Basix: A New Generation Rural Livelihood Promotion Institution in India

Executive Summary

Established in 1996, BASIX has emerged as one of the leading microfinance institutions in India. It is cited for its scale, creativity, commercial orientation, and collaborative philosophy in a sector often marked by limited operations, routine approaches, donor dependence, and territoriality. More specifically, BASIX has systematically addressed the twin issues of risk mitigation and cost reduction with an eye to attracting investment from the mainstream capital markets. At the same time, these actions have enabled the organization to maintain and expand its lending in rural areas, including lending for agriculture in drought-prone geographies.

Context

BASIX is the name used to denote a group of companies, related to each other through the following corporate structure:

 Bhartiya Samruddhi Investments and Consulting Services, Ltd. (BASICS Ltd): "the holding company, through which equity and debit investments are made in the group companies";

 Bhartiya Samruddhi Finance Ltd. (Samruddhi): Launched in 1998, Samruddhi is the the "flagship" company of the group. It is "an RBI [Reserve Bank of India] registered NBFC [non-bank financial company], owned by major financial institutions and engaged in microcredit and retailing insurance and providing technical assistance";

 Krishna Bhima Samruddhi Local Area Bank Ltd. (KBS LAB): "an RBI licensed bank providing microcredit and savings services in three districts" in the Indian states of Andhra Pradesh and Karnataka. KBS LAB has been operating since 2001, and "is the only entity in the group that is able to provide all of the service components acknowledged as being vital to microfinance, viz. credit, savings, insurance and more recently, money transfer services";

 Indian Grameen Services (IGS): "a section 25, not-for-profit company engaged in research and development and training related to livelihoods." IGS makes investments that cannot be recouped in the short-term, and receives separate funding from foundations including the Swiss Agency for Development Cooperation, the Ford Foundation, the Sir Ratan Tata Trust, and others. "IGS is focusing on building the knowledge base required for supporting livelihoods and disseminating the knowledge so generated for building the implementation capabilities of various organizations playing a critical role in supporting livelihoods. IGS also carries out human resource and institutional development for the BASIX group as well as for other rural/microfinance and community/producer institutions. It also designed and developed financial products for extending credit, evolving distribution channels for delivery of its services and developing necessary systems for service delivery such as accounting and MIS"; and

 Sarvodaya Nano Finance Ltd. (Sarvodaya): "an RBI registered NBFC, owned by women's self-help groups, and managed by BASICS Ltd." "In July 2001, BASICS Ltd disposed off Sarvodaya Nano Finance Ltd to a group of community-based mutual benefit trusts, whose members comprise over 5,000... [self-help groups] SHGs of poor women in Tamil Nadu. The new owners signed a management agreement with BASICS Ltd. [to] provide a wide-range of management services and assistance to Sarvodaya."

Today, BASIX has approximately 150,000 borrowers and 8,600 savers in 7,800 villages in 10 states. BASIX has disbursed $37 million in loans since 1996; currently, 45% of loans are made to women, and 49% for non-farm activities. However, BASIX conceives of itself, not as a microfinance institution, but as "a new generation livelihood promotion institution." In other words, credit alone is not a complete solution. BASIX's goal is to impact 1 million livelihoods by 2010--500,000 directly through financial services, and another 500,000 through indirect means. "The rationale behind this is as follows: Microcredit in particular, and microfinance (including savings and insurance) in general, is helpful for the more enterprising poor people in economically dynamic areas. However, for poorer people in backward regions, a whole range of other livelihood promotion services (input supply, training, technical assistance, market linkages) need to be provided. Likewise, it is not possible to work with poor households individually and they need to be organized into groups, informal associations and sometimes cooperatives or producer companies, all of which requires institutional development services." To that end, BASIX works to deliver what the organization terms "The Livelihood Triad":

(1) Livelihood Financial Services (LFS): Currently, BASIX offers credit and insurance though Samruddhi and KBS LAB. Loan products include crop loans for seasonal input financing, agri term loans to purchase fixed assets, agri-allied loans for livestock farming, non-farm microenterprise loans, and general purpose loans given to self-help groups (SHGs) for on-lending. Most credit is offered at a 24% interest rate though the tenures vary from 2-3 months for poultry agri-allied loans to 3 years for agri term loans; loans to SHGs are the exception at 12%. Daily and monthly recurring and term deposit savings products are offered through KBS LAB, paying interest rates of 5-8%, typically 0.5% higher than the market rate. This area is the furthest ahead in BASIX's development of the Livelihood Triad;

(2) HR and Institutional Development Services (HR&IDS): In this area, BASIX works to develop the institutional capabilities of other actors in the rural livelihoods field. The partner organizations range from producer organizations to NGOs; and the activities, from capacity building to policy analysis and sector work. BASIX is fairly comfortable with this set of services as well. HR&IDS is currently being offered to approximately 45 NGOs/MFIs and 15 producer cooperatives. BASIX's transfer of its IT knowledge to multiple MFIS/NGOs in India and abroad is also included in this area; and

(3) Agricultural and Business Development Services (Ag/BDS): The main activities grouped under this rubric are productivity enhancement, non-financial risk mitigation, market linkages, and local value addition through agroprocessing. This is the newest area for BASIX, and the most challenging in terms of its complexity. In order to develop "vertical" crop solutions, BASIX must facilitate the interaction of a number of partners. For example, to provide a complete Ag/BDS offering for groundnut farmers in Andhra Pradesh (A.P.), BASIX brought in input supply companies to sell higher