2IntroductionMicrofinance 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 povertyline, and poor individuals which fall below that poverty line, with the goal of creating social value. Thecreation of social value includes poverty alleviation and the broader impact of improving livelihoodopportunities through the provision of capital for micro enterprise, and insurance and savings for riskmitigation and consumption smoothing. A large variety of sectors provide microfinance in India, usinga range of microfinance delivery methods. Since the ICICI Bank in India, various actors haveendeavored to provide access to financial services to the poor in creative ways. Governments also havepiloted 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 inproviding such services. This has resulted in a rather broad definition of microfinance as any activitythat targets poor and low-income individuals for the provision of financial services. The range ofactivities undertaken in microfinance include group lending, individual lending, the provision ofsavings and insurance, capacity building, and agricultural business development services. Whateverthe form of activity however, the overarching goal that unifies all actors in the provision ofmicrofinance is the creation of social value.
4Effects of Financial Access on Savings by Low-Income People, Fernando Aportelo,December 1999This paper assesses the impact of increasing financial access on low-income people savings. Effects onhouseholds‟ saving rates and on different informal savings instruments are considered. The paper usesan exogenous expansion of a Mexican savings institute, targeted to low-income people, as a naturalexperiment and the 1992 and 1994 National Surveys of Income and Expenditures. Results show thatthe expansion increased the average saving rate of affected households by more than 3 to almost 5percentage points. The effect was even higher for the poorest households in the sample: their savingrate increased by more than 7 percentage points in some cases.Do Rural Banks Matter? Evidence From The Indian Social Banking Experiment, RobinBurguess&RohiniPandeAugust 2003Lack of access to finance is often cited as a key reason why poor people remain poor. This paper usesdata on the Indian rural branch expansion program to provide empirial evidence on this issue. Between1977 and 1990, the Indian Central Bank mandated that a commercial bank can open a branch in alocation with one or more bank branches only if it opens four in locations with no bank branches. Weshow that between 1977 and 1990 this rule caused banks to open relatively more rural branches inIndian states with lower initial financial development.
5Microfinance in India: Small, Ostensibly Rigid and Safe, RajalaxmiKamath and R. SrinivasanJune 2009Grameen replicators in India, using a for-profit Non-Banking Finance Company legal form, havegrown rapidly in terms of client numbers. Loan sizes are relatively small compared to per capitaincome, while portfolio quality was until recently very high. There is evidence in field of multipleborrowing, with clients borrowing simultaneously from multiple sources including micro-financeinstitutions. We build a model of the microfinance sector that explains why such multiple borrowingsresult 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 degreeof 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 animportant factor in the ability of the institution to reach this goal, furthering its mission of outreach tothe poor.Muhammad Yunus (1998)He has examined that this approach to poverty reduction at the macro-level is inadequate. The primarycauses of poverty are not lack of human capital or lack of demand for labor. Lack of demand for laboris only a symptom, not a cause, of poverty. Poverty is caused by our inadequate understanding ofhuman capabilities and by our failure to create enabling theoretical frameworks, concepts, institutionsand policies to support those capabilities.The Transformation of Microfinance in India: Experiences, Options and Future; M S Sriramand Rajesh Upadhyayula, September 2002The paper looks at the growth and transformation of microfinance organisations (MFO) in India. Itfirst defines microfinance and identify its “value attributes”. Having chosen only those MFOs thathave microfinance as the core, we look at the transformation experiences.
6Analysis of the Effects of Microfinance on Poverty Reduction, NYU Wagner Working PaperSeriesMicrofinance has proven to be an effective and powerful tool for poverty reduction. Like many otherdevelopment tools, however, it has insufficiently penetrated the poorer strata of society. The poorestform 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 thepoorest can benefit from primary health care and from basic education, it is not as intuitive that theycan also benefit from microfinance, or that microfinance is an appropriate tool by which to reach theMillennium goals.At the Crossroads: Microfinance in India; Rajesh Chakrabarti and Shamika Ravi; 2011As of early 2011, the microfinance industry in India, one of the largest in the world, is facing amoment of reckoning. The recent developments in Andhra Pradesh, the cradle of microfinance inIndia, have stamped the future of the sector with a huge question mark. This paper sketches thebackground of the microfinance movement in India as well as its current geographical distribution andoutreach;MFI (Microfinance Institutes) Borrowers: Their loans and Repayments – RajalaxmiKamath andAbhiDattasharmaNews about the microfinance sector in India today is in what can be called a lull, after the tumultfollowing 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 beingraised over the conclusions of the impact studies cited (Duvendack et al. 2011).
8EVOLUTION OF MICROFINANCE IN INDIA (1960 TO TODAY)Microfinance in India emerged as an effort to reach out to the un-banked, lower income segments ofthe population1960 to 1980 1990 2000Phase 1: Social Banking Phase 2: Financial SystemsApproachPhase 3: Financial Inclusion1.Nationalization of privatecommercial banks1.Peer-pressure 1.NGO-MFIs and SHGs gainingmore legitimacy2.Expansion of rural branchnetwork2.Establishment ofMFIs,typically of non-profitorigins2.MFIs emerging as strategicpartners to diverse entitiesinterested in thelow-incomesegments3.Extension of subsidized credit 3.Consumer finance emergedashighgrowth area4.Establishment of RuralRegional Banks4.Increased policy regulation5.Establishment of apexinstitutionssuch as NationalBank for Agricultureand RuralDevelopment and SmallIndu-stries Development Bank ofIndia5.Increasing commercializationEntities in Micro Finance:-Indian Microfinance dominated by two operational approaches: SHGInitiated by NABARD through SHG Bank Linkage Program.Largest outreach to microfinance clients in the world reaching 79.60 self-help groups in2011-12 ( NABARD Latest Report in 2011-12 )
9 MFIsEmerged in the late 1990s to harness social and commercial funds.Today the number of Indian MFIs has increased and crossed 1000 reaching 31.4 millionpeople in 2010-11 ( CRISIL Report on Microfinance )SHGs comprise twenty or fewer members, of whom the majority are women from the poorest castesand 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 householdemergencies 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 theseoffer microcredit and only take back small amounts of savings from their own borrowers (except forNBFC- MFIs which cannot borrow from the general public) not from the general public. Term refersto a wide range of organizations - NGOs, credit unions, cooperatives, private commercial banks andnon-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 financialinstitutions. Micro finance clients are typically self-employed, often household-based entrepreneurs. Inrural areas, they are usually small farmers and others who are engaged in small income-generatingactivities such as food processing and petty trade. In urban areas, micro finance activities are morediverse and include shopkeepers, service providers, artisans, street vendors, etc. Micro finance clientsare 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, thepoorer you are, the more expensive or onerous informal financial arrangements. Moreover, informalarrangements 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 ofmicro finance clients also expands. It depends on local conditions and political climate, activeness ofcooperatives, SHG & NGOs and support mechanism. For instance, micro credit might have a far morelimited market scope than say a more diversified range of financial services, which includes varioustypes of savings products, payment and remittance services, and various insurance products. For
10example, many very poor farmers may not really wish to borrow, but rather, would like a safer place tosave the proceeds from their harvest as these are consumed over several months by the requirements ofdaily living. Central government in India has established a strong & extensive link between NABARD(National Bank for Agriculture & Rural Development), State Cooperative Bank, District CooperativeBanks, 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 (400million ) 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 haveaccess to saving account and less than 15% have access to any kind of formal insuranceThe demand for microcredit has been estimated at up to $30 billion; the supply is less than $2.2billion combined by all involved in the sector.Legal RegulationsBanks in India are regulated and supervised by the Reserve Bank of India (RBI) under the RBI Act of1934, Banking Regulation Act, Regional Rural Banks Act, and the Cooperative Societies Acts of therespective 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 Normsi. Existing NBFCsAll registered NBFCs intending to convert to NBFC-MFI must seek registration with immediate effectand in any case not later than October 31, 2012, subject to the condition that they shall maintain NetOwned Funds (NOF) at Rs.3 crore by March 31, 2013 and at Rs.5 crore by March 31, 2014, failingwhich they must ensure that lending to the Microfinance sector i.e. individuals, SHGs or JLGs whichqualify for loans from MFIs, will be restricted to 10 per cent of the total assets.ii. New Companies
11All new companies desiring NBFC-MFI registration will need a minimum NOF of Rs.5 crore exceptthose in the North Eastern Region of the country which will require NOF of Rs.2 crore till furthernotice, as hitherto and would comply,from the beginning, with all other criteria laid out in thefollowing paragraphs.Qualifying Assetsi. NBFC-MFIs are required to maintain not less than 85 per cent of their net assets as QualifyingAssets. In view of the problems being faced by NBFCs in complying with this criteria on account oftheir existing portfolio, it has been decided that only the assets originated on or after January 1, 2012will have to comply with the Qualifying Assets criteria. As a special dispensation, the existing assetsas on January 1, 2012 will be reckoned towards meeting both the Qualifying Assets criteria as well asthe Total Net Assets criteria. These assets will be allowed to run off on maturity and cannot berenewed.ii. NBFC-MFIs were also required to ensure that the aggregate amount of loans given for incomegeneration is not less than 75 per cent of the total loans extended. On reconsideration, as the targetclientele is predominantly at the subsistence level and basic human requirements stand to gain priorityover income generation activities, it has been decided that income generation activities shouldconstitute at least 70 per cent of the total loans of the MFI so that the remaining 30 per cent can be forother purposes such as housing repairs, education, medical and other emergencies.Multiple Lending and IndebtednessIt is clarified that a borrower can be the member of only one SHG or one JLG or borrow as anindividual. He can thus borrow from NBFC-MFIs as a member of a SHG or a member of a JLG orborrow in his individual capacity. However, a SHG or JLG or individual cannot borrow from morethan 2 MFIs. Lending NBFC-MFIs will have to ensure that the above conditions are strictly compliedwith.
12Development Process through Micro FinanceProduction NeedsDonors and Banks Micro-Finance Governmentand BanksImplementing OrganisationsAwareness/Promotional WorkIndividual IndividualPromotion and Formation ofSHGsConsolidation of SHGsMicro Enterprise Micro EnterpriseSavingsConsumption Needs Credit DeliveryRecoveryFollow-up MonitoringFarm RelatedIncome Generation(Sustainable & GrowthOriented)Non-Farm RelatedSelf-Sustainability of SHGsEconomic Empowermentthrough use of Micro-Credit asan entry point for overallEmpowerment
13Micro-finance interventions through different organisationsNationalFinancialInstitutionsBanksGovernment FundedProgrammesDonors/BilateralProjectsImplementing OrganisationsResource/SupportOrganisationsDirectly engaged inMicro-FinanceIndirectlyengaged inMicro-FinanceIndividualsSHGsMembers
14Distribution of Indebted Rural Households: Agency wise (Source- NABARD)Credit Agency Percentage of Rural HouseholdsGovernment 6.1Cooperative Societies 21.6Commercial banks and RRBs 33.7Insurance 0.3Provident Fund 0.7Other Institutional Sources 1.6All Institutional Agencies 64.0Landlord 4.0Agricultural Moneylenders 7.0Professional Moneylenders 10.5Relatives and Friends 5.5Others 9.0All Non Institutional Agencies 36.0All Agencies 100.0Micro Finance Models1. Micro Finance Institutions (MFIs):MFIs are an extremely heterogeneous group comprising NBFCs, societies, trusts andcooperatives. They are provided financial support from external donors and apex institutionsincluding the RashtriyaMahilaKosh (RMK), SIDBI Foundation for micro-credit and NABARDand employ a variety of ways for credit delivery.Since 2000, commercial banks including Regional Rural Banks have been providing funds toMFIs 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 increasedconsiderably today. While there is no published data on private MFIs operating in the country,the number of MFIs is estimated to be around 800.
15Legal Forms of MFIs in IndiaTypes of MFIs EstimatedNumber*Legal Acts under which Registered1. Not for Profit MFIsa.) NGO - MFIs400 to 500 Societies Registration Act, 1860 orsimilar Provincial ActsIndian Trust Act, 1882b.) Non-profit Companies 10 Section 25 of the Companies Act, 19562. Mutual Benefit MFIsa.) Mutually Aided CooperativeSocieties (MACS) and similarlyset up institutions200 to 250 Mutually Aided Cooperative SocietiesAct enacted by State Government3. For Profit MFIsa.) Non-Banking FinancialCompanies (NBFCs)6 Indian Companies Act, 1956Reserve Bank of India Act, 1934Total 700 – 8002. Bank Partnership ModelThis model is an innovative way of financing MFIs. The bank is the lender and the MFI acts asan agent for handling items of work relating to credit monitoring, supervision and recovery. Inother words, the MFI acts as an agent and takes care of all relationships with the client, from firstcontact to final repayment. The model has the potential to significantly increase the amount offunding 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 itsbooks for a while before securitizing them and selling them to the bank. Such refinancingthrough 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 prudentialexposure norms do not then inhibit such funding of MFIs by commercial banks through thesecuritization structure.3. Banking CorrespondentsThe proposal of “banking correspondents” could take this model a step further extending it tosavings. It would allow MFIs to collect savings deposits from the poor on behalf of the bank. Itwould use the ability of the MFI to get close to poor clients while relying on the financialstrength of the bank to safeguard the deposits. This regulation evolved at a time when there were
16genuine fears that fly-by-night agents purporting to act on behalf of banks in which the peoplehave confidence could mobilize savings of gullible public and then vanish with them. It remainsto be seen whether the mechanics of such relationships can be worked out in a way thatminimizes the risk of misuse.4. Service Company ModelUnder this model, the bank forms its own MFI, perhaps as an NBFC, and then works hand inhand with that MFI to extend loans and other services. On paper, the model is similar to thepartnership model: the MFI originates the loans and the bank books them. But in fact, this modelhas two very different and interesting operational features:The MFI uses the branch network of the bank as its outlets to reach clients. This allows theclient to be reached at lower cost than in the case of a stand–alone MFI. In case of bankswhich 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 companymodel, the MFI works specifically for the bank and develops an intensive operationalcooperation between them to their mutual advantage.The Partnership model uses both the financial and infrastructure strength of the bank tocreate lower cost and faster growth. The Service Company Model has the potential to takethe burden of overseeing microfinance operations off the management of the bank and put itin the hands of MFI managers who are focused on microfinance to introduce additionalproducts, such as individual loans for SHG graduates, remittances and so on withoutdisrupting bank operations and provide a more advantageous cost structure for microfinance.TYPES OF ORGANIZATIONThese organizations are classified in the following categories to indicate the functional aspects coveredby 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 SectorThe formal sector comprises of the bankssuch as NABARD, SIDBI and other regional ruralbanks (RRBs). They primarily provide credit for assistance in agriculture and micro-enterprisedevelopment 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
17we include the transaction costs (number of visits to banks, compulsory savings and costsincurred for payments to animators/staff/local leaders etc.) they come out to be as high as 21-24%.Semi - formal SectorThe majority of institutional microfinance providers in India are semi-formal organizationsbroadly referred to as MFIs. Registered under a variety of legal acts, these organizations greatlydiffer in philosophy, size, and capacity. There are over 500 non-government organizations(NGOs) registered as societies, public trusts, or non-profit companies. Organizationsimplementing micro-finance activities can be categorized into three basic groups.I. Organizations which directly lend to specific target groups and are carrying out allrelated activities like recovery, monitoring, follow-up etc.II. Organizations who only promote and provide linkages to SHGs and are not directlyinvolved in micro lending operations.III. Organizations which are dealing with SHGs and plan to start micro-finance relatedactivities.Informal SectorIn addition to friends and family, moneylenders, landlords, and traders constitute the informalsector. While estimates of their importance vary significantly, it is undeniable that theycontinue to play a significant role in the financial lives of the poor. These are the organizationsthat provide support to implementing organizations. The support may be in terms of resourcesor training for capacity building, counseling, networking, etc. They operate at state/regional ornational level. They may or may not be directly involved in micro-finance activities adopted bythe associations/collectives to support implementing Organizations.Commercial banksas Microfinance VehiclesCommercial banks recently have stepped into the realm of microfinance. They have taken tentative butvery important steps toward distributing Microfinance loans to the poor. One advantage of theseinstitutions is that they bring in the risks management practices that they regularly use in theircommercial operations risk management practices that they regularly use in their commercialoperations. The other important aspect they bring in is the professional credit appraisal practices thatare used in their normal operations. These important features combined with a mission to provide thepoor entrepreneurs will enhance the social lives and they can run their business effectively with proper
18access to credit. In some cases, successful microfinance NGOs have transformed themselves into forprofit commercial banks (BancoSol of Bolivia is a prime example of a microfinance NGO that hassuccessfully 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 financialself-sufficiency. This transformation has been possible because commercial banks have entered thisarena bringing in key concepts like self-sufficiency, proper credit appraisal and risk managementpractices. But there are some issues that have to be dealt with by the banks before embarking on theMicrofinance journey.They are:1. Banks Outreach2. Clarity in objectivesBanks outreach is one of the most crucial aspects that must be critically examined by them beforeentering into microfinance sector. One reason for it is that most of the commercial banks have little orno rural presence with rate exceptions such as India, where rural banking was a priority and there is asignificant presence of commercial banks in the rural areas. They have to decide whether to start theirown branches in rural areas if they do not have any or partner with other banks or other microfinanceinstitutions in order to get a foothold in the rural finance sector. The other issue that has to be resolvedis the clarity in the bank in dealing with its microfinance operations. They have to decide whether itwill 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 doesnot have any link with its commercial banking operation. Once these major issues are sorted outcommercial banks will have enough leverage to approach the microfinance sector with confidence.Financial Institutions and banksMicrofinance has been attractive to the lending agencies because of demonstrated sustainability and oflow costs of operation. Institutions like SIDBI and NABARD are hard-nosed bankers and would notwork 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 istangible and it is easily understood by the mainstream. This also seems to sound nice to thegovernment, 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 developmentalproject.
19Perhaps the most important factor that got banks involved is what one might call the policy push.Giventhat most of our banks are in the public sector, public policy does have some influence on what theywill or will not do. In this case, policy was followed by diligent, if meandering, promotional work byNABARD. The policy change about a decade ago by RBI to allow banks to lend to SHGs was initiallyfollowed by a seven-page memo by NABARD to all bank chairmen, and later by sensitization andtraining programmes for bank staff across the country. Several hundred such programs were conductedby NGOs alone, each involving 15 to 20 bank staff, all paid for by NABARD. The policy push wassweetened 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 andbanks lately have been given targets. The canvassing, training, refinance and close follow up byNABARD has resulted in widespread bank involvement.Moreover, for banks the operating cost of microfinance is perhaps much less than for pure MFIs. Thebanks already have a vast network of branches. To the extent that an NGO has already promoted SHGsand 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 oftenreduce marginal cost through better capacity utilization. In the process the bank also earns browniepoints 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 millionpoor households of India, coupled with about the same number who are technically above the povertyline but are severely under-served by the financial sector, is a very large one. Moreover, as in anyemerging market, though the perceived risks are higher, the spreads are much greater. The traditionalcommercial markets of corporates, business, trade, and now even housing and consumer finance arebeing 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, fordeposits, insurance, remittances and eventually mutual funds. Since the larger banks are offering allthese services now through their group companies, it becomes imperative for them to expand theirdistribution channels as far and deep as possible, in the hope of capturing the entire financial servicesbusiness 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 haverealized the potential of this big market and are actively using SHGs as entry points. Some amount offree-riding is taking place here by companies, for they are using channels which were built at asignificant cost to NGOs, funding agencies and/or the government.On the whole, the economic attractiveness of microfinance as a business is getting established and thisis a sure step towards mainstreaming. We know that mainstreaming is a mixed blessing, and one tendsto exchange scale at the cost of objectives. So it needs to be watched carefully.
21Women as micro and small entrepreneurs have increasingly become the key target group for microfinance programs. Consequently, providing access to micro finance facilities is not only considered apre-condition for poverty alleviation, but also considered as a strategy for empowering women. Indeveloping countries like INDIA micro finance is playing an important role, promoting genderequality 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 theinterviewed clients 81 percent were women, and it was found that food security was 15 percent higheramong their village banking clients than non-clients. The report also showed clients to have 11 percentmore 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 thatmicrofinance improved the wellbeing of women clients and their families.WOMEN’S EMPOWERMENT AND MICRO FINANCE: DIFFERENT PARADIGMSConcern with women‟s access to credit and assumptions about contributions to women‟sempowerment are not new. From the early 1970s women‟s movements in a number of countriesbecame increasingly interested in the degree to which women were able to access poverty-focusedcredit programs and credit cooperatives. In India organizations like Self- Employed Women‟sAssociation (SEWA) among others with origins and affiliations in the Indian labour and women‟smovements identified credit as a major constraint in their work with informal sector women workers.a) Feminist Empowerment ParadigmThe feminist empowerment paradigm did not originate as a Northern imposition, but is firmly rootedin the development of some of the earliest micro-finance programmes in the South, including SEWAin India. It currently underlies the gender policies of many NGOs and the perspectives of some of theconsultants 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‟sempowerment 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 modelsfor change. Increasing attention has also been paid to mens role in challenging gender inequality.Micro-finance is promoted as an entry point in the context of a wider strategy for women‟s economicand socio-political empowerment which focuses on gender awareness and feminist organization. Asdeveloped by Chen in her proposals for a sub sector approach to micro credit, based partly on SEWAsstrategy and promoted by UNIFEM, microfinance must be:
22Part of a sectorial strategy for change which identifies opportunities, constraints and bottlenecks withinindustries which if addressed can raise returns and prospects for large numbers of women. Possiblestrategies include linking women to existing services and infrastructure, developing new technologysuch 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 womento develop their strategies for change (Chen, 1996). Economic empowerment is however defined inmore than individualist terms to include issues such as property rights, changes intra-householdrelations and transformation of the macro-economic context. Many organizations go further thaninterventions at the industry level to include gender-specific strategies for social and politicalempowerment. Some programmes have developed very effective means for integrating genderawareness into programmes and for organizing women and men to challenge and change genderdiscrimination. Some also have legal rights support for women and engage in gender advocacy. Theseinterventions to increase social and political empowerment are seen as essential prerequisites foreconomic empowerment.b) Poverty Reduction ParadigmThe poverty alleviation paradigm underlies many NGO integrated poverty-targeted communitydevelopment programmes. Poverty alleviation here is defined in broader terms than market incomes toencompass increasing capacities and choices and decreasing the vulnerability of poor people.The main focus of programmes as a whole is on developing sustainable livelihoods, communitydevelopment 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 empowermentis frequently used in general terms, often synonymous with a multi-dimensional definition of povertyalleviation, the term womens empowerment is often considered best avoided as being toocontroversial and political.c) Financial Sustainability ParadigmThe financial self-sustainability paradigm (also referred to as the financial systems approach orsustainability approach) underlies the models of microfinance promoted since the mid-1990s by mostdonor agencies and the Best Practice guidelines promoted in publications by USAID, World Bank,UNDP and CGAP.
23The ultimate aim is large programmes which are profitable and fully self-supporting in competitionwith other private sector banking institutions and able to raise funds from international financialmarkets rather than relying on funds from development agencies. The main target group, despiteclaims to reach the poorest, is the „bankable poor: small entrepreneurs and farmers. This emphasis onfinancial sustainability is seen as necessary to create institutions which reach significant numbers ofpoor people in the context of declining aid budgets and opposition to welfare and redistribution inmacro-economic policy.EMPOWERMENT: FOCUS ON POOR WOMENWomen 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 entirelyto this target group of women. There are several reason for this: Among the poor , the poor women aremost disadvantaged –they are characterized by lack of education and access of resources, both ofwhich is required to help them work their way out of poverty and for upward economic and socialmobility. The problem is more acute for women in countries like India, despite the fact that women‟slabor makes a critical contribution to the economy. This is due to the low social status and lack ofaccess to key resources. Evidence shows that groups of women are better customers than men, thebetter managers of resources. If loans are routed through women benefits of loans are spread wideramong the household. Since women‟s empowerment is the key to socio economic development of thecommunity; bringing women into the mainstream of national development has been a major concern ofgovernment. 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 SwarazgarYojona (SGSY), Ministry of Rural Development isimplementing other scheme having women‟s component .They are the Indira AwasYojona (IAJ),National Social Assistance Programme (NSAP), Restructured Rural Sanitation Programme,Accelerated Rural Water Supply programme (ARWSP) the (erstwhile) Integrated Rural DevelopmentProgramme (IRDP), the (erstwhile) Development of Women and Children in Rural Areas (DWCRA)and the JowaharRozgar Yojana (JRY).
24MICRO FINANCE INSTRUMENT FOR WOMEN’S EMPOWERMENTMicro Finance is emerging as a powerful instrument for poverty alleviation in the new economy. InIndia, 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 “unreachedpoor”. Based on the philosophy of peer pressure and group savings as collateral substitute , the SHGprogramme has been successful in not only in meeting peculiar needs of the rural poor, but also instrengthening collective self-help capacities of the poor at the local level, leading to theirempowerment. Micro Finance for the poor and women has received extensive recognition as a strategyfor poverty reduction and for economic empowerment. Increasingly in the last five years , there isquestioning of whether micro credit is most effective approach to economic empowerment of poorestand, among them, women in particular. Development practitioners in India and developing countriesoften argue that the exaggerated focus on micro finance as a solution for the poor has led to neglect bythe state and public institutions in addressing employment and livelihood needs of the poor. Credit forempowerment is about organizing people, particularly around credit and building capacities to managemoney. The focus is on getting the poor to mobilize their own funds, building their capacities andempowering them to leverage external credit. Perception women is that learning to manage money androtate funds builds women‟s capacities and confidence to intervene in local governance beyond thelimited goals of ensuring access to credit. Further, it combines the goals of financial sustainability withthat of creating community owned institutions.Before 1990‟s, credit schemes for rural women were almost negligible. The concept of women‟s creditwas born on the insistence by women oriented studies that highlighted the discrimination and struggleof women in having the access of credit. However, there is a perceptible gap in financing genuinecredit needs of the poor especially women in the rural sector. There are certain misconception aboutthe 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 experienceof 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 activityrather than credit subsidy. The Government measures have attempted to help the poor byimplementing different poverty alleviation programmes but with little success. Since most of them aretarget based involving lengthy procedures for loan disbursement, high transaction costs, and lack ofsupervision and monitoring. Since the credit requirements of the rural poor cannot be adopted onproject lending app roach as it is in the case of organized sector, there emerged the need for aninformal credit supply through SHGs. The rural poor with the assistance from NGOs havedemonstrated their potential for self-help to secure economic and financial strength. Various casestudies show that there is a positive correlation between credit availability and women‟s empowerment
26Objective 1:-To study the impact of micro finance in empowering the social economic status ofwomen and developing of social entrepreneurship.AmountInCrore/No. in LakhsSource- NABARDINTERPRETATION: - According to main objective to know the economic and social developmentof women entrepreneurship. Above table show the economic development of women. In 2010-11loansdisbursed amount to women is 12429.37crore and 2011-12 is 12622.33crore. In 2010-11 SHG Savingsamount to women is 4498.66crore and 2011-12 is 5298.65crore. That clearly is a positive indicatorshowing the well-being of women.Particular Year Total SHGs All Women SHGs % ofWomanGroupsNo. Amount No. Amount No. AmountSHGSavingswithbanks as on31stMarch2010-11 69.53 6198.71 53.10 4498.66 76.4 72.62011-12 74.62 7016.30 60.98 5298.65 81.7 75.5Loandisbursed toSHGsduring theyear2010-11 15.87 14453.3 12.94 12429.37 81.6 862011-12 11.96 14547.73 10.17 12622.33 85 86.8LoanoutstandingagainstSHGs as on31stMarch2010-11 48.51 28038.28 38.98 23030.36 80.30 82.12011-12 47.87 31221.17 39.84 26123.75 83.2 83.7
27Objective 2:-To know about relationship between SHG‟s members, micro finance banks andentrepreneur‟s women.( all figures in lacs )AS OF MARCH 31, 2012. SOURCE- NABARD
28INTERPRETATION:It shows the good relationship of women SHGs with SHGs group and bankssince in all the four sample states, the majority of the SHG‟s supported by the nationalized banks areexclusive women SHG‟s
29Objective 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 toaccumulate 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 todiversify their incomes.Microfinance organizations should allow for the fact that microentrepreneurs have a variety of uses forfunds, not only for the activity for which a loan is formally given but also for household operations andother family enterprises. It would be too risky for the poor, particularly the poorest of the poor, toinvest all their income in a single activity. If the single activity or enterprise failed, the consequencesof this would be much greater than if they had several sources of income. Providers of quality financialservices recognize this and place relatively few restrictions on loan use. Most microfinanceorganizations do not monitor client loans to ensure that the loan is being used for its stated purposebecause they recognize that it is part of the survival strategy of poor clients to make an on-goingstream of economic choices and decisions. The clients themselves know how best to manage theirfunds.Example: Kamala Ranis 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 husbandsbusiness. He trades in bamboo and sells bamboo products in his shop. Kamala also provides labour tomake bamboo mats. When she obtained her second loan (2,000 taka), she used it to make largecontainers for storing crops and other products, which she sells fromhome to wholesalers and villagers.Next she borrowed another 4,000 taka, primarily to buy a cow. She can repay her loan from her profitsfrom selling milk and from her investment in her husbands business. She still makes mats and otherbamboo 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 ofincome to make her weekly loan installment payments. Like other low- income clients, Kamala Rani‟sdiversified activities enable her to maximize returns from investment. (Kamal, A., “Poor and the NGOProcess: Adjustments and Complicities”, in “1987-1994)
302. Provide access to financial services, not subsidies:-For microenterprises, the most common constraint is the lack of access to working capital to grow theirbusiness. Low-income entrepreneurs want rapid and continued access to financial services rather thansubsidies, and they are able – and willing – to pay for these services from their profits. Most microentrepreneurs borrow small amounts for short-term working capital needs. The returns from theireconomic 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 servicesthat are cheaper than those that would normally be available to poor clients or that would be entirelyunavailable to them. Moneylenders charge very high interest rates, often many times the rate chargedby MFIs, and the moneylenders terms may not be suited to the borrower. Micro entrepreneurs haveconsistently demonstrated that they will pay the full interest cost to have continued access to financialservices from MFIs.MFIs cannot afford to subsidize loans. If the organization is to provide loans on an on-going basis, itmust charge interest rates that allow it to cover its costs. These costs tend to be high because providingunsecured, small loans costs significantly more than loans in traditional banking. The costs to theinstitution 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 togenerate their own income from revenues, including interest and other fees. Since the poor seekcontinued and reliable access to financial services and are able and willing to pay for it, it isadvantageous to both the institution and the clients to charge interest rates that cover the cost of theservicesExamples: Client demand as an indicator. If clients repay their loans, pay full-cost interest rates andremain in a programme as borrowers or savers, it is a very good indication that they value theseservices. A detailed, independent review of the microfinance activities of the United Nations CapitalDevelopment Fund (UNCDF) in Africa, Asia and Latin America found evidence that poor clients werewilling to pay the interest rates necessary to provide these services. “Even when they have to pay thefull cost of those services, they use them and come back to use them again and again.” Continued andreliable access to credit and savings services is what is most needed. “Subsidized lending programsprovide a limited volume of cheap loans. When these are scarce and desirable, the loans tend to beallocated predominantly to a local elite with the influence to obtain them, bypassing those who needsmaller loans.In addition, there is substantial evidence from developing countries worldwide thatsubsidized rural credit programs result in high arrears, generate losses both for the financial institutionadministering the programs and for the government or donor agencies, and depress institutional savingand, consequently, the development of profitable, viable rural financial institutions." (MargueriteRobinson. The Microfinance Revolution: Sustainable Finance for the Poor World Bank, Washington,2001, pp. 199-215.)
313. Financial services contribute to women’s empowerment:-Women entrepreneurs have attracted special interest from MFIs because they almost always make upthe poorest segments of society, they have fewer economic opportunities, and they are generallyresponsible for child-rearing, including education, health and nutrition. Given their particularlyvulnerable position, many MFIs seek to empower women by increasing their economic position insociety. 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 attractwomen as customers. Women often have fewer economic opportunities than men. Women also facecultural 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 theeconomy and may be less able to operate a business outside of their homes. Women also tend to havedisproportionally large household obligations. Loan sizes may need to be smaller, given that women‟sbusinesses tend to be smaller than mens. They tend to focus on trade, services and lightmanufacturing. Womens 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 foundpositive results for women with access to financial services. For instance, a study on the impact ofmicrofinance on poverty alleviation in East Africa, conducted by the UNDP MicroSave-Africaprogramme, found that participation in a microfinance institution "typically strengthens the position ofthe woman in her family. Not only does access to credit give the woman the opportunity to make alarger contribution to the family business, but she can also deploy it to assist the husbands businessand act as the familys 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 toinformation and possibilities for development of other social and political rolesEnhancing perceptions of womens contribution to household income and family welfare,increasing womens participation in household decisions about expenditure and other issues andleading to greater expenditure on womens welfareMore general improvements in attitudes to womens role in the household and community
32Many programmes have had negative as well as positive impacts on women. Where womenhave set up enterprises this has often led to small increases in access to income at the cost ofheavier workloads and repayment pressures.Within schemes, impacts often vary significantly between women. There are differencesbetween women in different productive activities and between women from differentbackgrounds.Positive impact on non-participants cannot be assumed, even where women participants areable to benefit. Women micro-entrepreneurs are frequently in competition with each other andthe poorest micro-entrepreneurs may be disadvantaged if programmes do not include them.
34ConclusionTraditionally women have been marginalized. A high percentage of women are among the poorest ofthe poor. Microfinance activities can give them a means to climb out of poverty. Microfinance couldbe 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 financecame into vogue. Viability of micro finance needs to be understood from a dimension that is farbroader- in looking at its long-term aspects too.A conclusion that emerges from this account is that micro finance can contribute to solving theproblems of inadequate housing and urban services as an integral part of poverty alleviationprogrammes. The challenge lies in finding the level of flexibility in the credit instrument that couldmake it match the multiple credit requirements of the low income borrower without imposingunbearably high cost of monitoring its end use upon the lenders. A promising solution is to providemultipurpose lone or composite credit for income generation, housing improvement and consumptionsupport. Consumption loan is found to be especially important during the gestation period betweencommencing a new economic activity and deriving positive income.India is the country where a collaborative model between banks, NGOs, MFIs and Women‟sorganizations is furthest advanced. It therefore serves as a good starting point to look at what we knowso far about „Best Practice‟ in relation to micro-finance for women‟s empowerment and how differentinstitutions can work together.It is clear that gender strategies in micro finance need to look beyond just increasing women‟s accessto savings and credit and organizing self-help groups to look strategically at how programmes canactively promote gender equality and women‟s empowerment. On the other hand, thank to womenscapabilities to combine productive and reproductive roles in microfinance activities and society hasenabled them to produce a greater impact as they will increase at the same time the quality of life ofthe women micro-entrepreneur and also of her family.
35SUGGESTIONCredit is important for development but cannot by itself enable very poor women to overcometheir poverty.Making credit available to women does not automatically mean they have control over its useand over any income they might generate from micro enterprises.In situations of chronic poverty it is more important to provide saving services than to offercredit.A useful indicator of the tangible impact of micro credit schemes is the number of additionalproposals and demands presented by local villagers to public authorities.Globalization will not be allowed to expand the gap between the rich and the poor. Affluentcountries cannot continue to dump aid on needy nations; developing countries must not bepermitted 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 aseries of support systems provided at the appropriate time.Government can contribute most effectively by setting sound macroeconomic policy that provides stabilityand low inflation.
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