CST

Micro Credit

Business Plan 2008 - 2013

Contents

Contents

Glossary

Executive summary......

1Introduction

1.1Poverty in India

1.2CST

1.3Salem and Namakkal

1.4Poor female population

2Micro Credit Project

2.1Project Purpose

2.2Micro credit objectives

2.3Micro Credit Project

2.4Additional Micro credit product

2.5Development of other micro credit products

3Legal structure & Management

3.1Proposed MFI structure

3.2Operational structure of the MFI

3.3Implementation of the federations structure

4Management and Operations

4.1Project Management

4.2Micro credit Operations

4.3Project organisation structure

5Financing

5.1Financing history

5.2Financing the MCP/MFI

5.3Towards sustainability

5.4Risk monitoring

6Financial needs

7Summary

1

Glossary

Abbreviation / Full description
BCO / Block Coordinator
BLCC / Block Level Coordination Committee
CBO / Community Based Organisation based on federation structure
CDR / Credit Deposit Ratio
CRP / Community Resource Person
CST / Community Services Trust
DCB / Demand Collection Balance
DCO / District Coordinator
FIS / Financial Information System
FS / Field Supervisor
HDFC / Indian Bank, originally Housing Development Finance Corporation
HRD / Human Resources Development
INR / Indian Rupees, used interchangeably with Rs.
IR / Foundation IndianRose
MBT / Mutual Benefit Trust
MCP / Micro Credit Project
Member entrepreneurs / Women clients from SHGs under the micro credit project
MET / Member Entrepreneurship Training
MFI / Micro Finance Institution
MIS / Management Information System
NGO / Non-Governmental Organisation
PAR / Portfolio At Risk
PCO / Projects Coordinator
RB / Rabobank Foundation
RBI / Reserve Bank of India
Rs. / Indian Rupees, used interchangeably with INR
Section 25 / Limited liability company under Companies Act 1956 with non profit status when not promoting commerce
SHG / Self Help Group
TNSDW / Tamil Nadu Corporation for Development of Women
TOT / Training of Trainers

1

Executive summary

This Micro credit business plan of CST presents the business plan for the period start from Apr, 2008 to March 2012. This business plan presents the growth path of the micro credit project and describes the plan to meet both the development and commercial objectives.

CST developed two types of micro finance services. The first one is the supply of micro credit and training for income generating purposes. CST uses own managed rotational credit capital and supplies entrepreneurship training. This service aims to promote entrepreneurship and sustainable economic development in its working area. The Rabobank Foundation, Foundation Indian Rose and ICCO (Impulsis) are supporting this initiative. The second type of service is the multi-purpose SHG group credit to promote financial access to the poor. This service is supported by the HDFC bank.

In the last three years, the micro credit project developed and grew from 1,000 clients to 11,500 clients. The growth and development is ambitious for the coming years with about 43,500 clients at the end of year 2012.

Clients and credit / Mar-08 / Mar-09 / Mar-10 / Mar-11 / Mar-12 / Mar-13
# of micro credit clients / 4,000 / 8,290 / 14,585 / 18,255 / 23,639 / 29,522
# HDFC clients / 7,557 / 7,933 / 9,600 / 12,400 / 19,861 / 22,050
Total clients / 11,557 / 16,224 / 24,185 / 30,655 / 43,500 / 51,572

The growth plan is presented in the table below

In 2008, CST plans to turn the micro credit project into an independent micro financial institution (MFI). The MFI will be a Section 25 company that is owned by women federations. The Section 25 Company allows micro credit activities, including client saving. Moreover, the federation structure promotes community management and social development management. It is expected to become a sustainable MFI by 2012.

Sustainability can only be reached by attraction of sufficient equity, access to credit, and coverage of operational expenses until break-even. Operating sustainability will be reached in the year 2012 projecting an Operational Self Sustainability (OSS) ratio of 105 % in 2012 and beyond in the coming years. Earnings on equity and retained earnings will be invested in training, growth and expansion.

The financial needs are presented in the table below.

€ / 2008-09 / 2009-10 / 2010-11 / 2011-12
Capital for Rotational lending / 377,778 / 496,296 / 633,333 / 1,108,148
HDFC SHG Credit Capital / 881,481 / 1,244,444 / 1,607,407 / 2,758,519
Donated Equity / 53,505 / 40,123 / 55,377 / 48,473
Member Equity / - / 18,519 / 18,519 / 18,519
Donation to cover Operational Cost / 84,899 / 52,536 / 15,626 / -
Member entrepreneurship training / 60,087 / 89,575 / 113,538 / 161,112

1Introduction

1.1Poverty in India

In India, 40% of the population lives below the poverty line. Poverty especially affects women in the Indian socio-cultural context. In general women earn less then men, and in addition women are responsible for the household and for childcare. Moreover, widows are neglected and often fall out of the community.

Experience shows that many poor people who have access to savings, credit, insurance and other financial services graduate out of poverty. CST therefore developed the plan to further develop the community and combat poverty among the urban and rural poor women in the Salem & Namakkal districts with a micro credit project.

This business plan discusses CST’s micro credit project and explains CST’s ambitions.

1.2CST

Community Services Trust (CST) Salem is an independent and secular NGO, registered under the Indian Trust Act of 1882 with Registration number 354/ 90 on 30th July 1990. CST was registered under section 12 A (a) of Indian Income Tax Act of 1961; Registration number: C.No: 1419 (147) / 99 – 2000 and got the Permanent Account Number (PAN): AAA TT 6892M.

CST aims to help and empower the poorest of the poor, neglected, uncared tribal and rural slum populations in the Salem and Namakkal districts in Tamil Nadu, India. CST initiates various projects to realize community development women empowerment, social and economic development.

Within almost 15 years, CST has grown to a prominent and reputed organisation. CST is well positioned to effectively bring micro finance services to the poor women in Salem & Namakkal:

  • Since 1995, CST has been developingSocial Action Groups and Self Help Groups to empower, develop and self-employ poor and neglected women
  • Since 1997 CST has been participating in the state wide women project of the TNCDW.
  • Under the SHG scheme, CST provides training, women and social empowerment programs, and counselling. In addition, CST promotes saving schemes, internal lending, life insurance and linkages to Indian banks.
  • CST has so far empowered 56,056 women with use of SHGs
  • CST started to develop and implement a micro credit project to meet financial empowerment. A pilot project started in 2004, which is currently growing to a mature and sustainable micro finance organisation. In 2007, about 10,000 women clients were served
  • CST is in the process of setting up of a MFI that would become sustainable MFI in 2012.

1.2.1Governing board

CST has an executive committee / Governing council to monitor and supervise the projects and the Board meets once in each three months. This committee is registered under government law and consists of nine members.

  1. President: Mrs. Caroline Edmunds a social work professional from Thiruppur engaged in entrepreneurial development programmes for parents of child labourers.
  2. Secretary Mr. Asokan, (Arthanari) a human rights activist and a leading lawyer from Salem.
  3. Treasurer Mr. S. Devanesan (Swamy Dasan), a tribal social worker from Arunuthu Hills in Salem.
  4. E.C.Member: Dr. J. Paranjothi Ramalingam, professor and head of the department of Social Work (Sri Ramakrishna Missions College of Social Sciences) Coimbatore.
  5. E.C. Member: Dr (Mrs) T. Jothimani, professor and head of the department of Social Work (PSG College of Social Work) Coimbatore.
  6. E.C. Member: Mrs. Uma Kulkarni (Suresh). A women activist social worker specialized in gender and women studies from Bangalore.
  7. E.C. Member: Mrs. C. Thavamani, a grass root social worker from Omalur, Salem.
  8. E.C. Member: Mrs. J. Parameswari, a CBO Leader and federation activist from Namakkal.
  9. Managing Trustee & Chief Functionary: Mr. G.George, a development consultant and a grass root social worker from Salem, presently the honorary Director of
    CST.

For each project a subcommittee exists to monitor and control the program and meets once in two months. These committees are formed by local leaders, officials, representatives, teachers, parents and professionals. In each committee, one representatives of CST is present. This committee monitors the progress of the program, identifies problems, and finds solutions for them and to report to CST.

1.3Salem and Namakkal

The Micro Credit Project (MCP) is being implemented in the Salem and Namakkal districts in Tamil Nadu in the South of India covering a population of 1.4 million women spread in 6 blocks in Salem and 5 blocks in Namakkal. CST focuses on the poorest and tribal communities.

The geography and living conditions in Salem and Namakkal are diverse. Salem is known as an industrial town with iron and manganese mining industry. This brings poor working conditions and low salaries. The city of Salem is well-known in Tamil Nadu for its prostitution, putting many women in a disadvantaged position. The Namakkal district is more rural, including tribal areas.

1.4Poor female population

The target group for CST’s MCP are the poor female population. To effectively promote women social and economic empowerment, women are organised in groups and facilitated with training, awareness and activity programs. These groups are called Self Help Groups

(SHGs) and consist of 12 to 20 members. In addition to social empowerment, the women also need for economic empowerment and self-employment. That is why CST has developed and promoted savings schemes, internal lending schemes and bank linkages.

The members of Self Help Groups are economically homogeneous, consisting of rural/urban poor, and are voluntarily formed for social and economic uplift of their families and community.

At this moment 56,056 women are organised in Self Help Groups of which:

  • 60 % are located in the rural area, where many women work as agricultural (seasonal) workers on the field
  • 30 % are living in the urban area, mainly in the cities Salem and Namakkal. Many of these women lack decent employment opportunities
  • 10 % are living in the underdeveloped hilly areas and belong to the scheduled tribes.

2Micro Credit Project

2.1Project Purpose

  • The micro credit project aims for welfare creation and economical empowerment of poor female population in the target area through supplying micro credit for income generating purposes using rotational lending.
  • Asset creation to the poor women, Income generation and resulted betterment in the standard of life of the target group.
  • Also MCP aims for meeting the credit needs for consumption use like education fees, healthcare, housing improvement etc.

The micro credit project is most important for CST, since it promotes true development and economic empowerment. This current micro credit project will be transformed to a MFI soon to foster sustainability and independence. The MFI that will be managed by the women community will bring more development and empowerment to the region.

2.2Micro credit objectives

CST is the pioneer NGO in Salem and Namakkal districts promoting sustainable livelihoods for the poorest of the poor by promoting SHGs and through micro credit. With the micro credit project CST aims to

“Contribute to welfare creation, community development and women empowerment by supplying (increasing amounts of) micro credit and related training & consultancy services to poor and low income women from Self Help Groups that is used for income generation purposes”.

  • With the Micro Credit Project, CST aims for welfare creation by supplying micro credit for income generation and asset creation
  • MCP should address all the credit needs of the poor female population resulting in improvement in their living conditions.

The outcome indicators are:

  • Improved income status
  • Increase in income generating assets
  • Increase in net worth of individuals
  • Employment and Entrepreneurial opportunities created
  • Improvement in thrift and credit practices
  • People based MFI established and sustained

2.3Micro Credit Project

CST has taken a holistic approach in the micro credit project to achieve welfare creation, community development and economic empowerment. Specific activities along the micro credit process are developed to support the clients in their entrepreneurial activities. The micro credit project distinguishes four services:

  1. Micro credit services
  2. Member Entrepreneurship Training
  3. Business planning
  4. Marketing and & Consulting Services

These services are explained in separate sessions.

2.3.1Micro credit services

Micro credit is provided to those women members in who are capable enough and have an entrepreneurial spirit. For that, SHGs and women who applied for the micro credit are selected according to objective criteria. This process is further explained in the next section.

Currently CST offers only one credit product to its members. With an expanding client base CST is planning to offer different financial products based on the clients needs.

Feature / Details
Amount per loan / Rs. 3100 - 5000
Interest rate / 12 % flat
Repayment period / 1 year
Loan instalments / 50 weeks
Start of repayment / 2 weeks after loan disbursement
Pre requisite for loan / In according to CST’s micro credit procedure, incl. Grading, member entrepreneurship training (MET) and appraised business plan
Security / SHG guarantee
Purpose / Income generation activities
Supplementary Credit / Rs. 5,000 – 10,000
(second cycle)

Table 21Micro credit product characteristics

Micro credit process

CST’s micro credit process follows seven steps. These seven steps support the project’s performance and are used as a means of control. The process is explained and graphically showed in the Figures 21 to Figure 23.

Figure 21
Selection of eligible loan applicant

Figure 22
Loan application and loan disbursement process

Figure 23
Loan collection and loan remittance process

Enterprise development

The loan is disbursed to those women that have followed CST’s application and approval procedure. This includes the appraisal of the women’s business plans. The potential women entrepreneurs submit their own business idea in a business plan. In case an area gets too homogenous, CST will promote other business ideas. For that, CST has identified some key economic activities. These activities are micro or little bigger allowing women to start up a business together. All business are capable of leveraging the income level of the family and will enable the women to overcome the poverty. The following list presents the potential livelihoods to be targeted in the next periods.

Enterprises / Target / Enterprises / Target
1 / Beauty parlour / 10 / 25 / Mini Hotel / 10
2 / Bangle sales / 100 / 26 / Painting / 10
3 / Betel leaf sales / 50 / 27 / Palmyra Leaves sales / 50
4 / Bricks making / 10 / 28 / Petty Shop / 50
5 / Cloth Sales / 60 / 29 / Photo sales / 50
6 / Coconut Sales / 100 / 30 / Plastic sales / 100
7 / Coconut By Product sales / 100 / 31 / Power Looms / 50
8 / Coffee Bar / 10 / 32 / Printing Works / 50
9 / Coir making / 50 / 33 / Rise Sales / 100
10 / Simple Electrical / 20 / 34 / Saree sales / 200
11 / Farming / 100 / 35 / Sheep rearing / 100
12 / Flour Sales / 100 / 36 / Silk weaving and sales / 100
13 / Flower sales / 100 / 37 / Soap making / 30
14 / Fruit sales / 100 / 38 / Sweets and snacks / 100
15 / Provisional stores / 10 / 39 / Tailoring / 300
16 / General Stores / 10 / 40 / Tea shop / 20
17 / Groceries shop / 10 / 41 / Threads Works / 50
18 / Hand looms / 100 / 42 / Toys sales / 100
19 / Hotel / 10 / 43 / Vegetable sales / 100
20 / Old Iron Sales / 20 / 44 / Wire Bag Making / 50
21 / Laundry / 50 / 45 / Wire sales / 50
22 / Simple Mechanics / 20 / 46 / Wood work / 10
23 / Masala powder sales / 100 / 47 / Wood Sales / 20
24 / Milk sales / 100 / 48 / Yarn business / 20
Total / 1340 / 1720

Table 22 Identified key economic activities to be developed in Tamil Nadu.

2.3.2Member Entrepreneurship Training

The training is a separate social activity of CST to develop business knowledge and entrepreneurial skills among the women clients.

The objective of the training is to “promote credit worthy and committed women entrepreneurs among the poorest of the poor by way of providing game-based and exercise-oriented business education”. Topics in the Member Entrepreneurship Training include:

1)Concept and scope of micro credit services

2)Best practices in Micro credit

3)Micro enterprises development

4)Good business plans for a micro enterprise

5)Do's and don’t's of micro credit services

The training modules were prepared by a team of experts and field level functionaries of CST who understands the needs and knowledge level of both the implementation staff and the community partners. Some broad topics were analyzed and the training curriculum was designed based on the felt need.

The training program is briefly presented in the text box below.

Figure 25 CST’s Member Entrepreneurship Training program.

The member-entrepreneur will pass the training after being assessed on

1. Feasible Business Plan

2. Business Knowledge

3. Experience

4. Marketing skills

5. Bargaining skills

6. Commitment shown during the training

7. Extend of Poverty

8. Ability to prepare Economical Family Budget

9. Attitude (Cooperation)

10. Credit worthy and belief in CST ideals

2.3.3Business planning

CST has introduced an intermediate appraisal to know the aptitude and attitude skills of the entrepreneur and upgrade their knowledge base by enabling them to prepare business plans of their own. This approach facilitates a commitment process among the borrower and makes her think about the loan money and the purpose for which it is given to her. Also, it allows the client in developing business plan and to think of the various threats and opportunities involved in the business and find a solution or alternatives to overcome the difficulties.

2.3.4Business development support

CST offers business development supports that involve:

  • Promote and encourage clients to take part in marketing exhibitions, trade fairs and crafts fairs.
  • Encourage and advise clients to link their enterprises to (market services) institutions and networks

CST encourages its clients to take part in the big trade fairs and marketing exhibitions, organized by the government agencies and private agencies. CST also mobilizes the micro credit clients to display and sell their products in specific trade fairs in the region. In addition, business promotional meetings were organized in many villages for the members of the micro credit project. These meetings were useful in promoting the businesses and petty trades of all micro entrepreneurs. Moreover, internal market potentials were identified and explored on behalf of the local clients to improve business.