Rural Financial Institutions Programme

Programme description

Title: Rural Financial Institutions Programme
Commissioned by: German Federal Ministry for Economic Cooperation and Development (BMZ)
Country: India
Lead executing agency: National Bank for Agriculture and Rural Development (NABARD)
Overall term: 2009 to 2013

Context

Women of a Self-Help Group (SHG) making transactions at a bank

Despite the large number of financial institutions which exist, most rural Indians, particularly in poorer population groups, still have no adequate access to financial services. Among the poorer people are approximately 100 million domestic migrants who have almost no access to formal financial services although they have a particular need for money transfer services.

Since 2006, the Indian Government has been addressing these problems with a range of reforms aimed at integrating the underserved rural areas and poorer population groups into the financial sector. The reform of the cooperative credit structure (CCS, banks and credit cooperatives) is expected to make a particularly important contribution to rural development and poverty alleviation. The Indian Government has charged the national development bank NABARD with implementing the reform programme, and will probably also ask NABARD to oversee the growing number of microfinance organisations (MFO).

The CCS and MFO sectors consist of around 100,000 institutions with about 150 million members and customers. They are well placed to contribute significantly to the financial inclusion of the rural poor. However, weak management capacities as well as weak internal and external controls have been constraining the growth of their savings and credit services. There is also no institutional infrastructure to enable money transfer services.

Objective

The number of CCS, MFO and other institutions providing financial services to the rural poor has increased sustainably, and they have improved in quality.

Approach

To achieve the programme objective, GIZ is cooperating with the National Bank for Agriculture and Rural Development (NABARD), the most important government agency in the development of rural finance in India. GIZ provides technical assistance to NABARD, to develop the capacity of the national bank, and also of the rural financial institutions and their support structures. GIZ also provides annual financial contributions to NABARD to support the capacity building measures.

The programme's activities are coordinated with the Asian Development Bank, the World Bank and Germany's KfW Entwicklungsbank (development bank). In addition, it also collaborates with relevant German institutions, such as the German Cooperative and Raiffeisen Confederation (DGRV) and the Academy of German Cooperatives (ADG).

In cooperation with the relevant stakeholders, GIZ is currently implementing four programme components:

  • Development of a CCS training and certification system. This involves advising NABARD and the Bankers Institute of Rural Development (BIRD) as they establish a national training certification unit. The programme is also supporting that unit in the accreditation of training institutes, and is helping to develop training and examination materials.
  • Improvement of CCS audit systems. Here the programme advises NABARD on relevant policy matters and supports the development of audit manuals and auditor training courses.
  • MFO promotion, regulation and supervision. NABARD is given advice about appropriate policies and supervision standards, and the programme also promotes communication and cooperation between NABARD and the MFO stakeholders.
  • Payment systems and remittances. The programme supports the stakeholders (commercial banks, Indian Postal Service, CCS) in developing and institutionalising a business correspondent model through which migrants can access money transfer services.

Results achieved so far

NABARD has successfully convinced 25 Indian states to participate in the CCS reform programme, which means it is reaching 96% of the country's CCS institutions and could potential benefit 121 million cooperative members. Comprehensive impact studies have not yet been carried out for the ongoing reform measures, and it is also too early to assess the impacts of the recently started programme components. However, the following achievements can be described:

  • Financial contributions: Through its financial contributions to NABARD, the programme has helped with the training of some 250,000 CSS board and staff members. According to an independent study, 80% of trainees questioned confirmed that the training had had a positive impact on their performance.
  • Development of a CCS training and certification system: The national CCS training certification system has become an established unit of BIRD, known as the Centre for Professional Excellence in Cooperatives. The stakeholders learned a lot in this respect by visiting a similar institute in Indonesia developed with GTZ (now GIZ) support. So far, the centre has accredited 20 training institutions and, with the assistance of the programme, has prepared training manuals. Training is expected to start in 2011.
  • Improvement of CCS audit systems: Audit manuals have been prepared by NABARD in cooperation with GIZ consultants. After approval by the relevant authorities they will be used for orientation and training programmes in those Indian states participating in the CCS reform programme.
  • MFO promotion, regulation and supervision: A provisional supervision system, as well as performance benchmarks and a rating tool have been prepared by NABARD in cooperation with GIZ. Work in this area will continue after NABARD has been officially appointed to supervise the MFO sector.
  • Payment systems and remittances: This component started in 2010 with baseline studies looking at four remittances corridors in India. The results of the study will be presented in early 2011 and used to determine further component activities.

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      Contact


      Detlev Holloh
      Email: detlev.holloh@giz.de