STATUS OF MICROFINANCE IN MADHYA PRADESH - A REVIEW. Rohit Balyani, S.K. Choubey

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1 STATUS OF MICROFINANCE IN MADHYA PRADESH - A REVIEW Rohit Balyani, S.K. Choubey The Concept of Microfinance Microfinance is a concept that is helping the poor to avail of an create opportunities for economic growth. In India, microfinance has fulled the efforts of rural development, women empowerment and wealth generation by providing small scale savings, credit, insurance and other financial services to poor and low income households. Microfinance thus serves as a means to empower the poor and provides a valuable tool to help the economic development process. The concept of microfinancing and selfemployment activities in rural areas has developed considerably over the last two decades. It is working neither on domain/charity nor on subsidy. It is basically rotational investment done to motivate the poor to empower themselves and practice the dictum 'Save for the future and use those resource during the time of need.' Theoretically, microfinance also known as microcredit or microlending means making provision for smaller working capital loans to the selfemployed or self-employment seeking poor. Microcredit' may be defined as the credit and repeated credit provided in small measures to suit the recipient's requirements, with a comfortable pace of repayment and at an appropriate rate of interest.3 Microcredit has been defined by the microcredit summit held in Washington D.C. in February 1997 as "programmes that provide credit for self employment, other financial and business services to very poor persons." Microfinance can be interpreted in a broader context both as microcredit and microsavings, even though microcredit and microfinance have come to used interchangeably. However, when the term 'microfinance' is used it implies some other services accompanying credit viz. facilities for saving and availability of services for insurance of the assets acquired with microcredit. Microfinance has come to be referred to as a small scale financial services and technical assistance provided to rural people who operate small or micro-enterprises, provide services, work for wages or commission and other individuals and group working at local levels. NABARD has defined microfinance as "provision of thrift, credit and other financial services and products of very small amounts to the poor in rural, semiurban and urban provided to customers to meet their financial needs; with only qualification that (1) transactions value is small and (2) customers are poor." n essence, therefore, microfinance could be referred to as an institutional mechanism of providing credit support in small amount and usually linked with small groups along with other complementary support such as training and other related services to the people with poor resources and skills for enabling them to take up economic activities. In the November 1995 Microcredit Summit, U.S. first lady Hillary Clinton wrote; "Microenterprise is the heart of development because microenterprise programmes work - they lift women and families out of poverty. It is called micro but its impact on people is macro, we have seen that it takes just a few dollars, often as little it takes as dollar 10, to help a woman gain self employment, lift her and her family out of poverty. It is not a hand out; it is a helping hand. Let us begin by understanding some of the distinct characteristics of microfinance.

2 The term 'microfinance' is often confused with the related term 'microcredit', so much so, that the two are often treated as synonymous and used interchangeably. While there are certain similarities between the two terms, there are also certain differences, which require to be classified at the very start to avoid confusion of time. The term microcredit refers to a small size loan, to be repaid within a short period of time, used mostly low income households and micro entrepreneurs for the purpose of income generation and enterprise development. The mobilization of such credit is restricted to external sources such as banks and moneylenders. Table 1 : Difference between Microfinance and Microcredit Microfinance on the hand, provides a greater menu of options whereby the small loan can be garnered not just from the external sources but also through selfmobilization, by way of saving and sale of assets. Also, in case of microcredit, due to the definite obligation to repay the loan, a physical collateral may sometimes be needed. However, the biggest flexibility in the case of microfinance is the lack of any physical collateral, even in case of loan from the bank. The options available with microfinance, therefore, are much broader and flexible than the ones available with microcredit. S.No. Characteristics of loan Microfinance Microcredit 1. Size of loan Small Small 2. Repayment of period Short Short 3. Sources of mobilization Both external and internal External 4. Repayment Obligation if source external Definite obligation to repay 5. Collateral Not needed May or may not be needed 6. Purpose of use Flexible, consumption income Mostly fixed, limited generation 7. Scope of operation Mostly group loans trickling down to individuals Microfinance therefore, refers to the provision of small loans without collateral security, to the poor and low-income households, whose access to the commercial banks is limited. The institution that provide such services are microfinance institutions.7 Microfinance is being viewed as a very powerful tool for uplifting the economic conditions of the asset less poor through group approach that ensures active participation and involvement of the beneficiaries in effective implementation of the programme. In India, microfinance programme has a crucial role to play in uplifting more than 30 crore people living below poverty line (NABARD, 2005). scope for deviation Usually individual loans, though group loans might be given Poverty means denial of access to the basic necessities i.e. food, shelter, health and education of human existence. Poverty is characterized by lower standard of living. As per the poverty line defined by the HRD i.e. earning of a person below $ 1 a day, the percentage of BPL population in India comes around 34.9 percent and if it is extended to $ 2 a day, the percentage of BPL in India comes to 79.9 percent (Human Development Report, 2004). Microfinance has emerged as an needful programme to cater to the needs of the most underprivileged people i.e. tribal, dalits and women. The major concerns today is ever increasing poverty and there

3 is urgent need of empowering enabling the most neglected sections of the society through organized support to all poverty alleviation programmes. Considering the paucity of funds with poor people, the need of the hour is to provide adequate credit to the needy people to enable them to undertake entrepreneurial activity, however, small with the help of NGOs and GOs. Microfinance is expected to play a pivotal role in poverty eradication and employment generation. Microfinancing is a new method to meet the credit requirement in rural areas. Since the bank borrowing requires collateral and the deprived class does not have any type of such collateral, the success of Bangladesh Grameen Banks attracted the attention of Indian policy makers towards the microfinance and microcredit, which are the new entrants in realm of present rural financing. There are plethora of literature on performance of micro finance institution across the globe, though only few studies have been carried out on the topic related with performance of Indian MFIs, one such study done by Alain de Crombrugghe, Michael Tenikue and Julie Sureda (2007), has studied three important aspects of sustainability such as repayment of loans, financial self sustainability or operational self sustainability and costcontrol or efficient use of resources. Rajarshi Ghosh (2005) in his research paper Microfinance in India: A critique, the evolution of microfinance in empowerment of women and poverty alleviation is studied. Microfinance is viewed as an important tool for providing self employment for the low income rural population. This paper studies the various delivery models of microfinance institutions which contribute to women empowerment in India. Pankaj K Agarwal and S.K.Sinha (2010) found in their study that the sustainability of microfinance institutions is important in order to pursue their objectives through good financial performance. This paper studies the various players in the microfinance sector which range from not-for-profit organizations which work towards a developmental objective to commercial banks which view microfinance as a good source of deposits with sound banking and as a measure to reach their priority lending targets. Jayasheela, Dinesha.P.T and V.Basil Hans (2008) studied the role of microfinance in the empowerment of people and provision of a sustainable credit availability to the rural low income population. The research studies the Australian Journal of Business and Management Research Vol.1 No.6 [ ] September-2011 opportunities available for the microfinance institutions with an increasing demand for credit in the rural areas due to inadequate formal sources of credit. The Microfinance promise in Financial Inclusion: Evidence from India by Naveen K. Shetty and Dr. Veerashekharappa (2009) studies the importance of microfinance in bringing about financial inclusion. The paper studies impact of the increasing gap in demand and supply of financial services in India which has led to the increasing population of the country to be excluded from the formal financial credit system. Microfinance: A new Mantra for rural development by ReetaRautela, Gaurav Pant, Dr.SwatiAnandand Deepika Sharma studies the evolution of microfinance institutions in India. Microfinance is viewed as a development tool both in the local and he global environment. With approximately 70% of population in India living in rural areas and with about 26% of population living below the poverty line, microfinance in India is considered to be an important tool for poverty alleviation and rural development. Financial performance of Microfinance Institutions: A comparison to performance of Regional Commercial banks by geographic regions by Michael

4 Tucker and Gerald Miles studies the performance of MFIs which are selfsufficient and comparing those with the regional commercial banks based on selected financial ratios. Microfinance institutions provide small loans to the rural low income population. However with growth of the microfinance institutions and with increasing competition, the MFIs have very limited access to funds. The study reveals that the self-sufficient microfinance institutions are strong performers of ROA and ROE Performance and Sustainability of Self- Help Groups in India: A Gender Perspective by Purna Chandra Parida and Anushree Sinha (2010) studies performance and sustainability of Self-help group in India. It is been reported that the self-help group (SHG) programmes is an effective tool which has been used in various countries in order to address a range of socio-economic issues. The performance and sustainability of self-help groups vary based on income generating activities, gender composition of members in the group etc. Performance and Transparency: A survey of Microfinance in South Asia by Blaine Stephens and Hind Tazi (2006) highlights the performance of the microfinance sector in the South Asian region as well as globally. The study has highlighted South Asia for the study due to the regions impressive outreach with microfinance giants in South Asia such as Grameen Bank, ASA and BRAC. The microfinance sector has evolved by providing micro-loans as well as the self-help group programs in order to reach to a vast majority of the poor population. Microfinance in India: Discussion by R.Srinivasan and M.S.Sriramshows the various views of people from various microfinance institutions. Microfinance has been viewed as an effective tool in bringing about financial inclusion and as a measure to alleviate poverty. This discussion also is a study on the various models of microfinance prevailing in India and aims to discuss if these models contribute to the growth and sustainability. It also aims to discuss about the various government policies and regulatory framework prevailing in microfinance sector. The Important Features of Microfinance are Microfinance is a tool for the empowerment of poor women; 2. Loans under microfinance programmes are very small; 3. Microfinance targets the poor rural and urban households; 4. Credit under microfinance follows thrift i.e. mobilize savings and lend the same; 5. Low transaction cost due to group lendings; 6. Transparencies in operation; 7. Short repayment period; 8. Simple procedure for reviewing, processing and approving loan applications and delivery credit; 9. Chances of misutilization are rare and there is assured repayment; 10. Peer pressure act as the collateral security required for loans; 11. Need based loan disbursement; Prompt repayment; and 13. There is no ceiling from the RBI in respect of minimum and maximum amounts. The following are the main features of microfinance services provided by RashtriyaMahilaKosh (RMK) (i) It is a tool for the empowerment of the poorest. (ii) The higher the income and better the asset position of the borrower, the lower the incremental benefit from further equal doses of micro-credit is likely to be. (iii) Delivery is normally through Self Help Groups (SHGs). (iv) It is essentially for providing selfemployment. The opportunities of wage employment are limited in developing countries - microfinance increases the productivity of self-employment in the informal sector of the economy - generally used for (a) direct income generation (b) rearrangement of assets and liabilities for the households to participate in future opportunities and (c) consumption smoothing. Microfinance is not a financing system but a tool for social

5 change, especially for women. It does not spring from market forces along - it is potentially welfare enchaining there is public interest in promoting the growth of microfinance - this is what makes it acceptable as valid goal for public policy. Status of Microfinance Coverage in Madhya Pradesh Madhya Pradesh occupies 9.7% of the total land area of the country, but has 5.82 % of the people. The population density at 196 persons per square kilometre is considerably less than the country average of 313 persons. Of its current population of 65.6 million (Mid year estimates for 2005 ) 74% were in the rural areas. It has a high concentration of tribal population which at 20.2% was the highest among Indian states. The combined SC/ ST population was more than 35% of total population. People living below poverty line constituted 37.4% of population with the proportion of poor being higher in urban areas (38.4%) than the rural areas (37%). The record of the state (including Chattisgarh) during the period 1994 to 2000 in poverty reduction has been good; with poverty ratio declining from 42.5 to 37.4%. However the proportion of poor was much higher in the state than the all India average of 26.1%. Going by the population of 65.6 million and the reported proportion of 37.4% poor, the state has to attend to the financial and livelihood requirements of 24.5 million people. But the proportion of poor does not include those subject to transient poverty when natural and market risks affect their livelihoods. The people below poverty line and others marginally above it are the preferred clients of microfinance. These undeserved sections of people, especially women are the intended beneficiaries of the vision for microfinance in the State. The theme of financial inclusion has been gaining ground over the last two years. Several studies and analyses have focused on the problem of people who could not gain access to financial services, though they have a legitimate demand for the same. The committee on Financial Inclusion in its interim report has brought out that at least 4.26 million farmer households are excluded as per information available from the NSSO's survey. This does not include the noncultivator households. As per the data available from the banking system in the state, as at the end of March 2007, 2.75 million priority sector advances accounts were with the banks. Of these, 2.62 million accounts were that of economically weaker sections. If the number of households are estimated at around 13 million in the State, the number of credit accounts of weaker sections of people (discounting the fact that some households would have more than one loan account), is around 20%. Of the number of households below the poverty line around 5million, those having access to credit at the end of March 2007 are about 57%. This leaves a large number of poor households outside financial services coverage.the best estimates of coverage under microfinance is around 2 million people through (non-govt programme) SHGs, 0.5 million people through MFIs. Even with the increase in number of poor in absolute terms over the next five years, it is possible to cover every BPL family in some microfinance programme or other provided the government programmes establish the financial linkages with financial system whether banks or MFIs. MFIs currently operate in 28 States, 5 Union Territories and 561 districts in India. MFIs with a smaller scale or regional focus have concentrated their operations in 1-2 states only whereas other MFIs have spread across a higher number of states in order to increase their size, scale and simultaneously mitigate concentration risk. MFIs operating in multiple states, in general, are typically larger in size and follow the legal form of an NBFC-MFI. List of 10 MFIs operating in number of states is presented in Table 2.

6 Table 2. Top 10 MFIs Operating in Number of Indian States/Union Territories Micro Finance Institutions No. of States Ujjivan 24 Bandhan 22 SKS 19 Janalakshmi 17 Basix, 15 Share Microfin 14 Spandana,Asmitha 12 NERFL Satin Creditcare 11 Source: The Bharat Microfinance Report 2015 The number of MFIs operating in Madhya Pradesh and the districts of the state in which are having presence of MFI operations. Further the table also demonstrates and shows the number of branches of micro finance institutions in State. Thus, the highest number of MFIs (37) are operating in the states of Madhya Pradesh and Maharashtra. On the other hand, maximum number of branches (1740) of these institutions has been set in the district of West Bengal. States/UTs Table 3. No. of MFIs in Madhya Pradesh and No. of Districts with MFI Operation No. of MFIs Operating in the state (including those having Head Quarters outside) No. of districts of the state where MFIs operate No. of Branches Madhya Pradesh Source: The Bharat Microfinance Report 2015 Financial Resources The achievement of the vision would could be in the range of Rs 50 millions in case of MFIs. The banking system has an demand financial resources of two exposure of Rs 235 millions to the SHGs. different kinds from the institutional point of view. The MFIs, banks and NGOs would need soft funds for expanding operations, setting up new institutional The low level of outstanding loans compared to the disbursements is on account to the short duration of the loans, which tend to get to get repaid fast, structures, recruitment of staff and reducing the outstanding loan balance. If capacity building, installations of the expansion in linkage takes place as operational systems and monitoring. The MFIs would also require loan funds from the formal financial system for meeting their business needs. The volume of credit flow to the sector during is of the order of Rs 435 Million from banks and estimated to be about Rs 70 million from envisioned, the exposure would increase to Rs 2180 million in case of MFIs covering half a million clients, and Rs million in respect of 0.57 million SHGs in case of banks with an exposure of at an estimated average loan of Rs per SHG. the MFIs. The amount of outstanding loans Table 4 shows the Amount Disbursed and Number of Beneficiaries Covered under Micro Credit Scheme of NMDFC in M.P. Table 4 : Amount Disbursed and Number of Beneficiaries Covered under Micro Credit Scheme of National Minorities Development and Finance Corporation (NMDFC) in Madhya Pradesh (As on ) State Amount Disbursed Number of (Rs. in Lakh) Beneficiaries Madhya Pradesh India

7 State Support The state government has a large role to play in the microfinance sector. The Commission makes specific mention of the potential of microfinance and the need for using the same. The State has several problems in reaching out to the poor and resource poor regions. The state has a larger proportion of poor than the all India average. The per capita income in the state is lower than national average. The increasing numbers of population and the lower incomes imply a larger agenda for microfinance. The state has access to resources and the right framework for democratically handling issues of development through the Panchayati Raj Institutions. The state needs to support the voluntary sector, MFIs and banks in their task of improving financial services access to the poor and marginalised. The state's support is needed critically in five areas: First is the creation of a positive environment in which the different stakeholders 8 "Micro-finance is another new development in which Indian institutions have acquired considerable expertise and where upscaling holds great promise to expand the nature of financial services offered to micro enterprises and also to make these the springboard for entrepreneurial development. The 11th Plan must ensure that our policies are sufficiently flexible to support the development of micro-finance". Planning commission- Approach to XI plan. 9 Evaluation Study of DPIP, MP - by PEO of Planning Commission, 2006 are able to collaborate and add value to each others work; Second is the establishment of partnerships with all the institutions in the field and provide them the necessary legitimacy to work in the sector. Third is the financial and material support to ensure that the institutions in the field are in a position to meet the expenses of serving in a difficult environment; Fourth is the linking of such efforts with the government's efforts through different programmes and projects such as MPDPIP, MPRLP, SGSY, Tejaswini, NREGS, etc; and the fifth is the provision of access to physical markets for the goods and services produced by the microfinance clients through initiatives such as Bhopal Marketing Fair. Conclusion There is no doubt that the microfinance vision would challenge all institutions. Realising the vision would call for significant mobilisation of resources by all the stakeholders. With so much natural and human assets within the state, it is difficult to justify the position of MP as the third poorest state in the country. It is well within the capacities of the financial institutions, voluntary sector and government to carry out fairly simple tasks on a large scale in a coordinated manner that would lead to realisation of the vision. Ultimately the poor should benefit in terms of improved income levels and livelihood opportunities. Microfinance and the institutions involved therein are instruments and vehicles of empowering the poor. Let us set ourselves this microfinance mission - one that would change the lives of the poor for the better forever. On the other hand, it has been seen that maximum number of microfinance institutions have been set up in Madhya Pradesh and Maharashtra district and maximum number of branches has been set up in the West Bengal district. Thus, it can be inferred that a number of steps has been stepped up by the government to imprint and rear up the presence of micro finance institutions and their branches in different states and their respective districts in India. This will help the government to use SHG- BLP as an effective tool for linking the unbanked population to the banks in every state and district. In whole, it can be said that, indeed microfinance has been proving

8 and can become a perfect tool for financial inclusion in India. References Archana Singh, "Microfinance for women's empowerment, A perspective", Kurukshetra, 52, No. 6, April 2004, p. 32. Building sustainable microfinance system : A growth catalyst for the poor, LOGOTRI Research Study, Society for Development Studies, February 2006, p. 7. Deepinder Kaur, " Microfinance - A Tool For Financial Inclusion In India ", Volume 4, Issue 12, December, 2015, hp/issn /article/viewfile/885/pdf_207 Jothi V.N., "Socio-economic impact :Microfinancing of self help groups", SGMS Journal of India Management, January-March 2010, p K.K. Tripathy, "Microcredit intention and poverty alleviation", Kurukshetra, 54, No. 11, September 2006, p. 3. Lekshmi R., Kulshreshta and Archana Gupta, "A study of microfinance in India - Delivery system and impact analysis with special emphasis to women upliftment", Sajosps, 3, No. 1, December 2002, p Lekshmi R., Kulshreshta and Archana Gupta, "A study of microfinance in India - Delivery system and impact analysis with special emphasis to women upliftment", Sajosps, 3, No. 1, December 2002, p N. Tejmani Singh, "Microfinance practices in India : An overview", International Review of Business Research Paper, vol. 5, p RajaramDasgupta, "Microfinance in India, Empirical Evidence Models and Policy Imperatives", Economical and Political Weekly, XI, No. 2, March 2005, p Ruby, J.A., "Microfinance and Women Empowerments, A Study of Kudumbashree project in Kerla", Mahatma Gandhi University, Kottayam, July 2008, p SampathGuha and Gautam Gupta, "Microcredit for income generation, Role of ROSCA", Economical and Political Weekly, XI, No. 14, April 2-8, 2005, p SangitaKamdar, "Microfinance, selfemployment and poverty alleviation", Humalaya Publishing House, 2007, p Vision Microfinance Madhya Pradesh, ads/publication_link_files/madhyapradesh-vision-document.pdf