role of microfinance and entrepreneurship development in...

*Assistant professor, Department of Business management IGNTU Amerkantak MP.

**Research Scholar, Department of Business management IGNTU Amerkantak MP.

Copyright © Universal Multidisciplinary Research Institute Pvt Ltd

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South -Asian Journal of Multidisciplinary Studies (SAJMS) ISSN:2349-7858:SJIF:2.246:Volume 3 Issue 5

Role of Microfinance and Entrepreneurship Development in India

Dr. Sushil K. singh*

Ram Pravesh**

Abstract

The entrepreneurship development in any country leads to the employment generation and

poverty eradication. That‟s why every country continuously tries to speed up the

entrepreneurship. In the scenario of India small entrepreneurs need small fund to boost up the

small business but government sector financial lending institutions are now failed to do it.

Therefore this creates the dependency of micro entrepreneur on microfinance lending institution.

It is seeing in structure of micro enterprise lending. Bangladesh is a pertinent example of, role of

microfinance in economic development after that Bangladesh became a model of economic

development through micro finance, now developing country applying this modal for economic

development. In the same line India is also applying and experimenting the flourish outcome of

microfinance. microfinance playing a vital role in economic development by entrepreneurship

development in India. The success of small business in India depends upon the accessibility of

working capital. It is only possible by microfinance lending. This paper is prepared by use of

secondary data. The researcher used internet as source of collection of secondary data. Tables

and simple percentage were use in data presentation. For analysis the two broad variables keep in

center in the study. First is entrepreneurship development as a dependent variable and second is

microfinance as an independent variable. The research paper is divided in three sections. First

section reveals the success of microfinance in different region across the country for

entrepreneurship development. The second section discloses the relationship between

microfinance and entrepreneurship development in the country. The third section concludes the

result of the research that is there is positive impact of microfinance institution lending on

entrepreneurship development in India.

Keywords- Entrepreneurship, Microfinance, Lending, Development, Financial Institution etc




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Introduction

The process of industrialization of India was start in second five year plan with the

objective of employment generation and to fulfill the hope demand of individuals. Although it

was centralized to only a group of industry that why a mass of Indian remain excluded by

entrepreneurial orientation because of they have not any idea to do something even does not have

finance to initiate. “About 90 percent of people in developing countries lack access of financial

services from institution either in form of credit or saving” ( Robinson et all 2002). Therefore so

many rural people migrate to big city for employment. After globalization so many multinational

companies spread their business in India at rural level but rural people remain unemployed. It is

sure that our success of development since independence is not satisfactory. Unemployment,

poverty, low living of standard, satisfaction level even our happiness level is very low in rural

region. Poverty and mass unemployment is very big challenge for us irrespective of immense

opportunity of entrepreneurship in agriculture and rural non- form sector. It is well known that

institutional financing system to poor in India is unable to fulfill their credit needs in response of

that micro finance is growing. Microfinance is playing a instrumental role in improving the

quality of life and eradication of poverty by meeting the needs of credit of rural poor. “

microfinance has already made a positive impact on quality of life of millions of poor people

by providing greater access to credit, saving, insurance, transfer remittances, and other financial

services which would otherwise be untouchable.” 1 Success of microfinance in Bangladesh to

provide livelihood opportunity to rural people have been became an instrument in several less

developed countries like Uganda, Bangladesh, Nigeria, and so on for sustainable

entrepreneurship development. In India rural people have low capacity to finance their

enterprise so productivity is limited, income is low, respectively domestic saving remain low and

again any increase in productivity is impossible. Skewed distribution of microfinance institution

in India is also breaking the rural people to engage in new entrepreneurial activity, hinder

economic growth, which inhibit the sustainability of entrepreneurial activity. Anyhow

microfinance acts as a tool to empower the rural people. Therefore now we have to focus on, to

what extent microfinance empowers the entrepreneurship in rural people? And what is its

contribution to economic development? The economic development is the “process of

improving the quality of all human lives” (Todaro 1994). So the economic development consider

three characteristic namely growth in income and consumption, speeding self-esteem by

institution that enhance human pride, and increasing freedom of people. So it considers the all

aspects of human development that is possible by only microfinance, if we talk about poor

people. “When the income of poor people rise then they improve their nutrition and send their

children to school” (Robinson 2002). Guy Vincent says „it is fundamental to economic

development, but also financial services help the poor to expand their economic activities and

increase their income and assets, their self-confidence grow simultaneously‟

iInternational journal of college science, 3: 2 July 2009, Tiyas Biswas and P. P. Sengupta




132


Objective

1. To analyze the development of micro financing in India.

2. To analyze the entrepreneurship development in the context of microfinance.

Context of micro finance in India

From past to present microfinance sector of India reveal the cash-cow growth pattern. It is

fact that 8 MFI have approval to open small finance bank by reserve bank of India and one MFI

has already worked as bank. The MFI in India generally covered those areas which are not now

covered by main stream financial institution and for those it playing a vital role for financial

inclusion. Now microfinance program have the take up the world wide campaign to provide

credit to poor by designing product and channels that fulfills the needs of the poor. The

economic situation and increasing earning of microfinance institution reveal that poor had great

repayment potential and also reveal by extension of its credit to women. at the end of March

2015 478 MFI were functioning in 33 state including Union Territory and 568 District in India

and has been reach to 33 million clients with 490 billion credit portfolio among them 40 percent

functioning in southern region and 25 percent in eastern region. The contribution of NBFC-MFI

is 85 percent of the total clients and 88 percent of the outstanding portfolio further remains

contributed by NGO-MFI. The 97 percent of the client of MFI is women and 67 percent is urban

at the end of 2015 March.

Region wise Selp-Help Group across the country

According to report of status of microfinance in India 2014-15 ( NABARD) there are every

region of India except southern region have good potential to open SHGs because huge range of

village are not covered by existing SHGs in that region. In the northern region of the country

360858 SHGs is currently functioning but several village was not covered by them and and

potential of the region to formation of new SHGs is around 680628. The north eastern region of

the India has also good potential of new SHGs formation around 162643. Present time 333981

SHGs is functioning in this region. The number of functioning SHGs in eastern region of the

country is 1524614. Here it is notable that it covering only half of total need of SHGs in the

region. The region has great potential to new SHGs formation around 1450466 that is second

biggest potential to open new SHGs. This region has major market for SHGs across all regions in

the country. The central region of the country has 817251 SHGs. That cap only small portion of

the potential of the region. The region has biggest potential of new SHGs formation across the

entire region of the country, which is number of 1793117. The western region of the country has

second greater number of SHGs. Now 941144 SHGs is working in this region. The potential of




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formation of new SHGs in the region is 246033. The region has second lowest potential for new

SHGs formation across entire the region of the country. The southern region of the country is

rich and enough by number SHGs. The region has 3719621 SHGs as on 31 March 2015. Number

of SHGs in the region is more greator than scenario of SHGs among all the region of the country.

It is only one region of the country which has enough number of SHGs by number of population.

The region has zero potential for new SHGs formation.

Table-1: Region wise context o f SHGs in India:

Sl. No. Region No. of SHGs Potential for SHGs formation

1 Northern region 360858 680628

2 North eastern region 333981 162643

3 Eastern region 1524614 1450466

4 Central region 817251 1793117

5 Western region 941144 246033

6 Southern region 3719621 0

7 Total 7697469 4332887

Source – NABARD (2014-15) status of microfinance in India

Progress of Micro Finance Program

5%4%

20%

11%

12%

48%

No. of SHGs Northern

region

North eastern

region

Eastern

region

Central

region

Western

region

Southern

region

16%4%

33%

41%

6%

0%

Potential of SHG Northern

region

North

eastern

regionEastern

region

Central

region

Western

region

Southern

region




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The National Bank of agricultural and Rural Development (NABARD) still continues to

extend credit to NGOs, RRBs, district central Cooperative Bank and Individual Rural Volunteers

(IRV) for accelerating and fostering the SHGs. The NABARD sanctioned 88.36 crore to these

institutions during 2014-25 in the form of financial assistance. A 339.83 crore cumulative grant

sanctioned to various agencies to promote the 7.19 Lakh SHG until the end of March 2015. As

on 31 March At the end of March 2015 93.77 crore grant sanctioned to 4.85 newly formed

SHGs. The Non-Government Organization (NGO) worked as most dominant player to promote

SHGs. NABARD is helping them to train and enhance the capacity of the stakeholders by

various microfinance programs. It has conduct 4402 training programs to train around 1.61 Lakh

individuals, stakeholders during 2014-15. As on 31 March 2015 around 33.28 individuals was

trained that playing as a strong back up group for execution of the program. It is impressive that

around 1087 training program with 31073 participants were conducted by the assistance of

Women Selp-Help Group (WSHG) fund. Although, government and Reserve Bank of India is

continue to emphasizing to to promote SHGs-BLP for financial inclusion like Prime Minister‟s

Jan Dhan Yojana. Despite of that all, the government of India continue all poverty eradication

programs by means.

Table 2: Growth of Bank Linkage SHGs:

S

.No.

Year No. of Selp- Help Group Linked to

bank

Growth rate

1 1998-99 18678 -----------

2 1999-00 81780 337.84

3 2000-01 149050 82.5

4 2001-02 197653 32.60

5 2002-03 255882 29.46

6 2003-04 361731 41.36

7 2004-05 539365 49.10

8 2005-06 620109 14.97

9 2006-07 1105749 78.31

10 2007-08 1227770 11.03

11 2008-09 1609586 31.09

12 2009-10 1586822 -1.41

13 2010-11 1196134 -24.62

14 2011-12 1147878 -4.03

15 2012-13 1219821 6.26

16 2013-14 1366421 12.01

17 2014-15 1141208 16.48

Average 1107443.35 44.55




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The table-2 reveals that the growth rate of Bank linkage SHGs is 337.84 in 1990 and 16.48 in

2015 with the average of 44.55. The progress of microfinance in the context of selp-help group

with Bank Linkage Program is the good indicator of progress of microfinance. Under the selp

help group bank linkage program 13839954 SHGs had linked at the end of 31 March 2015 and

they had loaned by Rs. 11575.98 billion during the year even they refinanced by Rs. 312.66

billion as on 31 March 2015. The huge amount of lending by microfinance institution to SHG

and again refinance them if they had need show that there is immense opportunity to expand the

field of microfinance market in the country. The Selp- Help Group Bank Linkage Program

(SHG-BLP) was first initiated on pilot scale in 1992 has expanded significantly. At the end of

March 2014 it reached to 74.30 Lakh saving linked SHG that cover over 9.7 crore poor

households with the saving of 9897.42 crore. 41.97 Lakh credit linked with SHG under the

program. Table 3: Growth of Bank Loan to SHGS

(Amount in Billion)

S . No. Year Bank Loan to SHGs

(in billions)

Growth rate

1 1998-99 .33 -------------

2 1999-00 1.36 312.12

3 2000-01 2.88 111.76

4 2001-02 5.45 89.23

5 2002-03 10.22 87.52

6 2003-04 18.56 81.60

7 2004-05 29.94 61.31

8 2005-06 44.99 50.26

9 2006-07 65.70 46.03

10 2007-08 88.49 34.68

11 2008-09 122.54 38.47

12 2009-10 144.53 17.94

13 2010-11 145.48 00.65

-100

0

100

200

300

400 Growth rate of Bank Linkage SHGs

growth rate




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14 2011-12 165.35 13.65

15 2012-13 205.85 24.49

16 2013-14 240.17 16.67

17 2014-15 203.84 -15.12

Average 87.98 60.70

Source – www.rbi.com( NABARD)

The table-3 reveals that average growth of bank loan to SHGs is 60.70 during 1990 to 2015.

The trend of growth rate is follow decreasing order. Table depict that 32.12 percent growth rate

in 1990 and it is continuously going downward direction, reach at -15.12 in 2015. The average

amount of bank loan is 87.98 billion during 1999 to 2015. The amount of bank loan is follow

increasing trend but growth rate is follow decreasing trend because the number of SHGs is

increase and amount of loan is not increasing according to that.

Table -4: Growth of Refinance Assistance to SHGs

S .

No.

Year Refinance Assistance

(in billions)

Growth rate

1 1998-99 .31

2 1999-00 .98 216.12

3 2000-01 2.51 156.12

4 2001-02 3.96 57.76

5 2002-03 6.22 57.70

6 2003-04 7.05 13.34

7 2004-05 9.68 37.30

-50

0

50

100

150

200

250

300

350

Growth Rate of Bank Loan to SHGS

Bank Loan

http://www.rbi.com/




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8 2005-06 10.68 10.33

9 2006-07 12.93 21.06

10 2007-08 16.16 24.98

11 2008-09 26.20 62.12

12 2009-10 31.74 21.14

13 2010-11 31.74 0

14 2011-12 30.73 -3.18

15 2012-13 39.17 27.46

16 2013-14 37.46 -4.36

17 2014-15 44.93 19.94

Average 18.37 44.86

Table-4 reveals that 216.12 percent growth rate in 1990 and 19.94 percent in 2015 with the

average of 44.86. From 1998 to 2015 around 312.45 billion had refinanced to various SHGs

across the country. The amount of refinance assistance during 1998 to 2011 was in increasing

order. The amount of refinance in the 2012 was decreased as compared to previous year, in this

year Rs. 30.73 billion was refinanced. The amount of refinance was same during the 2009 to

2011. Further it is continue to increase in all succeeding year up to March 2015. The growth rate

of refinance assistance to SHGs in 2010-11 is zero and it is respectively -3.18 and -4.36 during

2011-12 and 2013-14.

Table-5 Progress of micro finance program as on 31 March 2015 (In crore)

Sl.No. Particulars SHGs covered under SJGSY Assistance of SIDBI to MFI

2013 2014 2013 2014

Number Amount Number Amount Number Amount Number Amount

1 Loan

disbursed

during the

year

1219821

20585.36

1366421

24017.36

426

7839.51

545

10282.49

-50

0

50

100

150

200

250

Growth Rate of Refinanace Assistance to SHGS

Growth Rate of Refinanace Assistance to SHGS




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2 Loans

outstanding

4451434

39375.3

4197338

42927.52

2042

14425.84

2422

16517.43

3 Savings

accounts

with banks

7317551

8217.25

7429500

9897.42

SGSY- Swarnajayanti Gram Swarozgar Yojana, SHG- Selp- Help Group.

SIDBI - Small Industries Development Bank of India.

Sources – NABARD Annual Report 2014-15

The progress of micro finance in the context of loan disbursed, loan outstanding and number of

saving accounts with bank during the year is express the progress of micro finance in the

country. The number of Selp-Help group and loan disbursed by them is in increasing trend over

the year. The number of micro finance institution and loan disbursed by them is also follow the

same trend in the respective year. It indicates the scope for extension of micro credit market and

also for expansion of micro finance institution in the country. The growth of loan outstanding

over the year by financial institution in the country is also indicating increasing trend. The same

trend is followed by the Selp-Help Group over the respective periods. That show how much

potential of micro credit exist in the rural poor people in the country. In this case one thing is

considerable that number of Selp Help group is decreasing during the year but amount of loan

outstanding is increasing in a good amount. It indicates the bright future of loan outstanding. The

saving account of Selp Help Group with bank is also in increasing trend. The rate of growth of

saving account with bank is more than rate of growth of increasing number of Selp Help Group.

The Swarnajayanti Gram Swarozgar Yojana (SGSY) is covered the number of SHGs and

provide financial help to them year by year. The small industries development bank (SIDBI) is

also provide financial assistance to microfinance institution for helping various selp-help group

across the country. The amount provided by Small industries Development Bank to micro

finance institution is follow increasing trend that depicts that financial assistance by

microfinance institution to SHGs is growing. The growing order of financial assistance to SHGs

by MFI and other means is strengthening the financial situation of member of SHGs and also

helpful in creation of new SHGs across the country. The number of SHGs covered by SGSY is

also follow increasing trend and the financial assistance under SGSY is also in growing trend.

This all contribute to SHGs development by its own way and provide financial assistance to




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SHGs by own planed limit. Now their contribution to upliftment of poor is better and surely it is

providing the means of life living to the poor across the country.

Figure-6

Grant assistance extended to Selp-Help Group promoting institutions, as on 3 March 2015.

( Rs. In Lakh)

Agency Cumulative sanction up to 31 March

2015

Disbursements up to 31 March 2015

Amount No. of SHGs Amount No. of SHGs

NGOs 31276.72 565757 8601.44 374252

RRBs 772.46 44038 223.17 40590

Co-operatives

Banks

1394.91

74865

446.20

50870

IRVs 497.86 28910 84.86 12581

Formers clubs 41.18 5118 21.02 7322

Total 33983.13 718688 9376.69 485615

NGO- Non-Government Organization, RRB- Rural Bank, IRV- Individual Rural Volunteer.

Sources- NABARD annual report 2014-15

The grant assistance by the government to various Selp-Help Group promoting institutions is

also revealing the progress of micro finance in the country. The extension of grant to Non-

Government Organization (NGO), Regional Rural Bank (RRB), Cooperative Bank, Individual

Rural Volunteer (IRV) and former club is also witnessing the progress of micro finance in the

country. The amount of 33983.13 Lakh has sanctioned to this 718688 SHGs promoting

institution. And the disbursement figure is amount of 9376.69 Lakh to 485615 SHGs across the

country. The NGO is playing a vital role in the development of SHGs, granted to amount of

31276.72 Lakh and to promote 565757 SHGs in the country up to March 2015. They distributed

8601.44 Lakh to 374252 Lakh to various SHGs across the region of the country. Now NGOs has

became smart player to run for poverty alleviation across the world. The RRBs of the country is

also playing significant role in development of micro finance in the country. It is associated with

44038 SHGs across the country and granted by amount of 772.46 Lakh up to March 2015. It

distributed amount of 223.17 Lakh to 40590 SHGs in the country up to March 2015. It provides

various loan products to rural poor to fulfill their micro credit needs. The cooperative banks are

also contributing to SHGs development and assist rural poor people. Up to March 2015 74865

SHGs had associated with cooperative banks and it sanctioned to amount of 1394.91 Lakh across

the country. it disbursed an amount of 446.20 Lakh to 50870 SHGs up to March 2015.

Cooperative bank is now more helpful for rural poor, co-operative societies and former that

needs timely financial assistance. Currently Individual Rural Volunteer (IRV) is playing bridge

role between supporting institution and rural poor. Yet 28910 SHGs had associated to IRV and

sanctioned by amount of 497.86 Lakh up to March 2015 among them amount of 84.86 Lakh

disbursed to 12581 SHGs up to March 2015. The former clubs is also playing pivotal role for

rural poverty eradication. Although former clubs less contributing as compared to other




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promoting institution. Now 5118 SHGs associated with former clubs and amount of 41.18 is

sanctioned for that. The former clubs had disbursed amount of 21.02 Lakh to 7322 SHGs across

the country up to March 2015.

Relationship between micro finance and entrepreneurship

Promotion of entrepreneurship and business innovation by microfinance institutions credit to

firms is an essential driver of economic growth. The microfinance revolution in India reveals

that it is playing a vital role in the vision of poverty eradication with various effort of

government of India. The reserve bank of India also provide license of bank to two MFI that will

be a big step for development of MFI. It will highly spread the credit disbursement and increase

the productivity by credit supply. The role of microfinance now has been more tactical than in

the past. It promotes financial inclusion by adoption of individual lending to the poor and

targeting micro enterprises. It is not limited to only productive poor but also extend the

innovation oriented entrepreneur. It is also now remove the traditional hindrance to

entrepreneurship and micro business by being with various NGOs. The microfinance is a bigger

contributor of one factor of production namely capital to entrepreneur. The rural entrepreneur has

good amount of labor and land but they always facing the problem of capital during the

exploitation of production factors for economic activity to earn profit. Now days rural

entrepreneurship is totally dependent on microfinance because of it is very feasible for infant

entrepreneur across the world. Now in India micro finance enable poor to start new business and

expand existing business activities. It boosts up the entrepreneurship in India and creates a lot of

employment. It is the magic of micro finance that small businesses contribute around 40 percent

in Gross Domestic Product in India. During the absence of micro finance in the world poor

people was unable to seek entrepreneurial opportunity.

Conclusion

The micro finance playing a vital role in entrepreneurial development in rural area by

providing micro loan to several SHGs across the region. The number of SHG is increasing and

amount of disbursement of loan is also increasing year by year but the growth rate of SHGs bank

linkage, loan and refinance assistance to SHGs is decreasing. The amount of loan and refinance

assistance is not growing in respect of increasing number of SHGs across the region. The number

of SHGs is not sufficient in any region except southern region. The country has good potential

for formation of new SHGs across the region except southern region.

Reference

1- International journal of college science, 3: 2 July 2009, Tiyas Biswas and P. P. Sengupta.




141


2- www.rbi.com

3- www.nabard.com

4- Innovation /Vinter, 2006, Zoltan Acs

5- Microfinance in India and millennium development goals: maximizing impact on poverty,

Alok Mishra

6- Sustainable micro entrepreneurship, Guy Vincent

7- Indian economic survey.

http://www.rbi.com/

http://www.nabard.com/

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