Article: Microfinance in Economic Development of Coimbatore District Venkadasubramanian.

MICRO FINANCE IN ECONOMIC DEVELOPMENT OF COIMBATORE DISTRICT

AN OVERVIEW OF SELF HELP GROUPS IN MICROFINANCE

A self-help group (SHG) is a village-based financial intermediary usually composed of between 10-20 local women. Most self-help groups are located in India, though SHGs can also be found in other countries, especially in South Asia and Southeast Asia. Members make small regular savings contributions over a few months until there is enough capital in the group to begin lending. Funds may then be lent back to the members or to others in the village for any purpose. In India, many SHGs are 'linked' to banks for the delivery of microcredit. A Self-Help Group (SHG) is a registered or unregistered group of micro entrepreneurs having homogenous social and economic backgrounds; voluntarily coming together to save regular small sums of money, mutually agreeing to contribute to a common fund and to meet their emergency needs on the basis of mutual help. Also it is a group of people who pool in their resources to become financially stable by taking loans from the money collected by that group and by making everybody of that group self-employed. The group members use collective wisdom and peer pressure to ensure proper end-use of credit and timely repayment. This system eliminates the need for collateral and is closely related to that of solidarity lending, widely used by microfinance institutions. To make the book-keeping simple enough to be handled by the members, flat interest rates are used for most loan calculations.

Micro finance in economic development of Coimbatore district

SHGs are member-based microfinance intermediaries inspired by external technical support that lie between informal financial market actors like moneylenders, collectors, and ROSCAs on the one hand, and formal actors like microfinance institutions and banks on the other. Other organizations in this transitional zone in financial market development include CVECAs and ASCAs. Microfinance is the provision of financial services, primarily savings and credit, to poor households that do not have access to formal financial institutions and that, microfinance has captured the imagination of opinion leaders, governments and donor agencies as key strategy for poverty reduction. At the same time, however, significant differences of opinion have emerged between the supporters of the microfinance movement and various critics, who have become increasingly numerous and vocal. Self Help Groups (SHGs) is being used in India to refer to unregistered groups of 10 to 20 members involved primarily in savings and credit activities. As in the case of the typical Accumulating Savings and Credit Associations described by (1995), noted that members save periodically in the group and the savings are lent out to members who require loans at a fixed rate of interest. SHGs however differ from typical ASCAs in their small size, their being promoted1 among the poor by external agencies, most importantly in their obtaining loans from banks. Over 90 percent of these groups have only women members as (2002) provide an overview of microfinance SHGs in India. Microfinance has captured the imaginations of many people working to reduce poverty as the premise is simple rather than giving handouts to poor households, microfinance programs offer small loans to foster smallscale entrepreneurial activities. Such credit would otherwise not be available or would be only available at the very high interest rates charged by moneylenders. Moneylenders operate with

Micro finance in economic development of Coimbatore district

little competition since potential entrants quickly find that costs and risks are high and borrowers are usually unable to offer standard forms of collateral (1993). However, the emerging microfinance movement demonstrates institutional innovations that appear to greatly reduce the risk and cost of providing financial services to poor households. Innovations include contracts that give borrowers incentives to exclude bad credit risks and monitor other borrowers activities, schedules of loans that increase over time conditional on successful performance, weekly or semi-weekly loan repayment requirements (1999). MICROFINANCE IN COIMBATORE: SHALOME MICROFINANCE: Needless to say, Coimbatore is an industrialized city in Tamilnadu. In fact, it is fast emerging one of the leading financial city in the state. At Coimbatore, 88% of the target group is involved in income generation activity/micro enterprises development and are self-employed. The rest is employed with industries. Since the city has a vast industrial base, employment opportunities are high and people find it easy to get employed somewhere. Besides, there exists good scope to set up small-scale industries in the city. In short, Coimbatore population is depending on the industry for their bread and butter.

Considering the industrialized structure of the city combined with the ever growing population, the city is rated high for all round growth. The fact is that 28% of the population in this region is below the poverty line and they have no access to mainstream financial institutions. However, financial policy changes have made far-reaching impacts in the region. Unemployment and under employment are major issues faced by the local people and the labour class including coolies and maidservants are grossly underpaid. Traditional craftsmen and the skilled workers are struggling to improve their income level and enhance their productivity. Against this

Micro finance in economic development of Coimbatore district

background, for micro finance institutions it is the right time to step up their activities in Coimbatore with adequate funds.

These poor segments of the society urgently need credit support to invest in development programs, to expand their existing activities, which in turn, will generate more surplus income. Unable to get required money from the institutionalised banks, the poor people cultivated the habit of borrowing money from money lenders with exorbitant interest rate.

Apart from this, they also need credit to pay off their debt to the private money lenders who eat away their hard-earned daily income. This section of the society is in search of credit worthy micro finance institutions who will offer funds to them with nominal interest rate. Success in activity or service comes from hard work and humility. The greater the hard work and humility, the greater the achievements. Service is not simply a desire, a passion, an intense feeling for one person or object, but a consciousness which is simultaneously selfless and selffulfilling. Shalom Micro Finance believes in activities which can be for one's country, for a cherished aim, for truth, for justice, for people, for nature, for service, and for god. ACTIVITIES: Shalom Micro Finance activities are spread across the common people irrespective of religion, cast, region and faith. The entire region benefits directly or indirectly from Shalom's presence. Indeed, our strategy is to contribute its might to achieve the Millennium Development Goals of having poverty by 2015.Shalom Micro Finance primarily serves women clients through SHGs. The existing clients are primarily rural and urban women engaged in agriculture and they source their income from this activity. In addition to this, a small portion of individual businessmen in urban markets are also served by Shalom through its business loans.

Micro finance in economic development of Coimbatore district

SMFL encourages cost effective, secure and accessible micro savings services among the people in the rural areas. Contrary to some beliefs, low income people also save their money. In fact, their savings represent a higher portion of their net assets than those of their counterparts in society's upper income segments. With access to well-designed savings products, low income people can also accumulate wealth. When aggregated and invested properly, these small, sometimes seemingly insignificant amounts can add fuel to country's economic growth. Equally important are measures to support the informal sector, where most of the urban poor work in low paid, low quality jobs. Shalom Micro Finance also provides assistance to small enterprises to upgrade skills and increase access to productive resources and market opportunities. In this process, through quality micro finance, SMFL brings informal enterprises into the formal economy. Most of the urban population operates in the informal economy without security of tenure and without formal employment. SHGs FROM SHALOME: A SHG has an average size of about 15 people from a homogeneous class. They come together for addressing their common problems and are encouraged to make voluntary thrift on a regular basis. The SHG uses the pooled resources to make small interest bearing loan to their members. The process helps them imbibe the essentials of financial intermediation including prioritization of needs, setting terms and conditions and accounts keeping. This gradually builds financial discipline in all of them. They also learn to handle resources of size that is much beyond individual capacities of any of them. SHG members begin to realize that resources are limited and have a cost. Once the groups show the mature financial behavior, banks are encouraged to make loans to the SHG in certain multiples of the accumulated savings of the SHG. The bank

Micro finance in economic development of Coimbatore district

loans are given without any collateral and at market interest rates. The groups continue to decide the term of loans to their own members. Since the groups' accumulated savings are part and parcel of the aggregated loans made by the groups to their members, peer pressure ensures timely repayments