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CHAPTER 1
INTRODUCTION
1
Introduction
Microfinance is defined as any activity that includes the provision of financial services such as credit,
savings, and insurance to low income individuals which fall just above the nationally defined poverty
line, and poor individuals which fall below that poverty line, with the goal of creating social value. The
creation of social value includes poverty alleviation and the broader impact of improving livelihood
opportunities through the provision of capital for micro enterprise, and insurance and savings for risk
mitigation and consumption smoothing. A large variety of sectors provide microfinance in India, using
a range of microfinance delivery methods. Since the ICICI Bank in India, various actors have
endeavored to provide access to financial services to the poor in creative ways. Governments also have
piloted national programs, NGOs have undertaken the activity of raising donor funds for on-lending,
and some banks have partnered with public organizations or made small inroads themselves in
providing such services. This has resulted in a rather broad definition of microfinance as any activity
that targets poor and low-income individuals for the provision of financial services. The range of
activities undertaken in microfinance include group lending, individual lending, the provision of
savings and insurance, capacity building, and agricultural business development services. Whatever
the form of activity however, the overarching goal that unifies all actors in the provision of
microfinance is the creation of social value.
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CHAPTER 2
LITERATURE REVIEW
3
Effects of Financial Access on Savings by Low-Income People, Fernando Aportelo,
December 1999
This paper assesses the impact of increasing financial access on low-income people savings. Effects on
households’ saving rates and on different informal savings instruments are considered. The paper uses
an exogenous expansion of a Mexican savings institute, targeted to low-income people, as a natural
experiment and the 1992 and 1994 National Surveys of Income and Expenditures. Results show that
the expansion increased the average saving rate of affected households by more than 3 to almost 5
percentage points. The effect was even higher for the poorest households in the sample: their saving
rate increased by more than 7 percentage points in some cases.
Do Rural Banks Matter? Evidence From The Indian Social Banking Experiment, Robin
Burguess & Rohini Pande
August 2003
Lack of access to finance is often cited as a key reason why poor people remain poor. This paper uses
data on the Indian rural branch expansion program to provide empirial evidence on this issue. Between
1977 and 1990, the Indian Central Bank mandated that a commercial bank can open a branch in a
location with one or more bank branches only if it opens four in locations with no bank branches. We
show that between 1977 and 1990 this rule caused banks to open relatively more rural branches in
Indian states with lower initial financial development.
4
Microfinance in India: Small, Ostensibly Rigid and Safe, Rajalaxmi Kamath and R. Srinivasan
June 2009
Grameen replicators in India, using a for-profit Non-Banking Finance Company legal form, have
grown rapidly in terms of client numbers. Loan sizes are relatively small compared to per capita
income, while portfolio quality was until recently very high. There is evidence in field of multiple
borrowing, with clients borrowing simultaneously from multiple sources including micro-finance
institutions. We build a model of the microfinance sector that explains why such multiple borrowings
result optimally in small loan sizes and high portfolio quality.
Crabb, P. (2008)
He has examined that the relationship between the success of microfinance institutions and the degree
of economic freedom in their host countries. Many microfinance institutions are currently not self-
sustaining and research suggests that the economic environment in which the institution operates is an
important factor in the ability of the institution to reach this goal, furthering its mission of outreach to
the poor.
Muhammad Yunus (1998)
He has examined that this approach to poverty reduction at the macro-level is inadequate. The primary
causes of poverty are not lack of human capital or lack of demand for labor. Lack of demand for labor
is only a symptom, not a cause, of poverty. Poverty is caused by our inadequate understanding of
human capabilities and by our failure to create enabling theoretical frameworks, concepts, institutions
and policies to support those capabilities.
The Transformation of Microfinance in India: Experiences, Options and Future; M S Sriram
and Rajesh Upadhyayula, September 2002
The paper looks at the growth and transformation of microfinance organisations (MFO) in India. It
first defines microfinance and identify its “value attributes”. Having chosen only those MFOs that
have microfinance as the core, we look at the transformation experiences.
5
Analysis of the Effects of Microfinance on Poverty Reduction, NYU Wagner Working Paper
Series
Microfinance has proven to be an effective and powerful tool for poverty reduction. Like many other
development tools, however, it has insufficiently penetrated the poorer strata of society. The poorest
form the vast majority of those without access to primary health care and basic education; similarly,
they are the majority of those without access to microfinance. While there is no question that the
poorest can benefit from primary health care and from basic education, it is not as intuitive that they
can also benefit from microfinance, or that microfinance is an appropriate tool by which to reach the
Millennium goals.
At the Crossroads: Microfinance in India; Rajesh Chakrabarti and Shamika Ravi; 2011
As of early 2011, the microfinance industry in India, one of the largest in the world, is facing a
moment of reckoning. The recent developments in Andhra Pradesh, the cradle of microfinance in
India, have stamped the future of the sector with a huge question mark. This paper sketches the
background of the microfinance movement in India as well as its current geographical distribution and
outreach;
MFI (Microfinance Institutes) Borrowers: Their loans and Repayments – Rajalaxmi Kamath
and Abhi Dattasharma
News about the microfinance sector in India today is in what can be called a lull, after the tumult
following the Andhra crisis (Taylor, Marcus. 2011). It has however, spawned a much needed re-
evaluation of the microfinance movement a$nd its meaning to the poor. The initial euphoria over this
“bottom-up” approach towards global poverty reduction has died down. World-over, doubts are being
raised over the conclusions of the impact studies cited (Duvendack et al. 2011).
6
CHAPTER 3
INDUSTRY PROFILE
7
EVOLUTION OF MICROFINANCE IN INDIA (1960 TO TODAY)
Microfinance in India emerged as an effort to reach out to the un-banked, lower income segments of
the population
1960 to 1980 1990 2000
Phase 1: Social Banking Phase 2: Financial Systems
Approach
Phase 3: Financial Inclusion
1.Nationalization of private
commercial banks
1.Peer-pressure 1.NGO-MFIs and SHGs gaining
more legitimacy
2.Expansion of rural branch
network
2.Establishment of MFIs,
typically of non-profit origins
2.MFIs emerging as strategic
partners to diverse entities
interested in the low-income
segments
3.Extension of subsidized credit 3.Consumer finance emerged as
high growth area
4.Establishment of Rural
Regional Banks
4.Increased policy regulation
5.Establishment of apex
institutions such as National
Bank for Agriculture and Rural
Development and Small Indu-
stries Development Bank of
India
5.Increasing commercialization
Entities in Micro Finance:-
Indian Microfinance dominated by two operational approaches:
SHG
Initiated by NABARD through SHG Bank Linkage Program.
Largest outreach to microfinance clients in the world reaching 79.60 self-help groups in
2011-12 ( NABARD Latest Report in 2011-12 )
8
MFIs
Emerged in the late 1990s to harness social and commercial funds.
Today the number of Indian MFIs has increased and crossed 1000 reaching 31.4 million
people in 2010-11 ( CRISIL Report on Microfinance )
SHGs comprise twenty or fewer members, of whom the majority are women from the poorest castes
and tribes. Members save small amounts of money, as little as a few rupees a month in a group fund.
Members may borrow from the group fund for a variety of purposes ranging from household
emergencies to school fees. Banks typically lend up to four rupees for every rupee in the group fund.
Groups pay 12-24% annual rate of interest.
MFI is an organization that offers financial services to low income populations. Almost all of these
offer microcredit and only take back small amounts of savings from their own borrowers (except for
NBFC- MFIs which cannot borrow from the general public) not from the general public. Term refers
to a wide range of organizations - NGOs, credit unions, cooperatives, private commercial banks and
non-bank financial institutions.
Who are the clients of micro finance?
The typical micro finance clients are low-income persons that do not have access to formal financial
institutions. Micro finance clients are typically self-employed, often household-based entrepreneurs. In
rural areas, they are usually small farmers and others who are engaged in small income-generating
activities such as food processing and petty trade. In urban areas, micro finance activities are more
diverse and include shopkeepers, service providers, artisans, street vendors, etc. Micro finance clients
are poor and vulnerable non-poor who have a relatively unstable source of income.
Access to conventional formal financial institutions, for many reasons, is inversely related to income:
the poorer you are the less likely that you have access. On the other hand, the chances are that, the
poorer you are, the more expensive or onerous informal financial arrangements. Moreover, informal
arrangements may not suitably meet certain financial service needs or may exclude you anyway.
Individuals in this excluded and under-served market segment are the clients of micro finance.
As we broaden the notion of the types of services micro finance encompasses, the potential market of
micro finance clients also expands. It depends on local conditions and political climate, activeness of
cooperatives, SHG & NGOs and support mechanism. For instance, micro credit might have a far more
limited market scope than say a more diversified range of financial services, which includes various
types of savings products, payment and remittance services, and various insurance products. For
9
example, many very poor farmers may not really wish to borrow, but rather, would like a safer place to
save the proceeds from their harvest as these are consumed over several months by the requirements of
daily living. Central government in India has established a strong & extensive link between NABARD
(National Bank for Agriculture & Rural Development), State Cooperative Bank, District Cooperative
Banks, Primary Agriculture & Marketing Societies at national, state, district and village level.
The Need in India :-
India is said to be the home of one third of the world’s poor; 32.7% of the population (400
million ) live on less than 1.25$ a day. ( World Bank Data )
About 87 percent of the poorest households do not have access to credit, 70% do not have
access to saving account and less than 15% have access to any kind of formal insurance
The demand for microcredit has been estimated at up to $30 billion; the supply is less than $2.2
billion combined by all involved in the sector.
Legal Regulations
Banks in India are regulated and supervised by the Reserve Bank of India (RBI) under the RBI Act of
1934, Banking Regulation Act, Regional Rural Banks Act, and the Cooperative Societies Acts of the
respective state governments for cooperative banks.
NBFCs are registered under the Companies Act, 1956 and are governed under the RBI Act.
There were guidelines introduced for NBFC-MFIs on August 03,2012 which are as follows-
Capital requirement – Entry Point Norms
i. Existing NBFCs
All registered NBFCs intending to convert to NBFC-MFI must seek registration with immediate effect
and in any case not later than October 31, 2012, subject to the condition that they shall maintain Net
Owned Funds (NOF) at Rs.3 crore by March 31, 2013 and at Rs.5 crore by March 31, 2014, failing
which they must ensure that lending to the Microfinance sector i.e. individuals, SHGs or JLGs which
qualify for loans from MFIs, will be restricted to 10 per cent of the total assets.
ii. New Companies
10
All new companies desiring NBFC-MFI registration will need a minimum NOF of Rs.5 crore except
those in the North Eastern Region of the country which will require NOF of Rs.2 crore till further
notice, as hitherto and would comply,from the beginning, with all other criteria laid out in the
following paragraphs.
Qualifying Assets
i. NBFC-MFIs are required to maintain not less than 85 per cent of their net assets as Qualifying
Assets. In view of the problems being faced by NBFCs in complying with this criteria on account of
their existing portfolio, it has been decided that only the assets originated on or after January 1, 2012
will have to comply with the Qualifying Assets criteria. As a special dispensation, the existing assets
as on January 1, 2012 will be reckoned towards meeting both the Qualifying Assets criteria as well as
the Total Net Assets criteria. These assets will be allowed to run off on maturity and cannot be
renewed.
ii. NBFC-MFIs were also required to ensure that the aggregate amount of loans given for income
generation is not less than 75 per cent of the total loans extended. On reconsideration, as the target
clientele is predominantly at the subsistence level and basic human requirements stand to gain priority
over income generation activities, it has been decided that income generation activities should
constitute at least 70 per cent of the total loans of the MFI so that the remaining 30 per cent can be for
other purposes such as housing repairs, education, medical and other emergencies.
Multiple Lending and Indebtedness
It is clarified that a borrower can be the member of only one SHG or one JLG or borrow as an
individual. He can thus borrow from NBFC-MFIs as a member of a SHG or a member of a JLG or
borrow in his individual capacity. However, a SHG or JLG or individual cannot borrow from more
than 2 MFIs. Lending NBFC-MFIs will have to ensure that the above conditions are strictly complied
with.
11
Development Process through Micro Finance
12
Economic Empowerment through use of Micro-Credit as
an entry point for overall Empowerment
Self-Sustainability of SHGs
Non-Farm RelatedIncome Generation
(Sustainable & Growth Oriented)
Farm Related
Follow-up Monitoring
Recovery
Credit DeliveryConsumption Needs
Savings
Micro EnterpriseMicro Enterprise Consolidation of SHGs
Promotion and Formation of SHGs
IndividualIndividual Awareness/Promotional Work
Implementing Organisations
Governmentand Banks Micro-FinanceDonors and Banks
Production Needs
Micro-finance interventions through different organisations
13
Members
SHGs
Individuals
Indirectly engaged in
Micro-FinanceDirectly engaged in Micro-Finance
Resource/Support Organisations
Implementing Organisations
Donors/Bilateral Projects
Government Funded Programmes
BanksNational Financial
Institutions
Distribution of Indebted Rural Households: Agency wise (Source- NABARD)
Credit Agency Percentage of Rural Households
Government 6.1
Cooperative Societies 21.6
Commercial banks and RRBs 33.7
Insurance 0.3
Provident Fund 0.7
Other Institutional Sources 1.6
All Institutional Agencies 64.0
Landlord 4.0
Agricultural Moneylenders 7.0
Professional Moneylenders 10.5
Relatives and Friends 5.5
Others 9.0
All Non Institutional Agencies 36.0
All Agencies 100.0
Micro Finance Models
1. Micro Finance Institutions (MFIs):
MFIs are an extremely heterogeneous group comprising NBFCs, societies, trusts and
cooperatives. They are provided financial support from external donors and apex institutions
including the Rashtriya Mahila Kosh (RMK), SIDBI Foundation for micro-credit and
NABARD and employ a variety of ways for credit delivery.
Since 2000, commercial banks including Regional Rural Banks have been providing funds to
MFIs for on lending to poor clients. Though initially, only a handful of NGOs were “into”
financial intermediation using a variety of delivery methods, their numbers have increased
considerably today. While there is no published data on private MFIs operating in the country,
the number of MFIs is estimated to be around 800.
14
Legal Forms of MFIs in India
Types of MFIs Estimated
Number*
Legal Acts under which Registered
1. Not for Profit MFIs
a.) NGO - MFIs
400 to 500 Societies Registration Act, 1860 or
similar Provincial Acts
Indian Trust Act, 1882
b.) Non-profit Companies 10 Section 25 of the Companies Act, 1956
2. Mutual Benefit MFIs
a.) Mutually Aided Cooperative
Societies (MACS) and similarly
set up institutions
200 to 250 Mutually Aided Cooperative Societies
Act enacted by State Government
3. For Profit MFIs
a.) Non-Banking Financial
Companies (NBFCs)
6 Indian Companies Act, 1956
Reserve Bank of India Act, 1934
Total 700 – 800
2. Bank Partnership Model
This model is an innovative way of financing MFIs. The bank is the lender and the MFI acts as
an agent for handling items of work relating to credit monitoring, supervision and recovery. In
other words, the MFI acts as an agent and takes care of all relationships with the client, from first
contact to final repayment. The model has the potential to significantly increase the amount of
funding that MFIs can leverage on a relatively small equity base.
A sub - variation of this model is where the MFI, as an NBFC, holds the individual loans on its
books for a while before securitizing them and selling them to the bank. Such refinancing
through securitization enables the MFI enlarged funding access. If the MFI fulfills the “true sale”
criteria, the exposure of the bank is treated as being to the individual borrower and the prudential
exposure norms do not then inhibit such funding of MFIs by commercial banks through the
securitization structure.
3. Banking Correspondents
The proposal of “banking correspondents” could take this model a step further extending it to
savings. It would allow MFIs to collect savings deposits from the poor on behalf of the bank. It
would use the ability of the MFI to get close to poor clients while relying on the financial
strength of the bank to safeguard the deposits. This regulation evolved at a time when there were
genuine fears that fly-by-night agents purporting to act on behalf of banks in which the people 15
have confidence could mobilize savings of gullible public and then vanish with them. It remains
to be seen whether the mechanics of such relationships can be worked out in a way that
minimizes the risk of misuse.
4. Service Company Model
Under this model, the bank forms its own MFI, perhaps as an NBFC, and then works hand in
hand with that MFI to extend loans and other services. On paper, the model is similar to the
partnership model: the MFI originates the loans and the bank books them. But in fact, this model
has two very different and interesting operational features:
The MFI uses the branch network of the bank as its outlets to reach clients. This allows the
client to be reached at lower cost than in the case of a stand–alone MFI. In case of banks
which have large branch networks, it also allows rapid scale up. In the partnership model,
MFIs may contract with many banks in an arm’s length relationship. In the service company
model, the MFI works specifically for the bank and develops an intensive operational
cooperation between them to their mutual advantage.
The Partnership model uses both the financial and infrastructure strength of the bank to
create lower cost and faster growth. The Service Company Model has the potential to take
the burden of overseeing microfinance operations off the management of the bank and put it
in the hands of MFI managers who are focused on microfinance to introduce additional
products, such as individual loans for SHG graduates, remittances and so on without
disrupting bank operations and provide a more advantageous cost structure for microfinance.
TYPES OF ORGANIZATION
These organizations are classified in the following categories to indicate the functional aspects covered
by them within the micro finance framework. The aim, however, is not to "typecast" an organization,
as these have many other activities within their scope:
Microfinance providers in India can be classified under three broad categories: formal, semiformal,
and informal.
Formal Sector
The formal sector comprises of the banks such as NABARD, SIDBI and other regional rural
banks (RRBs). They primarily provide credit for assistance in agriculture and micro-enterprise
development and primarily target the poor. Their deposit at around Rs.350 billion and of that,
around Rs.250 billion has been given as advances. They charge an interest of 12-13.5% but if
we include the transaction costs (number of visits to banks, compulsory savings and costs
16
incurred for payments to animators/staff/local leaders etc.) they come out to be as high as 21-
24%.
Semi - formal Sector
The majority of institutional microfinance providers in India are semi-formal organizations
broadly referred to as MFIs. Registered under a variety of legal acts, these organizations greatly
differ in philosophy, size, and capacity. There are over 500 non-government organizations
(NGOs) registered as societies, public trusts, or non-profit companies. Organizations
implementing micro-finance activities can be categorized into three basic groups.
I. Organizations which directly lend to specific target groups and are carrying out all
related activities like recovery, monitoring, follow-up etc.
II. Organizations who only promote and provide linkages to SHGs and are not directly
involved in micro lending operations.
III. Organizations which are dealing with SHGs and plan to start micro-finance related
activities.
Informal Sector
In addition to friends and family, moneylenders, landlords, and traders constitute the informal
sector. While estimates of their importance vary significantly, it is undeniable that they
continue to play a significant role in the financial lives of the poor. These are the organizations
that provide support to implementing organizations. The support may be in terms of resources
or training for capacity building, counseling, networking, etc. They operate at state/regional or
national level. They may or may not be directly involved in micro-finance activities adopted by
the associations/collectives to support implementing Organizations.
Commercial banks as Microfinance Vehicles
Commercial banks recently have stepped into the realm of microfinance. They have taken tentative but
very important steps toward distributing Microfinance loans to the poor. One advantage of these
institutions is that they bring in the risks management practices that they regularly use in their
commercial operations risk management practices that they regularly use in their commercial
operations. The other important aspect they bring in is the professional credit appraisal practices that
are used in their normal operations. These important features combined with a mission to provide the
poor entrepreneurs will enhance the social lives and they can run their business effectively with proper
access to credit. In some cases, successful microfinance NGOs have transformed themselves into for
17
profit commercial banks (BancoSol of Bolivia is a prime example of a microfinance NGO that has
successfully transformed itself into a for-profit commercial bank). This transformation from a not-for-
profit institution into for-profit organization has increased the focus of these organizations on financial
self-sufficiency. This transformation has been possible because commercial banks have entered this
arena bringing in key concepts like self-sufficiency, proper credit appraisal and risk management
practices. But there are some issues that have to be dealt with by the banks before embarking on the
Microfinance journey.
They are:
1. Banks Outreach
2. Clarity in objectives
Banks outreach is one of the most crucial aspects that must be critically examined by them before
entering into microfinance sector. One reason for it is that most of the commercial banks have little or
no rural presence with rate exceptions such as India, where rural banking was a priority and there is a
significant presence of commercial banks in the rural areas. They have to decide whether to start their
own branches in rural areas if they do not have any or partner with other banks or other microfinance
institutions in order to get a foothold in the rural finance sector. The other issue that has to be resolved
is the clarity in the bank in dealing with its microfinance operations. They have to decide whether it
will be completely independent operation or it will be part of their existing rural banking framework.
For example, ICICI bank’s microfinance operation is a completely independent operation and it does
not have any link with its commercial banking operation. Once these major issues are sorted out
commercial banks will have enough leverage to approach the microfinance sector with confidence.
Financial Institutions and banks
Microfinance has been attractive to the lending agencies because of demonstrated sustainability and of
low costs of operation. Institutions like SIDBI and NABARD are hard-nosed bankers and would not
work with the idea if they did not see a long term engagement – which only comes out of sustainability
(that is economic attractiveness).
On the supply side, it is also true that it has all the trappings of a business enterprise, its output is
tangible and it is easily understood by the mainstream. This also seems to sound nice to the
government, which in the post liberalization era is trying to explain the logic of every rupee spent.
That is the reason why microfinance has attracted mainstream institutions like no other developmental
project.
Perhaps the most important factor that got banks involved is what one might call the policy push.
Given that most of our banks are in the public sector, public policy does have some influence on what
18
they will or will not do. In this case, policy was followed by diligent, if meandering, promotional work
by NABARD. The policy change about a decade ago by RBI to allow banks to lend to SHGs was
initially followed by a seven-page memo by NABARD to all bank chairmen, and later by sensitization
and training programmes for bank staff across the country. Several hundred such programs were
conducted by NGOs alone, each involving 15 to 20 bank staff, all paid for by NABARD. The policy
push was sweetened by the NABARD refinance scheme that offers much more favorable terms (100%
refinance, wider spread) than for other rural lending by banks. NABARD also did some system setting
work and banks lately have been given targets. The canvassing, training, refinance and close follow up
by NABARD has resulted in widespread bank involvement.
Moreover, for banks the operating cost of microfinance is perhaps much less than for pure MFIs. The
banks already have a vast network of branches. To the extent that an NGO has already promoted SHGs
and the SHG portfolio is performing better than the rest of the rural (if not the entire) portfolio,
microfinance via SHGs in the worst case would represent marginal addition to cost and would often
reduce marginal cost through better capacity utilization. In the process the bank also earns brownie
points with policy makers and meets its priority sector targets.
It does not take much analysis to figure out that the market for financial services for the 50-60 million
poor households of India, coupled with about the same number who are technically above the poverty
line but are severely under-served by the financial sector, is a very large one. Moreover, as in any
emerging market, though the perceived risks are higher, the spreads are much greater. The traditional
commercial markets of corporates, business, trade, and now even housing and consumer finance are
being sought by all the banks, leading to price competition and wafer thin spreads.
Further, bank-groups are motivated by a number of cross-selling opportunities in the market, for
deposits, insurance, remittances and eventually mutual funds. Since the larger banks are offering all
these services now through their group companies, it becomes imperative for them to expand their
distribution channels as far and deep as possible, in the hope of capturing the entire financial services
business of a household.
Finally, both agri-input and processing companies such as EID Parry, fast-moving consumer goods
(FMCG) companies such as Hindustan Levers, and consumer durable companies such as Philips have
realized the potential of this big market and are actively using SHGs as entry points. Some amount of
free-riding is taking place here by companies, for they are using channels which were built at a
significant cost to NGOs, funding agencies and/or the government.
On the whole, the economic attractiveness of microfinance as a business is getting established and this
is a sure step towards mainstreaming. We know that mainstreaming is a mixed blessing, and one tends
to exchange scale at the cost of objectives. So it needs to be watched carefully.
19
Chapter- 4
MICROFINANCE AND
WOMEN EMPOWERMENT
Women as micro and small entrepreneurs have increasingly become the key target group for micro
finance programs. Consequently, providing access to micro finance facilities is not only considered a
20
pre-condition for poverty alleviation, but also considered as a strategy for empowering women. In
developing countries like INDIA micro finance is playing an important role, promoting gender
equality and is helping in empowering women so that they can live quality life with dignity.
The study conducted by FINCA Client Poverty Assessment conducted in 2003 revealed that of the
interviewed clients 81 percent were women, and it was found that food security was 15 percent higher
among their village banking clients than non-clients. The report also showed clients to have 11 percent
more of their children enrolled in school with an 18 percent increase in healthcare benefits. Clients’
housing security was reported as 18 percent higher than non-clients. The assessment concluded that
microfinance improved the wellbeing of women clients and their families.
WOMEN’S EMPOWERMENT AND MICRO FINANCE: DIFFERENT PARADIGMS
Concern with women’s access to credit and assumptions about contributions to women’s
empowerment are not new. From the early 1970s women’s movements in a number of countries
became increasingly interested in the degree to which women were able to access poverty-focused
credit programs and credit cooperatives. In India organizations like Self- Employed Women’s
Association (SEWA) among others with origins and affiliations in the Indian labour and women’s
movements identified credit as a major constraint in their work with informal sector women workers.
a) Feminist Empowerment Paradigm
The feminist empowerment paradigm did not originate as a Northern imposition, but is firmly rooted
in the development of some of the earliest micro-finance programmes in the South, including SEWA
in India. It currently underlies the gender policies of many NGOs and the perspectives of some of the
consultants and researchers looking at gender impact of micro-finance programmes (e.g. Chen 1996,
Johnson, 1997).
Here the underlying concerns are gender equality6 and women’s human rights. Women’s
empowerment is seen as an integral and inseparable part of a wider process of social transformation.
The main target group is poor women and women capable of providing alternative female role models
for change. Increasing attention has also been paid to men's role in challenging gender inequality.
Micro-finance is promoted as an entry point in the context of a wider strategy for women’s economic
and socio-political empowerment which focuses on gender awareness and feminist organization. As
developed by Chen in her proposals for a sub sector approach to micro credit, based partly on SEWA's
strategy and promoted by UNIFEM, microfinance must be:
Part of a sectorial strategy for change which identifies opportunities, constraints and bottlenecks within
industries which if addressed can raise returns and prospects for large numbers of women. Possible
strategies include linking women to existing services and infrastructure, developing new technology
21
such as labour-saving food processing, building information networks, and shifting to new markets,
policy level changes to overcome legislative barriers and unionization.
Based on participatory principles to build up incremental knowledge of industries and enable women
to develop their strategies for change (Chen, 1996). Economic empowerment is however defined in
more than individualist terms to include issues such as property rights, changes intra-household
relations and transformation of the macro-economic context. Many organizations go further than
interventions at the industry level to include gender-specific strategies for social and political
empowerment. Some programmes have developed very effective means for integrating gender
awareness into programmes and for organizing women and men to challenge and change gender
discrimination. Some also have legal rights support for women and engage in gender advocacy. These
interventions to increase social and political empowerment are seen as essential prerequisites for
economic empowerment.
b) Poverty Reduction Paradigm
The poverty alleviation paradigm underlies many NGO integrated poverty-targeted community
development programmes. Poverty alleviation here is defined in broader terms than market incomes to
encompass increasing capacities and choices and decreasing the vulnerability of poor people.
The main focus of programmes as a whole is on developing sustainable livelihoods, community
development and social service provision like literacy, healthcare and infrastructure development.
There is not only a concern with reaching the poor, but also the poorest. Although term 'empowerment'
is frequently used in general terms, often synonymous with a multi-dimensional definition of poverty
alleviation, the term 'women's empowerment is often considered best avoided as being too
controversial and political.
c) Financial Sustainability Paradigm
The financial self-sustainability paradigm (also referred to as the financial systems approach or
sustainability approach) underlies the models of microfinance promoted since the mid-1990s by most
donor agencies and the Best Practice guidelines promoted in publications by USAID, World Bank,
UNDP and CGAP.
The ultimate aim is large programmes which are profitable and fully self-supporting in competition
with other private sector banking institutions and able to raise funds from international financial
markets rather than relying on funds from development agencies. The main target group, despite
claims to reach the poorest, is the ‘bankable poor': small entrepreneurs and farmers. This emphasis on
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financial sustainability is seen as necessary to create institutions which reach significant numbers of
poor people in the context of declining aid budgets and opposition to welfare and redistribution in
macro-economic policy.
EMPOWERMENT: FOCUS ON POOR WOMEN
Women have been the vulnerable section of society and constitute a sizeable segment of the poverty-
struck population. Women face gender specific barriers to access education health, employment etc.
Micro finance deals with women below the poverty line. Micro loans are available solely and entirely
to this target group of women. There are several reason for this: Among the poor , the poor women are
most disadvantaged –they are characterized by lack of education and access of resources, both of
which is required to help them work their way out of poverty and for upward economic and social
mobility. The problem is more acute for women in countries like India, despite the fact that women’s
labor makes a critical contribution to the economy. This is due to the low social status and lack of
access to key resources. Evidence shows that groups of women are better customers than men, the
better managers of resources. If loans are routed through women benefits of loans are spread wider
among the household. Since women’s empowerment is the key to socio economic development of the
community; bringing women into the mainstream of national development has been a major concern of
government. The ministry of rural development has special components for women in its programmes.
Funds are earmarked as “Women’s component” to ensure flow of adequate resources for the same.
Besides Swarnagayanti Grameen Swarazgar Yojona (SGSY), Ministry of Rural Development is
implementing other scheme having women’s component .They are the Indira Awas Yojona (IAJ),
National Social Assistance Programme (NSAP), Restructured Rural Sanitation Programme,
Accelerated Rural Water Supply programme (ARWSP) the (erstwhile) Integrated Rural Development
Programme (IRDP), the (erstwhile) Development of Women and Children in Rural Areas (DWCRA)
and the Jowahar Rozgar Yojana (JRY).
MICRO FINANCE INSTRUMENT FOR WOMEN’S EMPOWERMENT
23
Micro Finance is emerging as a powerful instrument for poverty alleviation in the new economy. In
India, micro finance scene is dominated by Self Help Groups (SHGs) – Bank Linkage Programme,
aimed at providing a cost effective mechanism for providing financial services to the “unreached
poor”. Based on the philosophy of peer pressure and group savings as collateral substitute , the SHG
programme has been successful in not only in meeting peculiar needs of the rural poor, but also in
strengthening collective self-help capacities of the poor at the local level, leading to their
empowerment. Micro Finance for the poor and women has received extensive recognition as a strategy
for poverty reduction and for economic empowerment. Increasingly in the last five years , there is
questioning of whether micro credit is most effective approach to economic empowerment of poorest
and, among them, women in particular. Development practitioners in India and developing countries
often argue that the exaggerated focus on micro finance as a solution for the poor has led to neglect by
the state and public institutions in addressing employment and livelihood needs of the poor. Credit for
empowerment is about organizing people, particularly around credit and building capacities to manage
money. The focus is on getting the poor to mobilize their own funds, building their capacities and
empowering them to leverage external credit. Perception women is that learning to manage money and
rotate funds builds women’s capacities and confidence to intervene in local governance beyond the
limited goals of ensuring access to credit. Further, it combines the goals of financial sustainability with
that of creating community owned institutions.
Before 1990’s, credit schemes for rural women were almost negligible. The concept of women’s credit
was born on the insistence by women oriented studies that highlighted the discrimination and struggle
of women in having the access of credit. However, there is a perceptible gap in financing genuine
credit needs of the poor especially women in the rural sector. There are certain misconception about
the poor people that they need loan at subsidized rate of interest on soft terms, they lack education,
skill, capacity to save, credit worthiness and therefore are not bankable. Nevertheless, the experience
of several SHGs reveals that rural poor are actually efficient managers of credit and finance.
Availability of timely and adequate credit is essential for them to undertake any economic activity
rather than credit subsidy. The Government measures have attempted to help the poor by
implementing different poverty alleviation programmes but with little success. Since most of them are
target based involving lengthy procedures for loan disbursement, high transaction costs, and lack of
supervision and monitoring. Since the credit requirements of the rural poor cannot be adopted on
project lending app roach as it is in the case of organized sector, there emerged the need for an
informal credit supply through SHGs. The rural poor with the assistance from NGOs have
demonstrated their potential for self-help to secure economic and financial strength. Various case
studies show that there is a positive correlation between credit availability and women’s empowerment
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CHAPTER 5
ANALYSIS AND INTERPRETATION OF DATA
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Objective 1:- To study the impact of micro finance in empowering the social economic status of
women and developing of social entrepreneurship.
Amount In Crore/No. in Lakhs
Source- NABARD
INTERPRETATION: - According to main objective to know the economic and social development of women entrepreneurship. Above table show the economic development of women. In 2010-11 loans disbursed amount to women is 12429.37 crore and 2011-12 is 12622.33 crore. In 2010-11 SHG Savings amount to women is 4498.66 crore and 2011-12 is 5298.65 crore. That clearly is a positive indicator showing the well-being of women.
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Particular Year Total SHGs All Women SHGs % of Woman Groups
No. Amount No. Amount No. AmountSHG Savings with banks as on 31st
March
2010-11 69.53 6198.71 53.10 4498.66 76.4 72.6
2011-12 74.62 7016.30 60.98 5298.65 81.7 75.5
Loan disbursed to SHGs during the year
2010-11 15.87 14453.3 12.94 12429.37 81.6 86
2011-12 11.96 14547.73 10.17 12622.33 85 86.8
Loan outstanding against SHGs as on 31st
March
2010-11 48.51 28038.28 38.98 23030.36 80.30 82.1
2011-12 47.87 31221.17 39.84 26123.75 83.2 83.7
Objective 2:- To know about relationship between SHG’s members, micro finance banks and entrepreneur’s women. ( all figures in lacs ) AS OF MARCH 31, 2012. SOURCE- NABARD
27
INTERPRETATION: It shows the good relationship of women SHGs with SHGs group and banks
since in all the four sample states, the majority of the SHG’s supported by the nationalized banks are
exclusive women SHG’s
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Objective 3:- To study potential hurdles in the developing of women entrepreneurship.
Role of Microfinance Services:-
1. Do not restrict loan use: - Access to financial services provides the poor with the opportunity to
accumulate assets, to reduce their vulnerability to shocks (such as illness or death in the household,
crop failure, theft, dramatic price fluctuations, the payment of dowries) and to invest in income-
generation activities. It also enables them to improve the quality of their lives through better education,
health and housing. One of the most important roles of access to credit is that it enables the poor to
diversify their incomes.
Microfinance organizations should allow for the fact that micro entrepreneurs have a variety of uses
for funds, not only for the activity for which a loan is formally given but also for household operations
and other family enterprises. It would be too risky for the poor, particularly the poorest of the poor, to
invest all their income in a single activity. If the single activity or enterprise failed, the consequences
of this would be much greater than if they had several sources of income. Providers of quality financial
services recognize this and place relatively few restrictions on loan use. Most microfinance
organizations do not monitor client loans to ensure that the loan is being used for its stated purpose
because they recognize that it is part of the survival strategy of poor clients to make an on-going
stream of economic choices and decisions. The clients themselves know how best to manage their
funds.
Example: Kamala Rani's diversified activities (Bangladesh). Kamala Rani is an experienced borrower.
She has taken loans three times. She invested her small, first loan (1,000 taka) in her husband's
business. He trades in bamboo and sells bamboo products in his shop. Kamala also provides labour to
make bamboo mats. When she obtained her second loan (2,000 taka), she used it to make large
containers for storing crops and other products, which she sells from home to wholesalers and
villagers. Next she borrowed another 4,000 taka, primarily to buy a cow. She can repay her loan from
her profits from selling milk and from her investment in her husband's business. She still makes mats
and other bamboo products, which she plans to sell at the end of the year, when the price of the mats
will go up. She can take advantage of this increase in the price of the mats because she has other
sources of income to make her weekly loan installment payments. Like other low- income clients,
Kamala Rani’s diversified activities enable her to maximize returns from investment. (Kamal, A.,
“Poor and the NGO Process: Adjustments and Complicities”, in “1987-1994)
2. Provide access to financial services, not subsidies:-
29
For microenterprises, the most common constraint is the lack of access to working capital to grow their
business. Low-income entrepreneurs want rapid and continued access to financial services rather than
subsidies, and they are able – and willing – to pay for these services from their profits. Most micro
entrepreneurs borrow small amounts for short-term working capital needs. The returns from their
economic activities are normally sufficient to pay high interest rates for loans and still make a profit.
Micro entrepreneurs value the opportunity to borrow and save with MFIs since they provide services
that are cheaper than those that would normally be available to poor clients or that would be entirely
unavailable to them. Moneylenders charge very high interest rates, often many times the rate charged
by MFIs, and the moneylenders' terms may not be suited to the borrower. Micro entrepreneurs have
consistently demonstrated that they will pay the full interest cost to have continued access to financial
services from MFIs.
MFIs cannot afford to subsidize loans. If the organization is to provide loans on an on-going basis, it
must charge interest rates that allow it to cover its costs. These costs tend to be high because providing
unsecured, small loans costs significantly more than loans in traditional banking. The costs to the
institution include operating costs, the cost of obtaining the funds for loans, and the cost of inflation.
MFIs cannot rely on governments and donors as long-term sources of funding. They must be able to
generate their own income from revenues, including interest and other fees. Since the poor seek
continued and reliable access to financial services and are able and willing to pay for it, it is
advantageous to both the institution and the clients to charge interest rates that cover the cost of the
services
Examples: Client demand as an indicator. If clients repay their loans, pay full-cost interest rates and
remain in a programme as borrowers or savers, it is a very good indication that they value these
services. A detailed, independent review of the microfinance activities of the United Nations Capital
Development Fund (UNCDF) in Africa, Asia and Latin America found evidence that poor clients were
willing to pay the interest rates necessary to provide these services. “Even when they have to pay the
full cost of those services, they use them and come back to use them again and again.” Continued and
reliable access to credit and savings services is what is most needed. “Subsidized lending programs
provide a limited volume of cheap loans. When these are scarce and desirable, the loans tend to be
allocated predominantly to a local elite with the influence to obtain them, bypassing those who need
smaller loans. In addition, there is substantial evidence from developing countries worldwide that
subsidized rural credit programs result in high arrears, generate losses both for the financial institution
administering the programs and for the government or donor agencies, and depress institutional saving
and, consequently, the development of profitable, viable rural financial institutions." (Marguerite
Robinson. The Microfinance Revolution: Sustainable Finance for the Poor World Bank, Washington,
2001, pp. 199-215.)
30
3. Financial services contribute to women’s empowerment:-
Women entrepreneurs have attracted special interest from MFIs because they almost always make up
the poorest segments of society, they have fewer economic opportunities, and they are generally
responsible for child-rearing, including education, health and nutrition. Given their particularly
vulnerable position, many MFIs seek to empower women by increasing their economic position in
society. Experience shows that providing financial services directly to women aids in this process.
Women clients are also seen as beneficial to the institution because they are seen as creditworthy.
Women have generally demonstrated high repayment and savings rates.
MFIs interested in serving women should understand the specific needs of women clients and attract
women as customers. Women often have fewer economic opportunities than men. Women also face
cultural barriers that often restrict them to the home (for example, the institution of the veil, or purdah),
making it difficult for them to access finance services. Women have more traditional roles in the
economy and may be less able to operate a business outside of their homes. Women also tend to have
disproportionally large household obligations. Loan sizes may need to be smaller, given that women’s
businesses tend to be smaller than men's. They tend to focus on trade, services and light
manufacturing. Women's businesses are often based in the home and frequently use family labour.
Loans to women should allow women to balance their household and business activities, for example,
by not requiring that too much time be spent in meetings and holding meetings in convenient locations.
The gender of loan officers may also affect the level of female participation in financial services,
depending on the social context.
Examples:
Women and empowerment. Regardless of culture or national context, impact assessments have found
positive results for women with access to financial services. For instance, a study on the impact of
microfinance on poverty alleviation in East Africa, conducted by the UNDP Micro Save-Africa
programme, found that participation in a microfinance institution "typically strengthens the position of
the woman in her family. Not only does access to credit give the woman the opportunity to make a
larger contribution to the family business, but she can also deploy it to assist the husband's business
and act as the family's banker - all of which increase her prestige and influence within the household."
Access to networks and markets giving wider experience of the world outside the home, access to
information and possibilities for development of other social and political roles
Enhancing perceptions of women's contribution to household income and family welfare,
increasing women's participation in household decisions about expenditure and other issues and
leading to greater expenditure on women's welfare
More general improvements in attitudes to women's role in the household and community
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Many programmes have had negative as well as positive impacts on women. Where women
have set up enterprises this has often led to small increases in access to income at the cost of
heavier workloads and repayment pressures.
Within schemes, impacts often vary significantly between women. There are differences
between women in different productive activities and between women from different
backgrounds.
Positive impact on non-participants cannot be assumed, even where women participants are
able to benefit. Women micro-entrepreneurs are frequently in competition with each other and
the poorest micro-entrepreneurs may be disadvantaged if programmes do not include them.
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CHAPTER 6
CONCLUSION AND RECOMMENDATIONS
33
Conclusion
Traditionally women have been marginalized. A high percentage of women are among the poorest of
the poor. Microfinance activities can give them a means to climb out of poverty. Microfinance could
be a solution to help them to extend their horizon and offer them social recognition and empowerment.
Numerous traditional and informal system of credit that was already in existence before micro finance
came into vogue. Viability of micro finance needs to be understood from a dimension that is far
broader- in looking at its long-term aspects too.
A conclusion that emerges from this account is that micro finance can contribute to solving the
problems of inadequate housing and urban services as an integral part of poverty alleviation
programmes. The challenge lies in finding the level of flexibility in the credit instrument that could
make it match the multiple credit requirements of the low income borrower without imposing
unbearably high cost of monitoring its end use upon the lenders. A promising solution is to provide
multipurpose lone or composite credit for income generation, housing improvement and consumption
support. Consumption loan is found to be especially important during the gestation period between
commencing a new economic activity and deriving positive income.
India is the country where a collaborative model between banks, NGOs, MFIs and Women’s
organizations is furthest advanced. It therefore serves as a good starting point to look at what we know
so far about ‘Best Practice’ in relation to micro-finance for women’s empowerment and how different
institutions can work together.
It is clear that gender strategies in micro finance need to look beyond just increasing women’s access
to savings and credit and organizing self-help groups to look strategically at how programmes can
actively promote gender equality and women’s empowerment. On the other hand, thank to women's
capabilities to combine productive and reproductive roles in microfinance activities and society has
enabled them to produce a greater impact as they will increase at the same time the quality of life of
the women micro-entrepreneur and also of her family.
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SUGGESTION
Credit is important for development but cannot by itself enable very poor women to overcome
their poverty.
Making credit available to women does not automatically mean they have control over its use
and over any income they might generate from micro enterprises.
In situations of chronic poverty it is more important to provide saving services than to offer
credit.
A useful indicator of the tangible impact of micro credit schemes is the number of additional
proposals and demands presented by local villagers to public authorities.
Globalization will not be allowed to expand the gap between the rich and the poor. Affluent
countries cannot continue to dump aid on needy nations; developing countries must not be
permitted to ignore the needs of their impoverished population.
As the poor are vulnerable it is not sufficient for us just to provide micro credit, but to have a
series of support systems provided at the appropriate time.
Government can contribute most effectively by setting sound macroeconomic policy that provides stability
and low inflation.
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