CHAPTER IV INSTITUTIONAL SUPPORT TO MICROFINANCE IN INDIA

CHAPTER IV INSTITUTIONAL SUPPORT TO MICROFINANCE IN INDIA

CHAPTER-IV INSTITUTIONAL SUPPORT TO MICROFINANCE IN INDIA 4.1. Introduction:- The purpose of this chapter is to examine the role and performance of various institutions that are associated with the microfinance activity in India. The institutions supporting microfinance in India can be broadly classified into two categories, i.e. formal institutions and the semi formal institutions. An attempt is made here to examine the performance of some of the major contributing agencies. 4.2. Microfinance Institutions:- 4.2.1. Formal Institutions:- The formal institutions consist of Regional Rural Banks (RRBs), Cooperative Societies, Commercial Banks, Housing Finance Institutions (HFIs), National Bank for Agriculture and Rural Development (NABARD), Rural Development Banks (RDBs), Land Development Banks (LDBs) and Cooperative Banks (CBs), Cooperative Structures, the Urban Cooperative Banks (UCB) or Urban Credit Cooperative Societies (UCCS). Among the formal institutional agencies Land Development Bank, Housing Finance Institutions, Urban Cooperative Banks (UCB) and Urban Credit Cooperative Societies (UCCS) and the like have not been playing a significant role in contributing for the development of SHGs or microfinancing activity. So their details have not been covered in the analysis. A brief analysis of the performance of the NABARD is given below. 128

4.2.1.1. National Bank for Agriculture and Rural Development (NABARD):- In the process of rural development and eradication of poverty, it has been emphasized that the poor dwelling in rural areas should be provided with financial assistance to achieve their economic stability and sustenance. Having realized this, the Government of India, set up an apex development bank on July 12, 1982, by an Act of Parliament. Accordingly, the National Bank for Agriculture and Rural Development (NABARD) was established to finance and promote agriculture, small-scale industries, cottage and village industries, handicrafts and other rural crafts so as to achieve integrated rural development. NABARD operates through its Head Office at Mumbai. It has 26 Regional Offices, and a sub-office in each State capital / Union Territory. Besides, it has 234 district offices spread all over the country. Promoting sustainable and equitable agriculture and rural development through effective credit support, related services, institution buildings and other innovative initiatives for alleviation of poverty is the mission of NABARD. 124 NABARD and Microfinance: Economic empowerment of rural poor by improving their access to the formal financial system through various delivery system innovations in a cost effective and sustainable manner is the vision of NABARDs in promoting microfinance in India. Microfinance against poverty has been recognized as one of the tools by a number of countries including India. The new generation financial institutions with innovative financial products and approaches are coming up in different parts of the country. The natural tendency of rural poor to unite for a common purpose does not 124 SIDBI Report, Micro Finance Sector in India: Developments, Trends, Problem and Prospects, SIDBI Report on SSI Sector, 2000, P: 173. 129

necessarily fructify in harmonious activities due to several factors such as illiteracy, lower access to resources, social conflicts, etc. thereby necessitating a change agent to sow the seeds of association and provide a rallying point. 125 NABARD has brought into operation a framework for developing Self-Help Groups (SHGs) as community based financial structures and using them as channels for lending by the formal banking system. The objective of this programme is to evolve supplementary credit strategies for meeting the credit needs of the poor by combining flexibility, sensitivity and responsiveness of the informal credit system with the strength of technical and administrative capabilities and financial resources of the formal financial institutions. The salient features of the programme include: Hundred per cent refinance to Banks for loans given to SHGs Repayment period of loans by banks to SHGs varies from two to three years Repayment period of loans by SHGs to members is flexible Banks lend directly to SHGs at 12 per cent per annum Banks lend to NGOs at 10.5 per cent per annum with on-lending rate fixed at 12 per cent Banks receive refinance from NABARD at 6.5 per cent. Bulk loans to NGOs are in the range of 6.5 9.0 per cent Policy guidance, technical and promotional support for capacity building of NGOs and SHGs and training support to banks are also provided. 126 role: NABARD provides the following services in addition to its policy advocacy 1. Refinance to banks at 100% at a concessional rate of interest at 6.75% p.a. and financial assistance provided to banks to function as promoting institutions. 2. Workshops, training programmes, seminars at various levels for bankers and NGO employees in order to build trust and confidence between the banks and the rural poor. 3. Facilitating training of bank officials and field staff of NGOs. 4. Providing selective capacity building support to NGOs, SHGs, Federations of SHGs, and the related institutions in the form of revolving fund assistance, training facility and other support. 127 125 Kishanjit Badu, Krishan Jindal, Microfinance Emerging Challenges, TATA McGraw HILL, New Delhi, 2000, P:273-317. 126 Op. Cit., SIDBI Report, P: 173. 127 Meera Lal, SHG-Bank Linkage in India: Empowerment and Sustainability, B.R. Publishing Corporation, Delhi, 2007, P: 126-132. 130

Most outstanding role of NABARD building commitments through capacity building by: Designing separate training modules Developing separate course materials Content and delivery enrichment by training tools, training methodologies Identifying and developing new training partners Organizing Workshops, training programmes, seminars at different levels for bankers, for NGO employees including field staff Providing selective capacity building support to NGOs, SHGs, Federations of SHGs and related institutions. Training has prepared the ground for SHG-Banking and contributed most to the building trust and confidence between the banks and the rural poor. More than 7000 orientation programmes were funded Credit and Financial Services Fund (CFSF) and guided to establish the new capacity required. 128 Financial Support and Promotional Efforts by NABARD:- 1. Refinance Support to Banks:- NABARD provides refinance support to banks to the extent of 100% of the bank loans disbursed to SHGs. The total refinance disbursed to banks against their loans to SHGs during the year 2006-07 was Rs. 1,292.86 crore. During the year 2007-08, the total refinance disbursed to banks was Rs. 1,615.50 crore with the growth rate of 30 per cent. During the year 2008-09, the more growth rate was registered at 62.2 per cent when compared to the previous year, as an amount Rs. 2,620.03 crore had been disbursed to banks. During the year 2009-10, the total refinance disbursed to banks against banks loans to SHGs was Rs. 3,173.56 crore, and registered a growth of 21.1 per cent comparing with amount of Rs. 2,620.03 crore in 2008-09. The refinance support from NABARD, however, continues to supplement resource mobilization for the programme. During 2010-11, NABARD extended 128 Dr. Erhard.W.Kropp, Dr. B.S. Suran, Linking Banks and (Financial) Self Help Groups in India An Assessment, Seminar paper on SHG-bank Linkage Programme, New Delhi, November 2002, P- 27-28 131

refinance to the extent of Rs. 2,545.36 crore as against Rs. 3,173.56 crore disbursed during the previous year, registering a declining growth rate of 19.8 per cent. Cumulative disbursement of refinance by NABARD to SHG lending now stands at Rs. 15,407.01 crore. From the above data the NABARD extended refinance to the extent of Rs. 2,545.36 crore during 201o-11 and 11.96 lakhs SHGs have been financed by banks, with bank loans of Rs. 14,547.73 crore. As the result, the gap between the total loans issued by banks to SHGs and the refinance extended by NABARD for such loans is widening as would be seen from the graph below. Figure-IV.1 Loans issued to SHGs by Banks and NABARD's Refinance to Banks Rs. In Crores 16000 14000 12000 10000 8000 6000 4000 2000 0 14453.3 14547.73 12253.51 2620.03 3173.56 2545.36 2008-09 2009-10 2010-11 Years Loans to SHGs by Bank NABARD Refinance to Banks 132

2. Promotional Support SHG-Bank Linkage: i. Micro Finance Development and Equity Fund (MFDEF): Recognizing the need for up scaling the microfinance interventions in the country, the Hon ble Union Finance Minister, while presenting the budget for the year 2000-01, announced the creation of a Micro Finance Development Fund (MFDF) with initial contribution of Rs. 100 crore to be funded by Reserve Bank of India and NABARD Rs.40 crore each and the balance Rs. 20 crore to be contributed by commercial banks. In the Union Budget for 2005-06, the Government of India had decided to re-designate the existing MFDF as Micro Finance Development and Equity Fund (MFDEF) and raised its corpus from Rs. 100 crore to Rs. 200 crore with the similar ratio of contribution from the above banks. The MFDEF is managed and administered by NABARD. The objective of MFDEF is to facilitate and support the orderly growth of the microfinance sector through diverse modalities for enlarging the flow of financial services to the poor, with consistent sustainability particularly for women and vulnerable sections of society. To strengthen the efforts of NABARD towards promotional support for micro finance, the Government of India in the Union Budget for 2010-11 had further increased the corpus of Micro Finance Development and Equity Fund (MFDEF) to Rs. 400 crore. The fund is being utilized to support various promotional activities like grant assistance to Self Help Promoting agencies (SHPIs), funding of training and capacity building of microfinance clients and stakeholders of the SHG-Bank linkage programme, support to MFIs, for supporting introduction of Management Information System (MIS) for the sector and for helping research, studies and publications concerning microfinance related issues. 133

For fulfillment of above mentioned requirements, an amount of Rs. 47.48 crore was disbursed from MEDEF during the year 2010-11 i.e. an amount of Rs. 29.95 crore as grant towards various promotional activities and Rs. 17.45 crore as Capital Support and Revolving Fund Assistance to MFIs. It is observed that the creation of MFDEF by NABARD is a significant step forward in the promotion of Microfinance activity and its contribution was significant. ii. Training and Capacity Building:- NABARD continued to organize / sponsor training programmes and exposure visits for the benefit of officials of banks, NGOs, SHGs and government agencies to enhance their effectiveness in the field of microfinance. Hence, not only Training supplements but also materials were supplied to banks and other agencies to lead their activities effectively. Best practices and innovations of partner agencies had widely been circulated among government agencies, banks and NGOs. During the year 2006-07, support fund of Rs. 5.80 crore was provided for capacity building, exposure and awareness building. During the same year, 5,173 training, capacity building programmes were conducted covering 2,68,078 participants. During the year 2007-08, support fund of Rs. 6.24 crore was provided for capacity building, exposure and awareness building. During the same year 6,601 training / capacity building programmes were conducted covering 3,71,398 participants. When making comparison to the last year, the notable thing during the year 2008-09 is that fund support was reduced from Rs. 6.24 crore to Rs. 6.10 crore for capacity building, exposure and awareness building. Mean while training / capacity building programmes had also been fallen from 6,601 to 6,278 covering 2,83,998 participants only. 134

There was enormous change in fund support during 2009-10, for capacity building, exposure visits and awareness building, for which Rs. 9.93 crores was sanctioned. Where as, the cumulative fund support for the above purpose as on 31 March 2010 stood at Rs. 45.02 crore. During 2009-10, 6,804 training / capacity building programmes were conducted covering 2,53,868 participants. While during 2010-11, nearly 2,05,798 training / capacity building programmes were conducted covering 26,60,818 participants (as shown in Table-IV.1). The data clearly shows that there was a forty fold rise in the number of programmes conducted by NABARD during a very short span of only four years between 2006-07 and 2010-11. Similarly, there was an impressive growth of ten times in the number of participants, who got benefited by the programmes of NABARD during the same period. One can therefore conclude that the NABARD has contributed enormously for the growth and advancement of Microfinance activity in India, specifically towards a vital aspect of Training and Capacity Building. 135

Sl. No. 1. 2. 3. 4. 5. 6. Table-IV.1: Training and Capacity Building Programmes 2006-07 to 2008-09 Programme Awareness creation and capacity building programmes organized for SHG members in association with identified resource NGOs, covering participants to inculcate skills for managing thrift and credit. Awareness-cum-refresher programmes conducted for NGOs, including CEOs. Training programmes conducted for bankers covering officials of Commercial Banks, RRBs and Co-operative Banks. Exposure visits for bank officials / NGOs to agencies pioneering in micro finance (MF) initiatives. Field visits of Block Level Bankers Committee (BLBC) members to nearby SHGs Programmes for the elected members of Panchayati Raj Institutions (PRIs) to create awareness among them about the MF initiatives. No. of Progra ms Condu cted 2006-07 2007-08 2008-09 2009-10 2010-11 No. of No. of No. of No. of No. of No. of Progra No. of Progra No. of Progra Participa Programs Participa ms Participa ms Participa ms nts Conducte nts Condu nts Condu nts Condu d cted cted cted No. of Participants 3,494 2,01,588 4,121 2,68,870 3,122 1,41,984 1,991 83,131 96,597 16,43,199 146 4,901 141 3,996 324 18,594 1,130 35,648 4,939 97,436 536 19,063 517 20,838 585 23,848 462 14,945 31,324 2,93,183 70 1,864 66 2,754 25 630 14 387 164 8,831 200 9,766 206 4,877 193 4,507 227 5,880 4,581 60,473 18 661 38 1,423 54 2,014 80 2,799 2,161 14,766 7. Training & Exposure programmes for government officials 137 5,734 258 9,706 55 1,870 79 3,385 597 62,486 8. Other training programmes for microfinance sector 447 18,884 704 34,523 866 42,282 1,181 65,029 802 2,81,846 9. Micro Enterprises Development Program (MEDP) - - 428 13,985 879 41,479 1,530 38,313 60,160 1,31,678 10. Training to Micro Enterprise Promoting Agencies (MEPAS) - - 15 534 - - 36 1,000 0 1,534 11. Meetings and Seminars (Bankers; NGO Officials, etc.) 125 5,617 107 9,892 175 6,790 74 3,351 4,473 79,079 Total 5,173 2,68,078 6,601 3,71,398 6,278 2,83,998 6,804 2,53,868 2,05,798 26,60,818 Source: NABARD. 136

iii. Micro Enterprise Development Programme (MEDP) for Skill Development:- The MEDP programme was launched in March 2006 with the basic objective of enhancing the capacities of the members of SHGs to take up micro enterprises through appropriate skill up-gradation / development in the existing and new livelihood activities both in farm and non-farm sectors. It is tailor-made and focused on skill building training. The duration of training programme ranged from 3 to 13 days, depending upon the objective and nature of training. A training budget of Rs. 30,000/- per programme is earmarked for imparting training to 30 participants for 13 days. The dominant activities in agriculture and allied sector covered under MEDPs were bee-keeping, mushroom cultivation, vermin-compost / organic manure, animal husbandry, horticulture, flora, etc. whereas predominant non-farm activities taken up under MEDPs were agarbatti-making, embroidery, bamboo-craft, beauty parlours, ready made garments, ect. During 2006-07, a total of 297 Micro Enterprise Development Programmes (MEDPs), both under farm and non-farm activities were conducted covering 7,579 members of the matured SHGs. During 2007-08, 131 extra Micro Enterprise Development Programmes (MEDP), both under farm and non-farm activities, were conducted across the country with the support of Rs. 56.39 lakh covering 13,985 members of the matured SHGs. In the year 2008-09, 879 Micro Enterprise Development Programmes (MEDP) were conducted across the country covering 41,479 members of the matured SHGs. In the year 2009-10, a total of 1,530 MEDPs, both under farm and non-farm activities were conducted across the country covering 38,312 members of the matured 137

SHGs. Cumulatively, a total of 2,837 MEDPs have been conducted so far covering 93,777 participants. From the above analysis, it is observed that, in the case of Micro Enterprise Development Programme for skill development, 44 per cent growth rate was registered in 2007-08, where as it was 105 per cent growth rate in 2008-09 and but 74 per cent in 2009-10. In the case of the members of the matured SHGs under this programme, 85 per cent growth rate was registered in 2007-08, where as in 2008-09 197 per cent growth rate was registered but a negative growth rate of 7.6 per cent in 2009-10. It is observed that the MEDP programme is very useful to the matured SHGs to enhance their income levels through appropriate skill up-gradation on farming and non-farming activities under this programme. Thus, the number of programmes has increased and the coverage of participants also increased every year, but in 2009-10 the number has fallen down showing a negative growth rate. iv. Grant Support to Partner Agencies for Promotion and Nurturing of SHGs:- NABARD has been instrumental in the formation and nurturing of quality SHGs by means of giving promotional grant support to NGOs, RRBs, DCCBs, Farmers Clubs and Individual Rural Volunteers and by developing capacity building of various partners, which has brought of various partners together and brought about excellent results in the promotion and credit linkage of SHGs. Further, the number of partner institutions functioning as Self-Help Promoting Institutions (SHPIs) over the years has increased to 2,592 the number of cumulative sanctions have resulted in the expansion of the programme throughout the country. During the year 2008-09, the financial support provided by NABARD to its partner institutions and their progress in promoting SHGs / linkage are indicated in Table-IV.2. 138

Table-IV.2: Grant Support to Partner Agencies (Rs. In Lakhs) Cumulative Sanctions during Sanctions during Sanction during Sanction during Sanction upto Agency 2006-07 2007-08 2008-09 2009-10 2010-11 No. of No. of No. of No. Amount No. of Amount No. of No. Amount No. Amount No. Amount SHGs SHGs SHGs SHGs SHGs Co-operatives 8 64.10 6,200 6 45.70 3,400 12 136.92 9,465 7 63.23 5,230 739.31 66,955 RRBs 1 12.30 850 1 22.35 1,750 2 20.70 800 4 40.14 3,395 445.44 49,335 NGO s 352 1,110.66 40,562 351 1,166.13 40,194 311 1,564.29 46,504 306 2,620.10 53,393 12,626.84 4,14,338 Farmers Clubs - - - - - - - - - - - - 82.43 7,628 IRVs (2023) 23 216.90 12,050 14 135.59 7,533 6 46.62 2,590 2 154.70 9,250 728.38 42,923 Total 384 1,403.96 59,662 372 1,369.77 52,877 331 1,768.53 59,359 319 2,878.17 71,268 14,622.40 5,81,179 Source: NABARD According to Table-IV.2, the grant support of NABARD to its partner agencies like Co-operatives, RRBs, NGOs and IRVs was noteworthy. During 2006-07 and 2009-10, considerable amounts were sanctioned by NABARD to these agencies, and every year more than 59,000 SHGs were sanctioned with the grant. The cumulative sanctioned amount, Rs. 14,622 lakhs for 5,80,000 SHGs was significantly large. It can therefore be concluded that the NABARD has discharged its duties in the promotion of Microfinance activity considerably. 139

v. Special initiative for scaling up SHGs / SHG Federations:- The NABARD has been associated with Rajiv Gandhi Charitable Trust (RGCT) for promotion, credit linkage and formation of SHG Federations in selected districts of Uttar Pradesh. The project envisages promotion and credit linkage of 22,000 SHGs, 1,100 cluster level associations and 44 block-level associations in collaboration with participating banks and performing NGOs. The project would cover 15 and 29 blocks under phase I and II respectively in 12 districts of Uttar Pradesh viz. Sultanpur, Rae Bareli, Barabanki, Pratapgarh, Lucknow, Unnao, Fatehpur, Jhansi, Lalitpur, Bahraich, Shravasti and Banda. NABARD and RGCT have designed the project with technical assistance of Society for Elimination of Rural Poverty (SERP), Government of Andhra Pradesh. By the end of 31 March 2009, a total of 7,808 SHGs promoted, of which 3,972 SHGs credit linked. In addition to the above 273 village level and 14 Block level SHG Federations were formed; then the phase II of the project was launched on 01 January 2009 and 8,467 SHGs promoted, of which 3,378 SHGs were credit-linked. As at the end of 31 March 2010, the number of SHGs promoted were 21,868, of which 12,749 have been credit linked. In addition, 676 village level and 15 block level SHG Federations were formed under Phase I and II. All this shows that the contribution of the NABARD in respect of special initiative for scaling up SHGs is encouraging and satisfactory. 140

3. Promotional Support-MFI Bank Linkage:- The NABARD has taken various initiatives to support Micro Finance Institutions (MFIs) also to strengthen them as detailed below. (i) Rating of Micro Finance Institutions (MFIs):- In order to identify, classify and rate Micro Finance Institutions (MFIs) and empower them to function as intermediaries between the lending banks and the clients, the NABARD had introduced a scheme for providing financial assistance to Commercial Banks, Regional Rural Banks and Co-operative Banks by way of grant after availing of the services of accredited rating agencies for rating of MFIs. The Banks can avail the services of credit rating agencies viz. Credit Rating Information Services of India Ltd. (CRISIL), Microcredit Ratings International Limited (M- CRIL), ICRA, Cooperative for American Relief Everywhere (CARE) and Planet Finance for rating of MFIs and avail financial assistance by way of grant to the extent of 100% of the total professional fees of the credit rating agency, subject to a maximum of Rs. 1.00 lakh. The facility is available for the first rating of an MFI with a minimum loan outstanding of Rs. 50.00 lakh and maximum loan outstanding of Rs. 500.00 lakh. The scheme was operational up to 31 March 2010. During the year 2008-09, a new scheme was introduced in which 100% of the professional fees of the Credit Rating Agency (CRA), subject to a ceiling of Rs. 3.00 lakh was to be borne by NABARD in respect of only those MFIs approaching NABARD directly for capital / equity support and / or Revolving Fund Assistance (RFA) from Micro Finance Development and Equity Fund (MEDEF). The criterion for eligibility for MFIs is minimum loans outstanding of Rs. 50 lakh. During 2009-10, the scheme was refined and the grant support was increased to a maximum of Rs. 3,00 lakhs. The facility is available for the first rating of an MFI 141

with a minimum loan outstanding of Rs. 50.00 lakh and maximum loan outstanding of Rs. 10 crore. During the same year a grant support of Rs. 15.83 lakh was provided for rating of 13 MFIs to Banks etc. In order to help these MFIs to have access to funds from banks, NABARD introduced a scheme wherein the financing banks like Commercial Banks, Regional Rural Banks and Cooperative Banks were extended financial assistance by way of grants to engage the services of rating agencies like CRISIL, M-CRIL, ICRA, CARE and Planet Finance to take up the rating of such MFIs. During 2010-11, Rs. 19.04 lakh was prvided to the Banks for rating of 15 MFIs. (ii) Capital / Equity Support to Microfinance Institutions:- In pursuance of the announcements made in the Union Budget 2005-06, a scheme called Capital / Equity support to MFIs from MFDEF was announced under which capital / equity support to various types of MFIs would be provided to enable them to leverage capital / equity for accessing commercial funds and banks. During 2006-07, three MFIs were sanctioned equity / capital support of Rs. 100 lakhs each. During 2007-08, eight MFIs were sanctioned capital support of Rs. 625.00 lakh. Thus, a cumulative amount of Rs. 925 lakh was sanctioned under the scheme and an amount of Rs. 900.00 lakh was released. During the year 2008-09, capital support amounting to Rs. 11.75 crore was sanctioned to 13 agencies taking the cumulative support of Rs. 21.00 crore covering 24 agencies under the scheme and an amount of Rs. 17.00 crore have been released so far. During 2009-10, NABARD introduced a new scheme for Capital Support to start-up MFIs having potential to scale-up their activities, but lacking in capital, infrastructural facilities and managerial skills. The Micro-Finance Organisations (MFOs) and the MFI-NBFCs, identified as start up on the basis of area of operation, 142

client out reach, lending model, borrowing history, etc., are eligible for support under the scheme. Financial support will be in the form of subordinated debt which shall be sub-ordinate to the claims of all other creditors. The quantum of support would be commensurate with the business plan of the MFO / MFI-NBFC but not exceeding Rs. 50 lakh in any case. The rate of interest was fixed at 3.5 per cent to be repaid over a period of 7 years including moratorium of 2 years. During 2009-10, under capital support scheme, 10 proposals amounting to Rs. 6.87 crore were sanctioned to 10 MFIs and disbursed Rs. 7.87 crore. The outstanding under capital support as on 31 March 2010 was Rs. 24.17 crore against 13 MFIs. As many as 40 MFIs have so far been sanctioned capital support to the extent of Rs. 2,739.67 lakh during the year 2010-2011. (iii) Revolving Fund Assistance (RFA) to MFIs:- The NABARD provides loan funds in the form of Revolving Fund Assistance (RFA), on a Selective basis to MFIs. The RFA provided to these agencies is necessarily to be used for on-lending to SHGs or individuals and the amount is to be rapid along with the service charge between 6.5% and 9.5% within a stipulated period of 3 to 7 years. This enables them to build a history, which would help them to access credit facilities through the regular banking channels. During 2006-07, RFA of rupees one crore was sanctioned to Rashtriya Gramin Vikas Nidhi, Guwahati (Assam). Cumulatively, RFA of Rs. 2,832.00 lakhs was sanctioned to 32 agencies and an amount of Rs. 2,163.8 lakh was released against which Rs. 615.2 lakh remains outstanding against 9 agencies. During 2007-08, RFA of Rs. 806.00 lakh was sanctioned Rs. 500 lakhs for FWWB, Rs. 25.00 lakh for GRISERV, Rs. 10.00 lakh for RBAN, Rs. 200.00 lakh for SKDRDP, Rs. 66.00 lakh for additional sanction to post office, Tamil Nadu, and 143

Rs. 5.00 lakh for Post Office, Shillong. Cumulatively, Revolving Fund Assistance (RFA) of Rs. 3,638.00 lakh was sanctioned to 35 agencies and an amount of Rs. 2,598.94 lakh was released and an amount of Rs. 749.96 lakh stands outstanding. Till 31 st March 2011, 42 MFIs were sanctioned RFA to the extent of Rs. 6,078.60 lakh. The actual amount drawn was Rs. 5,725.40 lakh and the amount outstanding as on March 2011 was Rs. 4,615.19 lakh. Formal Financial Institutions in the country have been playing a leading role in the microfinance programme for more than 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 gross root level. Other Promotional Activities of NABARD: - NABARD has been playing the role of propagator and facilitator by providing a conducive policy environment, training and capacity-building besides extending financial support for the healthy growth of the SHG-bank linkage programme in the country. under: Over the years, the various promotional steps taken up are enumerated have conceptualization and introduction of pilot programme in February 1992 for linking 500 SHGs with banks after consultations with Reserve Bank of India, banks and NGOs introduction of Bulk Lending Scheme in 1993 for encouraging the NGOs which were keen to try group lending approach and other financial services delivery innovations in the rural areas developing a conducive policy framework through provision of opening savings bank accounts in the names of SHGs (though they are informal groups), relaxation of collateral norms, simple documentation and delegation of all credit decisions and repayment terms to SHGs 144

training and awareness building among the stakeholders provision of capacity-building support of NGOs/SHGs/Banks mainstreaming the SHG-bank linkage programme as part of corporate planning and normal business activity of banks in corporate planning and normal business activity of banks in 1996 and internalizing training, monitoring and review mechanism encouraging banks (RRBs and cooperative banks) for promotion of SHGs financial support to NGOs for promotion of SHGs encouraging rural individual volunteers in promotion and nurturing of SHGs and close monitoring dissemination through seminars, workshops, occasional papers and point media constitution of a high powered task force to look into the aspects of policy and regulation of microfinance and suggest policy, legal, regulatory measures for smooth, unhindered growth of the microfinance sector Setting up a Microfinance Development Fund in NABARD for meeting the promotional costs of up scaling the microfinance interventions. The fund has since been re-designated as Microfinance Development and Equity Fund (MFDEF). Initiating the credit rating of MFIs through Accredited Credit Rating Agencies in India by meeting 75 per cent of the cost of the rating as grant. This is done to enable the MFIs to approach banks for commercial borrowing and extending microcredit to the poor. 129 The detailed account of NABARD s contribution in the promotion of Micro financing activity in India, as picturised above, indicates clearly that its role was sufficient and impressive as far as the physical dimensions like number of SHGs assisted, amounts sanctioned and other promotional activities are concerned. 129 Karmakar, K.G., Microfinance in India, SAGE publications India Pvt. Ltd., New Delhi, 2008, P: 117-119 145

4.2.1.2. Performance of Commercial, Regional Rural and Cooperative Banks:- Around the world, the well developed and inclusive financial systems are associated with faster growth and better income distribution. Finance helps the poor to catch up with the rest of the economy as it grows. Finance also helps extend the range of individuals, households and firms and get a foothold in the modern economy. It reduces damaging concentrations of economic power. By and large, thanks to the microfinance, there is now a growing appreciation of the empowerment dimension of finance, of the extent to which it can give ordinary people and the poor access to opportunity and the ability to escape from the ossified social structures. In India, since the early national plans, successive governments have emphasized the role of finance in promoting equitable growth. With the overwhelming majority of India s poor living in rural areas, policies aimed at financial inclusion have understandably had a rural focus. The objectives of broadbased financial development that would allow financial institutions to mobilize savings throughout the economy and allocate them to agriculture and small industry, particularly in the countryside, motivated the establishment of a vast network of rural cooperative banks in the 1950s. Other institutions were built at the national, state, district and village levels to intermediate savings and credit for investment. But big corporation, with majority ownership in many of the commercial banks, was cornered with much of the bank credit. There were also many bank failures in the early 1960s, affecting the flow of credit to agriculture and small industry. As the desired policy objectives were not being met, a drive to nationalize commercial banks was launched by Indira Gandhi in 1969. Nationalization had four goals: to prevent a few corporations from controlling all the banks; to mobilize the savings of the public (including from remote areas); to limit the concentration of 146

wealth and economic power in the hand of few by using resources mobilized by banks to achieve egalitarian growth; and to pay more attention to priority sectors (agriculture and small industry). Between 1969 and 1980, thousands of new bank branches were established across rural India. Throughout this period, the strategy for banking was shaped as per the goal of serving better the needs of the development of the economy in conformity with the national policy and objectives. Social benefit rather than profitability was the overriding objective and the two were not seen as naturally compatible. The strategy during the 1970s and 1980s gave the lead role to the nationalized commercial banks, which were charged with loosening the grip of traditional informal sector through the use of targeted, low-priced loans. Over the years, Indian banking has certainly become more inclusive. But the majority of the rural population still does not appear to have access to finance from a formal source, and the poor face particularly severe problems in getting finance. The nationalized banks also have become important instruments for advancement of rural banking in addition to cooperatives and SBI. To supplement the efforts of cooperatives and commercial banks was the establishment of 196 RRBs since 1975 in various states with equity participation by central/state governments and commercial banks. The institutional mechanism was further supplemented by licensing 10 Local Area Banks in 1996-97. There are over 1,05,735 cooperative societies, 12,590 branches of 365 DCCBs. The (pre-merger) 196 RRBs have 11,825 rural and 2,153 semi-urban branches, 445 branches in urban/metropolitan areas. The 99 Commercial Banks have 20,253 rural and 12,522 semi-urban branches. Besides there are 31 State Cooperative Banks (SCBs) with 885 branches and 20 SCARDBs and 768 PCARDBs with 863 and 1,008 branches respectively. This is all for the advancement of rural banking. 147

The share of commercial banks and cooperative banks in rural household debt increased from just 10.7 per cent in 1961 to 22.5 per cent in 1971 and then rose sharply to 57.2 per cent in 1981. In the decade that followed, the share of banks remained more or less stable, while that of cooperatives declined slightly. The share of moneylenders declined over the decades. The above data is from All India Debt and Investment Survey. The majority of the rural population still does not appear to have access to finance from a formal source in spite of the progress made over the decade. Some 59 per cent of rural households do not have a deposit account and 79 per cent of rural households have no access to credit from a formal source according to the RFAS 2003. The access to finance for the poorer households is service in rural areas. The branches of most of the banks in rural areas appear to serve primarily the needs of richer borrowers. The statistics say that some 66 per cent of large farmers have deposit accounts 44 per cent have access to credit. Whereas 70 per cent of marginal farmers do not have a bank account and 87 per cent have no access to credit from a formal source. The micro enterprise i.e. the commercial households is another segment that faces serious problems in accessing formal finance. Amongst formal institutions, commercial banks are by far the most dominant source of formal finance for rural households. They account for 51 per cent of household deposit, and are also the most important source of credit for those rural households who have access to the formal sector. Regional Rural Banks (RRBs) account for 34 per cent of household deposits and 31 per cent of credit. Other formal sources, such as cooperatives and post office branches, appear to play a modest role in providing savings and credit services to rural households. 148

The government sponsored schemes poverty-alleviation and in banks have problems in implementation, with more NPAs than for other schemes. Thus, the rural banking institutions are out of step with the changing rural credit requirements and are unable to come up with systems and credit/saving instruments as required by the rural clientele. Microfinance has grown with a tremendous pace in India over the years. The Self-Help Group (SHG) Bank Linkage Programme has emerged as the major Microfinance programme in the country and is being implemented by Commercial Banks, Regional Rural Banks and Cooperative banks and other MFIs. Self Help Groups (SHGs) have become the common vehicle of development process, converging all development programs. SHG-Bank Linkage programme had been launched by NABARD way back in 1992 envisaging the synthesis of formal financial system and informal sector has become a movement throughout the country. It is considered as the largest microfinance programme in terms of outreach in the world. This is also recognized as a part of priority sector lending by Reserve Bank of India. Thus, it is synonymous with microfinance programme of the country. The programme is also the main contributor towards the financial inclusion process in the country. i. Savings of SHGs with Banks:- As on 31 March 2007, as many as 41,60,584 SHGs were maintaining savings bank accounts with the banking sector with outstanding savings of Rs. 3,512.71 crore, there by covering more than 5.8 crore poor households under SHG Bank Linkage programme. The Commercial Banks had the maximum share of Savings from 22,93,771 SHGs (55.1%) with savings amount of Rs. 1,892.42 crore (53.9%) followed by Regional Rural Banks with savings bank accounts of 11,83,065 SHGs (28.4%) and savings amount of Rs. 1,158.29 crore (33%). Next come the Cooperative 149

Banks having savings bank accounts of 6,83,748 SHGs (16.4%) with savings amount of Rs. 462.00 crore (13.2%). As on 31 March 2009, 61,21,147 SHGs were maintaining savings bank accounts with the banking sector with outstanding savings of Rs. 5,545.62 crores, covering more than 8.6 crore poor households associated with banking agencies under SHG-Bank Linkage Programme. The Commercial Banks had the maximum share of savings of 35,49,509 SHGs (58%) with savings amount of Rs. 2,772.99 crore (50%) followed by Regional Rural Banks have savings bank accounts of 16,28,588 SHGs (26.6%) with savings amount of Rs. 1,989.75 crore (35.9%) and Cooperative Banks having savings bank accounts of 9,43,050 SHGs (15.4%) with savings amount of Rs. 782.88 crore (14.1%). As on 31 March 2011, 74,61,946 SHGs were maintaining savings bank accounts with the banking sector with outstanding savings of Rs. 7,016.30 crores. The CBs lead with savings accounts of 43.23 lakhs SHGs (57.94%) with savings amount of Rs. 4,230.06 crore (60.29%) followed by RRBs having savings bank accounts of 19.83 lakhs SHGs (26.58%) with savings amount of Rs. 1,435.40 crore (20.46%) and Co-operative Banks having savings bank accounts of 11.55 lakhs SHGs (15.48%) with savings amount of Rs. 1,350.84 crore (19.25%). It can be observed in 2006-07, highest 54 per cent savings amount were accumulated under Commercial Banks by SHGs when compared to other banks. The highest, 50 per cent amount was saved in Commercial Banks by SHGs and the lowest 14 per cent was registered under Co-operative Banks in 2008-09. Even in 2010-11, 60 per cent amount was saved by SHGs under Commercial Banks and the lowest 19 per cent amount was saved in Co-operative Banks. So in respect of savings by SHGs the Commercial Banks have better performance when compared to other Banks. 150

However, in the case of Co-operative Banks, though there was an increase on year wise basis, their share was continuously lowest. From the above analysis, it can be concluded that, the Commercial Banks are playing a very crucial role in attracting the savings from SHGs members. In fact, only those SHGs which save in the banks continuously for six months, then only are eligible for borrowing loans from the same banks. Table-IV.3: Savings of SHGs with Banks Agency wise position of the years 2006-07 to 2010-11. (In Crores) Year Commercial Banks Agency Wise Savings Amount Regional Rural Banks Co-operative Banks Total 2006-07 1,892.42 (53.8) 1,158.29 (33.0) 420.00 (13.2) 3,512.71 (100) 2008-09 2,772.99 (50.0) 1,989.75 (35.9) 782.88 (14.1) 5,545.62 (100) 2010-11 4,230.06 (60.29) 1,435.40 (20.46) 1,350.84 (19.25) 7,016.30 (100) Source: NABARD. ii. Bank Loans Disbursed to SHGs:- During the year 2006-07, the banks financed 11,05,749 SHGs, including repeat loan to existing SHGs, with bank loan of Rs. 6,570.39 crore. During the year 2008-09, 16,09,586 SHGs were successfully financed, including repeat loan to the existing SHGs, with bank loan of Rs. 12,253.51 crore as against 12,27,770 SHGs with bank loan of Rs. 8,849.26 crore during 2007-08 registering a growth rate of 31.1% (Number of SHGs) and 38.5% (Bank loan disbursed). During 2010-11, Including repeat loan to the existing SHGs, 11.96 lakhs SHGs have been financed by banks, with bank loans of Rs. 14,547.73 crore as against 15.87 lakhs SHGs with bank loans of Rs. 14,453.30 crore during 2009-10, registering a decline of 24.6 per cent of SHGs but growth of 0.65 per cent in bank loans disbursed. 151

During 2006-07, average bank loan disbursed was Rs. 59,420 per SHG which raised from a high of Rs. 68,556 per SHG by Commercial banks and Rs. 39,153 per SHG by Cooperative Banks. During 2008-09, the average bank loan disbursed per SHG was Rs. 76,128 as against Rs. 72,060 during 2007-08. The average loan per SHG ranged from as high as Rs. 80,237 by Commercial Banks to a low amount of Rs. 50,117 per SHG by Cooperative Banks. During 20010-11, average bank loan disbursed per SHG was Rs. 1,21,623 as against Rs. 91,083 during 2009-10. The average loan per SHG ranged from as high as Rs. 1,45,198 crore per SHG by Commercial Banks to a low amount of Rs. 70,794 crore per SHG by Cooperative Banks. It can be observed that, in 2006-07, around 60 per cent of loans i.e. the highest were distributed by Commercial Banks to SHGs and lowest 9 per cent of loans were distributed by Co-operative Banks. The highest per cent of loan amount i.e. 66 per cent was distributed by Commercial Banks to SHGs and the lowest per cent i.e. 8 per cent was registered under Co-operative Banks in 2008-09. Even in 2010-11 the highest per cent i.e. 67 per cent of amount was distributed to SHGs by Commercial Banks and the lowest per cent i.e. 11 per cent of amount was distributed by Cooperative Banks. So Commercial Banks have better performance in the distribution of loans to SHGs when compared to other Banks. The Co-operative Banks have shown increase in year wise performance. In the case of Regional Rural Banks, year wise loan distribution percentages were gradually falling. From the above analysis, it can be concluded that, the Commercial Banks have provided more loans to SHGs, thus majority of SHG members got the uplift from economic hurdles. 152

Table-IV.4: Bank Loans Disbursed to SHGs Agency wise position of the years 2006-07 to 2010-11. (In Crores) Year Commercial Banks Agency Wise Loan Amount Regional Rural Banks Co-operative Banks Total 2006-07 3,918.94 (59.7) 2052.73 (31.2) 598.72 (9.1) 6,570.39 (100) 2008-09 8,060.53 (65.8) 3,193.49 (26.1) 999.49 (8.2) 12,253.51 (100) 2010-11 9,724.55 (66.8) 3,197.62 (22) 1,625.56 (11.2) 14,547.73 (100) Source: NABARD iii. Bank Loans Outstanding against SHGs:- As on 31 March 2007, a total number of 28,94,505 SHGs were having outstanding bank loans of Rs. 12,366.49 crore. As on 31 March 2009, a total number of 42,24,338 SHGs had the outstanding bank loans of Rs. 22,679.85 crore as against 36,25,941 SHGs with bank loans of Rs. 16,999.90 crore as on 31 March 2008 with a growth rate of the number of SHGs was 16.5 per cent and the Bank loan outstanding with SHGs was 33.4 per cent. As on 31 March 2011, a total of 47.87 lakhs SHGs had the outstanding bank loans amount of Rs. 31,221.17 crores as against 48.51 lakhs SHGs with bank loans of Rs. 28,038.28 crore as on 31 March 2010, registering a decline of 1.3 per cent of SHGs but growth of 11.35 per cent in bank loans disbursed. It is observed that Commercial banks have the maximum share of outstanding loans to SHGs with a share of 70.8 per cent followed by RRBs with a share of 22.7 per cent and cooperative banks with 6.5 per cent, during 2006-07. During 2008-09, Commercial Banks a share of 69.6 per cent of outstanding loans followed by RRBs with a share of 23.0 per cent and Cooperative Banks with a share of 5.8 per cent. During 2010-11, Commercial Banks a share of 70.1 per cent of outstanding loans followed by RRBs with a share of 23.8 per cent and Cooperative Banks with a share 153

of 6.1 per cent. So Commercial Banks have the highest outstanding loans due from SHGs when compared to other Banks, but in the case of Regional Rural Banks, they could provide very low percentage loans to SHGs, but outstanding loans are high. Table-IV.5: Bank Loans Outstanding against SHGs Agency wise position of the years 2006-07 to 2010-11. (In Crores) Year Commercial Banks Agency Wise Loan Outstanding Amount Regional Rural Banks Co-operative Banks Total 2006-07 8760.38 (70.8) 2,801.76 (22.7) 804.35 (6.5) 12,366.49 (100) 2008-09 16,149.43 (69.6) 5,224.42 (23) 1,306.00 (5.8) 22,679.85 (100) 2010-11 21,883.26 (70.1) 7,430.05 (23.8) 1,907.86 (6.1) 31,221.17 (100) Source: NABARD iv. Non-Performing Assets (NPAs) of Bank Loans to SHGs:- For the first time, the NABARD has received from banks the position of gross NPAs in respect of bank loans to SHGs as on 31 March 2008. Not all banks which finished MIS on progress under microfinance have indicated data on the NPAs. On the basis of the data received from banks, the NPAs in respect of bank loans to SHGs amounted to Rs. 422.93 crore which is 2.9 per cent of the bank loans outstanding against SHGs pertaining to the banks which reported NPA figures. This is for the second consecutive year, the NABARD had received the data on NPAs to total bank loans outstanding against SHGs. As on 31 March 2009, totally 292 banks had reported data on NPAs. Based on the data, NPAs to total bank loans outstanding against SHGs were 2.9 per cent which amounted to Rs. 625.86 crore. Whereas, during 2007-08, it was Rs. 422.93 crore, but total bank loans outstanding against SHGs was 2.9 per cent only. 154

As on 31 March 2010, total 221 banks had reported data on Non Performing Assets (NPAs). Based on these data on NPAs to total bank loans outstanding against SHGs as on 31 March 2010 stood at 2.94 per cent, loans amounting to Rs. 823.04 crore, which showed an increase from 2.90 per cent and Rs. 624.86 crore during 2008-09. Table-IV.6: Non-Performing Assets (NPAs) of Bank Loans of SHGs Agency Wise during the years from 2007-08 to 2010-11. (In Crores) Year Commercial Banks Agency Wise NPA Amount Regional Rural Banks Co-operative Banks Total 2007-08 213.71 (50.53) 173.27 (40.97) 35.95 (8.5) 422.93 (100) 2008-09 387.10 (61.85) 177.79 (28.41) 60.97 (9.74) 625.86 (100) 2009-10 537.46 (65.30) 218.53 (26.56) 67.04 (8.14) 823.04 (100) 2010-11 1,066.99 (72.38) 272.82 (18.51) 134.30 (9.11) 1,474.11 (100) Source: NABARD. From the available data, it is observed that the CBs have showed the largest share of NPAs more than 50% of the total NPAs of all the institutions put together in 2007-08. It is further observed, that this percentage has gradually gone up to 65 in 2009-10 and 72.38 in 2010-11. However, RRBs could bring down is share from 41 per cent to 18 per cent only. 155

4.2.1.3. DISTRICT RURAL DEVELOPMENT AGENCY (DRDA) The District Rural Development Agency was created originally to implement the Integrated Rural Development Programme (IRDP), subsequently the DRDAs were entrusted with number of programmes of both state and central governments. Since its inception the DRDA has been the principal organ at the District level to oversee the implementation of different Central Government s anti-poverty programmes. It is also taking up State Government programmes. From 1 st April, 1999 a new centrally sponsored scheme for strengthening the DRDAs has been introduced. This scheme, which is funded on a 75:25 basis between centre and states, aims at strengthening and professionalizing the DRDAs for effective functioning of the organization. DRDAs are established for effective implementation of antipoverty programmes in rural areas at the district level. It is an institution that acts as a delivery agency to support and facilitate the development process. Role of DRDA:- The role of the DRDA is to plan for effective implementation of anti-poverty programmes; coordination with other agencies like Governmental, Non- Governmental, technical and financial for successful implementation of the programmes. They enable the poor rural community to participate in the decision making process: to keep the district level agencies, block level agencies informed of the basic parameters / requirements of the programme to co-ordinate and oversee preparation of perspective plans and annual plan of block / districts to evaluate and monitor the effectiveness of the programme 156

to ensure co-operation / co-ordination between departments to disseminate information and build up awareness on the programme to submit feed back to the state government Objectives of DRDA are: to effectively manage the anti poverty programmes to co-ordinate effectively with other agencies and line departments like Panchayati Raj Institutions, Banks and other financial institutions, the NGO s and other technical institutions to gather support and resources required for poverty elimination at the district level Responsibilities: If effective programme design is critical to successful implementation of rural development programmes, so is an effective delivery agency. The DRDA is a supporting and facilitation organization and needs to play a very effective role as a catalyst in the development process. The District Rural Development Agency is seen as a specialized and a professional agency capable of managing the poverty alleviation programmes of the ministry of Rural Development on the one hand and to effectively relate these to the overall effort of poverty alleviation. Implementation: It promotes transparency in the implementation of different poverty alleviation programmes: i. To ensure that the benefits specifically earmarked for certain target groups (SC/ST, women and disabled) reach them. They shall take all necessary steps to achieve the prescribed norms. 157