1. The People Sector World Bank South Asia Region Agriculture & Rural Development AP Rural Poverty Reduction Program Approach and Impact: Comparisons with GRAMEEN and BRAC in Bangladesh October 27, 2008

2. GENESIS – AP RPRP  AP RPRP was the outcome of upscaling the UNDP supported SAPAP project. the South Asia Poverty Alleviation Program (SAPAP) - a pilot in three districts of Andhra Pradesh covering 66,000 households in 1996.  World Bank supported AP RPRP started in 2000 first phase (2000 – 2006) implemented in the six poorest districts in the state, and second phase (2003 – 2009) implemented in all the districts of the state.  The program builds on 15 years of statewide women’s thrift based self-help movement  The total investment through IDA over eight years is about $335 million

3. APRPRP some key guiding principles  Investments in developing good quality institutions of the poor at all levels ( enhancing the scale and quality of the demand side)  Creating good quality crediworthy clients from poor households for Commercial Banks  Creating an inclusive financial sector for the poor  Reduction in high cost indebtedness for the poor  Assetisation and skilling of the poor  Investments in the retail end of the value chains for increasing rate of return from livelihoods for small holders and making the markets work for the poor  Developing last mile service delivery approaches for various public services and entitlements e.g PDS, MSP

4. Assetization & Access to Market  Investing in Developing a Co - production model  Federated institutions of the poor become partners with key players in the public/private sector acting as franchisees  Agribusiness  Dairy and Livestock  Services and Jobs  Micro- enterprise People’s Sector Skilled & Federated CBOs Private Sector Retailers Traders, Nationals, Multinationals Cooperatives Financial Sector Banks, MFI, Insurance Companies Public Sector PDS Govt. Schemes MSP Local Government PDS=public distribution system; MSP=minimum support price

5. Goals, Approaches and Scale APRPRPGRAMEENBRAC Goal Poverty alleviation through social and economic empowerment of the poor Poverty Alleviation through improving access to finance Poverty alleviation through empowerment of the poor Approach Building credit worthy clients for mainstream commercial banks and other financial institutions Building clientele for owned MFI and businesses Building clientele for owned MFI Scale 8.75 million members over last 12 years 7.41 million members over 31 years 7.30 million members over 35 years 700,000 SHGs in 33,747 villages ~ 275,000 Centers 80,678 villages 260,785 Centers in 69,421 villages

6. Institutional Model APRPRP GRAMEENBRAC Federated Institutions JLG CENTER Village Organizatio n (260,785) 6,397,635 Members6,710,000 Members Self Help Groups: 699,056 Village Organizations: 33,747 Mandal Samakhyas: 1083 Zilla Samakhyas: 22 8,750,000 Members

7. APRPRP: Building clients for banks and creating an inclusive financial sector for the poor  Promotion of thrift for self reliance and growth SHGs manage own thrift of USD 325 million and also manage an internal corpus (member savings PLUS interest income) of USD 770 million for internal loaning.  Increase in access to credit from “formal financial institutions” SHG Bank loans increased from less than $20 million in FY 2000 to >$1.30 billion in FY2007- 2008. Expected to reach more than $2 billion next year. Cumulative credit has exceeded $ 3 billion.  Increase in rural business turnovers for Commercial Banks SHGs account for 14% of aggregate rural credit disbursements in AP during 2007-08 More than 40% of national SHG Bank linkage amount in AP Credit outlay to SHGs in 2008-09 at USD 2.2 billion amount to 22% of state credit plan in AP SHGs have demonstrated high repayment rates in excess of 97% resulting in healthy income flows for banks  Changing face of rural financial sector in AP 90% of rural bank branches lend to SHGs and many rural braches have become profitable on account of SHG credit portfolio SHG loan portfolio exceeds 50% of total credit business in close to 15% branches and has also increased profitability of these branches More than 8 million SHG members/ spouse have life & disability insurance cover.

8. SHG loans make good business sense for banks  2001-02 (US$)  Deposits – 1 mn  Advances – 1.76 mn Agri – 1.30 mn SHG – 0.25 mn Others –0.20 mn  SHGs Recovery (100%)  Others Recovery (85%)  Profit – 0.01 mn  2007-08 (US$)  Deposits – 1.63 mn (63%)  Advances – 4.85 mn (176%) Agri – 3.11 mn SHG – 1.25 mn Others – 0.49 mn  SHGs Recovery (99%)  Others Recovery (92%)  Profit – 0.40 mn Implications of growth in SHG loans for business portfolio of a rural bank branch - ADB Yemmiganur, AP

9. Innovations in Product Development and new approaches for Last Mile Service Delivery  Health and Education Savings Products  Banking correspondents and facilitators i.e., leveraging biometric based smart card technology for providing ‘branchless banking’ service to poor  Development of micro insurance products including Zilla Samakhyas as franchises and operating rural BPO call centers enabling universal access to insurance services  Total financial inclusion products including debt swapping for high interest loans from moneylenders remittance services

10. Making markets work for the poor in AP (some innovations)  Development of a network of community managed milk procurement and chilling micro enterprises as franchises for the dairy business  Development of a network of community managed quality control, grading and procurement centers as franchises for agribusiness and MSP  Development of market based and community managed food security and distribution enterprises to enable access, affordability and increase household consumption of food  Development of community managed nutrition centres which ensure good quality nutrition services to all pregnant members combining diet, credit, entitlements and supervised heath care  Development of a network of more than 400 centres which work as livelihood academies in various sectors such as retail, construction, IT enabled services, security for young boys and girls for poor households resulting in more than 150000 jobs.

11. Making Public Services Work for the Poor  Improvement in services of the Public Distribution System (PDS) or Fair Price Shops investing in community managed governance and accountability mechanisms developing market based financing solutions to access entitlements  Developing a holistic approach, in partnership with Dept of Health & Family Welfare and Dept of Women & Child Development, towards addressing Reproductive and Child Health issues including malnutrition of pregnant mothers and new born babies the Community Managed Nutrition Center concept “bare-foot” doctors and change agents (i.e., ASHAs, ANMs, health activists and health CRPs)

12. Making Public Services Work For The Poor  NREGA entitlements : Job cards for all and savings products from wages and assured employment  Disability – ensuring access to all entitlements working in partnership with all the relevant government departments  Targeting and Distribution of Old age and destitute pensions  Accessing government sponsored Social Risk Management products such as Aam Admi Bima Yojana (life insurance for informal sector agri. labors); Janashree Bima Yogana (life insurance for BPL household)…..  Acess to public and private health care services through a health/activist correspondent model

13. The People Sector World Bank South Asia Region Agriculture & Rural Development Household Impacts

14. Impact on Income & Assets Income/ Asset Before joining the SHG After joining the SHG * Increase% Average Investments in Productive Assets of SHG member (US$) 74620011255168% Average Family Gross Assets of SHG member (US$) 103229741942188% Average Family Income of SHG member (US$) 4831041558116% % of SHG members moving Above Poverty Line (APL) 29.2%48.6%66% Source: ICR, APDPIP, The World Bank (2007) Period 2000 - 2006

15. Impact on Consumption Expenditure Items Prior to Joining SHG After Joining SHG Increase/ Decrease% Interest Payments (in US$)10560-45-43% Expenditure on Food (in US$) 2253199442% Expenditure on Health (in US$) 68781015% Expenditure on Education (in US$) 4212684200% Other Household Expenditure (in US$) 731265373% Period 2000 - 2006 Source: ICR, APDPIP, The World Bank (2007)

16. The People Sector World Bank South Asia Region Agriculture & Rural Development Other Impacts

17. Impact of APRPRP Total Financial Inclusion  Retiring HIGH COST debt from informal sources using formal sector credit  Reduced INTEREST EXPENSE leaves cash “in- hand” for investment in Productive Activities i.e., assets/livelihoods  Leading to increased cash-flow and better debt management

18. Impact of APRPRP Changing Debt Structure of Member Households 79.3 % of households decreased dependence on money lenders in 4-6 years of joining SHGs Sources Age of the Groups Overall % Change < 3years 4 - 6 years > 7 years Col. (3) / col. (2) Col. (4) / col. (3) Banks79508155745078522.6-6.3 Money Lenders / Friends etc. 25808737251393-66.2-71.2 SHGs415560208107609444.995.1 MACS / VOs35823856451129566.280.2 Total Size of Mean Annual Borrowing 146851504816282153382.510.9 Source: Impact evaluation study on SHGs in Andhra Pradesh by NABARD, Jan 2006 (Amount in Rs.)

19. Community Managed Food Security Intervention – Context setting  Food (Rice) need for a poor family of 5 members in rural area – 50 Kgs per month  Public response i.e., PDS is inadequate meets about 30% of food needs (15 Kgs) Inaccessible due to lack of money to purchase the entitlement Leakages & inefficiency of the system  Poor pay a “Poverty Penalty” in addressing the food needs Higher unit cost of food grains procured from local markets/neighborhood shops 15 – 20% Lower quantity of food consumed: 20 – 25%

20. Community Managed Food Security Intervention – Enterprise Model No. of SHG households covered1,967,437 (22%)Total turnover per year$200 million Quantity of rice816,323 MT/year Total investment in the intervention$ 15 million Open Market PDS

21. Community Managed Food Security - IMPACTS  Unit cost of food reduced by 15 – 20% resulting in increase in food consumption  Increase in food consumption The consumption of food grains consumed increased from 46.77 kgs of rice to 58.56 kgs. Per capita consumption per month increased by an avg of 9.91 kgs – 12.41 kgs  Increase in access to entitlements i.e., PDS as a result of bundling credit & bulk purchase on behalf of all SHG members  Development of a NEW FINANCIAL PRODUCT, Food Credit Line

22. Health Value Chain Preventive & Promotive Health Care Curative Care Financing and Service Delivery Human/Social Capital Health activist Community Resource Person (CRP) Nutrition & Health Day (NHD) Water & Sanitation Nutrition Centers Case Managers Making Services Work for the Poor – Accessing PHCs & Area Hospitals Community-owned Pharmacy Community-owned Hospitals Microfinance Product for NUTRITION Health Risk Fund/ Health Savings Health Insurance

23. Nutrition Center – Business Model  The cost of meal Rs 25 per day for TWO MEALS for pregnant and lactating mothers Rs 10 per day for TWO MEALS for Children <5 year  Beneficiary i.e., pregnant and lactating mothers pay at the rate of Rs 18 per day for two meals. The balance Rs 7 is subsidized by the Community-Based Organization/ Government of Andhra Pradesh.  The Beneficiary’s contribution is financed via a microfinance loan which will repaid over 24 – 36 months depending on income & cash-flow status of the beneficiary i.e., consumption smoothing via a consumption loan.

24. Strategic Impact of APRPRP Community Managed Nutrition Centres  236 centers  Enrolled: 1490 pregnant, and 1256 lactating mothers  Against 866 deliveries : 793 ‘normal’ deliveries (92%) 73 had cesarean section (8%) 464 pregnant women gained 10-12 Kgs weight (53%) 402 gained weight between 7-10 Kgs (47%). 430 girls & 436 boys born

25. Strategic Impact of APRPRP Community Managed Nutrition Centres  Status as of October 2008: No child is born with low birth weight (<2.5Kgs)  52% babies with >3Kgs  48% babies born between 2.5 to 3Kgs. No neonatal and infant deaths reported since inception No maternal deaths reported among the women enrolled in 4th month of pregnancy.  780 pregnant women had complete ANC (90%)  All the lactating mothers had check ups in the 1st week after delivery.

26. The People Sector World Bank South Asia Region Agriculture & Rural Development Institutional / Systemic Impact How does APRPRP/IKP Compare with Grameen & BRAC

27. Size of Operations AP RPRP (March 08’) GRAMEEN (Dec ‘07) BRAC (Dec ‘07) Annual Loan Disbursement USD 1.2 billion USD 731 millionUSD 917 million Gross Loan Portfolio USD 1.20 billion USD 532 millionUSD 528 million Member SavingsUSD 325 million USD 276 millionUSD 198 million Portfolio at Risk 1.18%2.0% 3.8% Average Savings/ Member USD 38USD 41 US 11 Average Loan Balance/Member USD 237USD 79USD 83 Source: NABARD, www.mixmarket.org, Grameen Bank & BRAC Annual Report 2007

28. Business Model APRPRPGRAMEENBRAC Business Model SAVINGS + CREDIT + CREDIT PLUS MICROFINANCECREDIT + CREDIT PLUS Financing Model Microfinance + Livelihood Finance Microfinance Members’ savings and leverage funds from Commercial Banks i.e., SHG - Bank Linkage Internal Accruals and Member Savings. Also, was dependent on GRANT FUNDS UNTIL 1995 for ONLENDING Dependent on Internal Accruals and Grant money for ONLENDING Loan repayment schedule depends upon cash flows and and socio-economic status of the borrower Predominantly, loan is repayable in 50 equal weekly installments Livelihood Model Work on Consumption Smoothing, Income Generation and Risk Management, Value chain development for key livelihoods Work on Income Generating Activities. Consumption loans only from member savings

29. Implementation Arrangements AP-RPRPGRAMEEN / BRAC Decentralized architecture of project organization Centralized architecture Project actively facilitates social mobilization by communities Staff mobilize communities Communities co-produce services like credit, insurance, health, social security, etc. with mainstream institutions Institution is primarily a delivery agent for credit and other development services Focuses on developing social capital to manage and scale up development programs Scaling up strategies entail institutional expansion Declining marginal cost for scaling up program outreach Uniform average cost for scaling up program outreach

30. Comparison of Returns - Financials APRPRPGrameenBRAC Lending Rate12 – 18 % APR20 % APR23 – 24 % APR Loan Recovery Rate 97.0%98.35%99.54% Portfolio at Risk1.18%2.0%3.8% Source: Calculated from Annual Reports of respective institutions & www.mixmarket.org

31. Comparison of Returns - Impacts APRPRPGrameen Avg Household Income + 115% (from $483 to $1041) + 30 – 50 % Asset Value (assetization) + 188% (from $1032 to $2974) NA Expenditure on Food+ 43%+ 15% Expenditure on Health- 11%+ 36% Expenditure on Education + 17%+ 52%