MICRO - FINANCE IN INDIA: SUSTAINABLE RURAL DEVELOPMENT FOR THE POOR

M.Saravanan, Research Scholar in Commerce, Sree Narayana Guru College, K.G.Chavadi, Coimbatore – 641 105

Email.: shravan.murugan@gmail.com Mobile No.: + 91 99434 37749

It is now recognized fact that microfinance can help rural poor people to increase their income

through viable micro enterprises. It could be a powerful instrument for achieving economic and

social empowerment of rural poor especially women.

 

As the poor people cannot have huge amount of savings, the demand for cheap and low cost

funds are high. Although there are a number of rural banks in India, the rural poor rarely

perceive those banks as alien institutions. As a result, majority of rural poor could not come

purview of formal credit system. The following are the reasons behind the failure of formal

credit system:

 

Formal banks impose burden of loans on the poor who have no repaying capacity. Thus

the credit becomes counter productive.

Habitual poverty invalidates the hopes and aspirations of poor people.

Credit programme for the poor may be highly feeble.

Credit provides only temporary relief to poor.

Credit for the production activities sometime used as other social and consumption needs.

Micro credit for micro enterprise is useless if the micro credit is not accompanied with

training for capacity development, marketing skill, technological skill etc.

 

In rural India it can be seen that the poorer sections of the society of and destitute cannot avail of

the credit from banks and other formal institutions due to their inability to deposit collateral

security and mortgage property. At this point of view, micro financing of group lending is being

looked upon as the instrument that can be considered as the golden stick for poverty alleviation

vis-à-vis rural development.

 

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MICRO-FINANCE: CONCEPTS

The term microfinance is of recent origin and is commonly used while addressing the issue of

financial support to micro-entrepreneurs. There is, however, no statutory definition for

microfinance. The taskforce on Supportive Policy and Regulatory Framework for Microfinance

has defined microfinance as “Provision of thrift, credit and other financial services and products

of very small amounts to the poor in rural, semi-urban or urban areas for enabling them to raise

their income levels and improve living standards”.

Micro Financial Sector (Development and Regulation) Bill, 2007 defines Microfinance services

as credit, life insurance, general insurances and pension services. While micro credit has been

defined as loans not exceeding Rs. 50000 (Rs. 1,50,000 in case of housing).

 

The different Models of Microfinance are:

1) SHGs promoted and financed by banks.

2) SHGs promoted by NGOs/Govt. Organisations and finance by banks.

3) SHGs promoted by financed through by NGOs by raising bank loans

4) The federated SHG approach.

5) SHGs promoted by NGOs/Societies/other organizations and financed by Microfinance

Institutions.

6) SHGs promoted and financed by MFIs (Grameen Replicator Approach)

7) Individuals directly financed by MFIs

8) The Urban Corporation Banking Model.

9) The Multi State Cooperative Solidarity group model.

10) The NBFC approach.

 

RURAL DEVELOPMENT: CONCEPTS

Rural Development means over-all development of rural areas to improve the quality of life of

rural people. It is an integrated process, which includes social, economic, political and spiritual

development of the poorer sections of the society.

 

Right from independence in fact even in the pre-independence era, rural development vis-à-vis

poverty alleviation had been considered as a major challenge to our country. Initially it was

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assumed that various poverty alleviation programmes such as IRDP, TRYSEM, DWCRA, ICDP,

SITRA, etc. could be able to enhance income level of the rural masses through trickle down

effect. But these programmes failed to achieve the target because ‘trickle down’ effect of

economic growth cannot be achieved if the growth is not accompanied with infrastructure

development; which is essential for speedy percolation of the benefit of such programmes.

Most poverty alleviation schemes also faced the problem of credit mobilization to the rural

masses. In the earlier schemes like IRDP, DWCR, etc. the beneficiaries perceived the loan as

grant. They did not feel the responsibility of repaying the loan. Bankers too did not have the time

or mechanism to monitor the repayment process. Due to poor recovery of loan the schemes

became non-viable (Rath, 1995 and Rao, 1990). The urgent need is capacity building of the poor

masses so that they can progress themselves; mere financial support cannot be useful in Rural

Development in the long term. Group approach can make rural people more capable for

considerable improvement in their quality of life.

MICRO-FINANCE & RURAL DEVELOPMENT: ROLE OF SELF-HELP GROUPS

Self –Help Group (SHG) is a homogeneous group of poor, women, users etc. This group is a

voluntary one, formed on areas of common interest so that they can think, organize and operate

for their own development. SHGs function on the basis of co-operative principles and provide a

forum for members to extent support to each other. SHGs play a crucial role in improving the

savings and credit and also in reducing poverty and social inequalities. They can play pivotal role

in:

 

1. Preventing exploitation of the poorer sections by creating self-reliance.

 2. Building leadership qualities among group members.

 3. Helping group members in documentation for obtaining credit.

 4. Motivating members for prompt repayment of credit.

 5. Providing training to its members.

 

National Bank for Agriculture and Rural Development (NABARD) was established as a

development bank for providing and regulating credit and other facilities for the promotion and

development of agriculture, small scale industries, cottage and village industries etc. The

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objective of NABARD 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 particularly for

women and vulnerable sections of society consistent with sustainability.

 

The first effort was taken by NABARD in 1986-87 when it supported and funded an action

research project on “savings and credit management of self help groups” of Mysore Resettlement

and Development agency (MYRADA).Then NABARD launched a pilot project to provide

micro-credit by linking SHGs with bank in 1991-92. The SHG-Bank Linkage Programme’s aim

was to improve rural poor’s access to formal credit system in a cost effective and sustainable

manner by making use of SHGs.

 

Under the NABARD approach of SHGs linkage, banks extend loans to SHGs either directly or

through NGOs. NABARD extends 100 par cent automatic refinance facility to all banks against

their lending to SHGs or through NGOs to SHGs. As on 31 March 2007, 41,60,584 SHGs were

maintaining savings bank accounts with the banking sector with outstanding savings of Rs.

3512.71 crore, thereby covering more than 5.8 crore poor households under SHG Bank Linkage

Program.

The Commercial Banks had the maximum share of savings from 22, 93,771 SHGs (55.1%) with

savings amount of Rs. 1892.42 crore (53.9%) followed by Regional Rural Banks with savings

bank accounts of 11, 83,065 SHGs (28.4%) and savings amount of Rs. 1158.29 crore (32.9%)

and Cooperative Banks having savings bank accounts of 6, 83,748 SHGs (16.4%) with savings

amount of Rs. 462.00 crore (13.2%). The share of SGSY SHGs in the total was 9, 56,317

forming 22.9% of the total SHGs having savings accounts in the banks.

 

Based on the studies mentioned above and the results of action research conducted, NABARD

developed the Self Help Group [SHG] - bank linkage approach as the core Strategy that could be

used by the banking system in India for increasing their outreach to the poor. The strategy

involved forming SHGs of the poor, encouraging them to Pool their thrift regularly and using the

pooled thrift to make small interest bearing loans to members, and in the process learning the

nuances of financial discipline. Bank credit to such SHGs followed NABARD saw the

promotion and bank linking of SHGs not merely as a credit programme but as part of an overall

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arrangement for providing financial services to the poor in a sustainable manner leading to

empowerment of the members of these SHGs.

  

True sustainable development is achieved only when the community’s plans and actions

recognizes various aspects of Economy, Environment, Equity and Society simultaneously. We

can say that the SHGs formed under various programmes provide a great scope of convergence

of the programme / activities of various ministries, departments and organizations.

 

CONCLUSION

The Micro credit – SHGs model has got tremendous attention in recent years. Micro credit is an

alternative source of credit for the poor who earlier were considered as non bankable. This

system not only provides credit, most important input for development, to the poorer section of

the society, but also aimed for their capacity building. It has also been observed that group

lending has distinct advantage in the form of excellent recovery rate improvement in the income

level. The phenomenal growth of SHGs indicates that the weaker sections of the society are also

capable to sharpen their micro-entrepreneurial skills with the help of their own savings and

additional bank credit, as needed. At this point, micro credit – SHGs integration could be the

way out for overall rural development vis-à-vis poverty alleviation

 

REFERENCES:

Karmakar, K.G. (1999), Rural Credit and Self-help Groups: Micro finance Needs and Concepts

in India, New Delhi, and Sage Publication.

Dasgupta R. (2001) An informal Journey through Self-Help Groups, Journal of Agricultural

Economics Vol.56 (03) pp.370-385

Satis P. (2001) Some issues in the Formation of Self Help Groups, Journal of Agricultural

Economics Vol.56 (03) pp.411-418

 

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