Background

Balkis Banu, age 45, lives in Jaglur town with her husband and two children. She and her husband run a biscuit and cake-making micro-enterprise. Although they have run a successful micro-enterprise for the past 20 years, they have not been able to secure a loan, as local banks require collateral. When Balkis learned about Chaitanya India Fin Credit Pvt. Ltd. (Chaitanya India or Chaitanya), she joined a women’s collective. Chaitanya immediately sanctioned a Rs. 10,000 loan which she has invested in her micro-enterprise. Thanks to the loan, Balkis now expects her business to expand and employ more people.

Chaitanya India was founded in 2004 by Ramesh Paineedi, a school teacher from the Chitradurga district of Karnataka. Chaitanya was set up as a nonprofit organization with a focus on rural economic development and children’s education. In the rural economic development space, Chaitanya has worked closely with the Small Scale Sustainable Infrastructure Development Fund (S3IDF) and has been responsible for successfully implementing over thirty projects in the areas of solar lighting, milk transportation, rural transportation, information technology, telecommunications, food industry and household cooking. In the area of children’s education, Chaitanya focuses on providing after-school remedial teaching for rural children. Since 2005, Chaitanya has been running thirteen after-school centers in the Chitradurga district with funding from Asha for Education.

In 2007, Ramesh Paineedi, the founder of Chaitanya India, and Anand Rao, from S3IDF, joined hands to develop an innovative microfinance model for Chaitanya to further its mission for rural economic development in Karnataka. Chaitanya wanted to move beyond the traditional microfinance model of being situated close to towns/cities and lending only to women in groups. The organization plans to enter into more remote rural areas where microfinance has not reached and provide loans to micro-entrepreneurs as well as both men’s and women’s collectives. For two years, Chaitanya carried out its microfinance operations as a non profit organization. In October 2009, Chaitanya obtained a Non Banking Finance Company (NBFC) license from Reserve Bank of India for a newly registered company, Chaitanya India Fin Credit Pvt. Ltd. (CIFCPL). Since October 2009, CIFCPL has conducted microfinance operations as a for-profit company.

The success of microfinance institutions that provide communities who traditionally lack access to formal banking systems with financial services is well documented. However, these services have traditionally been availed by women’s collectives located near large city centers. Due to the lack of infrastructure and increased risk factors, most microfinance institutions have not yet offered services to the more remote regions of India or to individuals unaffiliated with NGOs or self-help group-style collectives. Specifically, lending to micro and small enterprises, commonly called the ‘missing middle’ is largely unexplored by the microfinance sector. Chaitanya, with its prior experience of incubating a number of small enterprises while working with S3IDF, is keen to address the ‘missing middle’.

Chaitanya also strives to realize a “double bottom line” by achieving both commercial returns and social returns. While profit is a clear indicator for commercial returns, there is no single indicator to measure the social impact of a loan. Chaitanya needs to define its metrics for measuring social returns.

Chaitanya’s microfinance operations are located at the border areas of three districts of Karnataka: Bellary, Chitradurga and Davangere. Chaitanya’s regional office is in Jaglur town, Davangere district. By August 2010, Chaitanya is expected to have 5000 to 10,000 customers in Davangere and cover over 100 villages in the region. There are presumably thousands of small and micro-enterprises in the region. With such a large market, Chaitanya needs a strategy on how to address the ‘missing middle’. Similarly, with over 5000 customers, measuring social impact will also be critical.

Need for Project:
While many micro-finance institutions have been successful in delivering financial services, few have been able to measure the social impact of their loans on a community. Chaitanya hopes to capture data regarding not only the economic development of the local communities, but the social development as well. Chaitanya is currently looking to implement Grameen Foundation’s Progress out of Poverty Index (PPI). PPI is designed to measure the poverty levels of groups and individuals and to track changes in poverty levels over time. The PPI uses ten easy-to-collect non-financial indicators such as family size, type of housing, household assets and number of children attending school. Chaitanya currently collects this information for each and every client. The organization plans to track the indicators every year to track changes in poverty levels.

Concurrently, there is a need to provide social service programs to supplement the financial benefits reaped by the community. These social programs will help to holistically develop the communities in which Chaitanya runs its microfinance operations.