Microfinance is a new financial innovation with a focus on reaching the e

conomically weaker sections of the society.

Financial assistance for ‘inclusive growth’ has become the prime target of microfinance. Formation of Self Help Groups (SHG) to take up a small business, trade or a service activity at country side with bank financial assistance is expected to empower the certain categories of sections of the society hither to left out from the process of economic development. Off late, the success of microfinance experiment has become synonymous to women empowerment in most states in our country. Pondicherry University is shortly organizing a mega knowledge sharing event on issues relating to ‘Microfinance’ by inviting experts from different parts of the country and from the world for sharing experiences across the globe.

What is Microfinance?

Microfinance today stands for financial assistance to the poor not only at reasonable rates of interest but also at sustainable quantum. Microfinance lending includes bank assistance to broader range of services, i.e. credit facility, insurance coverage, marketing of products, government subsidy, etc. Financial institutions address the poor and very poor categories of population who lack access to formal financial assistance to take up a small business venture. Microfinance interventions are well recognized world over as an effective tool for poverty alleviation and improving the socio-economic conditions of the weaker sections of the society. Microfinance experiments in India largely focused on twin objectives of reducing the poverty and empowering the women in our society. An SHG bank linkage program initiated by NABARD, government of India has been effective in all States with different names. The SHG concept facilitated the poorer sections of population especially the women to form s groups and identify a viable business/trading avocation and undertake with institutional support.

SHG: A Tool for Women Empowerment

Empowerment is a process of socio-economic change by which individuals or groups gain economic power and ability to organize their livelihood. It involves increased well being, access to resources, increased participation in decision making and control over the use of resources. In other words, empowerment is a process, which challenges the traditional power equations and access to economic resources. The Micro credit facilitates the poor women to organize as groups and rotate funds among the members and build economic capacities. Deepening and widening of institutional credit among the poor was achieved to a greater extent through the microfinance channels. Loans from money lenders and informal sources at very high interest rates were significantly declined due to substantial financial interventions. Microfinance is not always for economic activities of the SHG members but also for essential family needs. Consumption loans as well as financial assistance for economic activities facilitated the social empowerment of SHG members. A gradual change in the values and attitudes of the member of SHG not only resulted in socio-economic empowerment ,creates a new social order.

Integrated Institutional Efforts

Different institutions play a mega role in the microfinance space in our country. Major institutions include Banks both public, private sector banks, NBFCs, special MFIs and insurance companies, agriculture and dairy co-operatives, corporate organizations such as fertilizer companies, handloom houses and even the post offer specialized lender institutions. Microfinance institutions provide both loans and capacity building support to SHGs. Of late, the microfinance movement has emerged as an industry embracing thousands of NGOs/MFIs, Community-based self-help groups and their federations, co-operatives in their varied forms, Credit Unions, public and private sector banks. During the last decade this sector has witnessed the sharp growth with emergence of a number of microfinance institutions (MFIs) in providing financial and a non-financial support.

NABARD: Bank Linkage

The financial inclusion has become the priority in Indian financial circle especially after Reserve Bank of India announced a series of measures in its credit policy 2006-07 to include many of the hither to excluded groups particularly self-help groups through micro credit delivery in the banking net. The concept of financial inclusion refers to extension of banking services at an affordable cost to vast sections of disadvantaged and low income groups especially to the self-help groups through micro lending. The banking industry has shown tremendous growth in volume and complexity during last decade in microfinance space. NABARD has emerged as an Apex refinancing agency for engaging in financial viability, profitability and competitiveness of MFIs. Its efforts to include vast packets of needy microeconomic entities has shown a tremendous result.

Adieu to Rural Indebtedness

What is needed is a new empowerment vision for microfinance which places emphasis on micro and macro strategies to attain sustainability for the program. A financial service provider of different type is expected to address on time honored social structure, debt bondage, role of family indebtedness and address on comprehensive solutions. The question for any program is how to ensure that the services are delivered in utmost cost efficient and sustainable way for benefits to flow to the needy.

Any strategy for increasing the access to a financial service warrants a vibrant support system. Towards the end a two track approach to create an inclusive banking, viz (i) creation and promotion of small banks with strong linkages with large entities to facilitate retailing of financial products to small clients, (ii) active exploring of channels by which non traditional entities with extensive low cost networks like post offices etc. A new look at the work of rural women, scaling innovations, linking them with the knowledge economy and focusing on equity, microfinance may likely to create social capital by promoting horizontal and vertical networks within a community, established by newer norms and social trust.

Dr. D. Lazar

Dr. K. Chandra Sekhar Rao