Farah F. Shah
Microfinance can broadly be defined as financial services provided to entrepreneurs and small businesses that lack access to such services or do not generally qualify for such services (bank loans). In present day era, microfinance can be associated with the Grameen Bank of Bangladesh. Mohammad Yunus of Bangladesh was the trailblazer of this idea which received much attention and support throughout the world. The idea was to create economic and social development from grass root levels especially poor which were left by the market growth process. The concept behind his idea was quite simple, which the modern day and the ancient economists have all agreed to, that the sustainable development cannot be achieved without the larger chunk of population creating ways and means to break the shackles of the vicious circle poverty. He started his experiment by becoming a guarantor of loans to the poor, especially women, who otherwise were not qualified to subscribe to the loans due to lack of confidence in repaying the loans. Surprisingly poor people paid back these loans. And there his experimentation paved way for building what he called the social business. Today the World Bank estimates that more than 16 million people have access to microfinance loans.
Micro-financing also found support among policy makers in recent times.The delivery of financial services at affordable costs to disadvantageous and low income segments known as financial inclusion is a part of the 12th five year plan to achieve transformation and development especially in rural sector. In India, the parent agency which started micro financing has been the NABARD (National Bank for Agricultural and Rural Development).More than 50% population in India is dependent on agriculture for its livelihood and about 68% of the population is rural population which gives NABARD and other associated agencies a universe of considerable size for carrying out micro-financing. Together all the MFI’s (Micro Financing Institutions) are advancing loans at an increasing rate to various sections of the society.
One of the success stories of micro financing has been the empowerment of women through the creation of SHG’s(Self Help Groups).SHG’s are groups of people who provide mutual support for each other. They are generally considered to have a common problems, common ethnic background, common values, and same levels of poverty etc., thereby understanding each other and providing mutual support system.SHG’s cannot be confined to women folk but can also be a practice among men who are economically backward and want to help themselves. Each member of a SHG is essential to the group as much as the group setup is essential to the each member. It is like a two way traffic where the individual puts his efforts and also in turn bears the fruit by virtue of the efforts of the other members. To name a few trades where SHG’s especially that of the women have succeeded are horticulture, mushroom cultivation, sheep breeding, manufacturing of pickles, ready-made garment making.
SHG acts both as a financial and a non-financial association among its members. But the predominance of financial service it carries out is of utmost importance for its existence. Usually SHG is an association of 10-20 women/men who make regular small contribution for savings until enough capital is there to start lending to its members on need and emergency basis. The members of the group have an agreement of timely repayment of credit on flat interest rates. All the members of the group are the decision makers which ensure the proper bias free use of the credit. This system of lending is a major breakthrough in terms of suspending the practice of collateral which made it difficult for poorer sections of any economy to qualify for any type of credit/loan.
One significant step that has been taken by the banks/organized money markets is the linkage with the SHG’s. The initiative was taken by the NABARD in 1990’s where the banks opened saving accounts for the SHG’s with whatever little amount of savings they made with the bank. The banks then advance loans to the SHG’s which is many times than the quantum of their savings at feasible interest rates as per the norms of the apex bank. Banks advance loans only after the SHG’s have accumulated a certain amount of capital within the group and can establish the fact that they shall be capable of repaying the loans. All the above mentioned type lending is done as a part of the priority sector lending (as per the guidelines of RBI) e.g. agriculture, small and medium size enterprises, small scale social infrastructure building etc.
In the state of J&K also the institutions have resorted to providing loans to the underprivileged sections that are associated with handicrafts, agriculture etc., and allied activities. The institutions conducting Micro Financing in the state are the J&K Bank J&K State Women’s Development Corporation (JKSWDC), J&K State Cooperative Bank and NABARD (as per the findings of a report on Microcredit in J&K, 2009).Many women have benefitted by these schemes and are now economically independent entities providing livelihood first for themselves and then for their families. This has definitely been a positive effect on the living standards of many rural and urban families thereby contributing to the society as a whole. It is imperative to resort to the tools and ideas of micro-financing to solve social and political problems like unemployment. Micro-financing can help a long way to deal with these problems and removal of poverty. As Dr. C.K. Prahalad has said “If we stop thinking of the poor as victims or as a burden and start recognizing them as resilient and creative entrepreneurs and value conscious consumers, a whole new world of opportunity will open up’.
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