microfinance -international and indian...

Chapter II

Microfinance -International and

Indian Scenario

2.1 International Scenario of Microfinance

2.1.1 Introduction

The growth and performance of microfinance sector in the international

arena during the recent years has shown significant differences across the different

regions of the world (Puhazhendhi, 2013). This could be attributable to the fact that

microfinance as a part of the overall financial sector is expected to be influenced

directly or indirectly by the positive or negative changes that take place in the global

economy or the regional financial markets. However, till date there is no systematic

and comprehensive database available on MFIs around the world for measuring the

changes that is happening in the microfinance sector. Moreover, there are no

authoritative figures on key characteristics of the microfinance industry such as the

number and size of MFIs, their financial position or the population served and of

course, the task of providing a worldwide inventory of microfinance data is

condemned to be partial and many MFIs will always be missing. Moreover,

generation of systematic data on the microfinance industry has been complicated by

several factors, including the informality and dispersion of MFIs, lack of consensus

on the data needed and lack of universally accepted and clear-cut definitions of the

products that qualify as microfinance or the boundaries of the industry (IMF, 2005).

Inspite of these drawbacks, there are independent datasets of varying quality

and coverage that have been collected by different agencies such as Microfinance

Information Exchange (MIX), the Savings Groups Information Exchange (SAVIX),

the Microcredit Summit, the World Council of Credit Unions (WOCCU) and the

World Savings Banks Institute (WSBI) (Ledgerwood et al., 2013). Amongst these

agencies, MIX provides the largest cross-country database of MFIs around the

world. It covers information of approximately 2,000 MFIs that serve more than 80

percent of all known microfinance clients worldwide (MIX, n.d.;

http://www.mixmarket.org). MIX reports that the MFIs currently operate in over

100 countries thereby serving more than 94 million clients across the globe

(http://www.themix.org). Further through various socio-economic linkages of the

borrowers and their families, microfinance has impacted upon the lives of around

one billion people in emerging markets and developing countries (Lutzenkirchen &

Weistroffer, 2012).

52

But the aggregate picture (disaggregated region wise) of microfinance as

provided in the MIX database considerably underestimates the MFIs reach across

the globe as compared with the Microcredit Summit Campaign Reports (Shetty,

2012). The reason for this under estimation of MFIs reach across the globe is

attributable to the fact that as MIX collects data from non-regulated institutions, the

information requested is geared more toward sustainable institutions with the

capacity to report prescribed indicators on a consistent basis. Consequently, the

majority of smaller MFIs, savings and credit cooperatives (SACCOs), and others do

not participate in the reporting of their performance data to MIX (Ledgerwood at el.

2013).

2.1.2 Trend and Progress of Microfinance in the World

In this section, the trend and progress of microfinance in different regions of

the world like Africa, East Asia and the Pacific, Eastern Europe and Central Asia,

Latin America and the Caribbean, Middle East and North Africa and South Asia

during 2001 to 2011 have been compared to understand the direction of the

movement in the sector. Moreover, understanding the trend and progress of

microfinance in the international context assumes greater importance in the present

day context in view of its significant influence on the Indian microfinance sector.

Data from the website of Mix Market i.e., http://www.mixmarket.org for the

period 2001 to 2011 has been collected for examining the trend and progress of

microfinance in the world. There are also other evidences of using the Mix Market

data for analysing the trend and pattern of microfinance movement around the

world. Srinivasan (2012) had used the Mix Market data (disaggregated region wise)

for the period 2003-09 to study the developments in the world wide microfinance

sector. He found that the overall trends show that microfinance has not been

performing as well as it should have been. He further reports that the growth rates

have abated and in fact there was a decline in the number of active borrowers in two

out of six regions. In two others, the growth rates had plateaued out and only in

South Asia there was continuing growth in number of active borrowers. Moreover,

Puhazhendhi (2013) also analysed the Mix Market data for the period 2003-10 to

capture the direction of the movement of the sector among the different regions of

the world. He observed that the number of MFIs had, by and large, shown an

53

upward trend in almost all the regions of the world up to the year 2007 and 2008,

after which the numbers have started dwindling in all the regions.

Table 2.1 shows the growth of MFIs in different regions of the world during

2001 to 2011. From the table, it is observed that in 2001, the total number of MFIs

in the world was 310, but which has increased to 1,357 in 2011 thereby registering a

growth rate of 15.9 percent. But a comparison of the growth rate of MFIs in

different regions of the world reveals that the East Asia and the Pacific region has

the highest growth rate (24.4 percent) followed by South Asia region (23.8 percent),

Eastern Europe and Central Asia region (15.8 percent), Latin America and the

Caribbean region (15.7 percent), Middle East and North Africa region (13.5 percent)

and Africa region (10.4 percent).

Table 2.1: Growth of MFIs in the World – Region Wise

Year Africa

East Asia

and the

Pacific

Eastern

Europe

and

Central

Asia

Latin

America

and the

Caribbean

Middle

East and

North

Africa

South Asia Total

2001 111 23 47 87 16 26 310

2002 171 43 84 111 20 81 510

2003 194 93 155 164 29 134 769

2004 183 118 189 220 38 199 947

2005 243 140 220 275 42 215 1135

2006 255 167 242 307 48 209 1228

2007 241 156 235 369 52 168 1221

2008 270 168 290 388 63 199 1378

2009 322 183 246 388 69 240 1448

2010 288 177 231 401 68 236 1401

2011 299 204 203 375 57 219 1357

CAGR

(During

2001-

2011)

10.4 24.4 15.8 15.7 13.5 23.8 15.9

Source: http://www.mixmarket.org; Accessed on: 23/05/2013.

54

A comparison of Figure 2.1 and Figure 2.2 reveals that the percentage share

of African region in the total number of MFIs in the world had decreased from 36

percent in 2001 to 22 percent in 2011. On the other hand, the percentage share of

South Asia region and East Asia and the Pacific region has increased from 8 percent

respectively in 2001 to 16 percent and 15 percent respectively in 2011. Further the

percentage share of Middle East and North African region had decreased marginally

and the share of Latin America and the Caribbean region and Eastern Europe and

Central Asian region has remained unchanged.

Africa

36%

East Asia and the

Pacific

8%

Eastern Europe

and Central Asia

15%

Latin America

and the

Caribbean

28%

Middle East and

North Africa

5%

South Asia

8%

Figure 2.1: Percentage Share of Different Regions in Total

Number of MFIs in the World (2001)

Africa

22%

East Asia and

the Pacific

15%

Eastern Europe

and Central Asia

15%

Latin America

and the

Caribbean

28%

Middle East and

North Africa

4%

South Asia

16%


Number of MFIs in the World (2011)

55

Table 2.2 shows the region wise growth of number of active borrowers in the

world during 2001 to 2011. From the table, it is observed that the number of active

microfinance clients was 7 million in 2001 which has increased to 94.6 million in

2011 thereby registering a compound annual growth rate of 29.7 percent. Region

wise comparison of the growth of number of active micro borrowers during the

period under consideration reveals that the growth rate of the regions like East Asia

and the Pacific, Eastern Europe and Central Asia and South Asia are higher than the

overall growth rate whereas the growth rate of the other three regions like Africa,

Latin America and the Caribbean and the Middle East and North Africa are lower

than the overall growth rate.

Table 2.2: Growth of Number of Active Borrowers

in the World – Region Wise (in millions)

Year Africa

East Asia

and the

Pacific

Eastern

Europe

and

Central

Asia

Latin

America

and the

Caribbean

Middle

East and

North

Africa

South Asia Total

2001 1.3 0.4 0.1 1.5 0.2 3.4 7.0

2002 3.9 3.7 0.4 2.0 0.4 10.9 21.3

2003 4.0 4.6 0.7 3.5 0.5 13.5 26.8

2004 3.4 5.4 1.0 4.8 0.8 18.0 33.3

2005 4.3 9.6 1.3 7.8 1.2 24.5 48.8

2006 5.3 10.8 1.8 9.5 1.7 30.4 59.5

2007 6.2 8.8 2.4 12.2 2.3 36.2 68.1

2008 7.1 15.4 3.0 13.5 2.5 42.0 83.5

2009 10.8 14.3 2.8 14.8 2.5 52.2 97.5

2010 5.5 16.3 2.8 16.4 2.2 58.2 101.3

2011 6.1 15.0 2.6 18.3 2.3 50.3 94.6

CAGR

(During

2001-

2011)

16.7 43.7 38.5 28.4 27.7 30.9 29.7


56


of the regions like Africa, Latin America and the Caribbean and Middle East and

North Africa had decreased from 19 percent, 22 percent and 3 percent respectively

in 2001 to 7 percent, 19 percent and 2 percent respectively in 2011. On the other

hand, the percentage share of the regions like South Asia, East Asia and the Pacific

and Eastern Europe and Central Asia had increased from 49 percent, 6 percent and 1

percent respectively in 2001 to 53 percent, 16 percent and 3 percent respectively in

2011.

Africa

19%East Asia and the

Pacific

6%

Eastern Europe

and Central Asia

1%Latin America

and the

Caribbean

22%

Middle East and

North Africa

3%

South Asia

49%


Number of Active Borrowers in the World (2001)

Africa

7%

East Asia and the

Pacific

16%

Eastern Europe

and Central Asia

3%Latin America

and the

Caribbean

19%

Middle East and

North Africa

2%

South Asia

53%


Number of Active Borrowers in the World (2011)

57

Table 2.3 shows the region wise growth of gross loan portfolio in the world

during 2001 to 2011. From the table, it is observed that the overall growth rate in the

gross loan portfolio during the 11 year period under consideration is 46.6 percent.

On the other hand, the region wise comparison of growth of gross loan portfolio

reveals that only two regions, i.e., East Asia and the Pacific and Eastern Europe and

Central Asia have the growth rate more than the overall growth rate of gross loan

portfolio in the world. The other four regions i.e., Africa, Latin America and the

Caribbean, Middle East and North Africa and South Asia have the growth rate lower

than the overall growth rate in the world. The regional growth rate ranges from as

low as 29.2 percent for Middle East and North Africa to as high as 77.8 percent for

East Asia and the Pacific.

Table 2.3: Growth of Gross Loan Portfolio

in the World – Region Wise (in billion USD)

Year Africa

East

Asia and

the

Pacific

Eastern

Europe

and

Central

Asia

Latin

America

and the

Caribbean

Middle

East and

North

Africa

South

Asia Total

2001 0.3 0.1 0.1 1.2 0.1 0.2 1.9

2002 0.6 1.5 0.6 1.4 0.1 0.7 4.9

2003 0.7 0.9 1.3 2.7 0.2 1.0 6.6

2004 0.9 1.1 2.2 4.1 0.3 1.4 10.0

2005 1.2 3.9 3.1 7.5 0.4 2.0 18.1

2006 1.6 4.9 5.0 10.4 0.6 2.7 25.1

2007 2.9 3.2 7.9 14.9 1.0 3.8 33.6

2008 3.7 8.4 10.1 15.8 1.2 5.1 44.3

2009 4.9 31.3 8.8 19.8 1.3 7.8 73.9

2010 5.0 39.1 9.1 23.7 1.3 9.2 87.4

2011 7.8 31.6 10.3 27.9 1.3 7.9 86.9

CAGR

(During

2001-

2011)

38.5 77.8 59.0 37.0 29.2 44.4 46.6


58


of Latin America and the Caribbean region has reduced significantly from 60

percent in 2001 to only 32 percent in 2011. Moreover, the percentage share of

Africa, South Asia and Middle East and North Africa has also reduced during the

period under consideration. On the other hand, the percentage share of East Asia and

the Pacific and Eastern Europe and Central Asia has increased significantly from

only 5 percent for each region to 36 percent and 12 percent respectively.

Africa

15%

East Asia and

the Pacific

5%

Eastern Europe

and Central Asia

5%

Latin America and

the Caribbean

60%

Middle East and

North Africa

5% South

Asia

10%


Gross Loan Portfolio in the World (2001)

Africa

9%

East Asia and the

Pacific

36%

Eastern Europe

and Central Asia

12%

Latin America

and the

Caribbean

32%

Middle East and

North Africa

2% South

Asia

9%


Gross Loan Portfolio in the World (2011)

59

2.1.3 Some Global Bodies Working in the Field of Microfinance

2.1.3.1 Microfinance Information Exchange (MIX)

Microfinance Information Exchange (MIX) is a non-profit organization

incorporated in 2002 with headquarters in Washington, DC and regional offices in

Azerbaijan, India, Senegal, and Peru. MIX is the premier source for objective,

qualified and relevant microfinance performance data and analysis. Committed to

strengthening financial inclusion and the microfinance sector by promoting

transparency, MIX provides performance information on microfinance institutions

(MFIs), funders, networks and service providers dedicated to serving the financial

sector needs for low-income clients. MIX fulfills its mission through a variety of

platforms and one of the platform being the MIX Market. On MIX Market, they

provide instant access to financial and social performance information covering

approximately 2,000 MFIs around the world (http://www.mixmarket.org).

2.1.3.2 Consultative Group to Assist the Poor (CGAP)

CGAP is an independent research and policy organization dedicated to

expanding access to finance for poor people around the world. Housed at the World

Bank, CGAP was created in 1995 by a group of leading donors and practitioners

with the mandate to develop and share best practices, set standards, and develop

technical tools to support the development of the field. CGAP combines a pragmatic

approach to market development with an evidence-based advocacy platform to

advance poor people’s access to finance. Today, CGAP is supported by more than

30 development agencies and private foundations that share a common vision to

foster development and alleviate poverty by advancing access to financial services.

CGAP works toward a world in which poor people are considered valued clients of

their country’s financial system. In their vision, microfinance will be integrated into

mainstream financial systems that will eventually serve all the unbanked, including

very poor and harder-to-reach clients with ever more high-quality, convenient, and

affordable financial services. Moreover, they view that all actors in the field will be

more focused on responsible finance, with the well-being and needs of clients at the

center of strategy and operations (http://www.cgap.org; CGAP, 2012).

60

2.1.3.3 Foundation for International Community Assistance (FINCA)

Based in Washington DC, FINCA provides financial services to the world's

lowest-income entrepreneurs so that they can create jobs, build assets and improve

their standard of living. It is an anti-poverty organization founded by Dr. John Hatch

in 1984 whose work is aimed at creating employment, raising family incomes, and

reducing poverty worldwide. The organisation offers small loans and other products

to those turned down by traditional banks, believing that even the poor have a right

to financial services. With these loans, families can invest in, and build, their own

small businesses and their income-earning capacity. Worldwide, their clients post

repayment rates over 97 percent. FINCA pioneered the “Village Banking Model” of

credit delivery, now used by hundreds of organizations worldwide. FINCA

programmes reach the poor in more diverse countries than any other microfinance

provider. At present, FINCA operates Village Banking programs in 22 countries

of Africa, Eurasia, the Greater Middle East and Latin America, serving nearly one

million people, 70 percent of whom are women (http://www.finca.org).

FINCA, after more than a quarter century of its leadership in the

microfinance sector, is among the broadest and most comprehensive of today's

microfinance networks. The organisation is committed in providing the best possible

service to the clients so that they can build successful businesses while ensuring that

they are protected from uncertainty and vulnerability. FINCA has always focused its

service on one key client group – those living at 50 percent below the poverty line

and the rural poor (http://www.finca.org).

2.1.3.4 Americans for Community Co-operation in Other Nations (ACCION)

ACCION is a global non-profit organisation dedicated to creating economic

opportunity by connecting people to the financial tools they need to improve their

lives. A world pioneer in microfinance, it was established in 1961 in 22 shanty

towns1 in Venezuela and issued their first microloan in 1973. Over the years,

ACCION has helped build 63 microfinance institutions in 32 countries on four

continents – Africa, Asia, Latin America and the U.S. These institutions are

currently reaching millions of clients. The ACCION U.S. Network is the largest

1 A shanty town is a slum settlement of plywood, corrugated metal, sheets of plastic and cardboard

boxes.

61

microfinance network in the country and since its beginning, has served hundreds of

thousands of clients with loans and support (http://www.accion.org).

2.1.3.5 Grameen Foundation

Grameen Foundation began in 1997 to harness the underappreciated

strengths of the poor, an approach inspired by Nobel Laureate Professor Muhammad

Yunus and the Grameen Bank in Bangladesh. Grameen Foundation helps the

world’s poorest people reach their full potential. Their collaborative approach to

poverty alleviation recognizes the multidimensional and complex nature of global

poverty. They provide access to essential financial services and information on

agriculture and health, assistance that addresses the specific needs of poor

households and communities. They also develop tools to improve the effectiveness

of poverty-focussed Microfinance Organisations. Moreover, they also work with

private sector companies, non-governmental organizations, government agencies

and others in order to achieve lasting impact in the regions where they work

(Grameen foundation, 2012; Grameen foundation, 2013).

The organisation is headquartered in Washington, D.C., with offices in the

U.S., Africa, Asia, and Latin America and the Caribbean. They also work in the

Middle East and North Africa through Grameen-Jameel Microfinance Limited, a

joint venture, and in India through Grameen Foundation India, a wholly-owned

subsidiary (http://www.grameenfoundation.org).

62

2.2 Indian Scenario of Microfinance

2.2.1 Introduction

India is a country with a long history of indigenous banking and money

lending. Evidence regarding the existence of money lending operations in India is

found in the literature of the Vedic times, i.e., 2000 to 1400 B.C. The literature of

the Buddhist period, e.g., the Jatakas, and recent archaeological discoveries supply

evidence of the existence of Sresthis or Bankers. From the laws of Manu, it appears

that money lending and allied problems had assumed considerable importance in

ancient India (Reddy, 1999). But the heyday for the growth of indigenous banking in

India is the medieval period ranges from the beginning of the mid-thirteenth century

to the beginning of British rule during the eighteenth century. The merchant bankers

grew enormously during this period accompanied by growth of highly monetized

economy and domestic and international long-distance trade. Individual firms, joint

family firms and partnership firms – all within the same BANIYA caste but

differentiated into numerous sub-castes used to run these types of institutions. Their

customers included European private merchants and trading companies (Seibel,

2005).

2.2.2 Government Interventions in Rural Credit Market in India

The cooperative thrift and credit movement that was initiated by the British

Government of India in the beginning of the 20th

century could be considered as the

landmark development in the history of government interventions in rural credit

market in India. In the year 1904, the then Government of India enacted the

Cooperative Credit Societies Act followed by a more comprehensive Cooperative

Societies Act in 1912. These Acts provided a framework for promoting financial

self-help among farmers and artisans (Priyadarshee, 2008).

Institutional credit was perceived as a strategy for rural development and

poverty alleviation by enhancing rural production and productivity in independent

India (H. R. Singh & Singh, 2011). Following independence, the imperative to

facilitate improvements in agricultural output and attain food self-sufficiency led to

a policy of providing credit at “reasonable” rates of interest to as large a segment of

the rural population as possible. The strategy to achieve this was threefold:

63

expansion of the institutional base, directed lending to disadvantaged borrowers, and

credit provision at concessional rates of interest. The latter was justified in terms of

the perceived mismatch between the longer term returns of farm investment

compared to cultivator households’ short term consumption needs and requirements

to service the loans (Jones, Williams & Thorat, 2007).

The establishment of the Reserve Bank of India in 1935 played an important

role in addressing factors discouraging the flow of credit to the rural sector, absence

of collateral among the poor, the high cost of servicing geographically dispersed

customers and lack of trained and motivated staff. The policy response included

special credit programmes for channelling subsidized credit to the rural sector,

operationalising the concept of priority sector in the late 1960s and focusing

attention on the credit needs of neglected sectors and underpriviledged borrowers

(Jones et al., 2007).

Further the State Bank of India was established in 1955 through the State

Bank of India Act with the objective of extension of banking facilities on a large

scale, more particularly in rural and semi-urban areas. SBI, therefore, became an

important instrument of extending rural credit to supplement the efforts of

cooperative institutions.

Further in 1969, 14 major commercial banks were nationalized, thus creating

a huge expansion of the rural banking infrastructure and the second phase of

institutional rural credit provision. The nationalized banks thus became important

instrument for advancement of rural banking in addition to cooperatives and State

Bank of India. The focus thus shifted from cooperatives as the sole providers of

rural credit to a multi-agency approach. During this period, the Lead Bank Scheme

was introduced with district credit plans. The aggregation of district credit plans led

to the State Credit Plan which was monitored by the State Level Banking

Committee. The next step to supplement the efforts of cooperatives and commercial

banks was the establishment of Regional Rural Banks in 1975 with mandate to reach

the poorest in credit deficient areas of the country (Jones et al., 2007). Thus, by the

end of 1977, there emerged three separate institutions viz., cooperative banks,

commercial banks and regional rural banks for providing rural credit, which is often

described as the ‘multi-agency approach’ (Mohan, 2004).

64

But as a result of the top-down planning, little credit was flowing to the

agricultural sector and a large proportion of rural population remained untouched by

the banking system. This led the RBI to introduce Service Area Approach which is a

bottom-up planning system. Under this approach, each specific bank branch has a

specific geographical area of operation and the branch was required to conduct

survey at the village level, to identify credit requirements and to make plans to meet

any resource gap. The village level plans were then aggregated into block, district

and state plans (Jones et al., 2007).

Further as a credit subsidisation policy toward poverty stricken farming

community, the Government sets up the Integrated Rural Development Programme

(IRDP) in 1981 to direct subsidised loans to poor self employed through the banking

sector (Fisher & Sriram, 2002).

Another major impetus to rural credit was provided by the establishment of

the National Bank for Agriculture and Rural Development (NABARD) through an

Act of Parliament in 1982. NABARD was set up as an apex development bank with

a mandate to promote/supervise institutions and channel credit to rural areas.

Fisher and Sriram (2002) identified three post-independence phases in rural

credit provision in India. The first phase ranges from 1950s to 1960s marked by

pursuing developmental objectives through the financial sector focussed primarily

on delivering agricultural credit through cooperatives. The second phase ranges from

1970’s to 1980s where the attention has been shifted to nationalisation of

commercial banks and establishment of regional rural banks. The third phase was

started by the financial crisis of the early 1990s and the consequent re-structuring of

the banking system along with the overall financial system. Moreover, this period

has also witnessed the emergence of Self-Help Groups and growing number of

Microfinance Institutions (MFIs) in India. Fisher and Thomas also states that by the

end of the century, significant support structures for SHGs and MFIs had been put in

place, including active promotion by the apex financial institutions viz. RBI,

NABARD, SIDBI and RMK. Moreover the launching of SHG based Swarnajayanti

Gram Swarozgar Yojana in 1999 as a single holistic programme to cover all aspects

of rural self-employment provided further fillip in meeting the credit needs of the

rural poor of our country.

65

2.2.3 Microfinance in India

In recent years, microfinance has gained growing recognition as an effective

tool in improving the quality of life and living standards of the poorest of the poor.

This recognition has given rise to a movement that now has a global outreach and

has penetrated in the remote rural areas, besides slums and towns. Microfinance is

the provision of financial services such as saving, loans and insurance for the poor

segment of the society who are unable to obtain such services from the formal

financial sector. In India, NABARD found that Self Help Group (SHG) linkage

model suits best in the Indian conditions where a vast network of rural bank

branches exists and as because microfinance is gathering momentum to become a

significant force in the India overall financial system. The lending to rural people

especially to women through SHG approach without collateral has become an

accepted part of rural finance in India.

The origin of modern microfinance movement in India can be traced back to

the 1970s when initiative was undertaken by Ela Bhatt for providing banking

services to the poor women employed in the unorganized sector of Ahmedabad city

in Gujarat. To this end, Shri Mahila SEWA (Self Employed Women’s Association)

Sahakari Bank was set up in 1974 by registering it as an urban cooperative bank.

Since then the bank has been providing banking services to self-employed working

poor people like hawkers, street vendors and domestic servants, etc. (Rao, 2008).

This MFI model has not been replicated elsewhere in the country, though the

Working Women’s Forum (WWF) was promoting working women’s cooperative

societies in Tamil Nadu since 1980. Shreyas in Kerala has been actively involved in

microfinance operations since 1988 with the objectives of promoting people’s

cooperatives, inculcating habits of thrift and self-managing a people’s bank (HDFC,

1997). The basic aim of these movements was to alleviate poverty by delivering

financial services to the poor so that they can have an asset base and initiate income

generating activities (Guha, 2010).

Over the years, the efforts of these organizations were better realized by the

deprived sections when their capacities are also enhanced along with access to

financial services. In the 1980’s, while looking for supplementary credit delivery

mechanism to extend the outreach of the financial institutions, the National Bank for

66

Agriculture and Rural Development (NABARD) observed that if the traditional

approach to extend financial services to the deprived sections through self-help

could be linked to the financial might of financial institutions, it could

revolutionalise the financial sector in the country and open doors for extension of a

variety of financial services to the poor through a structure owned and managed by

the poor themselves (NABARD, 2011a). This led to NABARD’s involvement in

promoting microfinance through the concept of self-help started in 1987 when it first

put funds into the SHG/SAG movement. In this year, it provided MYRADA with a

grant of 1 million Indian rupees from its R&D Fund for providing seed money to the

Credit Management Groups promoted by it. As a result of the positive feedback

from this initiative, NABARD in 1989 launched an action research project in which

similar grants were provided to other NGOs working in the field. This project turned

out a great success and these initial experiences led to the emergence of Self Help

Group – Bank Linkage Model that could be used by the banking system for

increasing their outreach to the poorest of the poor, hitherto being by-passed by

them. The basic philosophy of the SHG-Bank Linkage Model promoted by

NABARD is to establish synergy between the banks, who have the financial

strength and the NGOs, who have the ability to mobilize the poor and build-up their

capacity, to avail loans from the banks (Puhazhendhi & Satyasai, 2000). The model

envisages forming small, cohesive and participative groups of the poor, encouraging

them to pool their savings regularly and using the pooled thrift for small interest-

bearing loans to their members, and in the process learning the basic principles of

financial discipline. The SHG concept is unique because of several factors as

mentioned by Jindal (2008) in his work. These are outlined below:

First, it is built around both formal and informal systems.

Second, it seeks to promote both social capital and financial capital that are

prerequisites for any meaningful development.

Third, it allows for flexibility (in interest rates, repayment schedules,

instalment size, etc.) around certain core principles.

Fourth, it allows for interaction between professionalism of bankers and

wisdom and local knowledge and experience of the group.

67

It was in this scenario that the SHG-Bank Linkage Programme (SHG-BLP)

was formally launched by NABARD as a Pilot Project in 1992. Initially the pilot

project started with a target of linking 500 Self Help Groups with banks wherein the

banks will provide access to the group members for their savings on regular basis

while also providing credit to the group to meet the emerging credit needs of its

members. The pilot project was very successful and today it is recognized as an

effective tool for extending access to formal financial services to the unbanked rural

poor (Guha, 2010). Encouraged by positive results, Reserve Bank of India (RBI)

advised banks in 1996 to mainstream it. The programme acquired national priority

from 1999 onwards. With support from both the Government of India and the

Reserve Bank of India, NABARD successfully spearheaded the programme through

partnership with various stakeholders in the formal and informal sector.

Today this unique initiative in India has about 4,000 partners and has

blossomed as a decentralized, yet most cost effective and fastest growing

microfinance initiative in the world, enabling about 97 million poor household’s

access to sustainable financial services from the banking system. The institutional

credit outstanding against the SHGs as at end of March 2011 exceeded Rs. 31,200

crore – an experiment which has no parallel anywhere else in the world (NABARD,

2011a). The importance and relevance of the SHG-Bank linkage programme in

India’s rural development has also been accepted by the Government of India as a

novel approach for reaching and empowering the unreached and under-served poor,

and the Government of India have since declared the programme as a national

priority (Puhazhendhi & Satyasai, 2000). In spite of certain turbulence surfaced in

the recent past in the microfinance sector mainly due to the lack of discipline by

very few stakeholders, the SHG-Bank Linkage Programme has been growing

impressively and it undoubtedly, is the main microfinance programme in India

(NABARD, 2011a; Satish, 2008). Moreover the impressive performance under

SHG-BLP prompted other developmental agencies like the Government

Departments to depend heavily on such groups to take the development efforts

forward. A large number of service delivery of the Government Departments are

now contracted to SHG members in preference to private contractors which is

largely prompted by their devotion and efficiency (NABARD, 2013a).

68

2.2.4 Credit Delivery Models under SHG-BLP

Initially, SHG-BLP was operational under three different delivery models for

providing microfinance services to the unbanked poor. These three models of credit

linkage of SHGs with banks showed the following trend as on 31st March, 2006.

Model I: Banks facilitate SHG formation and provide savings and credit linkage

directly to SHG. Upto March 2006, 20 percent of the total numbers of

SHGs financed were from this category (NABARD, 2006).

Model II: NGOs or other SHPIs facilitate the SHG formation and banks provide

the savings and credit linkage to SHGs. This model continues to have

the major share, with 74 percent of the total number of SHGs financed

upto 31 March 2006 falls under this category (NABARD, 2006).

Model III: Banks lend to MFIs and MFIs facilitate the group formation and on

lend to SHGs. The share of cumulative number of SHGs linked under

this model upto March 2006 continued to be relatively small at 6

percent (NABARD, 2006).

While banks and NGOs facilitate SHG formation, the reporting of credit

linkage of SHGs is under SHG-Bank Linkage Model and MFI-Bank Linkage Model

since 2006-07. From this year, SBLP follows a two models strategy where the focus

is on credit linkage to SHGs (Guha, 2010). The newly defined models of credit

linkage are:

Model I: SHG-Bank Linkage Model where the SHGs are directly financed by

banking agencies viz. Commercial Banks (Public Sector and Private

Sector), Regional Rural Banks (RRBs) and Cooperative Banks. In

this model, the financing banks extend services like savings and

credit to the groups directly while other stakeholders like NABARD,

NGOs, Government Departments, Insurance providers, etc. extend

support services including organisation, nurturing of groups and also

the capacity enhancement of their members.

Model II: MFI-Bank Linkage Model where banks lend to Micro Finance

Institutions (MFIs) for on-lending to SHGs and other small borrowers

covered under microfinance sector.

69

We now look at the model wise credit accessed by SHGs. Table 2.4 below

shows the details. It can be seen that majority of the SHGs were linked under the

Model II under SBLP up to 2006. But if we compare the growth rate amongst these

three models, the Model I was in the lead position (growth rate of 67.17%) followed

by Model II (growth rate 52.55%) and Model III (growth rate 35.86%). It appears

that NGOs and other SHPIs have helped banks to increase the outreach under SBLP.

The overall outreach was growing at a rate of 53.37 percent per annum during the

period from 2001 to 2006.

Table 2.4: Model Wise Distribution of Bank Linked SHGs in India

Year Model I Model II Model III Cumulative

Total

2000-01 34297 200507 29021 263825

2001-02 73836 346109 41533 461478

2002-03 143472 516499 57389 717360

2003-04 215818 776946 86327 1079091

2004-05 339876 1165288 113292 1618456

2005-06 447713 1656538 134314 2238565

CAGR (2000-

01 to 2005-06) 67.17% 52.55% 35.86% 53.37%

Model I - SHG-Bank Linkage Model

(No. of SHGs)

Model II - MFI-Bank

Linkage Model

(No. of MFIs)

2006-07 4160584 550

2007-08 5009794 1109

2008-09 6121147 1915

2009-10 6953250 1513

2010-11 7461946 2315

CAGR (2006-

07 to 2010-11) 15.72% 43.23%

Source: Guha (2010).

However, after 2006, it can be seen that the earlier envisioned three different

models of linkage were restructured into two different models as explained above.

Table 2.4 also shows the progress of these two different models till 2010-11. Here it

70

is observed that the number of SHGs linked with the banking sector under newly

defined Model I has reached to 74.62 lakh SHGs as on 31st March 2011 from 41.60

lakh SHGs as on 31st March 2007 having a growth rate of 15.72 percent. On the

other hand, the number of MFIs in Model II has grown at the rate of 43.23 percent

for the same period under consideration.

2.2.5 Progress of SHG-Bank Linkage Programme

A detailed analysis of the SHG-Bank Linkage Programme is presented in the

following section. The analysis covers the broader components of the programme,

viz. growth of the programme over the years, regional coverage of the programme,

savings performance of SHGs, bank loans disbursed to SHGs, bank loans

outstanding with the SHGs and recovery performance of bank loans to SHGs.

The SHG-Bank linkage programme which commenced on a pilot basis

during 1992 to link only 500 SHGs with banks, has grown exponentially during the

last two decades and over 97 million rural households have now access to regular

savings through 74.62 lakh SHGs linked to different banking agencies. Of these,

over 47.8 lakh SHGs also have access to direct credit facilities from banks. The total

loan outstanding of SHGs already credit linked as on 31st March 2011 was Rs.

31,221 crore. As much as 81.7 percent of SHGs already linked to banks are

exclusive women groups – one of the most distinguishing features of microfinance

sector in the country. About 27 percent of SHGs have been linked through the

Swarnjayanti Gram Swarojgar Yojana (SGSY) programme – the rural poverty

alleviation programme of the Government of India (NABARD, 2011a).

Table 2.5 shows the performance of SHG-Bank linkage programme since its

inception. From the table, it is observed that during 1992-93, the number of SHGs

financed by banks was only 255 SHGs which had increased to 1196134 SHGs

during 2010-11 having a compound annual growth rate of 59.94 percent. On the

other hand, the amount of bank loan disbursed to SHGs has grown by 74.33 percent

during the period under consideration and has increased from Rs. 0.02 billion in

1994-95 to Rs. 145.48 billion during 2010-11. The refinance from NABARD for the

same period has grown by only 56.33 percent.

71

Table 2.5: Growth of SHG-Bank Linkage Programme in India

Year

(End March)

No. of SHGs Financed by

Banks

Bank Loan

(Rs. Billion)

Refinance

(Rs. Billion)

During the

year Cumulative

During the

year Cumulative

During the

year Cumulative

1992-93 255 255 0.00 0.00 0.00 0.00

1993-94 365 620 0.00 0.01 0.00 0.00

1994-95 1502 2122 0.02 0.02 0.02 0.02

1995-96 2635 4757 0.04 0.06 0.04 0.06

1996-97 3841 8598 0.06 0.12 0.05 0.11

1997-98 5719 14317 0.12 0.24 0.11 0.21

1998-99 18678 32995 0.33 0.57 0.31 0.52

1999-00 81780 114775 1.36 1.93 0.98 1.50

2000-01 149050 263825 2.88 4.81 2.51 4.01

2001-02 197653 461478 5.45 10.26 3.96 7.97

2002-03 255882 717360 10.22 20.49 6.22 14.19

2003-04 361731 1079091 18.56 39.04 7.05 21.24

2004-05 539365 1618456 29.94 68.98 9.68 30.92

2005-06 620109 2238565 44.99 113.97 10.68 41.60

2006-07 1105749 - 65.70 - 12.93 54.53

2007-08 1227770 - 88.49 - 16.16 70.68

2008-09 1609586 - 122.54 - 26.20 96.88

2009-10 1586822 - 144.53 - 31.74 128.62

2010-11 1196134 - 145.48 - 25.45 154.07

CAGR

(During

1992-93 to

2010-11)

59.94% - - - - -

CAGR

(During

1994-95 to

2010-11)

- - 74.33% - 56.33% -

Source: http://rbidocs.rbi.org.in/rdocs/Publications/DOCs/071_EHS110912F.xls

Note: 1) Data relates to Commercial Banks, RRBs and Co-operative Banks.

2) From 2006-07 onwards, data on number of SHGs financed by banks and bank

loans are inclusive of Swarnjayanti Gram Swarozgar Yojana (SGSY) SHGs and

existing groups receiving repeat loans. Owing to this change, NABARD

discontinued the publication of data on a cumulative basis from 2006-07.

72

Figure 2.7 shows the trend line of the number of SHGs financed by all the

banking agencies during 1992-93 to 2010-11. From the figure, it is observed that

upto 1998-99, the growth in the number of SHGs was slow and after that, it has

increased rapidly upto 2008-09. The increasing growth rate in the number of SHGs

financed by banks could partially be attributable to fact that the Government

sponsored microfinance programme has also started its journey thenceforth. But the

growth rate has declined henceforth.

0

200000

400000

600000

800000

1000000

1200000

1400000

1600000

1800000

Figure 2.7: Year wise Growth in the No. of SHGs Financed by

Banks in India

0

20

40

60

80

100

120

140

160

Figure 2.8: Year wise growth in Bank Loan disbursed to

SHGs in India (Amount in Rupees Billion)

73

Figure 2.8 reveals that the growth in the volume of bank loan disbursed to

SHGs was slow upto the year 2000-01 and henceforth it has grown at an increasing

rate. But the year 2010-11 has shown decreasing trend in the growth of bank loan.

Performance of SHGs in terms of Savings with Banking Institutions

In India, more than 97 million poor households were associated with banking

agencies under SHG-Bank Linkage Programme. This represents more than 53

percent of the rural households in the country. Regular savings made by the

members are utilized mainly for internal lending within the group and only the

balance is kept in the savings bank account of the group with the banks (NABARD,

2011a).

The position of agency wise savings of SHGs with banks for the period

2006-07 to 2010-11 is given in Table 2.6. From the table, it is observed that as on

31st March 2011, total 74,61,946 SHGs were having saving bank accounts with

outstanding savings of Rs. 7,016.30 crore as against 41,60,584 SHGs having savings

of Rs. 3,512.71 crore as on 31st March 2007, thereby having growth rate of 15.72%

and 18.88% respectively.

Table 2.6: Savings of SHGs in India – Agency wise

Year

Commercial Banks Regional Rural

Banks Cooperative Banks All Banks

No. of

SHGs

Amount

(Rs.

Crore)

No. of

SHGs

Amount

(Rs.

Crore)

No. of

SHGs

Amount

(Rs.

Crore)

No. of

SHGs

Amount

(Rs.

Crore)

2006-07 2293771 1892.42 1183065 1158.29 683748 462.00 4160584 3512.71

2007-08 2810750 2077.73 1386838 1166.49 812206 541.17 5009794 3785.39

2008-09 3549509 2772.99 1628588 1989.75 943050 782.88 6121147 5545.62

2009-10 4052915 3673.89 1820870 1299.37 1079465 1225.44 6953250 6198.71

2010-11 4323473 4230.06 1983397 1435.40 1155076 1350.84 7461946 7016.30

CAGR

(2006-07

to

2010-11)

17.17% 22.27% 13.79% 5.51% 14.01% 30.76% 15.72% 18.88%

Source: NABARD (2007, 2008a, 2009a, 2010, 2011a).

Note. Figures in parenthesis indicate percentages.

74

The Table 2.6 also shows the agency wise CAGR both for the number of

SHGs and savings amount. If we see the agency wise growth rate in the number of

SHGs having savings accounts, then it is the commercial banks which are in the lead

position (17.17%) followed by cooperative banks (14.01%) and regional rural banks

(13.79%). On the other hand, in terms of growth in the volume of savings amount,

the Cooperative Banks are in the lead position (30.76 percent) followed by

Commercial Banks (22.27 percent) and Regional Rural Banks (5.51 percent).

58%27%

15%

Figure 2.9: Percentage share of different agencies in total

Savings Linked SHGs in India (31st March 2011)

Commercial Banks

Regional Rural Banks

Cooperative Banks

60%21%

19%


Savings of SHGs in India (31st March 2011)

Commercial Banks


Cooperative Banks

75

From Figure 2.9 and Figure 2.10, it is observed that as on 31st March 2011,

the Commercial Banks had the maximum share of SHGs’ savings of 43,23,473

SHGs (58 percent) with savings amount of Rs. 4,230.06 crore (60 percent) followed

by Regional Rural Banks having savings bank accounts of 19,83,397 SHGs (26

percent) with savings amount of Rs. 1,435.40 crore (21 percent) and Cooperative

Banks having savings bank accounts of 11,55,076 SHGs (15 percent) with savings

amount of Rs. 1,350.84 crore (19 percent).

Table 2.7 shows the per SHG savings of SHGs with the banking sector for

the period 2006-07 to 2010-11. From this table, it is observed that the average

savings per SHG with all the banks had increased from Rs. 8,443 as on 31st March

2007 to Rs. 9,403 as on 31st March 2011 having growth rate of 2.73 percent. But if

we see the agency wise growth rate, then cooperative bank is in the lead position

(14.7%) followed by commercial banks (4.36%) and regional rural banks (-7.28%).

Here one thing is noticeable that per SHG savings of both commercial banks and

cooperative banks had registered a positive growth, but per SHG savings of regional

rural banks had declined over the same period.

Table 2.7: Per SHG Savings in India - Agency Wise

Year Commercial

Banks (Rs.)

Regional Rural

Banks (Rs.)

Cooperative

Banks (Rs.)

All Banks

(Rs.)

2006-07 8250 9791 6757 8443

2007-08 7392 8411 6663 7556

2008-09 7812 12218 8302 9060

2009-10 9065 7136 11352 8915

2010-11 9784 7237 11695 9403

CAGR (2006-07 to

2010-11) 4.36% -7.28% 14.7% 2.73%

Table 2.8 shows the regional spread of number of SHGs, savings amount and

per SHG savings. It is observed from the table that per SHG savings of India as

whole is Rs. 9403 and only one region, i.e., Southern Region is having per SHG

savings more than the all India level revealing the dominance of Southern Region in

the microfinance sector. The rest 5 regions are having per SHG savings lower than

the all India level. The North Eastern Region is having the lowest per SHG savings

of Rs. 4,035.

76

Table 2.8: Region wise Performance of SHGs in terms of

Savings (31st March 2011)

Regions No. of SHGs Saving Amount

(Rs. Lakh)

Per SHG Saving

(Rs.)

Southern Region 3489460 371591.77 10649

All India 7461946 701630.28 9403

Eastern Region 1527618 140837.61 9219

Northern Region 372772 32857.16 8814

Western Region 960921 82901.13 8627

Central Region 786436 60338.01 7672

North Eastern Region 324739 13104.6 4035

Source: NABARD (2011a).

Figure 2.11 clearly shows the percentage share of different regions in total

number of SHGs that are linked with the banking institutions through savings

accounts. It is observed from the figure that lead position is occupied by Southern

Region (47 percent) followed by Eastern Region (20 percent), Western Region (13

percent), Central Region (11 percent), Northern Region (5 percent) and North

Eastern Region (4 percent).

47%

20%

5%

13%

11%

4%

Figure 2.11: Percentage share of different Regions in the Total

No. of Savings Linked SHGs in India (31st March 2011)

Southern Region

Eastern Region

Northern Region

Western Region

Central Region

North Eastern Region

77

On the other hand, if we see the percentage share of different regions in total

amount of savings of SHGs in India, then here also the Southern Region is having

the maximum share (53 percent) followed by Eastern Region (20 percent), Western

Region (12 percent), Central Region (8 percent), Northern Region (5 percent) and

North Eastern Region (2 percent). Figure 2.12 shows the pictorial presentation of the

same.

Table 2.9 shows the state wise position of savings linked SHGs, amount of

savings and per SHG savings. The table also shows the rank of the states in terms of

per SHG savings. From the table, it is observed that per SHG savings of India as a

whole is Rs. 9,403. There are 11 states which are having the per SHG savings more

than the India as a whole and amongst these states, Haryana tops the list with per

SHG savings of Rs. 28,088. On the other hand, there are 22 states which are having

per SHG savings lower than all India average. The state Manipur with per SHG

savings of Rs. 2,331 ranks last in the list. Here one thing is worth mentioning that

seven out eight North Eastern States are having per SHG savings below the national

average. Further if we exclude the Union Territory Andaman & Nicobar Islands

from the list, then we will find six North Eastern States viz., Mizoram, Nagaland,

Meghalaya, Assam, Arunachal Pradesh and Manipur occupying the bottom six

positions thereby revealing the very poor performance of the States in mobilising

savings by the SHGs. Only the State Tripura has per SHG savings more than the

national average.

53%

20%

5%

12%

8%

2%


Amount of Savings of SHGs in India (31st March 2011)

Southern Region

Eastern Region

Northern Region

Western Region

Central Region


78

Table 2.9: State wise Performance of SHGs in terms of

Savings (31st March 2011)

Sl.

No. States No. of SHGs

Saving Amount

(Rs. Lakh)

Per SHG

Saving (Rs.) Rank

1 Haryana 35319 9920.45 28088 1

2 Karnataka 564545 96502.87 17094 2

3 Jharkhand 87205 14195.76 16279 3

4 West Bengal 666314 80314.14 12053 4

5 Puducherry 22081 2430.87 11009 5

6 Punjab 40919 4385.16 10717 6

7 Tamil Nadu 943098 99723.87 10574 7

8 New Delhi 3095 323.55 10454 8

9 Chandigarh 964 100.66 10442 9

10 Goa 7926 818.73 10330 10

11 Tripura 34312 3395.3 9895 11

Sl.

No. All India 7461946 701630.28 9403

1 Gujarat 192834 17303.13 8973 12

2 Uttarakhand 44295 3965.37 8952 13

3 Andhra Pradesh 1466225 130780.22 8920 14

4 Kerala 493347 42143.58 8542 15

5 Maharashtra 760161 64779.27 8522 16

6 Uttar Pradesh 470157 36269.56 7714 17

7 Madhya Pradesh 153817 11674.09 7590 18

8 Chhattishgarh 118167 8428.99 7133 19

9 Himachal Pradesh 53113 3708.5 6982 20

10 Jammu & Kashmir 5569 387.14 6952 21

11 Orissa 521152 35354.72 6784 22

12 Lakshadweep 164 10.36 6317 23

13 Sikkim 2811 168.94 6010 24

14 Rajasthan 233793 14031.7 6002 25

15 Bihar 248197 10857.31 4374 26

16 Mizoram 4592 178.11 3879 27

17 Nagaland 9866 362.99 3679 28

18 Meghalaya 10653 376.12 3531 29

19 Assam 245120 8196.6 3344 30

20 Arunachal Pradesh 7079 186.31 2632 31

21 A & N Islands (UT) 4750 115.68 2435 32

22 Manipur 10306 240.23 2331 33


79

Performance of SHGs in terms of Bank Loans Disbursed

The details of agency wise loan disbursed by different banking agencies for

the period 2006-07 to 2010-11 is given in Table 2.10. It is observed from the table

that during the year 2010-11, the banking sector had financed 11,96,134 SHGs,

including repeat loans to the existing SHGs, with bank loan of Rs. 14,547.73 crore

as against 11,05,749 SHGs with bank loan of Rs. 6,570.39 crore during the year

2006-07 thus registering a growth rate of 1.98% (No. of SHGs) and 21.98% (Bank

Loan disbursed).

Table 2.10 also shows the agency wise CAGR both for the number of SHGs

provided with bank loans and the amount of bank loan disbursed to these SHGs

during 2006-07 to 2010-11. If we see the agency wise growth rate in the number of

SHGs provided with bank loans during the period under consideration, then it is the

Cooperative Banks which are having the highest growth rate of 10.7 percent

followed by Commercial Banks with growth rate of only 4.04 percent. However, the

Regional Rural Banks had registered a negative growth rate of 6.07 percent on the

same count. Further, the Cooperative Banks also recorded the highest growth rate

(28.36 percent) in terms of volume of bank loan disbursed to SHGs during 2006-07

to 2010-11 followed by Commercial Banks (25.51 percent) and Regional Rural

Banks (11.72 percent).

Table 2.10: Bank Loan Disbursed to SHGs in India – Agency Wise

Year



No. of

SHGs

Amount

(Rs.

Crore)

No. of

SHGs

Amount

(Rs.

Crore)

No. of

SHGs

Amount

(Rs.

Crore)

No. of

SHGs

Amount

(Rs. Crore)

2006-07 571636 3918.94 381199 2052.73 152914 598.72 1105749 6570.39

2007-08 735119 5403.90 327650 2651.84 165001 793.52 1227770 8849.26

2008-09 1004587 8060.53 405569 3193.49 199430 999.49 1609586 12253.51

2009-10 977521 9780.18 376797 3333.20 232504 1339.92 1586822 14453.30

2010-11 669741 9724.55 296773 3197.62 229620 1625.56 1196134 14547.73

CAGR

(2006-07

to 2010-

11)

4.04% 25.51% -6.07% 11.72% 10.7% 28.36% 1.98% 21.98%



80

Figure 2.13 and Figure 2.14 shows the percentage share of different banking

institutions in the total number of SHGs provided with bank loans and the volume of

bank loans disbursed during 2010-11. It is observed from these figures that the

Commercial Banks had lead in disbursement of loans to maximum number of SHGs

(56 percent) followed by Regional Rural Banks (25 percent) and Cooperative Banks

(19 percent). Moreover, the Commercial Banks are also in the lead position in terms

of volume of bank loans disbursed to SHGs during 2010-11 with 67 percent share

followed by Regional Rural Banks with 22 percent share and Cooperative Banks

with only 11 percent share.

56%25%

19%


number of SHGs provided with Bank Loans in India

(During 2010-11)

Commercial Banks


Cooperative Banks

67%

22%

11%


volume of Bank Loans disbursed to SHGs in India

(During 2010-11)

Commercial Banks


Cooperative Banks

81

Table 2.11 shows per SHG Bank Loan disbursed during 2006-07 to 2010-11.

During 2010-11, the average per SHG bank loan disbursed was Rs. 1,21,623 as

against Rs. 59,420 during 2006-07 registering a growth rate of 19.61 percent over

the period of five years. This is indicative of selective lending by banks

(concentrating their lending to those SHGs who have good track record). This rather

cautious approach of the banks is probably the result of the turmoil witnessed in the

microfinance sector in states like Andhra Pradesh. But the agency wise comparison

of growth rate reveals that the commercial bank is having the maximum growth rate

(20.64%) in terms of per SHG bank loan disbursed followed by regional rural banks

(18.93%) and cooperative banks (15.96%). During 2010-11, the average loan per

SHG ranged from as high of Rs. 1,45,199 per SHG by Commercial Banks to as low

of Rs. 70,793 per SHG by Cooperative Banks.

Table 2.11: Per SHG Bank Loan Disbursed in India – Agency wise

Year Commercial

Banks (Rs.)

Regional Rural

Banks (Rs.)

Cooperative

Banks (Rs.)

All Banks

(Rs.)

2006-07 68557 53849 39154 59420

2007-08 73511 80935 48092 72076

2008-09 80237 78741 50117 76128

2009-10 100051 88461 57630 91083

2010-11 145199 107746 70793 121623

CAGR (2006-07 to

2010-11) 20.64% 18.93% 15.96% 19.61%

Table 2.12 shows the region wise performance of SHGs in terms of bank

loan disbursed during 2010-11. From the table, it is observed that per SHG bank

loan disbursed for the India as a whole is Rs. 1,21,623. There are two regions which

are having per SHG bank loan disbursed higher than all India level and the rest four

regions are having the per SHG bank loan disbursed lower than all India level. So

the Government should take region specific initiative to improve the condition of

these four regions. The Southern Region is having the highest per SHG bank loan

disbursed of Rs. 1,51,459 during 2010-11. On the other hand, Eastern Region is

having the lowest per SHG bank loan disbursed of Rs. 65,402.

82


Bank Loan Disbursed (During 2010-11)

Regions No. of SHGs

Bank Loan

Disbursed during

2010-11

(Rs. Lakh)

Per SHG Bank

Loan Disbursed

(Rs.)

Southern Region 726022 1099628.56 151459

Central Region 48734 60755.08 124667

All India 1196134 1454773.19 121623

Northern Region 42493 37752.11 88843


Western Region 91954 62591.4 68068

Eastern Region 247624 161950.39 65402


Figure 2.15 shows the percentage share of different regions in the total

number of credit linked SHGs during 2010-11. It is observed from the figure that

Southern Region is having the maximum share (61 percent) followed by Eastern

Region (21 percent), Western Region (8 percent), Central Region (4 percent),

Northern Region (3.6 percent) and North Eastern Region (3.3 percent).

61%

4%

3%

3%

8%

21%


No. of SHGs provided with Bank Loans in India

(During 2010-11)

Southern Region

Central Region

Northern Region


Western Region

Eastern Region

83

Figure 2.16 shows the percentage share of different regions in the total

volume of bank loans disbursed to SHGs during 2010-11. It is observed from the

figure that the percentage share of Southern Region is 76 percent and if we add

Eastern Region with the Southern Region, then the share becomes 87 percent. Other

four regions viz. Central Region, Northern Region, North Eastern Region and

Western Region accounts for only 13 percent of the total volume of bank loans

disbursed to SHGs during 2010-11.

Table 2.13 shows the state wise distribution of number of SHGs and total

bank loan disbursed to these SHGs during 2010-11. The Table also shows per SHG

bank loan disbursed of each state and also the ranks of the states in terms per SHG

bank loan disbursed. From the table, it is observed that per SHG bank loan disbursed

for India as a whole is Rs. 1,21,623. Out of total 33 states (including Union

Territories), 11 states are having per SHG bank loan disbursed higher than the all

India level. On the other hand, 22 states are having the per SHG bank loan disbursed

lower than the all India level. The union territory Puducherry ranked 1 in the list

with per SHG bank loan disbursed of Rs. 1,96,139 whereas the state Gujarat is at the

bottom of the list with per SHG bank loan disbursed of Rs. 35,157. The rank of the

state Assam is 21st on the list with per SHG bank loan disbursed of only Rs. 78077

which is far less than the all India average of Rs. 121623. This shows that huge

scope is there to increase the volume of credit in the state of Assam.

76%

4%

3%

2%

4% 11%


volume of Bank Loans disbursed to SHGs in India

(During 2010-11)

Southern Region

Central Region

Northern Region


Western Region

Eastern Region

84


Bank Loan Disbursed (During 2010-11)

Sl.

No. States

No. of

SHGs

Bank Loan

Disbursed

(Rs. Lakh)

Per SHG Bank

Loan Disbursed

(Rs.)

Rank

1 Puducherry 4016 7876.96 196139 1

2 Andhra Pradesh 367420 620918.87 168994 2

3 Karnataka 90342 137435.43 152128 3

4 Madhya Pradesh 7767 11533.26 148491 4

5 Himachal Pradesh 5293 7329.43 138474 5

6 Uttar Pradesh 28430 38425.05 135157 6

7 Tamil Nadu 191469 255622.18 133506 7

8 Uttarakhand 3679 4897.53 133121 8

9 Haryana 4789 6243.46 130371 9

10 Jharkhand 11286 14332.75 126996 10

11 Punjab 2648 3220.83 121633 11

Sl.

No. All India 1196134 1454773.19 121623

1 Tripura 6015 6835.96 113649 12

2 Chandigarh 74 84.08 113622 13

3 New Delhi 344 381.76 110977 14

4 Jammu & Kashmir 622 677.26 108884 15

5 Kerala 72761 77768.62 106882 16

6 Bihar 32024 32204.76 100564 17

7 Maharashtra 63296 51226.89 80932 18

8 Orissa 71843 57492.17 80025 19

9 Nagaland 657 519.74 79108 20

10 Assam 29094 22715.61 78077 21

11 Goa 3058 2364.36 77317 22

12 Rajasthan 28723 19815.29 68988 23

13 Mizoram 420 286.92 68314 24

14 Meghalaya 1113 758.86 68181 25

15 Chhattishgarh 8858 5899.24 66598 26

16 A & N Islands (UT) 559 330.91 59197 27

17 Sikkim 331 174.51 52722 28

18 Manipur 721 351.64 48771 29

19 Arunachal Pradesh 956 452.41 47323 30

20 Lakshadweep 14 6.5 46429 31

21 West Bengal 131912 57589.8 43658 32

22 Gujarat 25600 9000.15 35157 33


85

Performance of SHGs in terms of Bank Loans Outstanding

The agency wise position of outstanding bank loans to SHGs for the years

2006-07 to 2010-11 is provided in Table 2.14. Further, it is observed from the table

that as on 31st March 2011, total numbers of 47,86,763 SHGs were having

outstanding bank loans of Rs. 31,221.20 crore as against 28,94,505 SHGs with bank

loans of Rs. 12,366.50 crore as on 31st March 2007 with a growth rate of 13.4

percent (No. of SHGs) and 26.05 percent (Bank Loan Outstanding with SHGs).

Table 2.14: Bank Loans Outstanding with SHGs in India – Agency wise

Year

(March

End)



No. of

SHGs

Amount

(Rs.

Crore)

No. of

SHGs

Amount

(Rs.

Crore)

No. of

SHGs

Amount

(Rs.

Crore)

No. of

SHGs

Amount

(Rs.

Crore)

2006-07 1893016 8760.38 729255 2801.76 272234 804.35 2894505 12366.5

2007-08 2378847 11475.47 875716 4421.04 371378 1103.39 3625941 16999.9

2008-09 2831374 16149.43 977834 5224.42 415130 1306.00 4224338 22679.9

2009-10 3237263 20164.71 1103980 6144.58 510113 1728.99 4851356 28038.3

2010-11 3053472 21883.26 1281493 7430.05 451798 1907.86 4786763 31221.2

CAGR

(2006-07

to 2010-

11)

12.7% 25.72% 15.14% 27.61% 13.5% 24.1% 13.4% 26.05%



Figure 2.17 shows the Percentage share of different Banking Agencies in

total number of SHGs having Bank Loans Outstanding as on 31st March 2011. From

the figure, it is observed that the Commercial Banks are in the lead position with 64

percent share followed by Regional Rural Banks with 27 percent share and

Cooperative Banks with only 9 percent share.

On the other hand, Figure 2.18 shows the percentage share of different

banking agencies in total volume of bank loans outstanding against SHGs as on 31st

March 2011. Here also, the Commercial Banks are having the maximum share (70

percent) followed by Regional Rural Banks (24 percent) and Cooperative Banks (6

percent). Both of these two figures are given in the next page.

86

Table 2.15 shows that average bank loan outstanding per SHG had increased

from Rs. 42,724 as on 31st March 2007 to Rs. 65,224 as on 31

st March 2011 thus

registering a growth rate of 11.16 percent. Agency wise comparison of the growth

rate of per SHG bank loans outstanding during the period under consideration shows

that the commercial banks are in the lead position with 11.55 percent growth rate

followed by Regional Rural Banks (10.84 percent) and Cooperative Bank (9.34

percent). It is also observed from the table that the per SHG bank loans outstanding

as on 31st March, 2011 ranges from as high as Rs. 71667 for the Commercial Banks

64%

27%

9%

Figure 2.17: Percentage share of different Banking Agencies in

Total No. of SHGs having Bank Loans Outstanding in India

(31st March 2011)

Commercial Banks


Cooperative Banks

70%

24%

6%

Figure 2.18: Percentage share of different Banking Agencies in

Total volume of Bank Loans Outstanding against SHGs in India

(31st March 2011)

Commercial Banks


Cooperative Banks

87

to as low as Rs. 42228 for the Cooperative Banks. On the other hand, the Regional

Rural Banks are having the per SHG bank loans outstanding of Rs. 57980 as on 31st

March, 2011.

Table 2.15: Per SHG Bank Loans Outstanding in India – Agency wise

Year

(March End)

Commercial

Banks (Rs.)

Regional Rural

Banks (Rs.)

Cooperative

Banks (Rs.)

All Banks

(Rs.)

2006-07 46277 38419 29546 42724

2007-08 48240 50485 29711 46884

2008-09 57037 53428 31460 53689

2009-10 62289 55658 33894 57795

2010-11 71667 57980 42228 65224

CAGR (2006-07 to

2010-11) 11.55% 10.84% 9.34% 11.16%

Table 2.16 shows the region wise performance of SHGs in terms of bank

loan outstanding as on 31st March, 2011.


Bank Loan Outstanding (31st March 2011)

Regions No. of SHGs

Bank Loans

Outstanding

(Rs. Lakh)

Per SHG Bank Loan

Outstanding (Rs.)

Southern Region 2706408 2180859.29 80581

Central Region 358872 236539.52 65912

All India 4786763 3122116.55 65224

Northern Region 149108 90314.42 60570


Western Region 316821 124623.03 39335

Eastern Region 1105533 420255.2 38014


From the above table, it is observed that the per SHG bank loan outstanding

for India as a whole is Rs. 65,224. Further, the Southern Region and Central Region

are having per SHG bank loan disbursed higher than the all India level. On the other

88

hand, Northern Region, North Eastern Region, Western Region and Eastern Region

is having the per SHG bank loan outstanding lower than the all India average.

Amongst all the regions, the Southern Region is having the highest per SHG bank

loan outstanding of Rs. 80,581 whereas the Eastern Region is having the lowest per

SHG bank loan outstanding of Rs. 38,014 as on 31st March 2011.

Figure 2.19 shows the percentage share of different regions in total number

of SHGs having outstanding bank loans as on 31st March 2011. It is observed from

the figure that Southern Region is leading with 57 percent share followed by Eastern

Region with 23 percent share. Other four regions i.e., Central Region, Northern

Region, North Eastern Region and Western Region accounts for only 20 percent

share.

On the other hand, Figure 2.20 shows the percentage share of different

regions in total volume of bank loan outstanding against SHGs as on 31st March

2011. In this count also, the Southern Region had lead with as more as 70 percent

share followed by Eastern Region with 13 percent share. The two regions together

account for 83 percent of the total volume of bank loans outstanding against SHGs.

Other four regions together account for only 17 percent share.

57%

7%3%

3%

7%

23%


No. of SHGs having Outstanding Bank Loans in India

(31st March 2011)

Southern Region

Central Region

Northern Region


Western Region

Eastern Region

89

Table 2.17 shows the state wise distribution of number of SHGs and bank

loan outstanding as on 31st March 2011. The table also show the per SHG bank loan

outstanding of all the states and also the ranking of states in terms of per SHG bank

loan outstanding.

It is observed from the table that per SHG bank loan outstanding of India as

a whole is Rs. 65,224. There are 11 states having per SHG bank loan outstanding

higher than the all India level. On the other hand, 22 states are having the per SHG

bank loan outstanding lower than the all India level. The state Mizoram is having the

highest per SHG bank loan outstanding of Rs. 1,99,514 thereby occupying the top

position and the state Gujarat is having the lowest per SHG bank loan outstanding of

Rs. 20,853 is at the bottom of the list.

The position of the State Assam is on the 20th

rank with per SHG bank loans

outstanding of Rs. 46125 which is much lower than the per SHG bank loans

outstanding of the country as a whole which is Rs.65224 thereby leaving scope for

the bankers in Assam to expand their businesses with SHGs. The State Government

may adopt SHG – Bank Linkage Programme as a State Policy to further expedite the

flow of ground level credit the entrepreneurs who are resource poor but

economically active. At the same it is to be ensured that the Non-Performing Assets

of loans provided to the SHGs should not cross the set standards.

70%

8%

3%

2%4%

13%


Volume of Bank Loans Outstanding in India

(31st March 2011)

Southern Region

Central Region

Northern Region


Western Region

Eastern Region

90


Bank Loans Outstanding (31st March 2011)

Sl. No. States No. of SHGs

Bank Loan

Outstanding

(Rs. Lakh)

Per SHG Bank

Loan OS (Rs.) Rank

1 Mizoram 311 620.49 199514 1

2 Puducherry 7393 9430.26 127557 2

3 Chandigarh 209 237.56 113665 3

4 Haryana 19369 19826.8 102364 4

5 New Delhi 657 618.58 94152 5

6 Karnataka 252613 224612.02 88915 6

7 Kerala 178211 157274.98 88252 7

8 Andhra Pradesh 1693792 1336912.29 78930 8

9 Uttar Pradesh 214331 169100.15 78897 9

10 Tamil Nadu 574385 452624.21 78802 10

11 Punjab 11201 7937.51 70864 11

Sl. No. All India 4786763 3122116.55 65224

1 Himachal

Pradesh 25116 15994.64 63683 12

2 Madhya Pradesh 63289 37953.07 59968 13

3 Uttarakhand 18647 10693.13 57345 14

4 Jammu &

Kashmir 2163 1159.29 53596 15

5 Tripura 20778 10304.98 49596 16

6 Rajasthan 90393 44540.04 49274 17

7 Goa 9446 4597.13 48667 18

8 Orissa 335041 157948.1 47143 19

9 Assam 111589 51470.27 46125 20

10 Maharashtra 232835 104481.81 44874 21

11 Manipur 4561 2036.73 44655 22

12 Jharkhand 72422 32197.28 44458 23

13 Nagaland 4326 1895.58 43818 24

14 Meghalaya 3412 1484.54 43509 25

15 Bihar 194244 79603.41 40981 26

16 Sikkim 1734 700.44 40394 27

17 Lakshadweep 14 5.53 39500 28

18 Arunachal

Pradesh 3310 1012.06 30576 29

19 Chhattishgarh 62605 18793.17 30019 30

20 West Bengal 501284 149924.65 29908 31

21 A & N Islands

(UT) 2542 581.76 22886 32

22 Gujarat 74540 15544.09 20853 33


91

Recovery Performance of Bank Loans to SHGs

Table 2.18 illustrates the comparative performance of NPAs reported by

banks against SHGs for 2008-09 and 2010-11. It is observed from the table that the

Non-Performing Assets (NPAs) of banks against loans to SHGs have gone up from

Rs. 422.93 crore during 2008-09 (2.90 percent) to Rs. 1,474.11 crore as on 31st

March 2011 (4.72 percent). The increase in the NPAs has been reported by almost

all the agencies except regional rural banks. The turbulence in the microfinance

sector in Andhra Pradesh seems to have some adverse impact on the recovery

performance of SHG-Bank linkage programme as well. The reasons for the sudden

decline in the recovery performance of SHGs will, however, need to be studied in

detail and strategic interventions will need to be made to avoid any further slippage

in future.

Table 2.18: Agency wise NPAs of Bank Loans to SHGs in India

Agency

Loans Outstanding

against SHGs

(Rs. Crore)

Amount of NPAs

(Rs. Crore)

Percentage of NPAs to

Loan Outstanding

As on

31.3.08

As on

31.3.11

As on

31.3.08

As on

31.3.11

As on

31.3.08

As on

31.3.11

Commercial Banks

(Public Sector) 9647.53 21412.75 206.99 1019.90 2.1 4.76

Commercial Banks

(Private Sector) 544.61 470.51 6.72 47.09 1.2 10.10

Regional Rural

Banks 3870.48 7430.05 173.27 272.82 4.5 3.67

Cooperative Banks 746.86 1907.86 35.95 134.30 4.8 7.04

All Banks 14809.48 31221.17 422.93 1474.11 2.9 4.72

Source: NABARD (2008a, 2011a).

Table 2.19 shows the region wise distribution of bank loans outstanding,

amount of gross NPAs and also the percentage of NPAs to total loan outstanding as

on 31st March 2011. It is observed from the table that the percentage of NPAs to the

total volume of outstanding loan for the India as a whole is 4.72 percent. Here four

regions, i.e., Central Region, North Eastern Region, Western Region and Northern

Region are having the NPA percentage higher than the all India level. On the other

hand, the Eastern Region and Southern Region are having NPA percentage lower

than the all India level. The Central Region is having the highest percentage of

92

NPAs whereas Southern Region is having the lowest percentage of NPAs amongst

all the regions.

Table 2.19: Region-wise Non-Performing Assets of SHGs

As on 31st March 2011

Regions

Bank Loans

Outstanding

against SHGs

(Rs. Lakh)

Amount of Gross

NPAs

(Rs. Lakh)

NPAs as

Percentage to

Loan Outstanding

Central Region 236539.52 25403.83 10.74

North Eastern

Region 69525.09 5856.04 8.42

Western Region 124623.03 9042.42 7.26

Northern Region 90314.42 6366.1 7.05

All India 3122116.55 147410.8 4.72

Eastern Region 420255.2 18106.72 4.31

Southern Region 2180859.29 82635.69 3.79


Table 2.20 shows the state wise bank loans outstanding against SHGs,

amount of gross NPAs and percentage of NPAs to total bank loan outstanding as on

31st March 2011. The table also shows the rank of the states in terms of percentage

of NPAs to total volume of bank loans outstanding. It is observed from the table that

the state Andhra Pradesh tops the list with lowest percentage of NPAs of 2.02

percent whereas the Union Territories Chandigarh is at the bottom of the list with

53.35 percent of NPAs to total bank loans outstanding. The relative position of the

State Assam is at 20th

position with 8.31 percent NPAs to total loan outstanding

whereas the figure for the country as a whole is only 4.72 percent thereby showing

the adverse condition of the loans provided to the SHGs in the State Assam. In order

to reduce the percentage of NPAs, all the stakeholders should work hand-in-hand so

that the microenterprises promoted by the SHGs should be profitable and also at the

same time sustainable also. Both the forward and backward linkage of the micro

business houses should be ensured so that the microentrepreneurs should not face

raw-materials shortage and at the same time should get the proper marketing channel

so that they can sell their products in this intense competitive market.

93

Table 2.20: State-wise NPAs of Bank Loans to SHGs

As on 31st March 2011

Sl. No. States

Loan

Outstanding

against SHGs

(Rs. Lakh)

Amount of

Gross NPAs

(Rs. Lakh)

NPA as

Percentage of

Total Loan

Outstanding

Rank

1 Andhra Pradesh 1336912.29 27049.04 2.02 1

2 Tripura 10304.98 222.62 2.16 2

3 West Bengal 149924.65 3420.18 2.28 3

4 Karnataka 224612.02 6685.77 2.98 4

5 Goa 4597.13 165.14 3.59 5

6 Haryana 19826.8 783.44 3.95 6

7 Bihar 79603.41 3239.63 4.07 7

8 Puducherry 9430.26 396.79 4.21 8

9 Jammu & Kashmir 1159.29 49.48 4.27 9

10 Gujarat 15544.09 714.93 4.6 10

All States 3122116.55 147410.8 4.72

1 Jharkhand 32197.28 1591.4 4.94 11

2 Punjab 7937.51 420.94 5.30 12

3 Uttarakhand 10693.13 600.39 5.61 13

4 New Delhi 618.58 35.66 5.76 14

5 Orissa 157948.1 9855.51 6.24 15

6 Arunachal Pradesh 1012.06 65.84 6.51 16

7 Himachal Pradesh 15994.64 1168.98 7.31 17

8 Tamil Nadu 452624.21 34956.78 7.72 18

9 Maharashtra 104481.81 8162.35 7.81 19

10 Assam 51470.27 4275.68 8.31 20

11 Meghalaya 1484.54 125.37 8.45 21

12 Rajasthan 44540.04 3780.87 8.49 22

13 Kerala 157274.98 13547.31 8.61 23

14 Chhattishgarh 18793.17 1791.16 9.53 24

15 Uttar Pradesh 169100.15 18730.06 11.08 25

16 Madhya Pradesh 37953.07 4282.22 11.28 26

17 Nagaland 1895.58 270.35 14.26 27

18 Manipur 2036.73 354.47 17.40 28

19 Sikkim 700.44 218.71 31.22 29

20 Mizoram 620.49 323 52.06 30

21 Chandigarh 237.56 126.73 53.35 31


94

2.2.6 Progress under MFI-Bank Linkage Programme

A large number of institutions, both in public sector as well as private sector

provide micro finance services to the poor although delivery mechanisms and

channels used by them are different in structure and nature. They can be broadly

categorized into two categories, viz., formal institutions and informal institutions.

The former category comprises of Apex Development Financial Institutions,

Commercial Banks, Regional Rural Banks and Cooperative Banks that provide

micro finance services in addition to their general banking activities and are referred

to as micro finance service providers. The microfinance service providers work at

two different levels - at the whole sale level and at the retail level. The apex

institutions like National Bank for Agriculture and Rural Development (NABARD),

Small Industries Development Bank of India (SIDBI) and Rashtriya Mahila Kosh

(RMK) are the whole sellers of microfinance in India while the Commercial Banks

(both public and private), Regional Rural Banks and Cooperative Banks are the

retailers of microfinance in India (Rao, 2008).

On the other hand, the informal institutions that undertake micro finance

services as their main activity and solely focus on the marginal sections of the

society are generally referred to as Micro Finance Institutions (MFIs). According to

the Task Force created by NABARD, MFIs are those which provide thrift, credit

and other financial services and products of very small amounts mainly to the poor

in rural, semi-urban or urban areas for enabling them to raise their income level and

improve living standards. While both private and public ownership are found in the

case of formal financial institutions offering microfinance services, the MFIs are

mainly in the private sector (Feroze & Chauhan, 2011; http://www.nabard.org).

The Micro Finance Institutions (MFIs) are playing an important role of

financial intermediaries in the microfinance sector. They act as an important conduit

for extending financial services to the micro finance sector in the country by raising

resources from Banks and other institutions and extending loans to SHG members.

MFIs could be either of the following legal entities.

I. NGO MFIs registered under Societies Registration Act, 1860 and/or

Indian Trust Act, 1880. They are not for profit entities with a wider

development agenda and had been among the first class of

95

institutions to extend micro credit to SHGs even before the SHG-

Bank linkage programme was conceived.

II. Cooperative MFIs registered under State Cooperative Societies Act

or Mutually Aided Cooperative Societies Act (MACS) or Multi-State

Cooperative Societies Act, 2002.

III. NBFC MFIs incorporated under Section 25 of Companies Act, 1956.

These NBFCs are working “not for profit”, but on sound business

principles by complementing the efforts of the Banking system to

extend the outreach of micro finance and help in financial inclusion.

IV. NBFC MFIs incorporated under Companies Act, 1956 and registered

with RBI. These institutions are like the other companies

incorporated under the Companies Act, these NBFCs work purely on

business lines laying emphasis on return on investment. “Doing good

business while extending micro finance to the poor” is their motive.

Though the Indian MFIs began its journey with only micro credit in its

basket have now moved onto a different realm with MFIs trying to understand their

clients’ financial needs in a more meaningful way and designing products to suit the

requirements of their clients ever increasing demand within the scope of regulatory

restrictions (Puhazhendhi, 2013). Thus we can say that Indian MFIs have been able

to develop successful and sustainable business models to overcome challenges

traditionally faced by the financial services sector in serving low income groups by

catering to their specific needs, capacities and leveraging pre-existing community

support networks. Following the RBI guidelines issued vide its circular dated 18th

February 2000, to all scheduled commercial banks including RRBs, MFIs are

availing bulk loans from banks for on-lending to SHGs and other small borrowers.

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 (NABARD, 2009a).

Though most of these MFIs entered the micro finance sector only after the

SHG-Bank linkage programme was well entrenched, the turnover of these

96

institutions grew at a much larger scale than the former. According to Puhazhendhi

(2013), these microfinance institutions have made significant progress during the

last two decades in terms of outreach and penetration in unbanked areas through

several innovations in credit delivery and terms of lending, thereby emerging as

structural addition to the overall Indian financial system. They were more aggressive

and innovative in reaching out to the rural poor than the formal banking system. Of

late, however, the functioning of these institutions (mostly “for profit” NBFCs) were

being subjected to closer public scrutiny on account of alleged unethical business

practices and questionable recovery practices. These developments resulted in

Andhra Pradesh Government promulgating an ordinance to severely restricting their

lending operations and recovery mechanism. Some other states like Orissa too

placed restrictions on their functioning. As a result, the lending operations of these

institutions virtually came to a halt not only in AP where most of their lending

operations were concentrated, but also in other areas as well while the recovery of

loans nose-dived (NABARD, 2011a). The Reserve Bank of India has since notified

guidelines for the lending operations of mFIs based on the Malegam Committee

recommendations. A new class of financial organisations named as NBFC– mFIs

has been created and subject to certain conditions regarding the capital to be

employed, lendings to SHG members, cap on interest to be charged and margin to be

retained, etc. (NABARD, 2012a). The RBI amendment of fixing margin caps of

12% over cost of borrowing rather than cost of funds to the MFIs has done little to

reduce cost of credit for poor. The loans extended to these NBFC-mFIs by banks

now qualify for priority sector lending category (NABARD, 2013a).

The progress under MFI-Banks linkage programme is shown in the Table

2.21. It is observed from the table that the total volume of loans issued to MFIs by

all banks including SIDBI during 2010-11 was Rs. 8,448.96 up from Rs.1,151.56

crore during 2006-07 having a growth rate of 64.58 percent. On the other hand, the

outstanding loans against NGOs/MFIs were Rs. 13,730.62 crore as on 31st March

2011 up from Rs. 1,584.48 crore as on 31st March 2007 having a growth rate of

71.57 percent. But if we compare the figures in between the last two years, then we

can see that the bank loans disbursed during 2010-11 has recorded a decline of 21.25

percent over the previous year while the loan outstanding against NGOs/MFIs

97

recorded a slight decline of 1.61 percent for the same period. The steep decline in

the loans issued is mainly attributed to loans by SIDBI which declined by as much

as 68.35 percent (annual growth rate) during the year.

Table 2.21: Progress under MFI-Bank Linkage Programme in India

Year

Loans disbursed by Banks/FIs to

NGOs/MFIs

Loans Outstanding against

NGOs/MFIs as on 31st March

No. of MFIs Amount

(Rs. Crore) No. of MFIs

Amount

(Rs. Crore)

2006-07 334 1151.56 550 1584.48

2007-08 518 1970.15 1109 2748.84

2008-09 581 3732.33 1915 5009.09

2009-10 779 10728.50 1656 13955.75

2010-11 471 8448.96 2315 13730.62

CAGR (2006-07

to 2010-11) 8.97% 64.58% 43.23% 71.57%

CAGR (2009-10

to 2010-11) --- -21.25% --- -1.61%


2.2.7 Role of SIDBI in Promotion of Microfinance Movement in India

Micro Credit Scheme

Small Industries Development Bank of India (SIDBI) started its

microfinance programme with the objective of filling in the perceptible gap in

financing genuine credit needs of the disadvantaged especially in rural areas. Thus,

the Micro Credit Scheme (MCS) of SIDBI was launched in February 1994 with the

objective of extending financial support to the disadvantage section of the society

through well-managed Non-Governmental Organisations (NGOs). The NGOs were

encouraged to on-lend to disadvantage section of the society (individuals/groups)

with emphasis on women for setting up micro enterprises. Since the inception of

SIDBI’s Micro Credit Scheme in February 1994 till December 1998, a cumulative

assistance of Rs. 226.10 million including the grant support of Rs. 10 million for

meeting managerial costs etc. was channelized through 132 NGOs across 23 States,

with a membership of over 1,39,000 rural poor – mainly women (SIDBI, n.d.).

98

SIDBI Foundation for Micro Credit (SFMC)

Thus experimenting with the pilot programme for about 5 years, SIDBI

reoriented and upscaled its micro finance programme in January 1999, with the

setting up of a specialised/dedicated department called the ‘SIDBI Foundation for

Micro Credit’ (SFMC) with a portfolio size of Rs. 60 million taken over from the

pilot phase and with the primary objective of creating a national network of strong,

viable, and sustainable Micro Finance Institutions (MFIs) for providing micro

finance services to economically disadvantaged people of India, especially women.

The Bank’s micro finance programme is perceived as a “Credit Plus” programme

and hence, does not restrict itself to funding alone. The Bank’s services include not

only meeting the financial needs of MFIs with structured, value-added products,

such as, Term Loans, Transformation Loans, and Equity Support, but also providing

capacity building grants as well (SIDBI, 2012). The cumulative assistance

(including loans, grants, equity and quasi-equity) sanctioned upto March 31, 2011

aggregated Rs. 7691.05 crore, while cumulative disbursements aggregated Rs.

6918.51 crore. The outstanding micro credit portfolio of the Bank stood at Rs.

3049.78 crore as on March 31, 2011. The number of MFIs assisted and having loan

outstanding with the Bank as on March 31, 2011 stood at 139. Besides loans and

equity, the Bank also provided cumulative grant assistance of Rs. 90.67 crore for

capacity building of MFIs and the sector. The assistance, through SIDBI, has

benefited around 3.10 lakh disadvantaged people, most of them being women

(SIDBI, 2011).

National Micro Finance Support Programme (NMFSP)

SIDBI launched the National Micro Finance Support Programme (NMFSP)

in April 2000 with a view to draw upon the international experience and bring in the

microfinance best practices within India. Under the NMFSP, SFMC entered into a

collaboration with the Department for International Development (DFID), UK in

April 2000 and with International Fund for Agricultural Development (IFAD),

Rome in April 2002 to address the lack of access to financial services by the poor in

India and is expected to develop a more formal, extensive and effective Micro

Finance sector on a national scale. The overall goal of NMFSP is to bring about

99

substantial poverty elimination and reduced vulnerability in India amongst users of

micro finance services, particularly women (SIDBI, n.d.; SIDBI, 2009).

Portfolio Risk Fund

The Government of India has committed support of Rs. 150 crore under

Portfolio Risk Fund (PRF) Scheme, which is being utilized by the Bank for meeting

7.5% of the term loan towards security cover (against the normal requirement of

10%) of the MFIs requirements under Micro Credit Scheme for providing loan

assistance to MFIs in the underserved states and underserved pockets/ districts in

other states (with emphasis on SCs, STs, Minority, OBCs and women). The PRF

corpus is available for a period of 5 years with effect from FY 2006-07 and aims to

cover 50 lakh beneficiaries throughout the country (SIDBI, 2010). Under PRF, the

loan disbursement to eligible MFIs, during the year, stood at Rs. 218.39 crore, with

utilization of Rs. 16.38 crore being 7.5% of eligible disbursement. The assistance

covered under PRF, during the year, has benefited 2.10 lakh clients spread across 3

States. Cumulatively, as on March 31, 2011, the disbursement to eligible MFIs

under PRF stood at Rs. 1,518.08 crore, thereby utilizing Rs. 113.86 crore, being

7.5% of eligible loan disbursements (SIDBI, 2011).

With a view to upscaling the micro credit portfolio, SIDBI has contracted a

loan of USD 300 million from the World Bank, including USD 200 million from

International Bank for Reconstruction and Development (IBRD) and SDR

equivalent of USD 100 million from International Development Association (IDA).

The project titled “Scaling Up Sustainable and Responsible Micro finance” aims at

scaling up access to sustainable micro finance services, particularly to clients in the

underserved areas of the country through, among others, introduction of innovative

financial products and fostering transparency and responsible finance (SIDBI,

2012).

2.2.8 Role of Rashtriya Mahila Kosh (RMK) in Promotion of

Microfinance in India

Rashtriya Mahila Kosh (RMK) or the National Credit Fund for Women,

established in 1993 is a national level organization under the aegis of the Ministry of

Women and Child Development, for socio-economic empowerment of women

100

(http://rmk.nic.in). RMK follows a quasi-formal credit delivery mechanism, which is

client friendly, involves simple and minimal procedure, low transaction cost, and

link thrift and savings with credit. RMK provides micro-finance services without

collateral for livelihood and income generation activities, micro enterprises, housing

etc.

RMK extends loans to non-government organizations (NGOs) and voluntary

agencies (VAs) who on lend to group of individual beneficiaries (SHGs) of poor

women on terms and conditions approved by RMK. Organizations like Women

Development Corporations, Women Cooperatives, and Women Welfare

Boards/Agencies, not for profit Companies registered u/s 25 of the Companies Act

and such other agencies engaged in the socio-economic development of women at

the grass root level are also eligible for RMK loans. RMK activities cover both rural

as well as urban women of the country (RMK, 2011).

The important loan schemes and other activities of Rashtriya Mahila Kosh

(RMK) are: 1) Loan Promotion Scheme; 2) Main Loan Scheme; 3) Gold Credit

Scheme; 4) Housing Loan Scheme; 5) Working Capital Term Loan Scheme; 6)

Franchisee Scheme; 7) Re-Finance to Urban Cooperative Banks/Mahila Cooperative

Banks; 8) Nodal Agency Scheme; 9) Awareness Generation; 10) Capacity Building

& Skill Upgradation; 11) Marketing Linkages; 12) Entrepreneurship Development.

The interest rate structure of RMK loans as adapted from its website are

given below:

A) Under all other schemes except Franchisee scheme –

a) Interest Rate for Loan sanctioned prior to 31-03-2013.

Ø RMK to NGO – 8% p.a. on reducing balance.

Ø NGO to SHG/Beneficiary – any rate on or above 8% p.a.

subject to a maximum ceiling of 18% p.a. on reducing

balance.

b) Interest Rate for Loan sanctioned from 31-03-2013 onwards.

Ø RMK to NGO – 6% p.a. on reducing balance.

Ø NGO to SHG/Beneficiary – any rate on or above 6% p.a.

subject to a maximum ceiling of 14% p.a. on reducing

balance.

101

B) Under Franchisee Scheme –

a) RMK to Franchisee – 5% p.a. on reducing balance.

b) Franchisee to Sub-Franchisee/NGO – any rate on or above 5%

subject to a maximum ceiling of 8% p.a. on reducing balance.

c) Sub-Franchisee/NGO to SHG/Beneficiary any rate on or above

8% subject to a maximum ceiling of 18% p.a. on reducing

balance.

Table 2.22 shows the year wise growth of RMK loans, number of new NGOs

benefitted, and number of SHGs/Women Beneficiaries.

Table 2.22: Cumulative and Year-wise achievement of RMK in India

Year

Loan

Sanctioned

(Rs. Lakh)

Loan

Disbursed

(Rs. Lakh)

No. of New

NGOs No. of SHGs

No. of

Women

beneficiaries

1993-1994 439.33 140.82 24 3707 37066

1994-1995 512.45 429.53 28 2506 25059

1995-1996 861.66 563.83 48 3830 38302

1996-1997 1700.55 916.76 70 9026 90264

1997-1998 1271.40 1395.39 85 5962 59621

1998-1999 1484.62 1148.50 131 5198 51982

1999-2000 1958.75 1389.45 264 5746 57457

2000-2001 2118.50 1675.80 151 4380 43799

2001-2002 739.11 633.76 154 1561 15613

2002-2003 1600.23 1058.37 89 4417 44172

2003-2004 2505.60 1446.07 69 3906 39056

2004-2005 1549.74 1886.87 40 2236 22365

2005-2006 1930.90 2068.42 82 2731 27305

2006-2007 3071.00 2410.60 88 3469 34692

2007-2008 3228.80 2557.74 52 3583 35827

2008-2009 3030.45 2647.70 44 3617 36166

2009-2010 1471.00 1563.03 23 1540 15404

2010-2011 1278.00 1249.15 22 1336 13362

2011-2012 1985.00 1631.00 22 1818 18182

TOTAL 32737.09 26812.79 1486 70569 705694

Source: http://rmk.nic.in

102

During 1993-94 to 2011-12, RMK has sanctioned loans worth of Rs.

32737.09 lakh and disbursed Rs. 26812.79 lakh. It has helped to form over 70,000

SHGs and over 7 lakh women across the country have benefitted from it.

2.2.9 Determinants of the Growth of SHGs in India

The general purpose of multiple regressions is to learn more about the

relationship between several independent or predictor variables and a dependent or

criterion variable.2 Here in order to know the determinants of the growth of Self

Help Groups (SHGs) in India, the following theoretical multiple regression equation

is formed:

Y = β0 + β1X1 + β2X2 + β3X3 + β4X4 + β5X5 + e

Where, Dependent Variable is -

Y = No. of SHGs Formed (as on March, 2011)

And, Independent Variables are -

X1 = Branches of Scheduled Commercial Banks (as on March 2011).

X2 = Number of BPL Population (in 2011-12).

X3 = Sex Ratio (as per 2011 Census).

X4 = Literacy Rate (as per 2011 Census).

X5 = Number of Blocks (in 2012).

Also β0 is the intercept (constant) term

β1, β2, β3, β4, β5 are Regression Coefficients

e is the Random Error Term/Residuals.

Figure 2.21 shows the schematic view of the factors affecting the growth of

number of SHGs in India as assumed.

2

Multiple linear regression can be thought of an extension of simple linear

regression, where there are p explanatory variables, or simple linear regression

can be thought of as a special case of multiple linear regression, where p=1. The

term ‘linear’ is used because in multiple linear regression we assume that y is

directly related to a linear combination of the explanatory variables.

103

Figure 2.21: Factors influencing the number of SHGs

The Data Set

Table 2.23 lists all the values of the Dependent and Independent Variables

which were collected from secondary sources.

Table 2.23: Regression Data Set

Sl.

N. States

No. of

SHGs1

Bank

Branches2

BPL

Population3

Sex

Ratio4

Literacy

Rate5

No. of

Blocks6

Y X1 X2 X3 X4 X5

1 Andaman &

Nicobar 4750 37 0.04 878 86.27 9

2 Andhra

Pradesh 1466225 6520 78.78 992 67.66 1121

3 Arunachal

Pradesh 7079 76 4.91 920 66.95 149

4 Assam 245120 1377 101.27 954 73.18 238

5 Bihar 248197 3825 358.15 916 63.82 534

6 Chandigarh 964 258 2.35 818 86.43 1

7 Chhattisgarh 118167 1217 104.11 991 71.04 146

8 Delhi 3095 2177 16.96 866 86.34 0

9 Goa 7926 407 0.75 968 87.4 11

10 Gujarat 192834 4339 102.23 918 79.31 225

11 Haryana 35319 2149 28.83 877 76.64 119

12 Himachal

Pradesh 53113 950 5.59 974 83.78 77

13 Jammu &

Kashmir 5569 973 13.27 883 68.74 143

No. of SHGs

Bank

Branches

BPL

Population

No. of

Blocks Sex Ratio

Literacy

Rate

104

14 Jharkhand 87205 1705 124.33 947 67.63 259

15 Karnataka 564545 5759 129.76 968 75.6 176

16 Kerala 493347 4053 23.95 1084 93.91 152

17 Lakshadweep 164 11 0.02 946 92.28 9

18 Madhya

Pradesh 153817 3958 234.06 930 70.63 313

19 Maharashtra 760161 7551 197.92 925 82.91 352

20 Manipur 10306 80 10.22 987 79.85 41

21 Meghalaya 10653 201 3.61 986 75.48 39

22 Mizoram 4592 93 2.27 975 91.58 26

23 Nagaland 9866 86 3.76 931 80.11 52

24 Orissa 521152 2689 138.53 978 73.45 314

25 Puducherry 22081 124 1.24 1038 86.55 6

26 Punjab 40919 3240 23.18 893 76.68 142

27 Rajasthan 233793 3900 102.92 926 67.06 246

28 Sikkim 2811 71 0.51 889 82.2 27

29 Tamil Nadu 943098 5890 82.63 995 80.33 385

30 Tripura 34312 213 5.24 961 87.75 40

31 Uttar Pradesh 470157 9658 598.19 908 69.72 821

32 Uttarakhand 44295 1083 11.6 963 79.63 95

33 West Bengal 666314 5023 184.98 947 77.08 341

Sources:

1. NABARD (2011). Status of Microfinance in India 2010-11.

2. RBI (2009). Branch Banking Statistics, Vol. 4.

3. Planning Commission (2013). Press Note on Poverty Estimates, 2011-12.

4. GoI (2011). Provisional Population Totals. Paper 2, Vol. 1 of 2011. Rural Urban

Distribution India Series 1.

5. GoI (2011). Provisional Population Totals. Paper 2, Vol. 1 of 2011. Rural Urban

Distribution India Series 1.

6. http://data.gov.in/dataset/number-districts-drdas-blocks-villages-country.

The Table 2.24 tells us about the Independent Variables and the method

used. Here we can see that all of our Independent Variables were entered

simultaneously because we selected the Enter method. The table also confirms about

the Dependent Variable which is “State wise No. of Total SHGs formed since inception

upto March 2011”.

105

Table 2.24: Variables Entered/Removeda

Variables Entered Variables

Removed Method

1. Number of Blocks March 2012.

2. Sex Ratio as per 2011 Census.

3. Total Literacy Rate as per 2011 Census.

4. No of BPL Population during 2011-12.

5. Branches of Scheduled Commercial

Banks March 2009b

Enter

a. Dependent Variable: State wise No. of Total SHGs formed since

inception upto March 2011

b. All requested variables entered.

In Table 2.25, Model Summary, the value 0.947 given under the column R is

multiple correlation coefficient and it measures the strength of the association. The

range of R is – 1 to + 1, here the R value of 0.947 implies that the Dependent

Variable (Y) has a strong positive association with the combined effect of all the

Independent Variables viz., X1, X2, X3, X4 and X5.

Table 2.25: Model Summary

Model R R Square Adjusted R Square3

Std. Error of the

Estimate

1 .947a .896 .877 119310.251

The Table 2.25 also shows the value of R Square. The R Square value is, as

the name implies, is the square of the multiple correlation coefficient. This measure

the strength of the regression prediction compared with predicting solely by the

response mean. The important thing to note is that: The closer to 1 the stronger is the

regression prediction, the closer to 0 the weaker. Here we have the value of R2 as

3 When the sample size, n, is large, R Square and Adjusted R Square will usually be

identical or very close. For small n, Adjusted R Square takes into account the sample size

and the number of explanatory variables in the regression equation. This statistic is

intended to allow comparison between different regressions or even regressions fitted to

different sets of data, and may be useful as an initial rather rough indicator for this

purpose. Normally it is the unadjusted R Square that is reported.

106

0.896, which means that 89.6 percent of the variation in Y is explained by X1, X2,

X3, X4 and X5. Left 10.4 percent are unexplained.

The Table 2.26 gives the results on Analysis of Variance. The F-ratio given

under column F is 46.545 and p-value, 0.000 is given under Sig. column. Since p-

value is less than 0.05, it implies that the calculated regression coefficient is

significant and the variance in Independent Variables contributes significantly to the

change in Dependent Variable. Therefore, it is inferred that the variance in X1, X2,

X3, X4 and X5 really contribute to change in Y. In otherwords, the ANOVA table

above indicates that the model, as a whole, is a significant fit to the data.

Table 2.26: Analysis of Variance (ANOVA)

Model Sum of Squares df Mean Square F Sig.

Regression 3312832970443.716 5 662566594088.743 46.545 .000b

Residual 384343272062.344 27 14234936002.309

Total 3697176242506.060 32

Table 2.27 shows the values of the regression coefficients of the multiple

regression as generated by SPSS Version 20.

Table 2.27: The Regression Coefficients of the Multiple Regression

Model Unstandardized Coefficients

Standard

ized

Coeffici

ents t Sig.

B Std. Error Beta

(Constant) -

1302829.783

433633.75

4

-

3.004 .006

Branches of Scheduled

Commercial Banks

March 2009

85.273 15.975 .644 5.338 .000

No of BPL Population

during 2011-12 -1434.605 281.161 -.529

-

5.102 .000

Sex Ratio as per 2011

Census 1023.369 425.975 .158 2.402 .023

Literacy Rate as per

2011 Census 3546.730 3502.100 .086 1.013 .320

Number of Blocks

March 2012 981.866 169.503 .702 5.793 .000

107

From the above table, we can estimate the regression model as:

Y = - 1302829.783 + 85.273 X1 - 1434.605 X2 + 1023.369 X3 + 3546.730 X4 + 981.866 X5 + e

Interpretation of the Regression Coefficients:

1. β0 = - 1302829.783. This is the intercept, the value of Y when all the

variables take the value zero. Since the data range of all the Independent

Variables do not cover the value zero, we need not interpret the intercept.

2. β1 = 85.273. This is the value of regression coefficient of X1 and it is

positively related to Y. In this model, for each unit of change in Branches of

Scheduled Commercial Banks leads to an increase in the No. of SHGs by

85.273 when the other variables are held constant.

3. β2 = - 1434.605. This is the value of regression coefficient of X2 and it is

negatively related to Y. In this model, for each unit of change in No. of BPL

Population lead to a decrease in the No. of SHGs by 1434.605, when the

other variables are held constant.


positively related to Y. In this model, for each unit of change in Sex Ratio

leads to an increase in the No. of SHGs by 1023.369, when the other

variables are held constant.


positively related to Y. In this model, for each unit of change in Literacy

Rate leads to an increase in the No. of SHGs by 3546.730, when the other



positively related to Y. In this model, for each unit of change in No. of

Blocks leads to an increase in the No. of SHGs by 981.866, when the other


108

2.2.10 SWOT Analysis of Micro Finance Sector in India

Strengths

A significant feature of microfinance innovations in India is that though all

variants of microfinance models and technologies are in existence, the most

widespread with regard to depth and outreach are the linkage models. The basic

feature here is that financial resources are being sourced from regular banking

channels as well as members’ savings. NABARD’s SHG-Bank linkage programme

and other linkage programmes with MFIs have shown the path forward for accessing

mainstream finance exclusively from the formal banking sector for microfinance.

Yet another positive strength of the microfinance sector is that the SHG-Bank

linkage programme has been accepted as an effective tool for inclusive growth by

extending various financial services to the hitherto category of poor rural

households. Overall, 53.4 percent of the total rural households are members of the

SHG-Bank Linkage Programme. The rural household coverage is less than 50

percent in 19 states, while the coverage shows more than the number of rural

households in seven States (on account of multiple membership).

Weaknesses

The microfinance services in India is delivered mostly through SHG

approach, but these SHG’s themselves lack quality. There are so many issues like

poor maintenance of books of accounts, lack of capacity building, irregular

meetings, low technical support and business development services. The presence of

these loopholes in SHGs acts as barrier for SHG members graduating into

microentrepreneurs (Batra & Sumanjeet, 2011). Not many NGOs/SHPIs are in a

position to provide SHGs the requisite backward and forward linkages thereby

adversely affecting the establishment of microenterprises on a sustainable basis.

Further the whole SHG-Bank linkage programme is facing problems of Upscaling as

there is lack of credible village level organisations that could do social

intermediation (Karmakar, 2008). Yet another weakness of the microfinance sector

in India is its regional imbalances. About 47 percent of the savings linked SHGs

under SHG-Bank linkage programme is from Southern Region where as the

Northern and North Eastern Region together accounts for only 9.35 percent only.

109

Opportunities

The microfinance movement has been widened, deepened and diversified

with continued promotional focus on SHG-Bank Linkage Programme by NABARD

as well as all stakeholders. The programme is growing steadily and it is likely that

coverage of 100 lakh SHGs would be accomplished much before 2015 as envisaged.

There have been sea changes in the policy environment for SHGs in the recent years.

Many State Governments and Government of India agencies and international

bodies have launched several livelihood programmes with SHGs as delivery

channel. MFIs are expanding their horizon of services, inter-alia, through SHG

route. Federations of SHGs under different models are coming up by leaps and

bounds to provide financial and non-financial services to SHGs. Several variants of

SHGs including Joint Liability Groups (JLGs) are operating in different parts of the

country. Financial inclusion is being advocated/focused with SHGs as core center

for providing the whole range of financial services like micro saving, micro credit,

micro insurance, micro pension, micro remittance, business counselling, and

financial literacy with technology options. Financial inclusion will bring in

enormous business volumes, large number of additional customers as also manifold

increase in banking transactions. Simultaneously there is a huge potential market for

the Indian insurance sector as microfinance clients also need micro insurance

products which can cater their life, health, crops, live stocks, assets and accidents.

Yet another opportunity is that the matured SHGs can be facilitated to carry out the

wide spectrum of value chain in farm and non-farm sectors thereby establishing

forward and backward linkages (NABARD, 2011a).

Threats

The micro finance sector in India has faced several challenges and stood the

test of time and would likely to meet the emerging challenges in near future. The

issues of regional imbalance, micro-enterprise promotion, maintaining the quality of

SHGs, recovery performance, etc. are being addressed through various promotional

and nurturing efforts. All the stakeholders in their Upscaling process are however,

expected to champion the core values, visions, principles and philosophy of SHGs

and SHG-Bank Linkage Programme for orderly growth of microfinance movement.

There is a need for recalling, reiterating and reinforcing those fundamentals for

110

sustenance of the movement. NABARD has been the conscience-keeper in this

regard and has been focusing the same in every fora. It is expected that all would

preserve these values e.g. savings with credit, gradual increase in credit, group

dynamics and autonomy of SHGs in decision-making, peer pressure, healthy

relationship between SHGs and SHPIs including banks, etc. at any cost. The

microfinance eco-system with the Sun of SHG-Bank Linkage Programme at the

center could remain in balance if all the players and programmes revolve round the

central value system in the changing times ahead (NABARD, 2009a). Other

challenges like social performance, transparency and responsible finance have been

touching the Indian microfinance sector. Yet addressing environmental concerns has

also entered the social space.

At last, we can say that microfinance India has emerged as a noble substitute

for informal credit and an effective and powerful instrument for reaching the poorest

of the poor who are economically active but financially constrained. The strength of

microfinance organisations in India is in the diversity of approaches and forms that

have evolved over time. Moreover, it is widely recognized that the strategy for

microfinance in India has been successful in providing much needed financial

services to the poor on a sustainable basis. The access of financial services has

enabled a large number of the poor to make a significant progress in their own

efforts to challenge the deep rooted poverty in our society. Further the democratic

structure and functioning of member owned SHG approach of microfinancing in

India can help to strengthen the democratic systems of our country as both

democracy and development require active and informed participation of people

from the bottom of the pyramid and when this happens, the political economy of

India will become an inclusive and constructive process.

111

References

Batra, V., & Sumanjeet (2011). The State of Microfinance in India: Emergence, Delivery

Models and Issues (Business and Economics Working Paper Series No. AIUB-BUS-

ECON-2011-02). Retrieved from http://orp.aiub.edu

CGAP (2012). Annual Report 2012. Washington DC, USA: Consultative Group to Assist the

Poor. Retrieved from http://www.cgap.org

Feroze, S. M., & Chouhan, A. K. (2011). Microfinance in India: A Performance Evaluation.

New Delhi, India: New Century Publications.

Fisher, T., & Sriram, M. S. (2002). Beyond Micro-Credit: Putting Development Back into

Micro-Finance. New Delhi, India: Vistaar Publications.

Grameen Foundation (2012). Annual Report 2011-12. Washington, DC: Grameen Foundation.

Retrieved from http://www.grameenfoundation.org

Grameen Foundation (2013). Annual Report 2012-13. Washington, DC: Grameen Foundation.

Retrieved from http://www.grameenfoundation.org

Guha, S. (2010). Microfinance for Micro Enterprises: An Impact Evaluation of Self Help Groups

(Occasional Paper – 55). Mumbai, India: National Bank for Agriculture and Rural

Development.

HDFC (1997). Source Book on Reputed Indian Practices of Microfinance. Mumbai, India:

Housing Development Finance Corporation.

IMF (2005). Microfinance: A View from the Fund. Retrieved from https://www.imf.org

Jindal, K. (2008). Regulatory Framework for MFIs. In K. G. Karmakar (Ed), Microfinance in

India. New Delhi, India: Sage Publications.

Jones, H., Williams, M., & Thorat, Y. (2007). Rural Financial Institutions and Agents in India:

A Historical and Contemporary Comparative Analysis. Retrieved from

http://www.fao.org

Karmakar, K. G. (2008). Microfinance Revisited. In K. G. Karmakar (Ed), Microfinance in

India. New Delhi, India: Sage Publications.

Ledgerwood, J., Earne, J., & Nelson, C. (2013). The New Microfinance Handbook: A Financial

Market System Perspective. Washington D.C.: The World Bank.

Lutzenkirchen, C., & Weistroffer, C. (2012). Microfinance in Evolution: An industry between

crisis and advancement. Retrieved from https://www.db.com

MIX (n.d.). The Premier Source for Microfinance Data and Analysis [Brochure]. Retrieved from

http://www.themix.org

112

Mohan, R. (2004). Agricultural Credit in India: Status, Issues and Future Agenda. Reserve Bank

of India Bulletin, November (Lecture delivered at the 17th National Conference of

Agricultural Marketing, Indian Society of Agricultural Marketing, Hyderabad). Retrieved

from http://rakeshmohan.com

NABARD (2006). Progress of SHG – Bank Linkage in India 2005-06. Mumbai, India: National

Bank for Agriculture and Rural Development.

NABARD (2007). Status of Microfinance in India 2006-07. Mumbai, India: National Bank for

Agriculture and Rural Development.

NABARD (2008a). Status of Microfinance in India 2007-08. Mumbai, India: National Bank for










Priyadarshee, A. (2008). Micro Finance Delivery Methods and Models in India: A Historical

Perspective. In D. Lazar and P. Palanichamy (Eds), Micro Finance and Poverty

Eradication: Indian and Global Experiences. Pondicherry University, Puducherry. New

Delhi, India: New Century Publications.

Puhazhendhi, V. (2013). Microfinance India: State of the Sector Report 2012. Access

Development Services. New Delhi, India: Sage Publications India Pvt. Ltd.

Puhazhendhi, V., & Satyasai, K. J. S. (2000). Micro Finance for Rural People: An Impact

Evaluation. Mumbai, India: National Bank for Agriculture and Rural Development.

Retrieved from http://www.nabard.org

Rao, K. M. (2008). MFIs in India: An Overview. In K. G. Karmakar (Ed), Microfinance in India.

New Delhi, India: Sage Publications.

Reddy, Y. V. (1999, May). Future of Rural Banking. Speech given in Prof. G. Ram Reddy Third

Endowment Lecture, at Potti Sreeramulu Telugu University Auditorium Public Gardens,

Hyderabad. Retrieved from http://rbidocs.rbi.org.in

RMK (2010). Annual Report 2009-10. New Delhi, India: Rashtriya Mahila Kosh.

Satish, P (2008). Promoting Linkages between Banks and MFIs. In K. G. Karmakar (Ed),

Microfinance in India. New Delhi, India: Sage Publications.

113

Seibel, H. D. (2005). Does History Matter? The Old and the New World of Microfinance in

Europe and Asia (Working paper/University of Cologne, Development Research Centre,

No. 2005, 10). Retrieved from http://www.microfinancegateway.org

Shetty, S. L. (2012). Microfinance in India - Issues, Problems and Prospects: A Critical Review

of Literature. New Delhi, India: Academic Foundation.

SIDBI (2009). Annual Report 2008-09. Lucknow, India: Small Industries Development Bank of

India.


India.


India.


India.

SIDBI (n.d.). A decade of empowerment of women (SIDBI Foundation for Micro Credit-10

Years). Lucknow, India: Small Industries Development Bank of India.

Singh, H. R., & Singh, N. D. (2011). Microfinance: An Introductory Text. New Delhi, India:

Akansha Publishing House.

Srinivasan, N. (2012). Microfinance India: State of the Sector Report 2011. Access

Development Services. New Delhi, India: Sage Publications India Pvt. Ltd.

microfinance -international and indian...

Documents