A Snap Shot on Indian Micro Finance

B.Ravi Kumar K.C.P.G.College, Tenali E-mail: ravi9949418650@yahoo.com

G.D.V. Kusuma Rayalaseema University, Kurnool E-mail: kusumagdv@yahoo.com

B.V.S.S. Subba Rao Global Institute of Management & Technology, Andhra Pradesh. E-mail : bvsss_rao@yahoo.co.in

As William J.Stanton rightly points it out, consumer satisfaction is the social and economic justification for the existence of any business. Every product should be of want satisfying nature and it is to be designed to meet the exact requirement of the target customer. The financial institutions that are expected to meet the requirement of rural credit have no exception to the above principle. The government through different schemes is extending financial support to the farmers and rural artisans. The NABARD, commercial banks and cooperative banks are playing vital role in meeting the rural credit requirement. Compared to the earlier days, farmers are able to approach the banks and get their loans sanctioned with less difficulty. The reserve bank of Indian has been issuing guidelines from time to time to improve customer service in rural credit. All public and private sector banks and select foreign banks were advised in August 2004 to constitute customer service committees of their boards with a view to strengthening the corporate governance structure in the banking system and bringing about ongoing improvements in the quality of customer service. Banks were also advised to constitute adhoc committees to undertake procedures and performance audit on public services rendered by them. In spite of the above measures being taken by the government, the product/schemes designed intended for rural development particularly for farmers and rural artisans are not able to satisfy their financial needs. The insufficient amount of loans ultimately sanctioning, cumbersome procedure, lack of easy approachability etc., are some of the reasons for the above situation. As a result some of the farmers are being forced to approach private money lender to get loans at higher rates of interest. This is leading to heavy expenditure which ultimately leading to losses. Millions of farmers families are economically ruined and thousands of farmers committed suicide.

_____________________________________________________________________ This situation demands the need of developing a product/ scheme by the government to meet the specific financial needs of the farmers and rural artisans. The NABARD should exercise total control on the entire rural credit mechanism. All activities relating to the rural credit, including that of the private micro financial agencies and traditional moneylenders are to be controlled and monitored by the NABARD in coordination with the concerned state government. The Micro credit programme of NABARD, which was formally initiated in 1992 with a modest pilot project of linking around 500 SHGs (Self Help Groups) has made rapid strides in India exhibiting considerable democratic functioning and group dynamism. It is now the largest in the world. Since independence, the government of India and the reserve bank of India have made concerted efforts to provide the poor with access to credit. Despite the phenomenal increase in the physical outreach of formal credit institutions in the past several decades, the rural poor continue to depend as in formal sources of credit. Institutions have also faced difficulties in dealing effectively with a large number of small borrowers, whose credit needs are small and frequent and their ability to offer collaterals is limited. Besides cumbersome procedures and risk, perception of the bank left a gap in serving the credit needs of the rural poor. Thus, the rural poor were elbowed out. The philosophy, objective and methodology of micro-credit programme won all around appreciation because of its impact on rural poverty. It has provided a training ground for rural women to learn the art of self-help and launching of microenterprises as a team. It may be concluded that if this scheme is pursued with the same tenacity of purpose, it will achieve commendable results. The Challenges: In this paper, we have sought to provide a birds-eye view of the micro finance sector in India. There have definitely been significant advances in recent years and the concept and practice of SHG based micro finance has now developed deep roots in many parts of the country. Influence assessment being rather limited so far, it is hard to measure and quantify the effect that this Indian micro credit experience so far has had on the poverty situations India. Doubtlessly a lot need to be accomplished in terms of outreach to make a serious dent open poverty. However the logic and rationale of SHG based micro finance have been established firmly enough that micro credit has effectively graduated from an experiment to a widely accepted paradigm of rural and development financing in India. This is no mean achievement. In fact to the extent that peoples mindset are the biggest roadblock in the success of an innovation, it may well be one of the most important steps in the saga of micro finance. The path ahead is obviously strewn with challenges. Scaling up of project and bringing millions of people within the fold of micro finance is no mean task. The most convincing feature of this form of financing that justifies its admittedly higher costs, is the near-perfect repayment rates. The expansionary zeal of micro credit parishioners should be balanced with the quality of loans-indeed a momentous

challenge. Government involvement in SHG based micro finance is a welcome development. The Micro finance programme has made steady progress. At present, there are over 16lakhs SHGs operating all over the country. The revolving fund helps members to take up non-economic activities too for other welfare of the poor families. By July 2005, more than 16 lakh SHGs have been linked to banks and the cumulative bank exceeded Rs.7000 crores. More than 16 million rural households have gained access to the bank credit.

PROGRESS OF SHG BANK LINKAGE PROGRAMME SHG FINANCED BY BANK (No) DURING CUMULATIVE THE YEAR 1992-99 32995 32995 1999-00 81780 114775 2000-01 149050 263825 2001-02 197653 461478 2002-03 255882 717360 2003-04 361731 1039091 2004 -05 539385 1618456 2005-06# 211391 1829847 SOURCE : Economic Survey , 2005 06. YEAR BANK LOAN (RS.CRORE)

DURING THE YEAR 57.07 135.91 287.89 545.47 1022.34 1855.53 2994.25 1420.67

CUMULATIVE 57.07 192.98 480.47 1026.34 2048.68 3904.21 6898.46 8319.13

Micro-Finance is to provide the rural poor accessibility to credit from the banking system and for alleviating poverty. NABARD in 1992 had started a programme of linking SHGs of the rural poor with banks. Over the years, the SHG-Bank linkage programme has emerged as the major micro-finance programme in the country. In all 554 banks (47 Commercial banks, 177 RRBs and 330 Co-operative banks) are now actively involved in the operation of this programme. The 5,39,365 new SHGs creditlinked during 2004-05 represent an increase of 49 percent over the previous year. As on 31st March, 2005, the total of 16.18 Lakh SHGs credit-linked by banks covered an estimated 242 lakh poor families, with an average loan disbursement per family of Rs. 3,044. Refinance support extended by NABARD amounted to Rs. 3,082 crore. A highlight of the programme was that about 90 per cent of the groups linked with banks were exclusively women groups. As against the target of linking 3 lakh SHGs for the whole year 2005-06, until December, 2005, 2.11 lakh new SHGs were added.

SAVINGS OF SHGS WITH BANKS (31.03.2009): ALL INDIA LAKH) REGION NORTHEN NORTH EASTERN EASTERN CENTRAL WESTERN SOUTHERN TOTAL NO. OF SHGS 310998 240093 1233635 712915 796262 2827244 6121147 % OF SHGS 5.08 3.92 20.15 11.65 13.01 46.19 100 SAVINGS AMOUNT 22703.92 10210.16 159688.03 38679.21 66428.40 256852.10 554561.82 % OF SAVINGS 4.09 1.84 28.80 6.97 11.98 46.32 100

(RS. IN

% OF POPULATION 12.85 3.78 22.09 24.89 14.48 21.82 100

SOURCE : Compiled from NABARD (2009) status of micro finance in India 2008 09, Micro Credit Innovations Development , NABARD , Mumbai and Census of India 2001. The Southern Region comprising four states having a population of 21.82 per cent stands top in credit outstanding as on 31.3.2009 (65.75 per cent) and SHGs formation (53.99 per cent). The Northern Region comprising six States altogether carrying a population of 12.85 per cent has outstanding credit of only 2.99 per cent and SHGs formation of 3.94 per cent. The Central Region, forming four states (Chhattisgarh, Madhya Pradesh, Uttaranchal and Uttar Pradesh) with higher incidence of poverty and having a population of 24.89 per cent and SHGs formation of 7.86 per cent accounts for only 9.02 per cent of the micro loans outstanding. The North-Eastern Region comprising eight States holding a population of 3.78 per cent with 2.79 per cent SHGs formation has outstanding credit of 2.07 per cent. The Eastern Region with five states, of which three are highly poverty ridden (Bihar, Jharkhand and Orissa) has outstanding credit of only 13.33 per cent against 22.1 per cent SHGs formation and 22.09 per cent population. Though the SHGs formation and savings mobilization in the Western Region are more or less in the same proportion to population, the credit outstanding in the region through 9.32 per cent SHGs is much lower (6.84 per cent) against a population size of 14.48 per cent. Altogether, the Southern Region could bag the lion share of credit outstanding though SHGs. MICRO FINANCE AND LOAN STATISTICS IN INDIA To analyze the pattern of borrowing by SHG (Self Help Group) members in micro finance of India, the loans disbursed to them were classified according to different

sizes (Krishna Murthy, R and Ratnapalkhi, Makarand). The size class of loan accounts and loan amount all shown in the following table : SNO RANGE (LOAN SIZE) NUMBER OF LOAN ACCOUNTS 46,687 (37.3%) 37,125 (29.7%) 30382 (24.3%) 7591 (6.1%) 1326 (1.1%) 1329 (1.15%) 366 (0.3%) 229 (0.2%) 1,25,035 (100%) AMOUNT OF LOAN RS. 1,72,52,074 9.7%) 3,48,79,579 (19.5%) 6,16,59,704 (34.5%) 3,39,40,225 (19.0%) 82,59,600 (4.6%) 1,23,93,264 (6.9%) 48,61,456 (2.7%) 54,74,722 (3.1%) 17,87,20,624 (100%) AVERAGE LOAN AMOUNT RS. 370 940 2,29 4,471 6,229 9,325 13,283 23,907 1,429

1. 2. 3. 4. 5. 6. 7. 8.

RS. 0 TO RS.500 RS. 500 TO RS.1000 RS. 1000 TO RS.3000 RS. 3000 TO RS.5000 RS. 5000 TO RS.7000 RS. 7000 TO RS. 10000 RS. 10000 TO RS. 15000 RS.15000 AND ABOVE TOTAL

It can be seen that the size of loan accounts was very small as nearly about 91% loan accounts were in the size class below Rs. 3000. (60 US $). Even in the case of amount of loan taken, nearly 64% of the loans were below Rs. 3000 indicating predominance of small loans. Catering to such small demand has been nearly impossible for the formal banking system in the past, mainly due to the high transaction and process costs involved. Nonetheless an effort in a minute form has be made to endorse inclusive economic growth in India, however loan amounts in the essential stage have to promote in a larger scale the inclusive growth in India. Conclusion: In every country, development takes place over time, but its level and pace many not be adequate to maintain a satisfactory standard of living for the less advantaged. In such situations, inclusion is in order to speed up the natural pace of development. Micro finance is an involvement which tries to speed up this process in a two pronged manner improving house hold income by providing timely and adequate support for economic activities , and sharing the tasks of the government and of the mainstream financial sector. In India , micro finance is at a promising stage with a vast potential for growth. While the sector has began to glow, challenges must be addressed to make

this growth both effective and sustainable. Micro finance needs to become more available , more modified and more complete (kamath, kv). To scale up the otherwise present small activity in this area, we must constleveet financial skills and profitability in micro finance institutions and establish linkages to the debt and equity capital markets through large and more effective loan payment. Micro finance can then truly have a say to transforming rural India by improving women through social and political tools there by serving as an engine of inclusive economic, social and financial growth.