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Key words: Microfinance, Government, India.
The development of any economy is based on various factors such as income parity in the population, flow of money etc. The flow of money in any country is governed by the circular flow of a 4-tier open economy. The circular flow continues without any default and enables both the inflow and outflow of money in an economy, as and when required, with the help of government intervention. However, when issues relating to infusion of money in the economy are concerned, it's not just the big corporate or the MNC's that come into picture even firms, those owned by unorganized and micro entrepreneurs also form to be a part of the economy, which are taken into consideration for the purpose of determination of GDP. But, this sector still plays a negligent role in terms of total contribution to GDP and thus, there lies a scope to take giant steps forward in the same direction. Microfinance is steadily emerging as a global movement in existing economic environment. Among all the developing countries, it is highly influential in India. Nowadays, study of microfinance is not only limited to practitioners but it also a matter of interest for governments, non profitable organizations (NGOs), commercial and national banks, societies, corporate houses, researchers, academicians and many more.
Lending to the poor for expansion or start up of a venture, by the well established financial institutions was not common in India. One of the important reasons in this regard was the non availability of a formal source of income as the sources of income of the poor people were usually farming, fishing, animal husbandry etc. This led to a decline in the value of the skills that the poor people possessed. Instead of upgrading the standard of living and providing airs to their aims and ambitions, it prevented them from growing. It did not only stagnate the rate of growth rather a declining trend was seen in the same. This could have been avoided by providing of better assistance and guidance in their respective field of work. It would have, thus resulted in an inclusive growth of the economy. But, because the scenario was vice versa, "The rich started to become richer and the poor became poorer". As a result, to accomplish their aspirations, the poor people had the only option of approaching to the informal sources for getting loans and finances to support their business activities. The informal sources included friends, family members and local money lenders. The local money lenders in turn, took an undue advantage of the illiterate and uninformed rural public. They created a situation of monopoly and started to charge high interest rates. The poor people had no option but to act as slaves in the raj of the inhumanistic lenders. It was then that an increased need was identified for a formal body which could provide loans to the people living in rural India and is mainly involved in the informal business sector. This resulted in the introduction of microfinance not only in India but, across the world.
Evolution of Microfinance
Microfinance was proposed by Md. Yunus and has its origins from Bangladesh. Microfinance, as a concept both in theory and in practice plays a vital role for the growth of rural India or an inclusive growth of the economy. Although, microfinance showed its formal existence in late 1970s, it came into practice in India since the 1950s, by establishment of vast cooperative rural credit banks which was then, followed by nationalization of commercial banks in 1969. Also, it was made mandatory for banks to provide 40% of their loanable funds to the priority sectors which included agriculture and other rural activities. These decisions of the Government of India (GOI) enabled an early reach of banks to the rural sectors of the economy. The third phase of change in the field was in the 1990s when the country was liberalizing, globalizing and privatizing. The most important impact was that of liberalization.
With changes in the era, the microfinance sector has also under gone several changes in terms of the services been provided by Micro Finance Institutions (MFIs). The original idea of microfinance was to develop banking habit amongst the poor people. It aimed at as a source where, the small savings of poor people could be safely kept and can be used by them as and when desired. Its motive was to provide flexibility and liquidity to the depositors. But, the idea then converted into making banking customers to borrowers to, facilitate their livelihood requirements. This was facilitated by the formation of Self Help Groups (SHGs). Microfinance did not just follow the basic banking patterns that existed in the economy. Rather, it suggested lending by creation of groups of people who would collect funds within the group and the person who required the money would be lended from this
fund. Both the persons those contributing to the fund and those who could obtain funds from the pool of funds were a member of the group. This not only increased their responsibility but, also their accountability and goodwill in the community they resided. As, the group members were a part of the local community. By the end of last financial year (2009-10) around 97 million families covered by SHG bank linkages programmes and around 69.53 lakh SHGs savings (amount of Rs. 6198.71 crore) are linked with banks out of which women contribution is 76.37%. Figure 1 shows the overall progress of SHGs under Microfinance during the last three years (2007-08 to 2009-10).
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Data source: Status of Micro Finance in India - 2009-10, NABARD, India
Grameen Bank has proved to be the most effective institution in the microfinance segment to help the poor to grow and prosper. It has enabled in empowering people of low income groups, especially, those below the poverty line to set up their own businesses which could not only act as a self employment tool but, would also enable employment of others. Poor women entrepreneurs' were the most attractive customers which had high loan repayment rates. Education was preliminary taken as a tool to facilitate empowerment. But, when the earning potentials of women got converted into realties, the women also started to participate in the decision making process and thus were capable enough in creating a position for themselves in the society. SHGs disbursed total amount of Rs. 14,453.30 crore on account of loans during 2009-10 out of which 86% (Rs. 12,429.37 crore) was for women SHGs. This also motivated others in this category to move out of the homes and create a distinct and respectable image for themselves in the society. The MFIs also started to act as financial intermediaries and properly governed the flow of money in the rural India as records shows bank loans disbursed to MFIs during the year 2007-08 was only Rs 1970.15 crore which touched amount of Rs. 8062.74 crore in the year 2009-10 with the growth rate of 75.56%. Thus, microfinance aims to shift the trend of the market from "Employment Requiring Population" to "Employment Generating Population".
A further improvement in the concept suggested, "Sustainable micro entrepreneurship" which, in the words of Muhammad Yunus, the father of microfinance is, a "social-conscious-driven-entrepreneurship". He provided with an idea which revolutionized the financial sector of the world and the world economy got a boost from this concept. The kind of banking been initiated by Md. Yunus suggested that the banks should move towards the customers. He recommended that no customers should visit the bank premises until very important. Else, the employees would be penalized. Nevertheless, the concept has been implemented, but not with such stringent rules and regulations in India. The whole stream of study has now come to be known as microfinanciarization. Microfinanciarization is the process of structural change that involves financial inclusion, bankarization, or the regulation of informal financial practices, and the utilization of voluntary sector
United Nations', Secretary-General Kofi Annan in 2005 said, that the group "microfinance is not charity but a way to extend the same rights and services to low-income households that are available to everyone else." Fouillet and Augsburg suggested that significant interstate variations occurred in the pace of microfinanciarization. This pattern continued till 2006 after which a convergence was been noted.
Private Commercial Banks and Microfinance
With the span of time as the segment of microfinance seemed to foster good figures of profitability, microfinance started to become more commercial. Earlier, the microfinance institutions were mainly financed by public and private donors and aid firms. But now, the commercial banks are increasingly playing dominant roles in the area by funding microfinance institutions. Studies (Lakshman, 2006 and Iyer, 2006) have shown the entry of big players like ICICI and HSBC together with private venture capital funds and social venture capitalists resulted tremendous growth of microfinance. The increasing interest of private and institutional investors for microfinance can be explained by the increased attention for socially responsible entrepreneurship. At present 14 private commercial banks (with total nos. of 133235 SHGs) are promoting SHGs savings. In the year 2009-10 SHGs saving accounts shows total savings of Rs. 3,67,389.24 lakh (women contribution of Rs. 2,90,057.64 lakh) out of which Rs. 14,049.01 lakh (women contribution of Rs. 5,649.05 lakh) and Rs. 3,53,340.23 lakh (women contribution of Rs. 2,84,408.59 lakh) deposited in private commercial banks and public commercial banks respectively. Table 1 shows detailed information of total nos. of SHGs linked with private commercial banks in India.
Table 1: Details of Nos. of SHGs Savings linked with Private Sector Commercial Banks
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