
of the families)

f. Less expensive/tedious documentation procedure

g. availability of information about their repayment performance including

reminders about the amount they should repay the next month

h. Loan for all the financial needs

i. Scope for Repeat loans

Credit discipline and repayment of loans

We are borrowing for a specific purpose whether consumption or livelihoods

or creating some assets like house. As the lender, Banks trust clients, and

24
the loan is being given for a specific purpose for which we have asked for
the loan. It is, therefore, our duty to use the loan received from the Banks
absolutely for the same purpose for which the loan has been asked for. This
is the proper utilization of loan. And proper utilization would enhance our
image and standing with the Banks and paves way for long term
relationship.

Equally important as the utilization of credit is the discipline with which we

repay the loan as per the schedule of repayment agreed with the Bank. This
is the culture of good repayment and enhances our credit standing. When
the loans are repaid timely as per the schedule, the Banks would be very
positive and helpful in providing further financial assistance based on the
need and our capacity. Both the proper utilization and repayment of loans
creates a conducive climate for the Banks to reach out to the people and
help in their economic activity for improving quality of life. Moreover, the
proper repayment of loans makes the funds available for Banks to assist
others in times of need. Therefore, it is the responsibility of clients to have
credit discipline so that a virtuous culture is build up in the villages and
towns.

Non performing accounts/assets

When the repayment commitment is not kept in time by repaying interest as

well as installment, the loan account will become problematic and Banks
would designate them as non-performing accounts/assets. When the non-
performing loans are increasing, the Banks will not be able to not only earn
interest but also would not be able to lend to the needy people in village or
city. So it is the responsibility of the clients to ensure that their loan account
has not become NPA.

At the end of the module important learning points will be

recapitulated for better registration in the minds of the participants.

 Why credit?
 Why borrow within limits?
 Why borrow from Banks?
 Why borrow for income generating purposes?
 Why repay loan?
 Why replay loans in time?
 What is interest? How money lenders charge very exorbitant
interest rate?

25
  What is the difference of availing credit from money lenders
and Commercial Banks?
 What is the difference between flat rate of interest and interest
charged by Commercial Banks on diminishing balance
principle?
 What are the credit products?
 Role of SHGs in providing/facilitating access to credit

Module 5: Insurance

Insurance is also a very important financial service in addition to savings and

credit. In this module we will see about the importance of insurance, types
of insurance products suitable for poor, procedure for getting insured against
risks.

a. What is insurance?
It is a form of risk management used to protect oneself against an uncertain
loss.

The transaction involves the insured assuming a guaranteed, known and

relatively small loss in the form of payment to the insurer in exchange for
the insurer's promise to compensate (indemnify) the insured in the case of a
financial (personal) loss. The insured receives a contract, called
the insurance policy, which details the conditions and circumstances under
which the insured will be financially compensated.

b. Why is insurance important for poor households?

Human beings have many financial needs. A few needs are certain and we
know them well in advance. Education, buying a house and marriage are
examples of expected/ certain needs. Sickness, death, theft are examples of
unexpected and unpredicted needs.

For all those needs that can be predicted we can find solutions through
either savings or credit. For those needs that arise due to sudden occurrence
of risk resulting in a financial loss, the solution could be obtained only
through insurance. So insurance is for providing a security against the risks
and vulnerabilities of people. Although we can save money for emergencies,
it may not give a complete solution. For example we can use our emergency
savings for illness. But the money needed for treatment may exceed a lot
more than what we have in our Savings. So we are forced to take loan which

26
is not a planned one. Instead, if we have got a medical insurance policy we
would have got full cover under the policy.

c. How poor people can be enabled to buy insurance products?

In the context of poor in SHGs there are many group insurance policies
offered by various insurance companies. Based on the need of the members
suitable plans could be chosen.

Usually there are two models of insurance services to poor are available.

c.i. Corporate agency model/ collaboration model

Under this the insurance plans of mainstram insurance companies
suitable for the SHG members are chosen and the members buy the
policies. Here, the risk of financial management and payment of claims is
borne by the insurance companies. The promoting NGO or MFI acts as the
corporate agency and looks after the roles of member, policy and claim
administration.

c.ii.Mutual solutions
Social security mechanism through mutual solutions is possible with a
close knit group of people who know each other very well. When such a
group with large number of members, possessing common risks exists,
then they may devise a mutuality based solution by which the risk is
shared by everyone in the group. In this approach the risk is retained
within the group and is not transferred to outside group. This solution can
be sought out only when suitable solutions are either not available in the
market or not accessible to poor households.

d. What are the insurance products?

Insurance products are the solutions available for different types of risks
faced by the poor. The following insurance products required by poor are
offered by insurance companies.

1. Life insurance
2. Health insurance
3. Livestock insurance
4. Crop insurance
There are many Government and private insurance companies operating in
the sector. The members have to choose the appropriate company based on
their credibility and past performance and the solution offered by their plans.

e. What is life insurance?

27
Life insurance is a financial solution that helps the family members to meet
out the losses associated with the loss of life of a person.

Life insurance is a contract between the policy owner and the insurer,
where the insurer agrees to pay a designated beneficiary a sum of money
upon the occurrence of the insured individual's or individuals' death or
terminal illness or critical illness. In return, the policy owner agrees to pay a
stipulated amount (at regular intervals or in lump sums).

There are many insurance policies available in the market. However, very
few policies suit the needs of poor households. Janashree Bhima Yojana is
one policy that is offered by LIC in collaboration with the Central
Government.

Other than these the insurance companies also have savings linked
insurance schemes and Market linked savings schemes. Savings linked
insurance schemes offer twin benefits of savings and risk coverage. Market
linked savings schemes are also known as unit linked insurance plans.
Example: Wealth plus, market plus of LIC. For the money deposited in the
schemes units will be allotted which will vary according to the market
performance.

The policy details of Janashree Bima Yojana are given below:

Eligibility:
a) All male and female members who are
i) aged not less than 18 years and not more than 60 years;
ii) below the poverty line or marginally above the poverty line, and

b) No Insured member shall withdraw from the scheme while he is still an

eligible member satisfying the conditions of eligibility described above.
c) An Insured Member shall participate in the benefits of the Scheme as long
as he is eligible. He shall cease to be an Insured Member as from the
Date on which he ceases to fulfill the eligibility conditions.
d) Minimum membership should be 25.
Annual Premium and Contribution:
The Annual Premium payable for securing assurances in para (7) shall be at
the rate of Rs.10/- (Rupees Ten) per one thousand five hundred Sum
Assured per member.

28
Out of the annual premium of Rs.200/- mentioned above for every member,
each member shall contribute 50% of premium, i.e. a sum of Rs.100/-,
unless revised. This contribution shall be payable on the Entry Date and each
subsequent Annual Renewal Date. The balance of 50% of the premium per
member payable on the Entry Date and each Subsequent Annual Renewal
Date shall be adjusted out of the Social Security Fund set up by the
Corporation.
The conditions of assurance and rates of premium may be revised upward or
downward by the Corporation based on claim experience on Annual Renewal
Date subject to 3 months’ notice being given to the Nodal Agency.
The Nodal Agency shall arrange to remit the amount of Members’ Share of
Premium (i.e. 50% of the total premium) to the designated office of the
Corporation, as may be intimated.

Benefits on death prior to Terminal Date:

Upon the death of an Insured Member whilst he is insured prior to Terminal
Date, the Sum Assured of Rs.30,000/- shall become payable to the Nodal
Agency for the benefits of the beneficiary of the Insured Member.
In case of death or partial / total permanent disability due to accident (as
herein after defined) the following benefits shall become payable.
i) On death : Rs.75,000
ii) Permanent total disability : Rs.75,000
iii) Loss of 2 eyes or 2 limbs or

1 eye and I limb : Rs.75,000

iv) Loss of 1 eye or 1 limb : Rs.37,500

“Death / Partial / Total Permanent Disability due to accident” shall mean the
death / disability occurring within three calendar months of the happening of
bodily injury, resulting solely and directly from accident caused by violent,
external and visible means independently of any other cause, but not the
death / disability by the following:
i) caused by intentional self injury, suicide or attempted suicide,
insanity or immorality or whilst the Member is under the
influence of intoxicating liquor drug or narcotic; or

29
What is health insurance?
Health insurance is a financial solution against the risks of illness. Most of
the health insurance policies provide compensation for hospitalization. Pre
existing illness is not covered under health insurance schemes. Among
others, the Universal Health Insurance Scheme is a scheme meant for poor.
This scheme offered by National Insurance Company with the support of
Central Government. The details of the scheme are given below.

Universal Health Insurance Scheme

Sum Insured

Under Section I

The policy provides reimbursement of hospitalization expenses of

Rs.30000/- per individual family during policy period subject to the
following sub limits.

i. Room, Boarding expense as i. Up to 0.5% of sum insured

provided by the Hospital / per day
Nursing Home
ii. If admitted in IC Unit
ii. Up to 1% of sum insured per
day
Surgeon, Anesthetist, Medical Up to 15% of sum insured per
Practitioner, Consultants, illness / injury
Specialists fees, Nursing expenses

Anesthesia, Blood, Oxygen, OT Up to 15 % of sum insurance per

Charges. Surgical appliances, illness / injury.
Medicines drugs, Diagnostic
material & X – Ray, Dialysis,
Chemotherapy, Radiotherapy Cost
of pacemaker, artificial limbs

Total expenses incurred for any one illness is limited to Rs.15000/-

After a waiting period of one year hospitalization expenses is

reimbursable for the following

 Normal delivery up to Rs.2500

 Caesarian delivery up to Rs.5000

30
 Under Section II

Accident death of earning member of the family / spouse: Rs.25000/-

Under Section III

Temporary total disablement due to hospitalization of earning head of the

family @ Rs.50 per day subject to a maximum of 15 days with a time
excess of 3 days.

Annual Premium Non poor Poor (Colour Xerox of BPL

ration card or BPL certificate has to be
produced)

1. Individual person : Rs.300 Rs.100

2. Family (not exceeding 5)
consisting of insured,

spouse and first three

dependent children Rs.450 Rs.150

3. Family (not exceeding 7)

consisting of insured,

spouse, first three dependent

children and parents Rs.600 Rs.200

Proposal: To be filled by the Head of the family in prescribed format,

with 2 stamp size photograph for each member.

Hospital

Hospital should have at least 15 inpatient beds. In C Class town with

population less than five lakhs the number of beds is 10.

Expenses of hospitalization of minimum period of 24 hours are admissible. In

case of Hospitalization for less than 24 hrs due to the following reasons, the
claims is payable.

a. The treatment is such that it necessitates hospitalization and the

procedure involves specified infrastructural facilities available in
hospitals.
b. Due to technological advances hospitalization is required less than
24 hours only.
31
Any one illness will be deemed to mean continuous period of illness and it
includes relapse with in 60 days from the date of last consultation.

Exclusions Under section I

Any disease during the First 30 days from the commencement date of policy.
(Injury due to accident covered from the first day of the policy)

Cost of spectacles, contact lenses and hearing aids not payable. Any Dental
Treatment or Surgery, internal self injury and use of intoxicating drugs /
alcohol, sterility, Venereal Disease not covered. Vitamin and tonics unless
forming part of treatment of injury / illness are not covered. Treatments
arising from or traceable to pregnancy, child birth, miscarriage, abortion or
complication of any of these including caesarean section are not covered.

Naturopathy treatment is not covered.

Coverage under section II of the policy

If the earning Head of the family / spouse shall sustain any bodily injury and
also that injury lead to death with in six calendar months of its occurrence,
the company will pay Rs.25000.

If the earning Head of the family / spouse is hospitalized, Under section I of

the policy he may be paid with Rs.50 per day from the fourth day for
hospitalization up to maximum of 15 days per policy period. (If it is less than
3 days this benefit is not payable)

Exclusions under section II

i. Intentional self injury, suicide or attempt to suicide.

ii. Under the influence of intoxication, liquor or drugs
iii. If the insured committing any breach of law with criminal intent

Conditions:

1. Notice about the admission in the hospital should be immediately

informed to the TPA.
2. All supporting documents relating to the claim must be filed with
TPA with in 7 days from date of discharge from the hospital.

Age Limit:

32
This insurance is available to persons between the age of 5 to 70 years.
Children between the age of 3 months and 5 years of age can be covered
provided one or both parents are covered concurrently.

f. What is livestock insurance?

Livestock insurance is a form of asset insurance that protects the household
from the risks arising from the death of livestock. The following are the
companies that offer livestock insurance.

What is crop insurance?

The risks involved in agriculture are complex. Agriculture is faced with
various risks including pests, diseases, rainfall, availability of inputs, and
competitive price for the agricultural produce, etc. However, in order to offer
a solution rainfall is usually considered as a factor/ index for crop insurance.

Varsha Bhima

Agricultural Insurance Company of India offers the crop insurance scheme

based on rainfall called Varsha Bima. Varsha Bima covers anticipated
shortfall in crop yield on account of deficit rainfall. Varsha Bima is voluntary
for all classes of cultivators who stand to lose financially upon adverse
incidence of rainfall and they can take insurance under the scheme. Initially
Varsha Bima is meant for cultivators for whom National Agricultural
Insurance Scheme (NAIS) is voluntary and Weather based Crop Insurance
Scheme (WBCIS) is not available.

Period of Insurance:-
The insurance operates during June to September for short duration crops;
June to October for medium duration crops; and June to November for
longer duration crops. Further, these periods are State-specific. In case of
Sowing Failure option, the risk period is usually from 15 th June to 15th
August.
How to Buy Varsha Bima:-
Proposal forms are available at all the loan disbursing outlets viz PAC
branches of all Cooperative/ Commercial/ Rural banks.The coverage under
Varsh Bima at the grass-root level shall be made mostly through the existing
network of Rural Finance Institutions (RFIs) as in NAIS, particularly
Cooperative Sector Institutions. AIC shall also directly market / provide
insurance subject to the availability of its network. The network of formal
and informal institutions working in the rural areas, such as NGOs, Self Help
Groups (SHGs), Farmers Groups could also be utilized for delivery of Varsha
33
Bima. The cultivators proposed for insurance under Varsha Bima is required
to have a Bank Account at the RFI Branch, which will facilitate his / her
insurance transactions.

g. What are the roles of NGOs with regard to insurance for poor?
Insurance for poor is an emerging field. Most of the insurance services are
provided through safety net mechanisms of the State. Although these
schemes are intended to benefit the poor households, many poor are
excluded due to various reasons. NGOs have to perform their roles in such a
way that

 All the eligible members receive the benefits of social security welfare
programmes of the State
 Enrolling the members in the contributory schemes designed for poor.
Ex: JBY
At the end of the module important learning points will be
recapitulated for better registration in the minds of the participants.

 Why do we have insurance?

 What are the difference types of insurance?
 What is Janashree Bima Yojana?
 What is the role of NGOs in promoting Janasree Bima
yojana?
 What is the difference between savings, credit and
insurance?

Module 6: Pension

Financial needs and the type of financial services needed vary with our
lifecycle stage. The services seen so far including, savings, investment,
credit and insurance are important during productive years of the human
beings whereas pension is a preferred solution in the evening years of their
life. However, planning and saving money for the golden age are activities
that we should start when we are young. This module will elaborate about
the need for pension and the pension options available for poor.

a. What is pension?
Pension is also a type of insurance. In fact it is the opposite of life insurance.
While life insurance covers the risks of losses arising out of death, pension
34
covers the risk of loss/ expenditure arising out of living longer. Thus pension
is a mechanism of providing income security to people in their old age.
Pension includes a periodical payment of a certain amount to the pensioner
till her/his death.

b. Why pension?
Demographic studies and surveys tell us that population ageing is becoming
a progressively serious concern for the world today. In 1950, there were 205
million people aged over 60 years in the world, which increased to 606
million in 2000. The number of aged people has tripled in the last 50 years,
and is projected to do the same in the next 50 years and is projected to 2
billion in 2050. And two-thirds of the world’s elderly population lives in the
developing countries. In these countries, the proportion of older persons'
population is expected to rise to over 19% by 2050, while that of children is
to fall from 33% to 22%.

Rapid declining fertility and rising longevity rates since the 1960s, has
ensured that India is following similar trends. India is set to become the
world’s most populous country by 2030 according to current projections.
Currently the elderly in India constitute about 7.2% of the total population
and is growing. Today we have nearly 76.6 million aged persons, and this is
expected to rise to 198 million by 2030. Around 90% of the elderly
workforce are from the unorganized sector and almost 80% from the rural
areas, with nearly 40% constituting the below poverty population, and 50%
aged women. About 64% of elderly women are widowed. Today India is
home to one out of every ten senior citizens of the world. Both the absolute
and relative size of the population of the elderly in India will gain in strength
in future. There is a progressively increasing pressure on the already
deficient public infrastructure and systems. The holders of knowledge,
cultural and social heritage of a society - the aged persons, increasingly face
mammoth struggles in our country to merely maintain a comfortable living,
leave alone matters of quality of life and harmony. The major challenges for
the elderly today are emotional, health and economic stability.
Most of the aged populations who are poor do not have an access to any
social security schemes in India. A negligible proportion of the people are
covered under government’s old age pension programme and the benefits
are not available to all. In this context an initiative of micro pension is
warranted to ensure social security to the poor and unorganized aged
people.

c. What are the pension products available for poor?

35
Pension for poor although not well developed in India; there are a few micro
pension products available for the poor.

c.i.Micro pension product of UTI

UTI Mutual Fund (UTI MF) has entered into an arrangement with the
following organisations for providing its members an investment opportunity
through a Micro-Pension initiative under UTI-Retirement Benefit Pension
Fund:

 Union Bank of India,

 The Bihar State Co-operative Milk Producers’ Federation Ltd.(COMPFED),
Paradeep Port and Dock Mazdoor Union,
 Bank of India,
 Shree Mahila Sewa Sahakari Bank Ltd. and
 Self-Help Promotion for Health and Rural Development (SHEPHERD)

Under the Micro-Pension initiative facilitated by UTI Mutual Fund members of

the said organisations contribute small amounts every month towards UTI-
Retirement Benefit Pension Fund up to the age of 55 years so as to enable
them to receive pension in the form of periodical income/cashflow after they
reach the age of 58 years.

The product details are as given below.

Mutual Fund UTI Mutual Fund

Scheme Name UTI - Retirement Benefit Pension Fund
Retirement Benefit Plan (RBP) seeks to help
investors plan for their retirement by saving
early and by saving regularly. It is A Notified
Objective of
Pension Plan under section 88(2)(xiiic) for
Scheme
salaried class, self employed & professionals
which seeks to provide post retirement
income with tax benefit on investment.
Scheme Type Open Ended
Scheme Category Income
Launch Date 26-Dec-1994
Indicate Load Exit load, upto 7% of NAV for repurchase
Separately within 5 years, otherwise upto 5% of NAV
Minimum
Subscription Rs.10,000/
Amount

36
Pension products of LIC
There are four pension plans available from LIC. They are, Jeevan Nidhi,
Jeevan Akshay, New Jeevan Dhara-I, New Jeevan Suraksha-I. Among these
Jeevan akshay is the immediate annuity plan, whereas all the other are
deferred annuity plans with minimum vesting period ranging from10 to 15
years.

c.iii. NPS-Lite
Pension Fund Regulatory and Development Authority (PFRDA) has been
established by the Government of India, Ministry of Finance vide Notification
F.No.5/7/2003-ECB & PR dated 10th October, 2003 to promote old age
income security.

Pension Fund Regulatory and Development Authority (PFRDA) has put in

place the institutional framework and infrastructure required for
administering the ‘National Pension System’ (NPS) for government
employees & all citizens of India. The Unorganized sector model of the NPS,
prescribes certain norms related to minimum amount of investment per
contribution, during the year and no of contributions per year. The
associated charge structure makes such small investments unviable. To
facilitate the economically disadvantaged sections of society with limited
investment potential also to take advantage of NPS, PFRDA now makes
available a unique platform at ultra low cost with optimized features. The
individuals would be able to join NPS as groups through “aggregators”.

NPS Lite model broadly has similar functionalities as the regular NPS model.
However, some of the services would not be available at individual
subscriber level; instead these services would be provided at Aggregator
level and the individual can avail of those features through aggregators.

Under NPS Lite, Permanent Retirement Account would be available to

subscribers. This will be non-withdrawable account, in which an NPS Lite
subscriber shall contribute his/her savings for obtaining an annuity at the
time of retirement.

Benefits of joining NPS Lite:

It is voluntary - NPS is open to Indian citizens between the age of 18-60
and focus on economically disadvantaged people. You can choose the
amount you want to set aside and save every year. Investment can be as
low as Rs.100 p.m.
37
It is simple - all you have to do is open an account through your
Aggregator and get a PRAN.

It is uniform -. Single investment plan similar to Central Govt employees.

It is portable - You can operate your account from anywhere in the

country, even if you change your city, job or your Aggregator

It is safe - NPS is regulated by PFRDA, with transparent investment norms

and regular monitoring and performance review of fund managers by NPS
Trust.

It is affordable-NPS Lite has features optimized for low investment

potential subscribers and is available at ultra low cost.

d. What are the roles of NGOs with regard to Pension for poor?
Like in other financial services, NGOs’ primary role is to identify the social
security programmes (welfare programmes to provide safety net) for poor
and ensuring their participation in them.

In the case of contributory programmes like NPS- Lite, the NGOs can act as
agents thus ensuring the enrollment, collection and payment of pension
contribution, ensuring payment of pension to members in their pension age,
etc. NGOs can get their share of programme management fees from PFRDA/
insurance company according to the terms and conditions of the chosen
pension scheme.

Of all the primary responsibility is to educate member to understand the

importance of pension and orienting them in such a that they develop a
positive attitude and practice for planning for their old age.

At the end of the module important learning points will be

recapitulated for better registration in the minds of the participants.

 Why you will need regular stream of income post working life-
pension?
 Why should keep money aside regularly and consistently
during your earning life for pension in old age?
 How do we participate in pension scheme?
 What is the role of NGos in enabling pension for the poor?

Module : 7 Remittance

38
 a. What is remittance?
Remittance refers to transfer of money from one person to another. There
are two types of remittances based on the purpose of money transfer

43.1.Simple transfer of money. Example from a worker to his family

through bank account transfer.
43.2.Money transfers for making payments. Example Payment of
salary through cheque.
43.3.Simple money transfers

Transfer of money arising out of Payments

b. What is the need for remittance in the context of poverty?

One estimate indicates there are up to 100 million circular migrant workers
in the country. Most come from low-income households searching for
seasonal work in metropolitan areas, other districts or even other states.
Hopes are high and despite slow asset accumulation, migration helps to
prevent the workers and their families from sliding into further poverty.
Often unbanked, migrants need channels to send money from the
destination back to their home village. This need is mostly met by the
informal market leading to Hawala. A “continued dependence on the informal
financial sector” leaves the rural population without choice.

But remittances are important, not only to meet the consumption needs of a
household, but also for investment in agriculture. Research has shown that
remittances “provide scope for accumulation of wealth and asset creation for
households in addition to providing basic consumption needs.

” But to send money back to their villages, migrants have few options: a)
carrying it back themselves or sending it through friends and relatives
visiting home b) sending it through the post office by a money order c)
sending it through a bank by bank draft or d) sending it through an informal
remitter.

Among these options the first and the last involve the informal market; the
second is seen as expensive and sometimes difficult by remitters (a form
has to be filled out in the language of the destination). Finally, sending
money through a bank is rarely feasible since most migrants don’t have a
bank account, either at origin or destination or both. Because of this lack of
options for money transfer, migrants cannot send

money home as regularly as necessary. A study of remittances to Andhra

39
Pradesh has shown that only 15 per cent of remittances are sent to families
on a regular monthly basis. Instead, 35 per cent are irregular and 44 per
cent are sent only every three to four months.

c. How remittances are done in India?

When discussing about the remittance in India, it becomes important to
know the payment systems in India as it plays a major role.

c.i Formal system

1. Money transfer through Banks
Money transfer through banks comprises of both paper based as well as
electronic systems. These payment systems are managed by multiple
entities and are regulated by the Reserve Bank of India (RBI). The paper-
based systems handle transactions of both small and large value through the
approximately 1,100 clearing houses, which can be owned by the RBI/SBI or
any other public sector commercial bank and are operated by the human
resources personnel of the respective institutions. The RBI plans to increase
this number in the long-term to one clearing house per five bank branches.
Cheque clearing accounts for close to 70 per cent of the retail payment by
volume and about 30 per cent by value, the remaining percentage going to
real time gross settlement (RTGS).

The electronic-based system handles transactions of mostly large value

through the approximately 55,000 RTGS enabled bank branches. In addition,
the electronic clearing system (ECS) caters to making bulk payments/
receipts of a similar nature especially where each individual payment is of a
repetitive nature and of a relatively smaller amount. Another electronic
system is the electronic funds transfer (EFT) operated by the RBI in about
15 cities. The RBI is in the process of converting this into a national
electronic funds transfer (NEFT) system. This would then have an outreach
of close to 56,000 branches spread over 4,500 centres. The other types of
retail payments system are card based transfers through ATM/credit/debit
cards which are by design not currently accessible to the poor population.

2. Postal remittance
The Indian Posts enjoys a good reputation and benefits from its high rural
penetration and customer proximity. With its 155,204 post offices it can
reach out to almost every address. About 130,000 branch post offices are on
the ground level in villages, close to 20,000 are sub post offices on a block
40
level, and 838 head offices are either on the district level or general post
offices (on average 1-2 in every state) in metropolitan areas. Clients of the
India Post can chose from three money transfer services:

Electronic Clearance Services (ECS), Instant Money Order (iMO) or single

money order. However, only the latter option is of relevance to most
migrating workers, who are not web-based and mostly unbanked. Under the
single money transfer migrants can remit up to Rs 5,000. The few migrants,
who have web access and send higher amounts, can also use the iMO to
send between Rs 1,000 and Rs 50,000. In the first and more traditional
case, the post man delivers the domestic transfer, which the remittance
sender has placed at the post office to the doorstep of the remittance
receiver. It is sufficient to mention the name and address on the form, the
receiver does not require more than that. The remitter adds his/her
signature or thumb marks to the completed form and gets a receipt for the
amount remitted. Once the transfer has arrived, the sender receives an
acknowledgement of the payment signed by the receiver.

Generally, reliability of the system is high, even though clients have reported
cases of misuse of remittances. In Uttar Pradesh, for instance, a post man
has admitted to having lent the remittance amount at an interest rate and
then delivered it many weeks late. Of more concern than safety is the length
of time taken for transfer. While iMO is safer and faster, it is accessible to
few. One thousand seven hundred post offices are providing the service but
only 54,000 iMOs were executed last year. The number of post offices
providing iMO is planned to grow by 10,000 in the next years to cover 4,000
post offices. The traditional money order, on the other hand, is slower but
easy to handle.

3. BC/BF as facilitators to enable remittance services

Eko Aspire Foundation (a section 25 not for profit) functions as a business
correspondent to banks. Eko India Financial Services Private Ltd. provides all
the support services like technology, document management, data
processing and call centre facilities. To reach out to the unbanked, Eko uses
a mobile phone technology and 160 Customer Service Points (CSP).

Currently they service around 2,500 customers in the NCR region. At each
customer service point, e.g. a pharmacy, the designated and carefully
selected CSP has a mobile phone which is connected to an account at
simplibank, Eko’s banking platform. A customer can, through a number
combination/numeric password now open a bank account, deposit savings
and withdraw savings at the CSP. For example: a customer deposits Rs 200;
41
he/she physically hands over Rs 200 to the shop keeper, then through a
number combination credits his or her own account, through another
number combination/use of password the CSP debits his/her own account for
the cash received, and the transaction is completed at the banking platform
of the BC ie Simple bank. These transactions are merged with the CBS of the
bank at the end of the day. Confirmations are sent through sms and the
number combinations are safely noted in a booklet, carried by the customer.
For safety reasons the numbers can be used only once and include a pin
code, that is shown as **** and only known to the customer. Within the
Delhi region customers under this arrangement can even remit money to
each other without approaching the CSP. Even though the procedures are
simple and the amounts small, the Know Your Customer norms (KYC), i.e.
due diligence and customer identification, as followed by Commercial Banks
still apply. The client needs a proof of address (POA) in the Delhi region as
well as a Delhi mobile phone number. While the approach works for some it
does not for others, especially migrant workers. They have no POA of their
destination, and often hold an election card for their home village.

The strategy is still limited to one region and while the technology is easily
extendible, the institutional set-up is not because to remit an amount to UP,
Orissa or Bihar, for example, a CSP would have to be there to walk the last
mile.

4. Remittances / payment through mobile phone:

Mobile phones are increasingly used for accounts operations and also
payment remittances of money from one account to another and to
merchant establishment. Mobile Banking in India has evolved from its
early form being just an information provider for services like checking
bank balances to transaction based functions like bill payment,
remittance, booking tickets for travel, movies etc. Mobile banking is
catching up even amongst the rural people in view of the transparency
and security and easy availability. Mobile banking provides a banking
interface at low transaction costs. It is estimated that the cost of an ATM
transaction is 5 times that of Mobile banking transaction and 15 times
more expensive for regular bank transaction. Despite this use of Mobile
banking is yet to take off in India. Mobile banking usage in India at
present is 10 million, just over 2% of total mobile user base.

c.ii. Mobile banking transaction by Banks

1. Transaction Limit:

42
 Banks can offer this facility to the customers subject to a daily cap of
50,000 per customer for both fund transfer and transactions
involving purchase of goods and services.

2. Remittance of funds for disbursement in cash.

In order to facilitate the use of mobile phones for remittance, the
banks are permitted to provide funds transfer from the account of
their customers for delivery in cash to the recipients. The
disbursement of cash may be by ATM or through business
correspondent upto a limit of Rs. 5,000 per transaction

A bank account holder will have to get his Mobile Money ID (MMID)
from the bank which will be his ID mobile commerce transactions. The
bank installs special applications on his mobile phones from where the
remitting will be done. Once the process is complete, the bank account
holder can remit money to anyone, provided he has the receiver’s
MMID and mobile phone numbers.

In case of lower end phones where the applications cannot be installed

money can be transferred through SMS.

To start with, the entire service comes free for the account holder of
the bank with banks bearing the cost of 25 paisa per transaction.

In the case of SMS based remittance the user is charged a fee of Rs 2

per SMS.

Reserve bank of India has capped the limit at Rs 50,000/day

This service is expected to give fillip to financial inclusion and also the
retail payment would become much easier because of the dense
mobile telephony. All the 3 stake holders banks, merchants and mobile
telephone companies are expected to work to work together for grated
integration which will help address the twin challenge of reducing the
use of cash.

c.iii. Informal system

The majority of remittances are made through the informal or semiformal
system. Together they account for an estimated 50 to 60 per cent of all
transactions. Friends and family are perceived to be the safest and most cost
efficient remittances channels, because trust among peer groups is high.
Although fraud is low, ambush and robbery have increased. Being chosen as
money-carrier is apparently as much an honourable as a dangerous task.
43
Thus, the effective cost of this channel is probably underestimated by users.
The courier or agent system operates as urban “pay-in-point”. He
telephonically informs the agent in the rural receiving end who then delivers
the money to the families. The cost is approximately 4 to 5 per cent up to Rs
10,000 and 3 per cent for amounts greater than Rs 10,000. Agents are
closely linked to the local communities and highly entrusted with the money
transfers. The relationship and business is extended through multiple
services, e.g. selling of insurance products, savings schemes, and
intermediate loans (purportedly free of interest). The working capital of the
agent was reported to be Rs 150,000. Many of the small transactions are not
cost-efficient.

At the end of the module important learning points will be

recapitulated for better registration in the minds of the participants.

 What is remittance and why we need the remittance services?

 Why remittances through Banks?
 What is the role of BC/BF in remittance?
 How remittances are made in India?
 How do we do remittances through mobile phones?

Module 8: Banking Facilitators and Banking Correspondents

a. What is the need for BC/BF in India?
The nation has been experimenting with various alternatives to reach the
banking services, primarily credit, in rural areas through several initiatives.
Early initiatives in this regard were taken by building an institutional
framework beginning with the focus on the cooperative credit institutions
followed by the nationalisation of major domestic banks and later the
creation of the Regional Rural Banks (RRBs). Simultaneously, several
measures including establishment of the Lead Bank Scheme, directed
lending for the Priority Sectors, banking sector's linkage with the

Government sponsored programmes targeted at the poor, Differential Rate

of Interest Scheme, the Service Area Approach, the SHG-Bank linkage
programme and introduction of the Kisan Credit Card were taken. Given the
social responsibility to reach the rural areas and the poor, the banks and co-
operative institutions with guidance from the Reserve Bank of India (RBI),
the National Bank for Agriculture and Rural Development (NABARD) and
other apex level institutions made serious efforts in meeting the needs and

44
demands of the rural sector. As a result, the outreach of Indian banking
system has seen rapid growth in rural areas.

However, there continues to be wide gaps in the availability of banking

services in the rural areas as the SCBs have covered only 18.4 percent of
the rural population through savings/deposit accounts and even a lower
percentage of 17.2 percent of the rural households by way of loan accounts.
Though the Primary Agriculture Credit Societies (PACS) with about one lakh
outlets have a deep and wide presence in rural India their impact in terms of
extension of deposit and credit products has not only been minimal but
concentrated in a few states only. The decline in productivity of the rural
branches of the commercial banks, fragility of the co-operative credit
structure and weakness of RRBs witnessed since early the 90s, have further
accentuated the problem of inaccessibility of banking services for a large
part of the rural population.

It is important to understand both the supply and the demand side

perspectives that lead to such a wide gap in availability of financial services.
The exclusion of large numbers of the rural population from the formal
banking sector may be for several reasons from the supply side, such as: (a)
persons are unbankable in the evaluation/perception of bankers, (b) the loan
amount is too small to invite attention of the bankers, (c) the person is
bankable on a credit appraisal approach but distances are too long for
servicing and supporting the accounts and expanding branch network is not
feasible and viable, (d) high transaction costs particularly in dealing with a
large number of small accounts, (e) lack of collateral security, (f) inability to
evaluate and monitor cash flow cycles and repayment capacities due to
information asymmetry, lack of data base and absence of credit history of
people with small means, (g) human resources related constraints both in
terms of inadequacy of manpower and lack of proper orientation/expertise,
(h) adverse security situation prevailing in some parts of rural India, (i) lack
of banking habits and credit culture, (j) information-shadow geographical
areas, and (k) inadequacy of extension services which is crucial to improve
the production efficiency of the farmers leading to better loan repayments.

From the demand side, there are several reasons for the rural poor
remaining excluded from the formal banking sector, such as : (a) high
transaction costs at the client level due to expenses such as travel costs,
wage losses, incidental expenses, (b) documentation, (c) lack of awareness,
(d) lack of social capital, (e) non availability of ideal products, (f) very small
volumes / size of transactions which are not encouraged by formal banking

45
institutions, (g) hassles related to documentation and procedures in the
formal system, (h) easy availability of timely and doorstep services from
money lenders/informal sources and (i) prior experience of rejection
by/indifference of the formal banking system.

The situation described above has been responded to in some ways by banks
with the involvement of Non-Government Organisations (NGOs) and other
Civil Society Organisations (CSOs)/voluntary agencies in facilitating the flow
of financial services to the poor. The most significant in this context is the
SHG-Bank linkage programme. Another attempt in this approach is the
delivery of credit through Joint Liability Groups. Further, in the recent times,
several new generation banks who came into existence with a heavy reliance
on technology but with a very limited branch network, have taken innovative
steps, such as, bulk lending to microfinance institutions (MFIs), using them
as "pass through" agencies, to tap the rural credit market.

This was followed by the announcement in the budget session for the year
2005-06 requesting RBI to allow banks to follow an agency model. Followed
by this announcement, RBI had constituted a committee that reviewed and
finally recommended to set up the banking facilitators and banking
correspondents.

b. What is meant by Business facilitator?

Under the 'Business Facilitator' model, banks may use intermediaries, such
as, NGOs/ Farmers' Clubs, cooperatives, community based organisations, IT
enabled rural outlets of corporate entities, Post Offices, insurance agents,
well functioning Panchayats, Village Knowledge Centres, Agri Clinics/ Agri
Business Centers, Krishi Vigyan Kendras and KVIC/ KVIB units, depending
on the comfort level of the bank, for providing facilitation services. Such
services may include

i. Identification of borrowers and fitment of activities

ii. Collection and preliminary processing of loan applications
including verification of primary information/data
iii. Creating awareness about savings and other products and
education and advice on managing money and debt counseling
iv. Processing and submission of applications to banks
v. Promotion and nurturing Self Help Groups/ Joint Liability Groups
vi. Post-sanction monitoring
vii. Monitoring and handholding of Self Help Groups/ Joint Liability
Groups/ Credit Groups/ others

46
 viii. Follow-up for recovery.

As these services are not intended to involve the conduct of banking

business by Business Facilitators, no approval is required from RBI for using
the above intermediaries for facilitation of the services indicated above.

c. What is meant by Banking correspondent model?

Under the 'Business Correspondent' Model, NGOs/ MFIs set up under

Societies/ Trust Acts, Societies registered under Mutually Aided Cooperative
Societies Acts or the Cooperative Societies Acts of States, section 25
companies, registered NBFCs not accepting public deposits and Post Offices
may act as Business Correspondents. Banks may conduct thorough due
diligence on such entities keeping in view the indicative parameters given in
Annex 3.2 of the Report of the Internal Group appointed by Reserve Bank of
India (available on RBI website: www.rbi.org.in) to examine issues relating
to Rural Credit and Micro-Finance (July 2005). In engaging such
intermediaries as Business Correspondents, banks should ensure that they
are well established, enjoying good reputation and having the confidence of
the local people. Banks may give wide publicity in the locality about the
intermediary engaged by them as Business Correspondent and take
measures to avoid being misrepresented.

In addition to activities listed under the Business Facilitator Model, the scope
of activities to be undertaken by the Business Correspondents will include

i. Disbursal of small value credit

ii. Recovery of principal / collection of interest
iii. Collection of small value deposits
iv. Sale of micro insurance/ mutual fund products/ pension products/
other third party products
v. Receipt and delivery of small value remittances/ other payment
instruments.

The activities to be undertaken by the Business Correspondents would be

within the normal course of the bank's banking business, but conducted
through the entities indicated above at places other than the bank premises.
Accordingly, in furtherance of the objective of increasing the outreach of the
banks for micro-finance, in public interest, the Reserve Bank hereby permits
banks to formulate a scheme for using the entities indicated in paragraph
above as Business Correspondents. Banks should ensure that the scheme
47
formulated and implemented is in strict compliance with the objectives and
parameters laid down in this circular.

Module 9: Financial planning and Financial Counseling

SHG members are the primary clients for the Financial literacy initiatives.
SHG meetings are effective platforms where general awareness on financial
planning could be imparted to SHG members. However, there should be
some form of assistance available to them at the time of financial crisis or at
times when they need guidance for taking important financial decisions.
Counseling to individuals and family would be the best solution for such
needs.

Financial literacy could be promoted through two approaches.

1. Financial education 2. Financial counseling

1. General Financial Education

It refers to creating awareness on financial needs, financial planning and

financial products and services suitable for the poor households. It may
create an interest among the clients to manage their finance in a planned
and disciplined manner. However it may not provide them solutions for their
specific needs. The clients would know the broad principles or guidelines or
general rules related to management of money.

General financial education could be provided during the regular meetings

especially in the beginning months of group formation. However this
knowledge of members can be updated whenever new products or services
are introduced in SHGs or in the outside market; whenever issues arise or
expected to arise that are related to management of finance.

2. Financial counseling

Although members may know the general rules of managing their money
and needs, they may often face with unforeseen situations or they may plan
something that is complex. Under such circumstances taking a right decision
is a crucial one. In the pressure of finding solution to the problem or in an
anxiety to take up a new intervention, they may take a poor decision which
might complicate the situation of the members. Sometimes complexity of
the issue may lead them towards indecision. Both are not good for the
development of the household.

48
In such situations the households need counseling wherein which they
discuss with experts who would suggest them various alternatives after
careful analysis of their current and future situation, current and future
needs etc. In our case the Cluster associates are expected to play the role of
these ‘experts’ who should be able to counsel them on smaller issues.
However for decisions relating to larger investments or borrowings the
community accountant at Federation office should be able to provide such
financial counseling to our members.

In the current situation the seeking for financial counseling is very limited
among members. They discuss among the households or at the maximum
discuss with close relatives and friends for taking decisions. Hence what is
more important for us is to create an attitude of seeking financial advices
from SHG institutions- associates and community accountant or whoever is
designated for this purpose. Hence it becomes important that the associates
and community accountant should be competent enough to provide such
important services to member families.

a. Financial planning
Financial planning is one of the key elements for financial empowerment and
economic security of poor. Financial planning involves deciding the
expenditures, putting aside money, getting credit, and creating assets. Most
of the households including the poor have enough experience in this. But the
problem the poor face is that they plan based on the extent of their
knowledge and exposure which leads to exploitation. We can not plan about
something that we don’t know! Hence the poor households should be
counseled in order to help them understand the different options available,
consider their pros and cons and finally select the best one suitable for
them.

Counseling members for financial decision making starts with financial need
analysis. Goal setting is the prerequisite for financial need analysis. Need
analysis is followed by financial planning.

b. Financial Need analysis

Need analysis can be done based on short, medium and long term goals.

a. Short term Goals (within a year)

b. Medium term goals (1 to 5 years)

c. Long term goals (Above 5 years)

49
Sources of income of the family from different occupations

S. Items Income
No

Year 1 Year Year Year Year Year Year

2 3 4 5 6 7

1 Occupation
1

2 Occupation
2

3 Occupation
3

4 Occupation
4

Total

Family expenses and other payments:

S.No Items Year Year Year Year Year Year Year

1 2 3 4 5 6 7

1 Food, water

2 Clothing

3 Rent,
maintenance

4 Festivals

5 Travel, phone

6 Social obligations

7 Children marriage

8 Education

50
9 Medical

10 Entertainment

11 Other expenses

12 Payment to debt

13 Savings for
education

14 Savings for
marriage

15 Payment for
pension plan

16 Payment for
insurance

17 Investments

18 Other savings

c. Financial literacy to family members

Financial literacy need to be given not only to the members of SHG but also
to all the members of the family especially their spouses. Both of them
should participate in the financial counseling session and should jointly
involve in the financial planning exercise.

d. Financial literacy to children and youth

While educating the adults, earning members of the household would be the
prime focus of financial literacy initiatives, efforts should be taken
simultaneously to educate the children also on the financial matters relevant
to them. Financial education to children may focus on savings for different
purposes like education, tours, sports equipments, etc., planning for their
personal expenditure and managing money. Youth may be oriented towards
enterprise management skills.

e. The Knowledge skill and attitude needed for a financial

counselor

51
d.i. Knowledge

1. Importance of Financial literacy

2. Financial needs and wants of the households
3. Giving preference to needs than wants
4. Current Savings practices of the community
5. Alternatives available and their features
6. Current practice of borrowing
7. Interest rates- flat, diminishing, EMI
8. Alternatives available
9. Current Social security practices and alternatives
10. Current investment practices and alternatives
11. Planning for expected and unexpected needs
12. Preparing and analyzing a budget for household

d.ii. Skill

1. Analysing the cash flow of a family

2. Counseling skill
3. Financial Planning skill
4. Communication skill
5. Convincing skill
6. Problem solving skill

d.iii. Attitude

1. Be positive
2. Be open to learn
3. Be flexible
4. Willing to help
5. Practice before preach
6. Should be a balanced person – when conflict arises between her ideas
and the ideas of the SHG member

52
Module 10 Leadership role of SHG Leaders in spreading financial
literacy
Since the piloting in early 1990s the SHG programme has come a long way.
It has assumed movement perspective with the self-help groups being
promoted by the SHGs themselves rather than NGO/civil
societies/Government led. Propelling growth of SHGs is in large part due to
the grass root SHG leaders who have taken the initiative to spread the
movement across the country. Many SHG leaders have also assumed larger
responsibilities taking over the governance role of federations and its
leadership. The level of awareness and knowledge about the mainstream
institutions including Banks and Governments have raised to a greater
extent. The SHG leaders have also been performing the role of guiding and
mentoring the SHG members and enhance the democratic processes in the
SHG meeting conducted monthly or fortnightly. They have been able to
establish good rapport with members with caring attitude and empathy.

In keeping with these responsibilities, the SHG leaders who have undergone
the financial literacy programme need to take effective steps to spread the
literacy among the members, which means SHG leaders will discuss about
the literacy aspects concerning all the financial services including pension in
the group meetings in a gradual manner and create good awareness and
enhance their knowledge levels about financial services. In this task of
spreading literacy, the SHG leaders would be supported by the staff
members of NGO who have also undergone financial literacy programme
along with the leaders. It would be a continuous education process in the
group meetings and the dissemination of the literacy need to be taken up by
the SHG members also to those excluded segments of population who are
also not a part of the SHG eco system. The SHG leaders have a greater role
and responsibilities in taking the financial literacy process as a mission for
not only among themselves but also for the user public in general, with
particular focus on the women who could not get the opportunity to go
through the formal education system. The leaders should talk about the
importance of financial inclusion in the literacy campaign and the advantages
of availing financial services from Banks rather than from individuals or
other institutions-focusing on how affordable the Banking system and how
safe their savings would be and how the Banks are not exploitative in
providing credit, remittance and other services. The SHG leaders should
spread the message that Bank branches and also the outreach arms such as
Business Facilitators and Correspondents are established for all segments of
53
population rich or poor and each household and individual should be linked
with the banking system wherever they are – rural, urban or in tribal belt.

Module 11 Business opportunities guidance:

The SHG Bank linkage programme has given tremendous opportunities for
the poor women to explore and utilize their potential through access to
financial services. Like savings and credit, the SHG members are now
getting aware of the importance and the benefit of insurance services in
coping with the risks which include life, health and also livelihoods which
comprises of assets, crop, etc. Many SHG members are now using the Bank
linkage for not only consumption credit but also meeting the funds
requirements of livelihoods, small business and enterprises. The experience
of the successful enterprises and business by many group members and the
role of financial services including savings, credit and insurance in
successfully running the business enterprises should be talked about by the
leaders in the group meetings and provide guidance with the support of
NGOs or Government who have promoted/monitoring those groups.

Another aspect that may be dealt with is the scale and the size of livelihoods
or business enterprises being undertaken by the SHG members. Here the
important aspect to be looked into is the capacity of the members and
guidance of the leaders in this aspect to run a particular business at a
particular scale. The SHG leaders should also educate the members about
the instances of business failures and lessons learnt from these failures
which need to be disseminated in the group meetings. Relying on their
experience the SHG leaders need to look at the livelihoods opportunities in
three distinct streams:

 Farm based livelihoods including animal husbandry(dairy, poultry,

sheep rearing, etc.), fisheries both inland and marine
 Non-farm based livelihoods – trading/vending, small businesses,
services, etc.
 Skill based livelihoods

Newer opportunities of skill based livelihoods, farmer collectives, producer

companies are to be talked about and the members’ awareness level raised.
It is also essential to distinguish between the individual enterprises at the
member level and also collective enterprises wherein SHG members not
necessarily of the same group but from neighbourhood villages come
together to promote collective livelihood activities. The type of financial
54
services including credit and insurance suitable for the livelihoods and
business enterprises depending upon the scale should be educated to the
members. Marketing support, storage support for price discovery are among
the important things that need to be shared with the SHG members for
supporting their livelihood ventures. Which means the SHG leaders have
greater role in both spreading financial literacy and in effectively using the
literacy for a larger group of people to support their initiatives in business
and enterprises.

55