Since India’s booming microfinance sector has failed to include the poorest of the poor in its economic development programs, Chandra Shekhar Ghosh has created an innovative “trickle-up” approach to poverty alleviation. Starting with grants and training for people who otherwise lack access to microcredit, his program aims to graduate participants first to regular microfinance programs and then to traditional financial services.
The New Idea
Chandra Shekhar’s inclusive microfinance initiative is aimed at those whose levels of poverty place them beyond the reach of most mainstream microfinance services and who have never before been included in the microfinance movement.
Through his innovative pro-poor program, launched under the aegis of Bandhan, Chandra Shekhar is demonstrating that the poorest of the poor can also benefit from financial services. His program, which he calls “Targeting the Hard Core Poor,” tracks those at the very bottom of the socio-economic ladder, helps them to develop the skills they need to manage local enterprises, and supports asset creation through grants. Bandhan’s clients are landless, assetless women, most of whose incomes are less than Rs 2,000 a month. Instead of depending on outside fundraising, the program relies on the surplus income generated by Bandhan’s regular microfinance programs.
His lending methods are unusual because they focus on the individual, rather than the group lending methodology used in most of India. This helps it to serve its poorest clients in a highly personalized and efficient manner, while achieving branch profitability, an industry benchmark. The focus of the program, according to Chandra Shekhar, is to strengthen the physical, social, and human base of the destitute so that once they have completed the initial asset-building phase, they may begin to build sustainable livelihoods and benefit from mainstream development programs.
India is home to one third of the world’s poor; more than a quarter of its population lives below the poverty line. One of the principal ways the Indian government and citizen organizations are addressing the problem is through microfinance. Despite the fact that the microcredit movement has experienced massive growth in recent years, it often fails to reach the most poor, who find themselves excluded not only from mainstream financial systems, but from microfinance services as well.
Arguing that the poorest segment of the population has other basic needs like food, shelter, and education that must be addressed first, the microfinance sector does not include those at the bottom of the socioeconomic ladder. Furthermore, microfinance institutions (MFIs) and government programs have focused on building healthy loan portfolios and achieving financial sustainability by reaching out to only “safe” clients or those who can definitely repay their loans. The resulting exclusion of the poorest members of society from microfinance programs defeats the overall objective of poverty alleviation.
According to the World Bank, most microfinance programs are successful in reaching the moderately poor—those just above or just below the poverty line—rather than those with even fewer resources. Microcredit best serves those who are already in a position to capitalize on a small amount of ready cash. In most cases, these clients tend to benefit more from microcredit than those poorer because of higher skill levels, better market contacts, and a more robust initial resource base. Areas with pre-existing opportunities for small enterprises are often more attractive for microfinance institutions because they are able to repay their loans more easily.
Gender and caste disparities in lending patterns are also a challenge for the Indian microfinance industry. Women comprise 70 percent of the world’s poor and the bulk of those who need microfinance services. Though microfinance has traditionally supported women in group settings, it has done very little to enhance women’s access to the larger individual loans required for establishing and running small and medium-sized enterprises. Also, marginalized groups like Dalits (“untouchables”), tribal groups, Muslims, and migrant workers, as well as women-headed households, are often unable to save or repay regularly—a precondition for most microfinance programs. These disparities further contribute to the exclusion of the very poor from microcredit.
Chandra Shekhar started Bandhan, which literally means, “bond or ties” in 2001 as a way to strengthen weak MFIs and expand their scope. Today Bandhan boasts extensive outreach, all female membership, zero portfolio risk, and a 100 percent recovery rate. It is cost-effective and financially sustainable.
Chandra Shekhar tested and refined his ideas for a program targeting the most poor in a pilot program for twenty-five destitute women in a semi-urban area of Kolkata. The program succeeded in helping participants create sustainable livelihoods, increase their income from an average of Rs 300 a month to Rs 2,000, and become members of Bandhan’s main microfinance program. For the second phase of the project, he targeted one of the poorest districts of West Bengal. Now, almost a year into the program, its 300 beneficiaries have graduated to the asset-creation phase and Chandra Shekhar is expanding his beneficiary base by moving into a neighboring district where he’ll serve another 300 clients.
Bandhan has formulated a set of criteria to identify potential participants. The program focuses on landless, women-headed families that are not currently involved in credit programs. In the face of local political pressures, identifying those most in need is a difficult task. So Chandra Shekhar has developed what he calls the Participatory Rural Appraisal (or PRA), a method to identify the residents most in need in his target areas. The PRA involves a facilitator, an organizer, and a secretary in each village. With the help of the community, this team sketches out the economic profile of the village. Senior field members verify the final result. This open, flexible methodology gives communities the opportunity to control and analyze information for their own benefit. It provides realistic appraisals quickly and cost-effectively.
Over two years, Bandhan provides clients with the skills they need to manage finances and build their enterprises. At the end of a year-long training period, clients receive an asset in the form of a donation, such as shop space, a tea stall, or a sewing machine. The monitoring that follows allows clients to continue to build their skills. In order to participate, beneficiaries are required to save. Once the savings habit is inculcated and the beneficiaries have built some capital, they become part of groups, through which they can access formal credit.
Bandhan only extends loans to women for income-generating activities such as embroidery work, animal husbandry, small trading, fishing, vegetable vending, and rice husking. Chandra Shekhar believes that so-called “consumption” loans only increases the purchasing power of the poor, and what they most need are loans that enable them to generate a comfortable income for themselves. An important condition of Bandhan’s loans is that resulting enterprises provide employment to at least one poor person. This creates a trickle-down effect; women who have managed to pull themselves out of poverty are now training others to do the same; creating more employment opportunities in their villages and neighborhoods.
As part of its mission to empower women, Bandhan offers support services to its clients and others in the communities where it works. Field staff conduct trainings in health and hygiene. The organization has also started offering insurance services in partnership with the Life Insurance Corporation of India. Other plans include scholarships and book loans to members’ children.
Bandhan was designed to function decentrally, while maintaining quality standards across the organization. Chandra Shekhar believes this decentralization is responsible for lowering transaction costs and enabling Bandhan to extend loans at interest rates much lower than average, while achieving high levels of growth and sustainability. All of Bandhan’s offices are simply furnished, so clients will feel comfortable and employees emphasize customer care.
Chandra Shekhar is leveraging Bandhan’s vast network and resources to effectively ensure the expansion and impact of his program for the very poor. Today Bandhan’s works in fourteen of West Bengal’s nineteen districts, as well as in the nearby states of Tripura, Assam, Bihar, and Jharkhand. They will soon expand to Orissa. It has 343 branches covering about 10,000 villages, serving more than 500,000 members. The organization’s phenomenal growth since it began in 2001 has earned it the distinction of being the fastest-expanding MFI in India, in addition to being among the most well-respected. Other microfinance organizations have requested Chandra Shekhar’s assistance in replicating Bandhan’s best practices.
Chandra Shekhar was born into a family of Hindu refugees from Bangladesh living in India. After Bangladesh became independent in 1971, he returned with his father (the rest of the family came later). Relying on his sweet shop as his only source of income, his father struggled to give Chandra Shekhar a good education despite their poverty. Chandra Shekhar studied statistics at Dhaka University. In 1985, he began working with BRAC. After his training, they sent him to one of the poorest areas of Bangladesh to mobilize government resources in favor of the poor.
It was during one of his visits as a field officer with BRAC that Chandra Shekhar found the inspiration to start Bandhan. He was meeting a poor woman in her home; her child was playing in the dust. So he began to talk about hygiene, described the benefits of a clean environment for her family. The woman told him she knew all about the subject, but her main problem was feeding her child. There was never enough food, and more often than not, the child went hungry. For Chandra Shekhar, it was a moment of clarity. He realized that if a family didn’t have enough income to meet its basic needs, all other efforts to change their lives are fruitless.
Although Chandra Shekhar’s experience with BRAC helped him to understand poverty and provided him with the skills he needed for his initiative, the simplicity and empathy that are the hallmarks of Bandhan reflect his personality.
Chandra Shekhar divides his time between Kolkata and the other branches of Bandhan.