IMPACT OF MICROFINANCE ON ECONOMIC GROWTH IN MADHYA PRADESH Roopali Shevalkar Introduction:- In the recent past Indian economy has performed reasonably well which is reflected through various macroeconomic variables. But this performance has been accompanied by growing inequalities between rich and poor, rural and urban and exclusion of poor people from the growth process. If this situation persistslonger it may enhance restlessness in the deprived section of society. There is an urgent need for economic and social inclusion of this section of society. Financial inclusion is the only tool through which socio-economic inclusion can be achieved. Microfinance is the most efficient and convenient way of financial inclusion. Hence financial inclusion is considered to be critical for achieving inclusive growth (U Thorat, 2007). Microfinance can be seen as a solution to include on a large-scale previously excluded poorer groups without access to capital into the financial system so that they may rise out of poverty by themselves.along with poverty reduction and empowerment of poor, microfinance also stimulates the economic growth of the region.a brief review of literature on microfinance in India reveals that most of the studies have insistedmicrofinance for poverty alleviation. ( Anis Chowdhury 2009, M.Kumar 200, K. Imai et al. 200, Imoisi, et.al. 200 ). Role of microfinance is not only confined to poverty reduction but provision of finance always acts as a catalyst in stimulating economic growth. There are only few studies which link economic growth with microfinance in India (G.L. Sharma 203) Thus the study is timely and needed for evaluating the impact of microfinance on economic growth. Madhya Pradesh is considered as a state with high potential of growth but ranked backward in terms of various socioeconomic indicators. In order to utilize the growth potential and reap the benefits of growth, financial inclusion in Madhya Pradesh is desperately needed.microfinance in Madhya Pradesh is need of the hour for financial inclusion because of two reasons. First microfinance links people from informal sector with formal credit and second it promotes inclusive growth through people s participation in economic activities. Thus growth of microfinance is extremely important. With this background the paper mainly attempts to analyse the growth pattern of microfinance in Madhya Pradesh and its impact on economic growth during last seven years. Objectives, Database and Methodology In order to undertake a systematic analysis the following objectives have been framed. To analyse the growth Pattern of microfinance in Madhya Pradesh during last seven years 2. To study the growth pattern of Madhya Pradesh economy 3. To assessthe extent of relationship between microfinance and economic growth. The study is based on secondary data which has been collected from various reports of 7
NABARD and Diectorate of Economics and 204. Annual growth rates have been calculated for growth analysis In order to study the relationship regression analysis has been used. The paper is organized in three parts. First part deals with the growth of microfinance in Madhya Pradesh. Second part focuses on the growth pattern economy of Madhya Pradseh and last part attemtps to find the extent of relationship between microfinance and economic growth. Section I Growth Pattern of Microfinance in Madhya Pradesh. Madhya Pradesh is considered as high priority state for financial inclusion by the government. Government through various statistics, Madhya Pradesh from 2008 to microfinance institutions is proving microcredit to self help groups.self-help Group () is a small voluntary association of poor people, preferably from the same socio-economic background. They come together for the purpose of solving their common problems through self-help and mutual help. The promotes small savings among its members. The savings are kept with a bank. This common fund is in the name of the. Linking self help groups through microfinance is key for integrating the weaker and poor section of society. Table no. reveals the status of micro finance in Madhya Pradesh through various indicators. Table no. Status of microfinance in Madhya Pradesh Loan Years saving per disbursedper loan outstanding per % of NPA Bank Linkage Saving in banks (in lakhs) (in lakhs) (in lakhs) per (in lakhs) 2008 60.2 58050.7 35608 693.4 5535.5 2009 439.6 22963.7 37938.5 8.6 486.5 3608.2 200 5695.6 58278.8 57863.7 8.2 5874.4 4423.7 20 7589.6 48490.5 59967.9.2 6280.2 3639.9 202 6864.2 09064. 68088.7 22.45 9869.3 725 203 7727 9045.2 67963. 2.6 57.2 962.6 204 826.6 6360.3 55205.3 9.3 2359.5 260.7 savings per women Table no 2 clearly reveals that there has been fluctuations in the growth pattern of the indicators of microfinance. Positive growth for most of the years has been observed for Saving per except two years 2009 and 202. In terms of loan disbursement more than 50% growth has been observed for the years 200 and 20. However for the last three years there has been negative growth in terms of loan disbursement. 8
Table no. 2 Growth pattern of microfinance in Madhya Pradesh Years saving per Loan disbursedpe loan outstanding per NPA Bank Linkage % (in lakhs) (in lakhs) (in lakhs) Saving in banks per savings per women (in lakhs) 2009-32.5-60.442 6.545-39.6-34.87 200 37.588 53.786 52.52-4.65 40.37 22.602 20 33.253 54.794 3.636 36.58 6.909-7.79 5 202-9.557-26.55 3.542 00.4 46 57.49-80.08 203 2.569-7.099-0.84-5.746 3.049 225.79 204 6.99-29.646-8.772-8.743 0.776 3.096 It means that credit has declined for which is not a good sign. In terms of NPA, percentage of NPA has increased considerably from 20 to 203 even though it has fallen for 204. Savings per women has also increased considerably for last two years. Over all it can be concluded from the growth analysis that in the recent two years micro finance through has gone down which is not an encouraging sign for the deprived people. Composition of bank loans 2008 Commercial banks Regional Rural banks 0% Cooperative banks Composition of bank loans 204 Commercial banks Regional Rural banks Cooperative banks % 0% 39% 5% 89% Chart no. clearly indicates that most of the microfinance is provided by commercial banks although cooperative banks and regional rural banks are considered as main agents of microfinance. Further there has been decline in the share of Cooperative banksand Regional Rural banks in total microloans. Share of Commercial banks has increased significantly from 2008 to 204. Section II Analysis of relationship between Micro finance and economic growth Analysis of sectoral contribution and their growth revealed that agricultural sector is growing decently. In order to link agricultural sector with industrial sector agro based industries must be promoted which would not only enhance economic growth but also will provide opportunities to marginal farmers and agricultural labourers to increase their income and improve standard of living. The basic problem which these farmers and small entrepreneurs face is lack of credit. Microfinance is the instrument through which credit can be easily made available to these people. Self help Groups have been provided with micro credit through microfinance institutions. How far this microfinance has contributed in economic growth of Madhya Pradesh is an interesting exercise. Bivariate regression analysis has been carried out to find out the extent of relationship between micro finance and economic growth. Table no. 5 9
represents regression results of economic growth and growth of microfinance. Table no. 3 Regression Results I II III IV V VI VII Independent variable Per Per Per Per Savings per - Bank Linkages Savings per Women Dependent variable beta value Standard error R2 t value -0.02 0.008 0.8-2.5 Primary sector Growth -0.066 0.034 0.7.96 Secondary sector Growth -0.022 0.034 Tertiary sector growth 0.007 0.0-0.067 0.033-0.024 0.035 0.00 0.002 0.3 0.4 6 0.7 0.3 0. -.66.6-2.03 7 -.67 0.5 In fisrt five regression models of table no.5 independent variable is loan disbursement and dependent variables are growth rate of per capita income and sectoral growth rates. Beta value of model is negative but insignificant. R2 is also very high. This indicates that there is no relationship between growth of PCI and growth of microfinance. This indicates that growth of microfinance is very insufficient and insignificant in creating any impact on the economy. As far regression results of sectoral growth rates are concerned beta value of primary and secondary sector growth are found to negative. Beta value of primary sector growth is also insignificant with R2 =.70. This is again a very surprising result as microfinance is considered as driver of agricultural sector. Small credit to farmers through self help groups provides the stimulus for growth of agricultural sector. Unfortunately status of microfinance is such that it is insignificant to contribute in the growth of agricultural sector. As far as service sector is concerned beta value is positive with low r2 value which indicates there is no influence of microfinance on tertiary sector. Regression results of indicators of microfinance in model VI, VII and VIII reveals that microfinance has no impact on economic growth as beta value for growth of savings per is insiginificant with R2 =.7. This again reflects that these savings are not at all creating any positive influence on economic growth. Beta values of bank linkages and Savings per women are insignificant revealing no impact of microfinance on economic growth. Concluding remarks and Policy implications Objective of Inclusive growth especially in a state like Madhya Pradesh cannot be achieved without financial inclusion. Financial inclusion especially in remote areas canbe promoted through well developed microfinance network. Microfinance is an intervention which tries to speed up this process in a twopronged manner improving household income by providing timely and adequate support for economic activities, and sharing the responsibilities of the government and of the mainstream financial sector. (K.V Kamath) In Madhya Pradesh microfinance through Self Help groups has grown during the study period with some exceptional decline in one or two years. 20
Moreover microfinance is mainly provided by commercial banks. Cooperative banks and Regional Rural Banks are lagging far behind in providing microfinance. Economic growth in Madhya Pradesh has been quite impressive during the study period with agricultural growth overshadowing the growth of service sector. Unfortunately manufacturing sector has slowed down in terms of growth. Linkages between microfinance and economic growth are very weak which is clear from regression results. Thus there is an urgent need to increase the boundaries of microfinance. Cooperative banks should play an active role providing microcredit to the needy and poor people. Strong steps should be taken to increase the availability of microfinance. Financial literacy should be increased so that needy people can access to microfinance institutions. More and more self help groups should be formed for including economically active people. Strengthening the linkages between microfinance and needy people through self help groups is the only way of inclusive economic growth References Anis Chowdhury (2009) Microfinance as a Poverty Reduction Tool A Critical Assessment DESA Working Paper No. 89 ST/ESA/2009/DWP/89 G.L. Sharma, Himanshu Pur(203) An Emperical Testing of Relationship between Microfinance and Economic Growth in India.Journal of Indian Research Management vol No.2 87-94, April June 203 ISSN No. 232-455 Imoisi, Anthony Ilegbinosa, Opara Godstime I. (204). Microfinance and its Impact on Poverty Alleviation: A Case Study of some Microfinance Banks in Edo State, Nigeria American Journal of Humanities and Social Sciences.Vo. 2() 27-4.DOI: 0.634/2329078402456 Manish Kuma,r Narendra Singh Bohra and Amar Johari(200)Micro-Finance as an Anti Poverty Vaccine for Rural India International Review of Business and Finance ISSN 0976-589 Volume 2 Number Katsushi Imai Thankom Arun Samuel Kobina Annim (200) Microfinance and Household Poverty Reduction: New evidence from India April 200Economics Discussion Paper Series EDP- 2