Proposed Grant Assistance India: Supporting Microentrepreneurship for Women's Empowerment

Transcription

1 Grant Assistance Report Project Number: April 2010 Proposed Grant Assistance India: Supporting Microentrepreneurship for Women's Empowerment (Financed by the Japan Fund for Poverty Reduction)

2 CURRENCY EQUIVALENTS (as of March 2010) Currency Unit Indian rupee/s (Re/Rs) Re1.00 = $0.021 $1.00 = Rs45.59 ABBREVIATIONS ADB Asian Development Bank CGTMSE Credit Guarantee Fund Trust for Micro and Small Enterprises CPS country partnership strategy JFPR Japan Fund for Poverty Reduction JICA Japan International Cooperation Agency M&E monitoring and evaluation MFI microfinance institution MIS management information system NBFC nonbanking financial company NGO nongovernment organization SARD South Asia Department SFMC SIDBI Foundation for Microcredit SIDBI Small Industries Development Bank of India SMEs small and medium-sized enterprises SMERA Small and Medium Enterprises Rating Agency SOE statement of expenditure TA technical assistance NOTES (i) The fiscal year (FY) of the Government of India and its agencies ends on 31 March. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY 2009 ends on 31 March (ii) In this report, "$" refers to US dollars. Vice President X. Zhao, Operations 1 Director General S. H. Rahman, South Asia Department (SARD) Director A. Sharma, Financial Sector, Public Management and Trade Division, SARD Team leader F. Tornieri, Social Development Specialist (Gender and Development), SARD Team members S. Chakravarti, Senior Programs Officer, India Resident Mission, SARD P. Marro, Senior Investment Specialist, SARD In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

3 JAPAN FUND FOR POVERTY REDUCTION (JFPR) JFPR Grant Proposal I. Basic Data Name of Proposed Activity Supporting Microentrepreneurship for Women's Empowerment Country India Grant Amount Requested $3,000,000 Grant Duration 36 months Regional Grant Yes / No Grant Type Project / Capacity building II. Grant Development Objective(s) and Expected Key Performance Indicators Grant Development Objectives: The primary objective of the grant is to help low-income female microentrepreneurs access financial resources, services, and market opportunities in selected Indian states (i.e., Madhya Pradesh, Maharashtra, Orissa, Rajasthan, and Uttar Pradesh). 1 The grant will (i) assess existing gender policies, strategies, and practices including institutional arrangements adopted by the Small Industries Development Bank of India (SIDBI) and SIDBI Foundation for Micro Credit (SFMC), its partner microfinance institutions (MFIs), and banks (including cooperative banks); (ii) organize training targeting the specific needs of female microentrepreneurs for SIDBI partner MFIs, nonbanking financial companies (NBFCs), and banks; (iii) support SIDBI retailers in addressing the specific needs and constraints faced by low-income female microentrepreneurs in accessing financial services; and (iv) establish a monitoring and evaluation (M&E) system to assess the results of financed activities under this grant. Expected Key Performance Indicators: Better quality of life for low-income female microentrepreneurs in the grant areas (20% increase at grant end compared to 2010 baseline). Increase in successful applications by low-income female entrepreneurs at SIDBI branches in selected states (20% increase at grant end compared to 2010 baseline). Increase in new female entrants in micro and small and medium-sized enterprises (SMEs) assisted by the grant (20% increase at grant end compared to 2010 baseline). III. Grant Categories of Expenditure, Amounts, and Percentage of Expenditures Amount of Grant Allocated Category ($) Percentage of Expenditures 1. Training (including workshops, seminars, and lateral learning) 1,188, Consulting services (including livelihood enterprise learning advisors) 812, Project management 684, Direct intervention (financial services for the poor) 144, Contingencies 169,811 6 Total 3,000, The five proposed states have been selected based on criteria including (i) high incidence of poverty, low socioeconomic status, and gender indicators, gathered by comparing state and national data; (ii) those with which the Asian Development Bank (ADB) has engagement; (iii) existence of Small Industries Development Bank (SIDBI) and SIDBI Foundation for Micro Credit (SFMC) branches; (iv) sufficient number of committed financial partners willing to engage with SIDBI in the grant activities; and (v) underserved status in availability of credit and other financial services targeting the missing middle segment. Considering the pilot nature of the grant, SIDBI requested to extend the pilots to five states to capture a broader spectrum of low-income female entrepreneurs from diverse socioeconomic contexts. This will add to the richness of the grant, increase options for lateral learning, and generate best practices for replication and scaling up.

4 2 JAPAN FUND FOR POVERTY REDUCTION A. Other Data Date of Submission of Application Project Officer Project Officer s Division, , Phone Other Staff Members Who Will Need Access to Edit and/or Review the Report Sector (subsector) Themes (subthemes) Targeting Classification Was JFPR seed money used to prepare this grant proposal? Have Staff Review Committee (SRC) comments been reflected in the proposal? Name of Associated Asian Development Bank (ADB) Financed Operation(s) Executing Agency Grant Implementing Agency JFPR Grant Proposal Background Information 20 October 2009 F. Tornieri, Social Development Specialist (Gender and Development) Office of the Director General, South Asia Department (SARD) ftornieri@adb.org, S. Chakravarti, Senior Programs Officer, India Resident Mission, SARD P. Marro, Senior Investment Specialist, SARD Industry and trade (SME development) Economic growth (widening access to markets and economic opportunities), gender equity (economic opportunities), private sector development (private sector investment), capacity development (organizational development) General intervention Yes [ ] No [ ] Yes [ ] No [ ] Micro, Small, and Medium-Sized Enterprise Development Project 2 Ministry of Finance Small Industries Development Bank of India SIDBI Foundation for Micro Credit SIDBI Tower 15, Ashok Marg, Lucknow, Uttar Pradesh Tel.: /48/49/50 sfmc@sidbi.in B. Details of the Proposed Grant 1. Description of the Components, Monitorable Deliverables and/or Outcomes, and Implementation Timetable Component A Component Name Institutionalization of Gender-Related Policies, Strategies, and Programs 2 This JPFR grant is attached to the Micro, Small, and Medium Enterprise Development Project, which supports micro and SME access to term finance through (i) a partial credit guarantee facility of up to $250 million without government counterindemnity, to assist India s public sector banks with sizeable micro and SME business in raising long-term funding in international capital markets through the launch of a financial instrument partially guaranteed by ADB; and (ii) a loan up to $50 million to SIDBI with a sovereign counterguarantee for onlending to micro and SMEs, with 30% of the credit line to be targeted to female entrepreneurs. The JPFR grant will complement the Micro, Small, and Medium-Sized Enterprise Development Project s proposed approach by providing much-needed capacity-building support to low-income female entrepreneurs in the unorganized sector. ADB Report and Recommendation of the President to the Board of Directors: Proposed Loan and Partial Credit Guarantee to India for the Micro, Small, and Medium Enterprise Development Project. Manila (approved on 26 February).

5 3 Cost ($) $130,900 Component Description This component will strengthen the ability of SIDBI and its retailers to incorporate gender and social inclusion approaches into the 3 development of policies, strategies, and programs. More specifically, this will include (i) assessing existing gender policies and practices adopted by SIDBI, its partner MFIs, NBFCs, and banks to promote gender equality and female empowerment; 4 (ii) reviewing gender-sensitive and -inclusive programs of wholesalers and retailers to identify gaps, through workshops with heads of organizations and/or senior managers of SIDBI and its retailers; (iii) revising policies and practices, and reformatting relevant loan processing forms as needed, to incorporate best practice standards; and (iv) organizing initial consultations and exchange and lateral learning initiatives among SIDBI, its partner MFIs, NBFCs, and banks to disseminate results and help institutionalize such practices (including business development, reporting, M&E, and gender equality), for highlighting considerations of poverty, social inclusion, and gender equity. Monitorable Deliverables and/or Outputs Number of months for grant activities Gender-related practices in SIDBI, partner MFIs, NBFCs, and banks documented through workshops with heads and senior management of the organizations. Improved methods to institutionalize gender and socially inclusive approaches adopted, as needed. Exchange and lateral learning initiatives carried out among SIDBI partners through seminars and dissemination workshops. 6 months Component B Component Name Training of Stakeholders Involved in Female Entrepreneurship Cost ($) $1,269,300 Component Description SIDBI will organize training and capacity development that targets (i) the needs of SIDBI partner MFIs, NBFCs, and banks; and (ii) lowincome female microentrepreneurs in the unorganized sector. 5 This 3 The mission of SFMC explicitly addresses the needs of women in poverty. The foundation s aim is to create a national network of strong, viable, and sustainable MFIs from the informal and formal financial sectors to provide microfinance services to the poor, especially women. Furthermore, 80% of beneficiaries of SIDBI and its retailers are women. To institutionalize the intent to address needs of poor women more systematically, SIDBI is now committed to adopting a social inclusion and gender policy, which will be developed through the interventions proposed in this grant. 4 NBFCs carry out financing activities, but their resources are not directly obtained from the savers as debt. Instead, these institutions mobilize public savings for rendering other financial services, including investment. All such institutions are financial intermediaries, and when they lend, are known as nonbanking financial intermediaries or investment institutions. In addition, retailers are organizations that onlend to clients; thus, banks are retailers. Wholesalers are institutions that lend to retailers. SIDBI is both a wholesaler and a retailer. As a wholesaler, SIDBI lends to partner organizations. As a retailer, it operates through its microcredit branches across India. 5 For the purpose of this grant, low-income female microentrepreneurs are defined as women from households that are just above the poverty line, as defined by the Government of India. The "unorganized sector" as defined by the National Commission for Enterprises in the Unorganized Sectors (NCEUS), is all unincorporated private enterprises owned by individuals or households engaged in the sale and production of goods and services operated on a proprietary or partnership basis and with less than ten total workers. The baseline data collection will

6 4 will involve (i) targeting women new to microentrepreneurship as well as those already informed, using microfinance models, 6 to enhance the viability of their enterprises and their ability to access financial resources and markets through leadership and communication training, financial literacy for microentrepreneurs, and business development services; and (ii) supporting their participation in trade fairs, exhibitions, buyer seller meets, seminars, and workshops to promote marketing of their products. On the demand side for female microentrepreneurs, capacity development will involve (i) Financial literacy for microentrepreneurs. This training will involve money management; effectively using credit; understanding the flexibility of money; choosing between different credit sources; and the value of financial discipline, risk management, and investment planning. It will help transition women into mainstream financial markets where they may access banking services. The training will also demonstrate the importance of financial services such as savings, insurance, remittances, and pensions. Increasing financial literacy will also tend to convert an existing need into demand by female microentrepreneurs willing to pay an appropriate market-set price for a financial service that supports their enterprise and their role in the market economy. The translation of the need into demand will be documented through the methodology of the grant s M&E. (ii) Leadership and communication. This training will help female entrepreneurs participate in mainstream markets and engage with different stakeholders. Training will include basic computer literacy, communication skills, confidence building, negotiating in public spaces, and taking a lead in the community in building a culture of entrepreneurship. The modules will focus on developing leadership so that the women transition from being sole workers within their businesses to being employers and leaders. This training will include elements of self-management (e.g., handling stress and maintaining physical and mental health) that highlight the value of female entrepreneurs as assets in their own enterprises. Socialization leads women to view themselves as being in the service of the household, and their participation in market-related activities forms part of this perception. Hence, the training will include the building of skills to manage the challenges that they face in their multiple roles within the household and their microenterprises. (iii) Business development training. This training will develop the business management skills of female follow a mixed methodology of quantitative and qualitative data using selective sampling that is representative of all the models and retailer types. Secondary data from sources pertinent to the states and primary data using survey methodology for socioeconomic profiling as well as interviews will be used. Control groups in each state will be selected from female microentrepreneur clients of nonparticipating organizations. 6 In India, MFIs adopt different methods of delivering financial services through joint liability groups, which comprise five to seven women; self-help groups, which comprise women; Grameen groups, which comprise around five to seven women; activists for social alternatives groups, which comprise around 15 women; and individual lending. The Grameen and activists for social alternatives models are replications of models in Bangladesh. In this document, where reference is made to MFIs, it includes a variety of microfinance models.

7 5 microentrepreneurs and will help them use the loans and plan for sustainability and scalability. If female entrepreneurs are encouraged to train other women as employees and managers in their microenterprises, a positive spiral can be created. Cluster-level business development training will include building better quality and methods of production, accessing production and markets, processing, storage, and marketing. 7 On the supply side SIDBI as wholesaler, and the retailers (SIDBI branches, NBFCs, and banks) training activities will be carried out and include (i) gender, microfinance, and microentrepreneurship, particularly for operations staff of wholesalers and retailers to understand gender issues and challenges and how they affect women s access to financial services and their roles as entrepreneurs; (ii) appropriate operations, to enable users (i.e., retailers) to identify suitable tools, methods, and financial products addressing the needs of low-income female entrepreneurs; (iii) technology training specific to M&E software, to enable users to monitor the grant s outputs, outcomes, and impacts; and (iv) enterprise financing to present models and effective practices. Monitorable Deliverables and/or Outputs Number of months for grant activities Training initiatives organized across the five participating states. Training module for SIDBI and its retailers developed. About 1,200 low-income female entrepreneurs trained in financial literacy for microenterprise, leadership and communication, and business development services. Retailers and participating MFIs trained in gender, microfinance and microenterprise finance, technology and operations, and enterprise financing. 36 months Component C Component Name Cost ($) $414,000 Component Description Development of Financial Services for Low-Income Female Microentrepreneurs This component will support three initiatives targeting SIDBI partner MFIs interested in implementing alternative collateral schemes that address the specific needs and constraints faced by low-income female microentrepreneurs in accessing financial services, motivating financial institutions to explore new market segments, and implementing management information system (MIS) software specific for the grant. More specifically, this will include (i) Credit guarantee fund. SIDBI, through its direct-lending window, has been promoting collateral-free lending to all eligible entrepreneurs by extending the credit guarantee scheme of the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). To demonstrate the viability and efficacy of extending credit to deserving low-income female entrepreneurs, the costs related to the credit 7 Cluster indicates a group of small firms from similar industries that team up and act as one body. Creating a business cluster enables firms to enjoy economies of scale usually only available to bigger competitors. Marketing costs can be shared, and goods can be bought more cheaply. There are also networking advantages, in which small firms can share experiences and discuss business strategies.

8 6 Monitorable Deliverables and/or Outputs Number of months for grant activities guarantee for 1,200 low-income female entrepreneurs will be covered. The CGTMSE will guarantee the loans on the basis of the due diligence undertaken by SIDBI. SIDBI will advance the costs of the credit guarantee fees, based on number of beneficiaries, amount of loans, and repayment period. The grant will reimburse SIDBI for the cost of the guarantee fees. 8 (ii) Recruitment of livelihood enterprise learning advisors. SIDBI will support partner MFIs to recruit women to act as livelihood enterprise learning advisors and to meet the cost of their salaries for 3 years. These female advisors will assist in identifying female entrepreneurs for the grant. Thereafter, the advisors will provide one-on-one personal guidance and advice with respect to using the credit taken, operating the enterprise, and repaying credit; they will mentor the female entrepreneurs in their capacity development overall. There will be one advisor per partner MFI. The presence of advisors will ensure careful selection of the clients as well as repayment and proper use of credit. Advisors will also build relationships of trust with female entrepreneurs and obviate the need for collateral on the part of the lender. (iii) Development of grant-specific software for participating retailers. MIS software will support SIDBI's retailers to ascertain the use of credit for microenterprise and to collect sex-disaggregated information. The software will be used to track qualitative and quantitative deliverables under the proposed JFPR grant for purposes of impact evaluation. Products and technologies to deliver sustained financial services to the poor developed by SIDBI partners (i.e., retailers). Business processes to reduce delivery costs of financial services to the poor developed by SIDBI partners. MIS software developed for retail lenders of microcredit for microenterprise. 36 months 8 The CGTMSE set up by the government and SIDBI aims to ensure that the lender gives importance to project viability and secures the credit facility purely on the primary security of the assets financed (and not based on separate collateral). If micro and small enterprises avail of a collateral-free credit facility and fail to repay the loan, the CGTMSE will make good the loss incurred by the lender. Any collateral-free credit extended by member lending institutions, to new as well as existing micro and small enterprises (including service enterprises), will be eligible to be covered with a maximum credit ap of Rs10 million, subject to the due diligence by the CGTMSE. The guarantee available under the scheme will be to the extent of 75% 80% of the sanctioned amount of the credit facility, with a maximum guarantee cap of Rs6.25 million Rs6.50 million. For microenterprises, the extent of guarantee cover will be 85% for credit up to Rs500,000. The extent of guarantee cover will be 80% for micro and small enterprises operated and/or owned by women. In case of default, the CGTMSE will settle the claim of the amount with SIDBI and the other member lending institutions. Low-income female entrepreneurs will benefit in their ability to access credit and the loan without collateral or third-party guarantees. At the moment, SIDBI s prime lending (as a retailer) is estimated at 11% for amounts up to Rs200,000.

9 7 Component D Component Name Effective Monitoring and Evaluation of Results Cost ($) $316,100 Component Description This component will support the establishment of an M&E system to assess the social and gender equality results of financed activities under this grant. Monitoring and evaluation. M&E will be carried out using (i) Documentation of changes in the lives of female entrepreneurs with respect to mutually agreed upon variables with SIDBI and participating retailers. The variables will capture change in the levels of business operations and the use of the credit and capacity development given to female entrepreneurs. (ii) Periodic surveys with female entrepreneurs for the capacitybuilding training, which will be monitored for comprehension, retention, and applicability. (iii) Software to document the disbursement of loans to microenterprises. Sex-disaggregated data will track the loans given to women. The software will also capture the increase in applications and the repayment rates of female microentrepreneurs from baseline to grant end. (iv) Application forms for the loans for microenterprise within the grant. These will be aligned to the MIS software so that the data can be collected, collated, and monitored. Setting baseline and grant end data. This will include setting a baseline (and collecting data) on a set of quantitative and qualitative indicators agreed with SIDBI at grant onset, which will be effectively monitored during grant implementation. It will include changes in the number and percentage of female entrepreneurs who move into a higher part of the value chain; changes in women or household income, expenditure and consumption, and nutritional status; access to medical facilities and health care; and changes in self-confidence. An impact assessment consisting of primary data collection at baseline and grant end will be conducted by a national research institute. (i) Baseline assessment. Samples to be taken from female entrepreneurs will include (a) types of retailers from SIDBI partners and banks; (b) models of microfinance such as joint liability groups, self-help groups, Grameen groups, activists for social alternatives groups, and individual lending; (c) regions, i.e., rural, urban, and periurban; and (d) livelihood clusters. A control group that does not participate in the grant but includes clients of SIDBI partners will be taken from each participating state. Quantitative methodology will include baseline surveys that capture the socioeconomic profile of the female entrepreneurs, and qualitative methodology will include interviews. Participatory methods will also be used with female microentrepreneurs to capture indicators of empowerment such as women s mobility, decision making in households and microenterprises, education of children, access to markets, access and control of income from microenterprises, awareness of health and health-seeking behaviors, access to banks, and use of banking services. (ii) Grant end assessment. A quantitative survey will use the same questions from the baseline of the sample and control

10 8 groups. Qualitative interviews and participatory methods will capture shifts in empowerment indicators of the sample and control groups. Based on innovative approaches and direct intervention supported under the grant, a knowledge product will be finalized and an option paper developed to assess emerging practices and lessons learned for effective provision of financial services to female entrepreneurs in micro and small businesses. The outputs of the proposed JFPR grant will be assessed, discussed, and reflected upon during a series of state-specific and national seminars. 9 Monitorable Deliverables and/or Outputs Number of months for grant activities Establishment of rating system for microenterprises. With a view to mainstreaming financing of the "missing middle" (defined as microenterprise clients that are too small or unskilled to access more conventional financing) and providing additional comfort to the lending institutions, a rating system for microenterprises will be developed, which is presently an untested area. Once developed and tested, it could be used for rating at a fee. The costs of rating targeted women s microenterprises in the participating five states will also be covered. The services of the Small and Medium Enterprises Rating Agency (SMERA) will be retained in compliance with ADB's Guidelines on Use of Consultants, 2007, as from time to time amended, in accordance with the single source selection method. 10 One quality knowledge product finalized on time. A final consultation at the end of five project and state workshops carried out to distribute grant findings and recommendations. 36 months Component E Component Name Cost ($) $699,889 Component Description Monitorable Deliverables and/or Outputs Project Administration, Implementation Support, Monitoring, and Auditing (i) Support operational costs of grant team, (ii) provide cost of grant supervision, (iii) engage the services of research institutes or capacity development organizations to carry out training and publication for the grant, and (iv) meet institutional overheads of SIDBI. SIDBI-financed grant activities are made operational. Monthly and quarterly monitoring reports and a final evaluation report submitted to ADB and SIDBI for review and disclosure on the ADB website. 9 This will build on SIDBI Assessing Development Impact of Micro Finance Programs: Finding and Policy Implications from a National Study of Indian Microfinance Sector. Lucknow. Under ADB Technical Assistance for Enterprise Development and the Challenge of Inclusive Growth. Manila. The ADB Economic Research Department is carrying out technical assistance studies to assess the two types of economic policies and strategies that are most effective in encouraging the transition of small, low-productivity enterprises into higherproductivity ones. The relevant section of the ADB Enterprises in Asia: Fostering Dynamism in SMEs. Manila, will be used as reference in the initial stages of the project. 10 SMERA is a joint initiative by SIDBI, Dun & Bradstreet Information Services India, and several leading banks in India. It is the country's first rating agency to focus primarily on the Indian micro and SME segment. SMERA's primary objective is to provide ratings that are comprehensive, transparent, and reliable. This is critical to facilitate greater and easier flow of credit from the banking sector to micro and SMEs.

11 9 Number of months for grant activities 36 months 2. Financing Plan for Proposed Grant to be Supported by JFPR Funding Source Amount ($) JFPR 3,000,000 Government 108,000 Community contribution 106,700 Total 3,214, Background 1. Low-income female entrepreneurs in the unorganized sector are defined as microborrowers whose businesses have grown too large for traditional microfinance support, but whose activities are still too limited or who lack skills and capacity to access more conventional bank financing. This grant identifies this target group in relatively lagging states in India as having loan requirements of Rs50,000 Rs1,000, In India, various financing schemes target microcredit to the SME sector, through which poor individuals and households in the unorganized sector can access microcredit programs and providers. 11 However, MFIs are less capable of supporting their clients once the clients reach a certain size, due to limited resources compared to mainstream financial institutions. Because of the recent global economic crisis, the needs of those who have moved to the missing middle segment must be addressed. Although the crisis has been felt by all segments of the poor, the missing middle has suffered particularly. Evidence collected during the factfinding mission and discussions with various government agencies, the private sector, and multilateral and bilateral donors indicates that the crisis has worsened the already acute shortage of credit available to microentrepreneurs, who are predominantly female. A recent study conducted by the Self Employed Women s Association in Ahmadabad shows that the crisis has led to a decline in the income of poor unorganized-sector workers. 12 This is due to closure of various small-scale industries, decline in wages, and reduction in working hours. The crisis has also affected nutritional standards and health, increased livelihood insecurity, forced sales of household small assets, and led to a high level of migration. 3. Thus, female microentrepreneurs who have reached the position of the missing middle are in danger of losing recent gains in their incomes, their assets, and the enterprises that have moved them beyond microcredit. Further, the crisis could shrink employment opportunities and lead men to migrate away from their home areas in search of economic opportunities. Women left behind would then have to shoulder the responsibility of the household, which may negatively affect their enterprises if they have less time and fewer resources to devote to their businesses. A backslide could cause closure of small and micro-sized businesses and migration of female entrepreneurs themselves in search of employment (footnote 16). 11 Microfinance refers to the provision of financial services to low-income clients, including consumers and the self-employed. A part of the field of microfinance, microcredit is the provision of credit services to low-income entrepreneurs. 12 Self Employed Women s Association Financial Crises and Employment Meltdown in Informal Economy: SEWA s Experience and Implications. Ahmadabad.

12 10 4. While it would be possible to collect further data on women entrepreneurs in the five states within the grant, time is critical under these financial circumstances. Hence, it is proposed instead to use this time to support and consolidate the gains of the women of the missing middle. Under these circumstances, nurturing women s microenterprises will lead to self-sufficiency that can stabilize poor families. 5. However, credit alone will not assist women s entrepreneurship or nurture its potential to empower low-income women; it must be accompanied with adequate and sensitively designed training programs. A study of the impact of training on women's microenterprise development demonstrated the impact of training in four areas: income, access and control of resources, status, and quality of life in Ethiopia, India, Peru, and Sudan. 13 The findings showed that lowincome women need training to develop skills and self-confidence to operate and survive in the unorganized sector. Consequently, the need to support capacity-development interventions was discussed and agreed as critical through the finalization of this grant. 6. Rationale and assumption for the proposed gender focus 14. In India, evidence suggests that gender inequities hinder women's access to information, business, and financial services. There is a growing realization that MFIs involved in the promotion of female entrepreneurship should develop strategies to mainstream gender issues and approaches in business development more forcefully. 15 Against this backdrop, the grant aims to work with SIDBI in challenging the common erroneous assumptions that provision of credit alone can produce successful microenterprises for women and that credit is the main financial service needed by the poor. In fact, capacity development is essential, while the poor require financial services tailored to facilitating highly desired and needed microsavings, microinsurance, and micro-money transfer products Innovation 7. The grant will have several innovative features, including (i) encouraging collateral-free lending to female microentrepreneurs; (ii) developing an integrated approach to microenterprise development through the identification of livelihood opportunities, selection and motivation of female microentrepreneurs, provision of business and technical training, and establishment of market links for inputs and outputs; and (iii) developing a cadre of female enterprise promoters and developers known as livelihood enterprise learning advisors. 5. Sustainability 8. The grant aims to facilitate access by poor female microentrepreneurs to an appropriate range of information and services that support microcredit. On the demand side, the grant will 13 F. Leach et al The Impact of Training on Women's Micro-Enterprise Development. London: Department for International Development of the United Kingdom. Also available: 14 Based on the highly specialized nature of the assignments, the quality-based selection method is proposed to be used for the selection of national research, resource, and training institutes. Technical proposals will be first assessed by SIDBI, and negotiation of the financial proposal and the contract will be carried out with the consultant who submits the highest-ranked technical proposal. 15 J. Deshmukh-Ranadive From Transactions to Transformations in Microfinance: Collapsing the Divide between the Economic and the Social. Ahmadabad: Indian School of Microfinance for Women. 16 See Twine Vijay Mahajan speaks about new economics and microfinance. item/1272bdy42-7v/vijay-mahajan-speaks-about-new-economics-and-micro-finance.

13 11 institutionalize and therefore introduce on a long-term, sustainable basis gender-related policies for microfinance. On the supply side, it would introduce sustainable improvements through capacity development by developing financial literacy, leadership and communication skills, and business development training for the target microentrepreneurs. The proposed intervention would be a very innovative program, combining lending and grant methods, and dovetailing it with gender- and poverty-focused capacity development for some of the poorest and most vulnerable women. 6. Participatory Approach 9. The grant will be implemented in consultation with relevant central and state government agencies and through iterative consultations with the gender and/or women's sections of relevant industry associations, chambers of commerce, and on the national level nongovernment organizations (NGOs). A national research institute will be subcontracted by SIDBI to develop a baseline, collect and analyze relevant information and data in the selected states, and support SIDBI in monitoring the set of agreed targets. Training and capacity-building organizations will be subcontracted by SIDBI to carry out the range of financial literacy, business development services, and other related training activities to be financed under the grant. In this respect, consultation and/or possible involvement of ADB Economics and Research Department will be sought in developing the M&E component. 10. The ADB team met with the Embassy of Japan and the Japan International Cooperation Agency (JICA) during the fact-finding mission for the Micro, Small, and Medium-Sized Enterprises Development Project (footnote 2) on 2 September and 21 October Representatives of both the Embassy of Japan and JICA supported the rationale for the proposed JFPR grant; its pro-poor, gender, and capacity-building focus; and its target of lowincome female entrepreneurs in the unorganized sector. Useful feedback was provided by the Embassy of Japan on the current impact of the global economic crisis in India, and consensus was reached on the need to limit the proposed interventions to the selected five lagging states. JICA shared useful information on the six lines of credit provided to SIDBI in the past and relevant information on impact assessments carried out by JICA on SIDBI-implemented projects. All of these issues are reflected in the design of the proposed JFPR grant. Primary Beneficiaries and Other Affected Groups and Relevant Description Other Key Stakeholders and Brief Description Low-income women microentrepreneurs. 17 The The Ministry of Micro, Small, and Medium primary beneficiaries will be low-income female Enterprises has been implementing trade-related entrepreneurs. The proposed JFPR grant will target entrepreneurship assistance and development the specific needs and constraints faced by the schemes to develop women's entrepreneurial missing middle of low-income beneficiaries who want skills, with a focus on nonfarm activities. This to graduate from MFI support and move into the model provides an interesting approach, which formal finance sector. Training and capacity-building will be assessed during implementation of the initiatives will benefit: proposed JFPR grant. Estimated numbers (training and capacity development): 1,200 Estimated numbers (credit guarantee scheme): 1, As part of ADB's Micro, Small and Medium Enterprise Development Project, the number of low-income female microentrepreneurs ranges from 25,000 beneficiaries (estimated loan amounts of Rs100,000 each), 20,000 beneficiaries (estimated loan amounts of Rs200,000 each), and 10,000 beneficiaries (estimated loan amount of Rs400,000 each).

14 12 Household members. Families remain at the center of a female entrepreneur s household. Families contribute to household income by doing collective agricultural work on the land of the household, by engaging in expenditure-saving activities, and in microenterprise work. In turn, female-initiated enterprises benefit entire households, as women are primarily responsible for providing the family's system of care. Thus, the proposed JFPR grant builds on supporting female entrepreneurship that will result in supplemental family income, reduced drudgery, and women's economic empowerment. Estimated numbers (initial consultations, training, and capacity development): 20 senior- and middle-level staff members Retailers and microfinance institutions. These are existing SIDBI partner organizations that onlend to clients. They will be involved in the initial stocktaking exercise and participate in capacity-development initiatives of SIDBI. Gender-sensitivity training will be carried out for operations staff, and institutions will agree to adopt international best practices in gender equity, women's empowerment, and enterprise development. Exchange and lateral learning initiatives will help support the institutionalization of promising gender-related results among participating retailers and MFIs. The Ministry of Women and Child Development (National Credit Fund for Women or Rashtriya Mahila Kosh) provides for microfinance services and consumption and production loans, without collateral requirements, to low-income women for livelihood activities, housing, family needs, and microenterprise. Estimated numbers: 1,200 (5 members or households * 1,200) = 6,000 Small Industries Development Bank of India. The Ministry of Finance will be the executing SIDBI is one of the largest government-owned banks agency for the proposed JFPR grant, which will in India, established to promote the growth and be implemented through SFMC. development of micro and SMEs including provision of direct credit to the sector. SFMC will work in close collaboration with other government agencies for appropriate dissemination of best practices and lesson learning and replication. SFMC will engage as needed with the Ministry of Micro, Small, and Medium Enterprises. Estimated numbers: 25 retailers or MFIs (2 staff members * 25) = 50 NGOs and national resource organizations and research and training institute(s). These will be involved in collecting and documenting emerging gender-related practices in SIDBI, partner MFIs, and banks; setting baseline database of the selected locations; tracking the implementation of the genderrelated activities; carrying out an analysis of the proposed JFPR grant results; and carrying out gender-related capacity-development initiatives. They will be subcontracted by SIDBI and will interact with

15 13 relevant government, civil society, and NGOs in the performance of their duties. Estimated numbers: 3 institutes (10 staff members * 3) = 30 Livelihood enterprise learning advisors (20). They will assist in identifying the female entrepreneurs for the proposed JFPR grant. They will provide participants with one-on-one personal guidance and advice with respect to the use of the credit taken, operation of enterprises, and repayment of credit, and will mentor the entrepreneurs in their capacitybuilding overall. There will be one advisor per partner MFI. Estimated numbers: 20 Estimated household members: 20 (5 household members * 20) = Coordination 11. Based on a series of discussions with relevant stakeholders (i.e., the government, donor partners, and chambers of commerce), it is clear that despite several programs targeted at the micro and SME sector, the sector continues to face severe challenges. Its unmet needs in access to reasonable and timely finance, business development services, capacity development, and awareness building, as well as satisfactory infrastructure, remain significant. Moreover, the sector has suffered as a result of the global economic crisis. As a collaborative effort, the grant will be implemented in close consultation with the donor community that has actively supported the sector in India for the past several years. 12. The largest program among these is the World Bank-led multidonor SME Financing and Development Project for $120 million, which was approved in The project aims to improve access of SMEs to finance (including term finance) and business development services. Its three main components are a credit facility, a risk-sharing facility, and a policy and institutional development technical assistance (TA) program. The Department for International Development of the United Kingdom, and German development cooperation through KfW and GTZ, provided substantial grant assistance to reinforce the capacity development and institutional reforms components of this project. For example, the Department for International Development-funded TA supported the creation of a credit bureau and an SME rating agency, and it helped build capacity at SIDBI. Given the good performance of the project, the World Bank approved an additional $400 million in supplemental assistance, in April 2009, to extend the project to more states. The World Bank is also proposing a further $300 million loan to assist the microfinance sector. 13. Over the years, JICA has extended six credit lines amounting to nearly $2 billion to SIDBI for onlending to the micro and SME sector. The current project provides a line of credit of $300 million to SIDBI for encouraging micro and SMEs to undertake energy-saving investments in plant and machinery and in production processes. This would not only help enhance energy efficiency and lower carbon dioxide emissions, but would also improve their profitability in the

16 14 long run. The project is also being supported by German development cooperation through KfW and GTZ, who are also seeking to encourage SMEs in enhancing their energy efficiency United Nations Industrial Development Organization activities have focused on raising the competitiveness of industrial enterprises, especially SMEs, through industrial policy advice, investment, and technology promotion, with a view to increasing productivity, quality, energy efficiency, and environmental sustainability. Its current consolidated project for SME development in India combines traditional United Nations Industrial Development Organization approaches such as cluster development, investment, and technology promotion with innovative credit delivery mechanisms for SMEs, such as mutual credit guarantee schemes, private equity, and venture capital. 15. While the International Finance Corporation has been helping the private sector, including SMEs, through its various business lines improving access to finance, creating an enabling environment, providing corporate advice, aiding infrastructure development, and improving environmental and social sustainability its most recent initiative involves providing a combination of equity-like financing, business mentoring, and capacity-building support for the Bharatiya Yuva Shakti Trust growth fund, which will assist socially disadvantaged entrepreneurs in the micro and small enterprises sector. 8. Detailed Cost Table 16. Please refer to Appendix 2 for summary of cost estimates, Appendix 3 for detailed cost estimates, and Appendix 4 for the fund flow arrangement. C. Link to ADB Strategy and ADB-Financed Operations 1. Link to ADB Strategy Document ADB country partnership strategy (CPS), Government of India, Planning Commission. Eleventh Five- Document Number CPS-IND Date of Last Discussion Objective(s) March 2009 Support for inclusive growth and catalyzing investment through innovative financing methods are two of the strategic pillars of the CPS. The CPS emphasizes the need to promote financial sector and SME development and to support gender equity issues. With respect to SME development, the CPS explicitly states that (i) the provision of information, markets, technology, and business development services should include mechanisms to promote participation of women and their enterprises; and (ii) gender-based barriers to access finance should be analyzed and addressed The goal of the five-year plan is to increase gross domestic product growth to 10%, increase agricultural gross domestic product growth to 4% per year to ensure a wider spread of benefits, and create 70 million new 18 The training and capacity development initiatives under the project could have an indirect effect, in partially using JICA s credit line for energy efficiency (2009), by enabling low-income women (and other beneficiaries) to be better equipped to undertake and set up enterprises that could be possibly eligible under JICA financed credit lines to SIDBI. 19 ADB Country Partnership Strategy: India, Manila (p. 106).

17 15 Year Plan. ( ) work opportunities. The grant s goals are in line with the priorities of the government, which considers the micro and SME sector's important role in facilitating income and employment generation, and more specifically, the commitment to support women's issues and empowerment in the Prime Minister's 15-point program and in other flagship schemes of the government. 2. Link to Specific ADB-Financed Operation Project Name Micro, Small, and Medium-Sized Enterprise Development Project Project Number Date of Board Approval 1 December 2009 Loan Amount ($ million) $50,000, Development Objective of the Associated ADB-Financed Operation 17. In support of the CPS outcome, the impact will be directed toward helping SMEs realize their full potential, and contributing to economic growth and poverty reduction. The immediate outcome will be improved SME access to term finance through participating financial institutions, thereby fostering SME growth, competitiveness, and employment creation. 4. Main Components of the Associated ADB-Financed Operation No. Component Name Brief Description 1. Public Sector Loan The project will provide $50 million long-term financing to public and private sector commercial banks to increase their lending and to provide additional liquidity to the domestic financing markets to channel debt financing to the SME sector. 2. Partial Credit Guarantee Facility This component involves the use of a $250 million guarantee facility allocated to SARD to assist participating financial institutions in raising long-term funding from the market and to enable them to provide credit lines to SMEs in India on market-based terms. The ADB-guaranteed financial instrument will be subject to conditions precedent to the disbursement such as receiving all necessary governmental, creditor, and shareholder approvals, consents, and financial arrangements satisfactory to ADB. The proceeds from the loan backed by a partial credit guarantee must be used by the participating financial institutions to provide funding to their SME clients in India. 5. Rationale for Grant Funding Versus ADB Lending 18. There is an existing ADB lending component for SMEs in India, but financing for the other needs of SMEs, including microenterprises, is inadequate to meet the needs of government programs, especially in view of the global economic crisis. Currently, ADB's ordinary capital resources loan would enable SIDBI to extend its credit and business development services to the missing middle of microentrepreneurs, which is not the direct focus of any of the current donor-supported projects. In parallel, the JPFR grant will specifically target a sizeable representation of female microentrepreneurs among the beneficiaries, enabling not only access to credit, but also assistance in training to ensure that these recipients will be able to manage the numerous social and gender-related constraints that they face, and actually set up sustainable and productive enterprises over time. The grant will directly help train female-led