Micro Finance for Financial Inclusion and Sustainable Rural Development
India's problems are diverse , pervasive and multidimensional. Further micro finance bristles with problems , difficulties and constraints . Being single instrument , it may not be able to solve the problem of abject poverty merely by distributing loans to certain sections of the population .Next level of economic development requires our growth model to bring in inclusive growth so that the world becomes a better place to live, in attaining the objectives of inclusive growth a country has to necessarily pay attention the social , economic and political inclusion. Developing micro entrepreneurship with organizational and community based support is one way of strengthening inclusive growth .
According to Amartya Sen lack of capability and opportunity are major factors for poverty and hunger in the developing nations like India . His studies on famine in India (Bengal 1943 ) , Bangladesh ,Ethiopia and Saharian countries found shortage of food was not always the cause of such catastrophe .He argues that it is a set of social and economic situations that deprives people of purchasing power and leads them to poverty and hunger .
The role of financial sector in the process of economic development has been well recognized. The role played by finance in stimulating substantial economic development has been emphasized by the eminent economists like Amartya Sen and Mohd Yunus.
Eradication of poverty has been an important issue before the developing countries of the world . This is a big challenge for South Asian nations , as about half of the world's poor live in this region . Again the intensity of poverty is high in India .One of every three persons in India is officially poor .and two of every three are either undernourished or malnourished .
Meaning & Nature of Micro Finance
The concept of micro finance can be described as small, short, unsecured lending of money and provision of very small loans that are repaid within a short period of time. It is essentially used by the low income individuals and households to empower them economically and enable them financially . The micro finance is used as a sustainable tool to combat poverty. Micro finance can lead to micro solutions to poverty. It can be defined as a set of services comprising the following features: 1 It is a tool for empowerment of the poorest. 2 Micro Credit is delivered normally through
Self-Help Groups . 3 It is essentially for promoting self empowerment and productivity in the formal sector of the economy . 4 It is generally used for direct income
generation and consumption smoothing. 5 It is not just a financing system but, a tool for social and economic change, especially for women . 6 It provides for seasonality allow repayment flexibility and avoid bureaucratic and legal formalities . 7 It assists the women to perform traditional roles better and to take up micro entrepreneurship .
Micro Finance is a term having a broad meaning and it covers all types of micro products
and micro services targeted at the poor population of any country , region ,state, province and society . It refers to loans , savings, insurance transfer services and other financial products to low income clients . Among all these financial services micro credit is more popularly used in different parts of the world as an intervention , employment, generation and small enterprise creation .
Micro credit gives more emphasis on loans, while micro finance includes support services where channels for thrift, market assistance, technical assistance, capacity building insurance, social and cultural programmes are opened. Thus where micro finance is credit plus. Micro credit is only credit.
Indian economy in general and banking services in particular have made rapid strides in the recent past. However, a sizable section of the population particularly the vulnerable groups such as weaker sections and low income groups continue to remain excluded from even the most basic opportunities and services provided by the financial sector.
The various financial services include savings, loans, insurance payments, remittance facilities and financial counseling or advisory services by the formal financial system. An open and dynamic society is always characterized by the unrestrained access to public goods. Financial inclusion should therefore be viewed as availability of the entire population without discrimination of any type.
The term financial inclusion is perceived in different context. There is a view that only access to credit is treated as financial inclusion whereas the other view is that inclusion includes all the services extended by the financial institutions, banks and other institutions which must be targeted, apart from personal or private investment of individuals and groups. The universal public investment requirement of individuals and groups is necessary for development of infrastructure, social sector services, public utilities and productive forces’ capacity building efforts and so on. Thus financial inclusion may well be all about money and finance but with the ultimate objective of directly abolishing the state of social exclusion in the economy .
In order to address the issues of financial inclusion the Government of India constituted a Committee on financial inclusion under the chairmanship of Dr. C. Rangarajan. The Committee submitted its final report to Union Finance Minister on 4th January 2008. The committee has defined financial inclusion as the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost .
Opening a bank account for a large part of the population living on low incomes, is rather difficult. Whether it's the maid servant, the sweeper in apartment building, the vegetable vender or a construction worker- a bank account is simply out of reach.
Holding a bank account itself confers a sense of identity, status and empowerment and provides access to the national payment system. Therefore, having bank account becomes a very important aspect of financial inclusion apart from opening and providing easy access to a no frill account. It should also provide access to credit, perhaps in the form of a general credit card. It should encompass access to affordable insurance and remittance facilities. It should also include credit counselling and financial education literacy. While financial inclusion, in the narrow sense, may be achieved to some extent by offering any one of these services, the objective of "comprehensive financial inclusion" would be to provide a holistic set of services encompassing all of the above.
A vast segment of India's population exists on the margins of India's financial system. Whilst the per capita saving of this class may not to be very high, their sheer number means that taken together their savings are of a considerable amount. If their entry in the formal financial sector is made easier, these savings can be canalized for the formal economy. Also saving cum risk products that are primarily needed can be structured for them once they are part of the formal banking system.
MICRO FINANCE AND WOMEN EMPOWERMENT
Microfinance is a hard term to define precisely. If a self Help Group gives money to someone to buy a cycle rickshaw. It is considered micro finance, if a commercial bank does the same thing, it is not considered micro finance. In India, the term is generally understood to mean a loan given to the poor by the NGOs to start small business. The world over, microfinance is synonymous with the grameen bank in Bangladesh. Micro finance arose in direct response to the failure of the nationalized commercial banks to cover to the needs of the poor and marginalized.
In India, microfinance is dominated by self help groups-bank linkage programme aimed at providing financial services to the unreached poor. Micro financing has turned out to be an effective strategy for institutional financing agencies. Through group approach, small loans can be made available to the poor, create saving habits and minimize extravagancy.
Self help groups dominate the micro finance scenario and they are focusing more on poor women. Hence micro finance is emerging as a powerful instrument for empowerment of poor women both socially and economically. It aims at providing cost effective mechanism for financial services to the detached poor women.
Empowerment is a process of change by which individuals or groups gain power and ability to control their lives. It involves increased wellbeing, access to resources, raising selfconfidence. increasing participation in decision making and controlling resources and livelihood.
The women empowerment has received extensive reorganization as a strategy of growth and poverty reduction. Before 1990, credit schemes for rural women were almost negligible. The concept of women's empowerment was recognized by women informal sector.
In modern economy the micro credit approach for women is considered as the best strategy to empower women economically. Through micro credit the poor women can rotate their funds to build economic capacities.
The co- relation between credit empowerment is always positive which has been established in all research studies. Prof. Amartya Sen in his book "Public Action to remedy hunger " in 1991 has also recognized the role of micro finance in women empowerment and poverty reduction.
PERFORMANCE OF SELF HELP GROUPS
The regional development of micro credit programmes under self-help groups has vide variations in terms of growth and performance among the status of India. The performance of southern region, especially Tamil Nadu, Andhra Pradesh has been the best in the promotion of SHGs receiving loans through bank linkage. Surprisingly Andhra Pradesh has 53 percent of total SHGs due to more women enterprises, higher level of literacy and strong cooperative institutions. The southern states have the best performance where Rs. 5242.42 million are distributed among the SHGs. The eastern region has the second best performance where cumulative number of SHGs bank loan up to 31st march 2010 was Rs 123256 million. Orrisa is one of the poorest states in India but the performance of SHGs is remarkable which is much better then many other large states.
The states of western and central region have not enrolled sufficient SHGs. The costal state near the Bay of Bengal is performing well in micro credit through SHGs, which are promoted by integrated child development project functionaries.
It is observed in many studies that SHGs are generally not composed of mainly the poorest family's rather financial well of people is significant having consistent economic impact. The financial skills of group members have not developed in SHGs as planned. Therefore, there is an urgent need for the Government initiative into SHGs. The members should be provided training in micro enterprises so that the credit availed by them can be used productivly.
The commercial banks must provide a greater linkage to SHGs in providing them higher amount of bank loans. The non government organizations and bank officials as well as primary school teachers should be engaged in formation and development of SHGs in rural India.
INDIA'S PRESENT SOCIO- ECONOMIC SCENARIO
The socio-economic landscape of India has under gone tremendous changes with visible signs of growth momentum in all sectors. Indian economy has shown an average growth of 8.1percent in the last three years, the benefits have not equally percolated to the different segments of our economy especially to these in the lower rungs in the socio-economic ladder thus negating the trickle down theory of growth. The rural agriculture sector in particular has not gained the desired momentum of growth and development.
In spite of so many developmental strategies under taken by the government of India, poverty ratio is 28 percent, which subsists on less than US$1 a day, of these, 74.9 percent live on US$2 per day. Of these 75 people live in rural areas with most of them comprising daily wage-earners, self employed households and landless laborers and a staggering 214 million people are chronically food insecure.
About 50 percent of children are under nourished and 68 out of 1000 die before the age of one year, scarce sources and lack of proper institutional and legal support have resulted in the under privileged section being used not of the main stream and deriving of the benefits of the growth.
Despite spending enormous funds, government has failed dismally to provide every village with the five necessities of growth - all weather roads, electricity, telephones, functioning tools and primary health centers. Large funds have been spent on employment programmes for three decades, which were supposed to create durable rural assets, but in reality not happened. Many farmers commit suicide due to various factors. In India every thing is in a mess. There is no proper planning. If there is planning, there is no coordination.
India's problems are diverse, pervasive and multidimensional and micro finance bristles with problems, difficulties and constraints. Being single instrument, it may not be able to solve the problems of abject poverty merely by distributing loans to a certain section of the population.
The micro finances and the self help group movements are in there infancy but are gathering force now. More innovation in the form of business facilities and correspondents will be needed for banks to ensure financial inclusion. New entrants to the banking system need households at their doorstep.
To conclude, moving to the next level of economic development requires fast growth, so that the world becomes a better place to live in. Developing micro entrepreneurship with organizational and community based support is one way of strengthening inclusive growth. Capacity building among the micro enterprises needs to be done through training and technical assistance in coordination with promotional agencies specializing in training and technical assistance. Researchers ought to focus their attention to develop such a plan frame which is both pragmatic and comprehensive to work against a kind of law of indifference that is observed to operate in rural India.
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