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KAPILANANDA MONDAL

India,

Kapil Mondol is moving beyond traditional approaches to microfinancing by introducing microbanking to villagers. Beginning in rural Bengal, Kapil's approach has rapidly spread over the last few years to encompass more than 200 villages, catching the attention of microfinance practitioners who have come from Bangladesh, Africa, and the United States to learn from him.

This profile below was prepared when Kapilananda Mondal was elected to the Ashoka Fellowship in 2002.

INTRODUCTION

Kapil Mondol is moving beyond traditional approaches to microfinancing by introducing microbanking to villagers. Beginning in rural Bengal, Kapil's approach has rapidly spread over the last few years to encompass more than 200 villages, catching the attention of microfinance practitioners who have come from Bangladesh, Africa, and the United States to learn from him.




THE NEW IDEA

Kapil has demonstrated that with the right incentives, rural individuals from all income levels can become regular savers and viable borrowers. His idea is to provide safe and convenient savings and loan opportunities for poor and low-income households and businesses in rural areas. Rather than relying on grants or any kind of external financing, rural areas can generate needed investment capital from within their own communities. For rural microbanking to work, Kapil sees that saving needs to be habitual. Incentives like cash prizes and travel awards can be creatively used to encourage this behavior. Conventional banking-related products like insurance can and should be marketed as services to rural banking customers regardless of income level. Kapil's system includes "doorstep" service to make it easy for rural villagers to save. In addition to helping people replicate his idea, Kapil is expanding his current operations to 250 villages over the next five years.




THE PROBLEM

In rural areas the only financial alternative to moneylenders is microfinance operations largely run by NGOs. Though beneficial, these microfinance operations do not provide the full range of services that middle-class savers and borrowers receive through banks. Rural banks record very poor loan recovery rates and discourage villagers from borrowing. Additionally, existing banks do not invest their profits in their surrounding community, so there is flight of precious resources from the area.

For a long time conventional wisdom has assumed that poor individuals living in rural areas cannot save. As a consequence, the socioeconomic environment left poor individuals, like a poor rickshaw driver, to the mercy of moneylenders. The driver gives up most of his earnings to the moneylender as rent for the van that he needs to make a living. Given more supportive financial institutions, the driver could own several vehicles himself and provide a better living for himself and his family.

The way microfinance developed–through women's organizations and self-help groups–assumed the necessity of teamwork in order to achieve community action. This approach has so dominated people's thinking regarding rural development that the idea of a single individual making a difference in the community has become overshadowed.




THE STRATEGY

Kapil has developed a homegrown microbanking model to serve the needs of poor and low-income households and businesses. The first principle in Kapil's approach is to accept only those individuals who commit to being regular (daily, weekly, monthly) savers. The second principle is to create an infrastructure of field staff to collect payments and disburse loans at the client's doorstep. This service is available 24-hours-a-day, seven-days-a-week to make it convenient for Kapil's clients.

Kapil has demonstrated that flexible savings and loan products can be retailed profitably to low-income groups. He has developed a program that implements effective operations and proper incentives to foster savings. A regular depositor–someone who deposits each day for a period of 18 months–is entitled to each of the following products: medical, life, and education insurance; a higher rate of return on savings (higher than what is paid by others); gifts and travel vouchers; the option to sponsor any development or cultural program by splitting the cost with VSSU; and doorstep service for both money collection as well as loans.

Depositors can receive 10,000 rupees of insurance coverage for making a deposit of five rupees per day. Kapil's organization has partnered with the National Insurance Company to offer a suite of insurance products. Kapil's program also offers a special insurance plan for the poorest segment of its depositors wherein the depositor pays 50 percent of the insurance premium and the organization pays the other 50 percent. If the client deposits daily over a certain length of time, Kapil returns the collected 50 percent premium at the end of 18 months.

Regular depositors also receive a gift for their spouses. The idea is to help couples take pride in each other while encouraging them to participate actively in each other's financial decisions. Regular depositors are also eligible to earn travel vouchers in the form of train tickets, receiving credit for every increment of money they deposit.

Over the next five years, Kapil plans to establish rural banks throughout West Bengal. In each block in rural West Bengal there are 150 villages under 10 panchayats (local village council). Starting with two panchayats, Kapil will establish local banks as extension centers for his organization. Within two to three years, the staff and systems for these centers will be established enough to function as independent banks.

To date, Kapil Mondol's organization has loaned U.S. $1,767,070. At present, their outstanding loan portfolio is approximately U.S. $540,000. Their success is reflected in their cumulative net profit of U.S. $50,000, their deposit-to-loan ratio of one-to-one, and their 98 percent recovery rate. With 52 staff members serving 200 villages, most of the loans are small, with about 42 percent of all loans in the range of U.S. $48 and only 7 percent of all loans greater than U.S. $400.

Kapil's organization has received the highest credit rating and has been recognized as the national leader among self-sustainable organizations. The accounts are regularly audited by both internal as well as external auditors and are available for all to see. Though Kapil maintains strict financial control over operations, he maintains an open information policy, and on any given day, one can review daily collections, loan disbursement, and other operations.

Kapil's model is growing quickly and has caught the attention of microfinance practitioners worldwide. He has spread his operations to the Sunderbans area in southern West Bengal, and non-governmental organizations in Imphal in the northeastern state of Tripura and Maharashtra are replicating his work. He has also been invited to visit microfinance institutions in Bolivia.




THE PERSON

Born in 1959, Kapil has worked in several places in various capacities: in the Oil and Natural Gas Commission as a supervisor; in a tea shop; in a publication house; in a nursing home; and in a paint shop.

In the early 1980s, a neighbor in the village died. Kapil and his friends managed to collect money to perform the last rites. After the funeral, a small amount of the money remained that was saved for future emergencies in the village. Kapil felt that if this money had been collected sooner to pay for treatment for his deceased neighbor, a life could have been saved. With this in mind, Kapil and his friends started an informal community organization. In 1986, they registered as a formal NGO, contributing to general developmental and cultural activities around the village. Members built roads, planted trees, and organized cultural events.

In 1994 Kapil boarded a rickshaw van on his return home from working in Calcutta. During his conversation with the driver, he discovered that the driver had been paying the owner of the van five rupees a day for 22 years. The cost of one van was 2,500 rupees. Kapil realized that in all those years, this driver could have built a fleet of vans for himself. This was a turning point in Kapil's life. He negotiated a deal with the local rickshaw van shop to buy vans on credit. Each day the van driver paid Kapil five rupees, and once the full price of the van was paid, the driver became the van owner himself. This was the beginning of his idea to help poor villagers save money and access financial assistance in the form of loans. Kapil has not looked back since.




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