1-write and explain the Andhra Pradesh crisis in details?

Abstract
Andhra Pradesh is the motherland of Indian microfinance largely due to the early and
extraordinary work of its state government. In the late 1980s, it built the Self-Help Group-Bank
Linkage Programme (SHG-Bank Linkage) with support from the National Bank of Agriculture and
Rural Development and World Bank Loans. It invested heavily in client education and, along with
the not-for-profit sector, built up a robust microfinance portfolio.

But over the last two decades, many lenders that began as non-profit organizations have
transformed into commercial microfinance institutions (MFIs) — among them, BASIX, SHARE,
SKS, and Spandana. As compared to SHG-Bank Linkage, these institutions have posted faster
growth rates and reached far more borrowers.

Last month, the state government put a halt to that with the AP Microfinance Ordinance,
suspending operations of MFIs in the state and for all intents and purposes allowing borrowers to
stop repaying their loans. The announcement of the Ordinance stressed the need to protect the poor
— but the move might well, in the long term, leave them far worse off.

The government has complained that too many poor borrowers find themselves subject to coercive
collection practices by MFIs. It knows that its SHG members sometimes “double-dip” by taking on
additional loans from the commercial lenders, and it sees that they tend to repay MFIs faster.
However, there are explanations other than coercion that might explain that. MFI loans are more
expensive than SHG loans, so a customer with two loans outstanding might reasonably choose to
repay the MFI loan first. The MFIs’ disciplined system of doorstep loan management might also
account for the greater customer responsiveness.

Now, the manager of the government program, SERP, has pushed the accusation of coercive
practices to a new level, blaming the MFIs’ attempts to recover loans for the suicides of 54 men
and women. This is a serious allegation and, again, prompts the question of whether there might be
alternative explanations. At the most basic level, note that according to the National Crime
Records Bureau, suicides in India occur at the rate of 10.8 deaths per 100,000 people every year
(based on 2008 data). If we apply this rate to the 6 million clients who are members of SKS
Microfinance, we might expect that there would be 648 clients succumbing to suicide every year.
This reasoning, of course, is rather absurd; but so is drawing a link from borrower suicides to MFIs
without evidence. (For a far more subtle discussion of the drivers of suicide among Indian
farmers, see these articles by Palagummi Sainath, an editor at The Hindu.)

What we are really seeing in Andhra Pradesh is the fallout from a long-standing competition
between MFIs and the state government, each of which believes it should be the source of financial
services to the poor. The government feels that it has a mandate to alleviate poverty; indeed, it has
a responsibility to disperse US$22.2bn to SHG members by 2014. MFIs believe that the poor are
ideal customers who have the right to financial inclusion. The two clashed first in 2006, also in
Andhra Pradesh, and that Krishna crisis left many large MFIs crippled. But that time, private
equity investors stepped in, and with strong inflows of both debt and equity capital, timely access
to skilled talent, and significant use of technology, MFIs in general managed to continue growing
and even to vault past the government program.

Now, with the AP Ordinance, the government seems determined to remove borrowers’ access to
MFIs. As a piece of legislation, the AP Ordinance has more to do with helping the state
government program enjoy a monopoly over the poor than with preventing strong-armed debt
collection.

Clearly it would be better for the government to understand that the poor have the right to make
choices — and that there are better ways to serve the poor than crippling its competition.

At the same time, the MFIs need to understand that social businesses are complex and that, as they
scale and become part of the mainstream financial system, they need to be more careful managers,
of both their operational reality and their external image. When the most substantial plank in your
reputation platform is poverty alleviation, perceptions are all-important. In contrast to the Indian
Information Technology Industry, which has done a good job of managing values and reputation
without moving the focus from commercial objectives, the MFIs have allowed others to shape
perceptions of them. They are perceived as lacking in transparency about their interest rates and
unable to effectively manage external stakeholders such as the media and the State. This perception
comes closer to the truth when a leading MFI allows a post-IPO spat among its own leaders to play
out in front of the public.

The fight over the poor seems to be getting uglier, but microfinance is too good a tool for financial
inclusion to be thwarted by poor positioning. If both sides do not look inwards and make adequate
course corrections, their destructive competition has the potential to set us back by 10 years.

The story covers a microfinance crisis in the southern Indian state of Andhra Pradesh, triggered
by sensationalized newspaper accounts of suicides among over-indebted clients of some of
India’s biggest microfinance institutions (MFIs): SKS Microfinance, Spandana, Share, and others .
 These cases underscore rising debt stress among possibly tens of thousands of clients,
brought on by explosive growth of microfinance organizations in southern India.
 In the quest to meet their growth targets, loan officers often sell loans to clients already
indebted to other organizations
 The reports offered an opening for the state government, which runs a rival self-help
group (SHG) program, to pass a restrictive ordinance severely curtailing the MFIs.
 The crisis threatens microfinance not only in Andhra Pradesh, but nationwide, as the
Reserve Bank of India moves toward removing the priority sector designation that has
fueled the sector’s growth (by making it advantageous for banks to lend to MFIs).
 The blame for this unfortunate situation falls most squarely on the MFIs that failed to
restrain aggressive growth even as the market became increasingly saturated. Investors
must also swallow a big spoonful of blame. Because they paid dearly for shares in the
MFIs, they need fast growth to make their investments pay off.
 The divvying up of blame doesn’t stop there, however. Perhaps the most important
target is the public sector policy environment that has treated microfinance institutions
 as orphan children of the financial sector rather than helping them to build solid
foundations. In fact, the environment in which MFIs have grown up could almost have
been expressly designed to promote over-lending.
  lack of control in the lending process of the MFIs themselves, and the protectionist
nature of India’s financial sector.

2-Explain the work of a microfinance company of your choice.

Discuss the method of service delivery in details.

What Is a Microfinance Company?

What a microfinance company is has changed in recent years. Historically, the
importance of microfinance was that it served a great role in alleviating poverty.
According to Investopedia, "For many years, microfinance had this primary social
objective and so traditional MFIs consisted only of non-governmental organizations
(NGO), specialized microfinance banks and public sector banks."

The role of microfinance in economic development was that it helped struggling

individuals, and even communities, gain access to financial services, and hopefully,
rise from poverty. Microfinance companies, then, were generally nonprofit or
governmental institutions that sought to help the poor. Profit was never the goal for
microfinance companies.

What Is the Purpose of Microfinance?

The purpose of microfinance is to provide financial services to people "generally
excluded from traditional banking channels because of their low, irregular and
unpredictable income," according to ING, a global financial institution with a strong
European base. In other words, the purpose of microfinance is to help disadvantaged
households and entrepreneurs gain access to affordable financial services to help
them finance income-generating activities, accumulate assets through savings,
provide for family needs, and protect themselves against the risks of daily life, such as
illness, death, theft, natural disasters, says ING.

Whether for-profit or nonprofit, microfinance seeks to assist the poor, and

indeed, microfinance institutions seek to be the bankers of the poor. For-profit
microfinance companies see this sector as underserved and a great way to make a
profit. By contrast, nonprofit microfinance companies seek to help the poor for
altruistic reasons.

Microfinance was developed by a Bangladeshi economist Muhammad Yunus, says

ING, adding that he came to be known as "the banker of the poor." In 1976, Yunus
established Grameen Bank in Bangladesh, which provided "microcredit," literally the
extension of loans to impoverished borrowers. Before that, banks had generally
concentrated only on lending to middle- and upper-income clients, as well as the very
rich, of course. Yunis' idea of microcredit caught on quickly. It was so popular that it
led to similar microfinance institutions springing up all over the world, eventually
evolving into what is today known as microfinance.

For his efforts, Yunus won the 2006 Nobel Peace Prize. In awarding Yunus the peace
prize, which was actually awarded jointly to Yunus and his bank, the Nobel committee
noted that it was honoring Yunus and his bank "for their efforts to create economic and
social development from below." In other words, the committee paid homage to Yunus'
concept of creating economic opportunity from the ground up.

Annapurna Microfinance
Getting access to credit, sometimes, becomes difficult even for a salaried or self-employed professional.
Imagine, how would a poor un-employed individual get a loan amidst enormous banking formalities? A large
segment of people who live under poverty find it hard to get finance from established lending institutions. As
the country aim for an inclusive growth at all sectors, the provision of micro credit is certainly a powerful tool
that will bring financial inclusion.
Having visualized financial inclusion is the only way for development, Annapurna Microfinance helps poor
communities to establish small businesses in the society. The beneficiaries include fishermen, artisans,
farmers, small entrepreneurs, deprived communities etc.

Advantages and Features of Annapurna Microfinance

 Aimed at empowering poor women and their livelihood
 To improve the living conditions of the marginalized people
 To fund the small and micro business entrepreneurs
 Pension scheme for workers from the unorganized sectors
 Insurance scheme for the poor
 Loan for low-cost house building

What Are the Benefits of ANNAPURNA Microfinance?

There are literally dozens of benefits for microfinance, but the key pluses involve the
role of microfinance in economic development. Vitanna.org and Plan International
provide possibly the top benefits of microfinance:

1. It allows people to provide for their families. Through microfinance, more

households are able to expand their current opportunities so that more income
accumulation may occur, says Vitanna.org, a financial services website.
2. It gives people access to credit. "By extending microfinance opportunities,
people have access to small amounts of credit, which can then stop poverty at a
rapid pace," says Vitanna.org. Plan International, a global organization dedicated
to advancing children’s rights and equality for women, agrees, stating: "Banks
simply won’t extend loans to those with little or no assets, and generally don’t
engage in the small size of loans typically associated with microfinancing.
Microfinancing is based on the philosophy that even small amounts of credit can
help end the cycle of poverty."
3. It serves those who are often overlooked in society.  About 95 percent of
some loan products extended by microfinance institutions are given to women,
as well as those with disabilities, those who are unemployed, and even those
who simply beg to meet their basic needs, Vitanna notes. Microfinance services
can help recipients take control of their own lives.
4. It creates the possibility of future investments. Microfinance disrupts the
cycle of poverty by making more money available. When basic needs are met,
families can then invest in better housing, health care, and even, eventually,
small business opportunities.
5. It is sustainable.  There's little risk with a $100 or loan, says Vitanna, adding:
"Yet $100 could be enough for an entrepreneur in a developing country to pull
themselves out of poverty." Plan International agrees, stating that a $100 loan
can be enough to launch a small business in a developing country that could help
the benefactor pull herself and her family out of poverty.
6. It can create jobs. Microfinance is also able to let entrepreneurs in impoverished
communities and developing countries create new employment opportunities for
others.
7. It encourages people to save. "When people have their basic needs met, the
natural inclination is for them to save the leftover earnings for a future
emergency," says Vitanna.
8. It offers significant economic gains even if income levels remain the
same. The gains from participation in a microfinance program including access
to better nutrition, higher levels of consumption, and eventually, growing
economies, even in small and impoverished communities.
9. It leads to better loan repayment rates. "Microfinance tends to target women
borrowers, who are statistically less likely to default on their loans than men. So
these loans help empower women, and they are often safer investments for
those loaning the funds," says Plan International. 
10. It extends education. Families receiving microfinance services are less likely to
pull their children out of school for economic reasons, says Plan International.
In India microfinance operates through two channels:

1. SHG – Bank Linkage Programme (SBLP)

2. Micro Finance Institutions (MFIs)

SHG – Bank Linkage Programme

This is the bank-led microfinance channel which was initiated by NABARD in 1992.
Under the SHG model the members, usually women in villages are encouraged to form
groups of around 10-15. The members contribute their savings in the group periodically
and from these savings small loans are provided to the members. In the later period
these SHGs are provided with bank loans generally for income generation purpose.

The group’s members meet periodically when the new savings come in, recovery of
past loans are made from the members and also new loans are disbursed. This model
has been very much successful in the past and with time it is becoming more popular.
The SHGs are self-sustaining and once the group becomes stable it starts working on
its own with some support from NGOs and institutions like NABARD and SIDBI.

Micro Finance Institutions

Those institutions which have microfinance as their main operation are known as micro
finance institutions. A number of organizations with varied size and legal forms offer
microfinance service. These institutions lend through the concept of Joint Liability Group
(JLG).

A JLG is an informal group comprising of 5 to 10 individual members who come

together for the purpose of availing bank loans either individually or through the group
mechanism against a mutual guarantee. The reason for existence of separate
institutions i.e. MFIs for offering microfinance are as follows:

 High transaction cost – generally micro credits fall below the break-even point of
providing loans by banks
 Absence of collaterals – the poor usually are not in a state to offer collaterals to
secure the credit
 Loans are generally taken for very short duration periods
 Higher frequency of repayment of installments and higher rate of Default

Annapurna Microfinance Products and Services

Annapurna Microfinance provides to poor men and women the following products and services.
SHG Loan
Women, who are unable to access credit through formal banking system, can get financial help through income
generation loan. Poor women, who are involved in micro businesses to support their family, are identified and
given credit assistance.
The loan provided under this scheme can be used for agriculture purposes, purchase of agriculture related
equipment, micro business enterprise, handicraft and handloom. The loan amount could range from INR 8000
to INR 25,000. The repayment tenure is up to 36 months.
Safe Water and Sanitation to Households
Focusing on access to clean water, hygiene and sanitation, Annapurna Microfinance provides loans to women
to improve the living conditions. The credit is provided at affordable interest rates for women to help their
family live with a better sanitation. This product facilitates construction of toilets, installation of water pipes,
hand borewell, water purifier etc.
The loan amount could range between INR 2000 to INR 12,000. The repayment tenure is up to 24 months.
Crop Loan for Vegetable Cultivation
Both women and men can get a loan from Annapurna Microfinance for up to INR 25,000 for cultivation
purpose. The loan is provided exclusively for cultivation purpose. The borrowers can repay the loan within 24
months.
Microenterprise Loan
People who are looking to start up a small business or improve the existing micro enterprise can avail a loan
for up to INR 20 Lakhs under this scheme. The loan can be availed individually or together as a group. The
repayment tenure is up to 36 months at the interest rate of 24%.
Dairy Development Loan
Dairy farming is one of the well-known occupations in the rural villages. Individuals who are involved in dairy
farming or want to set up a farm can avail a dairy development loan for up to INR 1,50,000 at the interest rate
of 23%. The loan can be repaid in 36 months. The preferred clients are who have prior experience in the
industry and have at least 2 cows.
Home Improvement Loan
The mission of this product to fund the poor people who want to repair or extend their own house. Under this
scheme, the customers can get funding starting from INR 20,000 to up to INR 1.5 Lakhs. The loan can be used
to build a low-cost house for a comfortable living. The repayment can be done up to 48 instalments.
Loans for Family Members of Leprosy Affected Patients
People who are affected with leprosy are often neglected in society. What they deserve is a good opportunity to
support their own life and family. The family members of leprosy affected patients can get a loan up to INR 1
Lakh to start a small enterprise to become self-supportive. The loan can be repaid in 36 instalments.
Loans for Widows, Unmarried Women, Single Mothers
Women who have no support of their better-half get an opportunity to avail a loan to become self-supportive
under this scheme. The purpose of the loan is to generate income through an occupation. The maximum loan
amount is up to INR 1 Lakh which can be repaid in 36 months.

Annapurna Student Education Loan

Students who have completed their higher secondary education can avail a loan to gain financial support for
further education. Maximum of 85% of the fee is provided as loan (subject to maximum of INR 1 Lakh). The
loan can be availed at an interest rate of 18% and repaid in 36 months.
Loans for Persons with Disability
Under this scheme, physically challenged individuals can get a loan for up to INR 1 Lakh which can be repaid
in 36 months. The purpose of the loan is to generate a regular income with the loan amount.
Loans for Persons Belonging to the Community of Eunuch/Third Gender
It is a pity that third gender are often neglected a job opportunity in the society. Hence it is our duty to create a
friendly working atmosphere for survival. Annapurna Microfinance provides exclusive loan for third gender
community for up to INR 1 Lakh which can be used to generate income regularly through a small enterprise.