1

CHAPTER- 1

INTRODUCTION

1.1 Microfinance – an overview

1.2 Statement of Problem

1.3 Review of Literatures and Research Gap

1.4 Objectives of the study

1.5 Hypothesis

1.6 Research Methodology

1.7 Research Framework

1.8

Scope and Limitation of study

1.9

Chapter Plan

2

Chapter-1

Introduction

1.1. Microfinance – an overview

Microfinance in recent times has been recognized and accepted as one of

the new development paradigms for alleviating poverty through social and

economic empowerment of the poor people especially women. Being one

of the most effective and friendly tools to alleviate poverty, it also takes

into account the social dimension aspect in doing away poverty to a great

extent. It has increasingly become a very popular and indispensable tool to

address poverty issues and women empowerment across the globe. Started

in Bangladesh in early 1980s, it has spread to virtually every corner of the

globe and has experienced a considerable growth during 1990s.

Micro finance is an important sector and has been playing a vital role in

fulfilling the eight Millennium Development Goals (MDGs) of reducing 50

percent of the absolute poverty of about 1.2 billion people living on less

than US$1 per day by 2015. World Bank reported that about 7,000

institutions have been involved in some form of micro-finance operations.

Microfinance operations are reportedly growing by 30 percent in a year and

repayment rates are as high as 97 percent in many parts of the world (Patel,

3

2002).1 A quote by Prof. Md. Yunus may be reflected upon to consolidate

this.

“Poverty is not created by poor people. They are very hard working and

intelligent people. Poverty is created by the system that we built, the system

that we learnt in our University classes. If we change the system, poverty

will be gone because it is not the fault of the person. It is externally

imposed phenomenon and not internally generated phenomenon”

Microfinance in general refers to a broad range of financial services such

as savings, deposits, loans, money transfers and insurance extended to the

poor, low income households and micro-enterprises. According to Task

Force (NABARD), microfinance is defined as provision of thrift, credit,

and other financial services and products of very small amounts to the poor

in rural, semi-urban areas for enabling them to raise their income levels and

improve living standards.2

Bangladesh has been recognized as the origin of microfinance. With his

outstanding contribution to eradicate global poverty and to help improve

the lives of tens of millions of people, Prof. Mohammed Yunnus, popularly

1 Patel, A.R. (2002). “Micro finance and Micro finance institutions-need for Bank‟s initiative &

Commitment”, National Bank News Review, April-June, pp32-38 2 NABARD (2000), “Summary and Recommendations of Task Force on Supportive Policy and

Regulatory Framework for Microfinance.” Mumbai

4

known as father of modern micro-credit system, lent out 27 US dollars to

42 people in 1976 and started a research project in Bangladesh in 1979 and

came out with the idea of micro-credit that resulted in the establishment of

Grameen Bank in 1983. As a result the microfinance sector today in

Bangladesh is strong and vibrant and its outreach extends to all corners of

the country reaching to about 8.3 millions of every single villager in

Bangladesh. Out of the four principle Micro Finance Institutions operating

in Bangladesh - BRAC, Grameen Bank, ASA and PROSHIKA, the

Grameen Bank has a special status in banking set up, the other three are

NGOs (Non Government Organisations). The first initiative of micro

credit/finance in India was taken up by NABARD in 1986-87 when it

supported and funded an action research project on saving and Credit

Management of Self Help Groups (SHGs) of Mysore Settlement and

Development Agency (MYRADA). Microfinance movement was formally

launched in 1992 with NABARD‟s pilot project for linking Self Help

Groups (SHGs) with Banks. Some notable NGOs like Association of Serva

Seva Farm (ASSEFA), People Rural Education Movement (PREM),

Professional Assistance for Development Action (PRADAN), Community

Development Society (CDS), etc. have done excellent works in the

promotion of SHGs and mobilization of thrift and disbursement of credit

during the pilot project periods.

5

Micro-credit system thereafter has gained recognition and has been

considered as an important instrument to provide credit for self

employment and other financial and income generating business activities

which also includes savings and technical assistance to very poor people.

NABARD‟s pilot phase of the SHG-Bank linkage program in 1992 can

thus be considered as the land mark development in the history of

microfinance in India.

India is known for its large banking networks consisting of Public Sector

Commercial Banks Private Sector Commercial Banks, Regional Rural

Banks, State Cooperative Banks and District Central Cooperative Banks.

In spite of presence of a wide network of rural bank branches that

implemented specific poverty alleviation schemes and self-employment

initiatives through bank credit for almost the past two decades, a large

number of poor continued to remain outside the fold of the formal banking

system. As per the report of All India Debt and Investment Survey 1991

there are approximately 24 percent of the Rural Household who accessed

debt with formal or informal sources of which 36 percent had to still

depend on informal credit systems namely loan sharks, shopkeepers etc for

meeting their credit requirements.

6

The SHG-Bank linkage program under the initiatives and advocacy of

NABARD and RBI has witnessed an exponential growth in terms of

progress resulting to growth of total nos. of SHGs accessing bank credit

from 32,995 in 1992-1999 to 4,35,40,000 in 2011-12. There has also been

a remarkable progress in respect of the total bank loan amount outstanding

to SHGs which has increased from Rs.571 million in 1992-1999 to Rs.

3,63,400 million in the year 2011-12.3 A congenial environment is required

to fuel the healthy growth of microfinance sector in the country. A high

level meeting on Microfinance held on August 6, 2003 and chaired by the

Deputy Governor of RBI, Shri Vepa Karmesaram to review and discuss the

issues of microfinance on following parameters - Structure and

Sustainability, Funding, Regulation and Capacity Building recommended

to have multiple agencies as intermediary, treating SHG finance as priority

sector lending, capacity building of SHGs and partner agencies, creation of

separate national microfinance development fund, etc. The Reserve Bank

of India also instructed banks to relax certain banking norms while dealing

with SHG clients in regard to KYC (Know Your Customer) norms. A

separate fund as a result called Microfinance Development Fund (MFDF)

with corpus of Rs.100 crores was created by Govt. of India in order to

promote microfinance movement in India. MFDF was re-designated as

3 NABARD (2012).”Status of Microfinance in India 2011-12”, www.nabard.org.

7

Micro Finance Development and Equity Fund (MFDEF) in the Union

Budget for 2005-06 and also raised its corpus to Rs.200 crores which is

maintained by NABARD. This clearly indicates that the Govt. is keen and

actively involved in the promotion of microfinance sector as a means to

alleviate poverty and to proliferate inclusive growth.

The SHG Bank Linkage programme with better access to credit brings in

its wake increased income to the SHG members. The government

undertakes several self-employment as well as wage employment

programmes to eradicate poverty from the masses. The SHG Bank Linkage

programme is one such programme, which has its impact on poverty

alleviation through group effort, which emanates from their own savings

and timely credit from various institutional agencies.4 The programme

however is not free from problems such as uneven spread across and within

different states, inadequate response from the banks, rapid promotion of

SHGs leading to large number becoming defunct and prevalence of high

rate of interest charged to ultimate borrowers raising questions about the

ability of the intervention for poverty alleviation.

4 SHG-Bank Linkage Programme for Rural Poor – an impact assessment by Puhazhendhi, V. and

Badatya, K.C. Copyright © 2002 by NABARD. Paper presented at the seminar on SHG-bank

Linkage Programme at New Delhi on 25th

& 26th

Nov‟ 2002, pp 38-41.

8

The eight states of India‟s North East namely Arunachal Pradesh, Assam,

Meghalaya, Manipur, Mizoram, Nagaland, Sikkim and Tripura cover an

area of 2, 62,179 sq.km constituting 7.9 per cent of the country‟s total

geographical area, but have only 45 million people or about 3.7 per cent of

the total population of the country (2011 census).5 The region has about

4500 km of international borders with Bhutan, China, Myanmar, Tibet and

Bangladesh. Most of the land has a rough terrain and mountainous

periphery. The density of population in the region is 158 per sq.km. The

total literacy rate according to 2011 census varies from 66.95 per cent in

Arunachal Pradesh to 91.58 per cent in Mizoram. The region is

predominantly rural with over 84 per cent of the population living in the

countryside.

Endowed with rich natural resources, the region is identified as one of the

world‟s biodiversity hotspots; it hosts species-rich tropical rain forests and

supports diverse flora and fauna and several crop species. Despite being

rich in natural resources the region lags behind from the rest of the country

in terms of development. The overall economic development of all the

states of north east is found to be very low by any set of indicators as

compared to the other states of India mainly due to inadequate

5 DONER & NEC “North East Region Vision 2020”, www.mdoner.gov.in

9

infrastructure. The average Per Capita Income (PCI) of the NER for the

year 2010-11 is Rs. 49,228 as compared to the national average of Rs.

53,331 at the price level of 2004-05.6 Poverty ratio in NE region for the

year 2009-10 is 25.06 percent as compared to the national average of 29.8

percent. According to RBI, the region has also lagged far behind in the CD

(credit deposit) ratio at 32.03 as against the national average CD ratio at

78.1 in 2011-12.

Government of India in its effort to bring the region at par with other states

in the country has given emphasis on the development of infrastructure,

generation of employment and alleviation of poverty in the rural areas. A

number of schemes like Sampoorna Gram Rozgar Yojana (SGRY), Indira

Awwas Yojana (IAY), Pradham Mantri Gramodaya Yojana (PMGY),

Integrated Wasteland Development Programme (IWDP), Pradhan Mantri

Gram Sadak (PMGSY), etc, had been launched but the result has not been

very encouraging.

Microfinance program then started in the mid 90s after NABARD‟s strong

propagation of the concept throughout the region. Prior to that SIDBI had

started funding some NGOs for lending to groups but then it was premature

and so default rate was high. Rashtrya Grameen Vikas Nidhi (RGVN)

6 Pib.nic.in; http://www.mdoner.gov.in/content/poverty-estimates

10

during the early 90s played a pivotal role in supporting small NGOs in

developing SHGs through its NGO support programme. It started the

Credit Support Programme (CSP) in 1996-97and began working in various

clusters in Assam and Meghalaya by providing revolving fund to many

groups.

Many commercial banks such as Regional Rural Banks (RRBs) and co-

operative banks operating in the NER region with the support and

assistance from NABARD, started giving financial assistance to self help

groups formed by NGOs since 1999-2000. Under the NABARD‟s scheme

of SHG-Bank Linkage programme, nos. of SHGs accessing bank credit

rose from 34,238 in 2004-05 to 1,59,416 in 2011-12, registering growth

rate of about 365 per cent over the last eight years. Progress of SHG-Bank

linkage programme in the region is recorded comparatively higher in terms

of growth rate i.e. about 45 per cent per year. However, 1.59 lakh SHGs in

the North East Region is about 3.65 per cent only as compared to 43.54

lakh SHGs in all over India7. Regional and state imbalances in the growth

of micro-finance have raised many questions about its model and strategies

of the programmes.

7 NABARD (2012). ”Status of Microfinance 2011-12”, www.nabard.org.

11

Manipur is one of the most economically backward states within the North

Eastern Region as indicated by various socio-economic parameters and is

remotely located from mainland India. It covers a geographical area of

22,327 sq. km and has a population of about 27.22 lakh people as per 2011

census8. Imphal valley which constitutes 10 per cent of the state area

accommodates about 90 per cent of the populations. Literacy rate is 79.85

per cent which is higher than all India average of 74.04 per cent. The per

capita income of the state is Rs. 29,684/- as compared to all India average

of Rs. 53,331 in 2010-2011. Poverty ratio of the Manipur states stood at

47.1 per cent in 2009-2010 as against the all India average of 29.8 per cent.

The state has poor infrastructure in terms of power, road communication,

etc. The state had witnessed a slow pace of progress and development in

the last two decades due to poor governance, insurgency problems and

fluid law and order situation.

The number of scheduled commercial bank branches as on 31st March 2009

in Manipur is 80 as compared to all India bank branches of 79735. Average

population per branch is 33000 as compared to all India average of 15000

populations per branch indicating poor banking facilities in the state9. CD

ratio for the state is also low at about 30.1 as compared to the national

8 Economic Survey of India, 2011-12, Directorate of Economics and Statistics, Manipur.

9 Source: RBI statistics on Branch Banking 2009.

12

average of 78.1 as on March 31, 201210

. Therefore, many people are still

outside the banking system. In the absence of any well established NGO or

NBFC, microfinance is still at the initial stage with most of the NGOs

involved in the microfinance activities relatively new and small with few

staffs that generally depend on grant or subsidy from Donors or funding

agencies for taking up various social activities. Microfinance movement is

becoming increasingly popular in the rural areas of Manipur though it is

comparatively new as in the other parts of country. SHG formation has

become a movement in rural areas and as on 31-March-2012, 5807 nos. of

SHGs in Manipur have been provided credit link with banks with loan of

about Rs. 2300.18 lacs under SHGs-Bank linkage programme 11

. There are

about 900 NGOs in Manipur out of which about 75 NGOs are actively

involved in micro finance program. Many funding agencies, banks and

financial institutions such as SIDBI, RMK, RGVN, NEDFi, etc. of late

have also started funding to NGOs in Manipur for on-lending to SHGs.

1.2. Statement of the Problem

Microfinance as a strategic tool for poverty alleviation has become

increasingly popular in the rural, semi urban and urban areas of Manipur as

10

Reserve Bank of India – www.rbi.org.in 11

NABARD (2012).”Status of Microfinance 2011-12”, www.nabard.org.

13

in other parts of the country for enabling them to raise their income levels

and improve living standards. SHGs formation has become a vital

movement for rural development. The state of Manipur is still in the

nascent stage in regard to micro finance activities and the main concern of

practicing micro finance is its sustainability. In spite of SHG movement

spearheaded by ICM, Imphal and other Agencies, no much growth has

been visible in the area of micro finance programme. Moreover, it is

observed that the state government has not taken up any major steps for

introduction of any major schemes for SHGs in line with Rashtrya Mahila

Kosh, RGVN, SIDBI, NEDFi and other ICICI correspondents which have

given credit access to number of NGOs thereby linking many SHGs.

There are many other problems such as lack of awareness, lack of

commitment, lack of efforts on the part of implementing agencies, lack of

good and viable NGOs in the state, lack of motivation for women in

forming SHGs, lack of nursing and management, lack of proper training to

banks, NGOs and government officials, lack of co-ordination between

bank and block officials, non-delegation of adequate powers to branch

managers and weak credit structure of bank which hinder the progress of

SHGs. The microfinance market in India is not well developed

14

The Self Help Group model will remain as a dominant model for

microfinance in India for some time based primarily on the fact that the

Government still places emphasis on the SHG and its linkage programs as

the best means of channeling funds to the poor in rural areas even though

there are limitations in this model in terms of sustainability.

Micro finance program in Manipur is not up to the mark as compared to

other parts of the country in spite of government‟s efforts in the form of

SHG-Bank linkage program with its performance not satisfactory. It is

therefore imperative to know what really is happening at the grass root

level of the program. It is also important to know why NGOs are not

coming forward to the expected level in spite of many NGOs operating in

Manipur. The researcher wanted to understand the profile of SHGs in the

state of Manipur who are actively involved in microfinance. The researcher

also wanted to know the socio-economic impact on the SHG members due

to the microfinance programme interventions. Finally, the researcher would

like to know whether there is significant increase in overall socio-economic

empowerment of SHG members after joining microfinance programme of

MFIs in the state of Manipur.

15

Therefore, there is a need to study the impact of micro-finance program in

Manipur in terms of social and economic improvement due to microfinance

programme intervention.

1.3. Review of Literatures and Research Gap

The researcher read various articles on micro-credit models adopted around

the world and also reviewed various literatures on micro-finance activities

with reference to India. The researcher also reviewed various research

studies conducted on socio-economic impact of SHGs in India for better

understanding of microfinance sector in India. Relevant studies conducted

on various reports of Committee appointed by Reserve Bank of India (RBI)

were also referred for in depth understanding of current issues and

concerns in this sector. The researcher also conducted some background

studies on theoretical issues concerning the political, social and economic

history of Manipur with a focus on poor women.

Puhazhendhi and Satyasai under NABARD conducted the first impact

study on SHG-bank linkage programme in 2000. The study assessed the

impact of microfinance on socio-economic conditions of 560 household

members from 223 SHGs located in 11 states. The results of the above

study suggest that lifestyles of members have changed after getting into the

16

SHG –bank linkage program in social and economic terms. The average

value of assets per household (including consumer durables and livestock)

was Rs. 6,843 during the pre-SHG period, which increased by 72.3 per cent

to Rs. 11,793 in the post-SHG period. Only 23 per cent of the members had

some savings during the pre-SHG period in contrast to almost all

interviewed members who saved during the post-SHG period. The average

household saving was merely Rs. 460 during the pre-SHG period, which

increased manifold to Rs. 1,444. Similarly, average borrowings rose from

Rs. 4,282 during the pre-SHG period to Rs. 8,341 in the post- SHG period.

Most significantly, this increase was spent for income generating purposes

by a large number of households during the post-SHG period. With regard

to social aspects, the study found that becoming members of SHGs and

associating in its activities had significantly contributed to improving the

self-confidence of the participating women. In addition, the study stated

that the composite index of different socio-economic parameters increased

from 40 to 65 from the pre-SHG to post-SHG period.

A study by MYRADA (2002)12

on women‟s empowerment of SHG

members commenced in 2002 for the southern region‟s states. In all, 130

12

MYRADA (2002), „Impact of Self Help Groups (Group process) on the Social/Empowerment

status

of Women members in Southern India‟, paper presented at the seminar on SHG-bank Linkage

Programme at New Delhi on 25th and 26th November 2002.

17

SHGs were surveyed and it covered four professionally managed NGOs

(DHAN, RASS, CHASS and MYRADA), one from each state. The

“empowerment” of a SHG member is defined in terms of her influence

over the family‟s economic resources and her participation in its economic

decision-making. In addition, the influence made by her on her own

development as an individual, power over local polity and participation in

socio-political decision-making and influence over other decisions

pertaining to general welfare of the family are considered.

A study by Prabhu Ghate (2007)13

highlighted the findings of recent studies

on the SHG-Bank Linkage Programme (SBLP)-microfinance institutions

model in India and in other countries. The study also presented the overall

view of microfinance in India, progress under SHG Bank linkage

progreammes, MFI performance, social performance, micro insurance, use

of technology, microfinance bill and regulation.

Moyle, Dollard and Biswas (2006)14

assessed the economic and personal

empowerment of 100 women aged between 16 and 65 years, participating

13

Ghate, P. (2007). “Microfinance in India: A state of sector Report,2007”, Ford Foundation,

Delhi 14

Moyle, Dollard and Biswas (2006), „Personal and Economic empowerment in Rural Indian

women:

A Self-help Group Approach‟, International Journal of Rural Management, 2, Sage

Publications.

18

in SHGs from two villages (Delwara and Shishvi) in Rajasthan. Based on

qualitative data, the study found that after joining SHGs, the members

achieved both economic and personal empowerment in terms of collective

efficiency, pro-active attitudes, self-esteem and self efficacy. The study

also reported that most of the women experience pressure, challenges and

stress due to extra work and more responsibilities.

A nation-wide Impact Assessment Study of its micro finance programme

was conducted by SIDBI (2008)15

from 2001-2007 covering 4510

households comprising 3253 households and 1257 non-client households

of 25 MFIs. The study highlights the benefits received by the client

households from their association with micro finance, in terms of

expansion of diversification of livelihood activities, growth in employment

opportunities, income growth, asset-acquisition, savings, access to loans,

reduction in vulnerability and enhancement of women empowerment.

The study of Sinha and Roy (2008)16

assesses the impact and sustainability

of SHG bank linkage on the socio-economic conditions of the individual

15

SIDBI (2008), “Assessing Development Impact of Micro Finance Programmes: Findings and

Policy

Implications from a National Study of Indian Micro Finance Sector”

16

Sinha, A, Roy, P.K., et.al (2008). “ Impact and sustainability of SHG Bank Linkage

Programme”, GTZ-NABARD.

19

members and their households in the pre-SHG and post-SHG scenarios.

The study was conducted for India as a whole covering six states (Andhra

Pradesh, Karnataka, Maharashtra, Orissa, Uttar Pradesh and Assam) from

five different regions, namely the south, west, east, central and north-east.

The overall findings of the study suggest that SBLP has significantly

improved the access to financial services of the rural poor and had

considerable positive impact on the socio-economic conditions and the

reduction of poverty of SHG members and their households. It has also

reportedly empowered women members substantially and contributed to

increased self-confidence and positive behavioural changes in the post-

SHG period as compared to the pre-SHG period.

The study of Archana Sharma (2002) on “Working of Self Help Groups and

their impact on women, Assam State Resource Center, Guwahati’”

analyzed the size, composition and characteristic of the SHGs in Assam.

The work of Swapan Kumar Sinha (2000) on “Micro Finance through Self

Help Group and its impact on socio, economic empowerment of the poor, A

case study of Kamrup district of Assam” emphasized impact of micro

finance programme as lending by the three sample NGOs only.

20

The study of Dr. Amiya Sharma (2005), NEDFi on “Self Help Groups of

Assam, funded by UNICEF through the Department of Panchayat & Rural

Development, Govt. of Assam”- discussed the profile of SHGs of Assam in

term of locations, number of groups, gender composition saving, internal

and external lending of the groups and linkages with other financial

organizations.

The work of Richard I Meyer (2002) on “Microfinance Poverty, Alleviation

and Improving Food Security, Implication for India” discussed merit &

demerit of SHGs linkage with bank & various other models.

The study of IIBM, Guwahati on “Expanding outreach to underserved

regions: Microfinance in the North East Region” gave the over view of the

current status of sector, sustainability of NGO-MFIs, informal or

traditional institutions and also examine the policy environment of micro

finance sector in the NE region.

On Research paper of V. Puhazhendhi & K.J.S. Satyasai, National Bank

News Review (Jun2002) “ Empowerment of Rural Women through Self

Help Groups-An Indian Experience” on 223 SHGs in 11 states found that

microfinance programme have positively contributed for the economic and

social empowerment of rural poor.

21

On research paper of H.S. Shylendra with the title” The SHG-Bank Linkage

Programme” published in Journal of Rural Development Vol 23(4) pp

411-433, NIRD, Hyderabad critically examined the Assam SHG-Bank

linkage on its approach and the strategy and the possible ways to take it

forward.

Some of the literatures reviewed for better understanding of concept of

impact assessment methodologies and techniques are:

Chen and Snodgrass (1999)17

carried out impact assessment study of

SEWA Bank in India at three different levels i.e. at household level, at

enterprise level and at individual level. Study reveals that participation in

microenterprises services leads to an increase in the level of household

income, improvement in housing, increase in microenterprise revenues,

increase in self-esteem and self-confidence etc.

Barnes, Morris and Gaile (1998)18

have taken following broad four

parameters for their baseline study in Uganda i.e. 1) improvements in the

17

Chen, M.A. and Snodgrass, D. (1999), “An Assessment of the impact of SEWA Bank in

India-Base line findings”, AIMS, USAID, Washington D.C.

18

Barnes, C., Morris,C. and Gaile,G. (1998). “An assessment of impact of microfinance services

in Uganda, Baseline findings”, AIMS, USAIDS, Washington, D.C.

22

economic welfare of households; 2) enterprise growth or stability; 3)

increase in empowerment, especially among women; and 4) strengthened

social and rural networks.

Cohen and Chen (1997)19

explained their framework for core hypothesis

for measuring impact of microfinance at individual level. The framework is

based on following broad parameters: material change (income, earning

capacity, resources control, basic needs etc), cognitive change (knowledge,

skills and awareness), perceptual change (self esteem, self confidence,

future vision and respect) and relational change (decision making,

bargaining power, participation, self reliance and organizational strength).

Cohen and Dunn (2002)20

described the core impact hypotheses into three

broad categories: Impacts at the household (H) level; increase in household

income, assets, improvement in housing, increase in expenditure on

children education and food, increase in ability in coping with shocks, etc.,

Impacts at the enterprise (E) level; increase in microenterprise revenue,

fixed assets, employment generation, business relationships, etc. and

Individual(I) level; increase in control over resources and income, self

19

Cohen, M. and Chen, M.A.(1997). “A Guide for assessing the microenterprise services at the

individual level” AIMS, USAID, Washington, D.C

20

Cohen, M. and Dunn, E. (2002). “Research Strategy for the AIMS Core Impact Assessment”,

AIMS

23

esteem and respects, increase in personal savings, increase self confidence

,etc.

David Hulme (1997)21

described various methodologies of impact

assessments such as sample surveys, rapid appraisal, participant

observation, case study and participatory learning and action along with

their strengths and weaknesses. The choice of methods is based on

objectives, costs and feasibility.

The researcher also reviewed some of the reports of Committee set up by

Govt. of India for better understanding of microfinance sector from the

perspective of policy makers or regulatory authorities. The Task Force on

Supportive Policy and Regulatory Framework for Micro finance (Task

Force) chaired by NABARD (1999) had, recommended a classification of

MFIs based on whether they offered deposit facilities or not and a graded

system of external supervision depending on the amount and source of

deposits. The Internal Group on Micro Finance Regulatory Issues (2003)

set up by RBI looked at the micro finance sector as a multi-tiered structure

consisting of SHGs, NGOs, Micro Credit Institutions and Micro Finance

Institutions. It favoured the lending agency to intensify monitoring of the

21

David Hulme,1997, “ Impact Assessment Methodologies for microfinance: a review”, AIMS,

University of Manchester

24

SHGs so as to ensure that the groups do not lend outside the group,

establish maximum exposure norms per individual in the group and annual

rating by the banks to ensure that there are no slippages. In case of the

NGOs, it recommended that the entities that have started lending convert

themselves as cooperative societies under Mutually Aided Cooperative

Societies (MACS) or section 25 companies or NBFCs. It advised that the

NGOs should stop taking deposits, place a credit cap of Rs. 50,000/- per

member and have transparency in pricing. It also recommended that micro

finance institution may be allowed to become an NBFC with a reduced

entry level capital of Rs. 25 lakh if they are exclusively financing SHGs

but may be permitted to accept deposits only if the capital is Rs. 200 lakh.

The Internal Group to examine the issues relating to rural credit and

microfinance headed by H.S. Khan (2005), RBI recommended Business

Facilitator Model and Business Correspondence Model for linking banks

and external entities to provide comprehensive financial services to rural

people.

From review of the above studies and literatures, it was found that while

several studies discussed mainly various socio-economic parameters of

SHG members related to the situation during pre-SHG and post- SHG

25

periods, other studies assessed more specific type of issues such as role of

SHG federations in providing sustainability of SHGs, economic and

personal empowerment of women and role of microfinance in poverty

eradication.

Many relevant studies were conducted on micro finance specially SHG-

Bank linkage programmes in India, however a few research was done on

microfinance activities in the North East India more particularly in the state

of Manipur. It is also observed that none of the study really addressed its

impact on socio economic well being of SHG members for sustainable

growth of microfinance industries in the future.

Therefore, more research studies are needed for in depth understanding of

microfinance operation of NGO-MFIs and its socio-economic impact on

SHG member or clients which will help the policy makers or practitioners,

funding agencies, etc. for making the sector healthy and sustainable.

1.4. Objectives of the study

In view of increasing microfinance activities by banks and NGO-MFIs,

there is a need to study the socio-economic impact of micro-finance

program on SHG members in the state of Manipur. In order to understand

26

and explore the ground reality and impact of the microfinance intervention

program, the main objectives of the research study were as follows:

a) To draw the profile of the SHG members assisted by MFIs in

Manipur.

b) To examine the economic impact of microfinance on SHG members

assisted by MFIs in Manipur

c) To examine the social impact of microfinance on SHG members

assisted by MFIs in Manipur.

d) To summarize the major findings and to recommend for improving

the products & services of MFIs.

1.5. Hypothesis

The main hypothesis governing the study was:

“There is significant increase in overall socio-economic empowerment of

SHG members after joining microfinance programme of MFI in the state

of Manipur”.

1.6. Research Methodology

a) Type of research

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The nature of the research used for the study was exploratory research to

understand the real scenarios of microfinance activities at the grass root

level and also to test the hypothesis formulated for the proposed study.

b) Universe of Study

In Manipur, there were about 75 NGOs which were directly associated

with microfinance. So, the universe of the study consists of SHGs members

of 75 NGOs. The universe of the individual SHG members were all the

SHG members of the NGOs selected for the study.

c) Sample Size

For the purpose of study, only 20 NGOs which is 26 per cent of 75 NGOs

which were directly involved in microfinance were considered. So the

sample size of NGOs was 20.

In all there were 15,018 individual members of 20 NGOs. With the help of

sample size determination software, the calculated sample size was found

to be 120 SHG members at 8.91 per cent of confidence interval. So the

sample size was 120 SHG members.

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d) Sampling Method

A multistage sample design was adopted for selecting the sample SHGs

and sample SHG members to be interviewed in the survey.

First stage: 20 NGOs were selected from 75 NGOs by using simple

random sampling with replacement which comes under Probability

sampling method.

Second stage: From each of selected NGOs, 3 SHGs were again chosen

by using simple random sampling method. Thus, 60 SHGs were taken for

the study.

Third stage: 2 individual SHG members were selected to be included in

the sample by using simple random sampling from each of the 60 SHGs

identified. Therefore, in all there were 120 SHG members which were

covered under the study.

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e) Sources of data and data Collection method

Both primary and secondary data were used for the study with secondary

data collected from various Government Departments, Financial

Institutions, and Banks. The primary data were collected through interview

schedule from SHG members promoted by NGO-MFIs. Focus group

discussion and observation method were also used apart from the interview

schedule to collect data.

In order to assess the impact of microfinance, the “before and after”

approach was primarily followed. A structured questionnaire targeting

SHG members was completed using the focus group discussion method,

which facilitated the collection of qualitative data from the group, as well

as quantitative data from the records maintained by SHGs. Feedback

collected from the functionaries of NGOs associated with the SHGs

facilitated cross-checking of data.

The responses on problems faced by the SHGs and their suggestions on

improvement of the SHGs‟ performance were gathered through

discussions. Relevant data were also collected through pre-structured

questionnaires, covering the qualitative and quantitative aspects of SHGs

and their members before and after bank linkage. The consistency of data

30

collected from primary sources was ascertained by using different styles of

questions to capture the same information. The validity of the information

was crosschecked through NGOs to get reliable information on the pre-

SHG situation.

f) Research Framework

Considering the objectives and scope of study, the research framework was

formulated to allow in depth study of microfinance activities on SHG

members. Comprehensive study was done using standard statistical tools

and techniques.

Impact Assessment of Individual SHG Members

The success of any development program is generally judged based on the

impact assessment of program i.e. how the program has really benefited the

target group over the years. Thus, the impact assessment of microfinance

programs of NGO on the individual SHG members is one very important

concern for the implementing agencies, funding agencies, policy makers,

regulators, govt. agencies, etc.

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Impact Assessment of Individual SHG Members is generally measured

using AIMS‟s Core Impact Assessment technique which is based on

three levels i.e. household level, enterprise level and individual level. The

major economic impact parameters used for the study were - change in

personal income from enterprise, household income, household savings,

household expenditure, access to credit and micro insurance products.

Whereas, the parameters used for measuring the social impact were self

confidence level, ability to take decision, social awareness and social

responsibility, skill development, access to better health services and other

social infrastructure facilities.

g) Data Analysis

Descriptive statistics were used for summarizing the data. Correlation

Analysis, Independent Sample t test and ANOVA test were used for

analyzing the data. SPSS, a standard statistical software tool was used for

analyzing the data.

h) Period of study

For analyzing the profile and socio economic impact of SHG members,

primary data was collected during the period 2011-2012. Therefore, the

reference year of the study is 2011-12.

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i) Report Presentation

The report of the findings of the present study is presented by using

tabulation and descriptive style of presentation for easy grasping and

understanding of the findings. Wherever possible, graphs & charts are also

used.

1.7. Research Framework

Considering the objectives of research work and hypothesis, a suitable

research frame work has been developed. The research frame work is based

on study of socio-economic impact on SHG members associated with MFIs

and the main hypothesis is formulated to test significant improvement in

their socio-economic empowerment index after joining the microfinance

programme. The research frame work based on which the study was

carried out is depicted as given in the figure:

33

Fig 1.1

1.8. Scope and Limitation of the Study

The research was restricted to 20 NGOs only and 120 SHG members

promoted by NGOs of Manipur. The study therefore was limited to only

NGOs & SHGs who were involved in micro-finance activities. The study

did not attempt to study other organization or voluntary organizations

EEI-Economic Empowerment Index

SEI-Social Empowerment Index

SHG

Members

EEI SEI

Research Framework (Model)

MFIs/NGOs

Hypothesis

Testing

Socio-Economic

Impact

34

involved in social development activities. The study did not attempt to

cover SHGs promoted by other agencies such as Banks, Govt. Agencies

etc. Therefore, no attempt was made to generalize the finding for other

region or for India as whole.

1.9. Chapter Plan

Chapter-1: Introduction

This chapter with the heading “Introduction” describes about the overview

of microfinance and its progress in India, statement of problems, review of

literature, research gap, research methodology and the chapter plan.

Chapter-2: Conceptual review of Microfinance

This chapter with the caption “Conceptual review of Microfinance” gives

snap shots of microfinance sector after review of various literatures

relevant to the study. Historical background of microfinance, concept of

microfinance and Self Help Groups (SHGs), credit delivery models of

microfinance, evolution and progress of microfinance in India,

microfinance movement in North Eastern region and Manipur in particular

and impact assessment methodology of SHG members are briefly

discussed in this chapter.

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Chapter-3: Profiles of Self Help Group members in Manipur

With the title “Profiles of Self Help Groups in Manipur”, this chapter

describes the nature and characteristics of sample Self Help Group

members of Manipur in terms of age, gender, marital status, monthly

income, housing etc.

Chapter-4: Economic Impact on SHGs Members

In this chapter, economic impact of microfinance intervention programs on

SHG members is studied in term of improvement in business income,

house hold income, household savings, etc before and after joining the

program.

Chapter-5: Social Impact on SHGs Members

Non-Governmental Organization (NGOs) being non-profit organization

with social development objectives have been important player as

facilitator or intermediary in microfinance movement in India. NGO-MFIs

have been playing significant roles in supporting and nurturing SHGs by

not only extending credit or other financial services to SHGs but also in

many ways. This chapter describes about research findings of social

36

impact on SHG members in terms of self confidence, decision making,

skill development etc.

Chapter-6: Socio-Economic Empowerment Index

The findings on analysis of change in socio-economic empowerment index

of the SHG members after joining microfinance are presented in this

chapter.

Chapter-7: Summary Findings and Recommendations.

In this last chapter with the tile “Summary Findings and

Recommendations” briefs about the summary of major findings of the

study and recommendations for improving the products and services of

MFIs.