Imsu Csc Micro

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Chapter 1:

Introduction

DisThe borrower is responsible for implementing the project according to the loanagreement and other agreements. On its part, ADB monitors the project and

reviews its progress to ensure that the loan proceeds are spent as agreed upon.

Loan Account

When a loan becomes effective, the loan amount is not paid to the borrower.

Instead, a loan account is opened in ADB¶s books in the name of the borrower and

the loan amount is credited to that account.

Discussion of Disbursement Procedures

During project appraisal and loan negotiations, ADB¶s different disbursement

procedures are discussed in detail by the borrower and ADB. These discussions are

important because they allow the borrower and ADB to identify the disbursement

procedures most suitable for the project.

Disbursement Letter

After the loan agreement is signed, Loan Administration Division

(CTLA) sends a disbursement letter (see Appendix 4) to the borrower outlining the

disbursement procedures and other related arrangements for financial

administration of the project. A copy of ADB¶s Disbursement

Handbook is enclosed with the letter.

Actions to Be Taken by the Borrower

As soon as the loan has become effective, and to expedite the disbursement, the borrower

� recruits qualified accountants and establishes sound internal control and

accounting systems in executing and implementing agencies; reviews Schedule 3



of the loan agreement. The Schedule provides details of ADB financing such as

amount, percentages, items of financing, and applicable conditions of financing;

� maintains records for all signed contracts in a contract ledger for reference;

Loan Disbursement Handbook

DISBURSEMENT GUIDELINES AND PRACTICES

1 ³US$100,000´ in this Handbook refers to US dollars 100,000 or its equivalent.

2 Refer to ADB Procurement Guidelines, April 2006, Appendix 1 paragraph 3.

� forwards to ADB (sector division or resident mission concerned) two copies of

each signed contract with a value of more than US$100,000.1 For contracts

US$100,000 or less, forwards copies of the signed contract to

ADB only if requested (see paragraph 9.17); and

� obtains ADB¶s approval for contract variations that are subject to ADB¶s prior

review and would in aggregate increase the original value of the contract by more

than 15% of the original amount.2

Basic Requirements for Disbursement

The first withdrawal from the loan account requires that

� ADB declared the loan effective;

� The borrower submitted to ADB sufficient evidence of the authority of the

person(s) who will sign withdrawal applications on behalf of the borrower,

together with the authenticated specimen signature of each authorized person. (Any

subsequent change in the list of authorized representatives must be reported

immediately and authenticated specimen signatures of new representatives must

also be provided); and

� Disbursement conditions as specified in the loan agreements are met.

Preparation of withdrawal application for final disbursement(s) of project loan and

tranche disbursement of a program loan should be closely coordinated between



ADB and borrower/EA especially if the remaining unutilized balance is expected

to be fully utilized.

Withdrawal Application

4.8 For all withdrawals, ADB must receive a withdrawal application in the

prescribed form. A withdrawal application is a written request from the borrower

to ADB to pay funds against the borrower¶s loan account. The application must

reach ADB before the loan closing date.

A withdrawal application consists of

� The application itself in letter form (see Appendixes 5, 6, and 7 for sample

formats);

� Summary sheet(s) for each category claimed (see Appendixes 8 and 9 for sample

formats); and

� supporting documents, if required (see Appendix 10).

Loan Disbursement Handbook

Eligible/Ineligible Expenditures

ADB will only finance eligible expenditures (see Appendix 11).

Expenditures eligible for financing are generally detailed in the RRP.

Disallowances/Nonpayments

Where ADB disallows or adjusts the amount of withdrawal the borrower

requested, ADB sends an advice by fax or e-mail to the borrower and/or EA citing

the loan and withdrawal application number, amount applied for, amount paid, and

reason for nonpayment or partial payment.

For nonpayment or adjusted settlement of condiment claims, ADB sends an advice

to the negotiating or advising bank by authenticated SWIFT or tested telex citing

the commitment letter number, letter of credit (LC) number, and reason for

nonpayment or adjusted settlement. Copy of this advice is furnished to the EA for

information.





guarantee provided by the contractor or supplier to the EA. The unconditional bank

guarantee is issued in compliance with the borrowing government¶s financial rules

and regulations, by a reputable bank in the country of the borrower in a manner

acceptable to ADB.

Audited Project Accounts and Financial Statements

ADB loan proceeds shall be used only for the purposes for which the loan was

approved with due attention to economy and efficiency (Article 14 [xi]). To meet

these requirements, EAs are to submit audited project accounts (APA) regularly

during project implementation.

EAs are required to submit audited project accounts and financial statements

(AFS) not more than 6 months3 after the close of the fiscal/financial year, as

specified in the relevant loan agreement, to sector division or RM for their review

and necessary action.

Follow-up Action for Audit Findings of Serious Nature

20 In case of audit findings of serious nature, e.g., misappropriation or diversion of

funds, non-submission of supporting documents, use of funds for non project

related activities, etc., suitable action shall be immediately initiated/ taken by the

executing agency, under intimation to the auditor and ADB.

Delay in Submission of APA or AFS

When the APA or AFS is not received within 6 months after the due date,

ADB will hold processing of requests for new contract awards, and disbursement

of replenishment to imprested accounts, reimbursement, and issuance of

commitment letters. When the APA or AFS is not received within

12 months after the due date, ADB may suspend borrower¶s rights to withdraw

loan proceeds. However, the suspension of withdrawal does not affect

disbursements committed through outstanding letters of credit under the ADB¶s

commitment procedure. Such commitments are irrevocable and



ADB is obliged to disburse even after the loan has been suspended.

The reporting period can be extended to nine 9 months

Microfinance is defined as any activity that includes the provision of financial

services such as credit, savings, and insurance to low income individuals which fall

just above the nationally defined poverty line, and poor individuals which fall

below that poverty line, with the goal of creating social value. The creation of

social value includes poverty alleviation and the broader impact of improving

livelihood opportunities through the provision of capital for micro enterprise, and

insurance and savings for risk mitigation and consumption smoothing. A large

variety of actors provide microfinance in India, using a range of microfinance

delivery methods. Since the ICICI Bank in India, various actors have endeavored

to provide access to financial services to the poor in creative ways. Governments

also have piloted national programs, NGOs have undertaken the activity of raising

donor funds for on-lending, and some banks have partnered with public

organizations or made small inroads themselves in providing such services. This

has resulted in a rather broad definition of microfinance as any activity that targets poor and low-income individuals for the provision of financial services. The range

of activities undertaken in microfinance include group lending, individual lending,

the provision of savings and insurance, capacity building, and agricultural business

development services. Whatever the form of activity however, the overarching

goal that unifies all actors in the provision of microfinance is the creation of social

value.

Microfinance Definition

According to International Labor Organization (ILO), ³Microfinance is an

economic



development approach that involves providing financial services through

institutions to low income clients´. In India, Microfinance has been defined by

³The National Microfinance Taskforce, 1999´ as ³provision of thrift, credit and

other financial services and products of very small amounts to the poor in rural,

semi-urban or urban areas for enabling them to raise their income levels and

improve living standards´.

"The poor stay poor, not because they are lazy but because they have no access to

capital."

The dictionary meaning of µfinance¶ is management of money. The management of

money denotes acquiring & using money. Micro Finance is buzzing word, used

when financing for micro entrepreneurs. Concept of micro finance is emerged in

need of meeting special goal to empower under-privileged class of society, women,

and poor, downtrodden by natural reasons or men made; caste, creed, religion or

otherwise. The principles of Micro Finance are founded on the philosophy of

cooperation and its central values of equality, equity and mutual self-help. At the

heart of these principles are the concept of human development and the

brotherhood of man expressed through people working together to achieve a better

life for themselves and their children.

Traditionally micro finance was focused on providing a very standardized credit

product. The poor, just like anyone else, (in fact need like thirst) need a diverse

range of financial instruments to be able to build assets, stabilize consumption and

protect themselves against risks. Thus, we see a broadening of the concept of micro

finance--- our current challenge is to find efficient and reliable ways of providing a

richer menu of micro finance products.



Micro Finance is not merely extending credit, but extending credit to those who

require most for their and family¶s survival. It cannot be measured in term of

quantity, but due weight age to quality measurement. How credit availed is used to

survive and grow with limited means.

Activities in Microfinance

Microcredit: It is a small amount of money loaned to a client by a bank or other

institution.

Microcredit can be offered, often without collateral, to an individual or through

group lending.

Micro savings: These are deposit services that allow one to save small amounts of

money for future use. Often without minimum balance requirements, these savings

accounts allow households to save in order to meet unexpected expenses and plan

for future expenses.

Micro insurance: It is a system by which people, businesses and other

organizations make a payment to share risk. Access to insurance enables

entrepreneurs to concentrate more on developing their businesses while mitigating

other risks affecting property, health or the ability to work.

Remittances: These are transfer of funds from people in one place to people in

another, usually across borders to family and friends. Compared with other sources

of capital that can fluctuate depending on the political or economic climate,

remittances are a relatively steady source of funds.

1.4 Legal Regulation

Banks in India are regulated and supervised by the Reserve Bank of India (RBI)





at around Rs 7000 crores in the Indian banks¶ credit outstanding. As against this,

according to even the most conservative estimates, the total demand for credit

requirements for this part of Indian society is somewhere around Rs 2,00,000

crores.

Microfinance changing the face of poor Nigerian

Micro-Finance is emerging as a powerful instrument for poverty alleviation in the

new economy. In India, micro-Finance scene is dominated by Self Help Groups

(SHGs) - Banks linkage Programme, aimed at providing a cost effective

mechanism for providing financial services to the 'unreached poor'. In the Indian

context terms like "small and marginal farmers", " rural artisans" and

"economically weaker sections" have been used to broadly define micro-finance

customers. Research across the globe has shown that, over time, microfinance

clients increase their income and assets, increase the number of years of schooling

their children receive, and improve the health and nutrition of their families.

A more refined model of micro-credit delivery has evolved lately, which

emphasizes the combined delivery of financial services along with technical

assistance, and agricultural business development services. When compared to the

wider SHG bank linkage movement in India, private MFIs have had limited

outreach. However, we have seen a recent trend of larger microfinance institutions

transforming into Non-Bank Financial Institutions (NBFCs). This changing face of

microfinance in India appears to be positive in terms of the ability of microfinance

to attract more funds and therefore increase outreach.

In terms of demand for micro-credit or micro-finance, there are three segments,

which demand funds. They are:



�At the very bottom in terms of income and assets, are those who are landless and

engaged in agricultural work on a seasonal basis, and manual laborers in forestry,

mining, household industries, construction and transport. This segment requires,

first and foremost, consumption credit during those months when they do not get

labor work, and for contingencies such as illness. They also need credit for

acquiring small productive assets, such as livestock, using which they can generate

additional income. The next market segment is small and marginal farmers and

rural artisans, weavers and those self-employed in the urban informal sector as

hawkers, vendors, and workers in household micro-enterprises. This segment

mainly needs credit for working capital, a small part of which also serves

consumption needs. This segment also needs term credit for acquiring additional

productive assets, such as irrigation pumpsets, borewells and livestock in case of

farmers, and equipment (looms, machinery) and worksheds in case of non-farm

workers. The third market segment is of small and medium farmers who have gone

in for commercial crops such as surplus paddy and wheat, cotton, groundnut, and

others engaged in dairying, poultry, fishery, etc. Among non-farm activities, thissegment includes those in villages and slums, engaged in processing or

manufacturing activity, running provision stores, repair workshops, tea shops, and

various service enterprises. These persons are not always poor, though they live

barely above the poverty line and also suffer from inadequate access to formal

credit.

Well these are the people who require money and with Microfinance it is possible.Right now the problem is that, it is SHGs' which are doing this and efforts should

be made so that the big financial institutions also turn up and start supplying funds

to these people.



Today Nigeria is facing major problem in reducing poverty. About 25 million

people in India are under below poverty line. With low per capita income, heavy

population pressure, prevalence of massive unemployment and underemployment ,

low rate of capital formation , misdistribution of wealth and assets , prevalence of

low technology and poor economics organization and instability of output of

agriculture production and related sectors have made Nigeria one of the poor

countries of the world.

Nigeria falls under low income class according to World Bank. It is firth populated

country in the world and around 70 % of its population lives in rural area. 60% of

people depend on agriculture, as a result there is chronic underemployment and per

capital income is only $ 3262. This is not enough to provide food to more than one

individual. The obvious result is abject poverty, low rate of education, low sex

ratio, and exploitation. The major factor account for high incidence of rural

poverty is the low asset base. According to Reserve Bank of India, about 51 % of

people house possess only 10% of the total asset of Nigeria .This has resulted low

production capacity both in agriculture (which contribute around 22-25% of GDP )and Manufacturing sector. Rural people have very low access to institutionalized

credit ( from commercial bank).

Poverty alleviation programmes and concepualisation of Microfinance:

There has been continuous efforts of planners of Nigeria in addressing the poverty

. They Have come up with development programmes like Integrated Rural

Development progamme (IRDP), National Rural Employment Programme (NREP)

, Rural Labour Employment Guarantee Programme (RLEGP) etc. But these

progamme have not been able to create massive impact in poverty alleviation. The



production oriented approach of planning without altering the mode of production

could not but result of the gains of development by owners of instrument of

production. The mode of production does remain same as the owners of the

instrument have low access to credit which is the major factor of production. Thus

in Nineties National bank for agriculture and rural development (NABARD)

launches pilot projects of Microfinance to bridge the gap between demand and

supply of funds in the lower rungs of rural economy. The buzzing word of this

decade was meant to cure the illness of rural economy. With this concept of Self

Reliance, Self Sufficiency and Self Help gained momentum.

Debt and Investment Survey, GoI, 1992

The households with a lower asset size were unable to find financing options from

formal credit disbursement sources. This was due to the requirement of physical

collateral by banking and financial institutions for disbursing credit. For

households with less than Rs 20,000 worth of physical assets, the most convenient

source of credit was non institutional agencies like landlords, moneylenders,

relatives, friends, etc.

Looking at the findings of the study commissioned by Asia technical Department

of the World Bank (1995), the purpose or the reason behind taking credit by the

rural poor was consumption credit, savings, production credit and insurance.

Consumption credit constituted two-thirds of the credit usage within which almost

three-fourths of the demand was for short periods to meeting emergent needs such

as illness and household expenses during the lean season. Almost entire demand

for the consumption credit was met by informal sources at high to exploitive

interest rates that varied from 30 to 90 per cent per annum.







the system functions. This system is called the existing system. Now the existing

system is subjected to close study and problem areas are identified. The designer

now functions as a problem solver and tries to sort out the difficulties that the

enterprise faces. The solutions are given as proposals. The proposal is then

weighed with the existing system analytically and the best one is selected. The

proposal is presented to the user for an endorsement by the user. The proposal is

reviewed on user request and suitable changes are made. This is loop that ends as

soon as the user is satisfied with proposal.

Preliminary study is the process of gathering and interpreting facts, using the

information for further studies on the system. Preliminary study is problem solving

activity that requires intensive communication between the system users and

system developers. It does various feasibility studies.

FEASIBILITY STUDY

Feasibility study is made to see if the project on completion will serve the

purpose of the organization for the amount of work, effort and the time that spendon it. Feasibility study lets the developer foresee the future of the project and the

usefulness. A feasibility study of a system proposal is according to its workability,

which is the impact on the organization, ability to meet their user needs and

effective use of resources. Thus when a new application is proposed it normally

goes through a feasibility study before it is approved for development.

The document provide the feasibility of the project that is being designed and

lists various areas that were considered very carefully during the feasibility study

of this project such as Technical, Economic and Operational feasibilities. The

following are its features:



TECHNICAL FEASIBILITY

The system must be evaluated from the technical point of view first. The

assessment of this feasibility must be based on an outline design of the system

requirement in the terms of input, output, programs and procedures. Having

identified an outline system, the investigation must go on to suggest the type of

equipment, required method developing the system, of running the system once it

has been designed.

Technical issues raised during the investigation are:

Does the existing technology sufficient for the suggested one?

Can the system expand if developed?

The project should be developed such that the necessary functions and

performance are achieved within the constraints. The project is developed within

latest technology. Through the technology may become obsolete after some period

of time, due to the fact that never version of same software supports older versions,

the system may still be used. So there are minimal constraints involved with this

project. The system has been developed using Java the project is technically

feasible for development.

ECONOMIC FEASIBILITY

The developing system must be justified by cost and benefit. Criteria to ensure

that effort is concentrated on project, which will give best, return at the earliest.





The role of micro-finance bank

Micro-finance bank play today a major role in poverty alleviation in rural Nigeria.

A growing number of poor people (mostly women) in various parts of Nigeria are

members of micro-finance bank and actively engage in savings and credit (S/C), as

well as in other activities (income generation, natural resources management,

literacy, child care and nutrition, etc.). The S/C focus in the micro-finance bank is

the most prominent element and offers a chance to create some control over

capital, albeit in very small amounts. The micro-finance bank system has proven to

be very relevant and effective in offering women the possibility to break gradually

away from exploitation and isolation.

3.1 How self-help groups work

NABARD (1997) defines micro-finance bank as "small, economically

homogenous affinity groups of rural poor, voluntarily formed to save and mutually

contribute to a common fund to be lent to its members as per the group members'

decision".

23

Most micro-finance bank in India have 10 to 25 members, who can be either only

men, or only women, or only youth, or a mix of these. As women's SHGs or sangha have been promoted by a wide range of government and non- governmental

agencies, they now make up 90% of all micro-finance bank



The rules and regulations of micro-finance bank vary according to the preferences

of the members and those facilitating their formation. A common characteristic of

the groups is that they meet regularly (typically once per week or once per

fortnight) to collect the savings from members, decide to which member to give a

loan, discuss joint activities (such as training, running of a communal business,

etc.), and to mitigate any conflicts that might arise. Most micro-finance bank have

an elected chairperson, a deputy, a treasurer, and sometimes other office holders.

Most micro-finance bank start without any external financial capital by saving

regular contributions by the members. These contributions can be very small (e.g.

10 Rs per week). After a period of consistent savings (e.g. 6 months to one year)

the micro-finance bank start to give loans from savings in the form of small

internal loans for micro enterprise activities and consumption. Only those micro-

finance bank that have utilized their own funds well are assisted with external

funds through linkages with banks and other financial intermediaries.

However, it is generally accepted that SHGs often do not include the poorest of the

poor, for reasons such as:

(a) Social factors (the poorest are often those who are socially marginalized

because of caste affiliation and those who are most skeptical of the potential

benefits of collective action).

(b) Economic factors (the poorest often do not have the financial resources to

contribute to the

savings and pay membership fees; they are often the ones who migrate during the

lean season,



thus making group membership difficult).

(c) Intrinsic biases of the implementing organizations (as the poorest of the poor

are the most difficult to reach and motivate, implementing agencies tend to leave

them out, preferring to focus on the next wealth category).

Sources of capital and links between micro-finance bank and Banks

Micro-finance bank can only fulfill a role in the rural economy if group members

have access to financial capital and markets for their products and services. While

the groups initially generate their own savings through thrift (whereby thrift

implies savings created by postponing almost necessary consumption, while

savings imply the existence of surplus wealth), their aim is often to link up with

financial institutions in order to obtain further loans for investments in rural

enterprises. NGOs and banks are giving loans to SHGs either as "matching loans"

(whereas the loan amount is proportionate to the group's savings) or as fixed

amounts, depending on the group's record of repayment, recommendations by

group facilitators, collaterals provided, etc.

How micro-finance bank save

Self-help groups mobilize savings from their members, and may then on-lend these

funds to one another, usually at apparently high rates of interest which reflect the

members¶ understanding of the high returns they can earn on the small sums

invested in their micro-enterprises, and the even higher cost of funds from money

lenders. If they do not wish to use the money, they may deposit it in a bank. If the

members¶ need for funds exceeds the group¶s accumulated savings, they may

borrow from a bank or other organization, such as a micro-finance non-

government organization, to augment their own fund.



The system is very flexible. The group aggregates the small individual saving and

borrowing requirements of its members, and the bank needs only to maintain one

account for the group as a single entity. The banker must assess the competence

and integrity of the group as a micro-bank, but once he has done this he need not

concern himself with the individual loans made by the group to its members, or the

uses to which these loans are put. He can treat the group as a single customer,

whose total business and transactions are probably similar in amount to the average

for his normal customers, because they represent the combined banking business of

some twenty µmicro-customers¶. Any bank branch can have a small or a large

number of such accounts, without having to change its methods of operation.

Unlike many customers, demand from SHGs is not price-sensitive. Illiterate village

women are sometimes better bankers than some with more professional

qualifications. They know that rapid access to funds is more important than their

cost, and they also know, even though they might not be able to calculate the

figures, that the typical micro-enterprise earns well over 500% return on the small

sum invested in it (Harper, M, 1997, p. 15). The groups thus charge themselveshigh rates of interest; they are happy to take advantage of the generous spread that

the NABARD subsidized bank lending rate of 12% allows them, but they are also

willing to borrow from NGO/MFIs which on-lend funds from SIDBI at 15%, or

from µnew generation¶ institutions such as Basix Finance at 18.5% or 21%.

micro-finance bank Bank Linkage Model

NABARD is presently operating three models of linkage of banks with SHGs and

NGOs:

Model ± 1: In this model, the bank itself acts as a Self Help Group Promoting

Institution (SHPI).



It takes initiatives in forming the groups, nurtures them over a period of time and

then provides credit to them after satisfying itself about their maturity to absorb

credit. About 16% of SHGs and 13% of loan amounts are using this model (as of

March 2002).

Model ± 2: In this model, groups are formed by NGOs (in most of the cases) or by

government

agencies. The groups are nurtured and trained by these agencies. The bank then

provides credit directly to the SHGs, after observing their operations and maturity

to absorb credit. While the bank provides loans to the groups directly, the

facilitating agencies continue their interactions with the SHGs. Most linkage

experiences begin with this model with NGOs playing a major role. This model

has also been popular and more acceptable to banks, as some of the difficult

functions of social dynamics are externalized. About 75% of SHGs and 78% of

loan amounts are using this model.

Model ± 3: Due to various reasons, banks in some areas are not in a position to

even finance

micro-finance bank promoted and nurtured by other agencies. In such cases, the NGOs act as both facilitators and microfinance intermediaries. First, they

promote the groups, nurture and train them and then approach banks for bulk loans

for on-lending to the micro-finance bank. About 9% of SHGs and 13% of loan

amounts are using this model.



Comparative Analysis of Micro-finance Services offered to the poor

Source: R. Arunachalam - Alternative Technologies in the Indian Micro- finance

Industry

3.5 Life insurances for self-help group members

The United India Insurance Company has designed two PLLIs (personal line life

insurances) for women in rural areas. The company will be targeting self-help

groups, of which there are around 200,000 in the country, with 15-20 women in a

group. The two policies are

(1) the Mother Teresa Women & Children Policy, with the aim of giving to the

woman in the event of accidental death of her husband and to support her minor

children in the event of her death, and

(2) The Unimicro Health Scheme, giving personal accident and hospitalization

covers besides

cover for damage to dwelling due to fire and allied perils.

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Imsu Csc Micro