Moving from Microcredit to Livelihood Finance

Topic :

The topic of livelihood finance has become an issue of some significance in India. It has been recognized that tiny loans as characterized by the majority of microcredit initiatives are not going to be sufficient to reduce poverty significantly. Improving or changing livelihoods is a complex process and will require more complex solutions, including more diverse financial products to meet diverse investment needs. CARE India wanted to research this and ascertain whether or not the self help group system could evolve to meet these needs. They were supported in this endeavour by the FAO Livelihood Support Programme.

CARE conducted some field research in Andhra Pradesh and this report includes a chapter outlining their main findings, including a review of people’s livelihood strategies and how they respond to change, together with household financial management strategies. The following chapter attempts to analyse the whole question of livelihood finance; what it means from a demand perspective and from the supply side. The main point of taking a livelihood approach is to see things in a holistic manner and this report argues that that is how a poor household functions in terms of money, constantly juggling variable availability of cash with variable demands.

Thus ideal “livelihood finance” would enable people to conveniently deposit, withdraw, accumulate and borrow as required. With this in mind the report then examines what intermediaries and products are available in India to serve such needs. The answer is an impressive array, which then begs the question “Why do people not use these products to a greater extent?” Is the issue one of ever more supply or has more to be done to encourage people to use the services that there are? One of the core conclusions of the study is that competent advisory services are needed to complement financial services and the report reviews a variety of options for providing such advice in the Indian context, ending with the following recommendations:

  1. An assessment should be carried out of the operations, strengths and weaknesses of various forms of livelihood resource centres in India with a view to producing guidelines on how these centres can best be structured and managed.
  2. The concept of livelihood resource centres as a source of information, technical and financial advice should be encouraged and as far as possible established at district and block, mandal or cluster level.
  3. All resource centres should be provided with a range of appropriate materials which can be used to facilitate discussion about financial and technical issues relevant to the location.
  4. The concept of farmers’ clubs should be revisited and methods found to revitalise their role and create synergies with SHGs, MACS and other local associations.
  5. A concerted effort to provide useful and friendly information about financial products from banks, cooperatives and post offices should be made, with distribution of material through SHGs, farmers’ clubs, NGOs, cooperatives and resource centres.
  6. A strategy should be devised to improve the ability of village extension workers, SHG leaders and NGO personnel to explain livelihood finance and financial planning to poor households. The simplest visualising tools should be selected, tested and taught via workshops at livelihood resource centres.
  7. Bank and cooperative training institutes should review curricula to determine if changes should be made to incorporate a livelihood approach to analysing the needs of customers and how this might impact on lending decisions. In service training on working with farmers’ clubs and SHGs to help their members identify livelihood improvement opportunities and plan the use of their money should be introduced.

This report is pending publication by CARE India, and FAO as a Livelihood Support Programme working paper.

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