Professional Documents
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ABSTRACT
I. INTRODUCTION
Keywords
Rural Credit, Problems, Agriculture, SHG-BankLinkage
Programme, MFIs
_______________________________________________
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III. METHODOLOGY
The present study explores the relationship between rural
credit and microfinance in India. This is a source of
alternative instate of informal credit sources of rural India.
The present study provides an evidence of emergence of
micro finance as alternative sources of rural credit over a
period of time because it is a blend of formal and informal
credit. This study based on the secondary data provided by
the different sources like Mix Market, NABARD, RBI and
different govt. India agency like Ministry of finance,
planning commission
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B. INFORMATIONAL ASYMMETRY
One of the main problems of rural credit from the point of
view of a lender is that there is a lack of information
regarding the use to which a loan will be put. Secondly
there is lack of information regarding the repayment
capacity. This feature has implications on the risks of
lending money which in turn has an effect on the interest
rate charged.
The lack of information to which a particular loan is to be
put can be overcome if there exists a mechanism to
monitor the loan. However in rural areas formal
institutions such as banks find it costly to obtain such
information. In other words the transaction costs are high.
This has, in combination with the government policy of
not charging high rates of interest, the effect of limiting
the quantum of loan that is given. Usually this is not in
keeping with the requirements of the borrower. However,
for private money lenders, who face the same problems,
but do not have any ceiling on the interest that they can
charge, the Lenders Hypothesis shows that the rate of
interest charged depends upon the probability of default:
Let:
i = Lenders rate of interest,
P = Probability of repayment of loan, and
r = market rate of interest.
Then, P (1+ i) L will be the expected return to the lender at
the end of the loan period.
Had the lender put the money in the bank as an alternative
he would have earned (1+ r) L on this amount. Lending is
profitable if
P (1+ i) L - (1+ r) L > 0.
Under perfectly competitive conditions,
P (1+ i) L - (1+ r) L = 0
Then, i = 1+r/ P
Thus the larger is P (which means that the rate of default is
small) the lower would be the rate of interest charged.
In sum therefore, it can be said that the formal institutions
that lend to the rural sections are limited in the quantum of
credit that they disburse, whereas the informal institution
such as the money lender charges high rate of interest on
whatever amount that he lends out. From both sides the
borrower is affected adversely.
B. MARKET SEGMENTATION
Theoretically, if there is scope for consumers to be
segregated, then a monopoly seller would be able to price
discriminate and increase his profits relative to a situation
wherein he charges a uniform price. Market segmentation
in our context would refer to the inability of consumers
who are charged a high price in one market to move to the
market where the same good or service is being sold at a
lower price. Although in the rural credit market there is an
absence of a single monopoly element in money lending,
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VI.
INSTITUTIONAL
AND
NONINSTITUTIONAL CREDIT SOURCES
Traditionally, the Formal Sector Banking Institutions in
India have been serving only the needs of the Commercial
Sector and providing loans for middle and upper Income
Groups. As far as the formal financial institutions are
concerned, there are Commercial Banks, NABARD, Rural
Development Banks (RDBs), Land Development Banks,
Co-operative Banks (CBs). The Government has taken
several initiatives to strengthen the institutional rural credit
system. The rural branch network of commercial banks
has been expanded and certain policy prescriptions
imposed in order to ensure greater flow of credit to
Agriculture and other preferred sectors. The Commercial
banks are required to ensure that 40% of the total credit is
provided to the priority sectors out of which 18% in the
form of direct finance to Agriculture and 25% of priority
sector in favor of Weaker Section besides maintaining a
credit deposit ratio of 60% in rural and semi-urban
branches. Further the IRDP introduced in 1979 ensures
apply of credit subsidies to Weaker Section beneficiaries.
Although these measures have helped in widening the
access of rural households to the institutional credit vast
majority of the rural poor have still not been covered. Also
lending done under the poverty alleviation schemes
suffered high repayment defaults and left little sustainable
impact on the economic condition of the beneficiaries
(Piyush Tiwari and S.M. Fahed (2005).
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7.3
18.7
31.7
63.2
66.3
61.1
3.3
2.6
22.0
29.8
23.6
30.2
0.9
0.6
2.4
28.8
35.2
26.3
3.1
100.0
100.0
100.0
100.0 100.0 100.0
Total
Note: Figures in percent. Source: Ramesh Golait(2007), RBI
The dependence ratio of institutional credits exceeds to
access to institutional credit, says a study on
non-institutional sources, between the years 1951-2002
agricultural
indebtedness,
which
results
in
it reach to from 7.3% to 61.1%. Share non-institutional
impoverishment, distress migration and, sometimes,
credit still significant, out of 39 percent money lenders
suicide. The government waived farm loans of ` 65,000
contribution in rural credit around 29%. The number of
crore in 2008 under Agricultural Debt Waiver and Debt
farmer borrowings from non-institutional sources has
Relief Scheme but only a small portion of farm
risen to levels not seen since Independence, despite a
householders borrow from formal sources, and all
doubling of farm credit in recent years and several
others were subsequently excluded from the scheme's
efforts from the stakeholders towards financial
purview.
inclusion. Just one in every seven marginal farmers has
Table No.2: Flow of Institutional Credit to Agriculture &Allied activities (Rs.in crores)
Agency
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12* 2012-13**
48258
46192
63497
78121
87863
64664
Cooperative 42480
Banks(A)
18
19
15
17
16.88
17.21
26.99
Share (%)
20435
25312
26765
35218
44293
54450
32127
RRBs
Share (%)
9
10
9
9
9.46
10.65
13.41
285799 345877
368616
142838
Commercial 166485 181088 228951
banks
73
71
76
74
73.86
72.13
59.61
Share (%)
229400 254658 301908
384514 468291
511029
239626
Total
Note: (A), including others, * Provisional **up to September 2012
Source: Economic Survey, Govt. of India 2011-12 and 2012-2013
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2010
(%)
5.7
3.1
8.8
68.6
10.3
5.5
15.8
62.0
24.4
5.5
31.7
36.1
58.6
4.6
63.2
16.1
58.8
7.5
66.3
17.5
52.8
7.8
60.6
18.2
14.4
8.2
7.2
7.6
6.4
0.8
8.4
8.6
13.1
2.1
3.1
4.0
11.2
2.4
2.2
4.0
4.6
2.3
4.8
5.7
4.4
4.6
91.2
84.0
68.3
36.8
30.6
37.7
0.2
100
0
100
0
100
3.1
100
1.7
100
0
100
Source: Devaraja T.S. (2011)
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VII. ALTERNATIVE
SOURCES
RURAL
CREDIT
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Individuals
Through MFIs
and SBLP
SHGs
Members
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8000000
50000
7000000
6000000
40000
5000000
30000
4000000
3000000
20000
2000000
10000
1000000
Northern
North
Eastern
2009-10
2008-09
2007-08
2006-07
2005-06
2004-05
2003-04
Bank loan
Region
2002-03
2001-02
2000-01
1999-00
1998-99
1997-98
1996-97
1995-96
1994-95
1993-94
0
1992-93
Bank Loan/Refinance
9000000
Refinance assistance
Proportion
of
Total
Poor 200405
7.4
2.6
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277446
154018.65
55513
1027570
369490.88
35958
36.2
29.0
(17.48)
(10.66)
(21.18)
(13.18)
77846
63209.88
81199
497922
246239.60
49453
35.0
32.1
Central
(4.91)
(4.37)
(10.26)
(8.78)
149130
64697.54
43383
457476
136948.48
29936
25.8
13.6
Western
(9.40)
(4.48)
(9.43)
(4.88)
1104053.97 110880
2582112
1902287.99 73672
19.8
15.3
Southern 995718
(62.75)
(76.39)
(53.22)
(67.85)
91083
4851356
2803828.07 57795
27.6
100.0
All India 1586822 144533.36
(100.00)
(100.0)
(100.0)
(100.0)
(Total)
Note: Figures in Parentheses are Percentages to total.
Source: Rao and Priyadarshini,J.Y(2013)
IX. GROWTH OF MICROFINANCE cooperatives. The Grameen Model initially promoted by
the well known Grameen Bank of Bangladesh. These
INSTITUTIONS IN INDIA
undertake individual lending but all borrowers are
MFIs, another important
model for providing members of 5 member joint liability group. Such groups
microfinance services to the rural poor, these institutions from the same village form a centre. Within each group
has adopted different methodology to reach the poorest of and the centre peer pressure is the key factor in ensuring
the poor in rural, semi urban area especially formal repayment. There are some two dozen MFI s in India that
financial facilities not availing in that area, MFIs Working follows this model. SHARE, BASIX, SKS and SPAN
as formal financial institutions providing loans, insurance DANA, ASMITHA, SMITHA, etc. are the some of the
services. MFI has adopted three kinds of methodology in important examples of this model. Mixed Models Some
the case of India (1).SHGs 2.Individual Banking MFI s started with the Grameen model but converted to
Program (IBP) 3.The Grameen Model 4. Mixed Models the SHG model at a later stage. However, they did not
completely do away with Grameen type; they are an equal
IBPs entail the provision by micro-finance institutions of mix of SHG and Grameen model. Others have chosen to
financial services to individual clients as though they may adopt either the Grameen or the SHG model to their
sometimes be organized into joint liability groups, credit markets, while some organizations like BASIX use a
and savings cooperatives or even SHG s. The model is number of delivery channels and methodologies.
Eastern
particularly
popular
Year
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
for
micro
finance
through
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35000000
120
30000000
100
25000000
80
20000000
60
15000000
40
10000000
20
5000000
MFIS
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
0
1996
the list contains more or less the same entities that were
there in the last years list, there have been some changes
inters among them.
140
1995
Table No.9 shows that the total outreach during the years
2006-2011, dominated models of SBLP, and MFIs. The
number of self-help groups (SHGs) savings linked
increased to about 7.5 million with a member base of 98.1
million. The SHG bank linkage programme (SBLP) and
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(a.
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The number of customers in case of SHGs is worked out as 13 members per SHG. NABARD suggests that this is higher at 14
members per group, but two national level studies a couple of years back found the average membership at around13) Source:
N.Srinivasan (2011)
The SBLP recorded a growth of 4.9 per cent in the number
of members of SHGs that had active borrowings from
banks. There was an increase of about 4.7 million
customers of MFIs. The growth rate of MFIs in terms of
customer outreach was of the order of 17.6 per cent.
XI.REFERENCES
[1]. Banerjee, A.V and Duflo, E (2010). Giving Credit
Where it is Due MIMEO, MIT
[2]. Basu, Priya and Pradeep Srivastava (2005)
Exploring possibilities: Micro finance and rural
credit access for the poor in India Economic and
Political Weekly. April 23, pp. 1747-1756.
[3]. Bensal, Hema (2005) SHG bank linkage program in
India Journal of micro finance Vo.5 No.1, pp 1-40
[4]. Chavan, P and Ramakumar, R (2002). Micro-Credit
and Rural Poverty: An Analysis of Empirical
Evidence. Economic and Political Weekly, Vol. 37,
No. 10 (Mar. 9-15, 2002), pp. 955-965
[5]. Datt, R and Sundharam K.P.M (2007) Indian
Economy 56thRevised Edition. Page No. 565-566
[6]. Das, Kartick (2012) Financial InclusionA Gateway
to Sustainable Development for the Impoverished.
Journal of Rural Development, Vol.31.No.1,
pp.115128
[7]. Dasgupta Raja Ram. (2005) Micro finance in India:
Empirical Evidence, Alternative Models and Policy
Imperatives Economic and Political Weekly March
19, pp. 1229-1237.
[8]. Devaraja T.S. (2011) An Analysis of Institutional
Financing and Agricultural Credit Policy in India
University of Mysore
[9]. Galab, S and Rao, C.N (2003). Women's Self-Help
Groups, Poverty Alleviation and Empowerment.
Economic and Political Weekly, Vol. 38, No. 12/13,
pp. 1274-1283
[10]. Ghate, Prabhu (2007) Indian micro finance: The
challenges of rapid growth Sage publications, New
Delhi.
[11]. Ghosh, M (2012) Micro-Finance and Rural Poverty
in India SHGBank Linkage Programme. Journal
of Rural Development, Vol. 31, No. 3, July September: 2012
[12]. Golait, Ramesh (2007). Current Issues in
Agriculture Credit in India: An Assessment. RBI
Occasional Papers, Vol.28, No.1 pp. 82
[13]. Kabeer, Naila.(2005) Is micro finance a magic
bullet for womens empowerment: Analysis of
findings from South Asia Economic and Political
Weekly Oct 29, pp 4709-4718
[14]. Karmakar, K.G. (1999) Rural credit and self help
groups: Micro finance needs and concepts in India
Sage publications, New Delhi.
[15]. Kurukshetra (2009) Govt. of India, Ministry of Rural
Development vol.58 November 2009,
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