Mi­cro­fi­nance: Present Sce­nario and Emerg­ing Chal­lenges

Economic Challenger - - CONTENTS - −M.L. Pa­tel

AB­STRACT

Af­ter the pi­o­neer­ing ef­forts in the last ten years, the mi­cro­fi­nance scene in In­dia has reached a take −off point. With some more ef­forts sub­stan­tial progress can be made in tak­ing mi­cro­fi­nance move­ment to the next or­bit of sus­tain­abil­ity. This needs in­no­va­tive and for­ward−look­ing poli­cies, based on the ground re­al­i­ties. This will make this sec­tor vi­brant and help achieve its ul­ti­mate mis­sion of pro­vid­ing fi­nan­cial ser­vices to the poor and thus bridg­ing the in­creas­ing gap be­tween the de­mand and sup­ply.

IN­TRO­DUC­TION

Pro­vid­ing fi­nan­cial ser­vices to the poor and un­der­priv­i­leged sec­tions of the so­ci­ety has been the top most pri­or­ity on the agenda of var­i­ous anti−poverty pro­grammes ini­ti­ated by the Government of In­dia since In­de­pen­dence. It is a well known fact that the Government of In­dia has ini­ti­ated num­ber of sub­sidy linked ru­ral devel­op­ment pro­grammes which in­volve for­mal fi­nan­cial in­sti­tu­tions in the im­ple­men­ta­tion of th­ese pro­grammes. In spite of the best ef­forts of th­ese fi­nan­cial in­sti­tu­tions in reach­ing the de­prived sec­tions of the so­ci­ety liv­ing in ru­ral ar­eas, still a large chunk of ru­ral un­der­priv­i­leged poor fail to get their due share from the in­sti­tu­tional fi­nance.

Even by early 1990s the share of in­for­mal fi­nan­cial in­sti­tu­tions (in­for­mal sec­tor) was quite high at 39.6 per­cent of to­tal credit as per the data pro­vided by Re­serve Bank of In­dia. It was in this co­text that the need for ul­ti­mate fi­nan­cial in­no­va­tion that should pen­e­trate into ru­ral hin­ter­land and pro­vide for­mal fi­nan­cial ser­vices with­out any hur­dles was strongly felt. It was in such an en­vi­ron­ment that mi­cro­fi­nance emerged as a strong and suit­able in­no­va­tion which fills the ex­ist­ing gaps in the present fi­nance sys­tem. Mi­cro­fi­nance has al­most be­come a ’buzz− word’ in the fi­nan­cial sec­tor of ev­ery na­tion af­ter the united Na­tions launched the − In­ter­na­tional Year of Mi­cro­fi­nance in 2005. It got fur­ther im­pe­tus when Pro­fes­sor Muham­mad Younus, the founder of Grameen Bank and pioneer of mi­cro credit for women was awarded No­ble Prize for peace. As a mat­ter of fact, the con­cept of Mi­cro­fi­nance is not a new fi­nan­cial in­no­va­tion in In­dia, In­dian for­mal and in­for­mal fi­nan­cial en­ti­ties have been prac­tic­ing this con­cept , of course with dif­fer­ent names , for a long pe­riod of time

With the ini­tia­tive of na­tional bod­ies like Na­tional Bank for Agri­cul­ture and Ru­ral Devel­op­ment ( NABARD) and Small In­dus­tries Devel­op­ment Bank of In­dia (SIDBI) in the be­gin­ning of 1990’s the con­cept of mi­cro−fi­nance came in to lime­light. To­day the idea of mi­cro­fi­nance is gath­er­ing mo­men­tum to be­come a ma­jor force in In­dia . It is con­ceived as a pow­er­ful in­stru­ment to fight against poverty, par­tic­u­larly in ru­ral ar­eas. This pa­per ex­am­ines the present state of mi­cro­fi­nance in In­dia in en­hanc­ing ru­ral credit ac­cess par­tic­u­larly to the poor and fo­cuses its at­ten­tion on some of the per­ti­nent is­sues that need the con­sid­er­able at­ten­tion of the pol­icy mak­ers to make this sec­tor a vi­brant one .

Mi­cro­fi­nance refers to small sav­ings, credit and in­surance ser­vices ex­tended to so­cially and

eco­nom­i­cally dis­ad­van­taged seg­ments of the so­ci­ety. The re­cent task force on mi­cro­fi­nance has de­fined it as ˆpro­vi­sion of thrift, credit and other fi­nan­cial ser­vices and prod­uct of very small amounts to the poor in ru­ral, semi ur­ban ar­eas, for en­abling them to raise their in­come level and im­prove liv­ing stan­dards.˜ At present, a large part of Mi­cro Fi­nance ac­tiv­ity is con­fined to credit only. The fo­cus of the move­ment is on women who con­sti­tute a ma­jor­ity of users of Mi­cro­fi­nance ser­vices. The con­cept of mi­cro credit is dis­tinct from Mi­cro­fi­nance. Mi­cro credit refers to the pro­vi­sion of credit in small amount with col­lat­eral sub­sti­tute to the poor. Mi­cro credit is one of the con­stituent part of mi­cro fi­nance.

DE­MAND, SUP­PLY AND PO­TEN­TIAL OF MI­CRO­FI­NANCE SEC­TOR

Ac­cu­rate data re­lat­ing to the de­mand, sup­ply and po­ten­tial­ity of Mi­cro­fi­nance sec­tor in In­dia is not avail­able. Var­i­ous or­ga­ni­za­tions and in­di­vid­u­als, by con­duct­ing re­search stud­ies and sur­veys have pro­vided rough es­ti­mates on this ac­count.

01.De­mand

As far as de­mand for the mi­cro­fi­nance and its ser­vices is con­cerned, the Mi­cro Credit Rat­ing In­ter­na­tional Ltd. (MCRIL), a lead­ing mi­cro credit rat­ing agency pro­vides a con­ser­va­tive es­ti­mate for the an­nual de­mand to be at Rs.48,000 crore based on 60−70 mil­lion poor fam­i­lies with an av­er­age house­hold credit de­mand of Rs.8000. Sim­i­larly, a group of mi­cro­fi­nance prac­ti­tion­ers, put an­nu­al­ized credit us­age of all poor fam­i­lies (ru­ral and ur­ban) at over Rs.45,000 crore of which some 80 per cent is met by in­for­mal sec­tor. This de­mand usu­ally comes through numer­ous sec­tions of the pop­u­la­tion which in­clude land­less labour­ers, small and mar­ginal farm­ers, ru­ral ar­ti­sans, weavers, self−em­ployed per­sons in the ur­ban in­for­mal sec­tor such as hawk­ers, ven­dors, work­ers in mi­cro−en­ter­prises, the peo­ple who own and run petty busi­ness, par­tic­u­larly the women folk.

With re­gard to var­i­ous com­po­nents of mi­cro fi­nan­cial ser­vices, de­mand for ’sav­ings ser­vices’ are higher than ’credit ser­vices’ Stud­ies of ru­ral house­holds in var­i­ous states in In­dia show that The poor par­tic­u­larly the women are look­ing for a way to save small amounts when­ever they can. The poor want a way to save for a va­ri­ety of rea­sons such as to pro­tect them­selves from ill­ness, calami­ties, death in the fam­ily etc. ’In­surance ser­vices’, though one of the es­sen­tial com­po­nent of mi­cro­fi­nance, is be­ing pop­u­lar­ized in re­cent times only. Aware­ness to­wards ’in­surance ser­vices’ is grow­ing slowly but steadily. Poor peo­ple started tak­ing in­surance poli­cies not just for the lives of their own fam­ily mem­bers but for the live­stock and agri­cul­ture pro­duce as well.

02.Sup­ply

Re­gard­ing the sup­ply of mi­cro­fi­nance and its re­lated ser­vices, Re­serve Bank of In­dia data shows that in­for­mal sources pro­vide a sig­nif­i­cant part of the ru­ral credit needs of the ru­ral pop­u­la­tion. The mag­ni­tude of the de­pen­dence of the ru­ral poor on in­for­mal sources of credit can be ob­served from the find­ings of the All In­dia Debt and In­vest­ment Sur­vey, 1992, which shows that the share of the non− in­sti­tu­tional agen­cies (in­for­mal sec­tor) in the out­stand­ing cash dues of the ru­ral house­hold was 36 per cent.

Over the decades fol­low­ing In­dia’s in­de­pen­dence in 1947, Government of In­dia has made con­certed ef­forts to pro­vide mi­cro−fi­nan­cial sec­tor. Co−op­er­a­tives, Com­mer­cial Banks and Re­gional Ru­ral Banks have made valiant ef­forts to reach the un­reached and ne­glected ru­ral poor. Spe­cial­ized in­sti­tu­tions like Na­tional Bank for Agri­cul­ture and Ru­ral Devel­op­ment (NABARD) and Small In­dus­tries Devel­op­ment Bank of In­dia (SIDBI) are also ac­tively work­ing in this di­rec­tion. Some of the Non−Gov­ern­men­tal Or­ga­ni­za­tions (NGOs), which later con­verted into Mi­cro Fi­nan­cial In­sti­tu­tions (MFIs)and Non−Bank­ing Fi­nance Com­pa­nies (NBFCs) are striv­ing a lot to con­tinue fur­ther out­reach­ing the ru­ral poor. Th­ese for­mal in­sti­tu­tions pro­vide the credit sup­port to the ex­tent of nearly 56 per cent. Cur­rently, around 66 per cent of the for­mal sup­ply of funds is dis­bursed through Self−Help Groups −Bank link­age route, largely from Na­tional Bank for Agri­cul­ture and Ru­ral Devel­op­ment (NABARD) while the rest comes from Mi­cro Fi­nance In­sti­tute (MFls) in­creas­ingly backed by com­mer­cial banks.

About the sup­ply of mi­cro­fi­nance re­lated ser­vices, the ex­ist­ing for­mal fi­nan­cial in­sti­tu­tions could not be able to pro­vide ac­cess to large num­ber of small de­pos­i­tors to de­posit small and fre­quently re­cur­ring sav­ing ser­vices be­cause of high trans­ac­tion costs. As a re­sult of which there ex­ist a huge gap be­tween de­mand and sup­ply of sav­ings ser­vices. In the case of In­surance ser­vices they have been in­creased sub­stan­tially, though the rate of pen­e­tra­tion is rather slow.

03.Po­ten­tial­ity

De­spite th­ese ef­forts, the World Bank es­ti­mates re­vealed that the In­dian mi­cro­fi­nance ac­tiv­ity cur­rently reaches only 4 per cent of the poor. It is ob­vi­ous that de­spite the rapid growth in the past few years, the sup­ply of credit is well be­low the de­mand, hence, there is a lot more to be done in this di­rec­tion. There is a tremen­dous busi­ness op­por­tu­nity for do­ing busi­ness for for­mal and in­for­mal in­sti­tu­tions in this space.

MODELS TO DE­LIVER MI­CRO­FI­NANCE

Over the years, NGOs, Fi­nan­cial In­sti­tu­tions, Com­mer­cial Banks, Co −op­er­a­tives, around the world have been mak­ing ev­ery ef­fort to de­velop in­no­va­tive mi­cro­fi­nance de­liv­ery ap­proaches com­bin­ing the safety and re­li­a­bil­ity of for­mal fi­nance with the in­for­mal fi­nance. The aim of th­ese models is to pro­vide, thrift, credit and other fi­nan­cial ser­vices and prod­ucts of very small amounts to the poor and thereby im­prov­ing their in­come lev­els and liv­ing stan­dards.

Apart from tra­di­tional in­sti­tu­tions, there are now spe­cial­ized Mi­cro­fi­nance In­sti­tu­tions (MFls), many still reg­is­tered as NGOs or Co−op­er­a­tives, a few trans­formed into Non Bank­ing Fi­nance Com­pa­nies (NBFCs) or Sec­tion 25 com­pa­nies de­liv­er­ing credit and other fi­nan­cial ser­vices through var­i­ous in­no­va­tive models. Most MFls pro­mote ’Groups’ as in­ter­me­di­aries for fi­nan­cial trans­ac­tions but there are dif­fer­ent ways of work­ing with the groups. Th­ese may be broadly clas­si­fied as the group model, grameen model, small busi­ness vil­lage bank­ing model, peer pres­sure model, vil­lage bank­ing model, agency model, and in­di­vid­ual model. In ma­jor­ity of th­ese models, the groups usu­ally as­sume joint re­spon­si­bil­ity for loans taken by its mem­bers, but there are sig­nif­i­cant dif­fer­ences in the ser­vices of­fered and in the ex­tent of client re­spon­si­bil­ity in trans­ac­tions.

As far as In­dia is con­cerned, it has adopted a ’multi−agency ap­proach’ for the devel­op­ment of its mi­cro­fi­nance pro­gramme. All the ma­jor fi­nan­cial in­sti­tu­tions viz, Com­mer­cial Banks, Co− op­er­a­tive Banks, Re­gional Ru­ral Banks, along with NGOs and MFls have been as­so­ci­ated with the mi­cro­fi­nance pro­gramme. Th­ese in­sti­tu­tions made ex­per­i­ments with var­i­ous models to de­liver mi­cro­fi­nance at the doorsteps of the ru­ral poor. Of all the models, the SHG−Bank link­age model and Join Li­a­bil­ity Group (JLG) model (pop­u­larly known as Grameen model) are the most prom­i­nent mi­cro­fi­nance models in In­dia.

(a)SHG − Bank Link­age Model

Self−Help Group (SHG) is a small vol­un­tary as­so­ci­a­tion of poor peo­ple, prefer­ably from the same so­cioe­co­nomic back­ground. They come to­gether for the pur­pose of solv­ing their com­mon prob­lems through self−help and mu­tual help. The SHG pro­motes small sav­ings among its mem­bers. The sav­ings are kept with a bank. This com­mon fund is in the name of the SHG. Bank also is­sues a loan to the group af­ter rat­ing them based on their sav­ings and in­ter­nal credit be­hav­iour. The SHGs usu­ally land in­ter­nally both be­fore and af­ter the link­age takes place. Usu­ally, the num­ber of mem­bers in an SHG does not ex­ceed twenty. The SHG−Bank link­age model has emerged as a ma­jor mi­cro­fi­nance busi­ness model in In­dia. This model can be fur­ther clas­si­fied into three groups:

SHG−Bank link­age Model I

Banks them­selves take up the work of form­ing and nur­tur­ing the groups, open­ing their sav­ing bank ac­counts and pro­vid­ing them bank loans.

SHG−Bank link­age Model II

SHGs are formed by NGOs and for­mal agen­cies but are di­rectly fi­nanced by fi­nan­cial in­ter­me­di­aries.

SHG−Bank link­age Model III

SHGs are fi­nanced by banks us­ing NGOs and other agen­cies as fi­nan­cial in­ter­me­di­aries.

With a view to strengthen SHG move­ment there is a ten­dency to form SHG Fed­er­a­tions. Typ­i­cally, about 15 to 50 SHGs make up a Clus­ter / Vil­lage Or­gan­i­sa­tion (VO) with ei­ther

one or two, de­pend­ing on ge­og­ra­phy, sev­eral Clus­ters or VOs, come to­gether to form an apex body or a SHG Fed­er­a­tion. An SHG Fed­er­a­tion is a for­mal group of in­for­mal com­mon in­ter­est groups. At a clus­ter and fed­er­a­tion level, there are in­ter−group bor­row­ings, ex­change of ideas, shar­ing of costs and dis­cus­sion of com­mon in­ter­ests. There are typ­i­cally var­i­ous sub− com­mit­tees in­clud­ing loan col­lec­tion and so­cial is­sues.

(b)Joint Li­a­bil­ity Group Model

In Joint Li­a­bil­ity Group Model, a small group of prospec­tive bor­row­ers (typ­i­cally 4−5) are formed. In the first stage, only two of them are el­i­gi­ble for and re­ceive, a loan from an ex­ter­nal lender (MFl). The group is ob­served for a month to see if the mem­bers are com­ply­ing with the rules of the bank. Only if the first row bor­row­ers re­pay the prin­ci­pal plus in­ter­est over a pe­riod of fifty weeks then other mem­bers of the group be­come el­i­gi­ble for a loan. Be­cause of th­ese re­stric­tions there is sub­stan­tial group pres­sure to keep in­di­vid­ual records clear. In this sense, col­lec­tive re­spon­si­bil­ity of the group serves as a col­lat­eral on the loan. Grameen model pro­pounded by Prof. Mo­hammed Younus, the fa­ther of mi­cro­fi­nance move­ment in Bangladesh and No­ble Lau­re­ate, is the ba­sis for this model. Un­like the SHG, the sole pur­pose of ex­is­tence of a JLGM is to re­ceive a group loan from a MFL.

NABARD has taken a ba­sic stand to­wards the SHG−Bank link­age model. Grameen model has not re­ceived proper at­ten­tion so far. It is only af­ter see­ing that the RBI made up its mind in fa­vor of Grameen model, of late, some banks have started show­ing in­ter­est.

SALIENT FEATURES OF MI­CRO FI­NANCE SEC­TOR

Some of the salient features of the Mi­cro­fi­nance sec­tor in In­dia are out­lined here­un­der :− 01. The SHG−Bank link­age model is very pop­u­lar in terms of its scale, ge­o­graph­i­cal cov­er­age, and outreach. This model lit­er­ally brings name and fame to In­dia in the world of mi­cro­fi­nance and el­e­vates it as a house to one of the largest mi­cro­fi­nance pro­grammes in the world. SHG−Bank link­age model was started as a pi­lot project of NABARD and it has be­come a move­ment now. To­day, over 4,300 NGOs and around 41,000 branches of 549 in­sti­tu­tions (in­clud­ing 47 Com­mer­cial Banks) are as­so­ci­ated with this pro­gramme. 02. Among var­i­ous states in In­dia, Andhra Pradesh oc­cu­pies the first place in terms of link­age and credit dis­bur­sal for the last sev­eral years from now. 03. Ma­jor­ity of NGOs and MFls in In­dia are ex­tend­ing their ser­vices to the ru­ral poor and tar­get­ing women. 04. Stud­ies con­ducted by NABARD re­vealed that neatly 31 per cent of the house­hold mem­bers of the SHGs were land­less agri­cul­tural labour­ers and 54 per cent were small and mar­ginal farm­ers. Nearly 70 per cent of the bank loans were used for in­come gen­er­at­ing pur­poses. 05. NABARD stud­ies fur­ther re­vealed that there was re­mark­able progress in so­cial em­pow­er­ment of SHG mem­bers in terms of self−con­fi­dence, in­volv­ing de­ci­sion−mak­ing, bet­ter com­mu­ni­ca­tion etc. 06. Sa−Dhan, an as­so­ci­a­tion of 139 Com­mu­nity Devel­op­ment in­sti­tu­tions by con­duct­ing a re­search stud­ies states that cur­rent re­pay­ment rate of 97.7 per cent for In­dian MFls, is much higher to its bench­mark of 90 per cent which in­di­cates the sound­ness of as­set qual­ity of In­dian MFls. 07. In­dian MFls en­joy­ing un­prece­dented ac­cess to banks and other fi­nan­cial in­sti­tu­tions, makes them amongst the most highly lever­aged in­sti­tu­tions in the world. 08. Ma­jor­ity of In­dian MFls are close to at­tain full op­er­a­tional self−suf­fi­ciency which have been gen­er­at­ing suf­fi­cient prof­its to con­trib­ute to cap­i­tal from their in­ter­nal ac­cru­als. 09. Tra­di­tion­ally, Civil So­ci­ety Or­ga­ni­za­tions (NGOs) fi­nanced all op­er­a­tional and cap­i­tal costs in­curred for small lend­ing ac­tiv­ity through donor funds or char­i­ta­ble grants. MFls take on com­mer­cial debt for on­ward lend­ing and raise cap­i­tal by se­cu­ri­ti­za­tion of as­sents and port­fo­lio sales. Other av­enues avail­able are eq­uity in­vest­ments, quasi− eq­uity through the part­ner­ship models and loan guar­an­tor funds.

10. The kind of strate­gies adopted by MFls to grow and sus­tain in the mi­cro­fi­nance mar­ket is ob­served. Some MFls of­fer lim­ited prod­ucts (mostly loans/credit) across all branches to ex­pand their client base and ge­o­graphic cov­er­age; other MFls choose to main­tain a par­tic­u­lar client pro­file and ge­o­graphic cov­er­age (lo­ca­tion) but di­ver­sify their prod­ucts and ser­vices in­stead. Some pre­fer fran­chise route, ap­point lo­cal en­trepreneurs as its fran­chisees and al­low them to con­duct busi­ness un­der their name and method­ol­ogy.

EMERG­ING CHAL­LENGES

There have def­i­nitely been sig­nif­i­cant ad­vances in mi­cro­fi­nance op­er­a­tions in re­cent years and the con­cept and prac­tice of SHG−Bank link­age model has now devel­oped deep roots in many parts of the coun­try though the in­dus­try has grown in terms of its scale, ge­o­graph­i­cal cov­er­age and outreach, it is still starved of ad­e­quate re­sources to meet the grow­ing de­mand. Need­less to say, a lot needs to be done to strengthen and sus­tain the move­ment of mi­cro­fi­nance. Ab­sence of en­abling strin­gent en­try norms and re­stric­tion to ac­cept de­posits by MFls, are the ma­jor rea­sons that pre­vent growth. An at­tempt is also be­ing made in this pa­per for per­ti­nent is­sues that need the con­sid­er­able at­ten­tion of the pol­icy mak­ers.

01.Ap­pli­ca­tion of the Con­cept

Con­cerns have been ex­pressed about the ap­pli­ca­tion of the con­cept. Out of Mi­cro Sav­ings, Mi­cro Credit and other com­po­nents in Mi­cro­fi­nance, it is only the Mi­cro Sav­ings and Mi­cro Credit as­pects that have been car­ried out by MFls in In­dia. Mi­cro In­surance, Mi­cro re­mit­tances and Mi­cro pen­sions, how­ever, are still in ex­per­i­men­tal stage.

02.Weak Mi­cro­fi­nance In­sti­tu­tions

Nor­mally, Mi­cro­fi­nance In­sti­tu­tions (MFls) play a vi­tal role in strength­en­ing the pro­gramme of mi­cro­fi­nance. Un­for­tu­nately, most of the MFls which have been op­er­at­ing in In­dia suf­fer from weak gov­er­nance, de­fec­tive man­age­ment struc­ture, ab­sence of ad­e­quate in­ter­nal con­trols and fi­nan­cial dis­ci­pline. This also re­sults in lack of fi­nan­cial trans­parence on their part, mak­ing their reg­u­la­tion much more dif­fi­cult.

03.Ab­sence of proper Le­gal and Reg­u­la­tory Mech­a­nism

An en­abling pol­icy for le­gal and reg­u­la­tory frame­work is pre−req­ui­site for the success of mi­cro­fi­nance in any coun­try. If this sec­tor were to be scaled−up, the government would need to play a pos­i­tive role in reg­u­la­tory frame­work for mi­cro­fi­nance. Un­for­tu­nately, this is lag­ging in In­dia.

04.Ge­o­graphic Im­bal­ances

An­other area of con­cern is that mi­cro­fi­nance is bi­ased to­wards South and has not pro­vided a balanced ac­cess to credit for the poor in other re­gions. This pro­motes re­gional im­bal­ance and ag­gra­vates the re­gional dis­par­i­ties. For in­stance, 58 per cent of NABARD’s clients live in South­ern In­dia and 78 per cent of loans fa­cil­i­tated by NABARD were dis­bursed in South In­dia.

05.Prod­uct In­no­va­tion

At present, MFls tend to be rigid on prod­uct features such as loan amount, re­pay­ment sched­ule, and loan ten­ure, sav­ing in­stru­ments, in­surance prod­ucts etc. MFls need to ex­plore in­no­va­tive prod­ucts that suit the re­quire­ments of ru­ral poor, par­tic­u­larly women.

06.Trans­ac­tion Costs

Trans­ac­tion cost is a cause of con­cern to most of the MFls be­cause of ser­vice de­liv­ery at the door steps of the con­sumers with lit­tle or no de­ploy­ment of tech­nol­ogy so­lu­tion in the face of ris­ing com­pe­ti­tion, pub­lic scru­tiny and po­lit­i­cal in­ter­fer­ence.

07.Man­power short­age

Qual­i­fied, skilled and ex­pe­ri­enced man­power is in grave short­age in this sec­tor. This sec­tor is not able to at­tract re­quired and ca­pa­ble tal­ent de­spite of­fer­ing of at­trac­tive pay pack­ages. This is largely due to the fact that mi­cro­fi­nance is still not per­ceived as a vi­able busi­ness op­por­tu­nity and pro­fes­sional work­place.

08.Fi­nance

Long−term debt and eq­uity in­vest­ments can help the MFls to main­tain cur­rent growth while main­tain­ing cap­i­tal ad­e­quacy norms. But get­ting long−term debt and eq­uity in­vest­ment is a ma­jor chal­lenge to the MFls in the given le­gal and reg­u­la­tory en­vi­ron­ment.

09.Un­or­ga­nized sec­toral ten­den­cies

In­for­mal sec­tor is still a dom­i­nant sec­tor when com­pared with for­mal one even in the field of mi­cro­fi­nance in In­dia. As a re­sult of this ac­cu­rate data re­lat­ing to sav­ings and de­posits, credit, ser­vices, in­surance, NPAs re­cov­ery, MFls etc. is not avail­able. Pol­icy mak­ing and reg­u­la­tory con­trol be­come Her­culean tasks for peo­ple at the helm.

10.In­ter­est rates and Ser­vice fee

In­ter­est rates and Ser­vices fee charged by MFls are the other is­sues of great con­cern and ma­jor chal­lenge for this sec­tor in the face of ris­ing com­pe­ti­tion, pub­lic com­plaints against them of misbehaviour and mal­prac­tice such as hid­den charges and ef­fec­tive rates of 35−50 per cent on a de­clin­ing ba­sis in the south­ern state of Andhra Pradesh.

CON­CLU­SION

Af­ter the pi­o­neer­ing ef­forts in the last ten years, the mi­cro­fi­nance scene in In­dia has reached a take−off point. With some more ef­forts sub­stan­tial progress can be made in tak­ing mi­cro­fi­nance move­ment to the next or­bit of sus­tain­abil­ity. This needs in­no­va­tive and for­ward−look­ing poli­cies, based on the ground re­al­i­ties. This will make this sec­tor vi­brant and help achieve its sin­gle−point mis­sion of pro­vid­ing fi­nan­cial ser­vices to the poor and bridge the in­creas­ing gap be­tween the de­mand and sup­ply.

REF­ER­ENCES

01. Sinha San­jay, Man­ag­ing Di­rec­tor, M−CRIL, in " DEBA IE: Cap the in­ter­est rate on mi­cro­fi­nance ?", The Eco­nomic Times, 21th March, 2006. 02. Dutta Shankar, (2007), Mi­cro­fi­nance in In­dia − The cur­rent sce­nario, Charted Fi­nan­cial An­a­lyst, Nov, 07, p.g. 61−62 03. Eric thrman (2007), Mi­cro­cre­dit is ef­fec­tive for women in self−em­ploy­ment, Busi­ness Line in­ter­view with this coau­thor of a pop­u­lar book on mi­cro­fi­nance ’A Bil­lion Boot­straps’ 8th Nov.07.pg.9 04. Das­gupta, Ra­jram and Rao K. Dinker 2003: mi­cro­fi­nance in In­dia: Is­sue, Chal­lenges and pol­icy op­er­a­tions, Sav­ings and Devel­op­ment, Vol. 2, No. XXXXVII.

05. Sinha Frances 2005 Ac­cess, Use and Con­tri­bu­tion of mi­cro­fi­nance in In­dia Find­ing from a Na­tional Study, Eco­nomic and Po­lit­i­cal Weekly, VolXI, No 17 March 19− 25,2005, pp.1714−19 06. NABARD 1991: An­nual Report 190−91, Na­tional Bank for Agri­cul­ture and Ru­ral Devel­op­ment, Bom­bay. 07. NABARD 1992: Task Force on sup­port­ive Pol­icy and Reg­u­la­tory Frame­work for mi­cro­fi­nance. 08. Nunda YC 2004: Mi­cro­fi­nance: A Route to Reach Ru­ral poor, Bank Quect, Oct Dec, Vol.75, pp. 23−29 09. Re­serve Bank of In­dia (2005) Draft Report of the In­ter­nal Group to ex­am­ine is­sues re­lat­ing to Ru­ral credit and Mi­cro­fi­nance. 10. World Bank 2004: Mi­cro­fi­nance in In­dia − Is­sues, Chal­lenger and Pol­icy op­tions; World Bank; Wash­in­ton, DC. 11. RBI (1991), ’All In­dia Debt and In­vest­ment Sur­vey’, Re­serve Bank of In­dia, Mum­bai. 12. De­vap­rakash R (2007), The Mi­cro­fi­nance Bill − An En­abling pro­vi­sions, for Banks, The In­dia Banker, VoL.II. No.II. Novem­ber, 07.

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