Pages

Saturday, August 20, 2016

What are the real drivers of Micro-Credit? Why Micro-Credit is here to stay?

The focus of micro-credit for the bottom of the pyramid segment in rural areas is increasingly becoming an area of focus as development policy-makers work towards improving the lifestyles of rural poor. Previous research has had a keen focus on the impacts of financial services to business outcomes, leaving behind other equally vital aspects of development. In addition, very little of this research has focused on socio-economic and sustainability outcomes in rural areas.

It is clearly evident that the bottom of the pyramid (BOP) segment lack financial access which limits their abilities to invest and increase their income. Research done on access to financial services by the poor has shown that access to financial services by this segment can be an instrument towards poverty alleviation. This is because, access to financial services increases people’s choices which play an important role in empowering the poor. Micro-lending services allow poor people to move into a more proactive mode that enables them to get protection against risks ahead of time and opens up new opportunities. The benefits of micro-credit investments revolve around empowerment of the poor as it provides economic freedom and the ability to make choices.

At ABC-CS, we have carried out a study, using non-randomized controlled trials, to investigate and evaluate the impacts of access to financial services on income and poverty levels by those people in the BOP segment especially in the rural areas. Although our focus was on the impacts of financial access, we also investigated other aspects like prior business experience, gender and group investment impacts.

Our results have shown that access to micro-credit does not really lead to an increase in per capita after deducting costs especially operational ones. In reality, few of the ventures, if adjusted for costs, will show economic losses. We find considerable heterogeneity, with many groups earning negative returns to capital. This research compares per capita income, savings and other micro-credit outcomes between participants and non-participants using data from both the treatment and control groups.
However, digging a little deeper, the comparative analysis comes with the challenge of selection bias. We have realised, it is easy to control selection biases at household level but very difficult to address biases stemming from market access and purchasing power of the community at large, where these ventures seek to market their produce.

This problem can be solved, by following a feeder chain principle, in terms of selection of ventures. Micro-entrepreneurs, should be encouraged, to explore possibilities of backward/forward linkages with other existing ventures – to feed on, or to feed another group. While, we channelize the marketing linkages, we are also enhancing the purchasing power of the immediate customer/user of produce for every micro-venture, with majority of micro-ventures aligning in a value-chain. However, this will lead to concentration of risk, which can be addressed, by selection of focus areas, where market access and tie-ups can be put in place by the Micro-lending Institution.

We see Market Access, Purchasing Power of Community and Feeder Chain as our driving principles for extending Micro-Credit. We wish to develop our micro-lending ethos, in a structured manner, taking into consideration the aforementioned areas.
High interest rates and exclusive approaches and conditions effectively preclude the rural poor from accessing credit to improve on their housing, water, sanitation, infrastructure, waste management and livelihoods. We have set out to support socio-economic activities through financially empowering the poor from the community, in an attempt to alleviate poverty and improve people’s living standards. The objective of providing financial services to the poor is to empower the poor, support small businesses, improve micro-credit institutional performance, and to support rural sustainability.

Our approach of lower interest rates, coupled with repayment linked incentives; working with Market Players toprovide market access and improving the purchasing power of the next immediate user will present an unique opportunity – Controlled Markets: The first in the chain will need limited access to capital for fuelling his/her venture, while the last user in the chain will be mature enough to cater to open market.
It is our responsibility to engage judiciously, while at it, we see significant opportunity in the large unbanked bottom-of-the-pyramid space, which creates a lot of space for growth for micro-credit. We see Micro-Credit, to be in a sweet spot with better growth prospects, considering this segment is better placed in terms of distributing credit and do not have the overhang of bad assets compared with the private as well as public sector banks.

- Abhijith Jayanthi CEO @ ABC-CS

Saturday, May 14, 2016

ABC-CS: Humble Beginning


Re-inventing our Glorious Legacy, Preserving our Culture and Igniting the Intellect within


Contributing and giving back to the societies which we are privileged to be part of, is an integral part of every Brahmin household’s ethos. This complements the role that we play at work, every day, as the intellect behind actions, as an enabler of things amongst others.
Brahmins, in Andhra Pradesh and beyond, as we all know have an extraordinarily rich and varied cultural heritage. Over the last few months, it has been our aspiration to create an institution, to play a role in nurturing, preserving and promoting needy men and women from the Brahmin Community in Andhra Pradesh. And we have been extremely fortunate to have had been given this opportunity by Chief Minister, Government of Andhra Pradesh Sri. N. Chandrababu Naidu Garu, to engage with the community, partner with selfless torch-bearers and world class institutions for greater good of the community.
Our journey began on October 31, 2015, when Andhra Pradesh Brahmin Co-operative Credit Society Limited was registered as a Government of Andhra Pradesh Undertaking to offer credit and saving options to Brahmins from within the State of Andhra Pradesh and beyond. Our engagement with the community, had a humble beginning, with a membership of 1800+ members, and growing with every passing day.
 On March 8, 2016, we initiated the Sthree Shakti Groups Micro-credit Programme, through which multiple JLGs will be extended micro-credit, as an enabler of micro-entrepreneurs, Small Scale Self-Help Groups. We are in the process of rolling out schemes to support youth from within the community, to encourage entrepreneurship and up-skilling.
We have started our retail-credit operations, and are now accepting applications to open saving accounts with us.
As our engagement with the community continues to deepen and evolve, we are extremely excited to be playing a small role. We hope that you too are able to join us in this journey. If you have any ideas or suggestions, please do feel free to let us know.
- Abhijith Jayanthi, CEO @ ABC-CS