Since the early national plans, successive governments in independent India have emphasized the link between improving access to finance and reducing poverty, a stance that has had influence globally. 1, 2 The need to improve financial access for India’s poor, the overwhelming majority of whom are concentrated in rural areas, 3 motivated the establishment of a vast network of rural cooperative credit banks in the 1950s, followed by a drive to nationalize commercial banks, launched in 1969. This led to thousands of new bank branches in rural areas across the country. The strategy during the 1970s and 1980s gave the lead role to the nationalized (state-owned) commercial banks, who were charged with loosening the grip of traditional informal sector moneylenders through the use of targeted low-priced loans. The 1990s saw the partial deregulation of interest rates, increased competition in the banking sector, and new microfinance approaches, most notably, a nationwide attempt, pioneered by non-governmental organizations ( NGOs) and now supported by the state, to create links between commercial banks, NGOs, and informal local groups (‘self-help groups’, or SHGs). Better known as ‘SHG Bank Linkage’, this approach has grown dramatically over the past decade, and while its outreach is still modest in terms of the proportion of poor households served, many believe it is destined to become the country’s dominant system of mass-outreach banking for the poor. However, informal sector lenders remain a strong presence in ruralIndia, delivering finance to the poor, the vast majority of whom still do not have access to either formal or semi-formal (microfinance) sectors. Scaling-up access to finance for India’s ruralpoor, to meet their diverse financial needs (savings, credit, insurance against unexpected events, etc.) through flexible products at competitive prices, presents a formidable challenge in a country as vast and varied as India. But the opportunities, too, are plentiful, and government has an important role to play in creating space and a flexible architecture for innovations.
The key development feature of microfinance is in the innovations – in products, terms, transactions costs and risk – that enabled MFIs to provide financial services where banks had failed. From the earliest development of these models, in Bangladesh and in Bolivia, these innovations were specifically identi- fied as means to serve poverty reduction. Initially, they were entirely driven by this more specific agenda on poverty rather than as a solution to the expensive experience of more generalised failure of rural financial services; especially the poor performance of the development banks, farmer cooperatives and directed lending. Their success has led to expansion and to increasing financing needs. It has opened up linkages with the formal financial sector that had retreated rapidly from rural areas with the advent of liberalisation in financial markets. Growth -or scalingup, as it is sometimes called- is linked to invest- ment resources and the financial markets are an obvious source for the MFIs to target. All MFIs face a pressure to achieve a financial performance that allows them to make this linkage so that they are not dependent on continuing donor support.
invested in pro-poor sectors under the Deprived Sector Lending (DSL) program. Since group-based microfinance institutions such as NUBL are eligible for DSL credits, several commercial banks find it cost effective to simply lend to microfinance institutions at below-market rate rather than to lend directly to the poor. Between 1996 and 2000, NUBL received NR 620.89 million in subsidized loans from commercial banks. It also received loans from the RMDC, which had been recently set up as a wholesaler of funds to microfinance institutions. Overall, directed lending has created excessive liquidity in the microfinance sector in Nepal for several years, so that binding constraints to scaling- up of NUBL lie in inadequate institutional capacity and the ongoing Maoist problem rather than inadequate financial resources per se. There has recently been talk of
Recent evidence from a re-survey of the same households suggests that microcredit has significantly contributed to reducing poverty (Khandker 2003). Somewhat surprisingly, the impact appears to be greater for households who started off extremely poor (18 percentage point drop in extreme poverty in seven years) compared to moderate poor households (8.5 percentage point drop). These results differ from earlier evidence that pointed to moderate poor borrowers benefiting more than extremely poor borrowers due to the fact that the poorest have a number of constraints (fewer income sources, worse health and education etc) which prevent them from investing the loan in a high-return activity (Wood and Sharif 1997). This feature of better-off households benefiting more was also borne out by detailed case-study evidence (Farashuddin et al 1998) and by comparing participants of credit programs who cater to different socio-economic groups (Montgomery et al 1996) 10 .
BASIX operates with a clear focus on the agriculture sector, whereas other microfinance institutions avoid work in this sector because of the perception of high risk. Weather risk is the predominant source of income instability for BASIX customers whose agricultural activities depend on rainfall. Like farmers, BASIX is financially vulnerable to weather risk: weather-induced crop failure, primarily resulting from rainfall deficit, often caused overdue crop term loans threatening the institution’s portfolio quality. BASIX gained confidence in the insurance approach through its successful experience in livestock insurance. As a result, BASIX applied the insurance solution to the systemic weather risk affecting customers and the institution’s portfolio. The main challenge was to design an innovative insurance product to protect farmers’ livelihoods from the erratic nature of weather while avoiding the inefficiencies that plague the government’s traditional yield-loss insurance scheme. (See Box 2.1 for a description of government-sponsored crop insurance.)
Microfinance can be used for a variety of purposes based on the priority of needs and, therefore, productive opportunities can be made accessible to generate income. It is normally believed that microfinance programmes will elevate incomes and expand financial markets by primarily providing credit, amongst other services, to small-scale entrepreneurs (Aghion & Morduch, 2000). Microfinance is a tool used to improve the quality of life of people with inadequate access to endless financing. Microfinance is an efficient tool for alleviating poverty, predominantly in the isolated rural areas where poor people have no access to financial institutions and rely on informal finance (Moll, 2005). Research evidence reveals that microfinance boosts the ability to deal with the risky situations which previously forced poor people to sell their productive assets, such as land and livestock (Khandker, 2000). Ultimately, it can be concluded that microfinance plays a vital role and its economic and social benefits are immense. The challenge is to promote good practice in microfinance procedures and enhance the outreach to the poor on a sustainable basis (Mallick, 2002). This chapter introduces the study to the readers. It provides a general background to the study with specific overviews of Namibia’s economy, microfinance at the national level and the case study area of the Caprivi region. The problem statements, objectives, significance of the study, definition of the key concepts are also presented. The chapter concludes with an outline
Before the microfinance industry, people around the world have been borrowing and saving using various sources outside of the formal financial sector. Informal financial services ranging from loan sharks, community members and saving groups were once the only source for low income individuals who were unbanked or under banked. Such sources are still commonly used in both rural and urban areas, but now microfinance is a new source for loans, savings and insurance for the estimated of Indians who do not have access to any type of financial services and the Indians who might be unhappy with the informal financial services they use. The World Bank has estimated that upwards of 100 million individuals have taken advantage of microfinance. As much as $25 billion might be circulating in the industry, a turnover statistic which represents some fraction of the unmet demand. The extent of the overall microfinance market is up for debate. After all, extreme poverty continues to limit billions in the developing world from accessing basic services and realizing their potential. Microfinance organizations have spread all over the developing world. The concept has also expanded to include a variety of small-sized but high-impact financial services beyond traditional credit. These products have been customized to the diverse interests, demands, and capabilities of the global poor, also referred to as the “bottom of the pyramid.” Microfinance has proven to be an effective and powerful tool for poverty reduction. Microfinance is one of those small ideas that turn out to have enormous implications Microfinance is not entirely an innovative phenomenon. Particularly, the first forms of microcredit’s existed already in the XIX century with the experience of the rural banks and the creation
groups with a total of 280 members. During its third year, 1995, MKEJ showed its first profits (amounting to Rp 11.7 million), excluding however the honoraria paid to the university advisory team of three and ignoring the market value of the soft loan (on which MKEJ pays only 3.5% interest), which contains a subsidy element of Rp 7.0 million if we use the rate of interest paid by MKEJ to its depositors (10%), or Rp 11.8 million if we use the average savings deposit rate paid by BPR-type rural banks (14.5%) as a calculatory basis. Moreover, all these calculations ignore the value of the time spent by the group members on their weekly meetings which substantially add to borrower transaction costs. With total assets amounting to Rp 127 million, loans outstanding of Rp 74 million and a deposit base of Rp 12.3 million and virtually no equity base, MKEJ would have to come a long way to grow into a formal village bank, BPR, which would require a minimum paid-in equity capital of Rp 50 million. So far MKEJ has not been able to demonstrate convincingly that the replication of the Grameen Bank approach in Indonesia may substantially improve the poor's access to financial services. Bank Shinta Daya is a private rural bank that was established with private capital (US$ 40,000 in 1970, equivalent to Rp 92.2 million in 1995) and financed its expansion from its profits. Its net worth is now (12/1995) Rp. 495.8 million (US$215,000), comprising Rp 179.5 million in capital and Rp 316.3 in retained earnings. Access to subsidized funds was not of any vital importance in the history of Bank Shinta Daya. When Bank Indonesia scrapped most of its subsidized programs and instead required commercial banks to allocate at least 20% of its loan portfolio to small enterprises either directly or through rural banks, Bank Shinta Daya took advantage of this offer. In 1993 and 1994, the bank obtained these funds amounting to Rp 439.4 million and Rp 178.5 million outstanding, respectively, at interest rates below the market rate, namely at 8.0% and 9.8%, respectively. Meanwhile these rates have been adjusted. In 1995 the bank's outside funds amounted to Rp 163.0 million on which it paid 16.6% interest which is above the average three-months fixed deposit rate as well as above the average rate paid by the bank to its depositors.
Micro-finance has evolved as a need-based programme for alleviation of poverty and to raise the income level of neglected target groups (women, poor, deprived etc.) With the help of microfinance program, the majority of poor people have raised their standard of living all over the world. Besides this, Microfinance programme through the formation of SHGs helped members in employment and income generation, women empowerment, facing the risky situation etc. The experience across India and other countries has shown a robust potential of Microfinance and a significant impact on the lives of poor. This paper reviews the various empirical studies carried out in India and outside India as well. It will help the researchers in the field of SHG and Microfinance. Though the literature available is fairly large, the review is limited only to the 51 major studies carried out in India (36) and outside India (15) to identify the major trends, status and performance of SHGs. Studies contributed to the growth and development of ruralpoor in terms of economic well being, alleviating poverty, enhancing the income level, generation of employment level and empowerment.
India has more than 430 million young people in the age group of 15-34 years, which constitutes 35% of the country‟s population. Rural Development is a process of change, by which the efforts of the people themselves are united with those of government authorities to improve their economic, social and cultural conditions, and to enable them to contribute fully to national development. Since independence, rural employment has been prime agenda of debate as 74% of the unemployed population hails from ruralIndia. To ensure inclusion of the ruralpoor in the national development, for the past 3 decades, the Ministry of Rural Development (MoRD), Government of India has been implementing many rural employment generation programmes, like, various pilot projects through public private partnership, establishment of Self Help Groups, Women Entrepreneurs, Aajeevika Skills, National Rural Livelihoods Mission (NRLM), MNREGA, PMEGP, Watershed Development Programmes, NABARD Consultancy Services, engagement in Security Solutions (TOPSGRUP), Swarnajayanti Grameen Swarojgar Yojana, National Skill Development Coordination Board, National Vocational Education Qualifications Framework, Rural Development and Self Employment Training Institutes, Self-Employed Women‟s Association, implementing remote village electrification, village energy security test projects and decentralized biogas-based power generation programmes etc. and many more. Different innovative scheme and programme have been initiated time again in different 5 year plans. These approaches help the poor to build their self confidence through community action and ultimately lead to the strengthening and socio economic empowerment of the ruralpoor as well as their collective bargaining power.
lthough women form integral part of society, yet they are most under privileged and vulnerable and constitute a sizeable segment of those who belong to below poverty line in rural areas. In a male dominated society, women have always been underestimated and discriminated in all spheres of life be it their family and social life or their economic and political life. The development of the country is possible only if women folk are also developed. Here Microfinance, which has been introduced for poor of the society targeting especially the women, assumes a great significance. Microfinance provides small amount of loans which shows quick and visible results to the poor people, especially women. In India, where nearly 70% of population live in the villages and the majority (51.4%) i.e. 45.9 million out of 89.3 million farmer households do not have access to credit either from institutional or non-institutional sources, microfinance emerged as a major intervention aimed at poverty reduction through an innovative scheme of lending to the poor people, especially women(NABARD,2008).The idea behind microfinance is that poor people, who cannot provide any collateral security, should have access to some sort of financial services. In microfinance, small amounts of loan ,coupled with financial discipline, ensure that loans are given more frequently; thus credit needs for variety of purposes and at shorter time interval can be met (Vatta, 2003) .In India, microfinance is usually offered to women with the mediation of Self Help Groups. A typical SHG in India is formed by a group of 15 to 20 people, (often women only) meeting once every week/fortnight/month. The very act of meeting together every week helps clients know each other better and become more willing to help out a group member who faces a temporary difficulty (Pande, 2010). SHGs usually pledge to some informal rules, then open a bank account in the group’s name, select two or three leaders and conduct saving and credit activities (Premchander,2009). Under this programme collateral free small loans are given to a group of poor people who make savings regularly. The whole group remains responsible for the repayment of the loan and the peer pressure within the group helps the successful and timely repayment of the loans. These loans may be used for starting some income generating economic activities to create self-employment which further helps in transforming lives of women.
The microfinance movement in India can be divided into the two phrases. The first phase of this microfinance movement, it was found that the non-government organisation and CBOs took the initiative and they merge themselves and make a group. They nurtured with the Self help groups and provided the micro credit to the poor people from the rural areas in India. The Community Based Organisations and the Non Government Organisations (NGOs) started this microfinance movement in India and then simultaneously many organisations join them. According to Narayana (2012, p.120), the oldest microfinance organisation in the country is the Self Employed Women Association Bank which is very popular as SEWA Bank. The microfinance makes a solid impact in the Indian economy. One of the most popular modes of delivering the microfinance in India is the Self Help Groups.
They are the reliable source of health services for poor Indians. SEWA is one of the NGO based health insurance services  in Ahmadabad, Gujarat started in the year 1992. It was for the poor people which include the self-employed women and their husbands with the age limit ranging from 19-58 years. They have to pay Rs 20 per year for premium and they can also get membership through fixed deposit . It includes the cases of delivery, pre-existing disease, chronic diseases which have occur recently, HIV/AIDS and its complications, disease from abuse of drugs and alcohol. Previously, SEWA’s health insurance was managed together by SEWA and the United India Insurance Company. As per GIC (Government Insurance Company) the scheme covers only allopathic, inpatient care (it does not include gynaecological illnesses, delivery care, and occupational illnesses).
between the SHGs and the NGO supporting them. With Co-Operative Model: A co-operative is an organization the help of federations, an NGO with limited resources can owned by the members who use its services. This model have an impact on a large number of people. Few notable works on the principle that every community has enough examples of Federated Self Help Group model are human and financial resources to manage their own PRADAN, Chaitanya and SEWA. financial institutions. The members who own it are the Grameen Bank Model: The Grameen Bank model has sections of same community like agriculture, retail, been a case of exceptional success in Bangladesh. It turns wholesale etc. By proper networking small scale local out that many organizations in India have adopted the institutions scale up and become sustainable while locals Grameen Bank model with little variations and good maintain ownership and control over their institution. The success. Some of the notable examples are SHARE organization which has been vastly successful in co- Microfinance Limited, Activists for Social Alternatives operative form in India is Sahavikasa or Co-operative (ASA) and CASHPOR Financial and Technical Development Foundation (CDF). CDF’s approach relies Services Limited. Some of the significant features of on the well known Credit Union model involving a Grameen bank model are low transaction costs, no savings first strategy. Found in 1975 by a group of collateral (peer pressure is sufficient), repayment of loans individuals, Sahavikasa has now emerged as the leading in small and short interval and quick loan sanctions with co-operative in India. Based on women’s thrift group and little or no paper works and no formalities. Repayment of men’s thrift group, CDF has built up a network of financial loans in small chunk is one of the major reasons of high cooperatives and had convinced the Andhra Pradesh loan recovery rate of a Grameen Bank. Furthermore, loans government to form legislation for proper and flexible are provided for all purposes like housing loans, functioning of co-operatives in the state. The legislation sanitation loans, supplementary loans etc. Also the is known as Mutually- Aided Societies Act (MACS). interest rates are nominal making it easy for the poor The act helps the CDF to register the thrift groups people to repay their loans timely. promoted by CDF under it. The activities of CDF involve members who use its services and can come from different
The second question will inform program design, targeting, and so on to enable microfinance providers to adjust their products and enhance the welfare impacts of credit programs. It involves determining how recipients use credit and how such use maps into changes in individual and household well-being. Such information is critical for product design, and the IFPRI research naturally builds on earlier findings of studies of credit program design. For instance, Adams et al. 1984 found that traditional rural credit programs ignored the essential fungibility of credit within the household; program structure often prevented credit from being used for consumption purposes and thus inhibited the overall welfare impact of the program. When IRFPP began, many were skeptical about the role of credit and, more broadly, finance, in smoothing consumption. The conventional wisdom at the time said that credit was only useful in stimulating investments, and most credit programs were designed to promote productive investments. The IFPRI project explores the role of credit in enabling intertemporal management of household resources; by so doing, it will provide information on how programs can be altered to improve such management. The ultimate impact of such research is felt through improved program design and avoidance of efficiency losses.
Microfinance program pioneered by Muhammad Yunus has spurred to alleviate rural poverty from society since 1974 (Pine, 2010). The foundation of microfinance is operationally based on several principles such as group- lending, charging comparatively high interest rates, weekly meeting and repayment of loans, deliberately chosen for poor women as borrowers, forced saving systems for insurance and emergency needs (Ashraf, 2014a). Sometimes these formalities are observed to be unmet by the illiterate ruralpoor especially the women-folk in agrarian underdeveloped rural society. There is another big issue that is religious background of the society which is predominantly Islamic. Islam puts restrictions on interest rate which is charged on borrowed funds. In addition, it also urges the Muslim women to observe veil or covering their body while going to public. Thus, this type of socioeconomic circumstance necessitates rooms for choosing the ruralpoor women’s options suitable for them. Hence, individual preference in terms of participation in MFIs has become a big issue which warrants empirical investigation.
Leading members of the “Ohio State School” of development finance have gone so far as to state bluntly in response to the mushrooming of microfinance programme that “debt is not an effective tool for helping most poor people enhance their economic conditions - be they operators of small firms or entrepreneurs or poor women” (Adams and von Pischke, 1992). They argue that access to credit is not a significant problem faced by the poorrural households and that factor and product price distortions; land tenure, technology and risk are the factors limiting small farmer development. Coleman (2001) underlined the unobservable characteristics, for example, unobservable entrepreneurship, risk preference etc and not to access to microfinance were the key determinants of small business income. Poor are generally at a disadvantage in all these aspects. So microfinance programme will succeed only when it is wholesome, extending credit support backed by motivational inputs along with a clear road map of productive utilization of the same. The approach should never be diverted from confidence building and nurturing the ability of the poor in a well-groomed support system and conducive environment. Microfinance is at cross roads. Unless the financial services are productively utilized it will benefit neither the poor nor the banks. Experience of SHGs in Orissa reveals that most of the groups are not able to do so purposively or compulsively. This aspect of the linkage programme has received little attention. Mere access to the funds is not enough. Utilization with an earning is essential not only to ensure sustainability of the SHG-bank linkage, not only to ensure timely repayment and cost recovery but also to proceed towards the goal post of poverty alleviation.
Hulme and Mosley (1996:105) define poverty as not purely about material conditions. It also refers to other forms of deprivation, and the effects of innovative financial services on those who suffer from social inferiority, powerlessness and isolation are considered. To resume, poverty is a global phenomenon, which affects continents, nations and peoples differently. It afflicts people in various depths and levels, at different times and phases of existence (Oyeyomi, 2003). The most commonly way to measure poverty is based on income or consumption line. A person is considered poor if his or her consumption level falls below 1USD per day, a level necessary to meet basic needs. This minimum level is called the poverty line (The World Bank, 2002). The West African‟s Central Bank “BCEAO” (1999) views poverty as “a state where an individual is not able to cater adequately for his or her basic needs of food, clothing and shelter; is unable to meet social and economic obligations, lacks gainful employment, skills, assets and self-esteem; and has limited access to social and economic infrastructure such as education, health, portable water, and sanitation; and consequently, has limited chance of advancing his or her welfare to the limit of his or her capabilities”. Narayan et al (2000) systematically defined poverty when he said that “don‟t ask me what poverty is because you have met it outside my house.
institutionalization and spread of microfinance in India began when the National Bank of Agriculture and Rural Development (NABARD) started promoting the Self Help Group (SHG) model to deliver financial services to the poor. Microfinance in India started as a state-driven effort in the late eighties and subsequently private players saw it as a lucrative sector, where large amounts of profits could be made from an aggregate of small loans, and stepped in. Their participation greatly increased the size and scope of the sector and also slowly changed the operations of the industry. The two models prevalent in India are Self Help Group Bank Linkage (SHG BL) model and through private microfinance institutions based on the Grameen Bank model (also known as Joint Liability Group model – JLG).
Microfinance program has a positive impact on the lives of the poor. Microfinance has sensitized the health and education of society. It was based on improving the living conditions of the poor. Microfinance program improves access to and control over resources and women's participation in decision-making. In a world where almost half of the population lives in poverty, offer microfinance innovation, small loans to low-income groups to generate income and employment for local authorities. Thus, micro has been elaborated as an important tool for economic development. The poor have to wait long for the benefits of economic growth, which are separate from one another to a distance from urban areas, where economic activity is concentrated. It is important that this part of society is more convenient conventional balanced part growth for long-term sustainability of economic prosperity and social development is essential. Strengthening Social, Economic and Financial Services for People with Low Income, Living in Rural Areas (Singla, 2014). Microfinance has a very important role to play in economic development. Microfinance plays the following significant roles in economic development: Poverty Alleviation: Microfinance has found an operating tool for raising the poor how to provide financial services to start or expand small businesses, enabling them to escape poverty. This allows the poor to earn an income, so they do not have to pay for food, drinking water, medical care, and education for their children. These small businesses also generate job opportunities for local communities where jobs are rare, they can earn extra income.