Sa-Dhan Newsletter Volume 4 Issue 2

Community Based Organisations

quality, timeliness and accuracy. The MIS used in the

The morning session starts and the panelist were Titus (as

organization should be informative and efficient to analyze

facilitator), Arunachalam, Tankha, Jain, Prakash and Reddy.

and know the bad and good borrowers. He also said that

The session was very participatory. Titus drew attention to the

there we general assums that SHGs and their federated

Sa-Dhan website, which he said hosted valuable information,

structure use peer pressure as an important tool to ensure a

pertaining to the policy level matters in micro-finance. Tankha

good repayment rate. However, it was found that peer pressure

praised the Swashakti Project, and reiterated the importance

did not work for larger loans. The clusters and federations

of good quality groups, which are the pillars on which

are sustainable as long as the groups are strong and viable.

clusters rest. Jain too dwelt on the need to make groups

homogenous by for instance, arranging for common facilities

The need to develop a low cost methodology was further

like a book-keeper whose services could be shared by groups

emphasized. The methodology developed should suit the

in a cluster.

requirements of the clients and make them accountable at the

same time. The methodology can gain acceptance among the

Arunachalam warned that there was no one way of selecting

clients by making it responsive to their needs, keeping it at

the number of tiers required for the formation of the federation.

low cost and by employing local people as field workers. The

He considered competition among the service providers

methodology should ensure performance incentives to the

beneficial, contrary to the views of some other panel members

staff. It should also ensure internal monitoring and generation

who thought that competition could lead to confusion and

of key information that help in assessing the performance of

indiscipline among the groups. For Prakash, regular meetings

the federation.

and monitoring were both necessary for forming good clusters.

Finally Reddy pointed out that it was important that promoting

He compared delinquency to a hidden beast. The key learning

agencies leave the running of the clusters to SHG members.

that emerged from the discussion was that the growth of

"This will help in generating interest among the members of

portfolio without an increase in administrative capacity to

the clusters," he said.

manage that growth would lead to delinquency.

DETERMINANTS OF FINANCIAL SUSTAINABILITY

Delinquency can be managed better by instituting proper

FOR FEDERATIONS: A PRAGMATIC CONCEPTUAL

methodology and effective information systems. A process of

FRAMEWORK

effective social intermediation can reduce delinquency. The

biggest asset held by any micro-finance organization or a

Post-lunch the session began with Arunachalam presentation

federation body is its outstanding loans. The federation can

on "Determinants of Financial Sustainability for Federations: A

keep checking delinquency (target to keep the PAR<5%) by

Pragmatic Conceptual Framework" drawing from his field

diversifying the loan portfolio. Federations should maintain a

experiences to talk about 'building financially sustainable SHG

Delinquency Early Warning System (DEWS), which necessitates

networks'. He began by defining financial sustainability. He

strong internal monitoring systems.

said, the Sa-Dhan Federation study on federation defines

financial sustainability as "All Costs (operational +loan loss

A good part of the afternoon was spent in discussing the

provision + financial) plus adjustments for subsidies on

legal aspects. Arunachalam presented a comparative analysis

borrowings, unreported and hidden subsidies, in-kind grants,

of the different legal frameworks of federations in the country.

grants for operational deficits, loan loss provision as per

Broadly these were divided in three categories of non-profit,

portfolio quality, opportunity cost of equity capital and the

for-profit and mutual-benefit organizations. He further

like". In other words, if the subsidies are withdrawn, the

elaborated on their legal aspects and constraints faced by

profits will not be able to cover the subsidies and hence, the

non-profit federations. Participants from different states were

federation will have to stop functioning.

divided into 4 groups that were made to present their views

on four topics related to the sustainability of federations. The

The challenge is to meet the costs in case the subsidies are

presentations on indicators of sustainability, role of clusters,

withdrawn. He claimed that subsidies are not bad but

year-long plan for cluster-level associations and sustainable

dependency on subsidies is bad.

source of finance were excellent.

Federations should identify the factors that result in

Tankha praised the enthusiasm of all the participants attending

sustainability and also try to overcome those that hinder

the workshop, and the organizers for the excellent job done.

sustainability. The goal of micro-finance institutions should

Sulochana Vasudevan thanked the speakers and resource

be to achieve financial sustainability. Therefore, tracking

persons. Achla Savyasaachi of Sa-Dhan said the workshop

portfolio quality was perhaps the most important requirement

had been a learning experience for everybody. With this, the

of federations even when overdues were recorded. The

workshop ended.

federations should keep the loan loss provision in accordance

with the portfolio quality.

He cautioned that federations should maintain appropriate

records and MIS to overcome the limitations with respect to

17