Micro-finance is a type of banking service that is provided to unemployed or low-income individuals, or groups who otherwise have no other access to financial services. Ultimately, the goal of micro-finance is to give low-income people an opportunity to become self-sufficient by providing a way to save money, borrow money and get insurance. Micro financing provides options to customers with limited resources to promote participation in productive activities or to support a small business. While institutions participating in the area of micro-finance are most often associated with lending, some micro-finance companies offer additional services, including bank accounts and insurance. Additionally, some institutions provide information in the areas of financial literacy, such as understanding interest rates and managing financial risks.
Micro financing is not a new concept. Small microcredit operations have existed since the 18th century. The first occurrence of micro lending was attributed to the Irish Loan Fund system, introduced by Jonathan Swift, which sought to improve conditions for impoverished Irish citizens.
Microfinance Loan Terms
Like conventional banking operations, microfinance lenders must charge interest on loans, and they institute specific repayment plans with payments due at regular intervals. Not all applicants qualify, depending on the amount of default risk the institution attributes to potential borrowers and the terms of the loans for which the borrowers are applying.
Concerns Regarding the Microfinance Industry’s Practices
While these interest rates are generally lower than those offered by normal banks, some opponents of this concept raise concern that microfinance operations are making profits off of the poor. Not all funds provided through micro financing are used for productive activities; some may be used for covering needs, such as food and shelter.
Micro financing Operating Locations
The majority of micro financing operations occur in developing nations, such as Uganda, Indonesia, Serbia and Honduras. Even though the borrowers often qualify as very poor, repayment rates are often seen to be higher than the average repayment rate on more conventional forms of financing. For example, the micro financing institution Opportunity International reported repayment rates of approximately 98.9% in 2016.
International Finance Corporation Estimates
The International Finance Corporation (IFC), part of the larger World Bank Group, estimates that more than 130 million people have directly benefited from microfinance-related operations as of 2014. However, it is only available to approximately 20% of the 3 billion people who qualify as part of the world’s poor.
In addition to providing micro financing options, the IFC has assisted developing nations in the creation or improvement of credit reporting bureaus in 30 nations. It has also advocated for the addition of relevant laws governing financial activities in 33 countries.
Microfinance is a term for the practice of providing financial services, such as micro credit, micro savings or micro insurance to poor people. By helping them to accumulate usably large sums of money, this expands their choices and reduces the risks they face. Suggested by the name, most transactions involve small amounts of money, frequently less than 100. The origin of microfinance is often dated as late as the 1970s. Only then, it is often argued, did any programs pass two key tests:
- Show that poor people can be relied on to repay their loans, and
- Show that it’s possible to provide financial services to poor people through market-based enterprises without subsidy.
CONCEPT OF MICROFINANCE:
The concept of micro credit can be traced back to portions of the Marshall Plan at the end of World War II in the middle of the 20th century or even back to the mid 1800s and the writings of abolitionis / legal theorist Lysander Spooner who wrote concerning the benefits of numerous small loans for entrepreneurial activities to the poor as a way to alleviate poverty. It is also tied to New York’s Provident Fund. However, in its most recent incarnation it can be linked to several organizations starting in the 1970s and onward.
MICRO FINANCE IN INDIA
The Government of India is ruling some regulation for the Microfinance / Micro credit industry in India and in his budget speech on 28 February 2006, the Finance Minister P Chidambaram said “I had proposed major initiatives in respect of micro finance in the last Budget; RBI has since issued guidelines to enable banks to appoint banking correspondents and banking agents. A window to access ECB funds has also been opened. A bill to provide a formal statutory framework for the promotion, development and regulation of the micro finance sector will be introduced in this session”.
TODAY MICRO FINANCE:
The World Ban k estimates that there are now more than 7, 0000 microfinance institutions, serving some 16 million poor people in developing countries. CGAP experts estimate that 500 million households benefit from these small loans. Cambodia and Kenya were put forward as examples. Asia and the Pacific region represent 83% of the opened accounts in developing countries, which is equivalent to 17 accounts for 100 persons. In November 1997, more than 2000 delegates from 100 countries gathered at a Micro credit Summit in Washington. DC, with the goal of reaching 100 million of the world’s poorest families, with credit for self-employment and other financial and business services by the year 2005. Support for these goals has come from prominent world leaders and major financial institutions.
SELF HELP GROUPS
Since the reconstitution of the Commission in January 2000, the Commission started projects with the aim of making women economically empowered. One of the major initiatives taken by the Delhi Commission for Women in the year 2000-2001 was to set up pilot projects in collaboration with partner NGOs for empowering women economically and thus helping prevent crimes against women. The Commission tied up with various NGOs working in various parts of Delhi for formation of Self-Help Groups.
What is S H Gs
SHG is a group formed by the community women, which has specific number of members like 15 or 20. In such a group the poorest women would come together for emergency, disaster, social reasons, economic support to each other have ease of conversation, social interaction and economic interactions. Self Help Groups (SHGs) are a homogenous group of 10-20 individuals who come together for saving and internally helping each other in times of need. Group members are engaged in livelihood activities such as running a retail shop, cattle rearing, zari work, tailoring jobs, making candles, artificial jewellery etc. Each individual saves a fixed amount on a monthly basis.
- To sensitize women of target area for the need of SHG and its relevance in their empowerment process.
- To create group feeling among women.
- To enhance the confidence and capabilities of women.
- To develop collective decision making among women.
- To encourage habit of saving among women and facilitate the accumulation of their own capital resource base.
- To motivate women taking up social responsibilities particularly related to women development.
SHG MOVEMENT – A MISSION:
SBI has taken up SHG movement as a mission. A noble mission to reach those families who were hitherto having no access to the credit by any formal financial institution and, therefore, were depending on informal sources and moneylenders.
MICRO FINANCE – DEEP ROOTS IN SBI:
Micro finance is not new to State Bank of India. Bank’s association with non-government organizations (NGOs) or voluntary agencies in extending financial help can be traced as far back as 1976 well before NABARD introduced SHG-Bank Credit Linkage Programmed as a pilot project in 1992.
STEADY GROWTH IN SHG-BANK CREDIT LINKAGE PROGRAMME:
SBI – LEADER IN SHG-BANK CREDIT LINKAGE
A major effort to provide banking services to the weaker and unorganised sector was the Bank Self Help Group Linkage Programme that was launched in early 1990s. The programme was started at the initiative of NABARD in 1992 to link the unorganised sector with the formal banking sector.
Working of the programme
Under this programme, banks were allowed to open savings accounts for Self-Help Groups (SHGs). SHGs are registered/unregistered entities which usually has a membership of 15 to 20 members from very low income families, usually women. They mobilize savings from members and use the pooled funds to give loans to the needy members. Under this programme, banks provide loans to the SHGs against group guarantee and the quantum of loan could be several times the deposits placed by such SHGs with the banks. Banks should consider entire credit requirements of SHG members, namely, (a) income generation activities, (b) social needs like housing, education, marriage, etc. and (c) debt swapping”.
Lending to SHGs should be included by the banks as part of their lending to the weaker sections. As per the RBI’s latest (May 2016) Priority Sector Lending norms, bank credit to members of SHGs is eligible for priority sector advance under respective categories viz., Agriculture, Micro, Small and Medium Enterprises, Social Infrastructure and Others.
The recovery rates of loans are good and banks have found that the transaction cost of reaching the poor through SHGs is considerably lower rather than direct lending by the bank.
According to NABARD as on 31 March 2014, there were around 74.30 lakh savings-linked SHGs, covering over 9.7 crore poor households. The total savings of these SHGs with banks amounted to Rs 9897 crore. The number of credit-linked SHGs under the programme was around 42 lakhs.
The initial phase of SHG movement saw concentration of SHGs in the southern parts of the country, but now the SHGs have spread more to the eastern and northeastern regions where the extent of financial exclusion is greater. The Government of India has also been using the SHGs for subsidy-linked credit schemes for the poor. NABARD offers grant assistance to NGOs that promote SHGs and link them to banks.
SBI is maintaining its position as a leader among Commercial Banks in credit linking of S H Gs and is a prime driver for the movement. As at the end of March 2006, SBI with a share of approximately 47% of total S H Gs financed by Commercial Banks is far ahead of others.
Bank has successfully initiated various measures toward widening its SHG network. To list a few examples:
- Sensitization of staff: Bank’s aim is to sensitize the entire staff from Manager to Messenger working in rural and semi-urban branches towards the programme.
- Special training programmers in S H Gs are being conducted at 54 training centers of the Bank in the country apart from State Bank Institute of Rural Development, Hyderabad.
- Close liaison with NGOs: Operating functionaries at branch level and region level are in close contact with NGOs in their area to take the movement ahead. For the purpose, regular meetings are arranged with the NGOs and their support is solicited.
- SHG cells: Special SHG cells have been opened at major branches.
- Lending to NGOs / Federations of S H Gs: Lending to credible NGOs / Federations of S H Gs on selective basis for on lending to S H Gs is being encouraged.
- One of the areas doing well in the district is Kattimankode Panchayat. Here the local Panchayat, NGOs, banks and the government agencies have come together making the SHGs viable production units and credit agencies.
- There are various activity clusters here, Agarbatti, Palm Fibre Brushes, Tapioca products, Coconut Leaf Thatch, tamarind processing are among the many activities
- Panchayat has a population of 6585 people and almost half of them from Below Poverty Line families. This Panchayat has a total of 92 S H Gs
- In one village Sreekrishnapuram there are four activities giving meaningful employment to the local women The S H Gs namely Thulasi, Nagapushpam, Parijatham and Marikulunthu, attached to a local NGO Nala Oli have all received revolving funds of Rs. 25,000 each. They are now poised to take economic assistance for their own independent units, of Rs. 1.5 lakhs.
- Another village in the same Panchayat, Cheruppankode, processes tamarind, linked to the NGO Malar they are able to get Rs. 25 to 30 per day using their spare time. At Arasarkonam the women make palm fibre brush earning a reasonable income. Here again they are now able to do the work better with the subsidy cum loan component given under SGSY. The local banks, Primary Agricultural Cooperative Bank and the Central Bank of India have advanced to loans, DRDA has been the motivating force. The local Panchayat President taking an active interest.
- Out of the 92 groups, 34 have received revolving funds and more are in the process, many of them are also to get the economic assistance for their own production units. The women are now empowered to take on their problems Kattimankode is only one of the many Panchayats in Kanyakumari heading for progress, from local resources and skills.
THE CASE STUDIES
- Sahayog Niwas: SBI has launched its Housing Loan product ‘SAHAYOG NIWAS’ meant for SHG members.Under the scheme formulated keeping the socio economic conditions of villages insight, housing loans are given to the SHG members without any mortgage of house / land.Response to this product is very encouraging.
- SBI Life – Shakti: SBI Life, our insurance subsidiary, is the first to introduce a life insurance scheme, especially designed for SHG members.Special feature of the scheme is that entire premium amount paid by the member is refunded after maturity, i.e., 10 years.
- Rural training institutes: To help the rural youth to stand on their feet, two RUDSETI type training institutes have been established at Gulbarga and Gadag in Karnataka State, to impart training in self employment to youth free of cost.
- SBI staff as SHPI: The main role of formation and nurturing of SHGs have been played by NGOs who, apart from their fundamental role of social service, also aim to make the poor economically self sufficient. But in SBI, our committed work force is not lagging behind and a number of committed staff members have worked hard to form and nurture SHGs on their own.
- Appreciation by Government: A number of our branches / Circles have also received commendation and appreciation from various State Governments for doing excellent job in SHG-Bank Credit Linkage programme. NABARD felicitated 15 SHGs at a function organized in New Delhi on 13th September 2005.The function was presided over by the Hon’ble Union Finance Minister. Out of total 15 SHGs felicitated, 4 were financed by our branches, one each from Orissa, Jharkhand, Madhya Pradesh and Uttaranchal.
- Samanwita: Bank has sponsored and financially supported NGO ‘SAMANWITA’ in collaboration with Government of Orissa for supplementing the process of socio economic upliftment of the tribal’s and the downtrodden in the poorest and most backward Kandhamal district of Orissa State where 52% of the population is that of tribals.Core activities performed by Samanwita is empowerment of people through promotion of SHGs, especially women SHGs and development of human resources.
- SHPI status: State Bank of India is the first Commercial Bank to which NABARD has recently given SHPI status.
SBI has set for itself an ambitious target of credit linking 1 million SHGs up to March 2008.
The Bank has started to leverage our vast SHG network for various services beyond credit delivery. Women self-help groups in Andhra Pradesh – poverty to prosperity Aisha Khan: April 03, 2006
Poverty unemployment, communal tension…these are the hallmarks of the old city of Hyderabad. But a slow revolution is creeping in the slums of the old city. With the help of NGOs, women in 125 slums are taking advantage of the changing scenario to bring cheer to their families. Out of the 800 odd notified slums in the city, women in 125 slums have formed around 225 self-help groups to extend credit facility to needy members. The members of these self-help groups are successful running credit societies for the past few years and their current membership stands at 4500. The result – happy homes, self employment and communal harmony.
Moreover various credit societies operating in different slums have come together to form an umbrella credit society called “Roshan Vikas”. This society has its office quite close to the historic landmark ‘Charminar’ in the old city. The Roshan Vikas helps the women to secure big loans at reasonable interest rates.
The membership procedure is quite simple. In every slum 10-15 women come together and form a self-help group. Contributing Rs. 30 per woman, which is very nominal, the group saves Rs. 750 per month. This amount is offered as loan to members of the group at 2 per cent interest rate, much lower than the market rate which varies from 5 per cent to 16 per cent and sometimes depending on the need of the borrower it may be as high as 25 per cent.
There are several success stories of women in slums journeying from rags to riches after they joined the self-help groups. Take the case of Jaya, a widow in her early twenties. With a mentally retarded daughter and two sons, it was the end of the road for Jaya when her in-laws threw her out of the house. She came to stay with her parents in Ambedkar Nagar slum in Falaknuma and took up odd jobs as a maid in up market apartments.
President Pratibha Patil will launch a scheme whereby loans at an interest rate of 4% will be sanctioned to women’s self-help groups (SHGs).
The President is going to Pune for the launch, where she will extend loans to two SHGs from Pune and one each from Solapur, Satara and Nashik.
An official from the women and child welfare department said, “The 4 percent interest replaces the existing 9-11 percent. Around 45,000 SHGs will get Rs 50,000, 72,000 will get Rs 1 lakh and 18,000 SHGs Rs 2 lakh disbursement. These groups will be eligible for higher loans once they repay these loans on time.”
The banks that have been chosen to extend such loans are Bank of India, Bank of Maharashtra, Solapur Gramin Bank and State Bank of India. Although these banks will provide loans at much lower interest rates, they will not lose any amount as the state will pay them the remaining amount that they would have earned as interest.
“The aim being to help these women have easier access to credit and help improve their livelihood. The interest subsidy will cost the Government nearly Rs 129.01 crore over three years,” the official said.
The creditworthiness record of women has made banks confident about repayment. They are not hesitant in lending to women self-help groups. A senior officer from Bank of Maharashtra says, “The loan repayment of these SHGs is 90 percent and we have no issues in giving them the amount.”
Also these loans are expected to motivate women and enhance their performance that would further ensure better returns and regular repayment of loans. The scheme is likely to benefit around 17 lakh women from rural areas and 1,42,218 S H Gs. The beneficiaries are pleased by the initiative of the President.
Manisha Kale from Pune’s Garib Nawaz Bachat Gat, which will avail nearly Rs 2 lakh, would soon start working on dairy. They aim high returns and quick repayment from their project.
Tamil Nadu and Andhra Pradesh have also been giving interest subsidies to such organizations. Further NABARD has declared some co-operative banks under the Orissa State Cooperative Bank as Self Help Promotion Institutes (SHPIs) to promote Self Help Groups (S H Gs) in Orissa.
India Post, the country’s postal department, has also disbursed micro-credit to women self help groups (S H Gs) in eight states and the North East through its tie-up with the National Bank for Agriculture and Rural Development (Nabard). The states that have been earmarked for this project are Bihar, Gujarat, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Orissa and Uttar Pradesh.
- SBH Banking Groups published by SBI Groups (2006).
- The Hindu daily Newspaper business P.17 date: July 19th
- The business line Hindu Groups
- The Hindu daily Newspaper business, date: September 1st
- Micro finance evaluation
- Micro finance structure
- Micro finance implementation
Dr. MORUSU SIVA SANKAR
M.Com. MBA. M.Sc (IT), Ph.D. M Tech CS
Department of Commerce S.V. University, TIRUPATI.
Dr. A.RAMA MOHAN REDDY
M.Tech., (M.B.A) Ph D
Professor of Computer Science and Engineering
Sri Venkateswara University College of Engineering S.V. University, Tirupati 517502