micro finance – anguishes & auspicious of rural poorinternationalseminar.org/xiv_ais/ts 3/22....

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Micro Finance – Anguishes & Auspicious of Rural Poor

Lalitha Bhavani. Kondaveeti B. Vamsi Krishna

M. HRM, MBA, Research Scholar M.COM, MBA, Research Scholar Asst. Professor Asst. Professor Ramachandra College of Engineering Ramachandra College of Engineering Eluru, Andhra Pradesh Eluru, Andhra Pradesh [email protected] T. Dileep

Asst. Professor Ramachandra College of Engineering Eluru, Andhra Pradesh

ABSTRACT

The biggest challenge to any civilized society is the economic deprivation of a major population.

“Self – realization and self – initiative” is the two most powerful weapons to eradicate poverty

from the world map. The failure of formal credit reaching the poor, due to the imperfect

knowledge of other borrowers and the associated transaction costs for the banks, informal sector

with the virtue of perfect information on the poor borrowers, established a good credit market.

Micro finance is powerful instrument for enhancing production and productivity and also for

alleviating poverty. Microfinance refers to small scale financial services for both credits and

deposits- that are provided to people who farm or fish or herd; operate small or micro enterprises

in both rural and urban areas. The study interprets and discussed impact of microfinance on

social conditions of rural poor in Eluru, Andhra Pradesh. The sample constituted 156

beneficiaries selected. The study was based on primary data collected through structured

questionnaire schedule as well as secondary data. In this regard an analysis has been made with

the help of the following parameters i.e. age, education, religions, marital status, social status,

type of the family, size of the family.

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Key Words: Economic Deprivation, Micro finance, Rural poor, Poverty, Formal and

informal credit, Empowerment.

INTRODUCTION

Poor section of people living in poverty, like everyone else, need a diverse range of financial

products and services to sustain their livelihood, productive finance to run their business, build

assets positions for both production and consumption, and to protect themselves against risks and

uncertainties. Financial services needed by the poor include working capital loan, consumption

credit, and savings, pension, insurance, provident funds, money transfer services etc. Micro

finance target those people who are denied credit from formal financial and banking institutions

because of lack of awareness as well as formal rules which they have to follow to get a credit

from these institutions. Micro finance can be considered as a tool for empowerment as well as

for social protection (saving, Insurance and remittances). Microfinance can also be used to

develop new generation entrepreneurs among the rural poor by providing other necessary skills

required. Micro finance is powerful instrument for enhancing production and productivity and

also for alleviating poverty. In order to build the capacities of poor and facilitate the process of

empowering them many organizations are working in India Micro finance play a vital role to

bridge the gap between demand and supply of financial services among the rural poor.

An estimated of about 300 millions in India and around 1.2 billion population world wide live in

absolute poverty. They are unable to meet their most basic human needs for food, clothing,

shelter and minimum health care. Since 1947, the absolute number of poor has doubled despite

the significant growth in agriculture production and employment over the past five decades of

development planning. Rural poverty continues to pose the greatest challenge in India.

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Micro-finance programmes in the recent past have become one of the more promising ways to

use scarce development funds to achieve the objectives of poverty alleviation. Furthermore,

certain micro-finance programmes have gained prominence in the development field and beyond.

The basic idea of micro-finance is simple: if poor people are provided access to financial

services, including credit, they may very well be able to start or expand a micro-enterprise that

will allow them to break out of poverty.

On an average, there is at least one retail credit for about 5000 rural people or every 1000

households. Rural credit from non-institutional sources (informal credit) was more than 36 per

cent, indicating the role of money lenders in the rural credit system.

Under the microfinance programme, loans are extended to the ‘Self Help Groups (SHG)’who

pool a part of their income into a common fund from which they can borrow. The members of

the group decide on the minimum amount of deposit which ranges from Rs20 to Rs 100 per

month depending upon the size of the group. The group funds are deposited with a Micro

Finance Institution (MFI) against which they usually lend (The deposits are usually placed with a

bank by the MFI) at a credit deposit ratio of 4:1 but the ratio improves with account performance

record i.e. prompt repayment of loans. The group funds are the way ‘micro savings’ are

enforced, though it may seem like collateral. The loan ticket sizes are usually Rs 2000/- to Rs

15,000/-(Source: Field Survey by Author and Impact Assessment of Microfinance in India-

Frances Sinha and the impact assessment team: EDA Rural Systems Pvt. Ltd, Gurgaon, 2003)

The growing realization among the rural poor to collectively pool their small savings so as to

create a corpus of funds to cater to their emerging credit needs underlined the emergence of

SHG's and other group related saving and credit activities in many developing countries

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In developing economies and particularly in the rural areas, many activities that would be

classified in the developed world as financial are not monetized: that is, money is not used to

carry them out. Almost by definition, poor people have very little money. But circumstances

often arise in their lives in which they need money or the things money can buy.

In Stuart Rutherford’s recent book The Poor and Their Money, he cites several types of needs:[18]

• Lifecycle Needs: such as weddings, funerals, childbirth, education, homebuilding,

widowhood, old age.

• Personal Emergencies: such as sickness, injury, unemployment, theft, harassment or

death.

• Disasters: such as fires, floods, cyclones and man-made events like war or bulldozing of

dwellings.

• Investment Opportunities: expanding a business, buying land or equipment, improving

housing, securing a job (which often requires paying a large bribe), etc.

Poor people find creative and often collaborative ways to meet these needs, primarily through

creating and exchanging different forms of non-cash value. Common substitutes for cash vary

from country to country but typically include livestock, grains, jewelry, and precious metals.

As Marguerite Robinson describes in The Microfinance Revolution, the 1980s demonstrated that

"microfinance could provide large-scale outreach profitably," and in the 1990s, "microfinance

began to develop as an industry" (2001, p. 54). In the 2000s, the microfinance industry's

objective is to satisfy the unmet demand on a much larger scale, and to play a role in reducing

poverty. While much progress has been made in developing a viable, commercial microfinance

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sector in the last few decades, several issues remain that need to be addressed before the industry

will be able to satisfy massive worldwide demand. The obstacles or challenges to building a

sound commercial microfinance industry include:

• Inappropriate donor subsidies

• Poor regulation and supervision of deposit-taking MFIs

• Few MFIs that meet the needs for savings, remittances or insurance

• Limited management capacity in MFIs

• Institutional inefficiencies

The impact of microfinance is commendable in courage, self-confidence, self worthiness, skill

development, awareness about environment, peace in the family, reduction of poverty improving

rural savings, managerial ability decision making process and group management.

In other variables the impact is moderate. As a result of participation in microfinance through

the SHG programmes there is observed a significant improvement of managerial skills,

psychological well being and social empowerment. It is recommended that the SHGs may be

granted legal status to enhance the performance.

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Ways in which poor people manage their money

Rutherford argues that the basic problem poor people as money managers face is to gather a 'usefully

large' amount of money. Building a new home may involve saving and protecting diverse building

materials for years until enough are available to proceed with construction. Children’s schooling

may be funded by buying chickens and raising them for sale as needed for expenses, uniforms,

bribes, etc. Because all the value is accumulated before it is needed, this money management

strategy is referred to as 'saving up'.

Often people don't have enough money when they face a need, so they borrow. A poor family

might borrow from relatives to buy land, from a moneylender to buy rice, or from a microfinance

institution to buy a sewing machine. Since these loans must be repaid by saving after the cost is

incurred, Rutherford calls this 'saving down'. Rutherford's point is that microcredit is addressing

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only half the problem, and arguably the less important half: poor people borrow to help them

save and accumulate assets. Microcredit institutions should fund their loans through savings

accounts that help poor people manage their myriad risks

Saving down

Most needs are met through mix of saving and credit. A benchmark impact assessment of

Grameen Bank and two other large microfinance institutions in Bangladesh found that for every

$1 they were lending to clients to finance rural non-farm micro-enterprise, about $2.50 came

from other sources, mostly their clients' saving. This parallels the experience in the West, in

which family businesses are funded mostly from savings, especially during start-up.

Recent studies have also shown that informal methods of saving are unsafe. For example a study

by Wright and Mutesasira in Uganda concluded that "those with no option but to save in the

informal sector are almost bound to lose some money – probably around one quarter of what

they save there.”

The work of Rutherford, Wright and others has caused practitioners to reconsider a key aspect of

the microcredit paradigm: that poor people get out of poverty by borrowing, building

microenterprises and increasing their income. The new paradigm places more attention on the

efforts of poor people to reduce their many vulnerabilities by keeping more of what they earn

and building up their assets. While they need loans, they may find it as useful to borrow for

consumption as for microenterprise. A safe, flexible place to save money and withdraw it when

needed is also essential for managing household and family risk.

Impacts at a household level

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Health and education are two key areas of non-financial impact of microfinance at a household

level. Wright (2000, p.31) states that from the little research that has been conducted on the

impact of microfinance interventions on health and education, nutritional indicators seem to

improve where MFIs have been working. Research on the Grameen Bank shows that members

are statistically more likely to use contraceptives than non-members thereby impacting on

family size (ibid.). Littlefield, Murduch and Hashemi (2003, p.3) also acknowledge the sparse

specific evidence of the impact of microfinance on health but where studies have been conducted

they conclude, “households of microfinance clients appear to have better nutrition, health

practices and health education than comparable non-client households”. Among the examples

they give is of FOCCAS, a Ugandan MFI whose clients were given health care instructions on

breastfeeding and family planning. They were seen to have much better health care practices

than non-clients, with 95% of clients engaged in improved health and nutrition practices for

their children, as opposed to 72% for non-clients.

Microfinance and its impact in Development

microfinance plays three key roles in development. It:

♦ helps very poor households meet basic needs and protects against risks,

♦ is associated with improvements in household economic welfare,

♦ helps to empower women by supporting women’s economic participation and so promotes

gender equity.

Otero (1999, p.10) illustrates the various ways in which “microfinance, at its core combats

poverty”. She states that microfinance creates access to productive capital for the poor, which

together with human capital, addressed through education and training, and social capital,

achieved through local organization building, enables people to move out of poverty (1999). By

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providing material capital to a poor person, their sense of dignity is strengthened and this can

help to empower the person to participate in the economy and society (Otero, 1999).

The aim of microfinance according to Otero (1999) is not just about providing capital to the poor

to combat poverty on an individual level, it also has a role at an institutional level. It seeks to

create institutions that deliver financial services to the poor, who are continuously ignored by the

formal banking sector. Littlefield and Rosenberg (2004) state that the poor are generally

excluded from the financial services sector of the economy so MFIs have emerged to address this

market failure. By addressing this gap in the market in a financially sustainable manner, an MFI

can become part of the formal financial system of a country and so can access capital markets to

fund their lending portfolios, allowing them to dramatically increase the number of poor people

they can reach (Otero, 1999).

Empowerment of Women

A key objective of many microfinance interventions is to empower women. Mosedale (2003,p.1)

states that if we want to see people empowered it means we currently see them as being

disempowered, disadvantaged by the way power relations shape their choices, opportunities and

well-being. She states that empowerment cannot be bestowed by a third party but must be

claimed by those seeking empowerment through an ongoing process of reflection, analysis and

action (2003).

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Kabeer, quoted in Mosedale (2003, p.2) states that women need empowerment as they are

constrained by “the norms, beliefs, customs and values through which societies differentiate

between women and men”. She also states that empowerment refers to the “process by which

those who have been denied the ability to make strategic life choices acquire such an ability”,

where strategic choices are “critical for people to live the lives they want (such as choice of

livelihood, whether and who to marry, whether to have children, etc)” (Kabeer, 1999, p.437).

Therefore MFIs cannot empower women directly but can help them through training and

awareness-raising to challenge the existing norms, cultures and values which place them at a

disadvantage in relation to men, and to help them have greater control over resources and their

lives.

Key Players in the Micro Finance System

The structure of rural financial market in India has both formal and informal financial

intermediaries. It is widely accepted that formal financial sector is not effectively serving the

rural poor in developing countries. The performance of formal financial institutions in India

especially in lending the poor has been unsatisfactory. There are a number of constraints viz.

limited land and small economic activity but the demand for credit has been increasing with the

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growing family size, higher consumption expenditure and social obligation and so on. The

following are the key players in Micro Finance System.

1. National Bank for Agricultural and Rural Development (NABARD)

NABARD is an apex institution, accredited with all matters concerning policy, planning and

operations in the fields of credit for agriculture and other economic activities in rural areas in

India.

2. Reserve Bank of India

Considerable work had been done by RBI in this sector since 1991. In 1991-92 a pilot project for

linking up SHGs with banks was launched by NABARD in consultation with the RBI. In 1994,

the RBI constituted a working group on SHGs.

3. Self Help Groups

SHG are considered a new lease of life for the women in villages for their social and economic

empowerment. SHG is a suitable means for the empowerment of women.

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4. Micro Finance Institutions (MFIs)

A range of institutions in public sector as well as private sector offers the micro finance services

in India. Based on asset sizes, MFIs can be divided into three categories:

1. 5-6 institutions which have attracted commercial capital and scaled up dramatically when last

five years.

2. Around 10-15 institutions with high growth rate, including both News and recently form for-

profit MFIs.

3. The bulk of India’s 1000 MFIs are NGOs struggling to achieve significant growth.

5. Non Government Organizations (NGOs)

The Non Government Organizations involved in promoting SHGs and linking them with the

Formal Financial Agencies

OBJECTIVES OF STUDY

The main objectives of the study are as follows:

I. To review the genesis, formation and development of SHG’s in India and particularly in Eluru

region.

II.To studies the status of micro-finance and its implications in selected areas of Eluru.

III.To study the accessibility of rural women institutional and non-institutional credit and

problems faced in administration of SHG’s;

IV.To analyze the impact of micro-credit on socio economic empowerment of rural women in

Eluru

METHODOLOGY

The present study has been conducted in Eluru with the objective of studying Auspicious and

Anguishes of rural poor. The sample constituted 78 beneficiaries selected in Eluru. The study

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was based on primary data collected through structured questionnaire schedule as well as

secondary data. The information was also collected through discussion with development

functionaries.

REVIEW OF LITERATURE

Namboodiri and Shiyani (2001) reported that the SHGs that are promoted by the NGOs had a

better saving performance compared to that of SHIP. However, the repayment performance of

the SHGs promoted by the SHIP was superior to that of NGOs.

Pankaj (2001) reported that the SHG-bank linkage programme launched by NABARD in 1992 is

activities land mark in the field of micro financing in India. This programme aims to organize

SHGs 10 to 20 persons from the economically homogenous strata regularly same the amounts

from their earnings.

Manimekalai and Rajeshwari (2001) in their paper highlighted that the provision of micro-

finance by the NGO's to women SHG's has helped the groups to achieve a measure of economic

and social empowerment. It has developed a sense of leadership, organizational skill,

management of various activities of a business

Puhazhendhi (1999) analyzed the functioning of SHG's, in performance, sustainability,

empowerment of women, economic impact on the members, future potentials etc. He observed

that SHG's in Tamil Nadu are performing well towards social change and transformation. The

emerging trends are leading to positive direction of empowerment of members and promotion of

micro finance.

Dr.C.Rangarajan (2006) in his topic ‘Microfinance and its future directions’ in the introductory

part of the book, outline the evolution of SHG through microfinance evolve through in three

stages. First, to meet survival requirement need, in the second stage is to meet the subsistence

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level through investing in tradition activities and in the final stage by setting up of enterprises for

sustainable income generation.

Yaron [1994), Besley, (1994)11, underlined that the micro finance institutions remain most

successful ones in terms of outreach and performance in delivering credit services to the poorest

of the poor women, and small artisans in the rural and urban areas, reduction in adverse selection

of borrowers, development of collateral substitutions, offering cost effective approaches to

formal institutions.

Morduch Jonathan(1999) :The Microfinance Promise pp 1569-1614 in Journal Of Economic

Literature, 37 (December) defines ‘Microfinance schism’ meaning that the majority of the

poorest cannot pay high interest rates regularly, in which case it is a choice between self

sufficiency and targeting the poor.

DATA ANALYSIS

The study interprets and discussed the results of the investigation focused on the impact of

microfinance on rural poor in Eluru, the results pertaining to the hypotheses and their detailed

discussions were presented in this study. Finally the comprehensive discussion is presented.

1. AGE

Age is an important element in the personality of individual and plays an important

role to opt for membership in MFIs. It has been observed that youngest are generally

more energetic, change prone, progressive, innovative and career oriented.

Therefore, an analysis is made to examine the age-wise distribution of members of

micro-finance institutions.

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1. Age wise Distribution of the Respondents Particulars No. of. Respondents % of Respondents

21 to 25 years 4 5.128

26 to 30 years 11 14.102

31 to 35 years 11 14.102

36 to 40 years 22 28.205

41 to 51years 22 28.205

52 to 60 years 08 10.256

TOTAL 78 100

Interpretation

The data in Table shows that largest proportion of the respondents to the extent of 28 per cent

was in the age group of 36-40 years followed by again 28 per cent in the age group of 41-52

years.

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2. EDUCATION

Education is an important determinant of social class. It is an important instrument of increasing

and betterment of the change on the rural poor employability. It enables them to think for

themselves making confident and also to develop the capacity of recognizing. Education has

been reported as crucial factor for developing rural poor and also empowers them.

2. The Educational level of the respondents

Particulars No. of. Respondents % of Respondents

Illiterate 21 26.923

Up to s.s.c 44 56.410

Higher Secondary 9 11.538

Degree 4 5.128

78 100

Interpretation

The data in Table reveals the educational qualification of the respondents. There are 44 per cent

of respondents who have studied up to 10th class including those who can only sign.

3. MARITAL STATUS

Marriage has a role to play in deciding the social status and living conditions of poor in India

particularly the rural women. As the society is by and large, the husband’s social status defined

the social status of women.

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3. Martial status


Unmarried 1 1.282

Married 74 94.872

Separated 1 1.282

Widow 2 2.564

78 100

Interpretation

The data in Table shows that the married MFI members were large in majority 94 percent and

only 1.282 per cent are of respondents were un-married.

4. TYPE OF FAMILY

The type of the family is classified into two categories viz, joint family and nuclear family and

the details of the respondents shown in the table 4. An analysis of the type of family-wise

distribution of respondents is presented in the table.

4. Type of Family


Joint family 4 5.128

Nuclear family 74 94.872

TOTAL 78 100

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Interpretation

The type of the family is classified into two categories viz., joint family and nuclear

families and given in 4 table that majority of the respondents stake holders live in nuclear

families with 95 per cent and 5 per cent of them were living in joint families. It is true

that the tendency to move to nuclear families in rural areas has been in practice which is true

in this study.

5. INCOME GROUP

The type of the family is classified into 4 categories viz, below poverty line, poor, middle

income group and upper middle class shown in the table 5. An analysis of the type of income

distribution of respondents is presented in the table 5.

5. Income Group


Below Poverty line 01 01.282

Poor 04 05.128

Middle Income Group

65 83.333

Upper Middle Class 08 10.256

TOTAL 78 100

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Interpretation

The data in Table reveals the income group of the respondents. There are 83 per cent of

respondents was in the middle income group followed by again 10 per cent in the upper middle

class.

6. FORMATION OF SELF HELP GROUP

The formation of self help group classified into 6 categories viz, Bank & Government

Department, N.G.O & Government Department, N.G.O &Neighboring SHGs, N.G.O &

Own interest, N.G.O & Relatives, N.G.O & Neighbors presented in the table 6.

6. Formation of self help group


Bank & Government Department 54 69.230

N.G.O & Government Department

1 1.282

N.G.O &Neighboring SHGs 4 5.128

N.G.O &Own interest 10 12.820

N.G.O & Relatives 3 3.846

N.G.O & Neighbors 6 7.692

TOTAL 78 100

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Interpretation

The data in Table reveals the formation of self help group. There are 69 per cent of respondents

said that the self help group are formed by bank and government department.

7. THE REASONS FOR JOINING IN SHGS

The reasons for joining in SHGs are an important determinant of social class. An analysis of

the reasons for joining in SHGs is presented in the table 7.

7. The reasons for joining in SHGS


To Save 13 16.666

To avail loan 30 38.461

Supplement family income 28 35.897

Save & employment 6 7.692

Save & social status 1 1.282

TOTAL 78 100

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Interpretation

The above table shows that 38 percent of the respondents expressed that the reasons for

joining in SHGs is to avail loan that is provided by the micro finance institutions and other

35 percent respondents said that it is the supplement family income.

8. AVAILABILITY OF LOAN AMOUNT

The availability of loan amount attracts the respondents to join in SHGs. It improves the life

income level of the poor people and also brings better changes in the life style of the rural

poor. An analysis of the availability of loan amount is presented in the table

8. Availability of Loan Amount


Up to 5,000 17 21.795

5,001 to 9,999 1 1.282

s10,000 to 54,999 19 24.359

25,000 to 50,000 18 23.077

50,001 to 1,00,000 4 5.128

Above 1,50,000 19 24.359

TOTAL 78 100

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Interpretation

The above table reveals that 24 percent of the respondent said that between Rs.10000 to upto

Rs.55000 loan amount is available to them followed by 24 percent opined that above Rs.150000

available to them.

9. OPINION REGARDING RATE OF INTEREST

Rate of interest is one of the drawbacks to attract less people to join in SHGs. The following

table shows the opinion of the respondents regarding rate of interest on availability of loan

amount.

9. Opinion regarding Rate of Interest


Low 12 15.385

Moderate 11 14.102

High 15 19.231

Satisfactory 34 43.589

Not Satisfied 6 7.692

TOTAL 78 100

Interpretation

The data in above table depicts that nearly 44 percent of the respondents said that they are

satisfied with the rate of interest that is charged by the micro financial institutions and followed

by 19 percent opined that the rate of interest is high.

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10. PURPOSE OF LOAN

The main purpose of taking loan is an improving livelihood of the people. The purpose of

loan is shown in the following table.

10. Purpose of Loan

Particulars No. of. Respondents

% of Respondents

Animal Husbandry( Sheep, Milk Animals, Poultry)

40 51.282

Consumption expenses( Medical expenses, children education)

19 24.359

Traditional activities(Agriculture, handlooms) 11 14.103

Services( cable T.V, Suppliers, Tailoring)

1 1.282

Micro and Small business(Cut piece sales, Cattle feed sales, Construction material sales, Small Business(Cart Sales, Sandy Sales))

3 3.846

Provision Shops and Sales 4 5.128

TOTAL 78 100

Interpretation

The data in table 10 shows that 51 percent of the respondents reported that the loan can be

invested in the animal husbandry business. And another 24 percent said that the loan used for

medical expenses and children education etc.

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11. ROLE OF NGO

The emphasis on reaching the ‘poorest of the poor’ may be flawed. There may be a need to focus

more specifically on providing loans to entrepreneurs, rather than treating everyone as a potential

entrepreneur. NGO’s plays a vital role in micro finance. It encourages the rural poor to join in

SHGs and avail the loan amount. The role of NGOs presented in the table 11.

11. Role of NGO


NGO encourage women to form

SHGs 54

69.231

NGO link SHGs with Banks 24 30.769

TOTAL 78 100

Interpretation

The table 11 depicts that the role of NGOs in Micro Finance. 69 percent respondents said that

NGO encourages women to form SHGs. Another 31 percent opined that NGO Link with SHGs

with Banks.

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FINDING OF THE STUDY

Age: The largest proportion of the respondents (28%) was in the age group of 36-40 years

followed by 28 per cent in the age group of 41-51 years

Education: There are 56 per cent of respondents who have studied up to 10th class and 27 per

cent of the respondents were illiterate. This indicates that educational qualifications are very

important to take an activity, but is not up to the expected level.

Marital Status: The married MFI members were large in majority 94 percent and only 1.282 per

cent are of respondents were un-married.

Family: Majority of the respondents stake holders live in nuclear families with 95 per cent

and 5 per cent of them were living in joint families.

Income group: There are 83 per cent of respondents was in the middle income group followed

by again 10 per cent in the upper middle class.

Formation of SHGs: There are 69 per cent of respondents said that the self help group are

formed by bank and government department.

Reasons for joining in SHGs: 38 percent of the respondents expressed that the reasons for

joining in SHGs is to avail loan that is provided by the micro finance institutions and other 35

percent respondents said that it is the supplement family income.

Availability of Loan Amount: 24 percent of the respondent said that between Rs.10000 to upto

Rs.55000 loan amount is available to them followed by 24 percent opined that above Rs.150000

available to them.

Rate of Interest: 44 percent of the respondents said that they are satisfied with the rate of

interest that is charged by the micro financial institutions and followed by 19 percent opined that

the rate of interest is high.

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Purpose of Loan: 51 percent of the respondents reported that the loan can be invested in the

animal husbandry business. And another 24 percent said that the loan used for medical expenses

and children education etc.

Role of NGOs: 69 percent respondents said that NGO encourages women to form SHGs. An

SUGGESTIONS

• All in all the government should keep an eye on the MFIs and facilitate their working

through making a structured regulatory framework for NGOs/SHGs and other

microfinance institutions.

• The members of all the self-help groups need to undergo training programmes related to

accounting, motivation etc. It helps them in better understanding of need of relation

between micro financing and members for smooth functioning.

• It is there must be a minimum period of moratorium between the grant of the loan and the

commencement of its repayment.

• Discriminations by the official shall be stopped.

• Government can consider fixing low interest rates on lending by the banks to MFIs both

as the primary sector / weaker section and special interest subvention so that the MFIs

can balance their high cost of operation and lend to the poor clients at reasonable rate of

interest.

CONCLUSION

There is need to accept that rural poor needs are not only for self-employment. The

programmes should be designed on the basis of the needs of rural poor at the micro level.

Planning for self-employment for rural poor needs a multi-pronged strategy.

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Microfinance through has reached the un-reached rural poor. There is need to evolve an

informal micro financing through formal financial institutions. The massive growth of

microfinance has paved the way for immediate financial accessibility for the poor who

are too far away from this accessibility and microfinance. Microfinance is an alternative

system of credit delivery for the poorest of the poor. It would help in improving the

quality of life in rural India. The government of India can play vital role in encouraging.

MFI should come forward and extend facilities especially in empowering rural poor by

providing education (training), motivation, and financial help and so on. MFI bring unity

and integrity among the members. It improves general welfare of family and community.

MFI assist the rural poor to perform traditional roles better and to take up micro

entrepreneurship. Key challenges facing MFIs today that are affecting their impact on

poverty alleviation were seen to be an over-emphasis on financial sustainability over

social objectives, and a failure of many MFIs to work with the poorest in society.

Therefore, there is a greater need for MFIs to carefully design services that meet the

needs of the poor and this can only be done when MFIs understand their needs and the

context within which the poor are working (Morduch, 2004). If MFIs are to meet their

overall development objectives then they need to ensure financial sustainability and

outreach of financial services designed to meet the needs of those most in need of such

services.

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The impact of microfinance on poverty alleviation is a keenly debated issue as we have seen

and it is generally accepted that it is not a silver bullet, it has not lived up in general to its

expectation (Hulme and Mosley, 1996). However, when implemented and managed carefully,

and when services are designed to meet the needs of clients, microfinance has had positive

impacts, not just on clients, but on their families and on the wider community. There is however

a need for greater assessment of these wider impacts if the true value of microfinance to

development is to be understood (Zohir and Matin, 2004). One such tool for measuring wider

impact is a livelihood security analysis based on a livelihoods framework which analyses how a

project impacts on the livelihoods of beneficiaries.

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