institutional support to microfinance in...
TRANSCRIPT
CHAPTER – IV
INSTITUTIONAL SUPPORT TO
MICROFINANCE IN INDIA
128
CHAPTER-IVINSTITUTIONAL SUPPORT TO MICROFINANCE IN
INDIA
4.1. Introduction:-
The purpose of this chapter is to examine the role and performance of various
institutions that are associated with the microfinance activity in India. The institutions
supporting microfinance in India can be broadly classified into two categories, i.e.
formal institutions and the semi formal institutions. An attempt is made here to
examine the performance of some of the major contributing agencies.
4.2. Microfinance Institutions:-
4.2.1. Formal Institutions:-
The formal institutions consist of Regional Rural Banks (RRBs), Cooperative
Societies, Commercial Banks, Housing Finance Institutions (HFIs), National Bank for
Agriculture and Rural Development (NABARD), Rural Development Banks (RDBs),
Land Development Banks (LDBs) and Cooperative Banks (CBs), Cooperative
Structures, the Urban Cooperative Banks (UCB) or Urban Credit Cooperative
Societies (UCCS).
Among the formal institutional agencies Land Development Bank, Housing
Finance Institutions, Urban Cooperative Banks (UCB) and Urban Credit Cooperative
Societies (UCCS) and the like have not been playing a significant role in contributing
for the development of SHGs or microfinancing activity. So their details have not
been covered in the analysis. A brief analysis of the performance of the NABARD is
given below.
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4.2.1.1. National Bank for Agriculture and Rural Development (NABARD):-
In the process of rural development and eradication of poverty, it has been
emphasized that the poor dwelling in rural areas should be provided with financial
assistance to achieve their economic stability and sustenance. Having realized this, the
Government of India, set up an apex development bank on July 12, 1982, by an Act of
Parliament. Accordingly, the National Bank for Agriculture and Rural Development
(NABARD) was established to finance and promote agriculture, small-scale
industries, cottage and village industries, handicrafts and other rural crafts so as to
achieve integrated rural development.
NABARD operates through its Head Office at Mumbai. It has 26 Regional
Offices, and a sub-office in each State capital / Union Territory. Besides, it has 234
district offices spread all over the country.
Promoting sustainable and equitable agriculture and rural development
through effective credit support, related services, institution buildings and other
innovative initiatives for alleviation of poverty is the mission of NABARD. 124
NABARD and Microfinance:
Economic empowerment of rural poor by improving their access to the formal
financial system through various delivery system innovations in a cost effective and
sustainable manner is the vision of NABARDs in promoting microfinance in India.
Microfinance against poverty has been recognized as one of the tools by a
number of countries including India. The new generation financial institutions with
innovative financial products and approaches are coming up in different parts of the
country. The natural tendency of rural poor to unite for a common purpose does not
124 SIDBI Report, “Micro Finance Sector in India: Developments, Trends, Problem and Prospects”,
SIDBI Report on SSI Sector, 2000, P: 173.
130
necessarily fructify in harmonious activities due to several factors such as illiteracy,
lower access to resources, social conflicts, etc. thereby necessitating a change agent to
sow the seeds of association and provide a rallying point.125
NABARD has brought into operation a framework for developing Self-Help
Groups (SHGs) as community based financial structures and using them as channels
for lending by the formal banking system. The objective of this programme is to
evolve supplementary credit strategies for meeting the credit needs of the poor by
combining flexibility, sensitivity and responsiveness of the informal credit system
with the strength of technical and administrative capabilities and financial resources
of the formal financial institutions. The salient features of the programme include:
Hundred per cent refinance to Banks for loans given to SHGs Repayment period of loans by banks to SHGs varies from two to three
years Repayment period of loans by SHGs to members is flexible Banks lend directly to SHGs at 12 per cent per annum Banks lend to NGOs at 10.5 per cent per annum with on-lending rate fixed
at 12 per cent Banks receive refinance from NABARD at 6.5 per cent. Bulk loans to NGOs are in the range of 6.5 – 9.0 per cent Policy guidance, technical and promotional support for capacity building
of NGOs and SHGs and training support to banks are also provided.126
NABARD provides the following services in addition to its policy advocacy role:
1. Refinance to banks at 100% at a concessional rate of interest at 6.75% p.a. and financial assistance provided to banks to function as promoting institutions.
2. Workshops, training programmes, seminars at various levels for bankers and NGO employees in order to build trust and confidence between the banks and the rural poor.
3. Facilitating training of bank officials and field staff of NGOs.4. Providing selective capacity building support to NGOs, SHGs, Federations of
SHGs, and the related institutions in the form of revolving fund assistance, training facility and other support.127
125 Kishanjit Badu, Krishan Jindal, “Microfinance Emerging Challenges”, TATA McGraw HILL,
New Delhi, 2000, P:273-317.126 Op. Cit., SIDBI Report, P: 173.127 Meera Lal, “SHG-Bank Linkage in India: Empowerment and Sustainability”, B.R. Publishing
Corporation, Delhi, 2007, P: 126-132.
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Most outstanding role of NABARD building commitments through capacity building by:
Designing separate training modules Developing separate course materials Content and delivery enrichment by training tools, training methodologies Identifying and developing new training partners Organizing Workshops, training programmes, seminars at different levels
for bankers, for NGO employees including field staff Providing selective capacity building support to NGOs, SHGs, Federations
of SHGs and related institutions.
Training has prepared the ground for SHG-Banking and contributed most to
the building trust and confidence between the banks and the rural poor. More than
7000 orientation programmes were funded Credit and Financial Services Fund
(CFSF) and guided to establish the new capacity required.128
Financial Support and Promotional Efforts by NABARD:-
1. Refinance Support to Banks:-
NABARD provides refinance support to banks to the extent of 100% of the
bank loans disbursed to SHGs. The total refinance disbursed to banks against their
loans to SHGs during the year 2006-07 was Rs. 1,292.86 crore. During the year 2007-
08, the total refinance disbursed to banks was Rs. 1,615.50 crore with the growth rate
of 30 per cent. During the year 2008-09, the more growth rate was registered at 62.2
per cent when compared to the previous year, as an amount Rs. 2,620.03 crore had
been disbursed to banks. During the year 2009-10, the total refinance disbursed to
banks against banks loans to SHGs was Rs. 3,173.56 crore, and registered a growth of
21.1 per cent comparing with amount of Rs. 2,620.03 crore in 2008-09.
The refinance support from NABARD, however, continues to supplement
resource mobilization for the programme. During 2010-11, NABARD extended
128 Dr. Erhard.W.Kropp, Dr. B.S. Suran, “Linking Banks and (Financial) Self Help Groups in India An
Assessment”, Seminar paper on SHG-bank Linkage Programme, New Delhi, November 2002, P-27-28
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refinance to the extent of Rs. 2,545.36 crore as against Rs. 3,173.56 crore disbursed
during the previous year, registering a declining growth rate of 19.8 per cent.
Cumulative disbursement of refinance by NABARD to SHG lending now stands at
Rs. 15,407.01 crore.
From the above data the NABARD extended refinance to the extent of Rs.
2,545.36 crore during 201o-11 and 11.96 lakhs SHGs have been financed by banks,
with bank loans of Rs. 14,547.73 crore. As the result, the gap between the total loans
issued by banks to SHGs and the refinance extended by NABARD for such loans is
widening as would be seen from the graph below.
Figure-IV.1
12253.51
2620.03
14453.3
3173.56
14547.73
2545.36
0
2000
4000
6000
8000
10000
12000
14000
16000
Rs. In Crores
2008-09 2009-10 2010-11
Years
Loans issued to SHGs by Banks and NABARD's Refinance to Banks
Loans toSHGs byBank
NABARDRefinance toBanks
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2. Promotional Support – SHG-Bank Linkage:
i. Micro Finance Development and Equity Fund (MFDEF):
Recognizing the need for up scaling the microfinance interventions in the
country, the Hon’ble Union Finance Minister, while presenting the budget for the year
2000-01, announced the creation of a Micro Finance Development Fund (MFDF) with
initial contribution of Rs. 100 crore to be funded by Reserve Bank of India and
NABARD – Rs.40 crore each and the balance Rs. 20 crore to be contributed by
commercial banks. In the Union Budget for 2005-06, the Government of India had
decided to re-designate the existing MFDF as Micro Finance Development and Equity
Fund (MFDEF) and raised its corpus from Rs. 100 crore to Rs. 200 crore with the
similar ratio of contribution from the above banks. The MFDEF is managed and
administered by NABARD. The objective of MFDEF is to facilitate and support the
orderly growth of the microfinance sector through diverse modalities for enlarging the
flow of financial services to the poor, with consistent sustainability particularly for
women and vulnerable sections of society.
To strengthen the efforts of NABARD towards promotional support for micro
finance, the Government of India in the Union Budget for 2010-11 had further
increased the corpus of Micro Finance Development and Equity Fund (MFDEF) to
Rs. 400 crore.
The fund is being utilized to support various promotional activities like grant
assistance to Self Help Promoting agencies (SHPIs), funding of training and capacity
building of microfinance clients and stakeholders of the SHG-Bank linkage
programme, support to MFIs, for supporting introduction of Management Information
System (MIS) for the sector and for helping research, studies and publications
concerning microfinance related issues.
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For fulfillment of above mentioned requirements, an amount of Rs. 47.48
crore was disbursed from MEDEF during the year 2010-11 i.e. an amount of Rs.
29.95 crore as grant towards various promotional activities and Rs. 17.45 crore as
Capital Support and Revolving Fund Assistance to MFIs.
It is observed that the creation of MFDEF by NABARD is a significant step
forward in the promotion of Microfinance activity and its contribution was significant.
ii. Training and Capacity Building:-
NABARD continued to organize / sponsor training programmes and exposure
visits for the benefit of officials of banks, NGOs, SHGs and government agencies to
enhance their effectiveness in the field of microfinance. Hence, not only Training
supplements but also materials were supplied to banks and other agencies to lead their
activities effectively. Best practices and innovations of partner agencies had widely
been circulated among government agencies, banks and NGOs. During the year 2006-
07, support fund of Rs. 5.80 crore was provided for capacity building, exposure and
awareness building. During the same year, 5,173 training, capacity building
programmes were conducted covering 2,68,078 participants.
During the year 2007-08, support fund of Rs. 6.24 crore was provided for
capacity building, exposure and awareness building. During the same year 6,601
training / capacity building programmes were conducted covering 3,71,398
participants.
When making comparison to the last year, the notable thing during the year
2008-09 is that fund support was reduced from Rs. 6.24 crore to Rs. 6.10 crore for
capacity building, exposure and awareness building. Mean while training / capacity
building programmes had also been fallen from 6,601 to 6,278 covering 2,83,998
participants only.
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There was enormous change in fund support during 2009-10, for capacity
building, exposure visits and awareness building, for which Rs. 9.93 crores was
sanctioned. Where as, the cumulative fund support for the above purpose as on 31
March 2010 stood at Rs. 45.02 crore. During 2009-10, 6,804 training / capacity
building programmes were conducted covering 2,53,868 participants. While during
2010-11, nearly 2,05,798 training / capacity building programmes were conducted
covering 26,60,818 participants (as shown in Table-IV.1).
The data clearly shows that there was a forty fold rise in the number of
programmes conducted by NABARD during a very short span of only four years
between 2006-07 and 2010-11. Similarly, there was an impressive growth of ten times
in the number of participants, who got benefited by the programmes of NABARD
during the same period. One can therefore conclude that the NABARD has
contributed enormously for the growth and advancement of Microfinance activity in
India, specifically towards a vital aspect of Training and Capacity Building.
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Table-IV.1: Training and Capacity Building Programmes – 2006-07 to 2008-09
2006-07 2007-08 2008-09 2009-10 2010-11
Sl. No.
Programme
No. of Progra
ms Condu
cted
No. of Participa
nts
No. of Progra
ms Conducted
No. of Participa
nts
No. of Progra
ms Condu
cted
No. of Participa
nts
No. of Progra
ms Condu
cted
No. of Participa
nts
No. of Programs Conducte
d
No. of Participants
1.
Awareness creation and capacity building programmes organized for SHG members in association with identified resource NGOs, covering participants to inculcate skills for managing thrift and credit.
3,494 2,01,588 4,121 2,68,870 3,122 1,41,984 1,991 83,131 96,597 16,43,199
2.Awareness-cum-refresher programmes conducted for NGOs, including CEOs.
146 4,901 141 3,996 324 18,594 1,130 35,648 4,939 97,436
3.Training programmes conducted for bankers covering officials of Commercial Banks, RRBs and Co-operative Banks.
536 19,063 517 20,838 585 23,848 462 14,945 31,324 2,93,183
4.Exposure visits for bank officials / NGOs to agencies pioneering in micro finance (MF) initiatives.
70 1,864 66 2,754 25 630 14 387 164 8,831
5.Field visits of Block Level Bankers’ Committee (BLBC) members to nearby SHGs
200 9,766 206 4,877 193 4,507 227 5,880 4,581 60,473
6.Programmes for the elected members of Panchayati Raj Institutions (PRIs) to create awareness among them about the MF initiatives.
18 661 38 1,423 54 2,014 80 2,799 2,161 14,766
7. Training & Exposure programmes for government officials 137 5,734 258 9,706 55 1,870 79 3,385 597 62,4868. Other training programmes for microfinance sector 447 18,884 704 34,523 866 42,282 1,181 65,029 802 2,81,8469. Micro Enterprises Development Program (MEDP) - - 428 13,985 879 41,479 1,530 38,313 60,160 1,31,678
10.Training to Micro Enterprise Promoting Agencies (MEPAS)
- - 15 534 - - 36 1,000 0 1,534
11. Meetings and Seminars (Bankers; NGO Officials, etc.) 125 5,617 107 9,892 175 6,790 74 3,351 4,473 79,079Total 5,173 2,68,078 6,601 3,71,398 6,278 2,83,998 6,804 2,53,868 2,05,798 26,60,818
Source: NABARD.
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iii. Micro Enterprise Development Programme (MEDP) for Skill Development:-
The MEDP programme was launched in March 2006 with the basic objective
of enhancing the capacities of the members of SHGs to take up micro enterprises
through appropriate skill up-gradation / development in the existing and new
livelihood activities both in farm and non-farm sectors. It is tailor-made and focused
on skill building training. The duration of training programme ranged from 3 to 13
days, depending upon the objective and nature of training. A training budget of Rs.
30,000/- per programme is earmarked for imparting training to 30 participants for 13
days.
The dominant activities in agriculture and allied sector covered under MEDPs
were bee-keeping, mushroom cultivation, vermin-compost / organic manure, animal
husbandry, horticulture, flora, etc. whereas predominant non-farm activities taken up
under MEDPs were agarbatti-making, embroidery, bamboo-craft, beauty parlours,
ready made garments, ect.
During 2006-07, a total of 297 Micro Enterprise Development Programmes
(MEDPs), both under farm and non-farm activities were conducted covering 7,579
members of the matured SHGs. During 2007-08, 131 extra Micro Enterprise
Development Programmes (MEDP), both under farm and non-farm activities, were
conducted across the country with the support of Rs. 56.39 lakh covering 13,985
members of the matured SHGs. In the year 2008-09, 879 Micro Enterprise
Development Programmes (MEDP) were conducted across the country covering
41,479 members of the matured SHGs.
In the year 2009-10, a total of 1,530 MEDPs, both under farm and non-farm
activities were conducted across the country covering 38,312 members of the matured
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SHGs. Cumulatively, a total of 2,837 MEDPs have been conducted so far covering
93,777 participants.
From the above analysis, it is observed that, in the case of Micro Enterprise
Development Programme for skill development, 44 per cent growth rate was
registered in 2007-08, where as it was 105 per cent growth rate in 2008-09 and but 74
per cent in 2009-10. In the case of the members of the matured SHGs under this
programme, 85 per cent growth rate was registered in 2007-08, where as in 2008-09
197 per cent growth rate was registered but a negative growth rate of 7.6 per cent in
2009-10. It is observed that the MEDP programme is very useful to the matured
SHGs to enhance their income levels through appropriate skill up-gradation on
farming and non-farming activities under this programme. Thus, the number of
programmes has increased and the coverage of participants also increased every year,
but in 2009-10 the number has fallen down showing a negative growth rate.
iv. Grant Support to Partner Agencies for Promotion and Nurturing of SHGs:-
NABARD has been instrumental in the formation and nurturing of quality
SHGs by means of giving promotional grant support to NGOs, RRBs, DCCBs,
Farmers’ Clubs and Individual Rural Volunteers and by developing capacity building
of various partners, which has brought of various partners together and brought about
excellent results in the promotion and credit linkage of SHGs. Further, the number of
partner institutions functioning as Self-Help Promoting Institutions (SHPIs) over the
years has increased to 2,592 the number of cumulative sanctions have resulted in the
expansion of the programme throughout the country. During the year 2008-09, the
financial support provided by NABARD to its partner institutions and their progress
in promoting SHGs / linkage are indicated in Table-IV.2.
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Table-IV.2: Grant Support to Partner Agencies
(Rs. In Lakhs)
Sanctions during2006-07
Sanctions during2007-08
Sanction during2008-09
Sanction during2009-10
Cumulative Sanction upto
2010-11Agency
No. AmountNo. of SHGs
No. AmountNo. of SHGs
No. AmountNo. of SHGs
No. Amount No. of SHGs
Amount No. of SHGs
Co-operatives 8 64.10 6,200 6 45.70 3,400 12 136.92 9,465 7 63.23 5,230 739.31 66,955
RRBs 1 12.30 850 1 22.35 1,750 2 20.70 800 4 40.14 3,395 445.44 49,335
NGO’s 352 1,110.66 40,562 351 1,166.13 40,194 311 1,564.29 46,504 306 2,620.10 53,393 12,626.84 4,14,338
Farmers’ Clubs - - - - - - - - - - - - 82.43 7,628
IRVs (2023) 23 216.90 12,050 14 135.59 7,533 6 46.62 2,590 2 154.70 9,250 728.38 42,923
Total 384 1,403.96 59,662 372 1,369.77 52,877 331 1,768.53 59,359 319 2,878.17 71,268 14,622.40 5,81,179
Source: NABARD
According to Table-IV.2, the grant support of NABARD to its partner agencies like Co-operatives, RRBs, NGOs and IRVs was
noteworthy. During 2006-07 and 2009-10, considerable amounts were sanctioned by NABARD to these agencies, and every year more than
59,000 SHGs were sanctioned with the grant. The cumulative sanctioned amount, Rs. 14,622 lakhs for 5,80,000 SHGs was significantly large. It
can therefore be concluded that the NABARD has discharged its duties in the promotion of Microfinance activity considerably.
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v. Special initiative for scaling up SHGs / SHG Federations:-
The NABARD has been associated with Rajiv Gandhi Charitable Trust
(RGCT) for promotion, credit linkage and formation of SHG Federations in selected
districts of Uttar Pradesh. The project envisages promotion and credit linkage of
22,000 SHGs, 1,100 cluster level associations and 44 block-level associations in
collaboration with participating banks and performing NGOs. The project would
cover 15 and 29 blocks under phase I and II respectively in 12 districts of Uttar
Pradesh viz. Sultanpur, Rae Bareli, Barabanki, Pratapgarh, Lucknow, Unnao,
Fatehpur, Jhansi, Lalitpur, Bahraich, Shravasti and Banda. NABARD and RGCT have
designed the project with technical assistance of Society for Elimination of Rural
Poverty (SERP), Government of Andhra Pradesh. By the end of 31 March 2009, a
total of 7,808 SHGs promoted, of which 3,972 SHGs credit linked. In addition to the
above 273 village level and 14 Block level SHG Federations were formed; then the
phase II of the project was launched on 01 January 2009 and 8,467 SHGs promoted,
of which 3,378 SHGs were credit-linked.
As at the end of 31 March 2010, the number of SHGs promoted were 21,868,
of which 12,749 have been credit linked. In addition, 676 village level and 15 block
level SHG Federations were formed under Phase I and II.
All this shows that the contribution of the NABARD in respect of special
initiative for scaling up SHGs is encouraging and satisfactory.
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3. Promotional Support-MFI Bank Linkage:-
The NABARD has taken various initiatives to support Micro Finance
Institutions (MFIs) also to strengthen them as detailed below.
(i) Rating of Micro Finance Institutions (MFIs):-
In order to identify, classify and rate Micro Finance Institutions (MFIs) and
empower them to function as intermediaries between the lending banks and the
clients, the NABARD had introduced a scheme for providing financial assistance to
Commercial Banks, Regional Rural Banks and Co-operative Banks by way of grant
after availing of the services of accredited rating agencies for rating of MFIs. The
Banks can avail the services of credit rating agencies viz. Credit Rating Information
Services of India Ltd. (CRISIL), Microcredit Ratings International Limited (M-
CRIL), ICRA, Cooperative for American Relief Everywhere (CARE) and Planet
Finance for rating of MFIs and avail financial assistance by way of grant to the extent
of 100% of the total professional fees of the credit rating agency, subject to a
maximum of Rs. 1.00 lakh. The facility is available for the first rating of an MFI with
a minimum loan outstanding of Rs. 50.00 lakh and maximum loan outstanding of Rs.
500.00 lakh. The scheme was operational up to 31 March 2010.
During the year 2008-09, a new scheme was introduced in which 100% of the
professional fees of the Credit Rating Agency (CRA), subject to a ceiling of Rs. 3.00
lakh was to be borne by NABARD in respect of only those MFIs approaching
NABARD directly for capital / equity support and / or Revolving Fund Assistance
(RFA) from Micro Finance Development and Equity Fund (MEDEF). The criterion
for eligibility for MFIs is minimum loans outstanding of Rs. 50 lakh.
During 2009-10, the scheme was refined and the grant support was increased
to a maximum of Rs. 3,00 lakhs. The facility is available for the first rating of an MFI
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with a minimum loan outstanding of Rs. 50.00 lakh and maximum loan outstanding of
Rs. 10 crore. During the same year a grant support of Rs. 15.83 lakh was provided for
rating of 13 MFIs to Banks etc.
In order to help these MFIs to have access to funds from banks, NABARD
introduced a scheme wherein the financing banks like Commercial Banks, Regional
Rural Banks and Cooperative Banks were extended financial assistance by way of
grants to engage the services of rating agencies like CRISIL, M-CRIL, ICRA, CARE
and Planet Finance to take up the rating of such MFIs. During 2010-11, Rs. 19.04
lakh was prvided to the Banks for rating of 15 MFIs.
(ii) Capital / Equity Support to Microfinance Institutions:-
In pursuance of the announcements made in the Union Budget 2005-06, a
scheme called ‘Capital / Equity support to MFIs from MFDEF’ was announced under
which capital / equity support to various types of MFIs would be provided to enable
them to leverage capital / equity for accessing commercial funds and banks.
During 2006-07, three MFIs were sanctioned equity / capital support of Rs.
100 lakhs each. During 2007-08, eight MFIs were sanctioned capital support of Rs.
625.00 lakh. Thus, a cumulative amount of Rs. 925 lakh was sanctioned under the
scheme and an amount of Rs. 900.00 lakh was released. During the year 2008-09,
capital support amounting to Rs. 11.75 crore was sanctioned to 13 agencies taking the
cumulative support of Rs. 21.00 crore covering 24 agencies under the scheme and an
amount of Rs. 17.00 crore have been released so far.
During 2009-10, NABARD introduced a new scheme for ‘Capital Support to
start-up MFIs’ having potential to scale-up their activities, but lacking in capital,
infrastructural facilities and managerial skills. The Micro-Finance Organisations
(MFOs) and the MFI-NBFCs, identified as ‘start up’ on the basis of area of operation,
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client out reach, lending model, borrowing history, etc., are eligible for support under
the scheme. Financial support will be in the form of ‘subordinated debt’ which shall
be sub-ordinate to the claims of all other creditors. The quantum of support would be
commensurate with the business plan of the MFO / MFI-NBFC but not exceeding Rs.
50 lakh in any case. The rate of interest was fixed at 3.5 per cent to be repaid over a
period of 7 years including moratorium of 2 years.
During 2009-10, under capital support scheme, 10 proposals amounting to Rs.
6.87 crore were sanctioned to 10 MFIs and disbursed Rs. 7.87 crore. The outstanding
under capital support as on 31 March 2010 was Rs. 24.17 crore against 13 MFIs. As
many as 40 MFIs have so far been sanctioned capital support to the extent of Rs.
2,739.67 lakh during the year 2010-2011.
(iii) Revolving Fund Assistance (RFA) to MFIs:-
The NABARD provides loan funds in the form of Revolving Fund Assistance
(RFA), on a Selective basis to MFIs. The RFA provided to these agencies is
necessarily to be used for on-lending to SHGs or individuals and the amount is to be
rapid along with the service charge between 6.5% and 9.5% within a stipulated period
of 3 to 7 years. This enables them to build a ‘history’, which would help them to
access credit facilities through the regular banking channels.
During 2006-07, RFA of rupees one crore was sanctioned to Rashtriya Gramin
Vikas Nidhi, Guwahati (Assam). Cumulatively, RFA of Rs. 2,832.00 lakhs was
sanctioned to 32 agencies and an amount of Rs. 2,163.8 lakh was released against
which Rs. 615.2 lakh remains outstanding against 9 agencies.
During 2007-08, RFA of Rs. 806.00 lakh was sanctioned – Rs. 500 lakhs for
FWWB, Rs. 25.00 lakh for GRISERV, Rs. 10.00 lakh for RBAN, Rs. 200.00 lakh for
SKDRDP, Rs. 66.00 lakh for additional sanction to post office, Tamil Nadu, and
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Rs. 5.00 lakh for Post Office, Shillong. Cumulatively, Revolving Fund Assistance
(RFA) of Rs. 3,638.00 lakh was sanctioned to 35 agencies and an amount of Rs.
2,598.94 lakh was released and an amount of Rs. 749.96 lakh stands outstanding.
Till 31st March 2011, 42 MFIs were sanctioned RFA to the extent of Rs.
6,078.60 lakh. The actual amount drawn was Rs. 5,725.40 lakh and the amount
outstanding as on March 2011 was Rs. 4,615.19 lakh.
Formal Financial Institutions in the country have been playing a leading role
in the microfinance programme for more than two decades now. They have joined
hands proactively with informal delivery channels to give microfinance sector the
necessary momentum. During the current year too, microfinance has registered an
impressive expansion at the gross root level.
Other Promotional Activities of NABARD: -
NABARD has been playing the role of propagator and facilitator by providing
a conducive policy environment, training and capacity-building besides extending
financial support for the healthy growth of the SHG-bank linkage programme in the
country.
Over the years, the various promotional steps taken up are enumerated haveunder:
conceptualization and introduction of pilot programme in February 1992 for linking 500 SHGs with banks after consultations with Reserve Bank of India, banks and NGOs
introduction of Bulk Lending Scheme in 1993 for encouraging the NGOs which were keen to try group lending approach and other financial services’ delivery innovations in the rural areas
developing a conducive policy framework through provision of opening savings bank accounts in the names of SHGs (though they are informal groups), relaxation of collateral norms, simple documentation and delegation of all credit decisions and repayment terms to SHGs
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training and awareness building among the stakeholders
provision of capacity-building support of NGOs/SHGs/Banks
mainstreaming the SHG-bank linkage programme as part of corporate planning and normal business activity of banks in corporate planning and normal business activity of banks in 1996 and internalizing training, monitoring and review mechanism
encouraging banks (RRBs and cooperative banks) for promotion of SHGs
financial support to NGOs for promotion of SHGs
encouraging rural individual volunteers in promotion and nurturing of SHGs and close monitoring
dissemination through seminars, workshops, occasional papers and point media
constitution of a high powered task force to look into the aspects of policy and regulation of microfinance and suggest policy, legal, regulatory measures for smooth, unhindered growth of the microfinance sector
Setting up a Microfinance Development Fund in NABARD for meeting the promotional costs of up scaling the microfinance interventions. The fund has since been re-designated as Microfinance Development and Equity Fund (MFDEF).
Initiating the credit rating of MFIs through Accredited Credit Rating Agencies
in India by meeting 75 per cent of the cost of the rating as grant. This is done to
enable the MFIs to approach banks for commercial borrowing and extending
microcredit to the poor.129
The detailed account of NABARD’s contribution in the promotion of Micro
financing activity in India, as picturised above, indicates clearly that its role was
sufficient and impressive as far as the physical dimensions like number of SHGs
assisted, amounts sanctioned and other promotional activities are concerned.
129 Karmakar, K.G., “Microfinance in India”, SAGE publications India Pvt. Ltd., New Delhi, 2008,
P: 117-119
146
4.2.1.2. Performance of Commercial, Regional Rural and Cooperative Banks:-
Around the world, the well developed and inclusive financial systems are
associated with faster growth and better income distribution. Finance helps the poor to
catch up with the rest of the economy as it grows. Finance also helps extend the range
of individuals, households and firms and get a foothold in the modern economy. It
reduces damaging concentrations of economic power. By and large, thanks to the
microfinance, there is now a growing appreciation of the ‘empowerment’ dimension
of finance, of the extent to which it can give ordinary people and the poor access to
opportunity and the ability to escape from the ossified social structures.
In India, since the early national plans, successive governments have
emphasized the role of finance in promoting equitable growth. With the
overwhelming majority of India’s poor living in rural areas, policies aimed at
financial inclusion have understandably had a rural focus. The objectives of broad-
based financial development that would allow financial institutions to mobilize
savings throughout the economy and allocate them to agriculture and small industry,
particularly in the countryside, motivated the establishment of a vast network of rural
cooperative banks in the 1950s. Other institutions were built at the national, state,
district and village levels to intermediate savings and credit for investment. But big
corporation, with majority ownership in many of the commercial banks, was cornered
with much of the bank credit. There were also many bank failures in the early 1960s,
affecting the flow of credit to agriculture and small industry.
As the desired policy objectives were not being met, a drive to nationalize
commercial banks was launched by Indira Gandhi in 1969. Nationalization had four
goals: to prevent a few corporations from controlling all the banks; to mobilize the
savings of the public (including from remote areas); to limit the concentration of
147
wealth and economic power in the hand of few by using resources mobilized by banks
to achieve egalitarian growth; and to pay more attention to priority sectors (agriculture
and small industry). Between 1969 and 1980, thousands of new bank branches were
established across rural India. Throughout this period, the strategy for banking was
shaped as per the goal of ‘serving better the needs of the development of the economy
in conformity with the national policy and objectives’. Social benefit rather than
profitability was the overriding objective and the two were not seen as naturally
compatible. The strategy during the 1970s and 1980s gave the lead role to the
nationalized commercial banks, which were charged with loosening the grip of
traditional informal sector through the use of targeted, low-priced loans.
Over the years, Indian banking has certainly become more inclusive. But the
majority of the rural population still does not appear to have access to finance from a
formal source, and the poor face particularly severe problems in getting finance.
The nationalized banks also have become important instruments for
advancement of rural banking in addition to cooperatives and SBI. To supplement the
efforts of cooperatives and commercial banks was the establishment of 196 RRBs
since 1975 in various states with equity participation by central/state governments and
commercial banks. The institutional mechanism was further supplemented by
licensing 10 Local Area Banks in 1996-97. There are over 1,05,735 cooperative
societies, 12,590 branches of 365 DCCBs. The (pre-merger) 196 RRBs have 11,825
rural and 2,153 semi-urban branches, 445 branches in urban/metropolitan areas. The
99 Commercial Banks have 20,253 rural and 12,522 semi-urban branches. Besides
there are 31 State Cooperative Banks (SCBs) with 885 branches and 20 SCARDBs
and 768 PCARDBs with 863 and 1,008 branches respectively. This is all for the
advancement of rural banking.
148
The share of commercial banks and cooperative banks in rural household debt
increased from just 10.7 per cent in 1961 to 22.5 per cent in 1971 and then rose
sharply to 57.2 per cent in 1981. In the decade that followed, the share of banks
remained more or less stable, while that of cooperatives declined slightly. The share
of moneylenders declined over the decades. The above data is from All India Debt
and Investment Survey.
The majority of the rural population still does not appear to have access to
finance from a formal source in spite of the progress made over the decade. Some 59
per cent of rural households do not have a deposit account and 79 per cent of rural
households have no access to credit from a formal source according to the RFAS
2003. The access to finance for the poorer households is service in rural areas. The
branches of most of the banks in rural areas appear to serve primarily the needs of
richer borrowers. The statistics say that some 66 per cent of large farmers have
deposit accounts 44 per cent have access to credit. Whereas 70 per cent of marginal
farmers do not have a bank account and 87 per cent have no access to credit from a
formal source. The micro enterprise i.e. the commercial households is another
segment that faces serious problems in accessing formal finance.
Amongst formal institutions, commercial banks are by far the most dominant
source of formal finance for rural households. They account for 51 per cent of
household deposit, and are also the most important source of credit for those rural
households who have access to the formal sector. Regional Rural Banks (RRBs)
account for 34 per cent of household deposits and 31 per cent of credit. Other formal
sources, such as cooperatives and post office branches, appear to play a modest role in
providing savings and credit services to rural households.
149
The government sponsored schemes poverty-alleviation and in banks have
problems in implementation, with more NPAs than for other schemes. Thus, the rural
banking institutions are out of step with the changing rural credit requirements and are
unable to come up with systems and credit/saving instruments as required by the rural
clientele.
Microfinance has grown with a tremendous pace in India over the years. The
Self-Help Group (SHG) – Bank Linkage Programme has emerged as the major
Microfinance programme in the country and is being implemented by Commercial
Banks, Regional Rural Banks and Cooperative banks and other MFIs. Self Help
Groups (SHGs) have become the common vehicle of development process,
converging all development programs. SHG-Bank Linkage programme had been
launched by NABARD way back in 1992 envisaging the synthesis of formal financial
system and informal sector has become a movement throughout the country. It is
considered as the largest microfinance programme in terms of outreach in the world.
This is also recognized as a part of priority sector lending by Reserve Bank of India.
Thus, it is synonymous with microfinance programme of the country. The programme
is also the main contributor towards the financial inclusion process in the country.
i. Savings of SHGs with Banks:-
As on 31 March 2007, as many as 41,60,584 SHGs were maintaining savings
bank accounts with the banking sector with outstanding savings of Rs. 3,512.71 crore,
there by covering more than 5.8 crore poor households under SHG Bank Linkage
programme. The Commercial Banks had the maximum share of Savings from
22,93,771 SHGs (55.1%) with savings amount of Rs. 1,892.42 crore (53.9%)
followed by Regional Rural Banks with savings bank accounts of 11,83,065 SHGs
(28.4%) and savings amount of Rs. 1,158.29 crore (33%). Next come the Cooperative
150
Banks having savings bank accounts of 6,83,748 SHGs (16.4%) with savings amount
of Rs. 462.00 crore (13.2%).
As on 31 March 2009, 61,21,147 SHGs were maintaining savings bank
accounts with the banking sector with outstanding savings of Rs. 5,545.62 crores,
covering more than 8.6 crore poor households associated with banking agencies under
SHG-Bank Linkage Programme. The Commercial Banks had the maximum share of
savings of 35,49,509 SHGs (58%) with savings amount of Rs. 2,772.99 crore (50%)
followed by Regional Rural Banks have savings bank accounts of 16,28,588 SHGs
(26.6%) with savings amount of Rs. 1,989.75 crore (35.9%) and Cooperative Banks
having savings bank accounts of 9,43,050 SHGs (15.4%) with savings amount of Rs.
782.88 crore (14.1%).
As on 31 March 2011, 74,61,946 SHGs were maintaining savings bank
accounts with the banking sector with outstanding savings of Rs. 7,016.30 crores. The
CBs lead with savings accounts of 43.23 lakhs SHGs (57.94%) with savings amount
of Rs. 4,230.06 crore (60.29%) followed by RRBs having savings bank accounts of
19.83 lakhs SHGs (26.58%) with savings amount of Rs. 1,435.40 crore (20.46%) and
Co-operative Banks having savings bank accounts of 11.55 lakhs SHGs (15.48%)
with savings amount of Rs. 1,350.84 crore (19.25%).
It can be observed in 2006-07, highest 54 per cent savings amount were
accumulated under Commercial Banks by SHGs when compared to other banks. The
highest, 50 per cent amount was saved in Commercial Banks by SHGs and the lowest
14 per cent was registered under Co-operative Banks in 2008-09. Even in 2010-11, 60
per cent amount was saved by SHGs under Commercial Banks and the lowest 19 per
cent amount was saved in Co-operative Banks. So in respect of savings by SHGs the
Commercial Banks have better performance when compared to other Banks.
151
However, in the case of Co-operative Banks, though there was an increase on year
wise basis, their share was continuously lowest.
From the above analysis, it can be concluded that, the Commercial Banks are
playing a very crucial role in attracting the savings from SHGs members. In fact, only
those SHGs which save in the banks continuously for six months, then only are
eligible for borrowing loans from the same banks.
Table-IV.3: Savings of SHGs with Banks – Agency wise position of the years 2006-07 to 2010-11.
(In Crores)
Agency Wise Savings AmountYear
Commercial Banks
Regional Rural Banks
Co-operative Banks
Total
2006-07 1,892.42 (53.8) 1,158.29 (33.0) 420.00 (13.2) 3,512.71 (100)
2008-09 2,772.99 (50.0) 1,989.75 (35.9) 782.88 (14.1) 5,545.62 (100)
2010-11 4,230.06 (60.29) 1,435.40 (20.46) 1,350.84 (19.25) 7,016.30 (100)
Source: NABARD.
ii. Bank Loans Disbursed to SHGs:-
During the year 2006-07, the banks financed 11,05,749 SHGs, including
repeat loan to existing SHGs, with bank loan of Rs. 6,570.39 crore. During the year
2008-09, 16,09,586 SHGs were successfully financed, including repeat loan to the
existing SHGs, with bank loan of Rs. 12,253.51 crore as against 12,27,770 SHGs with
bank loan of Rs. 8,849.26 crore during 2007-08 registering a growth rate of 31.1%
(Number of SHGs) and 38.5% (Bank loan disbursed). During 2010-11, Including
repeat loan to the existing SHGs, 11.96 lakhs SHGs have been financed by banks,
with bank loans of Rs. 14,547.73 crore as against 15.87 lakhs SHGs with bank loans
of Rs. 14,453.30 crore during 2009-10, registering a decline of 24.6 per cent of SHGs
but growth of 0.65 per cent in bank loans disbursed.
152
During 2006-07, average bank loan disbursed was Rs. 59,420 per SHG which
raised from a high of Rs. 68,556 per SHG by Commercial banks and Rs. 39,153 per
SHG by Cooperative Banks. During 2008-09, the average bank loan disbursed per
SHG was Rs. 76,128 as against Rs. 72,060 during 2007-08. The average loan per
SHG ranged from as high as Rs. 80,237 by Commercial Banks to a low amount of Rs.
50,117 per SHG by Cooperative Banks. During 20010-11, average bank loan
disbursed per SHG was Rs. 1,21,623 as against Rs. 91,083 during 2009-10. The
average loan per SHG ranged from as high as Rs. 1,45,198 crore per SHG by
Commercial Banks to a low amount of Rs. 70,794 crore per SHG by Cooperative
Banks.
It can be observed that, in 2006-07, around 60 per cent of loans i.e. the highest
were distributed by Commercial Banks to SHGs and lowest 9 per cent of loans were
distributed by Co-operative Banks. The highest per cent of loan amount i.e. 66 per
cent was distributed by Commercial Banks to SHGs and the lowest per cent i.e. 8 per
cent was registered under Co-operative Banks in 2008-09. Even in 2010-11 the
highest per cent i.e. 67 per cent of amount was distributed to SHGs by Commercial
Banks and the lowest per cent i.e. 11 per cent of amount was distributed by Co-
operative Banks. So Commercial Banks have better performance in the distribution of
loans to SHGs when compared to other Banks. The Co-operative Banks have shown
increase in year wise performance. In the case of Regional Rural Banks, year wise
loan distribution percentages were gradually falling.
From the above analysis, it can be concluded that, the Commercial Banks have
provided more loans to SHGs, thus majority of SHG members got the uplift from
economic hurdles.
153
Table-IV.4: Bank Loans Disbursed to SHGs – Agency wise position of the years 2006-07 to 2010-11.
(In Crores)
Agency Wise Loan AmountYear
Commercial Banks
Regional Rural Banks
Co-operative Banks
Total
2006-07 3,918.94 (59.7) 2052.73 (31.2) 598.72 (9.1) 6,570.39 (100)
2008-09 8,060.53 (65.8) 3,193.49 (26.1) 999.49 (8.2) 12,253.51 (100)
2010-11 9,724.55 (66.8) 3,197.62 (22) 1,625.56 (11.2) 14,547.73 (100)
Source: NABARD
iii. Bank Loans Outstanding against SHGs:-
As on 31 March 2007, a total number of 28,94,505 SHGs were having
outstanding bank loans of Rs. 12,366.49 crore. As on 31 March 2009, a total number
of 42,24,338 SHGs had the outstanding bank loans of Rs. 22,679.85 crore as against
36,25,941 SHGs with bank loans of Rs. 16,999.90 crore as on 31 March 2008 with a
growth rate of the number of SHGs was 16.5 per cent and the Bank loan outstanding
with SHGs was 33.4 per cent. As on 31 March 2011, a total of 47.87 lakhs SHGs had
the outstanding bank loans amount of Rs. 31,221.17 crores as against 48.51 lakhs
SHGs with bank loans of Rs. 28,038.28 crore as on 31 March 2010, registering a
decline of 1.3 per cent of SHGs but growth of 11.35 per cent in bank loans disbursed.
It is observed that Commercial banks have the maximum share of outstanding
loans to SHGs with a share of 70.8 per cent followed by RRBs with a share of 22.7
per cent and cooperative banks with 6.5 per cent, during 2006-07. During 2008-09,
Commercial Banks a share of 69.6 per cent of outstanding loans followed by RRBs
with a share of 23.0 per cent and Cooperative Banks with a share of 5.8 per cent.
During 2010-11, Commercial Banks a share of 70.1 per cent of outstanding loans
followed by RRBs with a share of 23.8 per cent and Cooperative Banks with a share
154
of 6.1 per cent. So Commercial Banks have the highest outstanding loans due from
SHGs when compared to other Banks, but in the case of Regional Rural Banks, they
could provide very low percentage loans to SHGs, but outstanding loans are high.
Table-IV.5: Bank Loans Outstanding against SHGs – Agency wise position of the years 2006-07 to 2010-11.
(In Crores)
Agency Wise Loan Outstanding AmountYear
Commercial Banks
Regional Rural Banks
Co-operative Banks
Total
2006-07 8760.38 (70.8) 2,801.76 (22.7) 804.35 (6.5) 12,366.49 (100)
2008-09 16,149.43 (69.6) 5,224.42 (23) 1,306.00 (5.8) 22,679.85 (100)
2010-11 21,883.26 (70.1) 7,430.05 (23.8) 1,907.86 (6.1) 31,221.17 (100)
Source: NABARD
iv. Non-Performing Assets (NPAs) of Bank Loans to SHGs:-
For the first time, the NABARD has received from banks the position of gross
NPAs in respect of bank loans to SHGs as on 31 March 2008. Not all banks which
finished MIS on progress under microfinance have indicated data on the NPAs. On
the basis of the data received from banks, the NPAs in respect of bank loans to SHGs
amounted to Rs. 422.93 crore which is 2.9 per cent of the bank loans outstanding
against SHGs pertaining to the banks which reported NPA figures.
This is for the second consecutive year, the NABARD had received the data
on NPAs to total bank loans outstanding against SHGs. As on 31 March 2009, totally
292 banks had reported data on NPAs. Based on the data, NPAs to total bank loans
outstanding against SHGs were 2.9 per cent which amounted to Rs. 625.86 crore.
Whereas, during 2007-08, it was Rs. 422.93 crore, but total bank loans outstanding
against SHGs was 2.9 per cent only.
155
As on 31 March 2010, total 221 banks had reported data on Non Performing
Assets (NPAs). Based on these data on NPAs to total bank loans outstanding against
SHGs as on 31 March 2010 stood at 2.94 per cent, loans amounting to Rs. 823.04
crore, which showed an increase from 2.90 per cent and Rs. 624.86 crore during
2008-09.
Table-IV.6: Non-Performing Assets (NPAs) of Bank Loans of SHGs – Agency –Wise during the years from 2007-08 to 2010-11.
(In Crores)
Agency Wise NPA AmountYear
Commercial Banks
Regional Rural Banks
Co-operative Banks
Total
2007-08 213.71 (50.53) 173.27 (40.97) 35.95 (8.5) 422.93 (100)
2008-09 387.10 (61.85) 177.79 (28.41) 60.97 (9.74) 625.86 (100)
2009-10 537.46 (65.30) 218.53 (26.56) 67.04 (8.14) 823.04 (100)
2010-11 1,066.99 (72.38) 272.82 (18.51) 134.30 (9.11) 1,474.11 (100)
Source: NABARD.
From the available data, it is observed that the CBs have showed the largest
share of NPAs more than 50% of the total NPAs of all the institutions put together in
2007-08. It is further observed, that this percentage has gradually gone up to 65 in
2009-10 and 72.38 in 2010-11. However, RRBs could bring down is share from 41
per cent to 18 per cent only.
156
4.2.1.3. DISTRICT RURAL DEVELOPMENT AGENCY (DRDA)
The ‘District Rural Development Agency’ was created originally to implement
the Integrated Rural Development Programme (IRDP), subsequently the DRDAs were
entrusted with number of programmes of both state and central governments. Since its
inception the DRDA has been the principal organ at the District level to oversee the
implementation of different Central Government’s anti-poverty programmes. It is also
taking up State Government programmes.
From 1st April, 1999 a new centrally sponsored scheme for strengthening the
DRDAs has been introduced. This scheme, which is funded on a 75:25 basis between
centre and states, aims at strengthening and professionalizing the DRDAs for effective
functioning of the organization.
DRDAs are established for effective implementation of antipoverty
programmes in rural areas at the district level. It is an institution that acts as a delivery
agency to support and facilitate the development process.
Role of DRDA:-
The role of the DRDA is to plan for effective implementation of anti-poverty
programmes; coordination with other agencies like Governmental, Non-
Governmental, technical and financial for successful implementation of the
programmes. They enable the poor rural community to participate in the decision
making process:
to keep the district level agencies, block level agencies informed of the basic
parameters / requirements of the programme
to co-ordinate and oversee preparation of perspective plans and annual plan of
block / districts
to evaluate and monitor the effectiveness of the programme
157
to ensure co-operation / co-ordination between departments
to disseminate information and build up awareness on the programme
to submit feed back to the state government
Objectives of DRDA are:
to effectively manage the anti poverty programmes
to co-ordinate effectively with other agencies and line departments like
Panchayati Raj Institutions, Banks and other financial institutions, the NGO’s
and other technical institutions to gather support and resources required for
poverty elimination at the district level
Responsibilities:
If effective programme design is critical to successful implementation of rural
development programmes, so is an effective delivery agency. The DRDA is a
supporting and facilitation organization and needs to play a very effective role as a
catalyst in the development process.
The District Rural Development Agency is seen as a specialized and a
professional agency capable of managing the poverty alleviation programmes of the
ministry of Rural Development on the one hand and to effectively relate these to the
overall effort of poverty alleviation.
Implementation:
It promotes transparency in the implementation of different poverty alleviation
programmes:
i. To ensure that the benefits specifically earmarked for certain target groups
(SC/ST, women and disabled) reach them. They shall take all necessary steps
to achieve the prescribed norms.
158
ii. To improve the awareness regarding rural development and poverty
alleviation particularly among the rural poor. Which involve issues of poverty,
the opportunities available to the rural poor and generally infusing a sense of
confidence in their ability to overcome poverty
Capacity Building:
To watch over and ensure effective utilization of the funds intended for anti-
poverty programmes.
To develop an understanding of the process necessary for poverty alleviation /
eradication.
To develop the capacity to build synergies among different agencies involved
for effective results. It need to build up rather distinctive capabilities.
The role of the DRDA is distinct from all the other agencies, including the
Zilla Parishads.
The DRDAs maintain their separate identity but will function under the
chairmanship of the chairman of Zilla Parishad. They are expected to be
facilitators and supporting organization to Zilla Parishad, providing necessary
executive and technical support in respect of poverty reduction efforts.
Co-ordination:
DRDAs must be professional and should be able to interact effectively with
various other agencies.
They coordinate with the line department, the Panchayathi Raj Institutions, the
banks and other financial institutions together resources required for poverty
reduction effort in the district.
They establish inter-sectored and inter-departmental coordination and
cooperation for reducing poverty in the district.
159
To facilitate the formation of the community based organizations (SHG / VO /
MS)
To facilitate effectively the identification of the beneficiaries to avail
particular benefits.
Monitoring:
The DRDA monitors closely the implementation of programmes through
obtaining periodic reports as well as making frequent field visits.
The purpose of the visit is to facilitate the implementing agencies in improving
implementation process, besides ensuring the quality of implementation of
programmes is high.
This would include overseeing whether the intended beneficiaries are
receiving the benefits under the different programmes.
Preparation of Microcredit Plan:
Since the credit assistance is lending to a group for common economic
activities, the preparation of a microcredit plan is a necessity to the SHG. The
microcredit plan is prepared at various levels by the SHG, viz. village organization
and the mandal samakhyas detailing the credit needs and proposed fund utilization
patterns at different levels. The microcredit plans help the banks to assess the overall
credit needs of their geographical territories. The plan also helps the respective
institutions to decide the lending priorities. It also has to detail livelihood promotion,
serving the range of needs of all members on priority basis and collective
commitment and accountability of members for the resources. The credit
requirements of the SHG will be the major component of the microcredit plan.
160
It is very important to note that microcredit plan should not be viewed as a
document merely prepared for raising funds either from the banks or from
Indira Kranthi Patham.
Since microcredit plan is a quality improvement too, it has to be prepared and
implemented by all SHGs irrespective of their need for external funds.
Microcredit plan is not a one-time exercise, but a dynamic one incorporating
the timely requirements and changes. It should be seen as a revolving plan.
Rates of Interest:
The rates of interest are decided by the banks / financial institutions which
finance SHGs under SHG – Bank linkage programme within the scope of RBI
directives. The rate of Interest of lending within the group will be decided by the
group members which usually ranges from 12 per cent to 24 per cent.
Support of DRDA to various Schemes in Guntur District of AP:
The scheme wise particulars of grants received and expended by the DRDA
for the years 2007-08 and 2009-10 are furnished in Table-7. The Table reveals that
the DRDA has designed and assisted 14 schemes in the district.
During the year 2007-08, the largest amount of Rs. 2,473 lakhs was expended
on ‘Old Age Pension’ scheme, out of the total grant of Rs. 2,559 lakhs received for
the scheme. In other words, more than 96 per cent of the grants were spent. Similarly,
the expenditure on the scheme constitutes the largest chunk of 39 per cent when
compared to the total amount of expenditure of the DRDA on all the schemes put
together.
‘Indiramma Pension’ scheme occupies the second largest place in terms of the
amount received and expended. While the total grant received for the scheme was
only Rs. 1,756 lakhs but the amount spent on the scheme was more than Rs. 2,101
161
lakhs or about 120 per cent. By this way, the Guntur district DRDA has supported a
large number of pension holders in their old age.
Similarly, during the year 2009-10, for which the latest data is available, the
same two schemes were again given top priority. During the year mentioned above
the ‘Indiramma Pension’ scheme the largest expenditure of Rs. 4,534 lakhs or 40 per
cent to total, occupied the first place while the old age pension scheme expended Rs.
3,065 lakhs or 27 per cent to total, come next. Similarly these two schemes have spent
more than 96 per cent and 99 per cent of their sanctioned amounts respectively.
Thus the DRDA of the sample district has focused a lot of its emphasis on the
pension holders and their welfare, which is a good and healthy sign. Similarly the
Swarnajayanti Grameen Swarozgar Yojana (SGSY) scheme has also got lot of
support in both the years under reference.
162
Table-IV.7DISTRICT RURAL DEVELOPMENT AGENCY – GUNTUR DISTRICT
SCHEME WISE PARTICULARS OF GRANTS RECEIVED AND EXPENDITURE FOR THE YEARS 2007-08 and 2009-10 (Rs. In Lakhs)
2007-08 2009-10 Sl.No.
SCHEME Grant Received
Total Expenditure
Percentages (%) Balance FundsGrant
ReceivedTotal
ExpenditurePercentages (%)
Balance Funds
1. SGSY1079.41 (17.4)
1014.18 (16.0)
93.96 65.231,567.09 (13.04)
1,341.58 (11.90)
85.61 225.51
2. DRDA Admn. Fund88.30 (1.42)
81.46 (1.29)
92.25 6.84115.56 (0.96)
110.30 (0.98)
95.45 5.26
3. Oldage Pensions Scheme 2,559.27 (41.25)
2,473.27 (39.05)
96.64 86.003088.24 (25.69)
3065.42 (27.20)
99.26 22.82
4. Widows Pensions331.70 (5.35)
302.65 (4.78)
91.24 29.05407.75 (3.39)
371.05 (3.29)
91 36.7
5. Handicrafts pensions287.22 (4.63)
262.64 (4.15)
91.44 24.58754.53 (6.28)
739.43 (6.56)
98 15.1
6. Indiramma Pensions1,756.01 (28.31)
2,101.67 (33.18)
119.68 -345.664690.16 (39.02)
4534.43 (40.23)
96.68 155.73
7. National Family Benefit Scheme (NFBS)101.86 (1.64)
98.15 (1.55)
96.36 3.7156.91 (0.47)
39.98 (0.35)
70.25 16.93
8. Village Haats 0 0 0 022.50 (0.19)
0 0 22.50
9. State Matching Grant (SMG) 0 0 0 080.15 (0.67)
61.24 (0.55)
76.40 18.91
10. Interest Subsidy 0 0 0 0479.15 (3.99)
477.62 (4.25)
99.68 1.53
11. ZS/MS buildings (SP) 0 0 0 060.00 (0.5)
0 0 60.00
12. Fishermen - Puligadda Varadhi 0 0 0 0115.00 (0.97)
0 0 115.00
13. Toddy Tappers 0 0 0 033.36 (0.28)
0 0 33.36
14. Employment Guaranty and Marketing Mission (EGMM) 0 0 0 0549.57 (4.57)
528.86 (4.69)
96.23 20.71
Total6,203.77
(100)6,334.02
(100)102.1 -130.25
12,019.97 (100)
11,269.91 (100)
93.76 750.06
Source: DRDA, Guntur District, A.P.
163
Table-IV.8
Revenue Divisions wise performance under SHG-Bank Linkage, TFI and Indiramma Bridge Loans for the years 2007-08 and 2008-09
(Rs. In Lakhs)Total Linkage (SHG Bank Linkage + TFI + Indiramma Bridge Loans)
2007-08 2008-09Targets Achievements Targets Achievements
Sl. No.
Name of Revenue Division
Physical Finance Physical Finance Physical Finance Physical Finance
1. Tenali7,538 (100)
(33.73)11,848.36 (100)
(36.31)9,014 (119.58)
(35.73)11,005.1 (92.88)
(38.39)10,495 (100)
(35.42)19,920.43 (100)
(34.02)9,605 (91.52)
(35.85)16,094.08 (80.79)
(39.24)
2. Guntur7,235 (100)
(32.37)10,397.32 (100)
(31.86)8,265 (114.24)
(32.76)9,363.03 (90.05)
(32.67)11,080 (100)
(37.39)22,544.4 (100)
(38.51)9,567 (86.34)
(35.72)13,835.34 (61.37)
(33.73)
3. Narasaraopet7,575 (100)
(33.90)10,386.26 (100)
(31.83)7947 (104.97)
(31.50)8296.32 (79.88)
(28.94)8,055 (100)
(27.19)16,082.05 (100)
(27.47)7,614 (94.53)
(28.43)11,086.64 (68.94)
(27.03)
Total22,348 (100)
(100)32,632 (100)
(100)25,226 (112.88)
(100)28,664.5 (87.84)
(100)29,630 (100)
(100)58,546.9 (100)
(100)26,786 (90.40)
(100)41,016.1 (70.06)
(100)Source: DRDA, Guntur District, A.P.
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Performance of SHG Bank Linkage under DRDA in Guntur District of Andhra Pradesh State, India:
The details of SHG Bank Linkage, Total Financial Inclusion (TFI) and
Indiramma Bridge loans for the years 2007-08 and 2009-10, Revenue division – wise
were furnished in Table-8.
This Table reveals the targets set and achievements in respect of the above
loans among the three Revenue Divisions in the district. During the year 2007-08, all
the three Revenue divisions have achieved more than 100 per cent of the physical
targets set and in respect of the finance, the achievement was about 93 per cent in
Tenali Revenue Division, 90 per cent in Guntur Division and less than 80 per cent in
respect of Narasaraopet Division.
However during the year 2008-09, for which the latest data is
available, the achievements were relatively poor for both the ‘physical’ and ‘financial’
categories. In respect of physical targets, Tenali and Narasaraopet divisions achieved
more than 90 per cent while Gutnur division fell below 90 per cent. The lowest
achievement of only 61 per cent registered was of Guntur division in respect of
achievement in Finance, while Tenali division achieved more than 80 per cent and
Narasaraopet division achieved only 69 per cent.
165
4.2.2.1. SEMI FORMAL INSTITUTIONS:
Microfinance Institutions (MFI) NABARD Linkage:
The NABARD’s linkage with MFIs is as old as its SHG-bank linkage
programme. Many of the present days mainline ‘big’ MFIs were able to find their feet
and expand their operations on the strength of the initial seed money provided by the
NABARD. The NABARD provides loan funds in the form of Revolving Fund
Assistance (RFA) on selective basis to MFIs. This RFA has to be used for on-lending
to groups or individuals and the amount has to be repaid along with service charges
within 5 or 6 years. This assistance enables them to build a ‘credit history’, which
would help them to access credit facilities through regular banking channels. It also
enables MFIs to supplement their immediate lending needs. In addition, the
institutions are also sanctioned, on a case-to-case basis, grant assistance for partly
meeting the salary of field level staff, infrastructure development and operational
deficits during the initial years.
The NABARD also provides technical support in the form of capacity
building of staff of MFIs and also bankers in appraisal of MFIs for providing
wholesale resource support. Bankers’ Institute of Rural Development (BIRD)
conducts training programmes on ‘Appraisal of MFIs’. These training programmes
are intended to equip the stakeholders to appreciate the nuances in financing MFIs
and also enhance the flow of loanable funds from mainstream financial institutions
like banks. Specially designed capacity-building programmes are also being organized
for chief executives and other staff of MFIs in various areas of MFI operations and
management.
Recently the NABARD has come out with a scheme that enables MFIs to get
them rated so as to obtain bank finance. The NABARD has tied up with a few reputed
166
credit rating agencies like Credit Rating Information Services of India Limited
(CRISIL), Microcredit Ratings International Limited (M-CRIL) and Cooperative for
American Relief Everywhere (CARE) ratings in India for this scheme. Eighty per cent
of the professional fees (maximum Rs. 80,000) of the credit rating agency for the
grading exercise would be sponsored by NABARD under this scheme.
One can, therefore, discern that contrary to the perceived notion that its sole
preoccupation is with the SHG-bank linkage programme, the NABARD has pro-
actively set up a variety of instrumentalities for encouraging partnerships between
banks and MFIs.130
The NABARD in India was highly motivated by the extraordinary recovery
rates of the SHGs. After the Micro Credit Summit, microcredit was seen as an
effective weapon of dealing with poverty. A completely new strategy, which
combined flexibility, sensitivity and responsiveness of the informal credit system and
technical, administrative capabilities and financial resources of the formal credit
system, was initiated by the National Bank for the first time in 1990 on an
experimental basis.131
Microfinance institutions provide financial services to the poor who do not
have access to formal means of obtaining credit. A Micro Finance Institution (MFI) is
usually an organization that acts as an interface between the formal credit delivery
institutions and credit seekers, with an aim to assist for the socio-economic
development of poor and marginalized people. Microfinance in India has received its
impetus from three main sources: The government, National Bank for Rural and
130 Op. Cit., Karmakar, K.G., P: 91-93.131 Hema Bansal, DR., “Self Help Group-NGO-Bank Linkage Programmes in India: a case study”, P:
8-9.
167
Agricultural Development (NABARD) and the Small Industries Development Bank
of India (SIDBI).132
The importance of micro finance lies in the fact that the formal / institutional
banking sector has not lived up to its social responsibility of meeting the financial
needs of the poor due to various reasons such as (a) lack of adequate branch network
in the rural areas, (b) the inability of the poor to offer satisfactory collaterals for the
loans and (c) lack of education and awareness among the poor. This is why that India
today has an extensive banking infrastructure.133
Hence, alternative agencies like MFIs have a major role to play. With their
NGO background, MFIs can target poor households better than commercial banks.
Further, MFIs provide scope of promoting institutions which are owned and
controlled by the poor. Many MFIs in the country have come up as community based
institutions.134
The Micro Finance Institutions (MFIs) also provide a loan to registered group
farmers who grow a variety of different crops. The farmers will have the freedom to
choose their groups and each group will contain roughly 12 to 15 farmers with an
average land holding of two acres per farmer. While the group will have the freedom
to decide the manner in which the loan is to be divided amongst its members, the MFI
will provide advice and education on efficient ways of financing and allocating funds.
Through a mutual agreement within the farmers, the MFI establishes its role as a sole
buyer for the product. By promising to buy the product at the MSP the MFI provides a
132 Anbalagn M., T. Amudha and V. Selvam, “Micro credit to Self-Help Groups: A Book of Economic
Empowerment of Rural Women”, March 2005, SEDME, P-32.1.133 George N.D., “Issues and Strategies”, Yojana, January 2008, P-42.134 Shylendre H.S., “Micro Finance Institutions in Andhra Pradesh – Crisis and Diagnosis”, Economic
& Political Weekly, May 20, 2006, P-1962.
168
steady stream of cash flow to the farmers. In turn, the MFI will sell the product in the
open market for a profit.135
The last 15 years saw the entry of various types of Micro Finance Institutions
in the rural credit sector. Most of these MFIs are based on the Grameen Bank model
of Bangladesh. This model has the solidarity groups at the base, each of which
comprising five borrowers. Eight solidarity groups constitute a ‘centre’. Ten centers
form a ‘Cluster’ and seven clusters form a branch. Several such branches constitute an
MFI. MFIs in India register themselves either as Societies, Trusts, Non-Banking
Financial Companies (NBFCs) or as Local Area Banks (LABs), and are governed by
their respective rules and regulations.136
Progress of MFIs:
The RBI in their circular dated 18 February 2000 issued guidelines to all
scheduled Commercial Banks including RRBs, MFIs who are availing bulk loans
from banks for on-lending to Self Help Groups and other small borrowers. On the
basis of returns received from banks for the year 2007-08, 18 Public Sector
Commercial Banks, one Private Sector Commercial Banks, 2 Foreign Commercial
Banks, 5 Regional Rural Banks (RRBs) and one State Co-operative Bank have
reportedly financed MFIs for on-lending for microfinance activities. The data of the
bank loans to MFIs sent to NPAs were also furnished by the banks for the first time
during 2007-08.
On the basis of returns received from banks for the year 2008-09, 10 Public
Sector Commercial Banks, 10 Private Sector Commercial Banks, 4 Foreign
Commercial Banks, 9 Regional Rural Banks (RRBs) had reportedly financed to MFIs
for on-lending for microfinance activities. On the basis of returns received from banks
135 Maria Dooner, Santhosh Srinivasan, “Credit Needs of Farmers”, Yojana, January 2008, P-15.136 Op. Cit., George N.D., P-42.
169
for the year 2009-10, Small Industries Development Bank of India (SIDBI), 21 Public
Sector Commercial Banks, 14 Private Sector Commercial Banks, 04 Foreign
Commercial Banks, 7 RRBs and one Co-operative Banks had reportedly financed
MFIs for on-lending to groups and other small borrowers to promote microfinance
activities.
During the year 2007-08, the banks financed 518 MFIs with bank loans of Rs.
1,970.15 crore as against 334 MFIs financed with bank loans of Rs. 1,151.56 crore
during 2006-07 with a growth rate of 55 per cent of MFIs and 58.4 per cent of Bank
Loans disbursed to MFIs. As on 31 March 2008, the outstanding bank loan of 1,109
MFIs was Rs. 2,748.84 crore as against 550 MFIs with bank loans of Rs. 1,584.48
crore as on 31 March 2007.
During the year 2008-09, the banks financed 581 MFIs with bank loans of Rs.
3,732.33 crore as against 518 MFIs with bank loans of Rs. 1,970.15 crore during
2007-08, thus achieving a growth rate of 12.2 per cent of MFIs and 89.4 per cent of
Bank loans disbursed to MFIs. As on 31 March 2009, the outstanding bank loans to
1,915 MFIs was Rs. 5,009.09 crore as against Rs. 2,748.84 crore of bank loans to
1,109 MFIs as on 31 March 2008.
Banks have financed to 691 MFIs with bank loans of Rs. 8,062.74 crore as
against 581 MFIs with bank loans of Rs. 3,732.33 crore during 2008-09, representing
growth rate of 116.5 per cent in bank loans disbursed. As on 31 March 2010, the
outstanding bank loans to 1,513 MFIs was Rs. 10,147.54 crore as against Rs. 5,009.09
crore to 1,915 MFIs as on 31 March 2009, Showing doubling of bank loan over the
previous year.
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Table-IV.9: Loans to MFIs by Banks / Financial Institutions (Rs. In Crores)
Agency wise Loans Disbursed to NGOs / MFIs and Loans Outstanding against NGOs / MFIs
Commercial Banks Regional Rural Banks Co-Operative Banks SIDBI TotalYear
Loan Disbursed
Loan Outstanding
Loan Disbursed
Loan Outstanding
Loan Disbursed
Loan Outstanding
Loan Disbursed
Loan Outstanding
Loan Disbursed
Loan Outstanding
2006-07 1,151.34 (99.98) 1,584.27 (99.99) 0.22 (0.02) 0.20 (0.01) 0 0 0 0 1,151.56 (100) 1,584.48 (100)
2008-09 3,718.93 (99.64) 4,977.89 (99.38) 13.40 (0.36) 31.20 (0.62) 0 0 0 0 3,732.33 (100) 5,009.09 (100)
2010-11 7,605.18 (89.97) 10,688.85 (77.61) 4.16 (0.05) 42.01 (0.31) 0 0 843.78 (9.98) 3,041.77 (22.08) 8,453.12 (100) 13,772.63 (100)
Source: NABARD.
171
Further, during the year 2009-10, the SIDBI financed to 88 MFIs with
financial assistance of Rs. 2,665.75 crore and the loan outstanding against 146 MFIs
as on 31 March 2010 was Rs. 3,808.20 crore. As such the total exposure of banks and
financial institutions to MFIs as on 31 March 2010 was to the tune of Rs. 13,955.74
crore.
Total loans issued to MFIs by all banks including SIDBI during 2010-11 was
Rs. 8,448.96 crore recording a decline of 21.25 per cent when compared to the
previous year while the loan outstanding against MFIs recorded a slight decline of 1.6
per cent as on 31.3.2011. The steep decline in the loans issued is mainly attributed to
loans by SIDBI which declined by as much as 68.35 per cent during the year. If it is
read with the 25 per cent decline in the number of SHGs availing fresh loans from
Banks directly, it is an area of concern. The agency wise details of loans extended to
MFIs are show in the Table-14.
Non-Governmental Organizations (NGOs):-
NGOs are classified into three categories (1) NGOs; (2) people’s organization,
(3) public service contractors.137 World Bank on the other hand has tried to codify the
typology of NGOs as philanthropic and self-help organizations are classified into: (1)
Welfare NGOs, (2) Development NGOs, (3) Donor NGOs and (4) Local NGOs.
Amongst the NGOs in India majority are individual development enterprises, trusts,
co-operatives, voluntary organizations and mahila samagams.
NGOs were not only classified on the basis of typology but were distinguished
by their size too. In the Indian context, (1) small organizations are pre dominant. They
work in a few villages within a block of a district or a few slums in one part of the
city. There are (2) small medium sized, the third type are (3) big and large sized
137 David Korten, C., “Getting to the 21st centaury voluntary action and global agenda”, Oxford and
IBH, New Delhi, P-67.
172
organizations. Medium sized NGOs cover a block and work with a staff of 2 to10
members and with a project grants unto one lakh. Third big and large sized
organizations are relatively larger and work with 25 to 50 and even 100 members of
staff.
NGOs have been working in partnerships with donors and government for
some time now. These partnerships have different facets of linkages. NGOs and
government organizations have worked in friendly coexistence with freedom and little
or no interference and maximum support from the government. NGOs work for
behavioral and attitudinal change amongst people to support implementation of
government programmers of health, education, technology development and women’s
programs. NGOs also sometimes act as partners in implementation of government
programs.
Partnerships however, between banks and NGOs are still at a premature stage.
It all began when NABARD motivated by experiences of other countries and India,
decided to adopt the SHG approach of lending through NGOs. In order to avail
financial assistance, NGOs had to fulfill certain criteria like good track record of
consistent work, maintenance and audition of the books of accounts for at least three
years, capability of handling weak and poor and saving groups with a saving bank
account in banks.138
The NGO / VOs have been the pioneer innovators of the ‘new microfinance
approach’. NGos terminology itself is not yet well established since NGOs typology
is unmodified. They operate under different ideology and nomenclature.139 NGOs are
defined by only what they are, which suggest that they can be whatever they need to
be for a particular purpose, has attributed three major functions to NGOs: (1) 138 Op. Cit., Dr. Hema Bansal, P: 13-14.139 Molly Joseph, “Women participation and development strategies”, Kanishka Publisher,
Distributors, 1997.
173
provisionary of services and assistance; (2) creation of self-help capabilities; (3)
advocacy / education.140
NGOs will fill up an important void in quality at the grass roots level which
will help the poor not only to borrow but also to become good investors of banks.
This will help boost business at rural branch level and cover-up inadequacies and
constraints that might hamper a banker with the conflicting demands of his workload.
Many banks and financial institutions have recognized the role of NGOs and have
affected suitable policy initiatives.141
The policy interest in the whole concept of SHG linkage with banks was
institutionalized with the RBI appointing in 1994 a working group on NGOs and
SHGs comprising representatives for NABARD, bankers and development
practitioners. Many NGOs felt that combining financial intermediation with their core
competency activity of social intermediation is not the right action. It was felt that a
financial institution including a company set up for this purpose does better banking
function.142
Role of NGOs in Microfinance:
NGOs provide the leadership and management necessary in forming and
organizing group activities in most cases. They also act as the crucial link between
these groups and the formal banking system. Presently, well over 500 NGO-MFIs are
actively engaged in microfinance intermediation across the country.143
140 Peter Bowden, “NGOs in Asia: Issues in Development”, Public Administration and
Development, Vol. 1o, P: 141-142, 1990.141 Bidhudull Padhi, “Mainstreeming microfinance bridging NGO-Banker divide, Economic &
Political Weekly, Nov. 15, 2003, P-4836.142 Satish P., “Mainstreeming of Indian Microfinance”, Economic & Political Weekly, April 23, 2005,
P-1733.143 Sarkar, A.N., Jagjit Singh, “Savings-led microfinance to bank the unbankables; sharing of Global
Experience”, Global Business Review, Sega Publication, New Delhi, Vol. 7 (2), 2006, P: 274-75.
174
NGOs have a crucial role in group formation, nurturing SHGs in the pre-micro
enterprise stage, capacity building and enhancing credit absorption capacities. Group-
based forms of lending (eg, solidarity groups, village banking) originated mainly for
the benefit of the lender as solutions to two problems faced by microcredit
organizations: (i) the problem of lack of collateral, and (ii) the problem of high
transaction costs involved in loan appraisal, monitoring and enforcement.
Small business (and dynamic micro – enterprises) need to develop skills.
NGOs can assist by creating an opportunity to train and teach, or work with existing
institutions to make what they teach more relevant to the clients. NGOs with good
community organizing skills can work to get businesses to poor resources within a
sub-sector to develop new products, new product designs, or new techniques for
production that maximize local resources.144
Social intermediation is required for organizing the ‘poor’ into SHGs and
introducing them to the banking institutions, NGOs have been the prime movers in the
SHG-Bank linkage programme and have been involved In promoting, nurturing and
training SHGs and affecting their linkage with banks. As against 291 participating
NGOs as on March 1998, their total number had gone up to 550 as on March 1999 i.e.
56 per cent of SHGs were linked through NGOs acting as facilitators and 27 per cent
through other financial intermediaries.145
This indicates that in the SHGs developed state, the commercial banks depend
upon NGOs especially for development of SHGs and to a very small extent for
financial intermediation. In the SHG – backward states where RRBs and cooperatives
are more dominant, commercial banks depend on their limited organizational resource
for both development of SHGs and extending credit. SHG credit for the poor is much
144 Op. Cit., Bubhudutt Padhi, P-4836.145 Op. Cit., Meera Lal, P: 146.
175
less there. It is, therefore, important to develop the NGO and MFI sector for
increasing SHG credit especially in areas where microcredit is more required.146
Non-Profit Companies as MFIs:
Instead of MFIs of NGOs acting as financial intermediaries, they will become
administrative partners and collection agents, enabling the bank to gain access to
existing distribution networks, to monitor the quality of loans and provide or source
guarantees.147
The role of NGOs in investing the groups with values through human capital
is an undeniable specialization. In the words of economist Jagdish Bhagwati: “Those
values (of civil society and of democracy) are better advanced by the political and
financial support of the numerous and growing NGOs, both here and abroad, they
work ceaselessly to nudge the world in the right direction”.148
Inherent to this success story what one must understand is the fact that NGOs
have played a major role in effecting SHG-bank linkages. Relationship with banking
is the result of NGO – bank interface to leverage funds for SHGs. NGOs have
achieved significant success as promoters (helping and enabling SHGs to access the
bank credit) and not as providers (direct purveyors of credit).149
NGOs can have a special role to play in the promotion of sound microfinance
institutions. They can disseminate information and organize exposure training
programs such as the one provided by the Grameen Bank in Bangladesh. Through
training, they can assist small institutions to improve their viability and upgrade their
legal status, as required. They can also initiate financial operations which, in many
countries, preclude deposit collection. But if they are seriously interested in financial
146 Rajaram Dasgupta, “Microfinance in India Empirical Evidence, Alternative models and policy
imperatives”, Economic & Political Weekly, March 19, 2005, P-1235.147 “Micro Finance productive linkages”, Economic & Political Weekly, March 6, 2004, P-1004.148 Op. Cit., Bibhudutt Padhi, P-4835.149 Ibid., P-4833.
176
operations, they should register as a rural or commercial bank, finance company or
savings and credit cooperative. Among those that have successfully embarked on this
road are, to name but a few, Bancosol in Bolivia, Bank Purba Danarta and numerous
other NGO banks in Indonesia, and CARD Rural Bank in the Philippines.150
Some NGOs like MYRADA are promoting community resources centers
which provide the group maintenance services such as book keeping, auditing,
training and linkages with government programmes. The emerging need is service
providers for the groups’ maintenance functions. NGOs are keen to promote
community-based organizations such as community resource centres and federations.
However, looking at the vast number of SHGs and the critically at some of these
functions, more service providers are needed. These intermediate organizations are set
to become increasingly critical in enhancing the sustainability of SHGs.151
Some NGOs are providing financial services to the poor in the districts, but
their outreach is not large and their approach is savings-based.152
The SMGB took a bold initiative in 1995-96 to provide credit directly to the
NGOs for on-lending to SHGs. Since 1995-96, the SMGB has provided a loan of Rs.
3,872,000 to 18 NGOs. These NGOs have used this amount to provide credit to 671
SHGs and these groups in turn have financed their 3,180 members.153
150 Hans Dieter Seibel, “Mainstreaming Informal Financial Institutions”, Microfinance Institutions
concepts and experiences, the Book of ICFAI University press, 2005, P-46. 151 Op. Cit., Karkaker, K.G., P: 179.152 Op. Cit., Kishanjit Basu, Krishna jindal, P-145.153 Ibid, P: 216.
177
Crisis in Microfinance:
Commercialization of Microfinance has led to an increased interest among
both investors and practitioners. Efforts were made across the country to expand the
activities of MFIs. Unfortunately most of the efforts were aimed to develop tools and
methods to ensure that investments will create sustainable microfinance ventures
rather than ascertaining how the services have had an impact on the livelihoods of the
households they reach out to. This approach created a situation of unregulated growth
contributing to high interest rates, providing loans largely to unproductive purposes,
multiple agencies lending to the same household, all these contributed to high level of
indebtedness which ultimately led to a crisis in the MFI sector. The recent crisis in
Microfinance in Andhra Pradesh is only a tip of the iceberg. It is said that the current
stalemate in AP is only a continuation of the 2006 episode that was out in Krishna
District of Andhra Pradesh. It was alleged then that the strict and often ‘barbaric’ debt
recovery methods used by the microfinance institutions (MFIs), and the explosive
growth rates of some MFI operations since the beginning of the decade, had led as
many as 200 borrowers to end their lives (Tara S. Nair, Microfinance: Lessons from a
crisis, EPW, Vol. XLVI, No.6, February 5, 2011). Several branches of MFIs were
made to close operations in Krishna district. The reasons for the controversy are well
documented. According to Andhra Pradesh Government, more than Rs. 25,000 Crore
has been lent to over 80 lakh poor families i.e. on an average each family oves Rs.
30,000. And most MFIs charge 27 per cent interest on loans. Some MFIs appear to
use strong – arm tactics in loan recovery, with a few reported suicides. What is seen in
Andhra Pradesh is only forerunner of what is visible in other parts of the country.
Most MFIs claim that they have lent for income generating activities. In
reality most lending has been for consumption purposes. According to a recent survey
178
conducted in Andhra Pradesh, households use less than 2.5% of all micro loans to
start new businesses. By comparison, many more loans go into buying stocks – as
much as 10% when the source of the loan is an MFI. The survey also reveals that big
ticket items on the list of customers taking microloans are agricultural inputs,
repayment of old debts, health and other consumption. The customers use bulk of
their borrowings to bridge temporary financing gaps rather than create new business.
While such uses can bring much needed relief in times of financial stress, they cannot
lead to sustained reduction in poverty. Thus, indiscriminate lending and to some
extent irresponsible borrowing is responsible for the crisis in MFI’s in India.
Microfinance was once the poster child for poverty alleviation. Hailed as an
alternative to dangerous ‘loan sharks’, money lenders, it quickly gained momentum
and support from governments and NGOs alike. But lately the glitter of the
Microfinance has been wearing off and this once globally praised idea has come
under intense criticism. Some governments encouraged their citizens not to pay back
their loans, causing lenders to experience a drop in payback. This is most notable in
A.P. the very important state with only over 80 million people which has about one
third of the total outstanding portfolio of Rs. 33,000 crores in the MFIs. In the wake
of the backlash the repayment fell from almost 100 per cent. The Govt. of A.P has
blamed the MFIs for farmers’ suicides calling MFIs ‘Profiteering loan sharks’. The
economist analyzing the MFIs in India with particular focus on AP observed that the
politicians are looking at the MFI crisis from a political angle rather than from
economic or moral perspective.
Microfinance has come under severe criticism not only in Bangladesh which is
considered to be its birth place, but also in Latin American countries such as
Nicaragua and Bolivia apart from India. Politicians in these countries made statements
179
to their Indian counterparts encouraging the borrowers not to pay back their loan in
order to improve their political base among the masses.
Response to the Crisis:
The crisis in MFIs has resulted in quick and desired response from both
government Andhra Pradesh and the Reserve Bank of India. Andhra Pradesh
Government came up with the an ordinance called ‘Andhra Pradesh Microfinance
Institutions (Regulation of Money Lending) Ordinance, 2010’, which was
subsequently enacted into by an Act the State legislature while the Reserve Bank of
India constituted a Sub-committee with Malegam as the Chairman. The report of the
committee is now available in the public domain. They both attempt to provide
solutions to the crises in the MFIs from differing perspectives.
The AP Act, among other things, requires MFIs to register themselves, and
prevents lending in cases where loans are already outstanding. It allows for only
monthly repayments and demands the display of interest rates charged by the MFIs.
Subsequent to the enactment of this Act on December 15, 2010 there has been a sharp
drop in repayments to MFIs – that is reportedly 15 per cent or 20 per cent across the
State.
The Malegam Committee recommended, among other things:
a) The creation of a separate category of NBFC – MFIs. The NBFCs should hold
more than 90 per cent of their total assets as qualifying assets
b) 75 per cent of the loans should be for income generating purposes
c) Individual loans should not exceed Rs. 25,000 and the borrowing households’
annual income must not be more than Rs. 50,000
d) The tenure of the loan is recommended as 12 months for amounts less than Rs.
15,000 and 24 months for others.
180
e) The interest cap is fixed at 24 per cent for all personal loans. The margin gap
varies based on the outstanding loan portfolio of MFI’s – for Rs. 100 Crore or
more the margin gap is 10 per cent and below that, is 12 per cent.
f) The cost of the loans will have over three components – Processing fee (less
than 1% of the loan amount), interest, and insurance premium.
g) No individual household should be provided access to micro loan from more
than two MFIs.
It is evident that while AP Act is more concerned about the clients and
households, the Malegam Committee recommended from the view point of the MFI
institutions and the sustainability of the institutions from a bankers perspective.
Curiously there is a view point emerging that once the Malegam Committee
recommendations are accepted the AP Act becomes irrelevant. The AP Govt. of
course thinks in a different way, given its own compulsions. It should be mentioned
that both of them did not attempt to resolve the structural and systemic aspects
impacting the MFIs.
The economist observes that Microfinance is a tool that can be used in both
positive and negative ways. It is neither miraculous not detrimental. Research
suggests that it does work for some people for some time as one would expect. It is
not a magic bullet, nor is it intrinsically harmful. Like all financial institutions it is
wrought with the ups and downs of the market. And any situation involving loan and
credit is dangerous, especially when people are allowed to borrow irresponsibly. The
failure of Microfinance in India is largely due in part to MFI’s shifting their focus
from non-profit to profit making activities. In addition, microfinance in India
expanded in a way too quickly without the experience and infrastructure to support it.
The boom led to landslide profits for microfinance lenders but disaster for others.
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It is thus evident that the unlimited growth of MFIs without any institutional
support and with policy vacuum has contributed to several avoidable problems. The
solutions suggested by the AP Act and the Malegam Committee are at best short term
and sector specific. Microfinance as a short-term lending agency particularly in small
amounts which other financial institutions are unable to deliver must be protected till
alternate institutional arrangements to serve this important section are created. What is
needed immediately is reform and rationalization of MFIs. To the extent the MFIs
have become commercial they need to be regulated like any other commercial
activity. However, Government should reflect beyond the pros and cons of MFIs as a
long term policy. Macro policy on financial inclusion need to be formulated fixing the
relevant policies of commercial banks, RRBs, cooperatives together with MFIs.
Recent studies have evidently proved that rural indebtedness is more due to structural
and institutional factors. Against this background it may be necessary to revisit the
credit based approach to poverty alleviation. Increased investments including FDI to
focus on employment generating activity may be a more useful and sustained policy.
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Table-IV.10: Details of MFIs in Andrha Pradesh
Sl.No.
Name of MFI OutreachGross-Loan
Portfolio (Lakhs)
Legal Form
Delivery ModelBorrowings
(Lakhs)
Net-Owned Funds
(Lakhs)
Operating Cost Ratio
1. Mari-Sanghatitha Mahila Macs Federation ltd. 30,085 644 2005 SHG 580 111 4%
2.Sharda’s Women’s Association for Weaker Section (SCCI)
74,175 4,267 1999Grameen, Individual
Lending4,478 20 12%
3. PWMACs 18,702 1,626 1997 JLG, Individual Lending 1,952 117 9%4. Sanghamithra Rural Financial Services 21,262 4,861 2000 SHG 4,246 675 3%5. Pragati Seva Samiti 42,216 4,147 2000 SHG 1,114 324 2%6. Star Microfin Service Society 24,876 1,368 1997 Grameen 1,500 111 18%7. Rastriya Seva Samithi 50,062 3,395 1989 SHG 3,227 414 2%8. Social Education and Voluntary Action 18,641 979 2002 SHG 568 77 2%9. Siri Microfin Society, Kurnoor, A.P. 3,900 336 2004 JLG 282 53 12%10. Hope Integrated Rural Development Society 3,170 115 2005 Grameen, SHG 157 7 13%11. Spandana Sphoorty Financial Ltd. 11,88,861 72,850 1998 JLG, Individual Lending 68,179 9,405 6%12. The Max Wealth Trust 30,577 2,209 2006 SHG, JLG 1,296 912 13%13. AMMACTS (Future Financial Services Ltd.) 1,64,666 8,428 1998 JLG 6,435 1,424 9%
14. Saadhana Microfin Society, Kurnool 76,580 3,244 2001Individual Lending, Bulk
Lending7,912 512 10%
15. Bhartiya Samruddhi Finance Ltd. (BASIX) 3,05,438 22,541 1997SHG, JLG, Individual
Lending17,110 3,123 17%
16.Krishna Bhima Samruddhi Local Area Bank Ltd.
1,00,495 5,210 2001 JLG, Individual Lending 7,052 935 14%
17. Opportunity Micro Finance India Ltd. 16,954 456 2001 SHG 0 708 15%18. Indur Intideepam MACs Federation Ltd. 18,645 1,925 2002 SHG 1,346 258 19%19. Outreach 2,920 187 2000 SHG 0 253 7%20. KAS Foundation 5,62,377 10,683 2003 SHG, JLG 5,025 0 7%
21. Mother Terisa Mahila MACCS Ltd. 2,715 32 1999SHG, Grameen, Individual
Lending29 48 4%
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22. Aadarsha Welfare Society 33,196 2,783 2003 SHG, JLG 2,735 211 2%23. SKS Micro Finance Pvt. Ltd. 18,79,258 78,186 1998 JLG 78,186 21,435 14%
24.Confederation of Voluntary AP Associations(COVA)
11,341 276 2001 SHG 22 70 7%
25. KRUSHI 41,483 2,388 2002 SHG,JLG 1,500 72 4%
26. Asmitha Microfin Ltd. 7,01,432 33,591 2002JLG,Grameen, Individual
Lending30,308 3,795 10%
27.Manidhan Grameen Savings & Credit Services (MGSCS)
15,763 585 2004 Grameen 438 43 6%
28.Centre for Rural Reconstruction Through Social Action
26,412 1,387 1997 Grameen 1,489 0 0%
29. Vaagdevi Mahila MACS Ltd. 5,300 80 2001 SHG 15 86 7%30. Share Microfin Ltd. 12,89,328 59,530 1993 JLG, Individual Lending 51,612 99,461 10%
31.Deepika Mahila Macs Ltd. (Crown Social Service Society)
170 10 2001 SHG 31 0 8%
32.DOVE (Development Organization for Village Environment)
8,583 819 2001 SHG, JLG 350 63 16%
33.Pustikar Laghu Uyaparik Pratisthan Bachat Evam Sakh Sahakari Samiti Ltd.
13,687 461 1996 SHG 74 344 10%
34.Centre for Collective Development (CCD) Sahakara Mitra Senstha
3,000 50 2004 MACs Cooperative 50 0 0%
35. Jhansi Rani Mahila MACs Ltd. 1,870 42 2000 SHG 0 0 4%36. Kakatiya Mahila MACs Ltd. 624 16 2000 SHG, Individual Lending 0 0 11%37. GUIDE 9,845 289 2000 SHG, Grameen 148 13 0%
Source: NABARD
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Table-IV.11: Outstanding Loans of Bulk Funders of MFIsNo. of MFIs Loan Outstanding
Sl.No.
Apex Financing Institution / Bank 31 March
200731 March
200831 March
200731 March
20081. SIDBI 100 - 548 9502. FWWB 102 113 104 2183. Maanaveeya Holdings 24 NA 50 NA4. ICICI Bank NA 240 1,392 9595. HDFC Bank 66 110 300 7206. ABN AMRO Bank 27 29 161 2937. Yes Bank 7 NA 62 2008. Standard Chartered Bank 12 15 38 2159. ING Vysa Bank 19 20 61 39410. DCB NA NA NA 15011. Axis Bank 65 81 270 50012. Other Private Sector Banks NA - 554 NA13. Public Sector Banks NA - 195 NA14. Others NA - 25 NA
Source: NABARD.Table-IV.12: State-wise NGOs’ List
S.No. Name of the State Number of NGOs1. Andhra Pradesh 1062. Arunachal Pradesh 023. Assam 304. Bihar 635. Gujarat 976. Goa 067. Haryana 338. Himachal Pradesh 259. Jammu & Kashmir 0710. Karnataka 18011. Kerala 8712. Madhya Pradesh 10913. Maharashtra 33114. Manipur 2115. Meghalaya 0416. Mizoram 0417. Nagaland 0918. Orissa 18119. Punjab 2120. Rajasthan 10021. Sikkim 0522. Tamilnadu 30923. Tripura 1524. Uttar Pradesh 7525. West Bengal 19626. Delhi 37127. Uttaranchal 0328. Arunachal Pradesh 0229. Andaman Nicobar 01
Total 2,393 Source: Planning Commission, Government of India, 2009.
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Conclusions:
The NABARD provides refinance support to banks to the extent of 100 per cent of
the bank loans disbursed to SHGs. When observed during 2010-11, the NABARD
extended refinance to the extent of Rs. 2,545.36 crore as against Rs. 3,173.56
crore disbursed during the previous year, registering a declining growth rate of
19.8 per cent.
It is observed that the creation of Micro Finance Development and Equity Fund
(MFDEF) by NABARD is a significant step forward in the promotion of
Microfinance activity and its contribution of the NABARD was significant.
In the Training and Capacity Building, there was a forty fold rise in the number of
programmes conducted by NABARD during a very short span of only four years
between 2006-07 and 2010-11. Similarly, there was an impressive growth of 10
times in the number of participants, who got benefited by the programmes of
NABARD during the same period.
It is observed that the Micro Enterprise Development Programme (MEDP) is very
useful to the matured SHGs to enhance their income levels through appropriate
skill-up-gradation on farming and non-farming activities under this programme.
Thus, the number of programmes has increased and covering of participants also
increased every year, but in 2009-10 the number has fallen down to negative
growth rate.
In the case of Grant Support to Partner Agencies for Promotion and Nurturing of
SHGs, during 2006-07 and 2009-10, considerable amounts were sanctioned by
NABARD to the agencies – (Co-operatives, RRBs, NGO’s, Farmers’ Clubs and
IRVs (2023)), every year more than 59,000 SHGs were sanctioned with the grant.
The cumulative sanctioned amount of Rs. 14,622 lakhs for 5,80,000 SHGs was
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significantly large. It can therefore be concluded the NABARD has discharged its
function in the promotion of Microfinance activity.
At the end of 31 March 2010, the SHGs promoted were 21,868, of which 12,749
SHGs have been credit linked. In addition, 676 village level and 15 block level
SHG Federations were formed under Phase I and II. All this shows that the
contribution of the NABARD for scaling up SHGs through special initiative is
encouraging and satisfactory.
In order to help these MFIs to access funds from banks, the NABARD introduced
a scheme wherein the financing banks like Commercial Banks, Regional Rural
Banks and Cooperative Banks were extended financial assistance by way of grants
to engage the services of rating agencies like CRISIL, M-CRIL, ICRA, CARE and
Planet Finance to take up the rating of such MFIs. During 2010-11, Rs. 19.04 lakh
was prvided to the Banks for rating of 15 MFIs.
During 2009-10, under capital support to MFIs scheme, 10 proposals amounting
to Rs. 6.87 crore were sanctioned to 10 MFIs and disbursed Rs. 7.87 crore. The
outstanding under capital support as on 31 March 2010 was Rs. 24.17 crore
against 13 MFIs. As many as 40 MFIs have so far been sanctioned capital support
to the extent of Rs. 2,739.67 lakh during the year 2010-2011.
Till 31st March 2011, as many as 42 MFIs were sanctioned RFA to the extent of
Rs. 6,078.60 lakh. The actual amount drawn was Rs. 5,725.40 lakh and the
outstanding as on March 2011 was Rs. 4,615.19 lakh.
Formal Financial Institutions in the country have been playing a leading role in
the microfinance programme for more than two decades now. They have joined
hands proactively with informal delivery channels to give microfinance sector the
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necessary momentum. During the current year too, microfinance has registered an
impressive expansion at the gross root level.
The detailed account of the NABARD’s contribution in the promotion of
microfinancing activity in India, as picturised above, indicates clearly that its role
was sufficient and impressive as far as the physical dimensions like number of
SHGs assisted, amounts sanctioned and other promotional activities taken up are
concerned.
In respect of savings by SHGs the performance of the Commercial Banks was
better when compared to other Banks. However, in the case of Co-operative
Banks, though there was year-wise increase, their share was continuously the
lowest. It can be concluded that, the Commercial Banks are playing a very crucial
role in attracting the savings from SHG members. In fact, only those SHGs which
save in the banks continuously for six months, then only are eligible for borrowing
loans from the same banks.
Commercial Banks have better performance in the distribution of loans to SHGs
when compared to other Banks. The Co-operative Banks have shown increase
year-wise. In the case of Regional Rural Banks, year wise loan distribution
percentages were gradually falling. It can be concluded that, the Commercial
Banks have provided more loans to SHGs, thus majority of SHG members got the
uplift from economic hurdles.
Commercial Banks have the highest outstanding loans due from SHGs when
compared to other Banks, but in the case of Regional Rural Banks, they could
provide the loans to a small number of SHGs, but outstanding loans are high.
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It is observed that the Commercial Banks have showed the largest share of Non
Performing Assets NPAs (more than 50%) of the total NPAs of all the institutions
put together in 2007-08. It is further observed, that this percentage has gradually
gone up to 65 per cent in 2009-10 and 72.38 per cent in 2010-11. The RRBs could
bring down its share from 41 per cent to 18 per cent only