STATUS OF MICROFINANCE AND ITS DELIVERY MODELS IN INDIA

Prof. S.Sivasankari
Research Scholar, Mother Teresa Womens University, Kodaikanal
Prof. S.Kavitha
Research Scholar, Bharathiar University, Coimbatore
ABSTRACT
Microfinance is a mechanism for economic prosperity, that provides savings and investment facility to the
underprivileged. Microfinance includes services ranging from credit facilities, savings, insurance, remittance
and also covers non-financial services like training and counselling. Varied schemes and microfinance
programmes are initiated by the government with a focuses on mitigating poverty and to improve the lives
of rural poor with the help of Income generating economic activities.Numerous micro finance delivery
models are followed across the globe. The most popular models are the Grameen Bank Model of Bangladesh
followed by (ROSCA) Rotating Savings and Credit Association Model of South America, Bolivian Banking
Model. In India, Self Help Group(SHG) and Joint Liability Group (JLG) is the widely followed
Microfinance model.India has been a fertile breeding ground for a large number of models of Microfinance,
each of which has become hugely popular. In fact it can be said that India hosts the maximum number of
Microfinance models,both in indigenous practices as well as in modern Microfinance.SHG model has
emerged as largest and fastest growing successful community based organisation in the developing world.
The SHG bank linkage model provides the cheapest and most direct source of funds. This paper attempts to
highlight the status of Microfinance and its delivery models in India.
KEYWORDS- Microfinance, SHG, MFI, NABARD

PROLOGUE
India has 800 million poor people who live on the brink of subsistence. This is one of the largest
populations of poor in the world. The bottom 5% of Indias poor, considered ultra poor, face even deeper
levels of chronic hunger, persistent poor health, and illiteracy.
To cope with their vulnerability, the poor have no choice but to take loan for consumption and
income generation from money lenders that charge exploitative rates of interest. This can put the poor in a
debt trap. If poor people can access loans with fair interest rates, they could break out of the cycle of
poverty. Bureaucracy, corruption, illiteracy and challenging logistics prevent the poor from accessing loans
from banks and the government.(SKS Microfinance, 2009)
A system or an approach which ensures mobilizing of poor, building capacity and empowering them
with rights and entitlements, autonomy , equipping them to take up Income generating Activities and thereby
leading to increased earning and productivity would be the most appropriate mechanism to ensure equity
and welfare in the country. Microfinance is an mechanism for economic prosperity, that provides savings
and investment facility to the underprivileged.
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 Microfinance includes services ranging from credit facilities, savings , insurance, remittance and also
covers non-financial services like training and counselling. Microfinance plays a major role in the financial
inclusion which is considered as a major policy objective in the country. Varied schemes and microfinance
programmes are initiated by the government with a focuses on mitigating poverty and to improve the lives
of rural poor with the help of Income generating economic activities.

INTERNATIONAL SCENARIO:
In recent decades, many innovative and viable financial schemes were experimented among the poor across
the world. There are successful models that has changed the lives of poor and empowered them.Grameen
Bank provides micro-loans to the poor without any collateral. Individual loans are given to every member of
the group. Members are collectively responsible for each others credit, this ensures repayment of loan out of
peer pressure resulting in good credit rating. The beneficiaries of their poor focused scheme are women.
Banco Sol Bolivia, dispense working capital loans to three or more members group engaged in similar
activities with a guarantee to honour the banks obligations. Bank Rakyat Indonesia(BRI) provided micro
credit and small scale loans ensuring that a borrower gets only single loan at a time. South American /
Village Bank extends its services were access to financial services are limited or nil. It focus on very poor
usually mothers to develop their business. Other bank which has yield significant results are Agricultural
Development Bank of Nepal (ADBN) and Bank for Agriculture and Agriculture Co-operatives (BAAC).

INDIAN SCENARIO
Social banking was prevalent in India for a long time period. Institutional credit was strongly considered as
an approach to poverty eradication. During 1969, 14 banks were nationalized followed by 6 banks in 1980
followed by establishment of NABARD in the year 1982. RRBs was set up in 1976, during this period,
there were significant growth in rural banking resulting in subsidizing credits. During 1990, with the advent
of new economic policy, micro finance was recognized as an developmental approach. NGO based MFI
was established. SHG bank linkage programme was launched by NABARD in the year 1992 based on the
principle of mutual trust and group approach which act as moral collateral in terms of loan repayment
because of peer pressure. In the recent past, NGO-MFI were regulated, for profit MFI was established.
Customer centric approach is followed in offering products and services. Micro finance is considered as
business proposition and commercialized in the recent days.

EVOLUTION OF MICROFINANCE IN INDIA

Micro finance emerged as an industry almost same time all over the world. Microfinance is broadly
accepted for improving income level of poor people. In 1970s and 1980s non government organisations
provided micro credits to poor for opening micro enterprises. In 1970s since the effort of Mohammad Yunus
founder of Grameen Bank, Microfinance has proved to be a sustainable tool for poverty alleviation. In 2006
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 Mohammad Yunus was awarded noble peace prize for his effort towards the economic as well as social
development of poor people in Bangladesh. Microfinance in India started in 1974 in Gujarat as Shri
MahilaSEWA (Self Employed Womens Association) Sahakari Bank. Registered as an Urban Cooperative
Bank they provided banking services to poor women employed in the unorganized sector. Microfinance later
evolved in the early 1980s around the concept of informal Self- Help Groups (SHGs) that provided deprived
poor people with financial services. From modest origins, the microfinance sector has grown at a steady
pace. Now in a strong endorsement of microfinance, the National Bank for Agriculture and Rural
Development (NABARD) and Small Industries Development Bank of India (SIDBI) have committed
themselves to developing microfinance.
The microfinance sector has been witnessing a tremendous growth during the last few years in India
in terms of loan portfolio, geographical area and outreach. With Indias GDP growing at the rate of 7.1 per
cent the countrys socio-economic pyramid is turning around the story with millions of poor people
becoming entrepreneurs.

STATUS AND STRUCTURE OF EXISTING MICROFINANCE IN INDIA

Indian Microfinance Institutions are predominantly NGOs i.e., nearly 80 % of the Microfinance
Institutions operate under the Society/Trust form which is for the not-for-profit sector with a clear
development agenda. Apart from this, other important legal forms are being used by Indian Microfinance
Institutions. 10 % of organizations operate under the company structure; 5% are section 25 companies
(Section 25 of the Indian Companies Act, 1956); 2% as Cooperatives; 2% as Non Banking Finance
Companies (NBFCs); and 1% as Local Area Banks (LAB)(S.L.Gupta et.al, 2014)
Micro finance is a dynamic device that offers financial services to the underprivileged. It also helps the
poorest of the poor to take up IGA , establish micro enterprises and promote entrepreneurship without
relying on money lenders who demand exorbitant interest rates.
In the Indian context , Microfinance basically operates through two channels:
1. Self help Group-BankLinkage programme(SBLP)
2. Micro finance Institution(MFIs).
SHG have ushered in a revolution in microfinance. Self helpgroups model is an unique approach to
financial intermediation. Microfinance is an cost effective instrument involving a process of self
management for the socio-economic empowerment of women in SHG. Formations of SHGs are facilitated
by the government or by NGOs. SHGs are linked not only to bank but also to wider development
programmes. An SHG is usually formed by 10 to 20 members who give the group an exclusive name.
Savings first and credit later is the motto of SHGs. SHG members meet regularly and maintain minutes
books and other documents, including the loan and deposit register. RBI have permitted SHG to open
savings linkage accounts with any commercial banks, district central co-operative banks(DCCBs) , regional
rural bank(RRB) and other similar institutions. Internal credits accumulated by the SHG members are
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disbursed as loans among them at a nominal interest. SHGs are permitted to avail credit facilities from banks
after they have successfully functioned for a few months.
Performance assessment of SHGs are based on participation of members, proper maintenance of
books , regular meetings, utilisation of savings , repayments and several other aspects. The amount of loan
sanctioned to a SHG is usually one to four times their total savings.

SELF HELP GROUP BANK LINKAGE MODEL

Self help group programme in India is the worlds largest microfinance programme by an enormous
margin. The key reason for its success are its link with the poor people , its innovative practices, trust
building at difficult levels between stakeholders and its capacity to enable peoples participation in
development. It is not simply a loan interface with the poor but a holistic social contact programme with
mutual benefit for the banks as well as the SHGs.
In this context, NABARD pioneered the self help initiatives that created a positive impact which led
to the creation of huge social capital. This phenomenon led to profusion of microfinance institutions in the
country which are trying to achieve the same objective through diverse mechanism. This savings led model
of microfinance is a successful empowerment tool which has covered almost 10 crores households in the
country. It is also important to note that 86% of the groups are exclusively women groups which are a big
push to the women empowerment programme.
NABARD has been a key architect of the self help group bank linkage programme and the most
important player in the development of the microfinance sector. NABARD plays a vital role in enrolling
civil society organisations, NGOs and state governments for social mobilization and encouraging the
bankers to appreciate the business opportunities that exists. In this context NABARD and SIDBI have
extended support to the MFIs who are playing a significant role in this sector.
The key focus of NABARD is to facilitate sustained access to financial service for the poorest of the
poor and underprivileged who are the unreached segments of the population. SHG-Bank linkage programme
started from a plot of linking 500 SHGs of rural poor more than two decades ago and today it has crossed 8
million groups . It has reached a number of milestones. A total number of 8 million SHGs have been formed
and the programme boasts of group savings of Rs.37,000 crores(group savings at group and bank level) and
credit outstanding of Rs.51,545 crores. The SHG-BLP model has thus emerged as the most successful model
of reaching the unreached for financial services.
During 2014-15 about 2.68 lakhs new SHGs were added in the domain of SHG to take the number of
SHGs savings linked with formal financial institutions to 76.97 lakhs as on 31.3.2015.
There was an increase of 3.59% in the number of savings linked SHGs over the previous year. As
many as 16.26 lakhs SHGs were disbursed with fresh loans during the year - a 19% increase over 13.66
lakhs SHGs getting fresh loans during 2013-14. The quantum of fresh loans issued by banks also rose by
nearly 16% during the year. Number of SHGs with credit outstanding with banks has shown a rise of 6%,
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from 41.97 lakhs in 2013-14 to 44.68 lakhs, against a 6% decline, the previous year. The amount of loan
outstanding on the other hand has gone up by 20%. The total loan outstanding to SHGs stood at `51,545
crores as on 31.03.2015 against 42,928 crore a year back. A faster rise in loan outstanding over that of the
number of SHGs credit linked implies a credit deepening during the year. The average institutional loan
outstanding of SHGs as on end of March 2015 was 1,15,361, which was 12.8% more than the average loan
outstanding of `1,02,273 at the end of 2013-14. The share of exclusive women SHGs in the total number of
SHGs linked to banks now stands at 86% (up from 84 % last year).
The average savings balance of SHGs with banks as on 31.3.2015 was Rs.14,368, increased by about
8% from Rs.13,322 in previous year.

Overall progress under SHG-Bank Linkage Programme during last Three years
(Numbers in lakhs/Amount Rs. Crore)
2012-2013 2013-2014 2014-15
Particulars No. of No. of No. of
Amount Amount Amount
SHGs SHGs SHGs
9897.42
73.18 8217.25 74.30 76.97 11059.84
Total SHG Nos. (20.45%
(-8.1%) (25.4%) (1.53%) (3.59%) (11.74%)
)
8012.89
59.38 6514.86 62.52 66.51 9264.33
All Women SHGS (22.99%
(-5.7%) (27.6%) (5.27%) (6.38%) (15.61%)
)
SHG Percentage of
81.1 79.3 84.15 80.96 86.41 83.77
savings Women Groups
with 2277.58
Of which 20.47 1821.65 22.62 30.52 4424.03
banks as (36.01%
NRLM/SGSY (-3.6%) (30.6%) (10.46%) (34.92%) (78.56%)
on 31st )
March % of NRLM/SGSY
28.0 22.2 30.45 25.03 39.65 40.00
Groups to Total
Of which
NA NA NA NA 4.33 1071.81
NULM/SJSRY

2012-2013 2013-2014 2014-15

Particulars No. of No. of No. of
Amount Amount Amount
SHGs SHGs SHGs
% of
NULM/SJSRY
NA NA NA NA 5.63 9.69
Groups to
Total
No. of SHGs 12.20 20585.36 13.66 24017.36 16.26 27582.31
extended loans (6.3%) (24.5%) (12.02%) (16.67%) (19.03%) (14.84%)
Loan All Women 10.37 17854.31 11.52 21037.97 14.48 24419.75
disbursed SHGs (12.4%) (26.3%) (11.02%) (17.83%) (25.69%) (16.07%)
to SHGs Percentage of
during the Women 85.1 86.7 84.3 87.6 89.05 83.53
year Groups
Of which 1.81 2207.47 2.26 3480.60
6.43 9487.69
NRLM/SGSY (-13.8%) (-16.5%) (24.56%) (57.67%)
% of 14.8 10.7 16.52 14.49 39.54 34.40
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 NRLM/SGSY
Groups to
Total
% of
NRLM/SGSY NA NA NA NA 1.05 1871.55
Groups to total
% of
NA NA NA NA 6.46 6.79
NULM/SGSY

2012-2013 2013-2014 2014-15

Particulars No. of No. of No. of
Amount Amount Amount
SHGs SHGs SHGs
Total No. of 44.51 39375.30 41.97 42927.52 44.68 51545.46
SHGs linked (2.2%) (8.4%) (-5.71%) (9.02%) (6.46%) (20.06%)
No. of all
37.57 32840.04 34.06 36151.58 38.58 45901.95
women SHGs
(2.9%) (7.8%) (-9.34%) (10.08%) (13.27%) (26.97%)
linked
Percentage of
84.4 83.3 81.2 84.2 86.35 89.05
Women SHGs
Of which 11.93 8597.09 13.07 10177.42 18.46 19752.74
NRLM/SGSY (-1.9%) (6.7%) (9.55%) (18.38%) (41.24%) (94.08%)
Loan
% of
outstandin
NRLM/SGSY
g against 26.8 21.8 31.1 23.7 41.32 38.32
Groups to
SHG as on
Total
31st March
Of which
NA NA NA NA 3.18 3462.62
NULM/SJSRY
% of
NULM/SJSRY
NA NA NA NA 7.12 6.72
Groups to
Total
Source: NABARD
(Figures in the parentheses indicates increase/decrease over the previous year)

MFI-BANKS LINKAGE PROGRAMME

Micro Finance Institutions (MFIs) act as an important conduit for extending financial services to the
microfinance sector in the country by raising resources from Banks and other institutions and extending
loans to individuals or members of JLGs. MFIs could be (1) NGO-MFIs registered under the Societies
Registration Act, 1860 or the Indian Trust Act, 1880; (2) Cooperative MFIs registered under the State
Cooperative Societies Act or Mutually Aided Cooperative Societies Act or Multi State Cooperative Societies
Act; (3) MFIs incorporated under Section 25 of Company Act 1956 / Section 8 of Companies Act, 2013; (4)
NBFC-MFIs incorporated under the Companies Act, 1956 / 2013 and registered with RBI. In addition to
their internal resources, these MFIs have been allowed to seek and obtain bulk loans from Banks/ other
Financial Institutions for providing microcredit to individuals or members of JLGs. Though most of these
MFIs entered the microfinance sector only after the SHG-Bank linkage programme was well entrenched, the
turnover of these institutions grew at a much larger scale than the former. They were more aggressive and
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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 severely restricting their lending
operations and recovery mechanism. As a result, the lending operations of these institutions virtually came
to a halt not only in Andhra Pradesh where most of their lending operations were concentrated but in other
areas as well while the recovery of loans nosedived. 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 organizations named as NBFC MFIs has been created and subject to certain
conditions regarding the capital to be employed, lending to SHG members, cap on interest to be charged and
margin to be retained, etc. The loans extended to these NBFC-MFIs by banks now qualifies for priority loan
category. RBI's upgraded regulations and guidelines on NBFC MFIs and inclusion of loans to MFIs by
banks under priority sector subject to qualifying asset criteria have resulted in phenomenal growth of MFIs
during 2013-14 and 2014-15. The creation of MUDRA bank as regulator of all MFI is slated to provide
further impetus to MFIs.
Progress Under MFI-Bank Linkage Programme
Particulars 2011-12 2012-13 2013-14 2014-15
No. of No. of
Loan distributed by No. of No. of
Amount Amount account Amount account Amount
banks to MFIs accounts accounts
s s
Loans Outstanding
7839.51 10282.49 15190.13
against MFIs as on 465 5205.29 426 545 589
(50.6%) (31.16%) (32.30%)
31st March
Loan Outstanding 14425.84 16517.43 22500.46
1960 11450.36 2042 2422 4662
as % of fresh loans (26%) (14.5%) (26.59%)
219.98 184.01 160.64 148.13
Source: NABARD
(Figures in the parentheses indicates increase/decrease over the previous year)
Note: Actual number of MFIs availing loans from Banks would be less than the figures shown, as most of
MFIs avail loans from more than one bank.

NABARD AS MICROFINANCE FACILITATOR

Some of the initiatives of NABARD in this journey of two decades were creation of funds like
microcredit development and equity fund, women SHG fund,refinance to banks, support for training and
capacity building, support to partner agencies for promotion and nurturing SHGs. NABARD continued with
its role as the main facilitator and mentor of microfinance initiatives in the country, particularly the SHG
Bank Linkage initiative. The other initiatives taken by NABARD are financing of joint liability groups, skill
development for microfinance enterprise development, supporting SHPIs for maintenance of SHG books,
mobile based e-book keeping, implementing special programmes like Priyadarshini, setting up of centre for
microfinance research, conducting studies, action research etc.
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MICRO FINANCE DELIVERY MODELS
According to World Bank around one third of the world poor is in India. Inspite of the fact,
government machinery are taking initiative to alleviate poverty, IMF plays remarkable role in financial
inclusion and eradicating poverty. Microfinance is a mechanism for economic property, which officer
services to the underprivileged ranging from credit facilities, insurance remittance, savings and insurance
and includes non-financial services. MF helps poor to take IGA or micro business without relying on money
lenders who charges exorbitant rates of interest.
Micro finance, according to Micro Credit Summit,1997, as a program that provides credit for self
employment and other financial business services (including savings and technical assistance) to very poor
persons. Numerous micro finance delivery models are followed across the globe. The most popular models
are the Grameen Bank Model of Bangladesh followed by (ROSCA) Rotating Savings and Credit Association
Model of South America, Bolivian Banking Model. In India, Self Help Group(SHG) and Joint Liability
Group(JLG) is the widely followed Microfinance model.

EVOLUTION OF DIFFERENT MODELS

The evolution of the different models may have happened due to any or the combinations of the following
reasons:
a. Compatibility with the programmes that the NGO is already involved in.
b. The inclinations of the promoter.
c. Choosing between an approach that delivers only Microfinance or a mixture of financial and business
development services.
d. Legal and policy considerations.
e. Whom to serve Clientele.
f. How many clients to cater to and where to operate Outreach and Geographic Dispersion.
g. What specific services to offer to the clients Products (social, financial and business intermediation).
How much to charge for the various services Price.
i. What methods of service delivery to employ Channels.
j. What organizational mechanisms to use Legal/Institutional Forms, and
k. How to communicate the availability of various services Promotion
l. What are the long term objectives social versus commercial microfinance
m. The various dilemmas about Microfinance itself-
For-profit or no-profit
Community based (promoter) or organisation based (provider)
Formal or informal

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 Grant based or market based
Social development or economic development
Individual or group
Small group or big group
Exclusive poor or a mix of poor and not-poor
Strengthening mainstream structures or set up parallel structures

Various traditional as well as innovative approaches have been adopted by microfinance institutions( NGO-
mFI, Mutual Benefit mFIs, and For-Profit mFIs) for increasing the credit flow to the unorganised sector. (Sa-
Dhan,2003)

MICROCREDIT DELIVERY MODELS IN INDIA

India has been a fertile breeding ground for a large number of models of Microfinance, each of which has
become hugely popular. In fact it can be said that India hosts the maximum number of Microfinance models,
both in indigenous practices as well as in modern Microfinance. The sheer geographical size of the country,
a wide range of social and cultural groups, the large spectrum of economic classes and a very active NGO
movement, can be said to have caused the upcoming of a wide variety of Microfinance models. The models
range from pure home-spun varieties like the SHGs and the co-operatives to the adapted models like the
Grameen methodology and the for-profit corporate models. In the dynamic field of micro-finance, there is
clearly no one best way to deliver services to the poor - multiple models exist and each has succeeded in
their respective contexts. There could be many more alternative technologies that have been successful in
providing micro-finance services to the poor. (Sa-Dhan,2003)

There are three basic microcredit delivery models in India.

NABARD LED SHG-BANK LINKAGE PROGRAMME
SHG-Bank linkage programme started as a pilot project by NABARD in the year 1992 for which RBI
extended its support through its policy support. The SHG- BLP was introduced to create a supplementary
credit delivery model for the financially excluded poor in a cost effective and sustainable manner. NABARD
initiatives have majorly contributed towards SHGs role in financial system. Three major policy decision
taken by NABARD and RBI as to SHG-BLP
Lending without ascertaining the purpose of loan
Lending without physical collateral
Lending even to unregistered groups.
Social collateral as alternate for physical collaterals as there is peer pressure for repayment because
every member is responsible for repayment. NABARD provides refinance to banks under SHG-BLP at the
stipulated rates.

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DIFFERENT SHG MODELS IN INDIA
Model Features
NGOs are working as promoters and linking SHGs directly with the Banks who provide
Model 1
directly loan to the SHGs in proportion to their savings
Model 2 NGOs are working as financial intermediaries for channelising credit from bank to SHGs.
Model 3 Here SHGs are organized by NGO/MFIs and linked with apex institutions.
SHGs are organized under government sponsored programmes like SGSY, IMY, DWCRA and
Model 4
linked with Banks for credit linkage.
Model 5 Banks themselves promote SHGs and provide them credit.
Here SHGs are being promoted and enrolled as members of Primary Agricultural Co-operative
Model 6 Society (PACS) for saving and credit linkage through District Central Co-operative
Bank(DCCB)

SWARNAJAYANTHI GRAM SWAROZGAR YOJANA (SGSY) AND NATIONAL RURAL-

LIVELIHOODS MISSION (NRLM).
SGSY was effective from 1st April , 1999 as a self employment programme introduced by union
government to provide assistance to poor families living below the poverty line in rural areas to take up self
employment by forming SHGs. Persons taking up self-employment are called Swarozgaris. They may take
up the activity either individually or in group. Swarozgaris earn `2,000 per month, exclusive of bank loan
repayment. SGSY was restructured as NRLM. Aajeevika or National Rural Livelihoods Mission (NRLM)
was introduced by Ministry of Rural Development with the assistance from World Bank for addressing
poverty alleviation with greater focus and momentum and to achieve Millennium Development Goals.

MICROFINANCE INSTITUTION(MFI)
MFIs outreach to poor has both social and commercial dimension. In India. MFI model is represented by
multifarious institutions and legal forms. SEWA bank was the first of its kind which paved the way for
microfinance incorporated in the year 1974. During 1980s, numerous registered societies and trusts
commenced group based savings credit linkages based on aids from donors. Later, many replicated
Grameen Model based initially from donor funding but more relying on apex financial institutions.
During late 90s, there was a transformation of many medium and large Micro Finance Institution
into Non-Banking Finance Companies and Section 25 companies. The entry of various NGOs into
microfinance industry is a boost to the domain. Currently, over 1000 NGOs are offering Microfinance
services to the poor.

MICRO CREDIT LENDING MODELS

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In India, diversified microfinance models exist. The Micro finance delivery model differs in their
approaches to expand their credit flow to the poor.
SELF HELP GROUPS-
SHG has created a revolution in microfinance. SHG are a group of 10 to 20 members having similar
socio-economic background who gives an unique name to their group. Members contribute to the groups
common fund, and meet their emerging needs on mutual help basis. SHGs are permitted to access credit
facilities form bank based on social collateral. The performances of SHGs are assessed based on regularity
in group meetings, maintenance of books of accounts, utilization of common fund and repayment.
SHGs are promoted by various agencies such as NGOs, banks, cooperatives rural development
departments, village panchayats and women development organizations as facilitators or promoters.

SHG FEDERATIONS
SHG federation is a network of several SHGs with a aim of augmenting social and economic empowerment
of their members through capacity building. SHG federation facilitates linkages with government
agencies/banks/local institutions, helps in improving the sustainability of SHG federations provides multiple
credit lines, savings facility, undertakes marketing of SHG produces and provides life/loan insurance
services.

GRAMEEN BANK MODEL:

A bank is set up with a field manager and a number of bank workers, covering an area of about 15 to
22 villages. The manager and workers visits and explain the purposes, functions and mode of operation of
the bank to the local population. Group of five individuals are formed and provided financial and capacity
training, in order to receive a loan from Grameen. Borrowers are required to meet Grameen staff every week
to repay their loan.

INDIVIDUAL LENDING:
Individual lending methods are usually applied for comparatively large loan sizes than the group
based approach. The effectiveness of group based guarantee decline as the group matures and the members
take varying loan sizes. Across the globe, increasing numbers of MFI are offering long-term clients
individual loans once they graduate from group based systems. Individual loans often require closer and
more frequent monitoring such as monthly site visits or calls, whereas group lending has a group guarantee,
individual loans may only require one or two guarantors or in many cases pledged collateral.
JOINT LIABILITY GROUPS (JLG):
According to NABARD, a JLG is group of individuals preferably 4 to 10 coming together to avail
loan from bank either singly or through mutual guarantee mechanism. There is no financial administration

11
involved in JLG management. JLG members usually found engaged in similar type of economic in similar
type of economic activity agriculture, allied and non-farm sectors.

COOPERATIVE MODELS:
A co-operation is a voluntary association of person to meet their social and economic requirements
and needs through a democratically controllable and jointly owned enterprise. Savings and member
financing are mandatory in some cooperatives.

BUSINESS CORRESPONDENT MODEL:

Reserve bank of India (RBI) has advised Indian banks to use business correspondent to address
services and access for all un(der)banked masses for promoting financial inclusion. Banks many use
intermediaries for providing facilitation services, NGOs/MFIs, cooperative societies, section 25 companies,
registered NBFCs not accepting public deposits. Post offices may act as business correspondents. Scope of
activity of a business correspondents includes processing and submission of loan application, promoting,
nurturing and monitoring SHG/JLG/Credit groups follow-up recovery, disbursal of small values credit,
recovery of principal/collection of interest, collection of small value deposits, sale of micro insurance,
mutual fund products, pension products, other third party products, receipt and delivery of small value
remittance and other payment instrument.
These are some of the most success micro credit delivery models. Grameen bank model is the first
official micro credit system which has been replicated all over the world. SHGs are the most effective micro
lenders in India. In India, majority of microfinance institutions follow joint group liabilities and individual
model. In recent days, business correspondence model has emerged as a successful channel for lending in
remote India.

ICICI BANK MODEL:

The uniqueness of this model is that if combines debt and mezzanine capital to the MFI to augment
the outreach rapidly. In this model, large amount of wholesale credit linkage is available to MFIs for on-
lending to its clients. The bank also buys out a MFIs loans portfolios, on-tap securitization and the
partnership model in which the institution acts as a loan service agent.

EPILOGUE
Microfinance is a developmental approach towards alleviating poverty and vulnerability. It is also
acknowledged as a cost effective tool to provide financial services to the underprivileged. Microfinance
through Self help groupModel results in greater impact in transforming the lives of poor.SHG model has
emerged as largest and fastest growing successful community based organisation in the developing world.

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 The SHG bank linkage model provides the cheapest and most direct source of funds. However, this has to be
set against the low volume of funds that can be made available through this channel in view of the linkage of
credit with savings. Other more costly intermediation structures have their merits in terms of the advantages
of institutional layering. In still other structures the mutually reinforcing nature and benefits of financial and
social interventions justifies the place of clusters and federations. In many respects bigger issues regarding
the appropriate legal form lie at the level of the NGO-MFIs and other NBFCs that operate in an
unsatisfactory regulatory environment. Advocacy efforts for improving the regulatory framework for MF are
clearly necessary.

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development, Vol27, Issue.1, pp.67-82.

11. Tara S.Nair(2015) Microfinance in India, Approaches, Outcomes , Challenges, Routledge, New Delhi.

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