MICROFINANCE:A RAY OF HOPE

Dr.BISHNU CHARAN NAGMOTILALNEHRU COLLEGE(E)

UNIVERSITY OF DELHI

Microfinance is an approach of economic development that involves providing financial services, through institutions, where the market fails to provide appropriate services, to low-income clients including consumers and the self- employed

The Canadian International Development Agency (CIDA) defines microfinance as, “the provision of a broad range of financial services to poor, low income households and Micro-enterprises usually lacking access to formal financial institutions”.

 

MEANING

Microcredit and Microfinance

Microcredit - A small amount of money loaned to a client by a bank or other institution

Microfinance-Loans savings, insurance, transfer services, microcredit loans and other financial products targeted at low-income clients

MuhammadYunnus- Department of Economics, Chittagong University NOBLE PEACE PRIZE-2006 Grameen Bank-Established on the outskirts

of the village of Jobra in Bangladesh in 1976. Credit is a fundamental human right. Objective: To help poor people escape from

poverty by providing loans on terms suitable to them and by teaching them a few sound financial principles so they could help themselves

BACKGROUND

About three billion people, half of the world’s population, living on the income of less than two dollars a day

Among the poor communities, one child in five does not live to see his or her fifth birthday

The ratio of the income between the 5% richest and 5% poorest of the population ◦ 74 to 1 in 2006 ◦ 30 to 1in 1960,

REALTY-WORLD

Growth not sustainable, as benefits of growth are not widespread

While Indian economy has shown an average growth of around 7 to 8 per cent in last eight years, the benefits have not equitably percolated to the different segments of the society

Rural agricultural sector has not gained the desired momentum of growth and development

In spite of so many developmental strategies undertaken by the government of India, poverty ratio is 28 per cent which subsists on less than US$ 1 a day, 74.9 per cent live on US$ 2 a day

214 million people are chronically food insecure About 50 per cent people are undernourished 68 out of 1000 die before the age of one year

REALITY-INDIA

Formal financial services are not available to poor people because of

High interest rate, Collateral requirements, Complicated application, Long admission procedures Lack of awareness

Inaccessibility of Credit

YEAR RURAL URBAN COMBINED

1973-74 56.44 49.01 54.88

1977-78 53.07 45.24 51.32

1983-84 45.65 40.79 44.48

1987-88 39.09 38.20 38.36

1993-94 37.23 32.36 35.97

1999-00 27.09 23.62 26.10

2004-05 22.41 21.50

POVERTY RATIO OF INDIA

LOW SAVING

LOW INVESTME

NT

LOW PROFIT

POVERTY

LOW INCOME

VICIOUS CIRCLE

CREDIT

INCREASE IN INCOME

INCREASE IN

SAVINGS

INCREASE IN INVMENTEST

INCREASE IN PROFIT

REDUCTION IN

POVERTY

SOLUTION

Joint Liability Mechanism charging lower interest rates and

generating high repayment ratesCross-Reporting Mechanism truthful-telling about the state of the project

and subsequently can minimize the deadweight loss

MECHANISM

PERFORMANCE

year SHGs outstanding savings

growth rate

Average savings

31 March 2009

61,21,147 5,545.62 crore

46.5% 9,060

31 March 2008

50,09,794 3785.39 crore

22.2% 7,556

In 2009 more than 8.6 crore poor households were associated with banking agencies under SHG-Bank Linkage Programme

Net household income between pre-SHG and post-SHG registered a significant growth per year at 6.1 per cent.

The annual growth rate per household consumption expenditure on food and non-food items recorded 5.1 per cent and 5.4 percent, respectively.

Per household annual expenditure on education and health recorded 5.6 per cent and 5.5 per cent growth, respectively.

The average loan amount per household grew at an annual rate of 20.5 per cent between the pre-SHG and the post-SHG periods.

About 93 per cent of households reported that loans had been taken in the post-SHG situation as compared to that of 46.5 per cent during pre-SHG

On the issue of repayment of loan by SHG members, the findings showed that 96.4 per cent of households had reported regularity in repayments of loans.

The share of households living below the poverty line reduced from 58.3 per cent in the pre-SHG period to 33 per cent in the post-SHG situation. The average annual poverty reduction rate was 10 per cent.

About 92 per cent of households reported that the social empowerment of women had increased after joining membership in SHGs over a period of time.

Impact Assessment Study –National Council of Applied Economic Research (NCAER)-2008-09

1.Corruption free development2.Overall development

Increase in level of educationIncrease in standard of livingIncrease in level of awarenessGradual removal caste systemIncrease in self-dignity and confidencePeace and harmony in family and society

3.Realization of democratic values

ADVANTAGES

Training for self-employment opportunities Gradual increase in loan amount Supervision

RECOMMENDATIONS

THANK YOU