ABSTRACT:-

New micro finance approaches have emerged in India over the past decade, involving the
provision of thrift, credit and other financial services and products, with the aim to raise income
levels and improve living standards. The most notable among these micro finance approaches is
a nationwide attempt, pioneered by Non-Governmental Organizations and now supported by the
state, to create links between commercial banks and NGOs and informal local groups. Micro
finance through Self Help Groups (SHGs) is propagated as an alternative system of credit
delivery for the poorest of the poor groups. Recognizing their importance, both Reserve Bank of
India and National Bank For Agriculture and Rural Development (NABARD) have been
spreading the promotion and linkage of SHGs to the banking system through refinance support
and initiating other proactive policies and systems. This paper attempts to give a comprehensive
overview of all aspects of micro finance. Micro finance is a participative model that can address
the needs of the poor especially women members. The origin of SHGs is from the brainchild of
Grameen Bank of Bangladesh, which was founded by Mohammed Yunus. SHG was started and
formed in 1975.
The objective of the present article is to make a review of the origin, development and growth of
micro credit programme in India. For the purpose of this article, data published by National Bank
for Agriculture and Rural Development in India have been used. Data relating to number of Self-
help groups linked with banks, amount of bank loan provided to clients, models of Self-help
groups, number of participating banks, number of non-governmental organizations (NGOs)
participating in the programme, number of families assisted under the programme have been
used and analysed.
LIMITATIONS OF MICRO-CREDIT: Five Fatal Assumptions

1. Assumption that credit is the main financial service needed by the poor,
2. Assumption that credit can automatically translate into successful micro-enterprises,
3. Assumption that the poorest all wish to be self-employed and can be helped by microcredit,
4. Assumption that those slightly above the poverty line do not need microcredit, and
giving it to them amounts to mis-targeting, &
5. Assumption that microcredit institutions can all become financially self-sustaining.

WHAT IS MICRO-CREDIT?

Micro Credit is defined as provision of thrift, credit and other financial services and products of
very small amount to the poor in rural, semi-urban and urban areas for enabling them to raise
their income levels and improve living standards.

GENESIS OF MICRO-CREDIT:-
The origin of Micro finance or micro credit can be traced to the 1976 when Mohammed Yunus
set up the Grameen Bank experiment on the outskirts of Chittagong University Campus as an
experiment. Grameen we mean ‘rural or village’ in Bangladesh language. These Grameen banks
provide loans to the poor who do not have anything to put up for collateral. Grameen banks are
the largest rural financial institution in Bangladesh. Their lending guidelines and procedures are
mainly for women, 97% are women. In terms of clients, Grameen Bank is doing very well.

THE SCENARIO:-

Most poor people manage to mobilize resources to develop their enterprises and their dwellings
slowly over time. Financial services could enable the poor to leverage their initiative,
accelerating the process of building incomes, assets and economic security. However,
conventional finance institutions seldom lend down-market to serve the needs of low-income
families and women-headed households. They are very often denied access to credit for any
purpose, making the discussion of the level of interest rate and other terms of finance irrelevant.

Over the last ten years, however, successful experiences in providing finance to small
entrepreneur and producers demonstrate that poor people, when given access to responsive and
timely financial services at market rates, repay their loans and use the proceeds to increase their
income and assets. This is not surprising since the only realistic alternative for them is to borrow
from informal market at an interest much higher than market rates. Community banks, NGOs
and grassroot savings and credit groups around the world have shown that these microenterprise
loans can be profitable for borrowers and for the lenders, making microfinance one of the most
effective poverty reducing strategies.
DIFFERENCE BETWEEN General Banking System & Micro-
credit System:-

General Banking System Micro-credit System

Landless and wealth-less are not
Landless and wealth less are allowed to get loan.
allowed to get loan
Committee formation is not required, Formation of committee or group is a must. Discipline of
individual and organization are the individual activities and of the organization are taken
allowed loan based on their financial into consideration along with the capacity for investment,
strength. loan is provided
Social status or confidence of the
Social status or confidence of the borrower is taken into
borrower is not taken into
consideration.
consideration.
Loan is provided on the basis of
No mortgage is required to have loan.
mortgage.
Loan is repaid through midterm or Loan in realized through weekly/fortnightly/ monthly
long term installment as per contract. installment or as per contract.
No provision for meeting of the There is a provision for holding meeting among the
borrowers. borrowers.
Regular saving is not mandatory for
Borrowers are to deposit their saving regularly.
the borrowers
No training is provided to the
Training is provided to the borrowers.
borrowers.
The borrowers are to go to the bank for
Installment is collected at the doorsteps of the borrowers.
the repayment of the loan
To get loan, recommendation form the
Recommendation from the society is required.
unconcerned persons are required.
One staff can invest much money
One staff can invest comparatively less money as loan.
among a few borrowers.
Operational cost is comparatively less. Operational cost is comparatively high
Micro‐credit in India:-

Microfinance in India through its major channels served over 33 million Indians in the financial
year 2007-08, up by 9 million over the last financial year, out of which around 80% clients were
women. As on 31st March, 2008, outstanding microcredit portfolio of India Microfinance was
about Rs. 22,000 crore, out of which 75% are accounted for by SHG- Bank Linkage Program,
20% by large MFIs and 5% by medium and small MFIs. India's MFIs operate in 209 out of 331
poorest districts of the country; up by 5% over the previous year.

Profile Of Micro Finance In India:-

The profile of micro finance in India at present can be traced out in terms of poverty it is
estimated that 350 million people live Below Poverty Line. The following are some components
of micro finance:
a) This translates to approximately 75 million households.
b) Annual credit demand by the poor in the country is estimated to be about Rs 60,000 crores.
c) A cumulative disbursement under all micro finance programmes is only about Rs. 5000 crores.
d) Total outstanding of all micro finance initiative in India estimated to be Rs. 1600 crores.
e) Only about 5% of rural poor have access to micro finance.
f) Though a cumulative of about 20 million families have accepted accessed.
g) While 10% lending to weaker sections is required for commercial banks, they neither have the
network for lending and supervision on a larger scale or the confidence to offer term loan to
big micro finance institutions.
h) The non poor comprise of 29% of the outreach.
PURPOSES OF LOANS AVAILED BY SLUM RESIDENTS:-

Source:-From Urban Poverty Alleviation Initiatives in India : A General Assessment and a Particular
Perspective (2002), a publication of the Ramanathan Foundation.
Key Players In The Micro Finance System:-

i) National Bank for Agricultural and Rural Development

(NABARD):-
NABARD is an apex institution, accredited with all matters concerning policy, planning and
operations in the fields of credit for agriculture and other economic activities in rural areas in
India. NABARD was established in 1982, as a Development Bank, in terms of the Preamble of
the Act, “for providing and regulating credit and other facilities for the promotion and
development of agriculture, small scale industries, cottage and village industries, handicrafts
and other rural crafts and other allied economic activities in rural areas with a view to promoting
integrated rural development and securing prosperity of rural areas and for matters connected
therewith or incidental thereto”.

ii) Reserve Bank of India:-

Considerable work had been done by RBI in this sector since 1991. In 1991-92 a
pilot project for linking up SHGs with banks was launched by NABARD in
consultation with the RBI. In 1994, the RBI constituted a working group on SHGs.
On the recommendation of the SHGs would be reckoned as part of their lending
to weaker sections and such lending should be reviewed by banks and also at
the State Level Bankers’ Committee (SLBC) level, at regular interval. Banks were
also advised that SHGs, registered or unregistered, which engaged in promoting
the saving among their members, would be eligible to open savings bank
accounts with banks irrespective of their availment of credit facilities from banks.

iii) Self Help Groups(SGHs):-

SHG are considered a new lease of life for the women in villages for their social and economic
empowerment. SHG is a suitable means for the empowerment of women. Since SHGs have been
able to mobilize savings from persons or groups who were not normally expected to have any
‘saving’ and also to recycle effectively the pooled resources amongst the members, their
activities have attracted attention as a supportive mechanism for meeting the credit needs of the
poor.
Concept of SHGs:-

Needs of SHGs:-
• To mobilize the resources of the individual members for their collective economic
development.
• To uplift the living conditions of the poor.
• To create a habit of savings.
• Utilization of local resources.
• To mobilize individual skills for group’s interest.
• To assist the members financially at the time of need.
• Entrepreneurship development.
• To identify problems, analyzing and finding solutions in the group.
• To act as a media for socio-economic development of the village.
• To develop linkages with institutions of NGOs.
• To organize training for skill development.
• To help in recovery of loans.
• To gain mutual understanding, develop trust and self-confidence.
• To build up teamwork.
• To develop leadership qualities.
• To use as an effective delivery channel for rural credit.
Structure of SHGs:-
Size of SHG

• The ideal size of an SHG is 10 to 20 members. (Advantage: In a bigger group, members

cannot actively participate. Also, legally it is required that an informal group should not
be of more than 20 people).
• The group need not be registered.

Membership

• From one family, only one person can become a member of an SHG. (More families can
join SHGs this way).
• The group normally consists of either only men or only women. (Mixed groups are
generally not preferred, since it may obstruct free and frank discussions, opening up
typical personal problems).
• Women’s groups are generally found to perform better. (They are better in savings and
they usually ensure better end use of loans).
• Members should be homogenous i.e. should have the same social and financial
background. (Advantage: This makes it easier for the members to interact freely with
each other, if members are both from rich as well as poor class, the poor may hardly get
an opportunity to express themselves).
• Members should be between the age group of 21-60 years.
• Members should be rural poor (By poor one should be guided by the living conditions, as
given herein before; and this has no relation to poverty line. People living above poverty
line (APL) can also form SHG like BPL.

Functions of SHGs:-
1) Savings Function,
2) Credit Function,
3) Fund Management,
4) Record Keeping,
5) Banking Relationship.

SHG Bank Linkage:-

A most notable milestone in the SHG movement was when NABARD launched the pilot
phase of the SHG Bank Linkage programme in February 1992. This was the first instance of
mature SHGs that were directly financed by a commercial bank. The informal thrift and
credit groups of poor were recognised as bankable clients. Soon after, the RBI advised
commercial banks to consider lending to SHGs as part of their rural credit operations thus
creating SHG Bank Linkage.
The linking of SHGs with the financial sector was good for both sides. The banks were able
to tap into a large market, namely the low-income households, transactions costs were low
and repayment rates were high. The SHGs were able to scale up their operations with more
financing and they had access to more credit products.
The SHG-bank linkage programme of microfinance has emerged as the biggest in the world. But
besides banks, the major role played by NGOs in facilitating this transformation cannot be
overemphasised. The National Bank for Agriculture and Rural Development (NABARD) which
plays a role in promoting and facilitating bank linkages while networking and coordinating the
activities of all players in the field has underscored the crucial role played by NGOs as
facilitators in purveying bank credit to SHGs..

iv) Non Government Organizations (NGOs):-

The Non Government Organizations involved in promoting SHGs and linking them with the
Formal Financial Agencies (FFAs) perform the following functions:
- Organizing the poor people into groups
- Training and helping them in the organizational, managerial and financial matters
- Helping them access more credit and linkage with formal financial agencies
- Channelizing the group effort for various development activities
- Helping them in availing opportunities, widening the options available for economic
development
- Helping them in sustaining the group effort independently even after withdrawal of the NGO.

NGO Definitions:-
In its broadest sense, the term "nongovernmental organization" refers to organizations (i) not
based on government; and (ii) not created to earn profit.

World Bank definition of an NGO:

The diversity of NGOs strains any simple definition. They include many groups and institutions
that are entirely or largely independent of government and that have primarily humanitarian or
cooperative rather than commercial objectives. They are private agencies in industrial countries
that support international development; indigenous groups organized regionally or nationally;
and member-groups in villages. NGOs include charitable and religious associations that mobilize
private funds for development, distribute food and family planning services and promote
community organization. They also include independent cooperatives, community associations,
water-user societies, women groups and pastoral associations. Citizen Groups that raise
awareness and influence policy are also NGOs."
Role of NGOs:-
1) Development and Operation of Infrastructure

2) Supporting Innovation, Demonstration and Pilot Projects

3) Facilitating Communication

4) Technical Assistance and Training

5) Advocacy for and with the Poor

v) Micro Finance Institutions (MFIs):-

A range of institutions in public sector as well as private sector offers the micro finance services
in India. Based on asset sizes, MFIs can be divided into three categories:
1) 5-6 institutions which have attracted commercial capital and scaled up dramatically when last
five years. The MFIs which include SKS, SHARE and Grameen Style program but after 2000,
converted into for-profit, regulated entities mostly Non-Banking Finance Companies (NBFCs).

2) Around 10-15 institutions with high growth rat,e, including both News and recently form for-
profit MFIs. Some of MFIs are Grameen Koota, Bandhan and ESAF.

3) The bulk of India’s 1000 MFIs are NGOs struggling to achieve significant growth. Most
continues to offer multiple developmental activities in addition to microfinance and have
difficulty accessing growth trends.
THE OUTCOMES OF MICRO-CREDIT IS RURAL
DEVELOPMENT…….

Rural Development means over-all development of rural areas to improve the quality of life of
rural people. It is an integrated process, which includes social, economic, political and spiritual
development of the poorer sections of the society.

India

Year Percentage rural

2000 72.3

2005 71.3

2010 69.9

Source: Population Division of the Department of Economic and Social Affairs of the UN Secretariat, World
Population Prospects: The 2006 Revision and World Urbanization Prospects: The 2007 Revision .

Question arises How????????????

  Microfinance help rural poor people to increase their income through viable micro
enterprises.
 Powerful instrument for achieving economic and social empowerment of rural poor
especially women.
 Access to cheap and low cost credit.
 The golden stick for poverty alleviation.
 Improvement in their quality of life.
 Mobilizing the domestic savings in the regions and investing in the region.
 Improving agricultural productivity in the rural areas.
 Implementing schemes for the promotion of rural industry increasing agriculture
productivity, providing rural employment etc.
 Assistance to individual families and Self Help Groups (SHG) living below poverty line
by providing productive resources through credit and subsidy.

CONCLUSION:-
Agriculture is the main profession of the people in our country. But ownership of most of the
land property is being possessed by only a few persons. The people dependent on agricultural
work has got no other work throughout the year. The farmers used to loss their crops in the field
due to natural calamity. Sometime they loss/expanded their capital & property due to health
problem of their own and their family members. In these circumstances, micro-credit program
plays a very important role to create employment for the poor. As a result of inspiring for
education and family planning, undesirable problems and expenditure are reduced. Micro-credit
program, in the same way, helps a lot to the urban slam dwellers, to increase their income and
ensure their better and healthy life.

Through micro credit process preference can be given and capital money may be provided to the
women to build up their awareness, capacity for bringing them in the profit earning activities. As
a result income of poor family's increases and the women get the opportunity to participate in the
decision making meetings.

Due to combined decision making, the development of the family is ensured. Micro-credit
system creates the opportunity to work for around the year. In micro-credit process all decisions
are taken through the society/committee and that's why the fellow feelings among the committee
members increase.