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Financial Inclusion

Financing the Poor Out of Poverty, Towards Prosperity

During efforts to develop commercially sustainable market led models for promoting livelihoods of the poor, Vijay Mahajan, one of the founding members of PRADAN, realized that access to finance was a major bottleneck. Thus in 1995, Vijay Mahajan and his team at IGS, designed and piloted within Indian Grameen Services (IGS), a parallel set up to the banking system in India to ensure hassle free access to financial services especially for the poor. In 1996, IGS pioneered the joint liability group (JLG) model for lending to farmers. This led to setting up of Bhartiya Samruddhi Finance Limited (BSFL), India's first micro finance institution (MFI). Next, IGS experimented with the idea of creating financial intermediation models that raise funding resources from financial markets using community resources as leverage. Thus, Sarvodaya Nano Finance Limited (SNFL) and Anik Financial Services Pvt. Ltd. were set up in 1996 as MFIs wholly owned by rural communities. In 2001, IGS set up Krishna Bhima Samruddhi Local Area Bank (KBSLAB) on a saving led model.

Indian Grameen Services

Following this, in 2003, Livelihood and Microfinance Program (LAMP) Fund was created as a fund within IGS to evolve and provide financial products for supporting small and nascent organisations. The primary purpose of the LAMP Fund was to support livelihoods initiatives through micro-finance and livelihood support activities. It also aimed at supporting Community Based Organisations (CBOs), including Producer Companies (PCs) and Community Based Micro Finance Institutions (CBMFI) in India to promote livelihood development and poverty reduction through micro-finance infusion. The Fund was later supported by Development International Desjardins, Ford Foundation, and SIDBI.

There were two thrust areas for the Fund: (a) capacity development of NGO-MFI/CO-MFI/PCs to provide livelihood promotion services and (b) providing financial services to these entities. Three types of financial services were provided under the umbrella of the LAMP Fund, i.e., loan, grant and returnable grant. The LAMP fund was able to reach out to recipients across 18 states of India with a special focus onStates which were socio-economically the poorest, with the highest percentage of people there living below the poverty line, and areas where credit delivery systems through financial institutions were poor and the loan products not suited to rural people's special needs, the informality of local markets, production seasonality, and/or livelihood diversity. The LAMP Fund supported more than 319 small NGO-MFIs and Producer Companies (Non-Profit entities like Societies, Trusts, Sec 25 Co & Mutual Benefits, i.e., Co-operatives, Mutual Benefit Trusts and Producer Companies). A total of 163 institutions got loan support from LAMP Fund, through 281 sanctioned loan proposals worth INR 727.09 million. The LAMP Fund also invested INR 48.5 million towards institutional building, in the form of returnable grant and grants. Through LAMP Fund, IGS worked with 22 producer organizations (of whom, six got repeat loans) and sanctioned INR 69.7 million worth of loans to them. The activities taken up by these producer organisations included farm-based businesses (seed multiplication - paddy and soya, ginger, spices, dal, cotton), agri-allied (fisheries) and the non-farm sector (weaving, handicraft and bamboo manufacturing).

In 2010, IGS incubated the business correspondent model and set up BASIX Sub-K (now, Sub-K Impact Solutions Limited), which has since evolved into a digital finance (Fintech) company that offers affordable, accessible and scalable financial and payment services (savings, credit, remittance, insurance, G2C and B2C payments) to BoP segment by bridging the financial divide between banks and un/underbanked population. It does so by effectively leveraging technology and local entrepreneurship.

Over the years, IGS has promoted a large number of CBMFIs which have taken up the onerous task of financial inclusion of the poor, experimented with technology platforms in diverse social and geographical contexts, and attempted to understand the complexities of livelihood financing by supporting the creation of livelihood assets. The microfinance sector has evolved substantially since the LAMP Fund was set up by IGS. Several financial products and services have plugged the financing gap for small producers' organisations and CBMFIs, and yet, credit crunch prevails for MSMEs, rural entrepreneurs and for those interested in acquiring next-gen-skills for next-gen-jobs. It is in this context that IGS is in the process of re-envisioning LAMP Fund as a catalytic fund for action research in the space of financial inclusion. New financial products are being designed under the LAMP Fund umbrella, which will be tested, incubated and subsequently disseminated for the mainstream actors to adopt at scale.