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Evolution of Microfinance in India
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State Interventions in Rural
Credit
The credit demands in the rural sector werelargely met by co-operative societies till mid
1960’s.
All India Rural Credit Survey report of 1954 found
that informal sources accounted for 70% of rural
credit usage, followed by cooperatives (6.4%)
and commercial banks (0.9%).
The “Lead Bank Scheme” was introduced in
1969.
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Contd...
Under the Scheme, each district had beenassigned to different banks (public and private) to
act as a consortium leader to coordinate the
efforts of banks in the district particularly in
matters like branch expansion and creditplanning.
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Government Sponsored
Programmes
IRDP (Integrated Rural DevelopmentProgramme)
TRYSEM (Training of Rural Youth for Self-
Employment
DWCRA (Development of Women and Children in
Rural Areas) -1982-83
NREP (National Rural Employment Programme)
RLEGP (Rural Landless Employment GuaranteeScheme)
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Integrated Rural Development
Programme
Launched in financial year 1978 and extendedthroughout India by 1980.
It is a self-employment program intended to raise the
income-generation capacity of target groups among
the poor. The target group consists largely of small and
marginal farmers, agricultural labourers and rural
artisans living below the poverty line.
Subsidy+ Bank Credit The objective of IRDP is to provide suitable income-
generating assets through a mix of subsidy and credit
to below-poverty-line families with a view to bring
them above the poverty line.
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TRYSEM
Training was imparted through formal institutions,including industrial and servicing units,
commercial and business establishments and
through master craftsmen.
The duration of a course did not exceed six
months.
The trainees were eligible for loans from the
banks under the integrated rural development
program
The trainees are supplied free tool-kits during
their training.
TRYSEM is merged with a new self-employment
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DWCRA
It was started in the year 1982-83, on a pilot basis, in 50 districts andhas now been extended to all the districts of the country.
The main strategy adopted under this programme is:
To facilitate access for poor women to employment, skillupgradation, training, credit and other support services.
It seeks to encourage collective action in the form of groupactivities It encourages the habit of thrift and credit among poorrural women to make them self-reliant.
The programme also envisages that this target group would bethe focus for convergence of other services like family welfare,health care, nutrition, education, childcare, safe drinking water,sanitation and shelter to improve the welfare and quality of life ofthe family and the community.
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RLEGP
RLEGP was introduced on August 15, 1983, withthe objective of
(a) improving and expanding employment
opportunities for the rural landless with a view to
providing guarantee of employment to at least
one member of every landless household up to
100 days in a year
(b) creating durable assets for strengthening the
infrastructure so as to meet the growing
requirements of the rural economy.
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SHG-Bank Linkage
In 1992, NABARD issued policy guidelines forbank linkages with SHGs.
Earlier the banks had demanded physical
securities.
Under the 1992 guideline, the SHG functions as a
joint liability group, replacing other collateral for
loans.
The collateral free loans increase progressively toupto four times the level of group’s savings
deposits.
The linkage permitted the reduction of transaction
costs.
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Contd...
The programme encompasses three broadmodels of linkage:
Model I: Bank-SHG-Members (Bank promotes
and nurtures SHGs)
Model II: Bank-Facilitating Agency- SHG-
Members (Groups are formed and supported by
NGOs)
Model III: Bank-NGO-mFI-SHG-Members (NGOs act as both facilitators and micro-finance
intermediaries)
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Microfinance Institutions
Those institutions which have microfinance astheir main operation are known as micro finance
institutions.
These institutions lend through the concept of
Joint Liability Group (JLG).
Non-Banking Financial Companies (NBFCs), Co-
operative societies, Section-25 companies,
Societies and Trusts, all such institutions
operating in microfinance sector constitute MFIs
and together they account for about 42 percent of
the microfinance sector in terms of loan portfolio.
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Leading MFIs
SEWA bank in Gujarat
SHARE, BASIX, CARE and MACs in Andhra
Pradesh
MYRADA in Karnataka
ADITHI in Bihar
The Rashtriya Gramin Vikas Nidhi in Assam and
Orissa
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Constraints in Mainstreaming of MFIs
To increase the outreach of micro-financeservices, the issues related to legal, regulatoryand organisational systems should be addressed.
Borrower-unfriendly Products and Procedures
Inflexibility and Delay High Transaction Cost
Social Obligation and not a Business Opportunity
Legal and Regulatory Framework
Financing to MFIs
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Constraints Faced by Microfinance
Institutions
A vast majority of MFIs function as NGOs to getaccess to funds
Inappropriate Forms of Organisation (Legal
Constraints):
Lack of Commercial Orientation
Isolated and Scattered
Lack of Proper Governance and Accountability
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Microfinance Versus Informal
Sources of Lending
A large number of people are served by informalfinancial sector.
The challenge is not to fill a supposed creditvacuum, but to improve on the terms of the
informal sector. Informal sector includes:
Interest free loans from friends/relatives
Wage advances
Groceries/goods on creditLoans from professional money lenders
It is important for MFIs to understand each ofthese resources.
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Choice of Lender
Volume of credit
Speed of disbursal
Flexibility of payment
Convenience factors- proximity Price: interest rate and other fees