Final Rohan

DISSERTATION
REPORT SUBMITTED TOWARDS THE PARTIAL

FULFILLMENT OF POST GRADUATE DEGREE IN
INTERNATIONAL BUSINESS
“To study the Scope of Information Technology
And Microfinance in enhancing the
Pace of Rural Development”
SUBMITTED BY:
Name: _Rohan Trikha
MBA-IB (2008-2010)
Enrollment No. : A1802008653
FACULTY GUIDE
Ms. Richa Goel
Professor AIBS
AMITY INTERNATIONAL BUSINESS SCHOOL,

NOIDA
AMITY UNIVERSITY – UTTAR PRADESH
Amity International Business School 1

Acknowledgement
No task can be completed without proper guidance and

encouragement. It gives me a great pleasure to express my deep
sense of gratitude and reverence to every person who created a
congenial atmosphere for successful completion of this research.
I would like to express my high regards, my sincere gratitude
to my faculty mentor Ms. Richa Goel for her able guidance,
continuous support and cooperation throughout my project, without
which the present work would not have been possible.
Signature
(Student)

CERTIFICATE OF ORIGIN
This is to certify that Rohan Trikha, student of MBA-IB 2008-10, AMITY

INTERNATIONAL BUSINESS SCHOOL, NOIDA, has submitted this
DISSERTATION titled: “Scope of Information Technology And
Microfinance in enhancing the Pace of Rural Development”. This is the
original work done under my guidance, towards the partial fulfillment of
POST GRADUATE DEGREE IN INTERNATIONAL BUSINESS. This
work has not been published or shared with any educational institutions or
university, for any consideration.
I gladly accept the work done and recommend the same.
Signature Signature
(Faculty Guide) (Student)
MS. Richa Goel
TABLE OF CONTENTS

Chapters Page No 1.
Executive Summary………………………………………………. 8
2. Introduction................................................................. 11
2.1 Micro-Finance…………………………………………………………. 14
2.1.1 Definition of Micro Finance ………………………….. 12
2.1.2 Demand of Micro Finance Services In India……. 12
2.1.3 Demands for Credit……………………………………… 14
2.1.4 Mainstream Micro Finance Institutions………….. 17
2.1.5 Alternative Micro Finance Institutions…………… 17
2.1.6 The Problems Associated with Micro- finance…. 17
2.2 Information Technology………………………………………….. 19
2.2.1 Role of ICT in Rural Development…………………. 19
2.2.2 Information Technology - Need of the Hour Rural
Development……………………………………………... 20
3. Research Methodology…………………………………………… 23
3.1 Primary Objectives………………………………………………… 24
• Studying the linkage between self help Groups and
Micro-finance in India.
• Analyzing the Mobile telephony in economic
development.
• Analyzing is increased connectivity in India an Impact
of Information and communication technology development.
• Role of IT in the Growth of GDP of India.
3.2 Secondary Objective………………………………………………… 24
Analysis of Indian Rural Industry, study the impact of
Information technology and Micro-finance and recommend
measures to for future growth.
3.3 Hypothesis……………………………………………………………. 24
3.3.1 IT is enhancing the pace to learning and reducing
the Illiteracy
3.3.2 IT is increasing connectivity all across India
3.3.3 Role of IT in the Growth of GDP of India
3.3.4 Mobile Telephony is leading to economic development.
3.4 Research Design……………………………………………………. 24
3.5 Limitation…………………………………………………………….. 25
3.6 Data Collection………………………………………………………. 25
3.6.1 Secondary data………………………………………….. 25
4. Critical Review of Literature…………………………………….. 26

4.1 Microfinance In India – Issues and challenges……………. 27
(By – Y.S.P.Thorat)
4.2 Can Micro – Finance Empower Women........................... 29
(By – Ranjula Bali Swain)
4.3 Information technology and rural development in India.. 31
(By – Nirvikar Singh)
4.4 The Role of Microfinance in Rural Micro-enterprise
Development………………………………………………………………… 33

(By – Prof. Dr. Hans Seibel)
4.5 Information Technology - Need of the Hour Rural Development
(By – Prof. Manoj dayal)……………………………………….. 34
4.6 Micro Finance in India……………………………………………… 35
4.7 Role of Rural Organizations in Rural Development
(By – : Dr. Najamuddin)……………………………………….. 36
4.8 The Role of ICT in Governing Rural Development
(By – Anita Kelles-Viitanen)………………………………… 37
4.9 The Role Of Mobile Phones In Sustainable Rural Poverty
Reduction…………………………………………………………………… 38
(By – Asheeta Bhavnani)
4.10 ICT and e-Governance for Rural Development…………… 39
(By – Prof. T.P. Rama Rao)
4.11 Rural microfinance and employment………………………… 40
(By: Isabelle Guérin)
5. Sector Profile………………………………………………………… 41
5.1 Micro-Finance………………………………………………………… 42
5.1.1 Introduction………………………………………………… 42
5.1.2 The Evolution of the Micro-Finance Industry…… 45
5.1.3 Global Acceptance of Microfinance………………… 47
5.1.4 SHG - Bank Linkage Programme…………………… 51
5.1.5 Challenges associated with SHGs………………… 52
5.2 Information Technology………………………………………… 55
5.2.1 Introduction……………………………………………… 55
5.2.2 Emerging Trends in IT Industry…………………… 55
6. Growth Drivers……………………………………………………… 57
6.1 Credit Demand of the Poor……………………………………… 58
6.2 Poor can save ……………………………………………………… 58
6.3 Borrowing by SHG members…………………………………… 59
6.4 Government policy and support……………………………… 60
6.5 Institutional credit and poverty……………………………… 60
7. Major Micro Finance Instruments and Products………… 62

7.1 The core product types................................................... 63
7.1.1 Group lending.................................................... 63
7.1.2 Individual lending .............................……………. 69
7.1.3 A conceptual framework for microcredit
Methodologies…………………………………………… 70
7.2 Aspects of product design............................................. 74
7.2.1 Credit versus voluntary savings........................ 75
7.2.2 Dynamic incentives........................................... 77
7.2.3 Lending to women............................................. 79
7.2.4 Frequent transactions and short loan terms..... 80
7.2.5 Matching rates to costs..................................... 81
7.2.6 Limited product offerings and streamlined
Procedures……………………………………………….. 82
7.2.7 Forced savings.................................................. 83
7.2.8 Credit life insurance.......................................... 84

8. Policies & Regulatory framework…………………………… 86
8.1 Relating to Micro Finance……………………………………… 87
8.1.1 Policy Framework for Micro finance system …. 87
(a) Self Regulation and Market Discipline……. 87
(b) Regulation through External Bodies………. 90
8.1.2 Micro-Finance Institutional Structure in India.. 92
(a) Mainstream Micro Finance Institutions…… 93
(b) Alternative Micro Finance Institutions……. 93
8.1.3 Key Focus Areas of Micro Finance Initiatives…. 94
8.1.4 Global Targets of Micro Finance ………………….. 94
8.1.5 Micro-finance Programmes…………………………. 96
8.2 Relating to Information technology............................ 100

8.2.1 Framework implementing IT in Rural
Development……………………………………………. 100
8.2.2 Rural Development programmes ………………… 108
9. Key Players………………………………………………………… 137

9.1 Government of India …………………………………………… 138
9.1.1 Protector and Provider Roles…………………….. 139
9.1.2 Promotional Role……………………………………… 141
9.2 Department of Information Technology…………………. 142
9.2.1 Vision……………………………………………………… 142
9.2.2 Mission…………………………………………………… 142
9.2.3 Objectives………………………………………………. 143
9.2.4 Functions………………………………………………… 143
10. Findings & Analysis…………………………………………… 145
11. Recommendations, Suggestions and conclusion..…. 155

11.1 Recommendations………………………………….. 156
11.2 Suggestions…………………………………………… 159
11.3 Conclusion…………………………………………….. 160
12. Case studies............................................................ 161

Case studies 1: Spread of the Self-Help Groups Banking
Linkage programme in India……………… 162
Case studies 2 Micro finance The new mantra of rural
Finance to reduce poverty …………………. 164
Case studies 3 Akshaya –An IT dissemination Project…..
Case studies 4 Kaveri an E-Governance Project…………… 168
Case studies 5 Implementation of e-Procurement
Exchange for Government of Andhra
Pradesh……………………………………………. 173
Case studies 6 Nagarpalika in Gujarat……………………...... 178
Case studies 7 E-Agricultural Marketing (“EKVI”)………… 180
Case studies 8 Lokvani-An effort to empower citizens….. 184
Case studies 9 e-Kosh- Computerization of the Treasury

Department……………………………………….. 186
13. References and Bibliography……………………………. 189

13.1 Websites………………………………………………………… 190
13.2 Reports………………………………………………………….. 190
13.3 Research papers……………………………………………… 191
13.4 E- Articles………………………………………………………. 191
13.5 Case studies…………………………………………………… 192

Chapter 1
Executive Summary
Executive Summary

The Following is about the study conducted on “the Scope of Information
technology and Micro finance in enhancing the pace of Rural Development”.
India has been a welfare state ever since her Independence and the primary
objective of all governmental endeavors has been the welfare of its millions.
The policies and programmes have been designed with the aim of alleviation
of rural poverty which has been one of the primary objectives of planned
development in India. It was realized that a sustainable strategy of poverty
alleviation has to be based on increasing the productive employment
opportunities in the process of growth itself. Elimination of poverty,
ignorance, diseases and inequality of opportunities and providing a better and
higher quality of life were the basic premises upon which all the plans and
blue-prints of development were built.
Rural development implies both the economic betterment of people as well
as greater social transformation. In order to provide the rural people with
better prospects for economic development, increased participation of people
in the rural development programmes, decentralization of planning, better
enforcement of land reforms and greater access to credit are envisaged.
So this study is regarding the role played by the Information technology in
rural development. Information and knowledge is essential for the
development and growth of any economy. In spreading the knowledge and
Information, IT plays a major role. IT in the present scenario is has the
following role.
• Online- Education: Various E-learning initiatives are providing
education to a large number of populations.
• Increasing the connectivity with in and across the country
• Making different sector more efficient and productive
• Globalization

• Increasing Awareness
• Raising the Standard of living
• Health care
Micro Finance can be 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. Micro Finance help in rural development in the
following ways
• Creating entrepreneurship
• Mobilizing the savings
• Employment generation
• Poverty Alleviation
So, Information Technology and Micro finance are playing very significant
role in enhancing the pace of rural development.

Chapter – 2
Introduction
Introduction

Mahatma Gandhi famously noted that India lives in its villages. If the village
perishes, India will perish too. This truism about the social, economic and
political development of rural areas is valid even today. Since a majority of
our population lives in the villages, it is important that people in rural areas
should have the same quality of life as is enjoyed by people living in
suburban and urban areas for the balanced growth of the nation. Further there
are cascading affects of poverty, unemployment, poor and inadequate
infrastructure in rural areas and urban centers causing slums and
consequential social and economic tensions being manifested in economic
deprivation and urban poverty. This causes major imbalances in the society,
thus hampering development. Hence rural development, which is concerned
with economic growth and social justice, improvement in the living standard
of the rural people by providing adequate and quality social services and
minimum basic needs, becomes essential.
In this regard, central government’s policies and programs have laid
emphasis not only on poverty alleviation, generation of employment and
income opportunities but also provision of infrastructure and basic facilities
to meet the needs of the rural poor. For realizing these objectives, self-
employment and wage employment programs continued to pervade in one
form or the other.
As a measure to strengthen the grassroots level democracy, the government
is constantly endeavoring to empower Panchayati Raj Institutions or PRIs in
terms of functions, powers and finance. Gram Sabhas, NGOs, Self-Help
Groups and PRIs have been accorded adequate role to make participatory
democracy meaningful and effective. Needless to stress further that since 70
percent population of the country lives in the rural areas, lot of effort are
required to encourage the development of these areas in order to reduce

imbalances in the overall development of the country. Although rural
development is given a high priority in all government proposals, the
progress made is extremely slow and unsatisfactory. In this paper an effort
has been made to understand the process of functioning of rural
organizations in implementation of government proposals and emphasize on
the role played by them in the success of these programs.
The study has brought forward a number of lacunae in the system, which
have been carefully examined and suggestions have been made to overcome
the same.
2.1 MICRO-FINANCE

2.1.1 DEFINITION OF MICRO FINANCE
Micro-finance refers to small savings, credit and insurance services extended
to socially and economically disadvantaged segments of society. 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. The recent Task Force on Micro Finance has defined it as
"provision 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". At present, a
large part of micro finance activity is confined to credit only. Women
constitute a vast majority of users of micro-credit and savings services.
2.1.2 DEMAND OF MICRO FINANCE SERVICES IN INDIA
Due to its large size and population of around 1000 million, India's GDP
ranks among the top 15 economies of the world. However, around 300
million people or about 60 million households, are living below the poverty
line. It is further estimated that of these households, only about 20 percent
have access to credit from the formal sector. Additionally, the segment of the
rural population above the poverty line but not rich enough to be of interest
to the formal financial institutions also does not have good access to the
formal financial intermediary services, including savings services.
A group of micro-finance practitioners estimated the annualized credit usage
of all poor families (rural and urban) at over Rs 45,000 crores, of which
some 80 percent is met by informal sources. This figure has been
extrapolated using the numbers of rural and urban poor households and their
average annual credit usage (Rs 6000 and Rs 9000 pa respectively) assessed
through various micro studies.

Credit on reasonable terms to the poor can bring about a significant reduction
in poverty. It is with this hypothesis; micro credit assumes significance in the
Indian context. With about 60 million households below or just above the
austerely defined poverty line and with more than 80 percent unable to
access credit at reasonable rates, it is obvious that there are certain issues and
problems, which have prevented the reach of micro finance to the needy.
With globalization and liberalization of the economy, opportunities for the
unskilled and the illiterate are not increasing fast enough, as compared to the
rest of the economy. This is leading to a lopsided growth in the economy
thus increasing the gap between the haves and have-nots. It is in this context,
the institutions involved in micro finance have a significant role to play to
reduce this disparity and lead to more equitable growth.
2.1.3 DEMAND FOR CREDIT
In terms of demand for micro-credit, there are three segments:
At the very bottom in terms of income and assets, and most numerous, are
those who are landless and are engaged in agricultural work on a seasonal
basis, and manual labourers in forestry, mining, household industries,
construction and transport. This segment requires, first and foremost,
consumption credit during those months when they do not get labour 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. In rural areas, one of the main uses of

working capital is for crop production. 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. This market
segment also largely comprises the poor but not the poorest.
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, this segment 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.
One market segment, which is of great importance to micro-credit is women.
The 1991 Census figures reveal that out of total 2.81 million marginal
workers, 2.54 million were women and their further break-up shows that out
of a total of 2.67 million rural marginal workers, 2.44 million were females.
Further, many more women were willing to work. This has been
corroborated by the results of a survey done by the National Sample Survey
Organization (NSSO), 43rd round, which has revealed that there is a vide
variety of work which rural women combine with household work.
In the NSSO survey it has also been estimated that a large percentage of rural
women in the age group of 15 years and above, who are usually engaged in
household work, are willing to accept work at household premises (29.3
percent), in activities such as dairy (9.5 percent), poultry (3 percent), cattle
rearing, spinning and weaving (3.4 percent), tailoring (6.1 percent) and
manufacturing of wood and cane products etc. Amongst the women

surveyed, 27.5 percent rural women were seeking regular full-time work, and
65.3 percent were seeking part-time work. To start or to carry on such work,
53.6 percent women wanted initial finance on easy terms, and 22.2 percent
wanted working capital facilities, as can be seen from the table below:
Source: http://www.basixindia.com/ (Table no. 1)
2.1.4 MAINSTREAM MICRO FINANCE INSTITUTIONS

• National Agricultural Bank for Rural Development (NABARD),
• Small Industries Development Bank of India (SIDBI),
• Housing Development Finance Corporation (HDFC),
• Commercial Banks, Regional Rural Banks (RRBs),

The credit co-operative societies etc are some of the mainstream financial
institutions involved in extending micro finance.
2.1.5 ALTERNATIVE MICRO FINANCE INSTITUTIONS
• NGOs, which are mainly engaged in promoting self-help groups
(SHGs) and their federations at a cluster level, and linking SHGs with
banks, under the NABARD scheme.
• NGOs directly lending to borrowers, who are either organized into
SHGs or into Grameen Bank style groups and centres. These NGOs
borrow bulk funds from RMK, SIDBI, FWWB and various donors.
• MFIs which are specifically organized as cooperatives, such as the
SEWA Bank and various Mutually Aided Cooperative Thrift and
Credit Societies (MACTS) in AP.
• MFIs, which are organised as non-banking finance companies, such as
BASIX, CFTS, Mirzapur and SHARE Microfin Ltd.
2.1.6 THE PROBLEMS ASSOCIATED WITH MICRO-FINANCE
• Borrower Unfriendly Products and Procedures
With a majority of the customers being illiterate, and a majority of
them needing consumption loans and a majority of them requiring
high documentation and collateral security, the products are not
reaching the rural poor.
• Inflexibility and Delay
The rigid systems and procedures result in lot of time delay for the
borrowers and de-motivate them to take further loans.
• High Transaction Costs, both Legitimate and Illegal
Although the interest rate offered to the borrowers is regulated, the
transaction costs in terms of the number of trips to be made, the

documents to be furnished etc. plus the illegal charges to be paid,
result in increasing the cost of borrowing. Thus, making it less
attractive to the borrowers.
• Social Obligation and not a Business Opportunity
Micro-finance has historically been seen as a social obligation rather
than a potential business opportunity.
• Financing to Alternative MFIs
NABARD Act does not permit them to refinance any private sector FI
and do any direct financing (NABARD's direct lending to micro-
finance NGOs so far has been out of donor funds), similarly SIDBI
Act restricts it from extending loans to the agricultural and allied
sectors, whereas many of the members of the self help groups are
engaged in such activities.
• Legal and Regulatory Framework
• The policymakers feel that farmers and poor people need low
interest and subsidized credit. Thereby we have regulated interest
regime for the loans up to Rs 25,000 and Rs 2,00,000/- with an
interest cap of 12 percent and 13.5 percent respectively. They
believe that poor cannot save, they are unwilling to repay the loans,
and the administrative costs of servicing them are high.
• Also small loans have been used as a tool for disbursing political
patronage, undermining the norm that loans must be repaid. Thus
the mainstream institutions feel that these loans are risky, difficult
to serve and have a low or negative net spread.
• The Regional Rural Banks Act does not permit any private share
holding in any RRBs, and the Cooperative Act of all states do not

permit district level co-operative banks to be set up except by the
state government. The result of these two laws together is that rural
credit has been a monopoly of state owned institutions.
2.2 INFORMATION TECHNOLOGY
2.2.1 THE ROLE OF ICT IN RURAL DEVELOPMENT
There are many examples about the role of ICT in strengthening rural
livelihoods, providing market information and lowering transaction costs of
poor farmers and traders. One of them is the Grameen Bank. iGrameen Bank,
best known as a micro-credit institution, has also pioneered in ICT related
activities with the poor.
As poor people are often unaware of their rights, entitlements and the
availability of various government schemes and extension services, ICT can
also improve their access to the information they need. Through info kiosks
or with the help of mobile phones farmers can access information on market
prices or on extension services. Timing is often crucial when it comes to the
sale of produce. Workers can also get information on available jobs and
minimum wages.
In a tribal district in Madhya Pradesh, in India the most commonly used
services related to various grievances, market information and land records:
The ‘Gyandoot’ community network, aimed at creating a cost effective,
replicable, economically self-reliant model for taking benefits of Information
Technology to the rural population, is an intranet network using Wireless in
Local Loop (WLL) technology to set up in 5 blocks with 21 kiosks, each
catering to about 15-20 villages in tribal Dhar district in Madhya Pradesh.
The success is largely due to targeting the information interest of the people:
rates of agriculture produce, land record rights, computer training, caste
certificates, online public grievance re-dressal, health services, e-mail, rural

e-auction, matrimonial alliances, information on government programmes,
information for children, online employment exchange, availability of
applications for jobs, local weather report, e-newspapers etc. Between
January 2000 and June 200l, 68500 villagers used various services. The most
commonly used services were grievance re-dressals (41%), market rates
(25%), land-records (20%). Interestingly, one out every six users of the
network was illiterate with no knowledge of reading or writing. It is a
disappointment that only 13 % of users are women.
2.2.2 Information Technology - Need Of The Hour Rural Development
“Information Technology is today becoming as important as ‘roti’, kapra, aur
makan’(bread cloth and house)”. In 40s people used to believe in secrecy of
information. But in this new millennium, the concept is totally reserved.
Now we like to share the information .Information is thus emerging as more
and more power. Studies confirms that this field confidently predict that the
poverty line will no longer be measured in terms of money, but in terms of
information .This study examines the evolution of technology which is
responsible for wide spread penetration of computer technology in to the
social fabric.
Primarily the need of efficiency in complex organizations led to greater to
greater demand for availability of accurate and timely information.
Information technology responds to this challenge.
As rural development is concerned information technology has played a vital
role. The SITE of India are palpa experiment of Indonesia are glaring
examples of their rural upliftment. The SITE demonstrated the potential of
satellite system to give a geographically and socio-economically diversified
population, access to a wide range of information on agriculture, health
nutrition and education. On the other hand the Chennai experiment on

computer -aided agriculture extension system of M.S. Swaminathan research
foundation is an innovative approach designed to test the relevancy of NITs
under India conditions. In this experiment, the information shop, ”which is
located in the village, collects the localized agricultural information through
computerized networks and disseminated through electronic bulletin boards,
video cassets and radio to formers.
In addition computerization of rural information system projects (CRISP) in
Gujarat was launched by the govt of India to test the feasibility of
computerization of DRDA’s for an effective implementation of IRDP.a case
study conducted by Sshirin Mdon on CRISP showes that the introduction of
microcomputers resulted in more empowerments among rural
administrations. On the other hand ICAR has proposed a plan to modernize
its agricultural research information systems(aris) with the help of NITs. For
example, the VSATs, LAN,WAN are being installed and linked to its
research institutions At the same time Karnataka state agricultural Marketing
Board (KSAMB) has initiated activities to build a marketing information
system, ”AGRI MARET” by using INTERNET for providing domestic and
global market information and agricultural commodities to farmers.
On the other hand, Indian villages are facing numerous problems like poetry,
unemployment, illiteracy, health and nutrition which will effectively hamper
the penetration of NITs into villages. Hence, with the economic, social
political and cultural development in the villages the technologies like tele-
text and video text, microcomputers may be used for communication with
the farmers. Indian agriculture has drastically changed after liberalization,
globalization, marketization and privatization. The shift towards commercial
and export oriented agricultural demands information based approach to
agriculture communication. Undoubtedly, the NITs offer great scope for

collection and dissemination of agricultural and rural information. The
experiments conducted by various industrialized and developing countries
accumulated the rich experiences of information technology utilization in
agriculture. Enriched with the abilities of interaction, demassification and
asychronisation, these technologies opened up a new way to decentralized
development. By considering operational contextual and strategic problems,
there is a need to formulate a comprehensive strategic problems, there is a
need to formulate a comprehensive strategy to use these technology in
agriculture. This strategy must include the application of appropriate NITs at
international, national, state, block and village levels.

Chapter – 3
Research Methodology
Research Methodology
3.1 Primary Objective:

• Studying the linkage between self help Groups and Micro-finance in
India.
• Analyzing the Mobile telephony in economic development.

• Is development in ICT leading to reduction in Illiteracy.
• Analyzing increased connectivity in India as an Impact of Information
and communication technology development.
• Role of IT in the Growth of GDP of India.
3.2 Secondary Objective:

Analyzing the impact of Information technology and Micro-finance on the
Rural Development and recommend measures to for future growth.
3.3 Hypothesis
1. IT is enhancing the pace to learning and reducing the Illiteracy.
2. IT is increasing connectivity all across India.
3. Self help groups are propelling the growth of Micro-finance sector in
India.
4. Mobile Telephony is leading to economic development.
3.4 Research Design

Literature review
This may be an attempt to summarise or comment on what is already
known about a particular topic. By collecting different sources
together, synthesising and analysing critically, it essentially creates
new knowledge or perspectives. There are a number of different forms
a literature review might take.
3.5 Limitations
• The research has been done studying relationship between two factors
and keeping other things constant.

• The research conducted is completely based on secondary data,
therefore, the authenticity of analysis and result is based on the
authenticity of the secondary data.
• This Research is Based on the secondary data and the data is not
collect first hand for the purpose of this study.
3.6 Data Collection

3.6.1 Secondary Data
The secondary data are the data which have already been collected by
someone else and which have already been passed through the
statistical process.
In this project the secondary data has been collected from various
• Reports Published on the Internet
• Information from proprietary online sources
• Data published in the trade and general press throughout
the year
• Company reports and regulatory filings
• Journals
• Governmental Websites
, references to these secondary sources of data are given in the
bibliography segment of the report.

Chapter – 4
Critical Review of Literature
4.1 MICROFINANCE IN INDIA – Issues and challenges

(Author – Y.S.P.Thorat)
The first thing to remember is that in India the history of rural credit, poverty
alleviation and Micro-Finance are inextricably interwoven. Any effort to
understand one without reference to the others, can only lead to a fragmented
understanding. The forces and compulsions that shaped the initiatives in

these areas are best understood in context of State and banking policy over
time. Thus, for e.g., there were peasant riots in the Deccan in the late 19th
Century on account of coercive alienation of land by moneylenders. The
policy response of the then British Government to this problem of rural
indebtedness was to initiate the process of organization of cooperative
societies as alternative institutions for providing credit to the farmers as also
to ensure settled conditions in the rural areas, so necessary for a colonial
power to sustain itself.
To achieve the objectives of production, productivity and poverty alleviation,
the stance of policy on rural credit was to ensure that sufficient and timely
credit was reached as expeditiously as possible to as large a segment of the
rural population at reasonable rates of interest.
The strategy devised for this purpose comprised:
• Expansion of the institutional structure,
• Directed lending to disadvantaged borrowers and sectors and
• Interest rates supported by subsidies.
The institutional vehicles chosen for this were cooperatives, commercial
banks and Regional Rural Banks [RRBs].
Between 1950 & 1969, the emphasis was on the promoting of cooperatives.
The nationalization of the major commercial banks in 1969 marks a
watershed inasmuch as from this time onwards the focus shifted from the
cooperatives as the sole providers of rural credit to the multi agency
approach. This also marks the beginning of the phenomenal expansion of the
institutional structure in terms of commercial bank branch expansion in the
rural and semi-urban areas. For the next decade and half, the Indian banking
scene was dominated by this expansion. However, even as this expansion
was taking place, doubts were being raised about the systemic capability to

reach the poor. Regional Rural Banks were set up in 1976 as low cost
institutions mandated to reach the poorest in the credit-deficient areas of the
country. In hindsight it may not be wrong to say that RRBs are perhaps the
only institutions in the Indian context which were created with a specific
poverty alleviation – micro-Finance – mandate.
During this period, intervention of the Central Bank (Reserve Bank of India)
was essential to enable the system to overcome factors which were perceived
as discouraging the flow of credit to the rural sector such as absence of
collateral among the poor, high cost of servicing geographically dispersed
customers, lack of trained and motivated rural bankers, etc. The policy
response was multi dimensional and included special credit programmes for
channeling subsidized credit to the rural sector and operationalising the
concept of “priority sector”. The latter was evolved in the late sixties to focus
attention on the credit needs of neglected sectors and under-privileged
borrowers.
Conclusion
The financial sector reforms motivated policy planners to search for products
and strategies for delivering financial services to the poor – micro-Finance -
in a sustainable manner consistent with high repayment rates. The search for
these alternatives started with internal introspection regarding the
arrangements which the poor had been traditionally making to meet their
financial services needs. It was found that the poor tended to – and could be
induced to – come together in a variety of informal ways for pooling their
savings and dispensing small and unsecured loans at varying costs to group
members on the basis of need. The essential genius of NABARD in the Bank
– SHG programme was to recognize this empirical observation that had been

catalyzed by NGOs and to create a formal interface of these informal
arrangements of the poor with the banking system. This is the beginning of
the story of the Bank-SHG Linkage Programme.
4.2 Can Micro – Finance Empower Women?
AUTHOR – RANJULA BALI SWAIN, DEPARTMENT OF
ECONOMICS, UPPSALA UNIVERSITY
What do we mean by empowerment? When does the well-being of a person
improve? In the feminist paradigm, empowerment goes beyond economic
betterment and well-being, to strategic gender interests. As Mayoux (1998)
suggests, empowerment is a process of internal change, or power within,
augmentation of capabilities, or power to, and collective mobilization of
women, and when possible men, or power with, to the purpose of
questioning and changing the subordination connected with gender, or power
over. Empowerment can range from personal empowerment that can exist
within the existing social order. Thus this kind of empowerment would
correspond to the right to make one’s own choices, to increased autonomy
and to control over economic resources. But self-confidence and self-esteem
also play an essential role in change. Empowerment signifies increased
participation in decision-making and it is this process through which people
feel themselves to be capable of making decisions and the right to do so
(Kabeer, 2001). Personal empowerment can lead to changes in existing
institutions and norms, however, without the collective empowerment the
personal empowerment and choices are limited, as Sen explains.
The World Bank defines empowerment as “the process of increasing the
capacity of individuals or groups to make choices and to transform those
choices into desired actions and outcomes. Central to this process are actions

which both build individual and collective assets, and improve the efficiency
and fairness of the organizational and institutional context which govern the
use of these assets.”
Thus, as the World Bank (2001) report confirms; societies that discriminate
on the basis of gender pays the cost of greater poverty, slower economic
growth, weaker governance and a lower living standard of their people. The
World Bank also identifies four key elements of empowerment to draft
institutional reforms: access to information; inclusion and participation;
accountability; and local organizational capacity.
Conclusion
Given this detailed investigation of women with respect to the control of
resources, changes in behaviour and the decision-making reveals that many
strides have been made in the right direction and women are in the process of
empowering themselves. But examining the evidence on some key issues
both within the quantitative household data and the FGDs, suggests that a lot
needs to change to make women truly empowered. Based on the evidence
along with a more strict interpretation of women empowerment, it is difficult
to believe that a minimalist microfinance programme would have sustainable
impact on the empowerment of women. SHGs, where a majority of groups
are linked with the help of NGOs that provide support in financial services
and specialized training, have a greater ability to make a positive impact on
women empowerment. If women empowerment is to be pursued as a serious
objective by SHG programmes in particular and the larger microfinance
community in general, greater emphasis needs to be placed on training,
education and creating awareness in order to achieve a larger and more
lasting empowerment.
4.3 Information technology and rural development in India

Author – Nirvikar Singh; University of California, Santa Cruz
It may seem paradoxical that modern information technology (IT), associated
in our minds with developed country markets and capital-intensive methods
of production, has any relevance for a country where many millions still lack
basic needs. Nevertheless, there are many efforts underway in India and
other developing countries to demonstrate the concrete benefits of IT for
rural populations, and to do so in a manner that makes economic sense.
This paper outlines the conceptual and empirical case for the use of IT in
India’s rural development. Section 2, provides a broad discussion of the
potential role of IT in broad-based economic development. Section 3
examines the conceptual issues from the perspective of demand for, and
supply of IT-based services to rural populations in a developing country.
Section 4 discusses the lessons of some of the efforts underway in India,
including the work of Aksh, Drishtee, ITC, n-Logue and TARAhaat.
Conclusion
This paper has briefly surveyed several initiatives to provide IT-based
services in rural India. I have provided a broad overview of the economic
impacts of IT, and gone on to examine demand side and supply side issues of
successful implementation. In particular, I have suggested that there is a
broad range of services that can be provided to a cross-section of rural
households, even at relatively low levels of income. This creates challenges
for implementation by posing choices for organizations, but also
opportunities for creating niches. I have also provided a framework in terms
of the supply side value chain, and used this to discuss the implementation of
rural IT-based initiatives by several organizations.
All the organizations discussed in the paper face common issues of
implementation, but differ in terms of how they have been handled. There

are differences in scale, connectivity technologies, services offered, revenue
models, organizational structures, and so on. Clearly, focused efforts with
substantial financial and organizational backing have a good chance of
success. However, even startups that have put together the required
competencies and resources through partnerships and slow organization
building appear to have room in this market.
There appears to be enough evidence now that it is commercially feasible to
use IT to deliver services to rural populations either at costs that are lower
than previous delivery methods, or in ways that make it possible to achieve
delivery where none was earlier cost effective or feasible. Initially, the static
savings from reductions in transaction costs may be of the order of a few
percent of value added. However, the benefits from enabling new
transactions should be an order of magnitude greater. In the long run,
bringing rich information to the population of rural India, whether in the
form of education, market prices, market opportunities, and more, can only
have positive impacts on the material well being of rural masses.
4.4 The Role of Microfinance in Rural Micro-enterprise

Development.
By: Prof. Dr. Hans Seibel
The Basic Philosophy
“Agriculture is an important engine for economic growth in developing
countries.
Rural micro-enterprise is critical to that growth.”
So what role for microfinance?
Major Areas of the Study

• Linking microfinance to rural micro-entrepreneurs
• Who are the Rural Entrepreneurs, and what is Their Demand for
Financial Services?
• Strategies for financial institutions
• Business development services (BDS)
• Women in Rural Enterprise
Recommendations
• Local resources mobilization matters
• Equity matters
• Legal framework for local financial institutions matters
• Effective supervision matters
• Informal finance matters (Informal financial organizations have never
take up the development of the financial sector in the rural areas)
• Development matter
• Empowered women by enhancing their contribution to household
income.
4.5 Information Technology - Need of the Hour Rural
Development
By: PROF. MANOJ DAYAL
Basic Philosophy
“Information Technology is today becoming as important as ‘roti’, kapra, aur
makan’(bread cloth and house)”
Major Areas of Study

How in this age of information revolution, information technologies are
being used in almost all walks of life. Today in every walk of life Computer

Internet, Mobile global stationary fax, e-fax video text tele text video
conferencing, teleconferencing, compact disk, digital camera, video display
terminals, satellite, space craft, cable optical fibre, DTH etc. are turning out
to be extremely important.
Conclusion
In 40s people used to believe in secrecy of information. But in this new
millennium, the concept is totally reserved. Now we like to share the
information .Information is thus emerging as more and more power. Studies
confirms that this field confidently predict that the poverty line will no
longer be measured in terms of money, but in terms of information .This
study examines the evolution of technology which is responsible for wide
spread penetration of computer technology in to the social fabric.
Primarily the need of efficiency in complex organizations led to greater to
greater demand for availability of accurate and timely information.
Information technology responds to this challenge.
4.6 Micro Finance in India

Basic Philosophy
“In and out about Micro finance in India”
Major Areas of study
• Demand of Micro Finance Services in India.
• Demand for Savings and Insurance Services.
• Supply of Micro-Finance Services.
• Mainstream Micro Finance Institutions
Findings
• Challenges in Micro finance

• Borrower Unfriendly Products and Procedures
• Inflexibility and Delay
• High Transaction Costs, both Legitimate and Illegal
• Social Obligation and not a Business Opportunity
• Financing to Alternative MFIs
• Legal and Regulatory Framework
Conclusion
After the pioneering efforts of the last ten years, the microfinance scene in
India has reached a takeoff point. With some effort substantial progress can
be made in taking MFIs to the next orbit of significance and sustainability.
This needs innovative and forward-looking policies, based on the ground
realities of successful MFIs. This, combined with a commercial approach
from the MFIs in making microfinance financially sustainable, will make this
sector vibrant and help achieve its single minded mission of providing
financial services to the poor.
4.7 Role of Rural Organizations in Rural Development

By: Dr. NAJAMUDDIN
Basic Philosophy
“How Important are the Governmental organization in the Rural
development?”
Major Areas of study
• Significance of Government aided organizations in the rural
development.
• Effectiveness of Non-Governmental organization Vs Governmental
• Success Story of Micro finance programs

Conclusion
Non-government Organizations working in the rural sector are at times more
efficient than government organizations. The success stories of the above
mentioned Non-government Organizations also bring out the fact that the
voluntary sector is playing an important role in the development of the rural
sector in India. The reason for these successes can be easily understood.
Programs launched by government are keeping in view the whole of the
country. This, at times does not fulfill the needs of a particular area, whereas
an NGO working in that area is easily able to recognize the aspirations of the
people and take necessary action. Thus, certain regions and states get
developed sooner and others fall back due to want of proper approach and
efforts for development.
Thus, in rural development programs we should ensure peoples’
participation. It is necessary to ensure the involvement of people right from
the start that is at the planning level and not merely during the execution of
development programs.
4.8 The Role of ICT in Governing Rural Development
By: Anita Kelles-Viitanen
Basic Philosophy
“Information to be used as a part of social action has to be reliable and
relevant, also timely. Access to correct and relevant (and timely) information
makes emancipatory and participatory action possible. Such information has
a capacity to empower. It is knowledge.
• Role of ICT in Rural Development
• ICT – No Substitute to Reforms

• ICT with the Rural Poor
Conclusion
It has been argued here that ICT can contribute to poverty reduction, if it is
tailored to the needs of the poor and if it is used in the right way for right
purposes and complemented with required reforms.
Like all technologies, ICT offers tools and applications but no solutions. The
solutions to the problem of poverty are what they have always been:
economic growth, enabling infrastructure, the creation of livelihoods, social
capital, education and healthcare, and sufficiently democratic government to
ensure that economic benefits are not cornered by the powerful elites. By
providing cheap and efficient tools for access to information and exchange
of ideas and knowledge, ICT can become an enabling tool for wider
socioeconomic development. When properly used, it can greatly increase the
ability of the poor people to benefit from economic development and from
development programs meant to help them.
4.9 THE ROLE OF MOBILE PHONES IN SUSTAINABLE

RURAL POVERTY REDUCTION
By: Asheeta Bhavnani

• Why Information?
• Status of the Mobile Telephony Sector
• Impact of Mobile Telephony
• Global Trends
Conclusion

There is considerable evidence to suggest that the economic and social
benefit of mobile telephony will be highest in rural areas, which currently
have less telephony services. Both poverty and lack of information are
common bed partners. Thus, the dissemination of information together with
serving rural areas has double anti-poverty imperative. Studies have
attributed multiple benefits to the mobile phone: from lowering negative
aspects (e.g., corruption, crime, high prices) to raising positive aspects (e.g.,
levels of education, efficiency, health). Such benefits already witnessed in
the developing world can also spread to the developing world, provided the
right level of access and pricing are put into place.
4.10 ICT and e-Governance for Rural Development

By: Prof. T.P. Rama Rao
• ICT Infrastructure for Rural e-Governance Applications
• ICT Availability for Rural Applications
• Application Design and Reengineering of Backend Processes
Findings
Factors responsible for successful implementation and sustenance of ICT
projects for social development:

• Degree of efficiency and transparency demonstrated in citizen services
• Extent of reduction in cost and improvement of convenience for
citizens
• Extent of reengineering and improvement of back-end services
• Extent of Integration of backend processes with front-end and web site
• Degree of employee involvement and change management
• Amenability for Public Private Partnership (PPP) arrangement
• Strength of PPP arrangement in the application development
• Strength of PPP arrangement in the service delivery
• Enhancement of Revenue for the government and the service provider
• Technological robustness of the project
4.11 Rural microfinance and employment.

By: Isabelle Guérin
Basic Philosophy
“Explore the linkages between rural finance and rural employment -
including diversification and migration”
• Rural finance and rural employment: two challenges for rural
development and poverty reduction.
• Controversies and knowledge gaps

Conclusion
Microfinance services are expected to contribute to rural development and
poverty/vulnerability reduction. Emergency loans, savings and micro-
insurance are expected to mitigate vulnerability. Micro-credit is expected to
strengthen local rural employment (diversification, self-employment, wage
labor). Remittances are expected to improve the conditions of migration.
While microfinance has been given much attention and resources by
policymakers and donors, there are still controversies about whether and
under which conditions rural microfinance can hold its promises.

Chapter – 5
Sector Profile
Sector Profile
5.1 Mirco-Finance
Indian microfinance sector is expected to grow nearly ten times by 2011 to a
size of about Rs250 billion from the current market size of Rs27 billion, at a
compounded annual growth rate of 76%. Microfinance in India started
evolving in the early 1980s with the formation of informal Self Help Group
(SHG) for providing access to financial services to the needy people who are
deprived of credit facilities. The Report on microfinance is prepared
emphasizing more.
Microfinance is being practiced as a tool to attack poverty the world over.
The term “Microfinance” could be defined as “provision 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” (NABARD 99). Microfinance
Institutions (MFIs) are those, which provide thrift, credit and other financial
services and products of very small amounts mainly to the poor in rural,
semi-urban or urban areas for enabling them to raise their income level and
improve living standards. Lately, the potential of MFIs as promising
institutions to meet the consumption and micro-enterprise demands of the
poor has been realized.
5.1.1 Evolution of Micro-finance Industry in India
Microfinance – ‘the new Mantra in Rural Finance’
The rural finance policy pursued in most developing countries
beginning from 1950s was based on providing subsidized credit
through state controlled or directed institutions to rural segments of
population. Expansion of credit coverage through state interventions
was based on various theoretical assumptions. Seibel & Parhusip
(1990) mention that this approach was based on the premise that rural
micro-entrepreneurs are unable to organize themselves; they need
subsidized credit for increasing their income and are too poor to save.
Yaron, Benjamin & Piprek (1997) have traced this traditional approach
in rural finance leaning heavily towards direct interventions to
Keynesian influence. Under this approach, in addition to the
assumptions listed above, the key problem areas visualized in rural
financial markets included a lack of credit in rural areas, absence of
modern technology in agriculture, low savings capacity in rural areas
and prevalence of usurious moneylenders.
These distortions and imperfections in rural credit markets were
sought to be addressed through Government interventions. With

difference of range and degree, most developing countries from 1950s
to the 1980s were home to interventions ranging from establishing
state owned financial institutions, interest rate ceiling on deposits and
credit, credit subsidy, directing credit to particular sectors and
nationalization of private banks.
This ‘supply led’ approach in rural finance caused various qualitative
issues such as concerns about financial viability of institutions on
account of high rate of loan delinquency, cornering of subsidy by well
off people in what has been described as ‘rent seeking’ behaviour,
continued presence of moneylenders, inability to reach the core poor
and led to a reorientation in thinking around 1980s. United State’s
Agency for International Development’s (USAID) spring review of
Small Farmer Credit in 1972/73, covering 60 reports on specific farm
credit programmes in developing countries followed by a World
Conference on Credit for Farmers in Developing Countries in 1975
organised by FAO were the first landmark events pointing the
deficiencies of directed and subsidized credit approach. These
thoughts got crystallized during the ‘Colloquium on Rural Finance in
Low Income Countries’ by USAID and World Bank in 1981 and
shaped the emergence of new thinking in rural finance. Hulme &
Mosley (1996)4 credit the counter revolution against Development
Financial Institutions (DFIs) which were a prime symbol of
Government intervention in rural credit markets to ‘Ohio school’ as
the economists5 at Ohio State University provided the theoretical
underpinnings to the critique of past approach and contributed to
transfer of these ideas into operational policies of World Bank.

Emergence of micro credit in late 1970s and early 1980s in the
backdrop of growing world attention on deficiencies of earlier
approach in rural finance explains much of its dominant theoretical
underpinnings. The initial micro credit innovations in disparate
settings of Bangladesh, Bolivia and Indonesia8 demonstrated the
success of micro lending to poor without collateral requirements.
Rhyne (2001) observes that these interventions demonstrated
techniques for lending to the poor with better outreach and cost
recovery. Despite the contextual differences, the unifying thread of
these early innovations lay in their certain common principles like
reliance on character or peer pressure rather than collateral as loan
security, leveraging social capital, positive incentives for repayment
and interest rates that approached or covered cost. These innovations
acted as catalysts for replication across the globe and their underlying
principles continue to form the bedrock of microfinance interventions
till date.
The universal appeal of microfinance stemmed from its ability to reach
the poor without social collateral and generation of near full recovery
rates through what has been described as a Win-Win proposition. The
mainstreaming of microfinance worldwide and its global acceptance in
development community is based on this Win-Win proposition. This
concept of provision of sustainable financial services at market rates
has been termed as ‘Financial System’ approach or ‘Commercial
microfinance’. The progress report submitted by Micro credit summit
campaign10 indicates that as of Dec.31, 2004, 3,164 micro-credit
institutions have reached 92.27 million clients translating into micro-
credit interventions having reached 333 million poor families

worldwide. The obsession with microfinance in development sector is
succinctly captured by Remenyi (2000, p30), “every bilateral donor
and NGO seems to believe that it too must be involved in
microfinance if it is to retain credibility as a development agency with
an option for the poor”.
5.1.2 Global Acceptance of Microfinance
It is claimed that this new paradigm of unsecured small scale financial
service provision helps poor people take advantage of economic
opportunities, expand their income, smoothen their consumption
requirement, reduce vulnerability and also empowers them
(CGAP,2003; ADB, 2004)
Former World Bank President James Wolfensohn said “Microfinance
fits squarely into the Bank's overall strategy. As you know, the Bank's
mission is to reduce poverty and improve living standards by
promoting sustainable growth and investment in people through loans,
technical assistance, and policy guidance. Microfinance contributes
directly to this objective”. The emphasis on microfinance is reflected
in microfinance being a key feature in Poverty Reduction Strategy
Papers (PRSPs).
Realizing the importance of microfinance, World Bank has also taken
major steps in developing the sector. Formation of Consultative Group
to Assist the Poor (CGAP) in 1995 as a consortium of 33 Public and
private development agencies and establishment of Microfinance
Management Institute (MAFMI) in 2003 are significant landmarks.
CGAP acts as a “resource center for the entire microfinance industry,
where it incubates and supports new ideas, innovative products,
cutting-edge technology, novel mechanisms for delivering financial

services, and concrete solutions to the challenges of expanding
microfinance”. MAFMI was established with support of CGAP and
Open Society Institute for meeting the technical and managerial skills
required for microfinance sector.
CGAP has been instrumental in shaping the dominant theoretical
orientation of microfinance. The guiding philosophy behind diverse
sphere of CGAP activities by way of dissemination of microfinance
best practice, grant-making to Micro Finance Institutions, and
fostering national-level policy on microfinance has been ‘Commercial
microfinance’. The CGAP dossier on ‘Best Practices’ and brochure on
‘Key principles of microfinance’ succinctly capture the philosophy of
insistence on full cost recovery through market based interest rates and
higher recovery rate of micro loans. The influence of CGAP
philosophy has also shaped World Bank’s thinking on microfinance.
Current World Bank President in his message to CGAP annual
meeting in 2005 acknowledged this by saying “CGAP has helped
build consensus around the fundamentals of an inclusive financial
system. The CGAP Key Principles of Microfinance, endorsed last year
by the G8, have this year been championed by Worldwide, as a result
of the CGAP system, good practice is increasingly becoming standard
practice”.
Other Regional multilateral development banks like Asian
Development Bank also champion the cause of commercial
microfinance. ADB (2000, pg 1-2) outlining its policy for
microfinance lends support to the logic by saying “to the poor, access
to service is more important than the cost of services” and “the key to

sustainable results seems to be the adoption of a financial-system
development approach”.
The underlying logic offered in support of this is universally based on
twin arguments i.e., a) subsidized funds are limited and cannot meet
the vast unmet demand, hence private capital must flow to the sector
and b) the ability of the poor to afford market rates. Though, various
scholars like Morduch (2000) have brought out the flaws of this Win-
Win proposition like belief in congruence between commercial
microfinance and poverty outreach, this paper will limit itself to
analyzing as to how the focus on commercialization has relegated
impact assessment to backstage.
5.1.3 Indian Microfinance Context
Indian public policy for rural finance from 1950s to till date mirrors
the patterns observed worldwide. Increasing access to credit for the
poor has always remained at the core of Indian planning in fight
against poverty. The assumption behind expanding outreach of
financial services, mainly credit was that the welfare costs of
exclusion from the banking sector, especially for rural poor are very
high. Starting late 1960s, India was home to one of largest state
intervention in rural credit market and has been euphemistically
referred to as ‘Social banking’ phase. It saw nationalization of existing
private commercial banks, massive expansion of branch network in
rural areas, mandatory directed credit to priority sectors of the
economy, subsidized rates of interest and creation of a new set of rural
banks at district level and an Apex bank for Agriculture and Rural
Development (NABARD) at national level. These measures resulted
in impressive gains in rural outreach and volume of credit. As a result,

between 1961 and 2000 the average population per bank branch fell
tenfold from about 140 thousand to 14000 (Burgess & Pande, 2005)
and the share of institutional agencies in rural credit increased from
7.3% 1951 to 66% in 199122.
These impressive gains were not without a cost. Government
interventions through directed credit, state owned Rural Financial
Institutions (RFI) and subsidized interest rates increased the tolerance
for loan defaults, loan waivers and lax appraisal and monitoring of
loans. The problem at the start of 1990s looked twofold, the
institutional structure was neither profitable in rural lending nor
serving the needs of the poorest. In short, it had created a structure,
‘quantitatively impressive but qualitatively weak’.
Micro credit emergence in India has to be seen in this backdrop for a
better appreciation of current paradigm. Successful microfinance
interventions across the world especially in Asia and in parts of India
by NGOs provided further impetus. In this backdrop, NABARD’s
search for alternative models of reaching the rural poor brought the
existence of informal groups of poor to the fore. It was realized that
the poor tended to come together in a variety of informal ways for
pooling their savings and dispensing small and unsecured loans at
varying costs to group members on the basis of need. This concept of
Self-help was discovered by social-development NGOs in 1980s.
Realizing that the only constraining factor in unleashing the potential
of these groups was meagerness of their financial resources,
NABARD designed the concept of linking these groups with banks to
overcome the financial constraint. The programme has come a long
way since 1992 passing through stages of pilot (1992-1995),

mainstreaming (1995-1998) and expansion phase (1998 onwards) and
emerged as the world’s biggest microfinance programme in terms of
outreach, covering 1.6 million groups as on March, 2005. It occupies a
pre-eminent position in the sector accounting for nearly 80% market
share in India.
Under the programme, popularly known as SHG-Bank Linkage
programme there are broadly three models of credit linkage of SHGs
with banks. However, the underlying design feature in all remains the
same i.e. identification, formation and nurturing of groups either by
NGOs/other development agencies or banks, handholding and initial
period of inculcating habit of thrift followed by collateral free credit
from bank in proportion to the group’s savings. In accordance with the
flexible approach, the decision to borrow, internal lending and rate of
interest are left at the discretion of group members. Its design is built
on combining the “collective wisdom of the poor, the organizational
capabilities of the social intermediary and the financial strength of the
Banks”.
The success factors of the programme lie in it being beneficial for both
banks and clients – another example of Win-Win proposition. The
programme is an attractive proposition for banks due to high recovery
rates and lowering of transaction costs by outsourcing costs associated
with monitoring and appraisal of loans. Records show a recovery rate
as high as 95% for loans extended by banks to SHGs and a study
sponsored by FDC Australia, it was observed that the reduction in
costs for the bankers is around 40 % as compared to earlier loans
under Integrated Rural Development Programme (IRDP). Similar
findings in respect of commercial benefit of SHG lending to banks

were reported by Siebel & Dave (2002). The programme’s exclusive
focus on reaching those sections of population, who were hitherto out
of reach of financial system, has increased the coverage of poor. Non
reliance on physical collateral and total flexibility in loan purpose and
amount has also resulted in increased coverage of the poor and the
marginalized.
The programme has received strong public policy support from both
Government of India and Reserve Bank of India. The importance
attached to it by Government is exemplified by mention of yearly
targets by Finance Minister in his annual budget speech as well as
introduction of similar group based lending approach in government’s
poverty alleviation programme. The success of the programme in
reaching financial services to the poor has won international
admiration. World Bank policy paper28 hails the programme and states
that it is particularly suited to India because the model capitalizes on
country’s vast network of rural bank branches that are otherwise
unable to reach the rural poor.
5.1.4 SHG - Bank Linkage Programme
The SHG – Bank Linkage Programme started as an Action Research
Project in 1989. In 1992, the findings led to the setting up of a Pilot
Project. The pilot project was designed as a partnership model
between three agencies, viz., the SHGs, banks and Non Governmental
Organizations (NGOs).
• SHGs were to facilitate collective decision-making by the poor
and provide 'doorstep banking’;
• Banks as wholesalers of credit, were to provide the resources
and

• NGOs were to act as agencies to organize the poor, build their
capacities and facilitate the process of empowering them.
Impact of the SHG Bank Linkage Programme
Given these quantitative achievements, what has been the impact of
the programme.
The main findings are that:
i. microfinance has reduced the incidence of poverty through increase
in income, enabled the poor to build assets and thereby reduce their
vulnerability.
ii. It has enabled households that have access to it to spend more on
education than non-client households. Families participating in the
programme have reported better school attendance and lower drop out
rates.
iii. It has empowered women by enhancing their contribution to
household income, increasing the value of their assets and generally
by giving them better control over decisions that affect their lives.
iv. In certain areas it has reduced child mortality, improved maternal
health and the ability of the poor to combat disease through better
nutrition, housing and health – especially among women and children.
v. It has contributed to a reduced dependency on informal money
lenders and other non-institutional sources.
vi. It has facilitated significant research into the provision of financial
services for the poor and helped in building “capacity” at the SHG
level.
vii. Finally it has offered space for different stakeholders to innovate,
learn and replicate. As a result, some NGOs have added micro-
insurance products to their portfolios, a couple of federations have

experimented with undertaking livelihood activities and grain banks
have been successfully built into the SHG model in the eastern region.
SHGs in some areas have employed local accountants for keeping
their books; and IT applications are now being explored by almost all
for better MIS, accounting and internal controls.
5.1.5 Challenges associated with SHGs
Regional Imbalances – The first challenge is the skewed distribution
of SHGs across States. About 60% of the total SHG credit linkages in
the country are concentrated in the Southern States. However, in States
which have a larger share of the poor, the coverage is comparatively
low. The skewed distribution is attributed to
• The over zealous support extended by some the State
Governments to the programme.
• Skewed distribution of NGOs and
• Local cultures & practices.
Prof. Sriram is going to present a paper on this and I would be
delighted to hear what he has to say. Suffice it to say at this stage that
NABARD has since identified 13 states where the Volumes of SHGs
linked are low and has already initiated steps to correct the imbalance.
From credit to enterprise – The second challenge is that having
formed SHGs and having linked them to banks, how can they be
induced to graduate into matured levels of enterprise, how they be
induced to factor in livelihood diversification, how can they increase
their access to the supply chain, linkages to the capital market and to
appropriate/ production and processing technologies. A spin off of this
challenge is how to address the investment capital requirements of
matured SHGs, which have met their consumption needs and are now

on the threshold of taking off into “Enterprise”. The SHG Bank-
Linkage programme needs to introspect whether it is sufficient for
SHGs to only meet the financial needs of their members, or whether
there is also a further obligation on their part to meet the non-financial
requirements necessary for setting up businesses and enterprises. In
my view, we must meet both.
Quality of SHGs – The third challenge is how to ensure the quality of
SHGs in an environment of exponential growth. Due to the fast growth
of the SHG Bank Linkage Program, the quality of SHGs has come
under stress. This is reflected particularly in indicators such as the
poor maintenance of books and accounts etc. The deterioration in the
quality of SHGs is explained by a variety of factors including
• The intrusive involvement of government departments in
promoting groups,
• Inadequate long-term incentives to NGOs for nurturing them on
a sustainable basis and
• Diminishing skill sets on part of the SHG members in managing
their groups.
In my assessment, significant financial investment and technical
support is required for meeting this challenge.
Impact of SGSY – Imitation is the best form of flattery – but not
always. The success of the programme has motivated the Government
to borrow its design features and incorporate them in their poverty
alleviation programme. This is certainly welcome but for the fact that
the Government’s Programme (SGSY) has an inbuilt subsidy element
which tends to attract linkage group members and cause migration
generally for the wrong reasons. Also, micro level studies have raised

concerns regarding the process through which groups are formed
under the SGSY and have commented that in may cases members are
induced to come together not for self help, but for subsidy. I would
urge a debate on this, as there is a need to resolve the tension between
SGSY and linkage programme groups. One way out of the impasse
would be to place the subsidy element in the SGSY programme with
NABARD for best utilisation for providing indirect subsidy support
for purposes such as sensitization, capacity building, exposure visits to
successful models, etc.
Role of State Governments – A derivative of the above is perhaps the
need to extend the above debate to understanding and defining the role
of the State Governments vis-à-vis the linkage programme. Let’s be
clear: on the one hand, the programme would not have achieved its
outreach and scale, but for the proactive involvement of the State
Governments; on the other hand, many State Governments have been
overzealous to achieve scale and access without a critical assessment
of the manpower and skill sets available with them for forming, and
nurturing groups and handholding and maintaining them over time.
Emergence of Federations – The emergence of SHG Federations has
thrown up another challenge. On the one hand, such federations
represent the aggregation of collective bargaining power, economies
of scale, and are for addressing social & economic issues ; on the other
hand there is evidence to show that every additional tier, in addition to
increasing costs, tends to weaken the primaries. There is a need to
study the best practices in the area and evolve a policy by learning
from them.
5.2Information Technology

5.2.1 Introduction
The success of Indian firms and professionals in the information

technology (IT) arena during the last decade has been spectacular.
Entrepreneurs, bureaucrats, and politicians are now advancing views
about how India can ride the IT bandwagon and leapfrog into a
knowledge-based economy. Isolated instances of villagers sending and
receiving email messages or surfing the Internet are being promoted as
examples of how India can achieve this transformation, while
vanquishing socio-economic challenges such as illiteracy, poverty, and
the digital divide along the way. Likewise, even while a miniscule
fraction of the population has access to computers and the Internet, e-
governance is being projected as the way of the future. There is no dearth
of fascinating stories about IT-enabled changes, yet there is little
discussion about whether such changes are effective and sustainable in
the absence of the basic infrastructure that is accessible to the citizens of
more advanced economies.
The statistics speak loudly and clearly. Seventy nine percent of

India’s population lives in villages without the basic amenities and
infrastructure that can sustain a knowledge economy. While over 60% of
the population is considered to be literate, note that the relevant definition
of literacy that supports this statistic is being able to read and write simple
words in any language, acquired with or without formal schooling. This
criterion is so basic, that it is almost irrelevant in the context of a
knowledge economy. Yet, the central and state governments in India are
investing millions of dollars in promoting IT-based initiatives and the IT
industry as vehicles of social and economic transformation. Are we

putting the cart before the horse here? Even if substantial IT investments
are justifiable, how must the IT revolution proceed so that the nation is
benefited in a wholesome and balanced way?
Chapter – 6
Growth Drivers

Growth Drivers
6.1 Credit Demand of the Poor

It is estimated that in India there exist approximately 7.5 crores poor
households, out of which 6 crores are rural and 1.5 crores urban households.
One estimate assumes that the total annual requirement of credit for the rural
poor families would be at least Rs.15, 000 crores on the basis of a maximum
need of Rs.2000/- per family. Another estimate for requirement of credit
(excluding housing) is Rs.50,000 crores assuming that annual average credit
usage are Rs.6000/- per rural household, and Rs.9000/- for poor urban
household. An additional Rs.1000 crore is estimated to be required for
housing per year. Apart from micro-credit, they require savings and
insurance also. Meanwhile, bank advances to weaker section aggregated
Rs.9700 crore during 1997-98. MFIs and SHGs are estimated to have
1
provided about 137 crore (cumulative up to September 1998). The above

scenario, suggests a vast unmet gap in the provision of financial services to
the poor. Moreover, 36% of the rural households are found to be outside the
fold of institutional credit.
6.2 Poor can save
Savings by members of SHGs enumerated were around Rs. 4,72,66,484 ( Rs.
47.26 million), with average saving per Group working out to Rs. 9605 (US
$200 approx.) during the reference period. It is interesting to note that this
amount has come out of very small monthly contributions. Data show that in
respect of 3922 SHGs (80%) the monthly contribution was upto Rs. 30
(about 0.6 US $) per member. The important point is that SHGS enabled the
rural poor women even to save small amounts regularly and as a matter of
discipline. In the absence of the SHG mechanism, it would have not been
possible for the rural women to make deposits of a small amount of Rs 30
per month in a Bank. Even for the banks, it would not have been viable to
transact such small and intermittent deposits. Not only was the saving
regular, nearly 89 % of the SHGs had managed even to increase their
monthly savings. The increase in savings contribution was upto Rs. 5 (about
16 % of the original contribution) for 73 % of the Groups. This can be
viewed as an indicator of continued mutual trust among members and
increasing desire to save. Moreover, the pooled savings were managed very
well by the SHG members, initially for internal lending among themselves
and later, to establish a credit linkage with banks and avail larger group
loans.
6.3 Borrowing by SHG members
Out of the total 73,454 members covered, 50,118 (68 %) were borrowing
from the groups, implying access to credit by a large number of members.
Those who had borrowed more than once after repaying old loans (active

borrowers) constituted 63 % of the borrowers indicating that a substantial
proportion of borrowers had used the first loan very well, repaid it and had
further access to credit. Total loans mobilized by the members worked out to
Rs. 17,87,20,624 (Rs. 178.7 million) with average loan amount per SHG
being Rs. 36,318 and the savings to total loan ratio of 3.78. Forty four per
cent of this amount was sourced as loans from the banks and the balance 56
% was from internally generated resources indicating the financial strength
the SHGs have attained. It is also interesting to note that the poor are able to
meet margin requirements of close to 50% from their group savings.
6.4 Government policy and support

It is clear that the dominant theme so far has been of extending micro-credit
through Bank-SHG linkages, with NABARD playing a leadership role and
micro-finance institutions, mainly NGOs, playing a catalytic as well as
enabling role at the gross root level. However, there is clearly an emerging
new paradigm in the approach to micro-finance. It would be appropriate to
recall that while the term micro-credit has not been strictly defined at
present, it usually refers to the credits of “very small amounts”. However, for
the purpose of exempting the micro-finance companies registered under
Section 25 of the Companies Act from the core regulatory provisions
attracted by NBFCs, such companies are required by RBI to be engaged
solely in extending micro-finance up to Rs.50,000 for small businesses and
upto Rs.1.25 lakh for housing in rural areas.
The term “micro-finance” has been given a working definition by the Task
Force on Supportive Policy and Regulatory Framework for Micro-Finance
set up by NABARD in November 1998 as: “provision of thrift, credit and

other financial services and products of very small amounts to the poor in
rural, semi-urban and urban areas for enabling them to raise their income
levels and improve living standards”. It is, however, understood that the
MFIs provide other non-credit services as well such as capacity building,
training, marketing of the products of the SHGs, micro-insurance, etc. In this
background, the following considerations are relevant.
6.5 Institutional credit and poverty
In India, institutional credit agencies (banks) made an entry in rural areas
initially to provide an alternative to the rural money lenders who provided
credit support, but not without exploiting the rural poor. After the
nationalization in 1969, commercial banks in the country took upon
themselves a massive task of improving access of the poor to formal credit
and accelerate the flow of credit to the rural economy. Their role in poverty
alleviation was more appreciated when the Government, as a major paradigm
shift, decided to launch a direct attack on poverty, through its special
employment generation strategies and productive asset creation programs
like Integrated Rural Development Program (IRDP)

Chapter – 7
Major Micro Finance Instruments
and Products

Micro finance Products and Instruments
THE TERM "MICROFINANCE" includes the provision of a wide range of
financial services to the poor: credit, savings, insurance, and money
transfers. The microfinance movement to date, however, has heavily favored
microcredit, so much of our analysis focuses on innovations in credit
delivery. Throughout, our interest is in how products are designed for
financial sustainability, which is when MFIs cover operational costs, costs of
capital, and loan losses.
7.1 The core product types
Group lending products are the ones most commonly associated in the
public's mind with the microfinance revolution. They come in two major
types: group and individual lending.
7.1.1 Group lending

In classic solidarity group lending, which both Acción International and the
Grameen Bank developed, borrowers are asked to form groups of three to
seven members, most commonly five.
Borrowers in a group are jointly and severally liable for all loans taken out,
meaning they are each liable for the others' loans and any one of them can be
held fully responsible for an outstanding loan. Typically the pattern of
disbursements and repayments is regimented. In the classic Grameen model,
payments begin immediately after disbursement, are due weekly, and are
constant over the life of the loan. Entry into the regimen is staggered within a
group: first two borrowers take their loans and begin to repay, then two
more, then the fifth. When a loan is repaid, the borrower becomes
immediately eligible for a larger one as long as all group members are in
good standing and approve the individual loan requests. In the classic model,
eight solidarity groups are federated into a larger group called the "center,"
which gathers each week with a loan officer to perform all financial
transactions.
The other major type of group lending is village banking, and was developed
in 1984 in Bolivia by John Hatch, who went on to found FINCA
International. Village banks bring together 15 to 30 people, give them a
single loan, then delegate authority to them for on-lending to individual
members. This delegation distinguishes village banking from most other
forms of microfinance. Members elect the office holders of the village bank,
who assume responsibility for conducting its affairs. Usually, loan sizes are
allowed to differ among individual members. But all loans carry the same
repayment and interest rate terms, and borrowers are generally offered a loan
ladder, a sequence of 3 to 5 loan cycles with a maximum loan size specified
for each cycle. For example, Compartamos, a profitable and fast-growing

microfinance institution in Mexico, offers a three step loan ladder for its
village banking product, with the first loan at most $150 and the third at most
$1400.6 Village bank members act as co-guarantors and help decide how
much each person borrows. Because the groups are larger than solidarity
groups, village banking more frequently faces the problems that arise when
there are large spreads in loan size within the jointly liable group, which can
expose the poorest members to inordinate risk. To protect them, most village
banking MFIs try to keep the maximum-to-minimum loan ratio below 10.7
Though distinct, the two dominant forms of group lending have much in
common. Both have regular, compulsory public meetings, typically weekly
or biweekly, where loans are repaid and disbursed and savings collected. In
both kinds of lending, it is not uncommon for the attending loan officer to
refuse to end the meeting until all scheduled loan repayments are made—by
someone. Economists have taken note of one traditional feature of both
forms of group lending, joint liability. The theoretical literature has viewed
joint liability as a major technological innovation that reduces problems
arising from "informational asymmetries" between lender and borrower.
In both village banking and solidarity lending, groups self-select. Given
members' superior knowledge of the character and economic circumstances
of friends and neighbors, they can do better than the lender at screening out
risky borrowers prior to the loan decision and monitoring loan use after.
Though economists initially saw joint liability as the key innovation that kept
repayment rates high, there were puzzling questions. If members knew that
others in the group would make up their repayments if they defaulted, why
don't they free ride on others and default more often?
This highlights the peer pressure exercised in closed community groups, and
the importance of reputation, honor, and shame. Honor is both a matter of

public reputation and a private concept: the popularity of death insurance
offered by some MFIs demonstrates that people in some cultures think they
have failed their worldly and religious duties if they leave debt for their
heirs. Case-studies have revealed that, MFIs that require joint liability
usually do not enforce it. Instead, a common practice is to encourage other
members of the solidarity group center—the larger or "secondary group" that
is not party to the formal joint-liability clause—to make up the default
amount. Jain and Moore write: Secondary groups play a more specific role in
facilitating loan repayment in the initial phase of some programs. When a
member can neither meet loan repayment schedules nor source other money
for this purpose, field workers encourage her to take a short-term, interest
free and typically informal (but publicly known) loan from other member(s)
of the secondary group (not especially the primary group) and agree to repay
installments in parallel with the program loan. In the longer established
[MFIs] and secondary groups, willingness to provide such temporary loans
has declined over time. In such cases…potential defaulters are expected to
find alternate loan sources outside of the secondary group, and prior to the
weekly group meeting to avoid disrupting it. This quote illustrates the
multiple sources of peer pressure on the defaulter. First, the defaulter is
identified in front of the entire village center. Second, she is put in a position
where she must publicly ask for help. Third, she becomes responsible for the
community center meeting being prolonged and any unpleasantness that
might ensue. Lengthy meetings have been cited as an important reason
clients drop out from group lending programs, so when a loan officer does
not allow the meeting to end unless all defaults have been covered, it must
add to the social pressure. The public nature of group lending and the

resulting play of honor and shame thus appear to be more essential to timely
repayment than formal joint liability. Consider the rapid growth of the
Association for Social Advancement (ASA) in Bangladesh, which does
group lending with individual liability. ASA's success is likely a reason that
Grameen Bank dropped joint liability as part of its reforms around 2001,
dubbed "Grameen II," but retained the rest of the credit delivery system,
notably, regular public meetings.11 Even MFIs that do not employ either
joint liability or regular group meetings for transaction purposes tap into this
sensitivity to reputation for delinquency control: XacBank in Mongolia posts
names of clients and their installment repayment reports on the walls of its
branches.12 Peer pressure, it seems, is a broader concept than first assumed
within a group liability context. It is not simply the pressure exerted by
fellow group members who are afraid of losing access to future loans or
having to cover loan delinquencies, it is pressure arising from public
transactions in communities where individuals worry about reputations. And
the discovery is not really new to microcredit; money lenders too have used
public honor to motivate repayments. When interviewed, a woman street
vendor who was a client of a group of moneylenders called "the Bombays" in
the Philippines "noted that the Bombays always picked the busiest hour of
the day to collect so that there would always be witnesses to her
embarrassment." Experimental research is confirming the relative
unimportance of formal joint liability. In an experiment run with the Green
Bank of Caraga in the Philippines, Xavier Giné and Dean Karlan found that
after borrowers in randomly chosen, ongoing solidarity groups were notified
that joint liability had been dropped, repayment rates and other indicators of
portfolio health showed no change in the following year—except that centers
without joint liability attracted more new clients. It remains to be seen

whether joint liability is similarly unimportant in the earlier, group formation
stage, where self-selection appears to screen out bad risks (adverse
selection). The experiments reported so far have been done only by
switching existing borrowers, who already went through a joint-liability–
bound group building process.
In sum, it is becoming clear that group lending works in part by substituting
reputation for conventional collateral—in other words, collateralizing
reputation. (Section 1.2.2 describes "forced savings" which also function as
collateral for group lenders.) Group lending is public banking for the poor, in
contrast with private banking for the rich. The growth of ASA and the Green
Bank experiment suggest the obvious: the poor like joint liability no more
than the rich and accept it only when they have no better option.
A relative of village banking is the self-help group (SHG) system that
dominates microfinance in India. The system evolved from the efforts of
NGOs to organize the rural poor, especially women, into groups for purposes
of social and economic empowerment through group savings, education, and
micro-enterprise support. NGOs train the group in saving, lending, and
accounting, and then link the group with a bank where it can deposit its
accumulated savings into a collective account. The bank then grants a block
loan to the group, typically four times as large as the savings balance, for
which members are jointly and severally liable.15 The group decides how,
and on what terms, to distribute the loan to individual members. Self-help
microfinance took off when the Indian government decided to support it
through the National Bank for Agricultural Development (NABARD), which
provides subsidized refinancing to banks for their lending to SHGs. Partly
because several steps separate clients from NABARD, there are no national
statistics on how many Indians participate in SHGs. In fiscal year 2004–05,

798,000 SHGs received bank loans, 539,000 for the first time, bringing the
cumulative number of SHGs receiving loans to 1.618 million. At a typical 17
women per group, that suggests that up to 27 million women have joined
SHGs.17 However, many of the SHGs may have gone defunct, and their
members may have joined new groups, so this figure could be high by a
factor of two or three.
The success to date of SHGs in India is attributable to a combination of
special factors: a proliferation of grass-root NGOs dedicated to the economic
and social uplift of rural communities; a vast network of public-sector rural
banks; the popular acceptance, even expectation, of state-subsidized poverty
alleviation programs; and a committed champion in the NABARD. However,
some of these same factors pose potential challenges to a further scaling up
of the Bank Linkage Program, which still reaches only a small fraction of
Indians. The central problem is the misalignment of incentives. Since the job
of the partner NGOs is to form groups, not run them on an ongoing basis,
they do not face the same financial incentives as MFIs to maintain portfolio
quality. The professionalism and commitment to mission of the established
NGOs that historically formed SHGs may have compensated for the perverse
incentives. But as NABARD pushes for growth, the risk increases that new
organizations will arise purely to form SHGs, and will not behave so well. In
the worst case, they collude with borrowers against a lender for short-term
gain. The misaligned incentives are why the private ICICI Bank, which has
lent to 12,000 SHGs, is now moving to MFIs as a channel as it scales up in
microfinance.
7.1.2 Individual lending
Individual lending is the other major type of microcredit methodology. As its
name makes obvious, it is built around more conventional lending

relationships with individual clients. But in contrast with conventional
lending, individual micro lending of course offers smaller loans, on the order
of $1,000, and relies less on traditional sources of security, such as
marketable collateral, credit bureaus, and formal legal recourse. It relies
more on informal assessments of character and business operations. Group
lending puts the burden of this assessment on the group through the group
self-selection mechanism; individual lending depends on the loan officer to
perform this screening. In dense urban areas, notably in Latin America,
where social bonds may not be strong enough to support group lending,
individual lending must tap into the borrower's social assets by forming a
character sketch from interviews with friends, neighbors, and business
associates.
Gabriel Solorzano, President of Nicaragua's FINDESA, explains that his
finance company extends not "asset-based credit" (ABC) but "integrity-based
credit" (IBC). Claus-Peter Zeitinger, founder of the German ProCredit
juggernaut, which now operates in Eastern Europe, Latin America, and
Africa, echoes Solorzano, calling his loans "information-based credit."20
Those phrases accentuate the contrast with conventional lending. But from
the standpoint of group lending, individual lending looks relatively
conventional. Indeed, there is no sharp line between individual micro-lending
and more-conventional small business lending. Loan officers do assess
clients' business operations with an eye toward current earnings and potential
earnings if the proposed investment is made. They do often accept or require
physical collateral, mortgages, or credit scoring. Bank Rakyat Indonesia
(BRI), one of the world's largest micro-lenders, only lends individually, and
requires titles to land, buildings, motorcycles, or other property as collateral.
Given the low market value of most assets pledged, however, MFIs prefer to

use such collateral as a threat rather than a way to cover losses from default.
The incentive to repay is rooted in the high replacement cost of the pledged
asset to the household and by the borrower's desire to avoid the social shame
of having his or her household items seized in front of family and neighbors.
As Solorzano puts it, FINDESA "doesn't want a used, rusty refrigerator. We
lose two thirds of the value when we seize collateral." It is only when
lending to small or medium enterprises that loan sizes may be large enough
for collateral to become valuable in the traditional sense.
7.1.3 A conceptual framework for microcredit methodologies
This bare-bones introduction to microcredit offerings does not convey their
full complexity, variety, and dynamism. Nor does it touch on other financial
services, including savings, insurance, and transfers, that MFIs are
increasingly offering. It suffices, however, to ground an important
observation about the nature of the challenge for microfinance practitioners,
and their response to the challenge. Specifically, the dominant microcredit
products can be seen as arrayed along a spectrum. At one end of the
spectrum, loans are smaller, more costly to provide relative to loan size, and
are only made practical by shifting certain tasks onto borrowers. At the other
end, loans are larger, cheaper for the MFI to administer, and more convenient
for the customer. They also go to the relatively better-off.
In general, lenders face three costs: financial (costs of capital), default
(which appears in accounting through loan loss provisioning), and
operational or transaction costs. The last two are more under the MFI's
control, and the last is disproportionately high for small loans, thus
dominating in microfinance. A $100 loan does not cost ten times less to
administer than a $1,000 loan. So the poorer the borrower, and the smaller
the appropriate loan, the higher the cost per dollar lent. Figure 1, based on

data from MFIs reporting to the Micro Banking Bulletin (MBB) for 2004,
shows that village banking has the highest costs relative to the amount lent
while individual lending has the least. To rein in costs per loan and make
small loans practical, lenders must squeeze operating costs where they can
and shift costs that remain onto borrowers. Figure 2 shows the result: on a
per-loan basis, village banking MFIs keep their spending the tightest,
although its delegation of responsibility is also a form of empowerment.
Solidarity group lending puts somewhat fewer costs onto borrowers, since
loan officers work directly with all clients and shoulder some responsibility
for collection from borrowers having difficulties. It compensates by
imposing more routine on the credit relationship, in order to speed
transactions. Individual micro-lenders absorb much more of the
underwriting, monitoring, and enforcement costs themselves. In viewing
these Figures, bear in mind that all but a core of dedicated poverty focused
solidarity lenders have moved into the mixed individual-solidarity category,
and may not be representative of solidarity lending per se. For example, the
true typical loan size for solidarity lending is probably between those shown
in Figure 2 for solidarity lenders and mixed ones, and above that for village
banking, as is the case in a 1999–2002 sample reported by Robert Cull, Asli
Demirguc-Kunt, and Jonathan Morduch.
Important subcomponents of the potentially transferable operating costs are
for underwriting (loan approval), monitoring of use and repayment, and
enforcement. Group lending shifts these responsibilities onto borrowers.
Borrowers in turn will only accept them to the extent that they need capital
and have no better alternative. And it is the poorest who have the fewest
alternatives. The less-poor, on the other hand, will opt for individual lending
and larger loans. The bottom line in the bargaining between lenders and

borrowers are that individual lending is unattractive for lenders at the low
end of the loan scale as too expensive, while group lending is unattractive to
borrowers at the high end as too burdensome. As a result, village and
solidarity banking serve the poorest while individual lending goes more to
the less poor. Table 1 has the numbers behind these charts.
These data suggest that commercially successful microfinance programs are
designed not just to maximize direct impact on their clients. It is not simply
the case that village banking, say, is more prevalent in rural Mexico than
individual microcredit because village banking, with its emphasis on
empowerment, happens to do a better job of helping rural Mexicans. Rather,
in a successful MFI, the choice of basic product type is an adaptive
responsive to what could be called the business environment. Central to the
adaptation is a choice about how much cost to ask clients to bear.

Source: Micro Banking Bulletin: 2004 Benchmarks, available at
http://www.mixmarket.org/medialibrary/mixmarket/2004_MFI_Bench
marks[2].xls.
7.2 Aspects of product design
HAVING INTRODUCED THE major product methodologies and a way to
think about them, we embark on a more thematic survey of product design,
still with an interest in choices that have been made that advance
microfinance as a business proposition. Although this is not our focus here,
some of these design choices, such as targeting women, may also directly
serve social ends.
The business problem for MFIs can be stated most broadly as finding ways
to keeps costs near or below revenues—but that generalization is vacuous
and needs unpacking. The real challenges include:

• Building volume. The ability to spread fixed costs of lending operations
over a large portfolio helps lenders reduce their operating costs as a
percentage of assets (outstanding loans).
• Keeping loan repayment rates high. Searching for defaulters and cajoling
or threatening them into repaying is extremely expensive for small loans.
Moreover, especially with group lending, default can spread, since people
will ask, "Why should I repay if she did not?" This contagion effect is a
downside of the intimacy of group lending; it puts a premium on near-perfect
repayment rates.
• Retaining customers. Even the most efficient MFIs find it hard to cover
costs on the smallest accounts; most need to cross-subsidize them from larger
loans to clients who have proven their ability to pay. This makes it essential
for MFIs to grow with their customers, moving to progressively larger
accounts.
• Charging rates commensurate with costs. High interest rates are a well-
known and controversial aspect of microfinance. But MFIs cannot succeed in
the commercial sense if they do not cover their costs, or at least come close,
so that subsidy dependence does not limit scale.
• Compliance with prudential regulation. Banking regulations have much
to say on what financial institutions can and cannot do. Most MFIs, for
example, can only take deposits from people who are borrowing even more
from them at the same time.
• Minimizing scope for fraud. In large organizations composed of small
branches physically linked by weak transportation and communications
infrastructure, monitoring branch activities to prevent internal fraud is a
major challenge, all the more so in countries with a culture of corruption in
business and government.

7.2.1 Credit versus voluntary savings
Stuart Rutherford eloquently reminds us that "financial services for poor
people are largely a matter of mechanisms that allow them to convert a series
of savings into usefully large lump sums." Most poor people do set aside
money, if in small amounts and irregularly, not because they have income
left after meeting basic needs, but because their needs include larger
purchases like medicine or clothing or spending at religious and family
ceremonies that cannot be matched by the uneven trickle of income. Indeed,
while the capacity of the poor to borrow and save may be surprising, their
need to do so is greater than it is for the better-off. Precisely because their
incomes are tight, ways to manage mismatches between often-volatile
incomes and consumption can be a matter of survival.
Saving and borrowing, though seemingly opposite, are actually similar in
helping households convert small payments into larger lump sums.28 Which
is better depends on the use for which the lump sum is needed. If funds are
required for household consumption smoothing in the presence of volatile
income, then savings may be a cost-effective, less risky alternative to
borrowing. If, on the other hand, funds are needed for investment, then credit
provides quicker income gains.
Microcredit is commonly defined as a vehicle for micro-enterprise.
Numerous stories of clients who have struggled out of poverty by their own
entrepreneurial efforts have been documented. Assuming that microcredit
finances micro-enterprise, then the willingness of the poor to keep borrowing
at high interest rates suggests that rates of return on borrowers' projects are
even higher. In fact, microcredit often finances consumption. It is generally
accepted that many poor people borrow at even higher interest rates from
moneylenders for consumption, so willingness to pay cannot be assumed to

demonstrate profitability of investments. In practice, MFIs, like Money
lenders, require high-frequency, regimented payments on a schedule
unrelated to the gestation periods of investments. And when MFIs do directly
assess repayment capacity, they do so based on current income and assets
rather than assumed returns from the proposed investment. Since money is
fungible, it can appear to go for one purpose while actually serving another.
If a borrower would have used her own funds to invest in a cow but instead
takes out a loan for that purpose, then what the loan really does is let her put
her own funds to some other, new purpose. In general, no sharp line
separates the financial affairs of a poor household from the enterprises its
members pursue. MFIs cannot expect their loans to only finance investment.
Direct surveys of clients reveal a wide spectrum of uses. Though contrary to
the original spirit of micro-enterprise lending, borrowing to finance and
smooth consumption can be a very good thing. In a study of a payday lender
in South Africa (not ordinarily considered an MFI, but analogous in offering
short-term loans without collateral to poor people), Dean Karlan and
Jonathan Zinman find that extending credit to applicants who would
otherwise just miss qualifying reduces the number of times someone in the
family goes to bed hungry. But to the extent that clients borrow to smooth
consumption, voluntary savings seemingly offers a viable alternative, since it
equips poor households to manage income volatility without the stress of
debt. Ideally then, clients should have opportunities to save along with
opportunities to borrow. To quote Malcolm Harper, chairman of India's
Basix Finance Group, "most people, including the poor, want to have savings
nearly all the time and to be in debt less frequently."
Researchers have confirmed that even the poorest households are willing and
able to save, and that the existing informal methods (jewelry, cash-under-the-

mattress, rotating savings and credit associations (ROSCAs), etc.) do not
provide sufficient means for them to save. They carry considerable risks, of
theft, inflation, fall in asset prices after natural disasters, and so on. Also,
while the ability of the poorest to profitably utilize credit for micro-enterprise
is still an open empirical question, the desirability of promoting savings to
act as buffers against income volatility, especially for households for whom
such volatility can threaten survival, cannot be denied.
7.2.2 Dynamic incentives
Almost all MFIs start small with new clients, offer bigger loans if the first
ones are repaid, and so on. Group lenders, in particular, follow highly
standardized and rigid loan ladders which specify a maximum loan size for
each loan cycle. Economists say that these expanding cycles create a
"dynamic incentive" for clients, because what a client does today affects her
options tomorrow. Jain and Moore point out that in solidarity lending,
staggering the entry of group members into the lending cycle amplifies
dynamic incentives. For at any given time, at least one member is just a few
months away from repaying one loan and getting a bigger one. She has a
particular incentive to keep the group going by making sure all her fellow
members remain in good standing.
Progressive lending, by gingerly testing the waters with a new client, can
also be viewed as another way to winnow out risky customers. As a rule of
thumb, because of economies of scale in loan size, MFIs do not fully cover
their costs until the third or fourth loan to a client. But progressive lending is
also worrying, in that for borrowers who lack the capacity to repay, it may
create a powerful incentive to go to a second lender—a moneylender or
another MFI—for a bridge loan, to be repaid as soon as the new, larger loan
comes through from the first lender. It can thus feed a cycle of debt,

concealing, deferring, and exacerbating the ultimate confrontation with
trouble. Successful MFIs therefore cannot rely on dynamic incentives alone
to keep the portfolio healthy, but must also use other mechanisms, whether
the "shame factor" of group lending, networking in the community, or
ongoing assessment of repayment capacity to check unsustainable loan
growth. More generally, lenders create dynamic incentives whenever they
offer better loan terms down the road as a reward for on-time repayment
today. In another experiment in South Africa, for example, Karlan and
Zinman found that offering a borrower a lower interest rate on his next
consumer loan had a huge impact on repayment of the current one.
Individual lenders have harnessed dynamic incentives most effectively
because they do not have to deal with the restrictive loan ladders of group
lending and can more freely tailor individual loans in terms of lending
periods, interest rates, and repayment schedules. And in scaling up, they do
not need to worry about imposing inordinate risk on poorer, jointly liable
fellow borrowers.
7.2.3 Lending to women
The face of microfinance is usually a woman's. Some MFIs, like Crecer in
Bolivia and Kashf in Pakistan, lend exclusively to women.41 But while 89%
of the borrowers of the median solidarity group lender and 94% of the village
banking lender are female (in the 2004 MBB survey), only 54% of borrowers
of the median individual lender are. Why the gender split between individual
and group lenders? One reason may be that it is a matter of mission. Poverty
focused, group-oriented MFIs target women with their tiny loans because
their oppression only compounds their poverty in limiting options in life.
And women are more likely to channel the support to their children. The

larger loans of individual lenders may go more for enterprise investment than
consumption smoothing, and men dominate in the sphere of commerce.
Figure3. Share of borrowers who are women by lender type (median),
Micro-Banking Bulletin survey, 2004
However deserving and appropriate women may be for microcredit, this is

not the only reason they have gotten more of it. MFIs that target women
draw inspiration from Grameen. But in Grameen's early years, men actually
dominated. As Yunus and his team refined the methodology, they shifted
toward women. The focus became official in 1985. BRAC, the giant
Bangladeshi NGO, moved on the same path after it entered microcredit.
After 13 months of field work in Bangladesh, anthropologist Aminur
Rahman of the University of Manitoba came to the conclusion that the
immediate reason for the move toward women was practical. For cultural
reasons, women were more sensitive to protecting the reputations of their
families, perhaps precisely because of their relative lack of power. As a
result, in rural Bangladesh, at least, they repay more reliably. One loan

officer explained to him that, "In the field it is hard to work with male
members. They do not come to meetings, they are arrogant, they argue with
the bank workers and sometimes even threaten and scare the bank workers."
Women, he was told, are more vulnerable and submissive, and less mobile,
thus easier to track down if they do not pay. The very attractiveness of the
public meetings for women largely barred from public fora may give MFIs
leverage.
7.2.4 Frequent transactions and short loan terms
Borrowers use microcredit for a wide variety of uses, from financing
weddings to paying for day to day consumption needs to investing in
productive activities. Investment activities in turn range from substituting for
high-interest supplier's credit, which can pay dividends in a single day, to
buying calves that will not generate returns for months. Yet micro loans
almost always require frequent, regular payments that start immediately after
disbursement. And they usually mature with six or twelve months.
Microcredit, then, is poorly matched to many common investments.
Clearly the frequent payments and short terms are pragmatic. Allowing
microcredit borrowers to pay all principal and accumulated interest in a
single transaction years after disbursement would invite disaster, just as it
would for home mortgages. Much of the discipline that one hopes for from a
loan would evaporate. Likewise, the need to immediately repay filters out
prospective clients in the same way as forced savings. Thus, microcredit
often restricts itself to those who already have enough income to repay the
loan from other sources, regardless of the success of any new enterprise they
pursue. Again, we see MFIs designing a structure that selects less- risky
borrowers and elicits compliance from them.
7.2.5 Matching rates to costs

The microfinance world was once intensely divided over the question of
whether interest rates ought to be subsidized, to help the poorest, or not, so
that MFIs can grow faster. The debate cooled somewhat as the icons of
poverty focus, such as Grameen, reached operational self sufficiency. We do
not take a position on that question. Rather, we merely observe that if the
objective is commercial viability—or being close enough to it that the need
for subsidy does not throttle growth—rates must be high enough to cover
most or all costs. In accepting this mathematical reality, we recognize that
there is such a thing as interest rates that too are high though defining the
threshold is both difficult and beyond the scope of this paper. How high the
interest rates actually are in any particular case can be difficult to ascertain.
Indeed, one has to conclude that one common design strategy is to obscure
the true cost. Perhaps for simplicity, MFIs often state their interest rates on a
"flat" basis—that is, relative to the original loan amount. But if an MFI
makes a $100 loan to be repaid in equal installments over 50 weeks, then
over the course of the year the average balance is only about $50. Thus the
effective interest rate, relative to the average balance, is about twice what it
appears to the naïve.
In addition, MFIs may charge origination fees, force savings that earn below-
market interest or none at all, or sell credit life insurance at high prices. The
best, systematically collected measure of the interest rate, then, may be the
gross portfolio yield, an MFI's ratio of income on loans to loans outstanding.
In the 2004 MBB sample of 302 MFIs, individual lenders reported a gross
portfolio yield of 32.0% at the median (24.9% after adjusting for inflation),
while solidarity lenders charged 41.7% (32.7% after inflation) and village
banks 48.9% (39.1% after inflation). These figures understate the actual
charges to the generally slight extent that arrears reduce yield. Since they are

medians, half the solidarity lenders earn more than 41.7% and half the
village banks earn more than 48.9%.
7.2.6 Limited product offerings and streamlined procedures
An unfortunate side-effect of frequent transactions is high administrative
burden. It is therefore imperative for MFIs to streamline transaction
processing. One way to do this is to limit field officer travel time per client.
In urban areas such as the Dhaka slums where Safe Save operates, it is
practical for field workers to go door to door; Safe Save reports that its
officers visit up to 200 clients a day. Field workers for individual lenders in
urban Latin America also typically spend much of their time visiting clients
where they live and work. But in somewhat less-dense areas, most MFIs
insist that clients come partway to the loan officers, through regular
meetings. Thus, in addition to making banking a public event, the meetings
facilitate mass production. A group field worker can bicycle into a village,
process a large number of transactions, and move on. In Bangladesh, workers
follow highly regimented schedules, typically visiting two to three centers
each morning to manage the weekly meetings. The loan repayments and
savings collected at the meeting are taken back to the branch office at noon,
where the worker logs all the transactions, leaving enough time in the late
afternoon to follow up on either new group formation or members with
payment arrears.
7.2.7 Forced savings
A common element in classic solidarity groups and village banking is
compulsory, or "forced," savings. Forced savings are collected during the
group meetings, usually pay no interest, and cannot be withdrawn until the
member exits the group. In effect, they accelerate loan repayment so that

toward the end of a loan cycle, the MFI is actually in debt to its clients.
Compartamos collects 10% of each loan and FINCA-Nicaragua collects 32%
of the individual loan as forced savings. Compartamos collected the savings
when a loan is granted and returns them at the end of the loan cycle. FINCA-
Nicaragua, has borrowers make he savings in equal installments at meetings
and does not returned them unless the borrower exits the village bank. Both
MFIs also have recourse to village bank forced savings in the case of loan
default by a village bank member or if the entire village bank fails. MFIs
offer two main reasons for collecting forced savings: 1) to serve as cash
collateral for loans, and 2) to inculcate the habit and discipline of regular
saving. From the way forced savings are actually structured, however, the
collateral explanation appears most compelling. The habit and discipline of
regular saving can equally well be inculcated by offering voluntary time
deposit accounts (analogous to certificates of deposit), or by commitment
savings accounts, where each client chooses to commit to depositing a fixed
sum at regular intervals. If, however, forced savings are premised that the
poor are unwilling to save unless forced, then this is clearly a false premise
since ample evidence now exists that the poor are both willing and able to
save. The cash collateral motive does make sense. Forced savings reduce
MFI financial exposure when a village bank or a solidarity group center
ceases to function. Indeed, the threat of losing savings can deter such failure.
The fact that MFIs often do not return forced savings till a member leaves
the program thus makes business sense. Similarly, using forced savings to
cover the missed payments of individual clients helps the MFI recover
losses. And by making the entire group center or village bank share the
financial cost of default, social pressure is exerted on clients to make timely

payments and to offer cross-loans to each other to cover the shortfall when
difficulties arise.
7.2.8 Credit life insurance
In addition to compulsory savings, some group lenders require borrowers to
buy credit life insurance, which covers their debts if they die. Grameen
Koota, a solidarity group MFI in India, has members pay a total of 2% of the
loan amount in equal weekly installments into an "Emergency Fund" that is
used to write off the outstanding loan balance if the borrower dies. In
addition, $11 (Rs. 500) are paid to the family for funeral expenses if the
deceased borrower had been with the MFI for less than one year, and double
that amount for a longer membership period. Like forced savings, credit
insurance helps both clients and MFIs. It helps clients, of course, by reducing
risk. It reduces risk for the group because the members are protected from
having to choose between running after deceased's grieving family or
covering the loss themselves. For the MFIs, it lowers the risk from death of
borrower. It also earns fee income at low administrative expense. Indeed,
Grameen Koota's 2% fee seems high when you consider that the break-even
price of credit life insurance as a percentage of the loan balance, assuming no
transaction costs, equals half the percentage of borrowers who can be
expected to die during the loan repayment period. For example, if an MFI
lends $100 each to 100 women and one can be expected to die on average,
half-way though repayment—then the loss would be $50, or 0.5% of the
$10,000 total lent, and a 0.5% fee would cover insurance costs. Seen through
this lens, the 2% fee on one year loans implies an expected death rate of
4%/year, which seems unrealistically high—or another way of raising the
effective interest rate. FINCA-Uganda, a village banking MFI, has pioneered
a life insurance product in Uganda that seems more forthright, costing less

and offering more in a riskier environment, where HIV prevalence is high. It
began in 1996 in partnership with the American Insurance Group (AIG).
FINCA-Uganda charges its clients 1% of the loan amount as the cost of
insurance, of which half is paid to AIG and half retained by FINCA. In the
case of the client's accidental death, not only is the outstanding loan is
written off but the heirs receive a substantial $1100. (If the death is not by
accident, only the loan is written off.) There is a $600 pay-out for the
accidental death of a spouse, and $300 for a child.58 The product turned out
to be so profitable that by 2004, AIG Uganda was selling credit life
insurance through 26 MFIs in Uganda, Tanzania, and Malawi, and was
projected to earn just under $200,000 from the product, 25% of total earnings
Chapter – 8

Policies and Regulatory Framework
8.1 REGULATORY FRMEWORK OF MICROFINANCE

INSTITUTIONS (MFIs)
8.1.1 Policy Framework for Micro finance system
A salient feature of MFIs has been that they have sprung up spontaneously to
meet a market demand similar to the creation of micro-businesses. These
institutions which have been set-up at first as small village based voluntary
associations to cater to each other’s needs have gone through an evolutionary
process to become sometimes national level MFIs. Despite varying sizes,
MFIs handle other people’s money and, therefore, the viability and solvency
of these institutions have become a crucial issue in MFI policy frameworks.
Given the fact that they function as depositories for the most vulnerable
groups at the bottom of the income pyramid, a failure of an MFI may entail
greater social costs from a welfare point of view than that of a higher level
lending institution.

The policy response to the need for establishing a regulatory mechanism for
MFIs has basically taken three approaches:
(a) Allowing MFIs to self-regulate and bringing them under strict market
discipline;
(b) Regulating only large MFIs which have a systemic impact on the entire
financial system or the microfinance market;
(c) Bringing all MFIs into a regulatory net so as to establish a viable micro-
finance system.
Each of those approaches have their own merits and demerits and therefore a
country should choose very carefully the most appropriate system, since both
regulation and non-regulation entail differing costs on the society.
(a) Self Regulation and Market Discipline
Self regulation requires MFIs to follow and adopt internal control, good
governance and proper disclosure systems so that the sustainability of MFIs
would be ensured through self motivation. Hence, in the long-run, it is the
self regulation that ultimately preserves the viability of an MFI. This is
because, however much external regulation is employed, without internal
stability, an MFI would not be able to survive in a hostile market
environment.
The following are the important elements of self-regulation of MFIs:
(a) Adoption of proper internal control systems to prevent, detect and deter
fraudulent behaviour on the part of MFI employees. It is equally important to
maintain strict discipline among employees as a deterrent to fraudulent
behaviour.
(b) Practicing self-restraint in the behaviour by clearly pre-announcing the
policy of an MFI.

(c) Commitment to continuous improvement of the management quality so
that an MFI would gain capability of withstanding adverse external shocks
and going through difficult periods.
(d) Team-work should be promoted in order to capitalize on the full potential
of workers and thereby ensure the sustainability of its actions.
(e) Installation of good management information systems so as to procure
timely data for making informed decisions, giving advance warning of
impending disasters and preventing adverse developments within the
organization.
The self-regulation should be coupled with a policy of subjecting MFIs to
market discipline to realize the best results for the system. The market
discipline would help an organization to develop itself on a sustainable basis,
solidify its operations and attain the necessary resilience to withstand or
absorb adverse external shocks. Since the market discipline operates on the
basis of rewarding well doers and punishing ill-doers, it requires to
automatically close-down MFIs that fail to maintain the required market
norms. It is however of interest to assess the welfare cost of such automatic
closing of ill-performing MFIs.
The continuation of an ill-performing MFI with outside support would
generate two basic economic issues: moral hazard problem and adverse
selection problem. The presence of either of these problems is injurious to
the long-term well-being of a viable MFI system. The automatic closing of
an MFI resolves both problems simultaneously. It reminds MFIs that they
should stand on their own (elimination of moral hazard) and that they cannot
expect to gain by forming MFIs to receive public funds (absence of adverse
selection). The MFIs that could continue to pass the tests of the market are

efficient, viable and sustainable. Hence, the welfare gains to the society by
subjecting MFIs to market discipline are substantial.
The loss to the society would be the loss of the financial savings of the poor
who would have been indoctrinated into savings habits by a micro-finance
program. The resultant loss of confidence of the participants in the
microfinance systems in general and MFIs in particular would adversely
affect the success of microfinance based poverty alleviation programs. This
is, however, a short-term impact and could be eliminated through an
effective insurance system.
In view of the net welfare gains involved, it is best that MFIs are allowed to
be self-regulated and subject to market discipline in order to maintain their
liquidity, stability and solvency in the long run. Any external regulatory
mechanism could only supplement this main pillar of ensuring the long-term
sustainability of MFIs.
(b) Regulation through External Bodies
The response of the authorities who are skeptic of the virtues of self-
regulation and market discipline has been to bring MFIs under the umbrella
of a governmental regulatory mechanism. The coverage of the regulation
varies from regulating only the large MFIs with a systemic impact at one end
to all MFIs that form the MFI net of the country at the other. Since all MFIs
have their origin as non-governmental organizations (NGOs) and NGOs do
not have an equity ownership, the management of an MFI has the incentive
to abuse its powers to work for a self-fulfilling objective either individually
or as a collective group. This apparent deficiency in the NGO evolved MFI
model has made the authorities cautious of allowing such MFIs to handle
other people’s money, specifically, the poor people’s money. Hence, as the

production of a public good, attempts have been made to maintain their
stability and solvency by introducing a regulatory mechanism for MFIs.
Whatever the scope of regulation, MFIs could be regulated by authorities by
adopting two methods.
1. Establishment of a Government Regulatory Authority to Regulate
MFIs
In this method, a separate authority to be established by the government
would regulate and supervise MFIs which are brought within its purview. In
view of the high cost involved and the need for minimizing the burden on tax
payers, the authorities sometimes choose to regulate only the large and
national level MFIs which could exert a systemic impact on the financial
system. In other options, the regulatory arm could be extended to all MFIs so
that the government takes responsibility for maintaining a stable, viable and
solvent MFI system for the benefit of the poor. The establishment of a
separate governmental authority for regulating MFIs is justified on the
following grounds:
(i) The need for a distinctive regulatory approach for MFIs, in view of the
significant difference between MFIs and higher level financial institutions;
(ii) The recognition of the need for having a lighter regulatory structure for
MFIs which are fledgling institutions and vulnerable to market vicissitudes;
(iii) The need for preventing the normal banking supervisory authorities from
being overstretched by having to regulate a large number of MFIs as well.
When a separate regulatory authority is established for MFIs, such authority,
adopting a system of differential regulatory methods, should be given full
powers to approve or disapprove MFIs, call for information, examine books
and other records and issue directives, guidelines and regulations to MFIs.
2. Outsourcing the Supervisory Work of MFIs to Outside Bodies

In view of the large number of MFIs operating in a country, it is neither
practicable nor cost-effective for a single regulatory authority to attempt at
covering all MFIs. To minimize the costs, but at the same time, maintain the
required efficacy, the supervisory work could be outsourced to other
organizations such as accounting and audit firms, whenever there is evidence
to suggest an impending crisis in the MFI system. In addition to the cost
minimization, this method has the following merits:
(i) The ability to engage specialists who are specifically competent and
skilled in the products, affairs, operations and businesses of MFIs;
(ii) The flexibility of resorting to supervision whenever the need arises,
thereby avoiding a continuous and regular supervision;
(iii) The possibility of effecting the required supervision through a lean body
at the center
To facilitate the adoption of this method, it is necessary to prepare the
guidelines, benchmarks, norms and internal control systems in detail so that
the outsourced supervisors could follow a uniform method of supervision. It
is also advisable to introduce a separate accounting and auditing standards
system for MFIs, since such standards applicable to normal financial
institutions may be too stringent and prohibitive for MFIs. The regulatory
mechanisms of MFIs should, of necessity, be based on both self regulation
and market discipline and external oversight by a supervisory and regulatory
authority. The two approaches are complementary to each other. Hence, in
the absence of either approach, the other cannot deliver the required results.
8.1.2 Structure of Micro-Finance in India
India also has followed a policy of non-regulation of MFIs formally. The
requirements applicable to MFIs do not go beyond, as in other non regulating
countries in the region, the administrative and simple accounting

requirements of charities, trusts, etc. The country has been relying on self-
regulation as an effective way of ensuring the proper functioning of MFIs.
Given the need for streamlining microfinance and promoting it as an
effective tool for poverty alleviation, ADB (2000) has made the following
proactive recommendations to be adopted by the Reserved Bank of India
(RBI):
(i) RBI should promote understanding that higher interest rates provide
increased access to finance for the poor rather than exploiting them;
(ii) RBI should initiate action to bring the needed legal framework for
MFIs;
(iii) RBI should establish prudential regulation and supervision structures for
MFIs which are appropriate to their size;
(iv) RBI should develop prudential norms and reporting standards for MFIs.
Micro-Finance Institutional Structure in India
The different organizations in this field can be classified as "Mainstream"
and "Alternative" Micro Finance Institutions (MFI).
(A) Mainstream Micro Finance Institutions
• NABARD National Bank for Agriculture and Rural Development,
• Small Industries Development Bank of India (SIDBI),
• Housing Development Finance Corporation (HDFC),
• Commercial Banks, Regional Rural Banks (RRBs), the credit co-
operative societies etc are some of the mainstream financial
institutions involved in extending micro finance.
(B) Alternative Micro Finance Institutions
These are the institutions, which have come up to fill the gap between the
demand and supply for microfinance. MFIs were recently defined by the

Task Force as "those which provide thrift, credit and other financial services
and products of very small amounts, mainly to the poor, in rural, semi-urban
or urban areas for enabling them to raise their income level and improve
living standards."
The MFIs can broadly be classified as:
• NGOs, which are mainly engaged in promoting self-help groups
(SHGs) and their federations at a cluster level, and linking SHGs with
banks, under the NABARD scheme.
• NGOs directly lending to borrowers, who are either organised into
SHGs or into Grameen Bank style groups and centres. These NGOs
borrow bulk funds from RMK, SIDBI, FWWB and various donors.
• MFIs which are specifically organised as cooperatives, such as the
SEWA Bank and various Mutually Aided Cooperative Thrift and
Credit Societies (MACTS) in AP.
• MFIs, which are organised as non-banking finance companies, such as
BASIX, CFTS, Mirzapur and SHARE Microfin Ltd.
8.1.3 Key Focus Areas of Micro Finance Initiatives
Goal 1 Eradicate extreme poverty and hunger
Goal 2 Achieve universal primary education
Goal 3 Promote gender equality and empower women
Goal 4 Reduce child mortality
Goal 5 Improve maternal health
Goal 6 Combat HIV/AIDS, malaria and other diseases
Goal 7 Ensure environmental sustainability
Goal 8 Develop a global partnership for development
8.1.4 Global Targets of Micro Finance Programmes

Target: 1 Halve, between 1990 and 2015, the proportion of people
whose income is less than $1 a day
Target 2: Halve, between 1990 and 2015, the proportion of people
who suffer from hunger
Target: 3 Ensure that, by 2015, children everywhere, boys and girls
alike, will be able to complete a full course of primary schooling
Target 4: Eliminate gender disparity in primary and secondary
education, preferably by 2005, and to all levels of education no later
than 2015
Target 5: Reduce by two-thirds, between 1990 and 2015, the under-
five mortality rate
Target 6: Reduce by three-quarters, between 1990 and 2015, the
maternal mortality ratio
Target 7: Have halted by 2015 and begun to reverse the spread of
HIV/AIDS
Target 8: Have halted by 2015 and begun to reverse the incidence of
malaria and other major diseases
Target 9: Integrate the principles of sustainable development into

country policies and programmes and reverse the loss of
environmental resources
Target 10: Halve by 2015 the proportion of people without

sustainable access to safe drinking water and basic sanitation
Target 11: Have achieved by 2020 a significant improvement in the

lives of at least 100 million slum dwellers
Target 12: Develop further an open, rule-based, predictable, non-
discriminatory trading and financial system (includes a commitment to

good governance, development and poverty reduction – both
nationally and internationally)
Target 13: Address the special needs of the Least Developed
Countries (includes tariff- and quota-free access for Least Developed
Countries’ exports, enhanced programme of debt relief for HIPCs and
cancellation of official bilateral debt, and more generous ODA for
countries committed to poverty reduction)
Target 14: Address the special needs of landlocked countries and
small island developing states (through the Programme of Action for
the Sustainable Development of Small Island Developing States and
the twenty-second General Assembly provisions)
Target 15: Deal comprehensively with the debt problems of
developing countries through national and international measures in
order to make debt sustainable in the long term
Target 16: In cooperation with developing countries, develop and
implement strategies for decent and productive work for youth
Target 17: In cooperation with pharmaceutical companies; provide
access to affordable essential drugs in developing countries
Target 18: In cooperation with the private sector; make available the
benefits of new technologies, especially information and
communication technologies
8.1.5 Micro-finance Initiatives
1. Backward Regions Grant Fund (BRGF)
BRGF is designed to redress regional imbalance in development. It was
launched in February, 2006 and covers 250 districts in 27 States. The
Rashtriya Sam Vikas Yojana which covered 147 districts has been subsumed
into BRGF.

The fund provides financial resources for supplementing and converging
existing developmental inflows into the identified districts, so as to:
1. Bridge critical gaps in local infrastructure and other development
requirements
2. Strengthen, to this end Panchayat and Municipality level governance with
more appropriate capacity building for participatory planning
3. Provide professional support to local bodies for planning, implementation
and monitoring their plans
4. Improve the performance and delivery of critical functions assigned to
Panchayats
The Programme has two components namely, a district component covering
250 districts and Special plans for Bihar and the KBK districts of Orissa.
This allocation was Rs 3,600 crore in 2007-08.
Strategy
BRGF focuses on implementation of the process of participative planning.
Centrally sponsored schemes have specific sectoral objectives and targets.
BRGF can be used to supplement them through a comprehensive macro
approach cutting across sectors and meeting inter-sectoral requirements.
Salient features of the BRGF Programme:
• BRGF consists of two funding windows, namely, a Capacity
Building Fund and a substantially untied grant.
• The substantially untied grant is to be distributed among the districts
as follows: (a) every district will receive a fixed minimum amount of
Rs 10 crore per annum, and (b) the balance allocation under the
scheme will be made on the basis of the share of the population and
area of the districts in the total population and area of all the backward
districts.

• Each Panchayat or Municipality within the backward district
concerned will be the unit for planning under BRGF. Plans prepared
by each Panchayat or Municipality will be consolidated into the
District Plan by the District Planning Committee.
2. Special Provisions for Schemes for Schedule Caste and Schedule
Tribes: Training of educated youth, pre-recruitment training for para-
military and other security forces, provisions of tractors and agricultural
implements to self-help groups, construction and allotment of shops and
provision for setting up of secondary schools, colleges, hostels and industrial
training institutes.
3. Special provisions for States and Districts:
Special provisions have been made in the guidelines for the districts in J&K,
Assam, Manipur, Meghalaya, Mizoram, Nagaland and Tripura which do not
have Panchayats. The traditional village-level bodies and institutions in these
districts will plan and implement the programme in these areas.
4. Major anti-poverty, employment generation and basic services
programmes Pradhan Mantri Gram Sadak Yojana (PMGSY)
PMGSY was launched on December 25, 2000 as a 100-per cent centrally-
sponsored scheme with the primary objective of providing all-weather
connectivity to the eligible unconnected habitations in the rural areas. The
programme is funded mainly from the accruals of diesel cess in the Central
Road Fund.
In addition, support of the multilateral funding agencies and the domestic
financial institutions is being obtained to meet the financial requirements of
the programme. Up to December, 2007, about 1,42,750 kilometre-long road
works have been completed with a cumulative expenditure of Rs. 27,382.24
crore.

5. Indira Awaas Yojana (IAY)
This scheme aims at providing dwelling units, free of cost, to the poor
families of the Scheduled Castes, Scheduled Tribes, freed bonded labourers
and also the non SC/ST persons below the poverty line in rural areas. The
scheme is funded on a cost sharing basis of 75:25 between the Centre and the
states.
During the current financial year Rs 4,032.70 crore has been earmarked for
release to DRDAs under IAY for construction of 21.27 lakh houses. As per
the information received from the state governments, 9.39 lakh houses have
been constructed up to November 2007.
6. Sampoorna Grameen Rozgar Yojana (SGRY)
SGRY was launched on September 25, 2001. The objective of the
programme is to provide additional wage employment in the rural areas as
also food security, alongside creation of durable community, social and
economic infrastructure in the rural areas. In 2007-08 up to December 31,
2007, the number of person-days of employment generated under SGRY was
11.6 crore while the Centre’s contributions in terms of cash and food grain
component up to December 31, 2007, were Rs 1,142.27 crore and 9.55 lakh
tonne respectively. Under the special component, about 0.55 lakh tonne of
food grain have been released to calamity-hit states in the current year up to
December 2007. The SGRY programme in 330 districts has already been
subsumed in the National Rural Employment Guarantee Scheme (NREGS)
(200 districts in the first phase during the year 2006-07 and 130 additional
districts in the second phase during 2007-08). The SGRY programme will be
entirely subsumed in NREGS with effect from April 1, 2008.
7. Swarna Jayanti Shahari Rozgar Yojana (SJSRY)

In December 1997, the Urban Self-Employment Programme (USEP) and the
Urban Wage Employment Programme (UWEP), which are the two special
components of SJSRY, were substituted for various programmes operated
earlier for urban poverty alleviation. The fund allocation for the scheme was
Rs 344 crore during 2007-08 and Rs 256.41 crore has been released up to
December 4, 2007. During 2007-08, under USEP, 0.44 lakh urban poor were
assisted to set up micro/group enterprise and 0.60 lakh urban poor were
imparted skills training up to the end of November 2007. Under UWEP, the
man-days of employment generated was 6.77 lakh up to the end of
November 2007. Cumulative coverage of beneficiaries under the Community
Structure Component was 358.13 lakh up to the end of November 2007.
8.2 Information Technology
8.2.1 Framework for implementing IT in rural development
Rural IT: Conceptual Framework
We examine the potential for rural IT use, both from supply and demand
perspectives. On the supply side, we examine the technical and
organizational issues that arise for delivering IT-based services to rural
populations in India. On the demand side, we examine the potential benefits
that IT can bring to these populations, if the implementation is successful.
We begin with the demand side, as a way of motivating the supply side
issues.
Figure 1: Rural Household Economic Decisions

Potential sources of demand for IT-based services can be framed in terms of
a simple flow diagram representing the decisions of rural households. We
will treat a typical household as engaged in farming, though this will not be
true for all of them.
Figure 1 presents a simplified representation of the various economic
decisions. Operations Inputs Selling Consumption Human capital Saving
Beginning from the left of Figure 1, input decisions include material inputs
such as seeds, fertilizer and pesticides; and capital inputs such as tractors and
land (whether through purchases or rentals); as well as the credit required for
such purposes. The focus of analysis will be market transactions for inputs.
In all cases, there is a potential for benefiting through improved information
about prices, quality and availability. Labor is also an important input, but
the labor market has special characteristics that reduce the importance of
such information in rural contexts.
Operations include decisions with respect to quantity and timing of inputs. A
crucial aspect of agricultural operations is risk management, as both the
weather and pest incidence are extremely variable. Ex ante decisions in the

face of uncertainty, as well as ex post responses to realizations of uncertainty
are both important. Predictive and technical information are both important
for agricultural operations. Continuing to the right of Figure 1, marketing of
outputs primarily requires price information. Increasingly, producing for sale
also requires knowledge of quality requirements in different markets. Selling
of produce provides income for consumption, investment and inputs (the
reverse arrows in the figure), as well as generating information that affects
input and production decisions. Non-production decisions of households can
be roughly divided into pure consumption activities, as well as human capital
investment in education and health. The boundary is fuzzy, since even basic
food consumption has nutritional impacts and therefore a human capital
component. These activities generate impacts on operations, since they affect
the quality of decision-making, as well as household labor inputs: we
indicate this with the vertical arrows. While poorer households may be
severely limited in their consumption, a significant proportion of rural
households in India have incomes sufficient to support some discretionary
consumption. In some cases, consumption may be only superficially
discretionary – social norms may dictate spending on activities relating to
marriage and other life cycle events.
Finally, the rightmost box captures household saving, again something that is
not feasible for all rural households, but is an activity of growing importance.
Saving may be for consumption smoothing, investment, or precautionary
reasons. Even this simplified and summary picture of rural households’
economic activity illustrates that they engage in a broad range of transactions
and decisions with economic impacts. What is noteworthy besides this
complexity is that many decisions are made with very limited information,
and that market interactions are often subject to high transaction costs, due to

imperfections in information, as well as high transportation costs, inefficient
intermediation and time delays. High transaction costs will always prevent
marginal transactions from being undertaken; in extreme cases, the market
may fail to function at all. Given this scenario, the role of IT can be
understood in terms of reducing transaction costs, as well as improving the
efficiency of decision making within households (both as producers and as
consumers).
Reductions in communication and transaction costs are particularly
beneficial where they can allow new markets to develop, in the sense that
existing goods and services, otherwise restricted to urban areas, or to a very
limited segment of rural populations, now can be offered to broad cross-
sections of the rural population. Examples include financial services,
particular types of education, health services, long distance communications,
and expertise on a range of production-related decisions. Whether this can be
done in a sustainable manner depends on the supply conditions for IT-based
rural services. It must be further understood that the activities outlined, in
Figure 1 and the accompanying discussion, take place within a particular
institutional environment. This includes private actors as well as
governments. For example, farmers may obtain credit and inputs, as well
contract their output, to private ‘commission agents,’ even in the presence of
government procurement and government-run local markets. Governments
play a major role in subsidizing inputs, providing infrastructure, and
enforcing property rights. To the extent that these activities are also subject
to inefficiencies, it may be the case that, in order to be successful, IT-based
interventions geared towards rural households will have to simultaneously
alter the institutional environment, or else achieve sufficient scale and scope
in order to impel changes in it. We will take this up later in the paper.

Figure 2: Value Chain for IT-Based Services
Turning to the supply side, we can illustrate the various stages of decision-
making and delivery of IT-based services in terms of a typical value chain, as
shown in Figure 2. At each stage of the chain, the IT components include a
mix of hardware, software and services. In addition, the creation of an
organizational structure and value network is a Organization and partners
Power and connectivity Computing/ peripherals Applications HRM and
CRM critical first step, while managing human resources and customers is
vital for successful final implementation.
We next discuss each of the components of the value chain in Figure 2. The
organizational structure typically requires commercial goals of profitability
to be built in. This is easily done through a standard corporate structure. It is
clear that, for scalability, some minimum size of the organization is required.
In addition, there are fixed costs of innovation that can be spread more
effectively across a larger organization. Social goals can be incorporated in
two ways. For organizations that are dedicated specifically to rural IT-based
services delivery, controlling ownership of the corporation by a non-profit
entity provides the social focus. For existing corporations with broader
businesses, social goals may enhance reputation, meet corporate social
responsibility guidelines, or otherwise be consistent with the mission and

values of the organization. In other words, including social goals may make
good bottom-line business sense.
For both types of organizations, building the right capabilities requires some
effort. Creating what amounts to a brand new infrastructure for rural IT
service delivery requires a broad mix of skills, and finding talented and
trained people who can be effective in a role that mixes entrepreneurial tasks
with corporate line responsibilities, all in an unfamiliar rural environment,
can be a challenge. One solution to the potentially insurmountable problem
of collecting the necessary talent and skills is to enter into partnerships with
other organizations that may provide specific pieces of the overall package
that is needed: application software, content, maintenance services,
technology, marketing, and so on. These partnerships can pose their own
problems, particularly in goal alignment and consequent performance
monitoring requirements. Of course all these organizational issues are well
recognized in management writing and experience: what is important is to
recognize their criticality in a setting that has more typically been the arena
of pure ‘social service’ entities such as governments and NGOs. It is also
critical to recognize that the organizational innovation required in this case is
an order of magnitude greater than the task of selling consumer goods in
rural areas, something that is now accepted as a given in India. The greater
complexity and variety of the services being delivered through IT is the root
cause of this difference.
The second stage of the supply chain in Figure 2 concerns access to electric
power and Internet connectivity. In both cases, a major constraint is the
failure of the public sector to deliver adequate power and
telecommunications to rural India. Privatization has helped in the case of
telecommunications, as has technological change. In fact, innovation in

digital communications technologies is the foundation of all rural IT-based
service delivery. While conventional telephone connectivity has often proved
inadequate for
Internet access in rural areas, because the quality of existing voice lines is
too poor to sustain data transmission, several innovations provide
alternatives that are likely to be cost effective. These include wireless in local
loop (WLL), fiber optic cables, and high powered versions of Wi-Fi (802.11
wireless standards). The Internet boom in the United States clearly played a
role in pushing down costs and speeding innovation in fiber optics and
wireless transmission. In some cases, VSAT satellite connectivity has been
used for Internet access, but it is not very cost effective. The major
challenges for connectivity are likely to be regulatory, having to do with
interconnection to the main network, and with maintenance, rather than with
the fundamental technological choices and implementation.
Electric power is more of a problem, and this is true throughout India.
Battery backups are a very partial solution to the lack of reliable power
supplies, and solar technologies may be more promising in the near future:
they are already in use in existing rural IT efforts. The difficulty is that
having to rely on these alternatives and backups unnecessarily raises costs of
operation. Of course this is true for all of India’s economy. It is well
recognized that the power sector is the major bottleneck, with capacity well
short of demand, and the quality of transmission and distribution remaining
poor.
The third stage of the supply chain is the most straightforward, because of
the standardization of components of desktop computing and peripherals,
rapid technological improvements, falling costs of production, and, most
recently, price reductions resulting from changes in tariffs on imported

hardware. It is now possible to fully equip a single computer rural Internet
kiosk for less than Rs. 50,000, including CD drive, printer, scanner, power
backup, and web cam. Potentially, the highest cost component is the
operating system, since Windows enjoys a virtual monopoly on the desktop.
However, Microsoft seems to have concessional pricing for socially oriented
developing country initiatives, and this helps to reduce costs. The operating
system is still typically in English, but as long as simple drills can take kiosk
operators to local language applications and content, this is not a substantial
usage barrier. One can conclude that this stage of the supply chain is easiest
to implement, with a highly standardized, almost cookie-cutter approach –
although ongoing maintenance can be a challenge. The major business
decision is whether to have more than one computer per kiosk, but
experience suggests that one is sufficient for almost all situations, at least in
the beginning.
The next stage of the supply chain, namely applications, presents more
challenges. The range of possible applications is vast. Many IT-based
services require non-IT logistics or processes as complements. Availability
of local language software becomes more of a constraint. There is much
more variation across localities, not just regions. Delivery of services or
development of content often stretch the resources and expertise of the
primary provider, and require varied partnerships or other contractual
relationships. Deciding the sequencing, scope and sophistication of various
applications can be a major challenge, since many of the services are being
offered for the first time, or are being delivered in novel ways that challenge
existing institutional frameworks and relationships. Pricing for low income
markets, where market penetration is limited in any case, and where some
services may be perceived as public goods that are traditionally un-priced,

presents another major challenge. In the case of financial services or
government records or services, substantial government cooperation may be
required, raising political and bureaucratic hurdles. In some ways, of course,
the essence of the success of the rural IT-based-service business model
depends on the selection, quality and pricing of the services being offered.
What is interesting is that a substantial amount of learning has occurred in
this arena, in just a few years.
The final stage of the value chain in Figure 2 refers to human resource
management (HRM) and customer relationship management (CRM). In this
context, these more general terms take on specific focuses. Training of rural
kiosk operators, whether they are formal franchisees or independent farmer
operators, becomes a key aspect of the delivery model. Training the field
personnel at various levels (village and district hub) is also critical.
Gathering customer information on usage patterns (nature and timing of use),
revenue streams, and responsiveness to pricing, social acceptance, and so on
is also vital, as these are brand new markets in terms of the nature of service
delivery.
Furthermore, being able to respond to this information with appropriate and
timely changes in strategy is also necessary for successful implementation.
One might expect that a ‘labor surplus’ developing economy such as India’s
would not have a problem with the more labor-intensive tasks at either end of
the value chain as it has been mapped in Figure 2. However, it seems that
these value chain activities are the most difficult to carry out successfully,
because those with the requisite skills are more likely to be taken up by more
traditional corporate organizations, in urban environments. This does not
minimize the challenges associated with technical implementations and
adaptations for rural areas, whether in software, hardware and maintenance.

However, solutions in these cases are often one-time and replicable, whereas
building organizational expertise involves much more of a situation-specific
or local approach.
We have so far provided a general and abstract discussion of the various
aspects of supply and demand of rural IT-based services. In the next section,
this discussion is made more concrete and specific, through an assessment of
several initiatives in India.
8.2.2 Rural Development programmes
Information Technology in the Rural Development
IT – Information Technology has always been on the forefront of any
development since its inception. So, in the field of Rural development it has
also played a very crucial role. Following are the various rural IT initiatives
that have been undertaken
1. Common Service Centres (CSCs)
A Scheme to facilitate establishment of 1,00,000 broadband internet enabled
Common Service Centres (CSCs) in rural areas of the country has been
approved by the Government. The Scheme has been approved with an
estimated cost of Rs 5,742 crore and is being implemented in Public Private
Partnership mode. The CSCs are one of the three infrastructure pillars of the
National e-Governance Plan and would serve as the physical front end for
delivering government and private services at the doorstep of the citizen. The
Empowered Committee has sanctioned proposals from 26 States with a cost
of Rs.1,585.63 crore.
2. Common Service Centres (CSCs)
The Government has approved a Scheme for facilitating establishment of
100,000 broadband internet enabled CSCs in rural areas of the country. This

Scheme has been approved at a total cost of Rs 5742 crore, and is being
implemented as a Public Private Partnership. The CSCs are one of the three
infrastructure pillars of the National e- Governance Plan and would serve as
the physical front end for delivering government and private services at the
doorstep of the citizen. Proposals for 26 States have been sanctioned by the
Empowered Committee at a total cost of Rs.1585.63 crore. Currently three
states (Jharkhand, West Bengal & Haryana) have awarded the work and
implementation of CSCs in these States is underway. Another three States
Bihar, Tripura & Gujarat) have also awarded the work and the
implementation in these States is expected to begin shortly. In additional
seven States, the work relating to bid evaluation of SCAs has been completed
and it is expected to award the work shortly. Further, RFP for setting up of
100,000 CSCs is expected to be issued shortly.
3. Community Information Centres (CIC)
Department of Information Technology (DIT) had taken up an initiative for
the setting up of Community Information Centres (CICs) in the hilly and far-
flung rural areas of the country with an objective to bring the benefits of ICT
to the people for socio-economic development of these regions and to
alleviate the digital divide between urban and non-urban areas. The CIC
projects taken up in North East were for the setting up of 487 and
subsequently 68 CICs, at block level, in the 8 North-Eastern States i.e.,
Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland,
Tripura and Sikkim. This initiative was extended to Jammu & Kashmir,
Andaman & Nicobar Islands and Lakshadweep Islands.
4. UNDP

Under the UNDP sponsored project ICT for Development (ICTD), four
themes for ICT applications in development sector were identified, namely,
integrated citizen services, enhancing rural livelihoods, transforming
governance and women’s empowerment. In line with these themes, 12 pilot
projects were approved and provided initial financial support. Most of these
projects are at advanced stages and a few of them are in operational stage.
One of the projects has already been commissioned and is providing 26
different G2C and B2C services to local citizens using single window
through a network of 17 centres spread across Bangalore and is to be
replicated in other towns. Similarly more than 25 G2C services are being
provided through I-CoSC kiosks in Shimla. Through DRISTI pilot initiative
improved transparency and accountability of the (Panchayathi Raj
Institutions) PRIs has been achieved in Burdwan district of West Bengal and
the State Government is replicating the same in 17 districts. Also in East and
West Godawari district of Andhra Pradesh livelihoods opportunities
including adoption of better agricultural practices and education and health
services are being augmented in rural areas through videoconferencing with
experts. In Mysore district through another pilot initiative the project has
empowered rural women through capacity building on use of ICTs for
creation of audio and video content on women’s issues and using community
broadcasts and listener’s clubs. The remaining pilot initiatives are scheduled
to be completed by June 2008.
5. India Development Gateway (InDG)
India Development Gateway (InDG) project being implemented by C-DAC
Hyderabad aims to provide responsive and credible information products and
services in local languages catering to the needs of rural communities. As
part of the project, a multilingual portal (www.indg.in) has been developed

which hosts information related to agriculture, health, primary education,
rural energy and e-governance and provides information in four languages
-Hindi, Tamil, Telugu and English. Further, InDG has established
partnerships with over 60 stakeholders from Government, civil society,
academia and private sector for content sharing, validation, and translation
and outreach activities. Also events such as consultative workshops,
community level ICT awareness meetings and capacity building of village
kiosk operators were organized as part of InDG’s outreach activities. Over
1100 development professionals and village knowledge centre operators
participated in about 15 events, held in the states of Andhra Pradesh, Tamil
Nadu and Jharkhand.
6. Media Lab Asia
The Media Lab Asia has been set up by Government of India, Ministry of
Communications and Information Technology as a not- profit organization
under section 25 of companies Act with an aim to bring the benefits of the
most advanced information and communication technologies to the common
man and the needy people.
Media Lab Asia is working on the paradigm of collaborative research in the
task of developing relevant and sustainable technologies and bringing them
to the daily lives of people. It is operating through national network of
Research laboratories (Technical, Medical, Management, NGO. Domain
Experts etc., 58 numbers at present). Its objectives include Multi-disciplinary
R&D, Proof of Concept, Pilot Testing and Deployment through Public
Private Partnership (PPP) model.
Media Lab Asia's application development is focused on use of ICT for
healthcare, education, livelihood generation, empowerment of the disabled
and providing rural connectivity. The Media Lab Asia projects are generally

centered around these themes. Media Lab Asia is identifying technologies
that can be taken to the land for deployment and it is implementing
deployment projects.
Achievements during the year 2008-09
• Currently handling 75 projects in 1500 villages, in 12 States with 58
Collaborators where 200 researchers are working.
• Large number of persons have been trained in ICT under the projects
& 125 papers have been published. 3 persons have received their
Ph.Ds and 5 patents filed.
• Nine technologies are being transferred to more than 10 interested
parties for large scale deployment.
• Work is going on for 4 National Deployment initiatives.
Awards
• Sanyog has received National Award as best adaptation to cost
effective technology for persons with disabilities.
• Media Lab Asia (Project: Sanyog) has received NASSCOM
Innovation Award 2007, for "Market Facing Innovation – Emerging
Companies" category.
• Media Lab Asia has been listed in NASSCOM's top 100 IT innovators.
• e-Sagu has been awarded "The Manthan Award 2007 - India's Best e-
Content for Development category.
7. ICT for Healthcare
Sehat Saathi- Portable Model of Primary Healthcare Delivery: Sehat
Saathi is a rural telemedicine system that can be used to extend medical care
to patients in the remote parts of the country. The model provides for front-
end contact through a suitably trained non-medical person; back end support

from doctors, pathologists and other health professionals for diagnosis and
treatment.
The pilot deployment of Sehat Saathi (ophthalmology module) telemedicine
software has been done at Primary Health Centre (PHC) Chaubepur
(Kanpur) in collaboration with Ministry of Health and Family Welfare. An
expert eye treatment provided to more than 700 patients over a period of 6
months. The transfer of technology of Sehat Saathi (Ophthalmology module)
system is in progress.
Development of wireless integrated biomedical devices for rural
healthcare: The objective of the project is to develop affordable wireless
integrated biomedical devices for rural healthcare. These wireless
integrated biomedical devices are useful in the mobile telemedicine
system for providing treatment to the patients in the rural areas. The
biomedical equipments are integrated using wireless technology. The
field trial of wireless network and telemedicine system has been taken up
at Ettimadai Campus.
Adaptive & Automatic Insulin Pump: The objective of the project is to
develop affordable automatic insulin pump based on MEMS
(microelectro- mechanical systems) mechanism and a biosensor for
estimating blood glucose level. It is useful for development of affordable
drug delivery system. The software logic of the pump is useful for
computing drug dosage for automated injection through coupling of the
biosensor to MEMS (microelectro- mechanical systems). The design of
insulin pump and biosensor for blood glucose measurement has been
done and the development of the same is in progress.
Resource shared healthcare delivery system using telemedicine at
Tirur taluk Mallapuram, Kerala: The objective of the project is to

develop a test model for taking telemedicine for addressing primary
healthcare in a sustainable way. The telemedicine centres of the project
are identified as suggested by Department of Health and Family Welfare,
Government of Kerala. The overall architecture consists of 4
Telemedicine Specialty Centers (Medical College Hospital-
Thiruvananthapuram, Medical College Hospital- Kozhikode, Sree Chitra
Tirunal Institute of Medical Sciences and Technology-
Thiruvananthapuram, Regional Cancer Centre-Thiruvananthapuram),
Telemedicine remote Centres and Data centre at Thiruvananthapuram.
The specialty centres and remote hospitals are connected to the KSWAN
with Wi-Fi technology. The doctors at Specialty Hospitals and patient at
the PHCs can communicate using the videoconferencing facility
supported by this network.
The specialty hospitals and the PHCs are accessing the data centre
resource using Wi-Fi connectivity. The web based telemedicine software
is developed on open source frameworks.
Low Cost Mobile Telemedicine Facility at Cherthala - Alappuzha
district of Kerala: The objective of the project is to develop a model for
affordable mobile telemedicine system for primary healthcare. A Mobile
tele-clinical van with necessary medical equipments goes in a predefined
schedule to the rural areas (20 villages in Cherthala taluk). The mobile
telemedicine van will have a basic set of medical diagnostic equipments,
a Doctor, Nurses, Lab technicians and driver cum attendant.
The wireless connectivity is provisioned between the van at specified
locations and the Specially Hospital for connecting the patents to the
doctor at the hospitals. The design of the Mobile van has been completed
and the development and deployment of the system is in progress.

Development of low cost feature rich telemedicine terminal: There is a
nationwide public healthcare infrastructure already established in India.
This infrastructure can be fortified by augmenting them with ICT
technologies and services to address primary healthcare more effectively.
A project has been taken up to development an affordable and appropriate
terminal for telemedicine solutions for primary healthcare. The
telemedicine terminal would have provision for high quality video-
conferencing, interfaces for selective medical diagnostic equipments,
local storage, LAN/WAN connectivity and Ethernet functionality. The
equipments will be locally maintainable and portable. The telemedicine
system will be robust and user friendly for the patients-doctors and
affordable for primary healthcare. The design of telemedicine terminal is
completed. Development of the telemedicine terminal is in progress.
Rural Health Management Information System: A project has been
taken up for developing a model for IT based health services at grass root
level by strengthening the health data collection and synthesizing relevant
information for healthcare management at 20 PHCs/CHCs/BPHCs of
Tirur Taluk of Mallapuram, Kerala. Handheld devices are used by health
workers for capturing data from the field. The data collected by the health
worker will be uploaded in the network. This will from a health database
for Health Management Information System. This data can be used for
timely reports, alerts, work plan and other purposes like research, census
etc. A pilot deployment of handheld devices has been done by Media Lab
Asia for health data collection by health worker at Ballabhgarh, Haryana
with AIIMS, New Delhi.
8.ICT for Education

Content in Schools - Portal GYANPEDIA.IN Content in School (CIS)
initiative is aimed at enabling school education in India through content
creation, aggregation and dissemination using ICT tools and a bottom up
approach. The objective of the project is to provide a Virtual Platform for
country wide content exchange programme for School Community - children
as well as teachers. The target is to cover 300 schools in seven districts of 3
states through the project.
ICT in Classrooms in Rural Schools
The teachers (more than 250 teachers) of the Government Schools
including Kendriya Vidyalaya and Navodaya Vidyalaya in rural areas of
the state of Andhra Pradesh have been trained on Content creation using
open source tool and about 150 content modules (polished + unpolished)
on five subjects (Maths, Physics, Chemistry, Biology and General
Science) have been developed. The authoring tool "SQUEAK" has also
been localized in the regional language. 15 workshops have been
conducted.
The project at Mizoram & Karnataka is covering the subjects of Science
for classes IV-VII using teacher centric software models. Teachers in 15
rural schools in Karnataka are using these modules for more than one
year. Installation of software & teachers training in 40 rural schools in the
State of Mizoram have been completed and the schools have started
teaching by using the specific software content.
In another project, out of the 8 districts in Mizoram, IT training is being
carried out in 5 districts. Over 300 students have been trained for CCCA
(Certificate Course in Computer Applications) for School children and
DOEACC 'O' Level courses. Development of Virtual Labs: 40 Virtual
Demo Experiments in Physics for class V-VIII have been developed in

collaboration with IIIT, Hyderabad. The project on "Development of
Virtual Lab for Life Science Experiments for Higher Secondary
Education" has been taken up. The work on portal has also started with
sample experiments uploaded.
The project on "Design, Development & Deployment of Mobile &
Internet based Math Prep- Guide Application" has been taken up. Sample
content uploaded on the portal and mobile device. The project on
"Development on Multimedia based Pre-Primary Teachers Resource kit
for English & Hindi" has been taken up Sample content sourced from
various agencies has been put on the portal.
Use of ICT in Vocational Education and Training
Media Lab Asia has initiated a project to evolve a National program for
application of ICT for Vocational Education & Training. This is in
continuation of work to evolve a plan for application of ICT for
Vocational Education & Training where more than 2500 vocations have
been identified.
The final reports on Agriculture and School Education sector are
available. The recommendations and reports are under finalization for the
Tourism & Hospitality and Media & IT sectors.
The background papers on Technical/Engineering,
Artisans/Craftsmen/Cottage Industries, Healthcare and Retail are ready.
Four National level workshops have already been conducted in
collaboration with Top National Level Agencies, GOI, Universities,
Medical Colleges etc., to identify the vocations which need immediate
attention and highlighting various possible vocations in each of the
sectors and the vocations which immediately require ICT interventions.
Transfer of Technology (ToT) in ICT for Education Sector

The following technologies are being deployed on large scale through
different organization.
Samvidha: An offline Internet access system for personalized content
access & presentation for education & literacy for illiterate adults & rural
children. Transfer of Technology in progress.
Sahayika (The knowledge network): It deals with Ontology building
tool, with an interface to create new ontology for any subject. It is
available in Bengali & English. It provides concept based as well as topic
based navigation of content. Transfer of Technology in progress.
Content Authoring Tool: This is a Tool in local language based on
'Squeak' and to train teachers to use / to develop content, about 12 virtual
lab experiments in physics are also available. Transfer of Technology in
progress.
Life Skill Training Tools for Nomadic Tribes: It deals with ICT based
Primary Education/Life skill training to children of Nomadic tribes &
underdeveloped communities with flexibility of development of course
content as per user need in local languages & local context. Transfer of
Technology in progress.
9. Rural Connectivity
Ashwini
This project has established a broadband wireless network based on
802.11 b/g Wi-Fi technologies, connecting 32 village centres in East and
West Godavari Districts of Andhra Pradesh with hub at Bhimavaram
town. This facilitates access to broadband connectivity in more than 115
villages benefiting a population of more than 5 lakhs spread in
approximately 4,000 sq kms. This project delivers high quality services
like e-Learning, e- Governance, e-Medicine, e-Health and e- Education to

rural areas. It also provides connectivity backbone for rural BPO's in
"GramIT" project and "e-Sagu" (for personalized agroadvice) project in
the region. Services/training presently delivered are Mathematics and
Spoken English classes for 8th to 10th standards, Telemedicine,
Computer Literacy Classes, Livelihood services like embroidery and
saree painting, and crop advise services. Multi-site videoconferencing is
effectively used on this network to provide interactions between domain
experts and the people in the villages. A revenue model has been devised
which has started generating revenue from the field towards achieving
sustainability.
10. ICT for Empowerment of Disabled
National Interactive Disability Portal: MLAsia in collaboration with
Rehabilitation Council of India (RCI) - (a statutory body of Ministry of
Social Justice and Empowerment), New Delhi has developed a
comprehensive Interactive portal. The portal will contain the following
information:
• National Disability Register
• Online courses through LMS run by RCI.
• Repository of Braille ready-Text, Audio files, etc.
• List of MSJE offices, Special Schools, NGO’s Special Educators.
• All Government policies, Schemes & circulars related to disabled
people.
• Availability of Assistive Devices & its details.
• Programmes of RCI.
Satellite & Internet based national network for education, training
and empowerment of the Disabled: Satellite uplink and studio has been
set up at RCI premises. The DRS facility at 220 centres has been installed

and the regular live interactive tele-conferencing program has started
from October 2007.
ICT enabled Integrated Assessment Tool, for Mentally Retarded
Children: This is a project to develop "ICT enabled Integrated
Assessment Tool, for Mentally Retarded Children" which has been taken
up in collaboration with C-DAC, Thiruvananthapuram.
Shruti-Drishti project is to enable visually impaired to access the
electronic documents from the conference website in speech and Braille
form. Deployment work of "Shruti-Drishti" – system developed under
DIT grant has been taken up in collaboration with C-DAC Pune and
Webel Mediatronics Limited.
Large Scale Deployment under ICT for Empowerment of Disabled :
A number of organizations have shown their interest for large scale
deployment and commercialization of Sanyog, Shruti and Vaani under
Public-Private Partnership (PPP) model including requirement
enhancement.
ICT for Livelihood Generation Development of cost-effective solution
for Community Radio Station (CRS) and its deployment for
livelihood generation: The project envisages development of a low cost
solution for Community Radio Station, to be deployed at five Agricultural
Universities in India and assessment of its impact for improved methods
of agriculture, education and social development. The five agriculture
universities identified are Narendra Dev University of Agriculture &
Technology, Faizabad; Birsa Agriculture University, Ranchi; Indra
Gandhi Krishi Vishwavidhalaya, Raipur; Tamil Nadu Agriculture
University, Coimbatore and Chaudhary Charan Singh Agricultural
University, Hisar. Community Radio & TV System for community

development: In another project with Byrraju Foundation, 3 community
radio stations and community TV centres will be designed, developed and
commissioned in Guntur, East & West Godavari districts of Andhra
Pradesh. This will be used as a medium to disseminate content. People
from more than 80 villages in these districts will participate to develop
content on women & child empowerment and other relevant areas.
Digital Ecosystem for Agriculture and Rural Livelihood: A system has
been developed for providing a multimedia platform for creation, sharing
and dissemination of agricultural information among farmers and experts.
It has created an ontology based agricultural vocabulary database in Hindi
with more than 28,000 agricultural terms. This Agricultural vocabulary is
based on Agrovoc in English developed by Food & Agriculture
Organization (FAO). Discussions have been held with Indian Council of
Agricultural Research (ICAR) for large scale deployment and
implementation of Agrovoc in other Indian languages. A Kisan Blog for
accessing of farming information by farmers including an Audio blog and
digital agronomy portal for decision support has been developed. This
project is being incorporated with the project entitled 'Integrated
Agricultural Services Programme' (IASP) of Media Lab Asia for large
scale deployment.
Polysensors: This project aims at providing a lowcost and easy method of
testing water for impurities, with rugged and tropicalized sensors.
Polysensor instrument can advise whether water is suitable for human
consumption. Currently, it can measure seven types of impurities in water
viz. pH, Chloride ion, Nitrate ion, Electrical Conductance (EC), Total
Dissolved Solids (TDS), Fluoride and Salinity (amount of NaCl).

The instrument is battery-operated and portable for field use. The lower
limit of sensitivity of the instrument is as low as specified by WHO. The
Technology has been transferred on non-exclusive basis to an industry.
aAQUA: An archived multilingual multimedia Question Answer based
communication system aAQUA (almost All Question Answered) is a
multilingual online question and answer forum which provides online
answers to questions asked by farmers and agri - professionals over the
Internet. The portal receives questions from all over the country and
abroad. It allows users to create, view and manage content in their native
language. Using this, a farmer can ask a question on aAqua from a kiosk
(cyber-café); experts view the question and answer back, providing
solution to the problem. It is available in English, Hindi and Marathi.
Being Unicode compliant system, it can support other languages also.
aAqua also allows users to register from mobile phone and queries may
also be posted through SMS. This technology is being transferred to an
Industry.
Agro-Sense: This project is aimed to investigate, design, develop and
implement a sensor-based wireless mesh network in a pilot scale to
monitor the parameters like temperature, humidity, rainfall and wetness of
soil etc., in real time for better management and maintenance of
agricultural production. This project is using Zigbee technology to
implement wireless adhoc mess network. The project focuses on
development of low cost device.
It will be a part of agro service plan for providing personalized agri
advices like localized measurement of agri and environmental parameters
and connect to weather insurance, crop insurances, etc.

e-Sagu: e-Sagu is an IT-based personalized agricultural advisory system.
The advice by the experts is provided at the farmers door step on regular
basis from sowing to harvesting. This helps to reduce the cost of
cultivation and increases the farm productivity as well as quality of agro -
commodities. At present the system is covering crops such as cotton,
chillies, rice, groundnut, castor, red gram and fish. Content development
for other crops for other regions is under progress. A revenue model with
collection of subscription from farmers has been implemented for testing
sustainability. Experiment is going on to deliver the agri advices through
SMS. An application has been filed for patenting the technology. e-Sagu
has been awarded "The Manthan Award 2007 - India's Best e-Content for
Development".
Integrated Agri Services Programme (IASP): The Integrated
Agricultural Services Programme (IASP) aims to apply information and
communication technology (ICT) as an enabler to provide a bouquet of
value-added and need based services to farmers through a network of
village level kiosks. The IASP aims to integrate the Media Lab Asia
projects on agriculture viz. e-Sagu, DEAL, aAqua, Polysensors and
Agrosense for large scale deployment including services such as finance,
insurance, input retail and agricultural procurement so as to make the
kiosk a one-stop-shop for the farmer. Detailed Project Report is under
preparation.
Gramin Gyan Kendra: A project has been taken up to develop models
for use of ICT to improve social infrastructure and public interaction.
Multimedia programs would be developed for applications in agriculture,
carpet industry, local art and craft, horticulture, chunar ceramic works,
cultural heritage, Banarasi saree, embroidery, primary healthcare, stone

sculpture, ayurvedic and traditional medicines, folk literature/music and
local culture, looms and weaving. Gramin Gyan Kendra's (GGK) would
be established using self help groups in rural areas of Vindhya region
around Mirzapur district for creating access to information. Identification
of NGOs for being associated with GGK has been done and development
of multimedia contents in specified areas is in progress. The linkages with
external agencies are being established.
Project Chetna
The project aims to build enabling ICT platforms for empowering women
and children in rural communities. Deliverables of the project include
multimedia content on 10 development themes i.e., Life Skills,
Compulsory Education, Health, nutrition, child care, age care &
HIV/AIDS, SHG / VO capacity building, content for women
entrepreneurs, Legal rights & duties, financial literacy and livelihood
skills. As a part of its strategy and attempt to serve the communities better
and empower them, 3 Community Radio Stations & Community TV
Centres being established.
e-Galla - A Low Cost Retail Management System: The purpose of this
project is to develop a low cost retail management system for small &
medium retailers. 'Galla' will be a scaled down version of Enterprise
Resource Planning (ERP) tool for small shops. Initial survey of existing
systems used by traders, requirements analysis of traders across different
domains, feasibility study of using existing hardware for Galla device and
study of existing open source automation software has been completed
and initial Galla device prototype has been developed.
Digital Craft Revival: CHIC is a Computer Aided Design (CAD) tool
for enhancing the productivity of the Chikankari designers. CHIC allows

capturing of Chickankari motifs in digital form, use of these motifs to
create new designs with fast turnaround time, engrave the designs directly
on to the blocks. This allows creating library of traditional Indian &
Persian designs for use. CHIC is 'cost-effective' and less 'time-consuming'
as compared to the existing traditional methods and can help in creation
of better designs. This system is being field tested in Uttar Pradesh. Now
plans are being made for large scale deployment in a sustainable way.
Private companies are also showing their interest in deployment of the
software. This is ready for commercialization. Now this CAD system has
been extended to Carpet design.
11.Technology Development for Indian Languages Programme
(TDIL)
Language technology development in India has today reached a stage,
where it has a potential to generate utility applications, benefiting the
masses, which will enable people to access and use IT solutions in their
common language. Department of Information Technology (DIT) has
further encouraged users and developers of Language Technology
solutions by providing certain basic information processing tools like
fonts, open office, e-Mail client, internet browser, dictionary, conversion
utilities, etc., free of cost, which will motivate users to use them to solve
their basic problems and help developers to build advanced solutions.
This will definitely boost up and leapfrog Indian language technology
development and their deployment in a very fast way. Software tools and
fonts for 10 Indian languages namely Hindi, Tamil, Telugu, Assamese,
Kannada, Malayalam, Marathi, Oriya, Punjabi and Urdu languages have
been released in public domain. These software and tools are tools are

also free-downloadable from the website http://www.ildc.gov.in. Similar
software tools and fonts for other Indian languages are being developed
consolidated.
The world is in the midst of a technological revolution nucleated around
Information and Communication Technology (ICT). Advances in Human
Language Technology will offer nearly universal access to information
and services for more and more people in their own language. India is
multilingual country with 22 official languages and 10 scripts. It is
therefore essential that tools for information processing in local languages
are developed and be made available for wider proliferation of ICT to
benefit the people at large and thus paving the way towards "Digital Unite
and Knowledge for all" and arrest the sprawling Digital Divide.
TDIL Programme
The major objectives of the programme are:
• To develop information processing tools to facilitate human machine
interaction in Indian languages and to create and access multilingual
knowledge resources/content
• To promote the use of information processing tools for language studies
and research
• To promote use of Information processing tools in Socio-economic
sectors e.g. e-Governance, e-Rural prosperity & e-Learning
• To consolidate the developed Indian languages technologies into
innovative user products and services
• To promote collaborative development of futuristic technologies leading
to innovative products and services.
Focus Areas

Development of technologies in multilingual computing areas involves
intensive indigenous R&D efforts due to variety of Indian languages.
The focus areas of the TDIL programme may be divided into following
domains:
• Translation Systems
• Cross Lingual Information Access and Retrieval
• Linguistic Resources
• Human Machine Interface systems
• Language processing and Web tools
• Localization and content creation
• Standardization.
Achievements of the TDIL Programme During 2007-08
Technology Development through Mission
Mode Projects
Six Mission mode projects in consortium approach are being continued
for the development of:
1. English to Indian Language Machine Translation System
(Consortium Leader: CDAC Pune; Domains: Tourism and Health). The
language pairs involved are English-Hindi, English-Marathi, English-
Bengali, English- Oriya, English-Tamil and English-Urdu.
2. English-to Indian Language Machine Translation System based on
Angla-Bharti Technology (Consortium Leader: IIT Kanpur; Domains:
Tourism and Health) The language pairs involved are English-Urdu,
English- Punjabi, English-Bengali and English- Malayalam.
3. Indian Language to Indian Language Machine Translation System
(Consortium Leader: IIIT Hyderabad ; Domains: Tourism and Health)

The bi-directional language pairs involved are Tamil-Hindi, Telugu-
Hindi, Marathi-Hindi, Bengali-Hindi, Tamil-Telugu, Urdu-Hindi,
Kannada-Hindi, Punjabi-Hindi, and Malayalam -Tamil.
4. Cross-Lingual Information Access (Consortium Leader : IIT
Bombay; Domains: Tourism and Health), The languages involved are
Bengali, Hindi, Marathi, Punjabi, Tamil, Telugu and English.
5. Robust Document Analysis and Recognition System - Printed Text
OCR (Consortium Leader: IIT Delhi) for Indian languages for Indian
scripts namely Bengali, Devanagari, Malayalam, Gujarati, Telugu, Tamil,
Oriya, Gurumukhi, Kannada, Nepali and Tibetan.
6. On-line Handwriting recognition systems (Consortium Leader : IISc
Bangalore): For Devanagari, Bengali, Tamil, Telugu, Kannada and
Malayalam scripts.
12. Drishtee
Like many firms begun in the infamous dot-com era of the late 1990s and
early 2000s, Drishtee’s roots come from a strong ability to recognize
opportunity combined with an expertise in designing and delivering
technology. Started in the year 2000 in Dhar (Madhya Pradesh, India),
Drishtee’s first project was to develop and implement a web-based
software for “Gyandoot”, an e-governance initiative to deliver
government services to the rural poor at their doorstep. Gyandoot rapidly
gained international recognition, leading to the Stockholm Challenge
Award later that year. More importantly, Gyandoot sowed the seed of
Drishtee by providing its founder, Satyan Mishra, with the vision that ICT
and rural entrepreneurship could spread across rural India, leveraging

technology and new business models to offer solutions for rural
development. Since then Drishtee has been recognized every year.
Gyandoot provided an intranet for 33 village information kiosks, offering
a range of mainly e-governance-related services. The most prominent of
these is land record certificates, which are needed by landowners for
transactions such as sale or leasing of land. While Gyandoot was a
specific local initiative, involving heavy support from the District
Collector, Drishtee has attempted to take that model and rapidly replicate
it across the country. Currently, Drishtee has over 100 rural Internet
kiosks in several states, run by franchisees according to a revenue sharing
arrangement. In Drishtee’s case, a kiosk has, at least initially, just one
computer. The set-up cost is in the range of Rs. 50,000.
13. Aksh
AKSH was incorporated in the year 1986 as Private Limited Company. It
was converted into a Public Limited Company on 13th March, 1994.
Aksh is essentially a fiber optic cable company, with its core competence
in laying and maintaining cable. Its revenue model is driven by the
content and data that can be delivered over this cable. Therefore it has an
interest in increasing such content delivery.
Aksh Optifibre in association with BSNL, has launched its IPTV brand
icontrol, in Kukus of Jaipur district, the first IPTV ever to be launched in
rural India. Simultaneously, Aksh has also announced the commercial
launch of icontrol in Rajasthan (Jaipur), which will now enable BSNL
broadband customers to avail IPTV service. Subsequently in 6-8 weeks
this service will be available in other cities of Rajasthan.
icontrol is a television connection that allows the viewer to watch the
programmes as per their convenience with more than 120 channels, and

an extensive movie library with Hollywood and Bollywood titles at no
extra cost, providing an economical medium of entertainment both to
urban and rural India.
14. n-Logue

n-Logue was launched to fulfill the need for Internet and voice services in
every underserved small town and village in India. The potential demand
for Internet services in these areas is huge and largely unfulfilled. n-
Logue proposes to service this demand throughout the country.
While Aksh and Drishtee are mostly active in north India, n-Logue has its
origin and chief presence in the south. It is a for-profit corporation, with
majority ownership residing with a nonprofit organization. The main
impetus for n-Logue came from the IIT Chennai research group headed

by professor Ashok Jhunjhunwala. This group has been responsible for a
stream of hardware and software innovations that enable rural IT-based
service delivery, through connectivity and applications.
However, technology is only the first leg. The second leg is a business
model, which allows this kind of set-up to scale up to 6, 00,000 villages.
The issue that needs to be addressed is in villages where affordability is
low, is can a business scale? Telecom operators have declared rural
connectivity an unviable business.
The clue to a successful business comes from what was done in the mid
80’s in India. During that time, urban area telephony was very difficult.
People had to endure a 7-8 year waiting period to acquire a telephone
connection. This was particularly difficult on the lower middle class and
poor people. At that time, an innovative idea was developed – find a shop
in every street in an urban area and convert it into an operator-assisted
telephone booth or a PCO. The PCOs were set up at street corners at a
distance of about 50 metres from the closest residential areas and were
manned by an operator who kept it open for 16 hrs a day, 365 days a year.
The presence of these PCOs addressed the issue of distance and no one
was required to undertake a long journey to avail of their services. Such
PCOs spread rapidly. The approach made connectivity viable and
pervasive while it also created a stream of entrepreneurs. The success of
the PCO revolution can be gauged by the fact that until recently, 25 per
cent of India’s telecom income came from these PCOs. Today, 300
million people who do not have a telephone in their house, use these
PCOs. The lessons learnt from the PCO revolution were several –
aggregation of demand, presence of entrepreneur-driven business,
proximity to a facility for greater access.

These three factors provide the basis of a viable business model for rural
ICT. Demand aggregation would address issues of affordability, while the
entrepreneur and the easy access would ensure a steady stream of users.
15. Biomass energy for rural India

The project was signed on 8th May, 2001. The project period extends upto
December 2010. The project aimed at overcoming technical, financial,
institutional, information and market barriers to promotion of biomass
energy. The project would provide integrated services through decentralised
generation and distribution of electricity for catering to various end uses in
village areas. This will be done through
• Production of electricity through biomass based gasifier systems

for providing electricity for home lighting, pumping of drinking
water, irrigation of dry lands and running of small rural industries.
• Production of biogas from cow dung and leaf litter for providing
cooking gas to all the households.
The project would develop and promote "marketing of end-use service

package" such as irrigation facilities along with improved agricultural
technology package coupled with development of skills of endusers, to
increase the household incomes. This would enhance the paying capacity of
the rural households. The cost recovery models and mechanisms that would
be developed by the project would offset investment risks perceived by the
private sector, leading to financial sustainability and replication of the bio-
energy packages developed by the project
16. Indian Biodiversity Information System (Responsible

Organization: Indian Institute of Remote Sensing)

The objectives of the project are preparation of biome/ecological zone maps
using satellite remote sensing data, incorporating topographical details and
biogeographical classification of India; landscape characterization to identify
disturbance gradient and prioritise area (bioprospecting) for biodiversity
conservation.
Number of effort to characterise vegetation cover, fragmentation, disturbance
and biological richness across the landscape is organised in the form of
Biodiversity Information System (BIS). Field samples of key ecological
characters have been used for geospatial extrapolation. The species data base
has been linked with above spatial details. BIS allows identification of gap
areas, species / habitat relationship and helps in biodiversity conservation
planning by setting priority areas. Detailed site specific field inventories with
this database can be used for identifying areas for bio-prospecting.
Analysis made presents full range of distinct natural communities and
ecological status at landscape level. The landscape capable of maintaining
the viable population species, sustain important ecological process and
services that maintain biodiversity are also mapped. Results presented can
form the basic guideline to plan floral and faunal inventories in future. The
dataset can allow monitoring and forecasting changes through extinction
models using multi-temporal data, modeling of which can help in studying
the impact of global change in different landscape. Finally the approach can
be extended to study genetic and species diversity in biologically rich sites
for prioritizing focus on bio-prospecting.
17. ITC (E – choupal)
E – Choupal is an initiative of ITC Limited (a large multi business
conglomerate in India) to link directly with rural farmers for procurement
of agricultural / aquaculture produce like soybeans, wheat, coffee, and

prawns. E-Choupal was conceived to tackle the challenges posed by the
unique features of Indian agriculture, characterized by fragmented farms,
weak infrastructure and the involvement of numerous intermediaries.
ITC stands out as a large Indian corporation serving global markets. Its
kiosks are called e-choupals, and they have several differentiating features.
The key distinguishing factor is that the e-choupals are totally designed to
support ITC’s agricultural products supply chain. This gives them a focus
that is not present even in EID-Parry’s kiosks in Nellikuppam. In addition,
the e-choupals are totally owned and set up by ITC, with the operators not
having any investment or risk of their own. Furthermore, e-choupal operators
are, because of the focus, always substantial farmers, and therefore always
male. All these features make the e-choupals different from the previous
three initiatives.
The principle of the e-Choupals is to inform, empower and compete.
1. Elimination of non-value added activities
2. Differentiated product through identity preserved supply chains
3. Value added products traceable to farm practices
4. E-market place for spot transactions and support services to
futures exchange
There are 6,500 e-Choupals today. ITC Limited plans to scale up to 20,000
e-Choupals by 2012 covering 100,000 villages in 15 states, servicing 15
million farmers. The e-Choupal system gives farmers more control over their
choices, a higher profit margin on their crops, and access to information that
improves their productivity. By providing a more transparent process and
empowering local people as key nodes in the system, ITC increases trust and
fairness. The increased efficiencies and potential for improving crop quality
contribute to making Indian agriculture more competitive. Despite

difficulties from undependable phone and electric power infrastructure that
sometimes limit hours of use, the system also links farmers and their families
to the world. Some sanchalaks track futures prices on the Chicago Board of
Trade as well as local mandi prices, and village children have used the
computers for schoolwork, games, and to obtain and print out their academic
test results. The result is a significant step toward rural development.

Chapter – 9
Key Players
9.1 Government of India
Governments recently have shown a growing interest in microfinance. An

increasing number of countries are adopting national policies and strategies
for microfinance, and governments are funding a plethora of new projects at
the retail level. This article explores the optimal roles government can play to
foster permanent financial access for the poor.

What do we mean by government?
Domestic public actors that play a role to promote access to finance fall into
three broad categories:
• Representatives of national and local executive branches (e.g.,

financial policy regulators and supervisors, telecommunications
regulators, line ministry staff, heads of state-owned financial
institutions, provincial governors, and other appointed officials)
• National and local legislative representatives (e.g., parliamentarians,
mayors, and other elected officials)
• Members of unions, political parties, and other socioeconomic
political organizations
What roles do governments play?

Our simple, though not perfect, framework synthesizes the menu of policy
interventions for supporting inclusive financial access into three broad and
sometimes overlapping government roles (the 3 Ps):
What is the ideal policy mix?

Because all roles are not equally effective and some interventions may
actually harm financial inclusion (e.g., by discouraging private-sector
delivery of services), governments need to be well informed of the risks and
benefits of the specific interventions and tailor their use to specific barriers
that impede permanent financial services for the poor. CGAP has identified
global trends on the performance of several of these policy interventions.
However, the optimal policy mix for a country will depend on its specific
situation (e.g., stage of financial sector development, political regime,

economic situation, etc.). The capacity of its public institutions and staff is
also a key factor.
9.1.1 Protector and Provider Roles

Based on global analysis, we believe government’s role as Protector is the
most essential, because it builds trust and addresses imbalances between
customers and financial institutions. A country’s regulatory authorities have
an important mission of developing appropriate prudential regulations or
adapting existing banking regulations to protect the solvency of large
institutions that collect deposits from poor people and, ultimately, to protect
the savings of poor people. However, regulatory ambitions must be balanced
with the capacity available in-country to supervise, especially when
determining which organizations should face prudential supervision.
New protection challenges arise with the introduction of new products (e.g.,
home mortgages, consumer loans), delivery channels (e.g., branchless
banking), and players (e.g., nonbank finance companies, telecommunication
companies, retailers). Protective regulation must be proportionate or
appropriately “light touch” if it is to protect consumers against serious abuse
while not prematurely impeding access or innovation.
Other examples of effective protection include regulation to increase the

transparency of the sector. In Cambodia, requiring MFIs to publish effective
interest rates has increased client awareness of credit costs, fostered
competition, and encouraged efficiency gains, all of which have contributed
to significant drops in interest rates over the past few years.

From a global perspective, although performance of state-owned financial
institutions and programs varies, we see engagement of government as direct
Provider of financial services (especially subsidized credit) as one of the
least efficient policy interventions for sustainable access. Recent World Bank
data show state-owned banks operating in 73 out of 102 countries and
comprising 15 percent of total banking assets. State-owned retail financial
institutions (SORFIs) usually combine financial and policy objectives.
Although these institutions typically are expected to at least break even, they
often do not (because of policy objective challenges); they tend to perform
relatively better on outreach than profitability. Many SORFIs have required
massive periodic recapitalizations, demanding extensive public funding that
could have served other policy purposes (e.g., health or education) or created
incentives and support for private institutions to deliver pro-poor finance. A
recent CGAP study of 26 SORFIs found that those institutions with stronger
outreach often performed better financially. Having the state act as provider
of financial services also may create unfair competition (e.g., by offering
subsidized credit) and erode the payment culture (if collections are more
relaxed). Although quantitative evidence is scarce, SORFIs may play a more
positive role in providing payment or savings services than subsidized credit.
Recent CGAP research highlights the magnitude of government-funded

programs at the retail level. With programs in over 50 countries,
governments are a substantial source of funding in microfinance, possibly at
levels equal to or, in some cases, much higher than funding from developed
countries. Even though the announcements are often larger than the actual
implementation, these programs could detract from sustainable access in

their effort to increase outreach (De Montesquiou, El-Zoghbi, and Latortue
2008).
9.1.2 Promotional Role

Governments have many options to serve as Promoter of financial inclusion.
This role is less familiar and warrants further exploration. Indirect promotion
tools include policies and investments that benefit the microfinance industry
while not focusing exclusively on it (e.g., promoting fair competition,
strengthening the national payment system). Governments also may promote
the microfinance sector more directly by developing a national microfinance
strategy, establishing local wholesale facilities that provide MFIs with
financial and technical assistance, or by supporting so-called priority-sector
lending as is the case in India and Brazil. The jury is still out on the
effectiveness and efficiency of these tools to address different types of access
gaps.
Recent CGAP research shows that national microfinance strategies have

increased dialogue among key stakeholders, promoted good practices in
many cases, and helped assess the situation on access to finance. However,
most strategies were found to be based on weak diagnostics that exclude key
financial-sector actors. Many strategies adopt unrealistic action plans and are
championed by institutions that may not have the full capacity, mandate,
and/or power to coordinate the industry. The national strategy for the Kyrgyz
Republic offers a positive example among the 29 national strategies
reviewed by CGAP (Duflos and Glisovic-Mezieres 2008).
Although governments can play a useful role in financing microfinance

institutions, many donors, investors, and practitioners voice concerns that

Local Wholesale Facilities (LWFs) may create disincentives for the
commercialization of microfinance by continuing to subsidize both strong
and weak institutions, even after the sector is developed. While LWFs have
boosted the early development of the sector in some countries, in some cases,
these structures can create disincentives for saving mobilization by providing
long-term subsidized loans. Their relevance may also fade as new investors
and commercial banks become willing to provide finance. Bosnia offers a
positive example, where good practice principles have prevailed as the sector
matured.
9.2 Department of Information Technology
9.2 .1 Vision
e-Development of India as the engine for transition into a developed nation

and an empowered society.
9.2.2 Mission
e-Development of India through multi pronged strategy of e-Infrastructure

creation to facilitate and promote e-governance, promotion of Electronics &
Information Technology- Information Technology Enabled Services (IT-
ITeS) Industry, providing support for creation of Innovation / Research &
Development (R&D), building Knowledge network and securing India’s
cyber space.
9.2.3 Objectives
 e-Government: Providing e-infrastructure for delivery of e-services.

 e-Industry: Promotion of electronics hardware manufacturing and
IT-ITeS industry.
 e-Innovation / R & D: Providing Support for creation of Innovation
Infrastructure in emerging areas of technology.
 e-Education: Providing support for development of e-Skills and
Knowledge network.
 e-Security: Securing India’s cyber space
9.2.4 Functions
 Policy matters relating to Information Technology, Electronics and

Internet.
 Initiatives for development of Hardware / Software industry including
knowledge based enterprises, measures for promoting IT exports and
competitiveness of the industry.
 Promotion of IT and IT enabled services and Internet.
 Assistance to other departments in the promotion of E-Governance, E-
Infrastructure, E-Medicine, E-Commerce, etc. Promotion of
Information Technology education and Information Technology based
education.
 Matters relating to Cyber Laws, administration of the Information
Technology Act. 2000 (21 of 2000) and other IT related laws.
 Matters relating to promotion and manufacturing of Semiconductor
Devices in the country.
 Interaction in IT related matters with International agencies and
bodies.

 Initiative on bridging the Digital Divide, Matters relating to Media
Lab Asia.
 Promotion of Standardization, Testing and Quality in IT and
standardization of procedure for IT application and Tasks.
 Electronics Export and Computer Software Promotion Council (ESC).
 National Informatics Centre (NIC)
 All matters relating to personnel under the control of the Department.

Chapter – 10
Findings and Analysis
1. Role of IT Sector in the Growth of India’s GDP
Table No. 1

GDP at Market IT sector Revenue in IT Sector Rev. to India's
Years Prices Rs crore GDP( as %)
1998-99 1751199 21014 1.2
2003-04 2754620 118,290 4.3
2004-05 3149407 152,420 4.8
2005-06 3586743 190,300 5.3
2006-07 4129173 244,000 5.9
2007-08 4723400 295,820 6.3
2008-09 5321753 368,220 6.9
Source: Reserve Bank of India Handbook of Statistics

http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/FHB100909_Full.pdf
Note: GDP figures are at Market Price
Analysis
The above table shows that the GDP at Market price and the IT sector
revenue are show in a direct relationship. And the contribution of IT sector
revenue in the GDP is also increasing as shown by IT sector revenue to
India’s GDP.
"Growth of IT sector and the GDP at Market Prices"
6000000
5000000
4000000 GDP at Market Prices
3000000
IT sector Revenue in Rs
2000000 crore
1000000
0
1998- 2003- 2004- 2005- 2006- 2007- 2008-
99 04 05 06 07 08 09
(Formulated by Using the Above Data on Ms. Excel)
2. Increased Investment Lead to the fall in the Illiteracy
Table No. 2
Years Youth Literacy Rate Youth Illiterate Total Production of IT and ITES(in

Population in
% of Total India crore)
2001 76.4 48,713,348 63290
2002 88290
2003 118,290
2004 152,420
2005 190,300
2006 81.1 40,681,754.00 244,000
2007 295,820
2008 368,220
Source: http://stats.uis.unesco.org/unesco
http://stats.uis.unesco.org/unesco/TableViewer/tableView.aspx
"Increase in Investment in IT lead to Fall in Illiteracy"
100,000,000
10,000,000
1,000,000
100,000 Youth Illiterate Population in
India
10,000
Total Production of IT and
1,000 ITES(in crore)
100
10
1
1 2 3 4 5 6 7 8
Analysis
Above graph shows that with the increase in investment in the IT the
Illiteracy is decreasing. This proves a negative relationship between the
Investment in IT and the Illiteracy.
3. Employment Generation an Impact of IT
Development
Table No. 3
Number of IT professionals(In
Years Thousands)
1991 56

2001 430
2002 522
2003 670
2004 841
2005 1045
2006 1790
2007 2010
2008 3030
Source: www.nasscom.in
http://www.nasscom.in/upload/5216/nasscom%20knowledge
%20professionals%20factsheet%202006
Number of IT professionals(In Thousands)
10000
No. Of IT professionals
1000
Number of IT professionals(In
100
Thousands)
10
1
1 2 3 4 5 6 7 8 9
Years
Analysis
The above graph shows the role of IT in the generation of employment over
the years. IT and ITES have been consistently providing the employment
opportunities.
4. Role of IT in enhancing the pace of International
Trade of India
a. Growth in the Exports of Software from India.

Source: www.mit.gov.in/
Information Technology Annual Report 2008-2009
http://www.mit.gov.in/sites/upload_files/dit/files/documents/annualreport200
7-08.pdf
Analysis
The above graph shows the growth of the exports of the software for India
and increasing contribution of the IT sector in International Trade.
b. Growth of Electronics and IT exports from India

Source: www.mit.gov.in/
Information Technology Annual Report 2008-2009
http://www.mit.gov.in/sites/upload_files/dit/files/documents/annualreport200
7-08.pdf
Analysis
The Above Graph shows the consistent growth in the Exports of the
Electronics and IT products and services.
5. Role of IT in Increasing the connectivity in India

GARUDA Network Connectivity

Analysis
The GARUDA High-Speed network is a Layer 2/3 MPLS Virtual Private

Network (VPN) connecting select 45 institutions across 17 cities at 10/100
Mbps with Stringent Service Level Agreements with the service provider.
This Grid is a precursor to the Gigabit speed nationwide Wide Area Network
(WAN) connecting high performance computing resources and scientific
instruments for seamless collaborative research and experiments. The High
Speed Network is being established at all the Garuda partner institutes in
close collaboration with ERNET who is also responsible for the operation,
maintenance and management of this network.
6. Mobile Telephone Penetration vs Per Capita GDP
a. Mobile telephony penetration and Internet usage

b. Increase in GDP at Market price
Table No. 4
Years GDP at Market Price
1990-91 569624
1991-92 654729
1992-93 752591
1993-94 865805
1994-95 1015764
1995-96 1191813
1996-97 1378617
1997-98 1527158
1998-99 1751199
1999-00 1952036
2000-01 2102314
2001-02 2278952
2002-03 2454561
2003-04 2754620
2004-05 3149407
2005-06 3586743
2006-07 4129173
Source: Reserve Bank of India Handbook of Statistics
http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/FHB100909_Full.pdf
Note: GDP figures are at Market Price

GDP at Market Price
4500000
4000000
Amount in Crore
3500000
3000000
2500000
GDP at Market Price
2000000
1500000
1000000
500000
0
91 1
9 3
9 6
9 8
00 0
0 2
0 5
7
9 2
9 4
9 5
9 7
9 9
0 1
0 3
0 4
06 6
19 0-9
19 2-9
19 5-9
19 7-9
20 9-0
20 1-0
20 4-0
-0
19 -9
19 3-9
19 4-9
19 6-9
19 8-9
20 -0
20 2-0
20 3-0
20 5-0
9
19
Years
Analysis
The above two Graphs show the Positive relationship between the Number of
Mobile subscribers and the GDP at Market Price.
7. GDP Per Capita vs Mobile Penetration

Table No. 5
Source: Universal Access – how mobile can bring communications to all,

GSM Association study conducted by Intelecon Research, 2007,
http://www.gsmworld.com/universalaccess/index.shtml
The Above graph shows a Direct Relationship between the GDP and the
Mobile penetration in India. And both are showing increasing trend.

Chapter – 11
Recommendations, Suggestions and
conclusion
Recommendations

1. Increase the diversity of the Micro financial institutions
Micro financial Institutions are the delivery vehicles. These are the Access
points for poor people to get financial services and are exploding in three
ways:
 Leading microfinance institutions with social origins at their core
are scaling up,

 Banks and other institutions with commercial origins are using
their branch infrastructure to reach out, and

 Partnerships between socially-oriented microfinance institutions
and banks are being forged to leverage each other's comparative

advantages.
Because Micro financial Institutions are the primary Institutions for
providing the financial services to the poor so, these Institution should
diversify and provide more and more diverse services.
2. Overcoming geographic concentration in microfinance
Another issue of concern is that microfinance in India continues to be
skewed in its geographical distribution. The underlying causes for this
include the general malaise in the economy of the central, eastern and north
eastern states, with very little resultant demand for credit among the
subsistence poor, and the absence of good quality NGOs, that are willing to
initiate microfinance programs in these states (there are a large number of
small NGOs but all of them with limited experience and outreach)
So there is a need for expanding the reach of microfinance to states in
central, eastern and north eastern India.
3. Micro financial Institutions should Clear target it’s clients

It is very important to ensure proper targeting of clients. The dual pursuit of
social ends and financial profits is an ongoing tension for all in microfinance.
While in our analysis of SHG Bank Linkage indicates that the model has so
far successfully targeted the poorer segments, mission drift is a common fear
as pressures mount to serve richer clients with larger loans (and thereby to
earn higher profits per loan since transaction costs per rupee tend to fall with
loan size). Keeping focused on its target population is thus critical to the
success of microfinance in India, as elsewhere.
4. Engage the Informal Economy
Up to 80% of people in India derive their incomes from the informal sector,
thus the need for good financial mechanisms to support wealth creation and
financial services in this sector.
5. Grow Domestic Deposits: Mobilize Micro-saving
Cost effective, secure and accessible micro-savings services feed
impoverished, cash-strapped economies, and improve the lives of those
living in poverty.
So, the growth of domestic deposits should be encouraged and should be
properly mobilized.
6. Invest in Women
Because of the interconnection of financial power, poverty and women,
microfinance has an active role in improving economic equality. Increased
economic power enables women to improve other areas of their – and their
children’s – lives.
So, one of the focus area for the Micro finance initiatives is building Women
entrepreneurship in the rural areas.
7. Develop Local Private Sectors and Invest in Innovation

Microfinance is the progenitor of local private sector development.
Microfinance feeds small and medium enterprise development, both
propelling the growth of micro enterprises but also fueling the expansion of
suppliers and vertical infrastructure needed by larger businesses. Because
microfinance creates increased wealth for low-income individuals, it also
creates new consumers and markets for businesses of all sizes.
8. Develop Rural Areas and Invest in Food Output
Financial sector access and microfinance are essential for growth in
impoverished rural areas.
9. Improve Health Services
Microfinance can contribute to financing health initiatives and create wealth
for low-income people so that they can afford health services. Healthy clients
also reduce credit risk.
10. Microfinance in “Unleashing Entrepreneurship
So, Micro finance should “Make the Business Work” for the Poor.

Suggestions
 In microfinance, the availability of hard financial sector data to answer
the simple question of “who has access to what, and what is the quality
of that access?” is nearly impossible to come by.
 Access to microfinance is stifled by a lack of fiscal, regulatory and
supervisory policies to promote rather than stunt deep, broad and
inclusive financial sectors.
 IT related Infrastructure should be developed by the Government.
 Government should also provide incentives to the private players who
are supporting the development of the infrastructure in the rural areas.
 Development of effective websites to enable rural youths to learn
everything at the click of a mouse.
 Specific Websites catering to the needs of rural people should be
developed.
 Regular workshops and multiplicity of training programmes may also
support the use of IT as a device for employment.
 NGOs and government agencies should go hand in hand for
development of computer literacy programs. Colleges can adopt
villages for their development.
 Financial assistance should be available for the IT related development
in the rural areas.
 Private players should go in for Micro financing ventures to support
the development of the Rural India.
 Financial Assistance for self-employment should be made more
accessible.

Conclusion
Almost 70% of India’s population resides in the Rural India. Mahatma
Gandhi famously noted that India lives in its villages. If the village
perishes, India will perish too. This is very true so in order survive and
grow it is of vital importance to develop the rural India. Since a majority
of our population lives in the villages, it is important that people in rural
areas should have the same quality of life as is enjoyed by people living
in suburban and urban areas for the balanced growth of the nation.
In order to carry out the balanced and sustainable growth the two major
pillars are Information technology and financial assistance to the rural
people. The above two help in the following:
• Spreading Education
• Eradication of extreme poverty and hunger
• Knowledge creation
• Combating HIV/AIDS, malaria and other diseases
• Spreading awareness
• Generation of employment
• Increasing the standard of living
• Increasing the connectivity of the rural area with the Urban area
• Promoting gender equality and empower women
• Reducing child mortality
• Improving maternal health
• Ensuring environmental sustainability
• Achieving universal primary education

Chapter – 12
Case studies

Case Study 1:
Spread of the Self-Help Groups Banking Linkage
Programme in India
The SHG - Bank Linkage Programme is a major plank of the strategy for
delivering financial services to the poor in a sustainable manner. The search
for such alternatives started with internal introspection regarding the
innovations which the poor had been traditionally making, to meet their
financial services needs. It was observed that the poor tended to come
together in a variety of informal ways for pooling their savings and
dispensing small and unsecured loans at varying costs to group members on
the basis of need.
The SHG – Bank Linkage Programme was started as an Action Research
Project in 1989 which was the offshoot of a NABARD initiative during 1987
through sanctioning Rs. 10 lakh to MYRADA as seed money assistance for
experimenting Credit Management Groups. In the same year the Ministry of
Rural Development provided PRADAN with support to establish self-help
groups in Rajasthan.
The experiences of these early efforts led to the approval of a pilot project by
NABARD in 1992. The pilot project was designed as a partnership model
between three agencies, viz., the SHGs, banks and NGOs. This was reviewed
by a working group in 1995 that led to the evolution of a streamlined set of
RBI approved guidelines to banks to enable SHGs to open bank accounts,
based on a simple “inter se” agreement. This was coupled with a
commitment by NABARD to provide refinance and promotional support to
banks for the SHG - Bank Linkage Programme.

Initially there was a slow progress in the programme up to 1999 as only
32,995 groups were credit linked during the period 1992 to 1999. Since then
the programme has been growing rapidly and the number of SHGs financed
increased from 81,780 in 1999-2000 to more than 6.20 lakh in 2005-06 and
6.87 lakh in 2006-07 (table below)
NABARD, in association with GTZ, conducted a study, in 2005, on the

comparative performance of SHG – Bank Linkage Programme vis-à-vis
other priority sector credit. The findings are based on the data received from
27 commercial banks, 192 RRBs and 114 cooperative banks participating in
the programme. One of the important observations of the study was that 1.44
million SHGs had loans outstanding of Rs. 4,200 crore with the banking
system. 2.63 million SHGs had saving accounts with the banks and the
savings outstanding was Rs. 2,391 crore.
To cover all the 50 million odd poor households in India, the existing
number of SHGs will have to be more than doubled and the extent of credit
to the members of each SHG will have to be increased substantially.
Outcomes
 Reduced the incidence of poverty through increase in income, and also
enabled the poor to build assets and thereby reduce their vulnerability.

 Enabled households that have access to it to spend more on education
than non-client households. Families participating in the programme
have reported better school attendance and lower drop out rates.
 Empowered women by enhancing their contribution to household
income, increasing the value of their assets and generally by giving
them better control over decisions that affect their lives.
 Reduced child mortality, improved maternal health and the ability of
the poor to combat disease through better nutrition, housing and health
- especially among women and children.
 Contributed to a reduced dependency on informal money lenders and
other non-institutional sources.
 Facilitated significant research into the provision of financial services
for the poor and helped in building “capacity” at the SHG level.
Finally, it has offered space for different stakeholders to innovate, learn and
replicate. As a result, some NGOs have added micro-insurance products to
their portfolios, a couple of SHG federations have experimented with
undertaking livelihood activities and grain banks have been successfully built
into the SHG model in the Eastern Region. SHGs in some areas have
employed local accountants for keeping their books, and IT applications are
now being explored by almost all for better management information
systems (MIS), accounting and internal controls.
Case Study 2:
Micro Finance and Poverty Relief in India
A significant amount of the underprivileged people in India is somehow able
to tailor their financial resources in a way that they can realize their
ambitions vis-à-vis their houses or other plans. However with the

introduction of micro finance in India, the standard of living of the poor
section of the population is expected to improve (Patil et al., 2008).
Micro finance services are designed to help the underprivileged to increase
their earning, consolidate their properties and even gain a decent financial
stability in life. The advantage of availing the micro finance credit over the
more traditional means is the unwillingness of the later to serve the
underprivileged people (Singh, 2008).
Grameen Bank . A Role Model in Microfinance
Yet another monsoon season was approaching; but Joshuna Begum (Begum)
unlike her neighbors was not worried about her house getting damaged
during the monsoon. Her house now had a tin roof, mud walls and wooden
windows, a luxury in rural Bangladesh. Earlier, Begum’s house had a straw
roof and bamboo walls, which used to get damaged in the monsoon season,
forcing the whole family to live in the kitchen. She got her hut repaired with
a loan from the Bangladesh Grameen Bank (Grameen Bank).
Begum wasn’t the only one; there were thousands of people in rural
Bangladesh who had improved their living conditions with the help of the
microfinance programs of Grameen Bank, a pioneer in microfinance.
Grameen Bank helped thousands of poor Bangladeshi women to improve
their lives by extending loans to them to start their own enterprises. By 2003,
it was reported that between 33-48% of Grameen Bank borrowers had moved
above the poverty line. By 2003, with 1,170 branches across Bangladesh,
Grameen Bank was seen as a role model for microfinance all over the world.
The Grameen Bank model was replicated across the world . not only in
developing countries like India, Pakistan, and Vietnam, but even in
developed countries such as Australia and the USA, where similar schemes
were set up to improve the lives of the urban poor. However, the Grameen

Bank also attracted criticism from the media and economists all over world.
Analysts pointed out that there was no proper monitoring of how the loans
were utilized; it was reported that the loans availed of by women were used
largely for consumption rather than for investment purposes. Analysts also
pointed out that the accounting methods used by Grameen Bank were not in
accordance with industry standards, and that the bank did not provide full
details about its financial position and loan repayments position.
The Success Story of Grameen Bank
The Grameen Bank model was one of the most widely researched
microfinance models all over world. The Bank had four tiers, the lowest
level being branch office and the highest level being the head office. The
branch office supervised all the ground activities of the bank such as
organizing target groups, supervising the credit process and sanctioning
loans to members. For every 15-22 villages, a branch was set up with a
manager and staff. An area office supervised around 10-15 branch offices.
Program officers assisted the area office to supervise the utilization of loans
and their recovery. All area offices were under the purview of a Zonal
Office. Each zonal office supervised around 10-13 area offices and all zonal
offices reported to the head office situated in Dhaka.
Grameen Bank operated on the principles of mutual trust, supervision,
accountability and member participation. Unlike commercial banks, which
granted credit on the basis of collateral security, Grameen Bank did not
demand any security for extending credit. The interest charged by Grameen
Bank was higher than that charged by commercial banks, but lower than the
interest charged by moneylenders.

The difference between the interest earned by the Grameen Bank and
interests paid by it on the loans taken from commercial banks was used to
cover the operational costs of the Bank.
When Grameen Bank started, many felt that it would soon fail; but on the
contrary the bank expanded its operations very rapidly. From 15,000
borrowers in 1980, the membership increased to 100,000 in 1984; by 1991 it
had 910,842 members, and by 2002, the number increased to 2.3 million.
From a figure of US $498 in 1976, the bank’s total disbursements increased
to US $170.39 million in August 2002.
The loan repayment rate was reported to be 95%. The high repayment rate
was probably a result of peer group pressure, and the Grameen Bank’s rule .
that for availing of fresh loans, earlier loans had to be repaid. Another
important factor that led to high repayments of loans was social pressure.
Creditors. knocking at the door for loan repayments was considered
disgraceful among Bangladeshis. It is believed that the above factors led to
the success of Grameen Bank, which also succeeded in improving the lives
of its members.
Many research studies indicate that Grameen Bank bought positive changes
in the lives of thousands of rural Bangladeshis. The landless poor benefited
the most from the Grameen Bank movement. The landless poor, who earlier
worked as agricultural laborers, acquired land for their own farming
activities after becoming Grameen Bank members. According to a World
Bank study conducted in 1994, Grameen Bank had improved the position of
women in rural Bangladesh. Women members of Grameen Bank were more
confident and socially aware than their non-Grameen Bank counterparts.

Case Study 3:
Akshaya –An IT dissemination Project
An Initiative of the Kerala Government
The Akshaya project is the first district wide e-literacy project in India and
one of the largest known Internet Protocol (IP) - based wireless networks. It
leverages the comparative advantage of Kerala’s high rate of literacy and
“progressive” social framework along with an already advanced telecom
infrastructure. It aims to achieve the twin goals of social development
through access to computers in rural areas and financial viability through
market - driven entrepreneurship.
However, tension between these goals within the State, and for entrepreneurs
and potential consumers makes it difficult to run a financially sustainable
ICT kiosk project that also meets social development goals. The difference
between consumers and entrepreneurs’ perceptions and the ways in which
each group defines and prioritizes social development and financial
sustainability complicates the implementation of the project.
Also experiments of creating entrepreneurship through “Franchise Model”
and looking at the programme as another avenue of “employment creation”
were self-defeating.
Key Objectives
- To develop networked Multi-purpose Community Information (Akshaya)
Centres to provide ICT access to the entire population of the State
- To make at least one member in each family e-Literate
- To develop infrastructure to provide sustained e-literacy and other facilities
like email and Internet telephony
- To accelerate the development of local content relevant to the population.

- One of the primary differences between Akshaya and other projects is its
scale of operations. It covers the 33 million population of Kerala and aims at
making 6.5 million persons e-Literate.
Thus, the Akshaya project has three focus areas:
1. Facilitate the access to technology for all sections and regions;
2. Develop competence and skill-sets to enable use of
IT by all sections of society, and,
3. Content provision in Malayalam on topics of local relevance.
Benefits
Akshaya is a social and economic catalyst focusing on the various facets of
e-Learning, e-Transaction, e-Governance, Information and Communication.
Since the locations of these tele-centres is strategically planned and spatially
distributed to cater to the people in even the remotest part of the district, they
form a powerful network to bring the benefits of all e-Governance initiatives
to the common man. The telecenters have the potential to provide G2C,
G2G, C2C, B2B and G2B services and can act as decentralised information
access hubs and service delivery points.
Benefits in Malappuram district
Trained more than 5.9 lakh people, more than 50 per cent of the trainees are
women. Online certification: e-Literacy-5.9 lakh studied, 25,378 certified
e-Vidya- 46,750 studied, 6500 certified Nearly 3000 direct employment
opportunities created.
Computerization in primary co-operative banks and societies, small shops
and business establishments and schools and educational institutions.
Various e-Governance services like e-Payment (bill payment), e-Krishi
(agriculture being linked to market), e-Parthi (online bill payment) etc. have
enabled the Government to offer its services more effectively. Even though

over 25 per cent of Akshaya centres have closed down, it is inappropriate to
term the project a failure. The very fact that 450 centres are functioning
across Malappuram, braving the initial unforeseen hiccups, is a tribute to the
project. But the State Government, now replicating the project in other
districts, should not overlook the problems that these centres encountered.
And offering a helping hand to those in trouble, rather than just washing its
hands off, would send a positive message to potential Akshaya entrepreneurs
in other parts of the State.
Case Study 4:
KAVERI
An Initiative of the Karnataka Government
Initially meant only for property registration, KAVERI’s scope has been
extended to the registration of firms and societies and marriages. Attempts
are also being made to successfully link it with the Bhoomi
Project so that land records can also be accessed from the SRO (Sub-
registrars Office) instead of having to go to taluk offices. The KAVERI
project of Karnataka won the best e-Governance Project award for the year
2004 at the 40th annual conference of the Computer Society of India (CSI).
Similar initiatives that have been successfully implemented in other states
are CARD in Andhra Pradesh, HIMRIS in Himachal Pradesh, and PEARL in
Kerala.
Key Objectives
KAVERI is the first public-private partnership project to be implemented in
Karnataka since 2003. The hasslefree procedure seeks to automate and
streamline the workflow. The system aims at providing conclusive proof

of authenticity of documents, afford publicity to transactions, prevent fraud,
provide a facility for ascertaining whether a property has already been
transacted, assure security of deeds and titles in case the originals are lost or
destroyed. Moreover, the implementation of the project would pave the way
for transparency in the department and enable more effective monitoring. It
is also expected that this project would enhance revenue collection in the
State and would lead to an improved, efficient and user-friendly
administration.
As improvement over the Maharashtra model, the following innovations
were introduced:
 Automated kiosks for calculation of the guidance values by the public.
 Computerised token system as against the manual system in
Maharashtra.
 Data stored on both CDs and microfilm as against the storage of data
on CDs alone in Maharashtra.
 Maximum involvement of departmental staff to: a) facilitate smooth
transition from the private operator to the Department once the
contract period is over, and, (b) to run the operations under all
exigencies.
 Establishment of the Central Record Room at the head office level
and Registrars in districts to ease the space availability in the existing
offices, thereby leading towards a paperless office which is an ultimate
aim of e-Governance.
Benefits
The kiosks (CCCs) provided adequate information about the documents to be
carried to the Sub-Registrar’s office and accept complete documents for

presentation, thereby reducing the percentage of pending paper work of
department employees. It also reduces the burden on application software in
preserving records on hard disk. Introduction of the electronic token system
assigns a particular time to the applicant to present his documents, thus
reducing unnecessary crowd gathering in the Sub- Registrar’s office and
introduces a systematic manner of document registration.
Case Study 5:
Implementation of e-Procurement Exchange for
Government of Andhra Pradesh
PPP works best
 If it combines the skill sets of public and private partners - domain
expertise of the Government and software and delivery skills set of the
private sector.
 If risk-return option is chosen by the private sector who is willing and
in a position to deploy funds vs. Government which desires a risk free
option where only its domain expertise is used.
 Open platform-level playing field and “fair” competitive platform for
the suppliers.
 Smart governance - though increased transparency, monitoring and
control of the entire procurement process.
Key Objectives of e-Procurement
The key objectives of the e-Procurement solution are enumerated below:
 Demand Aggregation – The ability to aggregate Government
departments’ demand to leverage buying power with the suppliers
 Reduced Inventory Costs – Improved planning and management of
inventory leading to lower levels of inventory, thereby reducing costs

 Internal Arbitrage – Ensuring consistency in goods and services
costs at the best price across all departments at the item level
 Consistent and Sustainable Vendor Development – Enabling pre-
qualified vendors the opportunity to access other Government
departments
 Transactional Effectiveness – Eliminating or automating non-value
adding steps within the procurement to enable efficient and effective
processes
 Reduction in Total Cost of Ownership – Understanding the supply
chain and life cycle costs in procurement to establish value adding
supply relationships leading to reduced cost of doing business for both
Government and industry
 Effective Tender processing – Use of different types of e-Auctions to
get better deals
 Open Platform –Level playing field and “fair” competitive platform
for the suppliers
 Smart governance - Increased transparency, monitoring and control
of procurement process
Outcome of the Initiative
The e-Procurement project has achieved most of the objectives that it was
set-up to achieve:
 Transaction volume of Rs 33,400 crore in three years from over
12,000 tenders on the platform
 Reduction in average tender processing time from an average of six
months to 36 days

 Increase in average number of bids received per tender from 3.4 to 4,
reflecting an increase in participation from supplier community
 Elimination of cartelisation as reflected by a sharp increase in supplier
participation in some of the cartelised areas of the State
 Empowerment of small and medium suppliers as they need not visit
the department to purchase the tender documents or to submit their
bids
 Increased transparency as bids are opened online and bid opening is
visible to all the suppliers online
 The system has reduced subjectivity in tender evaluation by building
smart forms that do preliminary technical evaluation of bids
 Instant online MIS is available on all the tenders, supplier participation
and the results to all the departments and the Government.
 Significant cost savings - above Rs 2,000 crore due to discount quotes
 Elimination of paperwork as the bids are submitted online and the files
or documents move in electronic form for required authorisation.
 Empowerment of bidders, streamlining of processes and a strong
Management Information System are the other commendable
achievements.
Benefits of the e-Procurement System
Transparency: In a e-Procurement system, the tender documents are
hosted on the web site for free downloading from the day of publication
of tenders; this has eliminated the bidders’ dependence on department
officials for issue of tender documents. Availability of information online
to the bidders has eliminated the human interface with department
officials in pre and post tendering activities. This has in fact helped

reduce subjectivity and corruption. Information on the transactions, the
status of evaluation and award of contracts is automatically made
available to the bidders on the portal. Transparency in the procurement
processes has improved the Government’s image and reduced instances of
adverse media reports.
Shortened tender cycle time: Automated work flows and simplification
of processes have improved the internal efficiency of procurement
departments and significantly reduced the tender lead times from 120
days in the conventional mode to 36 days in the e-Procurement mode.
Reduction of lead time has contributed to early completion of projects and
reduction of cost overheads to departments as well as to the suppliers.
Cost Saving: The departments reaped significant cost savings — Rs 255
crore (20 per cent reduction in cost) for the procurement transactions done
through the exchange during 2003-04 and around Rs 2,000 crore in 2004-
05 and 2005-06 due to the competitive environment created by the e-
Procurement platform. While the offline procurement carried out for civil
engineering works in World Bank- assisted projects in the State have
resulted in receiving tenders which are 10-15 per cent higher than the
estimated cost, the online procurement for similar works in other
departments done over the e-Procurement platform has resulted in
receiving tenders which are 7-10 per cent less than the estimated value of
the work, thus saving tax payers’ money.
The Government departments have also saved significant amounts (Rs. 3
crore) on advertisement costs for column-centimetres in the media as e-
Procurement tender notices are substantially shorter and contain only
basic information on the name of works, estimated costs and the URL of
e-Procurement site for further details.

Empowerment of Bidders: Earlier, the suppliers had to physically scan
several newspapers to keep track of tenders called by the various
departments. The e-Procurement exchange makes available all the
procurement requests emanating from various departments available to
the suppliers at one source free of cost. Due to the project, suppliers are
able to participate effortlessly and remotely in the Government’s bids,
round the clock, enabling them to apply for tenders of a large number of
departments at greatly reduced costs of transaction. All the transactions
are performed in a secure environment and every bidder is required to use
his digital signature to participate in the bidding process on the e-
Procurement platform. As of now, 5,929 digital certificates have been
issued, which is the highest for any State Government’s e-Governance
portal.
Elimination of Contractor cartels: The electronic tendering process has
been made completely anonymous and only after the opening of bids,
does anyone come to know the names of the participating bidders. This
has prevented the suppliers from forming cartels and has facilitated wider
participation from genuine suppliers. Elimination of supplier syndicates/
cartels ensured a level playing field to suppliers. The supplier is benefited
by way of more opportunities and Government departments get the best
value for taxpayers’ money due to the competitive environment created
by e-Procurement.
Streamlining of processes: At the outset, an effort was made to
standardise the procurement processes, including forms, practised by
various departments, especially for the Works departments. Today, all of
them follow common tendering processes and forms for Works tenders.
Even these processes are being re-engineered to further improve the

efficiency and curtail subjectivity in tender evaluation by the departments.
A similar exercise is underway for products as well.
Management information system: The e-Procurement platform has a
very strong Management Information System (MIS) component. This has
improved the availability of information to the departments for
monitoring and reviewing the public procurements. Earlier, collection of
information from various procurement entities spread across the State was
time consuming and its integrity was doubtful. Now the e-Procurement
MIS provides the departments real time quality information. Senior
bureaucrats in Government and public representatives have access to the
information from this portal at the click of a mouse.
Case Study 6:
Nagarpalika
An initiative of the Gujarat Government
Vejalpur is one of the urban conglomerates outside the limits of Ahmedabad
Municipal Corporation (AMC), but falls within the jurisdiction of the
Ahmedabad Urban Development Authority (AUDA) . Currently a “B” class
municipality, it is shortly to be designated as “A” class, based on the 2001
Census. General administration, certification/ licensing, taxation, accounts,
solid waste management (SWM) and complaint redressal for water supply,
street lighting and other services were carried out manually in the
municipality. Shortage of staff was an excuse for tardy performance and
there would always be a demand for additional recruitment. Citizens suffered
from the usual delays and harassment associated with a less responsive and
uncooperative municipality. Property tax collection suffered and there was
lack of transparency in the system.

Key Objective
“ One Spot – Non Stop Convenience at City Civic Centre and Internet”
The major objective of total e-Governance through city civic centres is to
treat all citizens like customers of a large corporation. The duties enumerated
in the “Citizens’ Charter” have been brought under the electronic process and
made user-friendly and interactive. The other objective is to establish Citizen
Convenience Centres where the citizens can easily access information on
services, file complaints and make tax and utility payments.
Results
The results achieved have been as follows:
 e-Governance model comparable to any metro city in India
 Administration transformed to being people–centric
 Reduction in delays and increased promptness in delivery of services
 On-line monitoring and control encouraged municipality to go for
privatisation of four major services
 On line office administration, monitoring/control mechanisms and
service provision introduced; led to time management and paperless
office administration
 Three civil centres established for time-bound complaint redressal,
service provision and accessibility at fingertips
 e-Governance contributed to the municipality being the first ULB to
achieve 100 per cent compliance with the first four steps of MSW
Rules 2000
 General administration staff performed well with the same strength as
before – no fresh recruitment even against retirement

 Firm step towards implementation of double entry, accrual based
accounting system – in progress
 Citizens proud of Vejalpur municipality in terms of transparency,
accountability, service delivery and above all, exemplary dedication
and team work of the elected wing.
Case Study 7:
E-Agricultural Marketing (“EKVI”)
An Initiative of the Madhya Pradesh Government
Mandis are central to the functioning of the marketing channels for

agricultural products. They act as a point of contact between farmers and
traders. Buying and selling transactions are conducted by commission agents
and are based solely on verbal agreements and mutual understanding. The
mandis, unfortunately, have not worked as optimal procurement channels
since the market is created, manipulated and managed by agents. To
overcome these deficiencies, Internet - connected kiosks, known as e-
Choupals, have been set up by ITC where farmers are provided with the
latest weather reports and apprised of local and international prices and best
practices in farming. They also serve as procurement and purchase points,
allowing farmers to not just sell their produce but also to buy agricultural
inputs and consumer goods. This initiative in Madhya Pradesh became an
ideal vehicle to communicate directly with the farmers and thereby bypass
the inefficiencies arising out of agents’ intermediation and collusion. It
provided farmers with better information regarding prices and reduced their
transaction cost (reduction in travel cost plus losses incurred due to use of the

Mandi’s manual scales). Thus, e-Choupal not only provided an alternative
marketing channel but was also a competition to the existing mandis.
Thus, to prevent mandis from becoming redundant, their computerisation
was sought by the Government of Madhya Pradesh. EKVI (e-Krishi
Vipanan) is the e-Agriculture Marketing project taken up by the Government
of Madhya Pradesh as part of its e-Governance initiative to facilitate the
farmers of the State in taking informed decisions for selling their produce.
Madhya Pradesh’s agricultural marketing framework is unique as it consists
of two distinct sets of measures:
 Development and regulation of primary markets, popularly called
‘mandis’.
 Regulation of market through a series of legal instruments.
If both the functions performed by the activity centre/ Agriculture Produce
Marketing Committee (Mandi) are complementary to each other, it would
lead to fulfillment of the provision and objectives of the step. Also, faith
would be instilled in the farmers to use the system as well as to get fair
returns for their produce. This necessitated efficient, transparent and diligent
working of the Mandi office so as to facilitate prompt availability of
information, reports, and analysis to the users and seekers. It was, therefore
essential to graduate from the present manual process to an ICT enabled
process.
Objectives
The EKVI Project was started with the objective of professionalising and
reorganising the agricultural trading business of the Mandi Board through
cost-effective digital infrastructure using the latest advancement in ICT. It
aimed at collection and delivery of real time information on-line to make
operations more effective and totally transparent, benefiting all stakeholders

(farmers, traders and Government) and empower them with accurate and
timely information for effective decision making. The infrastructure
developed is designed to create grain-less mandis by removing the need for
movement of agricultural produce from the farmer’s premises to the mandis.
The enhanced competitiveness of Indian agriculture induced through such a
market-led IT – based model is envisaged to trigger a virtuous cycle of
higher productivity leading to higher rural incomes and capable of creating
and meeting vibrant future market requirements as well as facilitating
farmers’ risk management.
Benefits to stakeholders
The benefits accruing to the various stakeholders are:
To the Farmers:
 Availability of latest information on rates, arrivals etc. in various
mandis.
 Choice to decide when and where to sell
 Sell the produce at door through e-Trading
 Reduction in losses due to transportation and handling
To the Traders:
 Transparent procedures
 Single window disposal
 Reconciliation of daily sales, accounts, transit permit
 Availability of rates in various mandis will help in offering
competitive rates to farmers
 Reduction in transportation losses
To the Mandis:

 Instant reconciliation of accounts, transit permits receivables and
payables
 Effectively monitor its activities
 Facilitate implementing contract farming
 Ensure transparency in operations
To the Government:
 Speedy collection, analysis and dissemination of information to
farmers and traders
 Improved tax revenue collection by collating this data with
commercial tax, income tax, etc.
 Instantaneous access to even remote locations through VSAT
connectivity, which can be effectively lead to good governance
through dissemination of information.
The development of the e-Mandi module has helped the mandis carry out the
transactions outside the mandi premises and effectively capture the
transactions as well as provide the information on rates and other matters to
the farmers and traders. Also, it has integrated private initiatives to purchase
produce in places other than the Mandi, but still obeying the law of the land.
The confidence of farmers in the mandi system has improved considerably
and the suspicion on private initiatives is reducing once the farmers have
come to know that they too are part of the recognised system of the State.
The tendency to evade mandi fees has reduced considerably because the
traders now know that the automated system is capable of tracing the
transactions.
The module covers all the basic procedures of accounting for the mandi,
including Cash and other accounting books, accounts receivable and payable,

budget preparation and analysis of income and expenditure statements, and,
reconciliation of bank accounts. It also handles tasks related to
administration of the mandistaff details, gradation lists, etc., payroll
management and generation, advances and recoveries, pension management,
employee’s service record and other related reports. The software is useful in
preparing the voter’s lists of farmers and traders and enables the analysis of
voters’ profile in a mandi.
Based on the above data the software will generate various physical and
financial reports on a daily, fortnightly, monthly and yearly basis.
Daily/monthly data for rates/arrivals would be directly uploaded from the
mandi on to the Mandi Board web site. The software at Naka would cross
check Anugya Patras authenticity at Naka points.
Case Study 8:
Lokvani-An effort to empower citizens
An Initiative of the UP Government
Sitapur’s (Uttar Pradesh) Lokvani is a Service Oriented e-Governance
system which attempts to provide efficient and responsive online services to
the common people and seeks to increase transparency and accountability in
Government procedures. The old, manual system made it mandatory for
citizens to visit the district headquarters or tehsil for any simple transaction
with the Government and for redressal of their grievances. Due to the
bureaucratic and hierarchical model of functioning, even ordinary documents
such as birth, death, domicile, caste and income certificates were difficult to
obtain and the entire process was time consuming. The conventional
administrative mechanisms were constrained by their inability to reach out to

most of the citizens and the process of service delivery was marred with red
tape. The inadequacies in two such systems are highlighted below:
Tehsil
 Dependence on Lekhpal for land records.
 Delay and corruption in obtaining copies of land records.
 Unnecessary secrecy leading to land scams.
Redressal of public grievances
• Applicant can’t track the progress of his application.
• Lack of effective monitoring system for senior officers.
• Problem of approaching the district headquarters from remote places
regarding applications/grievances.
The only way out of these issues is to use technology effectively to make
governance more accessible to citizens.
Project Objectives
Lokvani’s vision is to give strength to governance for combating corruption
and putting in place policies and investments to drive public and private
sector-led growth and maximise domestic resources available to fund district
development strategies. It is a commitment to people to give them
transparent, credible and accountable systems of governance, grounded in the
rule of law, encompassing civil and political as well as economic and social
rights, underpinned by accountable and efficient public administration for
multiphase development of the people.
The objective of this project is to eliminate the digital divide and connect
people to strategy makers in a seamless manner. Thus, in operational
terminology, it is making people aware of Government services and world
aid available to them. It is delivering qualitative and quantitative information
to every person in the administration as well as to every target beneficiary.

Its goal is to connect people through Lokvani for raising their living standard
by providing health facilities, employment, awareness of human rights,
environment to grow, education opportunity, and, corruption free
governance.
Achievements
 First successful G2C project in UP
 Recently Lokvani received Golden Icon Award from Government of
India under the service delivery category
 It was one of the few best practices of the country, which were
presented before the Cabinet Secretary, GOI in Vigyan Bhavan, Delhi.
 Demonstrated before IAS trainees at Lal Bahadur Shastri National
Academy of Administration (LBSNA), Mussorie
 Lokvani has been widely quoted and discusses in leading national
magazines and newspapers like India Today, Outlook, The Times of
India, etc.
 Lokayukta, UP also praised Lokvani for its services to citizens of
Sitapur
 UP Government has issued a Government order to replicate it
throughout the State
 The President of Lokvani has won the Dataquest e-Governance
Champion award in New Delhi recently.
Case Study 9:
e-Kosh- Computerisation of the Treasury Department
An Initiative of the Chattisgarh Government

The Treasury is the focal point of the initial financial transactions of the
Government. For efficiency and transparency in financial management, any
Government depends primarily on timely preparation of accurate accounts.
In the pre-computerisation era, when accounts were prepared manually,
delay in preparation of monthly treasury accounts was a regular feature.
Moreover, it was difficult to verify their accuracy. As numerous
discrepancies crept into treasury accounts each month, it became extremely
difficult to tally the treasuries’ figures with those of banks. This resulted in
the delay in preparation and submission of error-free treasury accounts. To
overcome these difficulties, the Chattisgarh Government sought the
computerisation of the treasury department.
Key Objectives of the e-Kosh Model
The major objective of the system is to monitor, control and execute
financial transactions (payments and receipts) of the State Government and
compilation of financial statements/reports for the State Government and
AG.
The other objectives of the project are:
 To develop a web-enabled, easy-to-use software to automate the entire
procedure pertaining to the activities of the Treasury Department
 To provide information on actual receipts/payments on a day- to- day
basis to the Finance Department so that the actual finance position can
be made available which is vital for planning purposes
 To provide IT-enabled services to the end-user, who may be a
pensioner, or a department that submits bills for payment using the
state-of-the-art technology

 To provide complete transparency of the treasury procedures to the
consumer base so that the consumer can get the benefits of real
governance
Benefits accrued from this project

1. Online communication of budget allotments to DDOs from Budget
Controlling Officers
2. Misclassification of heads is checked through software
3. Online bill passing in consonance with sanctioned budgets in case of
budgeted bills
4. Non-budgeted bill passing is checked through software
5. Daily merging of sub-treasury data with district treasury data for
preparation of accounts with respect to payments, receipts, pension
payments, issue of cheques, payment status of cheques
6. Online updating of payment status from every treasury/sub-treasury at the
central server
7. Processing of pension cases streamlined at JD offices
8. With the help of information on scheme-wise expenditures, the
departments are able to monitor the budget requirements.
9. Internal efficiency is improved, eliminating manual maintenance of
records
10. Implementation of Payments sub-system has ensured that all the manual
procedures are translated in a systematic and classified manner
11. Implementation of Receipts Sub-System with establishment of proper
linkage between Payments and Receipts modules
12. Integration of Deposit Accounts with payments and receipts sub-systems
provide the required information

13. Integration of Pension payments at treasuries and works accounts to
provide complete accounting information needs of the treasuries
Chapter-13
References and Bibliography

Websites
 http://www.basixindia.com/
 www.nabard.org/
 http://info.worldbank.org/etools/bspan/PresentationView.asp?
PID=936&EID=482
 http://Inweb18.worldbank.org/ESSD/sdvext.nsf/68ByDocName/WhatI
sEmpowermentFourAreasofPractice
 www.syngentafoundation.org
 http://www.tenet.res.in/nlogue.html
 http://www.delhibusinessreview.org/
Reports
 Singh, Nirvikar (2007), Information Technology as an Engine of Broad-
Based Growth in India, in The Information Economy in India, ed.
Parthasarathi Banerjee and Frank-Jürgen Richter, London:
Palgrave/Macmillan.
 Can Microfinance Empower Women? Self-Help Groups in India
RANJULA BALI SWAIN81, DEPARTMENT OF ECONOMICS,
UPPSALA UNIVERSITY, May 2007.

 NABARD, 2005: Progress of SHG – Bank Linkage in India, 2004-2005,
Microcredit Innovations Department, NABARD.
 Pitt, M., S. R. Khandker, and J. Cartwright, 2006: Empowering Women
with MicroFinance: Evidence from Bangladesh, Economic
Development and Cultural Change.
 The World Bank, 2006: Social Capital, Empowerment, and Community
Driven Development.
Research papers
 The Role of Microfinance in Rural Micro-enterprise Development Prof.

Dr. Hans Dieter Seibel University of Cologne,
 Bhatnagar S.C., “E-Government: From Vision to Implementation – A
Practical Guide”, SAGE Publications Pvt. Ltd., New Delhi, 2008.
 Satyanarayana J., “E-Government. The Science of the Possible”,
Prentice Hall of India Pvt. Ltd., New Delhi, 2008.
 Information Technology - Need of the Hour Rural Development, By
Professor & Chairman, Dept. of Mass Communication, Guru
Jambheshwar University, Hisar (Haryana), 2008.
E- Articles
 The Role of ICT in Governing Rural Development By Anita Kelles-

Viitanen, 2005.
 The Role Of Mobile Phones In Sustainable Rural Poverty Reduction, By
Deepak Bhatia, June 15, 2008.

 World Bank. 2006. Information and Communication for Development.
Global Trends and Policies. World Bank, Washington DC.
 World Bank. 2007. Agriculture for Development. World Development
Report. 2008. World Bank, Washington DC.
 ICT and e-Governance for Rural Development Prof. T.P. Rama Rao
Center for Electronic Governance, Indian Institute of Management,
Ahmedabad, 2007.
 Micro Finance in India and Millennium Development Goals :
Maximizing Impact on Poverty, 18th September,2009.
 Rural microfinance and employment. Do processes matter? Project
financed by Agence Nationale de la Recherche, 2008 – 2010.
Case studies
 www.bookaid.org/.../Libraries_Literacy_Poverty_Reduction.pdf
 www.thinkmicrofinance.org/wpcontent/.../casestudy_scalingup.pdf
 www.akshaya.kerala.gov.in/
 www.karnataka.gov.in
 www.worldbank.org/INTEGOVERNMENT/.../APeProcurement
 www.darpg.nic.in/arpgwebsite/conference/10thconference/cd/Chap4.pdf
 http://www.delhibusinessreview.org/casestudy.pdf
 www.egovonline.net/articles-list/47.../3722-ekvi-e-krishi-vipanan.html
 www.egovonline.net/.../3700-lokvani-an-effort-to-empower-
citizens.html

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DISSERTATION

REPORT SUBMITTED TOWARDS THE PARTIAL

AMITY INTERNATIONAL BUSINESS SCHOOL,

Amity International Business School 1

No task can be completed without proper guidance and

Amity International Business School 2

This is to certify that Rohan Trikha, student of MBA-IB 2008-10, AMITY

I gladly accept the work done and recommend the same.

Amity International Business School 3

4. Critical Review of Literature…………………………………….. 26

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7. Major Micro Finance Instruments and Products………… 62

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8.2 Relating to Information technology............................ 100

9. Key Players………………………………………………………… 137

10. Findings & Analysis…………………………………………… 145

11. Recommendations, Suggestions and conclusion..…. 155

12. Case studies............................................................ 161

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13. References and Bibliography……………………………. 189

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2.1.4 MAINSTREAM MICRO FINANCE INSTITUTIONS

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3.1 Primary Objective:

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3.2 Secondary Objective:

3.4 Research Design

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3.6 Data Collection

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4.1 MICROFINANCE IN INDIA – Issues and challenges

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4.4 The Role of Microfinance in Rural Micro-enterprise

Major Areas of the Study

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Major Areas of Study

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4.6 Micro Finance in India

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