Chapter II. Microfinance -International and Indian Scenario

Transcription

1 Chapter II Microfinance -International and Indian Scenario

2 2.1 International Scenario of Microfinance Introduction The growth and performance of microfinance sector in the international arena during the recent years has shown significant differences across the different regions of the world (Puhazhendhi, 2013). This could be attributable to the fact that microfinance as a part of the overall financial sector is expected to be influenced directly or indirectly by the positive or negative changes that take place in the global economy or the regional financial markets. However, till date there is no systematic and comprehensive database available on MFIs around the world for measuring the changes that is happening in the microfinance sector. Moreover, there are no authoritative figures on key characteristics of the microfinance industry such as the number and size of MFIs, their financial position or the population served and of course, the task of providing a worldwide inventory of microfinance data is condemned to be partial and many MFIs will always be missing. Moreover, generation of systematic data on the microfinance industry has been complicated by several factors, including the informality and dispersion of MFIs, lack of consensus on the data needed and lack of universally accepted and clear-cut definitions of the products that qualify as microfinance or the boundaries of the industry (IMF, 2005). Inspite of these drawbacks, there are independent datasets of varying quality and coverage that have been collected by different agencies such as Microfinance Information Exchange (MIX), the Savings Groups Information Exchange (SAVIX), the Microcredit Summit, the World Council of Credit Unions (WOCCU) and the World Savings Banks Institute (WSBI) (Ledgerwood et al., 2013). Amongst these agencies, MIX provides the largest cross-country database of MFIs around the world. It covers information of approximately 2,000 MFIs that serve more than 80 percent of all known microfinance clients worldwide (MIX, n.d.; MIX reports that the MFIs currently operate in over 100 countries thereby serving more than 94 million clients across the globe ( Further through various socio-economic linkages of the borrowers and their families, microfinance has impacted upon the lives of around one billion people in emerging markets and developing countries (Lutzenkirchen & Weistroffer, 2012).

3 52 But the aggregate picture (disaggregated region wise) of microfinance as provided in the MIX database considerably underestimates the MFIs reach across the globe as compared with the Microcredit Summit Campaign Reports (Shetty, 2012). The reason for this under estimation of MFIs reach across the globe is attributable to the fact that as MIX collects data from non-regulated institutions, the information requested is geared more toward sustainable institutions with the capacity to report prescribed indicators on a consistent basis. Consequently, the majority of smaller MFIs, savings and credit cooperatives (SACCOs), and others do not participate in the reporting of their performance data to MIX (Ledgerwood at el. 2013) Trend and Progress of Microfinance in the World In this section, the trend and progress of microfinance in different regions of the world like Africa, East Asia and the Pacific, Eastern Europe and Central Asia, Latin America and the Caribbean, Middle East and North Africa and South Asia during 2001 to 2011 have been compared to understand the direction of the movement in the sector. Moreover, understanding the trend and progress of microfinance in the international context assumes greater importance in the present day context in view of its significant influence on the Indian microfinance sector. Data from the website of Mix Market i.e., for the period 2001 to 2011 has been collected for examining the trend and progress of microfinance in the world. There are also other evidences of using the Mix Market data for analysing the trend and pattern of microfinance movement around the world. Srinivasan (2012) had used the Mix Market data (disaggregated region wise) for the period to study the developments in the world wide microfinance sector. He found that the overall trends show that microfinance has not been performing as well as it should have been. He further reports that the growth rates have abated and in fact there was a decline in the number of active borrowers in two out of six regions. In two others, the growth rates had plateaued out and only in South Asia there was continuing growth in number of active borrowers. Moreover, Puhazhendhi (2013) also analysed the Mix Market data for the period to capture the direction of the movement of the sector among the different regions of the world. He observed that the number of MFIs had, by and large, shown an

4 upward trend in almost all the regions of the world up to the year 2007 and 2008, after which the numbers have started dwindling in all the regions. Table 2.1 shows the growth of MFIs in different regions of the world during 2001 to From the table, it is observed that in 2001, the total number of MFIs in the world was 310, but which has increased to 1,357 in 2011 thereby registering a growth rate of 15.9 percent. But a comparison of the growth rate of MFIs in different regions of the world reveals that the East Asia and the Pacific region has the highest growth rate (24.4 percent) followed by South Asia region (23.8 percent), Eastern Europe and Central Asia region (15.8 percent), Latin America and the Caribbean region (15.7 percent), Middle East and North Africa region (13.5 percent) and Africa region (10.4 percent). Year Table 2.1: Growth of MFIs in the World Region Wise Africa East Asia and the Pacific Eastern Europe and Central Asia Latin America and the Caribbean Middle East and North Africa South Asia Total CAGR (During ) Source: Accessed on: 23/05/

5 54 A comparison of Figure 2.1 and Figure 2.2 reveals that the percentage share of African region in the total number of MFIs in the world had decreased from 36 percent in 2001 to 22 percent in On the other hand, the percentage share of South Asia region and East Asia and the Pacific region has increased from 8 percent respectively in 2001 to 16 percent and 15 percent respectively in Further the percentage share of Middle East and North African region had decreased marginally and the share of Latin America and the Caribbean region and Eastern Europe and Central Asian region has remained unchanged. Figure 2.1: Percentage Share of Different Regions in Total Number of MFIs in the World (2001) Middle East and North Africa 5% South Asia 8% Latin America and the Caribbean 28% Africa 36% Eastern Europe and Central Asia 15% East Asia and the Pacific 8% Figure 2.2: Percentage Share of Different Regions in Total Number of MFIs in the World (2011) Middle East and North Africa 4% South Asia 16% Latin America and the Caribbean 28% Africa 22% East Asia and the Pacific 15% Eastern Europe and Central Asia 15%

6 Table 2.2 shows the region wise growth of number of active borrowers in the world during 2001 to From the table, it is observed that the number of active microfinance clients was 7 million in 2001 which has increased to 94.6 million in 2011 thereby registering a compound annual growth rate of 29.7 percent. Region wise comparison of the growth of number of active micro borrowers during the period under consideration reveals that the growth rate of the regions like East Asia and the Pacific, Eastern Europe and Central Asia and South Asia are higher than the overall growth rate whereas the growth rate of the other three regions like Africa, Latin America and the Caribbean and the Middle East and North Africa are lower than the overall growth rate. Year Table 2.2: Growth of Number of Active Borrowers Africa in the World Region Wise (in millions) East Asia and the Pacific Eastern Europe and Central Asia Latin America and the Caribbean Middle East and North Africa South Asia Total CAGR (During ) Source: Accessed on: 23/05/

7 56 A comparison of Figure 2.3 and Figure 2.4 reveals that the percentage share of the regions like Africa, Latin America and the Caribbean and Middle East and North Africa had decreased from 19 percent, 22 percent and 3 percent respectively in 2001 to 7 percent, 19 percent and 2 percent respectively in On the other hand, the percentage share of the regions like South Asia, East Asia and the Pacific and Eastern Europe and Central Asia had increased from 49 percent, 6 percent and 1 percent respectively in 2001 to 53 percent, 16 percent and 3 percent respectively in Figure 2.3: Percentage Share of Different Regions in Total Number of Active Borrowers in the World (2001) Middle East and North Africa 3% South Asia 49% Africa 19% Latin America and the Caribbean 22% East Asia and the Pacific 6% Eastern Europe and Central Asia 1% Figure 2.4: Percentage Share of Different Regions in Total Number of Active Borrowers in the World (2011) Africa 7% East Asia and the Pacific 16% South Asia 53% Latin America and the Caribbean 19% Eastern Europe and Central Asia 3% Middle East and North Africa 2%

8 Table 2.3 shows the region wise growth of gross loan portfolio in the world during 2001 to From the table, it is observed that the overall growth rate in the gross loan portfolio during the 11 year period under consideration is 46.6 percent. On the other hand, the region wise comparison of growth of gross loan portfolio reveals that only two regions, i.e., East Asia and the Pacific and Eastern Europe and Central Asia have the growth rate more than the overall growth rate of gross loan portfolio in the world. The other four regions i.e., Africa, Latin America and the Caribbean, Middle East and North Africa and South Asia have the growth rate lower than the overall growth rate in the world. The regional growth rate ranges from as low as 29.2 percent for Middle East and North Africa to as high as 77.8 percent for East Asia and the Pacific. Year Africa Table 2.3: Growth of Gross Loan Portfolio in the World Region Wise (in billion USD) East Asia and the Pacific Eastern Europe and Central Asia Latin America and the Caribbean Middle East and North Africa South Asia Total CAGR (During ) Source: Accessed on: 23/05/

9 58 A comparison of Figure 2.5 and Figure 2.6 reveals that the percentage share of Latin America and the Caribbean region has reduced significantly from 60 percent in 2001 to only 32 percent in Moreover, the percentage share of Africa, South Asia and Middle East and North Africa has also reduced during the period under consideration. On the other hand, the percentage share of East Asia and the Pacific and Eastern Europe and Central Asia has increased significantly from only 5 percent for each region to 36 percent and 12 percent respectively. Figure 2.5: Percentage Share of Different Regions in Total Gross Loan Portfolio in the World (2001) Middle East and North Africa 5% South Asia 10% Latin America and the Caribbean 60% Africa 15% East Asia and the Pacific 5% Eastern Europe and Central Asia 5% Figure 2.6: Percentage Share of Different Regions in Total Gross Loan Portfolio in the World (2011) Middle East and North Africa 2% South Asia 9% Africa 9% Latin America and the Caribbean 32% East Asia and the Pacific 36% Eastern Europe and Central Asia 12%

10 Some Global Bodies Working in the Field of Microfinance Microfinance Information Exchange (MIX) Microfinance Information Exchange (MIX) is a non-profit organization incorporated in 2002 with headquarters in Washington, DC and regional offices in Azerbaijan, India, Senegal, and Peru. MIX is the premier source for objective, qualified and relevant microfinance performance data and analysis. Committed to strengthening financial inclusion and the microfinance sector by promoting transparency, MIX provides performance information on microfinance institutions (MFIs), funders, networks and service providers dedicated to serving the financial sector needs for low-income clients. MIX fulfills its mission through a variety of platforms and one of the platform being the MIX Market. On MIX Market, they provide instant access to financial and social performance information covering approximately 2,000 MFIs around the world ( Consultative Group to Assist the Poor (CGAP) CGAP is an independent research and policy organization dedicated to expanding access to finance for poor people around the world. Housed at the World Bank, CGAP was created in 1995 by a group of leading donors and practitioners with the mandate to develop and share best practices, set standards, and develop technical tools to support the development of the field. CGAP combines a pragmatic approach to market development with an evidence-based advocacy platform to advance poor people s access to finance. Today, CGAP is supported by more than 30 development agencies and private foundations that share a common vision to foster development and alleviate poverty by advancing access to financial services. CGAP works toward a world in which poor people are considered valued clients of their country s financial system. In their vision, microfinance will be integrated into mainstream financial systems that will eventually serve all the unbanked, including very poor and harder-to-reach clients with ever more high-quality, convenient, and affordable financial services. Moreover, they view that all actors in the field will be more focused on responsible finance, with the well-being and needs of clients at the center of strategy and operations ( CGAP, 2012).

11 Foundation for International Community Assistance (FINCA) Based in Washington DC, FINCA provides financial services to the world's lowest-income entrepreneurs so that they can create jobs, build assets and improve their standard of living. It is an anti-poverty organization founded by Dr. John Hatch in 1984 whose work is aimed at creating employment, raising family incomes, and reducing poverty worldwide. The organisation offers small loans and other products to those turned down by traditional banks, believing that even the poor have a right to financial services. With these loans, families can invest in, and build, their own small businesses and their income-earning capacity. Worldwide, their clients post repayment rates over 97 percent. FINCA pioneered the Village Banking Model of credit delivery, now used by hundreds of organizations worldwide. FINCA programmes reach the poor in more diverse countries than any other microfinance provider. At present, FINCA operates Village Banking programs in 22 countries of Africa, Eurasia, the Greater Middle East and Latin America, serving nearly one million people, 70 percent of whom are women ( FINCA, after more than a quarter century of its leadership in the microfinance sector, is among the broadest and most comprehensive of today's microfinance networks. The organisation is committed in providing the best possible service to the clients so that they can build successful businesses while ensuring that they are protected from uncertainty and vulnerability. FINCA has always focused its service on one key client group those living at 50 percent below the poverty line and the rural poor ( Americans for Community Co-operation in Other Nations (ACCION) ACCION is a global non-profit organisation dedicated to creating economic opportunity by connecting people to the financial tools they need to improve their lives. A world pioneer in microfinance, it was established in 1961 in 22 shanty towns 1 in Venezuela and issued their first microloan in Over the years, ACCION has helped build 63 microfinance institutions in 32 countries on four continents Africa, Asia, Latin America and the U.S. These institutions are currently reaching millions of clients. The ACCION U.S. Network is the largest 1 A shanty town is a slum settlement of plywood, corrugated metal, sheets of plastic and cardboard boxes.

12 61 microfinance network in the country and since its beginning, has served hundreds of thousands of clients with loans and support ( Grameen Foundation Grameen Foundation began in 1997 to harness the underappreciated strengths of the poor, an approach inspired by Nobel Laureate Professor Muhammad Yunus and the Grameen Bank in Bangladesh. Grameen Foundation helps the world s poorest people reach their full potential. Their collaborative approach to poverty alleviation recognizes the multidimensional and complex nature of global poverty. They provide access to essential financial services and information on agriculture and health, assistance that addresses the specific needs of poor households and communities. They also develop tools to improve the effectiveness of poverty-focussed Microfinance Organisations. Moreover, they also work with private sector companies, non-governmental organizations, government agencies and others in order to achieve lasting impact in the regions where they work (Grameen foundation, 2012; Grameen foundation, 2013). The organisation is headquartered in Washington, D.C., with offices in the U.S., Africa, Asia, and Latin America and the Caribbean. They also work in the Middle East and North Africa through Grameen-Jameel Microfinance Limited, a joint venture, and in India through Grameen Foundation India, a wholly-owned subsidiary (

13 Indian Scenario of Microfinance Introduction India is a country with a long history of indigenous banking and money lending. Evidence regarding the existence of money lending operations in India is found in the literature of the Vedic times, i.e., 2000 to 1400 B.C. The literature of the Buddhist period, e.g., the Jatakas, and recent archaeological discoveries supply evidence of the existence of Sresthis or Bankers. From the laws of Manu, it appears that money lending and allied problems had assumed considerable importance in ancient India (Reddy, 1999). But the heyday for the growth of indigenous banking in India is the medieval period ranges from the beginning of the mid-thirteenth century to the beginning of British rule during the eighteenth century. The merchant bankers grew enormously during this period accompanied by growth of highly monetized economy and domestic and international long-distance trade. Individual firms, joint family firms and partnership firms all within the same BANIYA caste but differentiated into numerous sub-castes used to run these types of institutions. Their customers included European private merchants and trading companies (Seibel, 2005) Government Interventions in Rural Credit Market in India The cooperative thrift and credit movement that was initiated by the British Government of India in the beginning of the 20 th century could be considered as the landmark development in the history of government interventions in rural credit market in India. In the year 1904, the then Government of India enacted the Cooperative Credit Societies Act followed by a more comprehensive Cooperative Societies Act in These Acts provided a framework for promoting financial self-help among farmers and artisans (Priyadarshee, 2008). Institutional credit was perceived as a strategy for rural development and poverty alleviation by enhancing rural production and productivity in independent India (H. R. Singh & Singh, 2011). Following independence, the imperative to facilitate improvements in agricultural output and attain food self-sufficiency led to a policy of providing credit at reasonable rates of interest to as large a segment of the rural population as possible. The strategy to achieve this was threefold:

14 63 expansion of the institutional base, directed lending to disadvantaged borrowers, and credit provision at concessional rates of interest. The latter was justified in terms of the perceived mismatch between the longer term returns of farm investment compared to cultivator households short term consumption needs and requirements to service the loans (Jones, Williams & Thorat, 2007). The establishment of the Reserve Bank of India in 1935 played an important role in addressing factors discouraging the flow of credit to the rural sector, absence of collateral among the poor, the high cost of servicing geographically dispersed customers and lack of trained and motivated staff. The policy response included special credit programmes for channelling subsidized credit to the rural sector, operationalising the concept of priority sector in the late 1960s and focusing attention on the credit needs of neglected sectors and underpriviledged borrowers (Jones et al., 2007). Further the State Bank of India was established in 1955 through the State Bank of India Act with the objective of extension of banking facilities on a large scale, more particularly in rural and semi-urban areas. SBI, therefore, became an important instrument of extending rural credit to supplement the efforts of cooperative institutions. Further in 1969, 14 major commercial banks were nationalized, thus creating a huge expansion of the rural banking infrastructure and the second phase of institutional rural credit provision. The nationalized banks thus became important instrument for advancement of rural banking in addition to cooperatives and State Bank of India. The focus thus shifted from cooperatives as the sole providers of rural credit to a multi-agency approach. During this period, the Lead Bank Scheme was introduced with district credit plans. The aggregation of district credit plans led to the State Credit Plan which was monitored by the State Level Banking Committee. The next step to supplement the efforts of cooperatives and commercial banks was the establishment of Regional Rural Banks in 1975 with mandate to reach the poorest in credit deficient areas of the country (Jones et al., 2007). Thus, by the end of 1977, there emerged three separate institutions viz., cooperative banks, commercial banks and regional rural banks for providing rural credit, which is often described as the multi-agency approach (Mohan, 2004).

15 64 But as a result of the top-down planning, little credit was flowing to the agricultural sector and a large proportion of rural population remained untouched by the banking system. This led the RBI to introduce Service Area Approach which is a bottom-up planning system. Under this approach, each specific bank branch has a specific geographical area of operation and the branch was required to conduct survey at the village level, to identify credit requirements and to make plans to meet any resource gap. The village level plans were then aggregated into block, district and state plans (Jones et al., 2007). Further as a credit subsidisation policy toward poverty stricken farming community, the Government sets up the Integrated Rural Development Programme (IRDP) in 1981 to direct subsidised loans to poor self employed through the banking sector (Fisher & Sriram, 2002). Another major impetus to rural credit was provided by the establishment of the National Bank for Agriculture and Rural Development (NABARD) through an Act of Parliament in NABARD was set up as an apex development bank with a mandate to promote/supervise institutions and channel credit to rural areas. Fisher and Sriram (2002) identified three post-independence phases in rural credit provision in India. The first phase ranges from 1950s to 1960s marked by pursuing developmental objectives through the financial sector focussed primarily on delivering agricultural credit through cooperatives. The second phase ranges from 1970 s to 1980s where the attention has been shifted to nationalisation of commercial banks and establishment of regional rural banks. The third phase was started by the financial crisis of the early 1990s and the consequent re-structuring of the banking system along with the overall financial system. Moreover, this period has also witnessed the emergence of Self-Help Groups and growing number of Microfinance Institutions (MFIs) in India. Fisher and Thomas also states that by the end of the century, significant support structures for SHGs and MFIs had been put in place, including active promotion by the apex financial institutions viz. RBI, NABARD, SIDBI and RMK. Moreover the launching of SHG based Swarnajayanti Gram Swarozgar Yojana in 1999 as a single holistic programme to cover all aspects of rural self-employment provided further fillip in meeting the credit needs of the rural poor of our country.

16 Microfinance in India In recent years, microfinance has gained growing recognition as an effective tool in improving the quality of life and living standards of the poorest of the poor. This recognition has given rise to a movement that now has a global outreach and has penetrated in the remote rural areas, besides slums and towns. Microfinance is the provision of financial services such as saving, loans and insurance for the poor segment of the society who are unable to obtain such services from the formal financial sector. In India, NABARD found that Self Help Group (SHG) linkage model suits best in the Indian conditions where a vast network of rural bank branches exists and as because microfinance is gathering momentum to become a significant force in the India overall financial system. The lending to rural people especially to women through SHG approach without collateral has become an accepted part of rural finance in India. The origin of modern microfinance movement in India can be traced back to the 1970s when initiative was undertaken by Ela Bhatt for providing banking services to the poor women employed in the unorganized sector of Ahmedabad city in Gujarat. To this end, Shri Mahila SEWA (Self Employed Women s Association) Sahakari Bank was set up in 1974 by registering it as an urban cooperative bank. Since then the bank has been providing banking services to self-employed working poor people like hawkers, street vendors and domestic servants, etc. (Rao, 2008). This MFI model has not been replicated elsewhere in the country, though the Working Women s Forum (WWF) was promoting working women s cooperative societies in Tamil Nadu since Shreyas in Kerala has been actively involved in microfinance operations since 1988 with the objectives of promoting people s cooperatives, inculcating habits of thrift and self-managing a people s bank (HDFC, 1997). The basic aim of these movements was to alleviate poverty by delivering financial services to the poor so that they can have an asset base and initiate income generating activities (Guha, 2010). Over the years, the efforts of these organizations were better realized by the deprived sections when their capacities are also enhanced along with access to financial services. In the 1980 s, while looking for supplementary credit delivery mechanism to extend the outreach of the financial institutions, the National Bank for

17 66 Agriculture and Rural Development (NABARD) observed that if the traditional approach to extend financial services to the deprived sections through self-help could be linked to the financial might of financial institutions, it could revolutionalise the financial sector in the country and open doors for extension of a variety of financial services to the poor through a structure owned and managed by the poor themselves (NABARD, 2011a). This led to NABARD s involvement in promoting microfinance through the concept of self-help started in 1987 when it first put funds into the SHG/SAG movement. In this year, it provided MYRADA with a grant of 1 million Indian rupees from its R&D Fund for providing seed money to the Credit Management Groups promoted by it. As a result of the positive feedback from this initiative, NABARD in 1989 launched an action research project in which similar grants were provided to other NGOs working in the field. This project turned out a great success and these initial experiences led to the emergence of Self Help Group Bank Linkage Model that could be used by the banking system for increasing their outreach to the poorest of the poor, hitherto being by-passed by them. The basic philosophy of the SHG-Bank Linkage Model promoted by NABARD is to establish synergy between the banks, who have the financial strength and the NGOs, who have the ability to mobilize the poor and build-up their capacity, to avail loans from the banks (Puhazhendhi & Satyasai, 2000). The model envisages forming small, cohesive and participative groups of the poor, encouraging them to pool their savings regularly and using the pooled thrift for small interestbearing loans to their members, and in the process learning the basic principles of financial discipline. The SHG concept is unique because of several factors as mentioned by Jindal (2008) in his work. These are outlined below: First, it is built around both formal and informal systems. Second, it seeks to promote both social capital and financial capital that are prerequisites for any meaningful development. Third, it allows for flexibility (in interest rates, repayment schedules, instalment size, etc.) around certain core principles. Fourth, it allows for interaction between professionalism of bankers and wisdom and local knowledge and experience of the group.

18 67 It was in this scenario that the SHG-Bank Linkage Programme (SHG-BLP) was formally launched by NABARD as a Pilot Project in Initially the pilot project started with a target of linking 500 Self Help Groups with banks wherein the banks will provide access to the group members for their savings on regular basis while also providing credit to the group to meet the emerging credit needs of its members. The pilot project was very successful and today it is recognized as an effective tool for extending access to formal financial services to the unbanked rural poor (Guha, 2010). Encouraged by positive results, Reserve Bank of India (RBI) advised banks in 1996 to mainstream it. The programme acquired national priority from 1999 onwards. With support from both the Government of India and the Reserve Bank of India, NABARD successfully spearheaded the programme through partnership with various stakeholders in the formal and informal sector. Today this unique initiative in India has about 4,000 partners and has blossomed as a decentralized, yet most cost effective and fastest growing microfinance initiative in the world, enabling about 97 million poor household s access to sustainable financial services from the banking system. The institutional credit outstanding against the SHGs as at end of March 2011 exceeded Rs. 31,200 crore an experiment which has no parallel anywhere else in the world (NABARD, 2011a). The importance and relevance of the SHG-Bank linkage programme in India s rural development has also been accepted by the Government of India as a novel approach for reaching and empowering the unreached and under-served poor, and the Government of India have since declared the programme as a national priority (Puhazhendhi & Satyasai, 2000). In spite of certain turbulence surfaced in the recent past in the microfinance sector mainly due to the lack of discipline by very few stakeholders, the SHG-Bank Linkage Programme has been growing impressively and it undoubtedly, is the main microfinance programme in India (NABARD, 2011a; Satish, 2008). Moreover the impressive performance under SHG-BLP prompted other developmental agencies like the Government Departments to depend heavily on such groups to take the development efforts forward. A large number of service delivery of the Government Departments are now contracted to SHG members in preference to private contractors which is largely prompted by their devotion and efficiency (NABARD, 2013a).

19 Credit Delivery Models under SHG-BLP Initially, SHG-BLP was operational under three different delivery models for providing microfinance services to the unbanked poor. These three models of credit linkage of SHGs with banks showed the following trend as on 31 st March, Model I: Model II: Model III: Banks facilitate SHG formation and provide savings and credit linkage directly to SHG. Upto March 2006, 20 percent of the total numbers of SHGs financed were from this category (NABARD, 2006). NGOs or other SHPIs facilitate the SHG formation and banks provide the savings and credit linkage to SHGs. This model continues to have the major share, with 74 percent of the total number of SHGs financed upto 31 March 2006 falls under this category (NABARD, 2006). Banks lend to MFIs and MFIs facilitate the group formation and on lend to SHGs. The share of cumulative number of SHGs linked under this model upto March 2006 continued to be relatively small at 6 percent (NABARD, 2006). While banks and NGOs facilitate SHG formation, the reporting of credit linkage of SHGs is under SHG-Bank Linkage Model and MFI-Bank Linkage Model since From this year, SBLP follows a two models strategy where the focus is on credit linkage to SHGs (Guha, 2010). The newly defined models of credit linkage are: Model I: Model II: SHG-Bank Linkage Model where the SHGs are directly financed by banking agencies viz. Commercial Banks (Public Sector and Private Sector), Regional Rural Banks (RRBs) and Cooperative Banks. In this model, the financing banks extend services like savings and credit to the groups directly while other stakeholders like NABARD, NGOs, Government Departments, Insurance providers, etc. extend support services including organisation, nurturing of groups and also the capacity enhancement of their members. MFI-Bank Linkage Model where banks lend to Micro Finance Institutions (MFIs) for on-lending to SHGs and other small borrowers covered under microfinance sector.

20 We now look at the model wise credit accessed by SHGs. Table 2.4 below shows the details. It can be seen that majority of the SHGs were linked under the Model II under SBLP up to But if we compare the growth rate amongst these three models, the Model I was in the lead position (growth rate of 67.17%) followed by Model II (growth rate 52.55%) and Model III (growth rate 35.86%). It appears that NGOs and other SHPIs have helped banks to increase the outreach under SBLP. The overall outreach was growing at a rate of percent per annum during the period from 2001 to Table 2.4: Model Wise Distribution of Bank Linked SHGs in India Year Model I Model II Model III Cumulative Total CAGR ( to ) 67.17% 52.55% 35.86% 53.37% Model I - SHG-Bank Linkage Model (No. of SHGs) Model II - MFI-Bank Linkage Model (No. of MFIs) CAGR ( to ) Source: Guha (2010) % 43.23% However, after 2006, it can be seen that the earlier envisioned three different models of linkage were restructured into two different models as explained above. Table 2.4 also shows the progress of these two different models till Here it 69

21 70 is observed that the number of SHGs linked with the banking sector under newly defined Model I has reached to lakh SHGs as on 31 st March 2011 from lakh SHGs as on 31 st March 2007 having a growth rate of percent. On the other hand, the number of MFIs in Model II has grown at the rate of percent for the same period under consideration Progress of SHG-Bank Linkage Programme A detailed analysis of the SHG-Bank Linkage Programme is presented in the following section. The analysis covers the broader components of the programme, viz. growth of the programme over the years, regional coverage of the programme, savings performance of SHGs, bank loans disbursed to SHGs, bank loans outstanding with the SHGs and recovery performance of bank loans to SHGs. The SHG-Bank linkage programme which commenced on a pilot basis during 1992 to link only 500 SHGs with banks, has grown exponentially during the last two decades and over 97 million rural households have now access to regular savings through lakh SHGs linked to different banking agencies. Of these, over 47.8 lakh SHGs also have access to direct credit facilities from banks. The total loan outstanding of SHGs already credit linked as on 31 st March 2011 was Rs. 31,221 crore. As much as 81.7 percent of SHGs already linked to banks are exclusive women groups one of the most distinguishing features of microfinance sector in the country. About 27 percent of SHGs have been linked through the Swarnjayanti Gram Swarojgar Yojana (SGSY) programme the rural poverty alleviation programme of the Government of India (NABARD, 2011a). Table 2.5 shows the performance of SHG-Bank linkage programme since its inception. From the table, it is observed that during , the number of SHGs financed by banks was only 255 SHGs which had increased to SHGs during having a compound annual growth rate of percent. On the other hand, the amount of bank loan disbursed to SHGs has grown by percent during the period under consideration and has increased from Rs billion in to Rs billion during The refinance from NABARD for the same period has grown by only percent.

22 71 Table 2.5: Growth of SHG-Bank Linkage Programme in India No. of SHGs Financed by Year Banks (End March) During the Cumulative year During the year Bank Loan (Rs. Billion) Cumulative During the year Refinance (Rs. Billion) Cumulative CAGR (During to 59.94% ) CAGR (During to ) % % - Source: Note: 1) Data relates to Commercial Banks, RRBs and Co-operative Banks. 2) From onwards, data on number of SHGs financed by banks and bank loans are inclusive of Swarnjayanti Gram Swarozgar Yojana (SGSY) SHGs and existing groups receiving repeat loans. Owing to this change, NABARD discontinued the publication of data on a cumulative basis from

23 Figure 2.7: Year wise Growth in the No. of SHGs Financed by Banks in India Figure 2.7 shows the trend line of the number of SHGs financed by all the banking agencies during to From the figure, it is observed that upto , the growth in the number of SHGs was slow and after that, it has increased rapidly upto The increasing growth rate in the number of SHGs financed by banks could partially be attributable to fact that the Government sponsored microfinance programme has also started its journey thenceforth. But the growth rate has declined henceforth Figure 2.8: Year wise growth in Bank Loan disbursed to SHGs in India (Amount in Rupees Billion)

24 Figure 2.8 reveals that the growth in the volume of bank loan disbursed to SHGs was slow upto the year and henceforth it has grown at an increasing rate. But the year has shown decreasing trend in the growth of bank loan. Performance of SHGs in terms of Savings with Banking Institutions In India, more than 97 million poor households were associated with banking agencies under SHG-Bank Linkage Programme. This represents more than 53 percent of the rural households in the country. Regular savings made by the members are utilized mainly for internal lending within the group and only the balance is kept in the savings bank account of the group with the banks (NABARD, 2011a). The position of agency wise savings of SHGs with banks for the period to is given in Table 2.6. From the table, it is observed that as on 31 st March 2011, total 74,61,946 SHGs were having saving bank accounts with outstanding savings of Rs. 7, crore as against 41,60,584 SHGs having savings of Rs. 3, crore as on 31 st March 2007, thereby having growth rate of 15.72% and 18.88% respectively. Year Table 2.6: Savings of SHGs in India Agency wise Commercial Banks No. of SHGs Amount (Rs. Crore) Regional Rural Banks Amount No. of (Rs. SHGs Crore) Cooperative Banks No. of SHGs Amount (Rs. Crore) No. of SHGs All Banks 73 Amount (Rs. Crore) CAGR ( % to 22.27% 13.79% 5.51% 14.01% 30.76% 15.72% 18.88% ) Source: NABARD (2007, 2008a, 2009a, 2010, 2011a). Note. Figures in parenthesis indicate percentages.

25 74 The Table 2.6 also shows the agency wise CAGR both for the number of SHGs and savings amount. If we see the agency wise growth rate in the number of SHGs having savings accounts, then it is the commercial banks which are in the lead position (17.17%) followed by cooperative banks (14.01%) and regional rural banks (13.79%). On the other hand, in terms of growth in the volume of savings amount, the Cooperative Banks are in the lead position (30.76 percent) followed by Commercial Banks (22.27 percent) and Regional Rural Banks (5.51 percent). Figure 2.9: Percentage share of different agencies in total Savings Linked SHGs in India (31st March 2011) 15% 27% 58% Commercial Banks Regional Rural Banks Cooperative Banks Figure 2.10: Percentage share of different agencies in total Savings of SHGs in India (31st March 2011) 19% 21% 60% Commercial Banks Regional Rural Banks Cooperative Banks

26 From Figure 2.9 and Figure 2.10, it is observed that as on 31 st March 2011, the Commercial Banks had the maximum share of SHGs savings of 43,23,473 SHGs (58 percent) with savings amount of Rs. 4, crore (60 percent) followed by Regional Rural Banks having savings bank accounts of 19,83,397 SHGs (26 percent) with savings amount of Rs. 1, crore (21 percent) and Cooperative Banks having savings bank accounts of 11,55,076 SHGs (15 percent) with savings amount of Rs. 1, crore (19 percent). Table 2.7 shows the per SHG savings of SHGs with the banking sector for the period to From this table, it is observed that the average savings per SHG with all the banks had increased from Rs. 8,443 as on 31 st March 2007 to Rs. 9,403 as on 31 st March 2011 having growth rate of 2.73 percent. But if we see the agency wise growth rate, then cooperative bank is in the lead position (14.7%) followed by commercial banks (4.36%) and regional rural banks (-7.28%). Here one thing is noticeable that per SHG savings of both commercial banks and cooperative banks had registered a positive growth, but per SHG savings of regional rural banks had declined over the same period. Year Table 2.7: Per SHG Savings in India - Agency Wise Commercial Banks (Rs.) Regional Rural Banks (Rs.) Cooperative Banks (Rs.) All Banks (Rs.) CAGR ( to ) 4.36% -7.28% 14.7% 2.73% Table 2.8 shows the regional spread of number of SHGs, savings amount and per SHG savings. It is observed from the table that per SHG savings of India as whole is Rs and only one region, i.e., Southern Region is having per SHG savings more than the all India level revealing the dominance of Southern Region in the microfinance sector. The rest 5 regions are having per SHG savings lower than the all India level. The North Eastern Region is having the lowest per SHG savings of Rs. 4,

27 76 Table 2.8: Region wise Performance of SHGs in terms of Savings (31 st March 2011) Regions No. of SHGs Saving Amount (Rs. Lakh) Per SHG Saving (Rs.) Southern Region All India Eastern Region Northern Region Western Region Central Region North Eastern Region Source: NABARD (2011a). Figure 2.11 clearly shows the percentage share of different regions in total number of SHGs that are linked with the banking institutions through savings accounts. It is observed from the figure that lead position is occupied by Southern Region (47 percent) followed by Eastern Region (20 percent), Western Region (13 percent), Central Region (11 percent), Northern Region (5 percent) and North Eastern Region (4 percent). Figure 2.11: Percentage share of different Regions in the Total No. of Savings Linked SHGs in India (31st March 2011) 11% 4% Southern Region 13% 47% Eastern Region Northern Region 5% Western Region Central Region 20% North Eastern Region

28 77 On the other hand, if we see the percentage share of different regions in total amount of savings of SHGs in India, then here also the Southern Region is having the maximum share (53 percent) followed by Eastern Region (20 percent), Western Region (12 percent), Central Region (8 percent), Northern Region (5 percent) and North Eastern Region (2 percent). Figure 2.12 shows the pictorial presentation of the same. Figure 2.12: Percentage share of different Regions in the Total Amount of Savings of SHGs in India (31st March 2011) 2% 5% 12% 20% 8% 53% Southern Region Eastern Region Northern Region Western Region Central Region North Eastern Region Table 2.9 shows the state wise position of savings linked SHGs, amount of savings and per SHG savings. The table also shows the rank of the states in terms of per SHG savings. From the table, it is observed that per SHG savings of India as a whole is Rs. 9,403. There are 11 states which are having the per SHG savings more than the India as a whole and amongst these states, Haryana tops the list with per SHG savings of Rs. 28,088. On the other hand, there are 22 states which are having per SHG savings lower than all India average. The state Manipur with per SHG savings of Rs. 2,331 ranks last in the list. Here one thing is worth mentioning that seven out eight North Eastern States are having per SHG savings below the national average. Further if we exclude the Union Territory Andaman & Nicobar Islands from the list, then we will find six North Eastern States viz., Mizoram, Nagaland, Meghalaya, Assam, Arunachal Pradesh and Manipur occupying the bottom six positions thereby revealing the very poor performance of the States in mobilising savings by the SHGs. Only the State Tripura has per SHG savings more than the national average.

29 Table 2.9: State wise Performance of SHGs in terms of Savings (31 st March 2011) Sl. Saving Amount Per SHG States No. of SHGs Rank No. (Rs. Lakh) Saving (Rs.) 1 Haryana Karnataka Jharkhand West Bengal Puducherry Punjab Tamil Nadu New Delhi Chandigarh Goa Tripura Sl. No. All India Gujarat Uttarakhand Andhra Pradesh Kerala Maharashtra Uttar Pradesh Madhya Pradesh Chhattishgarh Himachal Pradesh Jammu & Kashmir Orissa Lakshadweep Sikkim Rajasthan Bihar Mizoram Nagaland Meghalaya Assam Arunachal Pradesh A & N Islands (UT) Manipur Source: NABARD (2011a). 78