Monday, March 31, 2014

Micro Investment Plan (MIP) of SHG

The international standard for the definition of the poor i.e. a household that spends more than one third of its income on food, is followed in India, 95 percent of all households would be considered poor. Every country need inclusive political and economic institution to break out cycle of poverty. The delivery of financial services at an affordable cost to the vast sections of extremely poor and vulnerable group of people is necessity for the development of India.

Plans are useless, but planning is indispensable. — Dwight D. Eisenhower

Budgets help to determine how much money one has, where to invest it, and whether one can achieve your financial goals. As budget is a forecast of all cash sources and expenditures. MIP is a tool for financial planning that can be used for both SHG and its members. Socio Economic Analysis of each SHG is performed as risk is involved in giving loan without any collateral. Format used in TRIPTI can be downloaded here.

Indicative Components/ Seven Steps for preparing a Micro Investment Plan (MIP) :

Step 1-SHG Details Format
Step 2-Members’ socio economic details Format
Step 3-Income and expenditure statement of members Format
Step 4-Listing of Household Investment Plans (for economic, social and household needs) Format
Step 5-Prioritization of Members Format
Step 6-Financing and Rotation Plan Format
Step 7-Terms of Partnership Format

MIPs are promoted under National Rural Livelihood Mission as it helps in better planning to avoid bad loans on behalf of the banks. Micro Investment Plan is prepared with the initiatives of Community Resource Person Strategy in the Project. MIP is used for SHG members where many factors like priority, wealth ranking, Investment in the activity proposed, Loan Amount, Life of Asset, Monthly Incremental Income, Saving Capacity of Household, Installment Amount, No. of Monthly Installment and other entitlement (PDS, Insurance, Pensions, etc) are considered. MIP include plans for investment on asset creation for income generation and household need investments. MIP is assessed at Household level where asset, liabilities, risks, vulnerabilities, entitlements and other expenses are noted down in the detail.

But such detail exercise exists only in theory. Most of the MIP forms had not been filled properly. Activity proposed, No. of installation, Payback amount and signature of President & Secretary is the main focus of Banks. The low income who have been excluded from the financial services of formal institutions lacks financial literacy in most cases. Financial literacy for poor villagers is really important but it doesn't mean training by government officials once in a blue moon. There is always need of Livelihood mission/MFI/NGO to reach and build capacity of SHG members. People need awareness about financial products, fraud activities or else they are mislead and fall to misdeeds of chit fund companies promising high returns; This often end up losing the life time savings.

Let us see a practical example of credit linkage. A SHG demanded nearly 1 Lakh as per their MIP and each member of the SHG deliberately had put Rs 10,000 as the investment capital for the proposed activity. Rs 50000 from the GPLF (Gram Panchayat level Federation of SHG under Livelihood Mission) at a nominal interest rate of 7% was given as loan to SHG. Group divided this money among themselves equally (Rs. 5000) per member. The amount according to their need(proposed activity) will always differ from each member but fairness is maintained through this equal division. Only internal loaning is done among members on the basis of priority. In the case of external loan/grant, this fairness in distribution is always maintained by SHG. So, Priority in lending is a nice theoretical concept. How do a rural manager can change 20 years of what the common wisdom have taught them?

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