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The micro finance programme is a programme of rural finance which was launched as a pilot project in the country in 1992. The stress on micro finance comes in the backdrop of inadequate bank credit to the poor. Out of the 10 crore farms households in the country, only 4 crore have got bank credit. Large number of people are yet to get any type of credit as most of the government schemes have failed.
Considering this problem of large inadequacy of bank credit to the poor and also the failure of government programmes as well as the banks in redressing the problems of micro credit, especially in rural areas, the micro finance programme has been gaining its importance in recent years.
The Economic Survey, 2003-04 observed in this connection “Sustained access of the poor to micro finance services is a key element in addressing the problem of poverty. Despite the availability of nearly 1.5 lakh retail credit outlets of the formal banking system, including co-operatives in the rural areas, nearly 36 per cent of rural households depended on informal sources of finances, according to the All India Debt and Investment Survey, 1991. To strengthen credit delivery in the rural areas, the programme of linking self help groups (SHGs) of the rural poor with the banking system was launched in 1992 as a pilot project.”
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During the last decade, this flagship savings-led micro finance innovation has come to symbolize an enduring relationship between the financially deprived and the formal banking system. The focus under the SHG-bank linkage programme is largely on the rural poor comprising small and marginal farmers, agricultural and non-agricultural labourers, artisans and craftsmen.
The uniqueness of the programme is its zero-subsidy level. There are three models of credit linkage of SHGs with banks viz-, SHGs formed and financed by banks, SHGs formed by formal agencies other than banks but financed by banks, and SHGs financed by banks using NGOs and other agencies as financial intermediaries.
SHGs formed by formal agencies account for a predominant share of SHG-bank linkage, i.e., nearly 72 per cent. SHGs formed by banks and Fs financed .through NGOs account for about 20 per cent and 8 per cent of the total, respectively.
Over the years, the SHG-bank linkage programme has emerged as the major micro finance programme covering 563 districts in all the states and UTs of the country. About 498 banks including 50 commercial banks, 96 RRBs and 352 co-operative banks are now actively involved in the operation of this programme.
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The Economic Survey, 2004-05 observed in this connection, “The programme has been providing the rural poor access to the formal banking system and has achieved several milestones in terms of gender sensitization, empowerment and poverty alleviation. The programme provides thrift linked credit support to the members of SHGs. While the programme directly benefits the members, it also helps banks in reducing this transaction costs as well as risk in delivering small loans. The Budget for 2004-05 has emphasised the need for promoting the programme more vigorously and for the graduation of SHGs from consumption or production credit to credit for starting micro enterprises. The budget has set up an indicative target of credit linking 5.85 lakh SHGs by end March, 2007.”
Table 14.3 shows the progress of SHG-bank linkage programme for the delivery of micro finance.
Table 14.3 reveals that during 2008-09, commercial banks financed 16.09 lakh SHGs, including repeat loans to existing SHGs as against 12.28 lakh SHGs during 2007-08 showing a growth of 31.1 per cent in case of number of SHGs linked with banks.
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Table 14.3 further shows that as on March 31, 2009, a cumulating total of 42.24 lakh SHGs had outstanding (cumulative) bank loans of Rs 22,679.85 crore as against 36.26 lakh SHGs with outstanding bank loans of Rs 16,999.90 crore as on March 31, 2008. Thus it is revealed that the number of SHGs linked to banks reached to 48.52 lakh by March 31, 2010, covering a large number of families.
A redeeming feature of the programme is that 90 per cent of the groups linked with banks are exclusively women groups. Among all these SHGs, 9.77 lakh SHGs (6.5 per cent) with outstanding bank loans of Rs 5,861.72 crore (21.7 per cent) were working under the programme SHSY.
Commercial banks had the maximum share of around 70 per cent of outstanding bank loans to SHGs followed by RRBs with a share of 23 per cent and the cooperative banks had the share of rest 7 per cent. As on March 31, 2009, the average bank loan outstanding per SHG was Rs 53,689 as against Rs 46,884 as on March 31, 2008.
Thus, as on 31st December, 2007, the total of 30.51 lakh SHGs credit linked by banks covered an estimated 427 lakh poor families with an average loan disbursement per family of Rs 4,708. Moreover the 6,86,408 new SHGs credit linked during 2006-07 represent an increase of 10.7 per cent over the previous year.
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Under the SHG-Bank-linkage programme, as on 31 March 2012, about 79.60 lakh SHG-held saving bank accounts with total savings of Rs 6,551 crore were in operation. By November 2012, another 2.14 lakh SHGs had come under the ambit of the programme leading to reach its total number at 81.74 SHGs.
It is now being implemented by commercial banks, RRBs and cooperative banks. As on 31 March, 2012, about 43.54 lakh SHGs had outstanding bank loans of Rs 36,340 crore.
NABARD has recently conducted an impact assessment study in 2000 on this area and accordingly it is revealed that there was a marked improvement in the asset base and income and employment levels of households covered under micro finance programme.
Areas of Concern:
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It should also be mentioned here that despite the rapid progress of micro finance, there are two main areas of concern. The first concern relates to the limited coverage of poor families. Out of the 52 million poor families, only 43 million poor families (82.6 per cent) were covered under the programme as on March 31, 2007. The second area of concern is the uneven spread of the programme.
Andhra Pradesh accounted for 39 per cent of the total SHGs linked to credit, followed by states like Tamil Nadu, Karnataka and Uttar Pradesh. At the end of March 2003, these four states accounted for 69 per cent of the total SHGs linked to credit.
In order to address these areas of concern, NABARD has intensified its efforts to scale up the programme in the States of Assam, Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Orissa, Rajasthan, Uttar Pradesh and West Bengal, which accounts for bulk of the poor people living in the country.
Moreover, special efforts are being made to popularize the programme in North Eastern and hilly states. NABARD had reduced interest rate on refinance to 6.0 per cent per annum for loans up to Rs 50,000 per member in order to incentives the banking system so as to step up the flow of credit to SHGs.
Although micro finance institutions were not regulated in the country, the banking data reveals that bank loans amounting to Rs 1,584.48 crore were outstanding against 550 Micro Finance Institutions (MFIs) as on March 31, 2007.
Although several MFIs in the private sector were operating across the country, providing micro credit services to the weaker sections including artisans, craftsmen etc. but the government had no plans to establish any micro finance institution.
The RBI has been taking a pro-active role in promoting micro finance for the needy people, especially in the rural areas. It set up four Groups in 2002 to look into various aspects of micro financing. Based on the recommendations made by these groups, the RBI announced that banks should provide adequate incentives to their branches in making the procedures for financing the SHGs simple and easy.
Based on the recommendations of the Vyas Committee, the RBI in its annual policy statement for 2004-05, indicated that micro finance institutions would not be permitted to accept public deposit unless they comply with the existent regulatory framework.
Thus the micro entrepreneurs need to be recognised and rewarded for efforts and the banks should use intermediaries like SHGs in order to lend money to them. Moreover, the micro finance programme should be made broad-based so as to make it popular in all states of the country.
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