ROLE OF MICRO FINANCE AS AN ANTI POVERTY VACCINE FOR RURAL INDIA

Dr. Debasish Biswas Assistant Professor in MBA, Vidyasagar University E-mail: debasish762010@yahoo.com

&
Sajijul Islam MBA (final year student), Vidyasagar University E-mail: sajijul.vu@gmail.com Abstract
Year 2005 was called international year of microcredit by United Nations. Since, micro finance has proven to be an effective tool for poverty reduction. Microfinance is the provision of financial services to low-income clients, including consumers and the self-employed, who traditionally lack access to banking and related services. India falls under low income class according to World Bank. It is second populated country in the world and around 70 % of its population lives in rural area. 60% of people depend on agriculture, as a result there is chronic underemployment and per capita income is only $ 3262.This is not enough to provide food to more than one individual.The obvious result is abject poverty, low rate of education, low sex ratio, and exploitation. The major factor account for high incidence of rural poverty is the low asset base. According to Reserve Bank of India, about 51 % of people house possess only 10% of the total asset of India .This has resulted low production capacity both in agriculture (which contribute around 22-25% of GDP) and Manufacturing sector.More broadly, it is a movement whose object is a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers. Those who promote microfinance generally believe that such access will help poor people out of poverty. Key words: Microfinance, Financial Service, GDP, Poverty in India

Introduction
Microfinance is the provision of financial services to low-income clients, including consumers and the self-employed, who traditionally lack access to banking and related services. More broadly, it is a movement whose object is a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers. Those who promote microfinance generally believe that such access will help poor people out of poverty. Micro-finance economically disadvantaged segments of society, for enabling them to raise their income levels largest in term of population after China. India's GDP ranks among the top 15 economies of the world. However, around 350 million people or about 80 million households are living below the poverty line, i.e. less than $2 per day according to the World Bank and the poorest are which earns $1 per day. It is further estimated that of these households, only about 20% have access to credit from the formal sector. Out of these 80 million house hold, 80% takes credit from the informal sources i.e. local Zamidars, Chit Funds etc. With about 80 million households below MFIs include non- governmental organizations (NGOs), credit unions, non-bank financial intermediaries, and even a few commercial banks.

Microfinance is considered as a tool for socio-economic development and can be clearly distinguished from charity. Families who are destitute, or so poor they are unlikely to be able to generate the cash flow required to repay a loan, should be recipients of charity. Others are best served by financial institutions.

Review of Literature
Researchers have viewed micro finance in different dimensions. Micro finance gives people new opportunities by helping them to get and secure finances so as to equalize the chances and make them responsible for their own future. It broadens the horizons and thus plays both economic and social roles by improving the living conditions of the people (Micro finance Radio Netherlands, 2010). The UN millennium goal to alleviate poverty by the year 2015 is far from fetch despite the enormous works that microfinance institutions are doing to contribute in this domain (Hiderink and Kok, 2009). The main challenge facing the poor is to gain financial power to enable them boost their income generating activities (Yunus, 2003). Bakhtiari (2006) concluded that micro credit and microfinance have received extensive recognition as a strategy for poverty reduction and for economic empowerment particularly in rural areas having poor population. Providing poor people the small amounts of credit at reasonable interest rates give them an opportunity to set up their own business at small scale. Mawa (2008) conducted a research study focusing the issue under discussion and concluded that microfinance is an innovative step towards alleviating poverty. The author mentioned that microfinance facilities provided to the people help them to use and develop their skills and enable them to earn money through micro enterprises. Moreover provision of micro finance helps them to smooth their consumption level and manage unexpected risks. Micro finance helps the poor to built assets, educate their children and have a better quality of life. The types of micro finance used in the Islamic part of the world include the Islamic micro finance and the conventional micro finance. Akhtar, Akhtar and Jafri (2009) mentioned that Islamic micro finance is of the effective means to fight poverty. The authors mentioned that in Muslim world, the conventional micro finance could not be fruitful because of the Islamic social principles. Most of the people prefer Islamic micro finance on the conventional microfinance. Gurses (2009) conducted a study in Turkey and mentioned that micro finance especially micro credit is a powerful tool to reduce poverty. The author has mentioned that one fifth of the population of turkey was at risk due to the poverty even then it is not a poor country according to global standards. This is due to the introduction of micro credit by two NGOsKEDV and the Turkish Foundation for Waste Reduction (TISVA). Moreover the author mentioned that poverty, both in Turkey and all over the world, is not only a function of micro credit but a political problem, and political intervention of the state holds the ultimate resolution to struggle against poverty.

Objectives of the Study

The focal objectives of our study are as follows: 1) To analyze the growth of microfinance sector developed in India and potential for the microfinance institutions, NGOs, SHGs in the market.

2) To analyze bank loan disbursed to SHGs in rural market. 3) To analyze the savings of Self-Help Groups with Banks. 4) To analyze bank loan outstanding against SHGs in rural market.

Research Methodology
Data Collection: This is a descriptive research paper based on secondary data. Data have been collected through books and various websites and publications of recent research papers available in different websites and magazines. Micro-Finance in India and Sustainable Rural India Development for the Poor:

In rural India it can be seen that the poorer sections of the society of and destitute cannot avail of the credit from banks and other formal institutions due to their inability to deposit collateral security and mortgage property. At this point of view, micro financing of group lending is being looked upon as the instrument that can be considered as the golden stick for poverty alleviation vis--vis rural development. The term microfinance is of recent origin and is commonly used while addressing the issue of financial support to micro-entrepreneurs. There is, however, no statutory definition for microfinance. The taskforce on Supportive Policy and Regulatory Framework for Microfinance has defined microfinance as Provision of thrift, credit and other financial services and products of very small amounts to the poor in rural, semi-urban or urban areas for enabling them to raise their income levels and improve living standards. Micro Financial Sector (Development and Regulation) Bill, 2007 defines Microfinance services as credit, life insurance, general insurances and pension services. While micro credit has been defined as loans not exceeding Rs. 50000 (Rs. 1, 50,000 in case of housing).

Data Analysis & Interpretation

Table - I showing Savings of Self Help Groups with Banks (Rs in Lakhs)
AGENCY Commercial Banks Regional Rural Banks Co-operative Banks Total Amount (2011) 423006.42 135084.19 143539.67 701630.28 Amount (2012) 415298.04 130013.93 109829.49 655141.46 % of Growth -1.82 -3.75 -23.48 -6.62

Source: Status of Micro Finance in India 2011-12 (NABARD)

From the above table it may be observed that the savings of SHGs with all the banks had decreased by 6.62% as on 31st March 2012. It varies from as (-) 1.82% with commercial banks to as low as (-) 23.48% with Co-operative banks. Savings of Self Help Groups with Banks

500000 400000 300000 200000 100000 0 Commercial Banks Regional Rural Banks Co-operative Banks 2011 2012

Table - II showing Bank loan disbursed to SHG (Rs in lakhs)

AGENCY Commercial Banks Regional Rural Banks Co-operative Banks Total Amount (2011) 972455.27 162556.33 319761.59 1454773.19 Amount (2012) 994204.49 502605.15 156667.23 1653476 % of Growth 2.24 209.19 -51 13.66

Source: Status of Micro Finance in India 2011-12 (NABARD)

From the above table it may be observed that Regional Rural banks had lead in disbursement of loans to SHGs during 2011-2012 with 209.19%. Also Commercial Banks had increased by 2.24 %, which is so little comparing to the Regional Rural banks. But this is also observed that Co-operative Banks had decreased by 51 %. In total, i.e., in the case of all banks it is observed that the savings of SHGs with all the banks had increased by 13.66% as on 31st March 2012. Bank loan disbursed to SHG
1000000 500000 0 Commercial Banks Regional Rural Banks Co-operative Banks 2011 2012

Table - III showing Bank Loan outstanding against SHGs (Rs in Lakhs)
AGENCY Commercial Banks Regional Rural Banks Co-operative Banks Total Amount (2011) 2188325.67 190785.65 743005.23 3122116.55 Amount (2012) 2581028 861357.81 191613.51 3634000.18 % of Growth 17.95 351.48 -74.21 16.4

Source: Status of Micro Finance in India 2011-12 (NABARD)

In the case of 2012, increase & decrease of Loan disbursed and loan outstanding is same way, i.e., Regional Rural banks had lead in disbursement of loans to SHGs during 2011-2012 with 351.48 %. Also Commercial Banks had increased by 17.95 %, which is so little comparing to the Regional Rural banks. But this is also observed that Co-operative Banks had decreased by 74.21% . In total, i.e., in the case of all banks it is observed that the savings of SHGs with all the banks had increased by 16.4 % as on 31st March 2012. Bank Loan outstanding against
3000000 2500000 2000000 1500000 1000000 500000 0 Commercial Banks Regional Rural Banks Co-operative Banks 2011 2012

Success Factors of Micro-Finance in India Over the last ten years, successful experiences in providing finance to small entrepreneur and producers demonstrate that poor people, when given access to responsive and timely financial services at market rates, repay their loans and use the proceeds to increase their income and assets. This is not surprising since the only realistic alternative for them is to borrow from informal market at an interest much higher than market rates. Community banks, NGOs and grass root savings and credit groups around the world have shown that these microenterprise loans can be profitable for borrowers and for the lenders, making microfinance one of the most effective poverty reducing strategies.

A. For NGOs The field of development itself expands and shifts emphasis with Full of ideas, and NGOs perhaps more readily adopt new ideas, especially if the resources required are small, entry and exit are easy, tasks are (perceived to be) simple and peoples acceptance is high all characteristics (real or presumed) of microfinance. Canvassing by various actors, including the National Bank for Agriculture and Rural Development (NABARD), Small Industries Development Bank of India (SIDBI), Friends of Womens World Banking (FWWB), Rashtriya Mahila Kosh(RMK), Council for Advancement of Peoples Action and Rural Technologies (CAPART), Rashtriya Gramin Vikas Nidhi (RGVN), various donor funded programmes especially by the International Fund for Agricultural Development (IFAD), United Nations Development Programme (UNDP), World Bank and Department for International Development, UK (DFID), and lately commercial banks, has greatly added to the idea pull. Induced by the worldwide focus on microfinance, donor NGOs too have been funding microfinance projects. One might call it the supply push. All kinds of things from Khadi spinning to Nadep compost to Balwadis do not produce such concrete results and sustained interest among beneficiaries as microfinance. Most NGO-led microfinance is with poor women, for whom access to small loans to meet dire emergencies is a valuedoutcome. Thus, quick and highcustomer satisfaction is the USP that has attracted NGOs to this trade.

B.For Financial Institutions and Banks Microfinance has been attractive to the lending agencies because of demonstrated sustainability and of low costs of operation. Institutions like SIDBI and NABARD are hard-nosed bankers and would not work with the idea if they did not see a long-term engagement which only comes out of sustainability (that is economic attractiveness). On the supply side, it is also true that it has all the trappings of a business enterprise, its output is tangible and it is easily understood by the mainstream. This also seems to sound nice to the government, which in the post liberalization era is trying to explain the logic of every rupee spent. That is the reason why microfinance has attracted mainstream institutions like no other developmental project. Perhaps the most important factor that got banks involved is what one might call the policy push. Given that most of our banks are in the public sector, public policy does have some influence on what they will or will not do. In this case, policy was followed by diligent, if meandering, promotional work by NABARD. A seven-page memo by NABARD initially followed the policy change about a decade ago by RBI to allow banks to lend to SHGs to all bank Chairpersons, and later by sensitization and training programmes for bank staff across the country. Several hundred such programmes were conducted by NGOs alone, each involving 15 to 20 bank staff, all paid for by NABARD. The policy push was sweetened by the NABARD refinance scheme that offers much more favorable terms (100% refinance, wider spread) than for other rural lending by banks. NABARD also did some system setting work and bankslately have been given targets. The canvassing, training, refinance and close follow up by NABARD has resulted in widespread bank involvement.

Findings
1. Considerable gap between demand and supply for all financial services and majority of poor are excluded from financial services [Source: Status of Micro Finance in India 2010-11 (NABARD)]. 2. Savings of SHGs has decreased by 6.62 % in the year 2011-2012. The decreased deposits in banks indicate non - changing trends in rural savings, where the farmers are not able to retain liquidity in his assets in this year. 3. Regional Rural Bankshad lead in disbursement of loans to SHGs during 2011-2012 with 209.19 % followed by Commercial banks with a share of 2.24% butCo-operative Banks with a share of (-) 51 %. 4. Bankers feel that it is risky to finance poor peoples because of their creditworthiness. 5. Regional Rural Banks had the maximum share of outstanding bank loan to SHGs with a share of 351.48 % followed by Commercial banks with a share of 17.95%. 6. Outstanding bank loan to SHGs are due to high transaction costs [Source: Status of Micro Finance in India 2011-12 (NABARD)].

Conclusion
From above discussion, it is clear that micro financing programme of NABARD through SHG is working very effectively.The potential for growing microfinance institutions in India is very high. In 2012, the

performance of Regional Rural Banks was strongly high but the performance of commercial bank is not very sound. On the contrary, the performance of cooperative bank has been reduced over the years.

Reference
Chakrabarti, Rajesh (2005), The Indian Microfinance Experience -Accomplishments and Challenges, http://ssrn.com/abstract=649854 Gupta, M.S. 2008. Micro Finance through Self Help Groups: An emerging Horizon for Rural Development, Indian Journal of Commerce, 61(3): 36-47. http://www.nabard.org http://www.indiamicrofinance.com. www.ifmr.ac.in www.google.com www.microfinanceinsight.com www.investopedia.com www.books.google.com www.seepnetwork.org www.forbes.com