Vikas Singh, Jagjeet Kumar Mittal, Atul Kumar, Abhishek Narain Sharma
In recent years Microfinance has attracted widespread attention for its developmental Impact for the poor, but it too has multitude of issues and complications. This research project has adopted a mix of empirical and theoretical approach with the objective to identify a comprehensive range of implementation and impact issues of microfinance and make detailed deliberations over these for the chosen area‐ i.e. Allahabad, Sitapur, Kanpur and its adjoining region. (A typical northern Indian agrarian setting).This paper will seek to examine what is the current status of the different microfinance models in India and how they are contributing in achieving the financial inclusion. A comprehensive field survey in real‐life setting of the donors, the practitioners and the beneficiaries (the groups) through various means such as formal and informal talks, on‐site questionnaires and audio‐visual means has been performed. The deliberations are focused around examining the implementation issues; the economics behind the issue, the complications involved thereon, the impact‐ individualistic and wider context, providing practical solutions for the problems and the case for including health and education among its domain of services.
By micro-finance we mean to say that provision of financial services to poor or low-income clients, including consumers and the self- employed. Micro credit (or loans to poor micro enterprises) should not be confused with micro finance. Micro Finance is relatively a bigger term which addresses a broad range of services especially financial and banking needs for poor people. Microfinance exists as a collection of banking practices centered on providing access to basic financial services to poor people, particularly in developing countries. The form in which it has developed and evolved proves it as a reliable and consistent organizational mechanism for providing access to financial services to the poor.
A small initiative which started in 1976, as experimental lending to poor households in the village Jobra (Bangladesh) which later came to be known as Garmin Bank is a widely acclaimed example which bring forth a methodology that brought a paradigm shift breaking the preoccupation of banking channels thus demonstrating the possibility of eradicating poverty and having enormous implications. Essentially in terms of practice it revolved around providing small loans (typically without any collateral) and accepting small to very small deposits and similar financial services as it is progressing. Microfinance presents a series of exciting and acknowledged possibilities for extending market thereby reducing poverty, gender empowerment and promoting social change. India has christened as a developing country with its characteristic demographic unction’s and skewed distributed income structure certainly a rip case for implementing it and so it has happened albeit, on the national scale. The forms, features and working pattern that exist with MFI’s can clearly be categorized similar to that in South India and those working in North India. Regional demographic features such as literacy, occupation, group dynamics, existence and prevalence of institutions and regional pressure group characteristics may explain this distinctness. However, Allahabad district may be considered as a typical representative of North India, especially that of Central India. The extents to which MFI’s have spread and covered the district obviously pronounce that there is lot of work that needs to be done. Every event/process to assess the shortcoming or gaps for identifying and explaining the cause for that as well as for becoming supportive of its expansion necessitates for examining the issues related with the microfinance practice. It exhibits direction and trends, which helps in locating the loopholes and the way forward. So was the objective of our project. Further it also take time to compare whether these trend are consistent or deviating from the national trend or global trend for that matter.
Various models for micro finance
The SHG model
The self help group model has evolved in the NGO sector. A variety of models arise out of NGO nurturing among which SHGs have become the most popular.
SHGs are small informal groups comprising of membership of 10-20 persons. The composition of membership is mostly exclusively male or exclusively female. The members are self selected with a liberty to choose their group depending on their level of affinity with the other potential members. The group meets regularly at an appointed time and place and carries out its financial transactions of savings and credit. The roles and norms of the group are determined by the members themselves. The NGO provides them with support services, training and developing linkages.
However, there are certain features of SHG that need to be looked into:
The group promotion process is long and the poor have to wait for long periods.
The amounts available in the beginning are very small and all the members cannot take loans at the same time.
The functioning of the group relies completely on group dynamics which are very difficult to build in.
Conflicts arise on seemingly trivial reasons which can lead to the break-down of the group and it is difficult to rebuild it.
Despite these few disadvantages SHG still is a popular model for micro finance in India.
Federated SHG approach
The federated SHG approach builds upon the unique features of SHG based micro finance and contributes to factors that improve the sustainability of SHGs. Federations increase the opportunity offered by the SHGs, expands empowerment through leadership building and addresses the component of security through insurance services. Federations usually come under the Societies Registration Act. PRADAN and MYRADA, two large NGOs that pioneered the concept of SHGs.
The Grameen Bank Model
The grameen bank methodology which was a case of exceptional success first evolved in Bangladesh and was launched by many other organizations in India with slight variations. Some of the features are as follows:
Homogeneous groups of 5 members are formed at village level
The field worker facilitates the process of group forming
All the group members undergo a 7 day compulsory training
Some groups undergo the group recognition test
8 joint liability groups affiliate together to form a centre
The centre meets every week at a defined time and a bank assistant attends the meetings.
Group discipline is enforced through peer pressure. Collateral is replaced by peer pressure. The incentive to timely repayment is repeat loans and continuous access to increasing credit from the bank. A field worker maintains a check on loan utilization.
Non Banking Finance Companies
The NBFCs has emerged as a nearest substitute for those MFIs who want to go the for-profit route. Since getting registered as a bank is costly and the local area bank idea has not been pursued beyond the initial approvals, the NBFC route is increasingly being chosen by profit driven MFIs. They can also enter the capital markets. Since the poor are bankable and lending to them can be commercially viable it is not necessary to depend on low cost funds to lend to them. Secondly, since the amounts required are huge, the financial markets are the only way to mobilize resources. This would mean mobilizing debt at market rates of interest. The for-profit NBFC route is currently the best way to operate in the capital markets. For regulatory purposes, NBFCs have been classified into 3 categories:
(a) Those accepting public deposits,
(b) Those not accepting public deposits but engaged in financial business
(c) Core investment companies with 90 per cent of their total assets as investments in the securities of their group/holding/subsidiary companies.
I. Comprehensive literature survey, general and specific for understanding the development of MF, economics of microfinance, the trends and issues as emerging in this field (National and Global scale) and the implication of various MF models.
II. As the most important component for reaching the objective of the project we performed a detailed scientific survey of the microfinance institution (SONATA), NGOs (MANVODAYA), SHGs and Banks (Bank of India, Kasmanda Sitapur) working in Allahabad and Sitapur (such as Naini and Karchana in Allahabad and Kasmanda in Sitapur) and the members of the groups/SHG’s whom they are serving. Later on, the statistical and general inferential analysis of the data as obtained from survey provides some rather interesting findings which would certainly be helpful in modifying the ways of microfinance already working and the way forward for those venturing to enter.
The study areas selected were
1. Sitapur district in which individual study of SHGs were carried out to form the very base of the study. All these SHGs were promoted by an NGO MANVODAYA.
Allahabad district in which groups were taken whose having lent by sonata MFI.
Areas covered- and Block.
Kanpur district which has two federations:
Both these federations are promoted by the NGO Shramik Sansthan
Following points were specially taken care of:
a. SONATA (an MFI institution) which having presence in Allahabad was consulted (Formal Talk session and detailed questionnaire).
b. To study the bank linked SHGs model, specific locations (such as Kasmanda in Sitapur and Kanpur) was selected and a specific NGO which having presence in that location was consulted along with its promoted SHGs (Formal Talk session and detailed