Microfinance: A Tool of Poverty Alleviation with Bank Linkage Programme in Himachal Pradesh - Mr. Rishi Kant * - Mr. Suyash Mishra ** - Ms. Swati Singh *** Abstract Microfinance sector has traversed a long journey from micro savings to micro credit and then to micro enterprises and now entered in the field of micro insurance, micro remittance and micro pension. This gradual and evolutionary growth process has given a great opportunity to the rural poor in India to attain reasonable economic, social and cultural empowerment, leading to better living standard and quality of life for participating households. Financial institutions in the country continued to play a leading role in the microfinance programme for nearly two decades now. They have joined hands proactively with informal delivery channels to give microfinance sector the necessary momentum. During the current year too, microfinance has registered an impressive expansion at the grass root level. This paper tries to find out the contribution of commercial banks, regional rural banks and cooperative banks in strengthening microfinance sector by participating in Self Help Group bank linkage programme. Researcher tried to establish the relation between spread of non-government organizations and growth in microfinance sector in Himachal Pradesh. Introduction Keywords : Microfinance, Self-help group, Bank linkage programme, Growth. India is a developing country where banking plays a vital role in the economic development. On 19th July, 1969, fourteen major commercial banks were nationalized by RBI for strengthening the financial structure so that country can have balanced regional development. RBI has also focussed on priority sector. After this focused strategy the banking sector witnessed an expansion stage all over the country by reaching to rural population. Credit needs of the people is very small in rural India and it involve high * Research Scholar, Department of Marketing & Supply Chain Management, School of Business & Management Studies, Central University of Himachal Pradesh, Dharamshala. Email-id:rishikant111@gmail.com, ** Research Scholar (Fellow-U.G.C.), Department of Management Studies, School of Law, Governance, Public Policy and Management,Central University of Haryana, Mahendergarh. Email-id: suyashmba1234@gmail.com *** Research Scholar, Department of Accounting and Finance, School of Business & Management, Central University of Himachal Pradesh, Dharamshala. E-mail id: swatidogra6317@gmail.com 52
Vol.2, No.3, July - September 2013 risk and high transaction cost for the banks. It creates hurdle in smooth flow of credit to needy people. Loan disbursement involves lengthy documentation process which is problem for the rural public. Due to such problems involved in formal banking, it has forced the poor and needy to borrow money from informal lenders and be a part of vicious cycle of poverty. Poor have inadequate supply of money. They need money in the form of credit but due to the lack of it, they are unable to raise their income levels and standards of living. That is why weaker section of the society remains poor in the country like India. There are certain main reasons because of that poor are unable to access these services as people do not have collaterals to mortgage. Even the banks found the cost of screening and monitoring of these loans is very high in order to make this loan profitable to borrowers. This showed that efforts of the banks were insufficient and unsuitable for fulfilling the expectations and needs of the poor clients. Thus government of India has made many efforts for providing formal financial services to the rural people by setting up NABARD (National Agriculture Bank for Rural Development) and Regional Rural Banks. Government of India has made a remarkable effort by setting up NABARD. These banks have helped to provide credit at low interest rate as compared to interest rate charged by informal lenders. These efforts of government have led to growth and emergence of microfinance. Microfinance is considered as a poverty alleviation tool for the poor. It is not only the provider of credit but also other financial and non-financial services like saving, insurance, technical assistance and training facility. Commercial banks, RRBs and NGOs are making a great contribution in this field. Most of the NGOs are involved in formation Self Help Group () which is linked to banks for providing financial help to poor. Microfinance institutes are the mainstream institute for providing microfinance. Some of the MFIs have organised as non-banking finance companies are also making contribution. But these MFIs need collateral and high documentation procedure like that of banks in which lot of time is consumed during the processing of loan. Due to certain limitation banks can never fill the gap thus microfinance plays strong and vital role. Poor are thrown into the vicious cycle of poverty by informal financial institutions. So microfinance is a way to get rid of that. It acts as an intermediary for bridging the gap by providing the facility of saving and getting credit so as to become socially and economically independent. In order to get the poor household free from the shackles of informal credit system microfinance has contributed a lot. Micro financing through is one of the best methods followed by government. Not only the government but also the NGOs are doing their part by formulation of self-help groups. Microfinance and its Growth in India Microfinance is considered to be recent concept in India. It is a concept of providing 53
small loan or financial help to poor and the needy people who are unable to access the services of formal banking sector. Microfinance is the provision of thrift, credit and other financial services and products of very small amounts to the poor for enabling them to raise their income levels and improve their living standards. It is very important for the growth of priority sector in India. Microfinance is a broader topic and must not be confused with microcredit which includes micro saving, microcredit and micro insurance and other non-financial services. Microfinance programmes has a positive impact on the life of poor as the main motto behind these programmes is to serve the poor by making them economically empowered. Microfinance has already made a positive impact on the quality of life of millions of poor. People by providing greater access to credit, savings, insurance, transfer, remittances and other financial services which would otherwise are unreachable. Micro finance is a financial service of small quantity provided by financial institutions to the poor. These financial services may include savings, credit, insurance, leasing, money transfer, equity transaction, etc. that is, any type of financial service provided to customers for meeting their normal financial needs (-bank linkage programme in Karnataka, 2005-2006). In 1969 major banks were nationalised to have balanced regional development as private sector was more concerned about profit and not about the people. Then on 2nd October, 1975 the first Regional rural bank was established in order to concentrate more on rural area i.e. the most neglected area. These banks were established on the recommendation of the Narasimhan committee and promoted by government of India, state government and commercial banks. Prathama bank, the first Regional Rural Bank was established with 50% ownership of government, 35% share of Syndicate bank and rest 15% of Uttar Pradesh government. This bank was the leader in the field of microfinance and followed its own model of microfinance i.e. Prathama model. The main objective of behind establishing these banks is to provide credit to rural sector for various purposes. Self Employed Women Association (SEWA) was registered in 1974 as trade union with purpose of empowering women in Gujarat. Mahila SEWA Sahkari bank was also opened and registered as a cooperative bank. Government also started the Integrated Rural Development Programme which was formulate to target the poorest section of rural population by providing them facilities at subsidized rate in 1978 but it was not a success. Number of research projects were conducted by NABARD in eighties and Mysore Resettlement Agency (MYRADA), The Asia Pacific Regional Agricultural Credit Association (APRACA) encouraged the agricultural and rural development finance institute to inculcate the saving behaviour and provide credit to poor household. It proved to be success in countries which had some informal self-help groups. NABARD in association with some institution of APRACA started a survey to study the functioning 54
55 Vol.2, No.3, July - September 2013 of and promotion of linkage of s with banks. Thus bank linkage programme was launched as a pilot project in 1992. bank linkage program is dominating the microfinance sector with the help of NGOs and banks. It is one of the cost effective tool of providing subsidised and concessional financial services. According to NABARD, there are only two models of microfinance in India i.e. bank linkage model and MFI bank linkage model. The self-help group are linked to banks like commercial banks, regional rural banks and cooperative banks in bank linkage model. These groups pool resources in monetary form and deposit these resources in bank by opening account in these banks and loan is granted as per need of group. Under MFI bank linkage model, mainstream MFI are linked to banks. Banks provide financial assistance to MFI so that these MFIs can further provide financial assistance to and other marginal borrowers. Review of Literature Various studies are made to know the concept of Microfinance and researchers have gone through the different studies on Microfinance. Few studies which are relevant to the study are as follows: Dahiya et al. (2001) made an analysis of the working of s in industrial district of Himachal Pradesh i.e. Solan district of Himachal Pradesh. The study revealed that members were mainly involved in small business. The interest rate charged on internal lending ranged from 24 to 60 per cent and the bank interest rate was 12.5 per cent. Investigation showed that there was a significant increase in annual income in post- period. This significant raise was very high for the newly formed groups. Gurumoorthy (2000) enlightened the s as a main option to achieve the goal of rural development and to get society contribution in all rural development programmes. It was an ordered set up to make available micro-credit to the rural women on the strength of the group savings without insisting on any collateral security for the purpose of cheering them to enter into entrepreneurial activities. Study by Basu and Srivastava (2005) highlighted the inadequacies in rural access to formal finance and the exploitative terms of informal finance, which provided a strong need for innovative microfinance approaches. The study took a survey of rural households from two big states of India-Andhra Pradesh and Uttar Pradesh. Investigation showed that 66 percent of the big farmers had a deposit account and 44 per cent had access to credit. Only, 30 per cent of the marginal/landless farmers had a bank account and 87 per cent had no access to credit from a formal resource. So, they had to depend on informal resources of finance.international Labour Organization (1998) concluded that microfinance had successfully increased micro-enterprises and self-employment. ILO has surveyed in 24 different countries and investigated 46 Microfinance Institutions (MFIs) which showed
that 74 per cent of MFIs had the self-employed as clients, 17 per cent had mainly selfemployed in their patrons and just 9 per cent had only a minority of self-employed amongst their clients. This survey has cleared the picture of different countries. Mishra et al. (2001) deliberated the effect of rural s on income among the beneficiaries identified the major problems faced by the s and suggested measures for overcoming these problems in Faizabad district of Uttar Pradesh which is close to the capital of U.P.i.e. Lucknow. The results of the survey showed that s have helped to increase the income of the participants by 10 to 15 percent. The foremost problems that the s faced were need of training facility. It was suggested by the researchers to involve Commercial Banks, RRBs and agricultural co-operative societies to provide liberal credit at cheaper interest rate through s in this study. Objectives of the Study To study the status of self-help group bank linkage programme in Himachal Pradesh. To find out the role of self-help group bank linkage programme in growth and development of microfinance sector in the state of Himachal Pradesh. Methodology Secondary data published by NABARD has been taken regarding the status of microfinance in Himachal Pradesh. Statistical and econometric tools like mean, coefficient of variance etc. are applied. The period for study is five years i.e. 2007-2008 to 2011-2012. Growth rate is calculated to see the growth of self-help group bank linkage programme in Himachal Pradesh. Status from Himachal Pradesh In northern region of India, Himachal Pradesh is on second place after Rajasthan with 65641 self-help groups linked with banks in 2011-2012. Out of these 65641, 29621 s are linked to commercial banks, 7101 are linked to regional rural banks and 28919 are linked to cooperative banks. During this year 4269 s were disbursed bank loans of 5324.46 lakh. In the year 2007-2008, 38591 s were linked to banks having savings of 2822.21 lakh and Himachal Gramin Bank and Parvatiya Gramin Bank are two regional banks which has disbursed loan of 690.91 lakh to 782 s during 2011-12.Growth rates for s and the growth rates of the saving amounts of those s with banks is calculated in this research paper. 56
Vol.2, No.3, July - September 2013 Progress under Microfinance Savings of with Bank in Himachal Pradesh Table 1 : Status of Microfinance Saving of s with Commercial banks (Amount in lakh in Indian rupees) Commercial Bank Year Saving Amount Saving Amt. 2007-08 26762 2213.32 0 0 2008-09 28658 2104.89 7.08-0.49 2009-10 26908 2000.36-6.11-0.5 2010-11 28571 1881.9 6.18-0.59 2011-12 29621 1362.48 3.68-2.76 Table 2 : Status of Microfinance Saving of s with Regional Rural banks (Amount in lakh in Indian rupees) Regional Rural Bank Year Saving Amount Saving Amt. 2007-08 4369 401.28 0 0 2008-09 4616 578.4 5.65 44.14 2009-10 6660 849.28 44.28 46.83 2010-11 5955 852.19-10.59 0.34 2011-12 7101 868.17 19.24 1.88 Table 3: Status of Microfinance Saving of s with Co-operative banks (Amount in lakh in Indian rupees) Co-operative Bank Year Saving Amount Saving Amt. 2007-08 7460 207.61 0 0 2008-09 8470 305.6 13.54 47.20 2009-10 16614 641.26 96.15 109.84 2010-11 18587 974.41 11.88 51.95 2011-12 28919 1057.97 55.59 8.58 57
Table 4: Combined Status of Microfinance Saving of s with Commercial banks, Regional Rural Banks and Co-operative Banks (Amount in lakh in Indian rupees) Year Total Saving Amount Growth rate of Saving Amount 2007-08 38591 2822.21 0 0 2008-09 41744 2988.89 8.17 5.91 2009-10 50182 3490.9 20.21 16.80 2010-11 53113 3708.5 5.84 6.23 2011-12 65641 3288.62 23.59-11.32 Average 49854.2 3259.82 11.56 3.52 Coefficient of variance 0.21 0.11 0.86 2.91 Graph 1: Combined Status of Microfinance Saving of s with Commercial Banks, Regional Rural Banks and Co-operative Banks (Saving amount in lakh in Indian rupees) 70000 60000 50000 40000 30000 20000 Saving Amount 10000 0 2007-08 2008-09 2009-10 2010-11 2011-12 58
Vol.2, No.3, July - September 2013 Graph 2: Combined Status of Growth Rate of s and Saving Amounts 30 25 20 15 10 5 0-5 -10-15 2007-08 2008-09 2009-10 2010-11 2011-12 Saving Amount. The growth rate of s linked with commercial banks is decreasing from year 2008-2009 to 2011-2012 and is also negative in year 2009-2010 i.e. -6.11% (Table-1). saving amount of s with commercial bank is negative for all the years. s linked with regional rural bank is highest in the year 2009-2010 i.e. 44.28%. The growth rate for saving amount is decreasing from 2007-2008 to 2011-2012 (Table-2). The growth rate of linked with cooperative bank and saving amount of those s is highest for the year 2009-2010 i.e. 96.15% and 109.84% respectively. The total growth rate for s linked to banks mentioned above is increasing initially but the growth rate of saving amount has decreased from 2008 to 2012 and is negative for the year 2011-2012 (Table-3). This data shows that more and more self-help groups are linked to banks but saving of s with banks is not increasing accordingly. Graphs also show the clear picture of it. So there is a need to develop a model by which growth rate of saving amount may increase with s in Commercial Banks, Regional Rural Banks and Co-operative Banks. It is clear from the above mentioned tables and graphs that s are the key concept for the growth of Microfinance sector in India. 59
Progress under Microfinance Bank Loan Disbursed to S in Himachal Pradesh Table 5: Status of Microfinance Loan Distribution by Commercial Banks (Amount in lakh in Indian rupees) Commercial Bank Year Bank Loan 60 Bank Loan 2007-08 2532 2382.86 0 0 2008-09 2952 2204.04 16.59-7.50 2009-10 1892 1948.48-35.91-11.60 2010-11 1801 2475.7-4.81 27.06 2011-12 1274 1651.26-29.26-33.30 Table 6 : Status of Microfinance Loan Distribution by Regional Rural Banks (Amount in lakh in Indian rupees) Regional Rural Bank Year Bank Loan Bank Loan 2007-08 1138 1188.13 0 0 2008-09 981 1219.65-13.80 2.65 2009-10 255 289.05-74.01-76.30 2010-11 1200 1847.8 370.59 539.27 2011-12 752 690.91-37.33-62.61 Table 7 : Status of Microfinance Loan Distribution by Co-operative Banks (Amount in lakh in Indian rupees) Co-operative Bank Year Bank Loan Bank Loan 2007-08 627 545.59 0 0 2008-09 1024 1008.34 63.32 84.82 2009-10 1700 1584.07 66.02 57.10 2010-11 2292 3005.93 34.82 89.76 2011-12 2243 2982.29-2.14-0.79
Vol.2, No.3, July - September 2013 Table 8: Combined Status of Microfinance Loan Distribution by Commercial Banks, Regional Rural banks and Co-operative Banks (Amount in lakh in Indian rupees) Year Total Bank Loan Growth rate of Bank Loan 2007-08 4297 4116.59 0 0 2008-09 4957 4432.03 15.36 7.66 2009-10 3997 3821.6-19.37-13.77 2010-11 5293 7329.43 32.42 91.79 2011-12 5269 5324.46-0.45-27.36 Average 4762.20 5004.82 5.59 11.66 Coefficient of variance 0.12 0.28 3.47 4.00 Graph 3: Combined Status of No. of s. and Bank Loan by Commercial Banks, Regional Rural Banks and Co-operative Banks (Bank loan in lakh in Indian rupees) 8000 7000 6000 5000 4000 3000 Bank Loan 2000 1000 0 2007-08 2008-09 2009-10 2010-11 2011-12 61
Graph 4: Combined Status of Growth Rates of s and Bank Loans by Commercial Banks, Regional Rural Banks and Co-operative Banks 100 80 60 40 20 Bank Loan 0-20 2007-08 2008-09 2009-10 2010-11 2011-12 -40 This data shows the growth rate of bank loan disbursed to s. Bank loan to s are sourced through NABARD. s linked to commercial banks is decreasing and negative in 2011-2012 i.e. -29.26%. So there is direct link between the growth rate of s and loan disbursed to these s. number of s as well as bank loan is negative in year 2011-2012. both s and bank loan is very high in the year 2010-2011. But in year 2011-2012 the percentage of growth has decreased drastically. Table 9: s linked with public sector commercial banks as on 31st March 2012 in Himachal Pradesh (Amount in lakh in Indian rupees) Name of banks Details of s Saving Out of Total s Out of Total s linked with Banks Under SGSY Scheme Exclusive Women s No. of member Saving amount No. of Saving member amount No. of member Saving amount Allahabad Bank 14 140 1.2 14 140 1.2 14 140 1.2 Bank of Baroda 120 1200 12.22 0 0 0 1 10 0.5 Bank of India 58 485 11.85 51 485 11.85 0 0 0 Canara Bank 129 1540 5.2 70 680 1.89 120 1690 3.35 Central Bank of India 424 4371 50 350 3665 37 334 3483 35 Indian Bank 45 810 2.27 13 208 0.75 45 802 2.25 Punjab National Bank 18567 185670 603.24 468 4680 52.69 12807 128070 460.43 Punjab & Sind Bank 62 625 8098 12 122 1.39 40 408 5.62 State Bank of India 7222 86664 131 841 10096 14 5778 69341 105 State Bank of Patiala 1865 27975 144.26 805 12520 110.5 660 8615 102.5 Syndicate Bank 1 15 0.06 0 0 0 0 0 0 UCO Bank 1114 11742 392.2 696 7670 233.65 818 9255 329.6 Total 29621 321237 1362.48 3320 40266 464.92 20617 221814 1045.45 Source: Status of microfinance in India 2011-2012, NABARD 62
Vol.2, No.3, July - September 2013 Table-9 shows the contribution of public sector banks towards the Self Help Group Bank linkage programme. Punjab National bank is linked to most of the s out of various banks. The data shows that the women play a vital role in formation of s out of 29621 s linked to public sector commercial banks, 20617 s have women as members in Himachal Pradesh. The second place is held by State Bank of India in which 7222 s are linked to the bank having saving amount of 131 lakh with 86664 members. Out of total s 5778 are exclusively women s with saving amount of 105 lakh. Syndicate bank has the least contribution toward the Self Help Group Bank Linkage programme with only one linked to the bank in the year 2011-2012.NGOs are also acting as an intermediary for the promotion of s and linking these to banks in Himachal Pradesh. 9987 Self-help groups are promoted during the year 2011-2012. Hence NGOs are also playing a vital role for the betterment of the poor people. Conclusion NABARD is really playing a vital role in the growth of microfinance sector by promoting self-help group bank linkage programme. Various innovative products and programmes are launched by NABARD for reaching poor and fulfilling their needs. bank linkage programme is one of the most widely accepted microfinance programme. As per the data available commercial banks are contributing the most toward the growth of bank linkage programme in Himachal Pradesh. NGOs are acting as s promotion institute for the benefit of poor household and making accessible to the financial services which were not available to them earlier. References 1. Basu, P. and Srivastava, P. (2005), Scaling-up Microfinance for India s Rural Poor, World Bank Policy Research Working Paper [ No. 3646], World Bank, Washington, DC. 2. Dahiya, Prem Singh, Pandey, N.K., and Karol, Anshuman (2001), Socio-economic Evaluation of Self-help Groups in Solan District of Himachal Pradesh: Impact, Issues and Policy Implications, Indian Journal of Agricultural Economics, Vol. 56, No. 3, pp. 486-87. 3. Gurumoorthy, T. R. (2000), Self-Help Groups Empower Rural Women, Kurukshetra, Vol. 48, No. 5, pp. 31-37. 4. Hema, B. (2003), Bank Linkage Programme: An Overview, Journal of Microfinance,Vol. 5, No. 1, pp. 21-49. 5. ILO (1998), Enterprise Creation by the Unemployed: The Role of Microfinance, 63
Paper Presented in International Conference on Self-employment, 24-26 September, Burlington. 6. Mishra, J. P., Verma, R. R. and Singh, V. K. (2001), Socio-economic Analysis of Rural Self-help Groups Schemes in Block Amaniganj, District Faizabad (Uttar Pradesh), Indian Journal of Agricultural Economics, Vol. 56, No. 3, pp. 473-74. 7. NABARD (2006), -Bank linkage programmes in Karnataka, Annual Report 2005-2006. 8. Satish, P. (2005), Mainstreaming of Indian Microfinance, Economic and Political Weekly, Vol. 4, No.17, pp. 131-139, Available at : http://www.jstor.org/stable/ 4416532 (Accessed on 2nd July 2013) 9. Websites (Electronic resources): www.rbi.org.in (Accessed on 1st July 2013) www.nabard.org (Accessed on 25th June 2013) 64