MICROFINANCE AMONGST TRIBALS IN INDIA by Dr Halima Sadia Rizvi and Dr Syed Afzal Murtaza Rizvi Department of Economics and Department of Computer Science Jamia Millia Islamia New Delhi

ABSTRACT

The Indian economy has undergone a major structural transformation and since the decades of 70’s is on warpath to attain sustainable growth rates. With an inevitable need for structural adjustment during the 90’s financial sector reforms were an obvious requirement. This had its far reaching impact not only on the economic front but had made major contributions in the social sector.

India is a home to 1.3 billion people of diverse religion, races, castes, creeds, tribes and cultures. It is this unity in diversity which is both complex and complementary is allowing India to emerge as a super economic power. Fortunately for India there are numerous regulatory authorities which have helped in withstanding the global recesses ion and thus help in keeping intact its socioeconomic fiber.

On a grey note India still reflects huge diversities in terms of income inequalities, regional disparities and cultural variations. India is still a land of 30 million poor below any measurable standards of poverty. Amongst the poorest of the poor are approximately nine crore of its scheduled tribes who are the most affected population of an emerging strong and resilient India.

The present study is an effect to examine this unattended area through the institutions of microfinance (a very small component of financial liberalization). Data deficiency and nonavailability of reliable literature had been a major constraint in the pursuance of this study.

An attempt has been made to examine the Micro finance institutions and the Self help Group’s role in examining the case of scheduled tribes has been undertaken.

Efforts have also been directed towards suggesting some effective policy guidelines for alleviating the conditions of this major section of the society.

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1 INTRODUCTION

MICROFINANCE - AN EMERGING SECTOR The post-nationalization period in the banking sector, circa 1969, witnessed a substantial amount of resources being earmarked towards meeting the credit needs of the poor. There were several objectives for the bank nationalization strategy including expanding the outreach of financial services to neglected sectors. As a result of this strategy, the banking network underwent an expansion phase without comparables in the world.

Credit came to be recognized as a remedy for many of the ills of the poverty. While the objectives were laudable and substantial progress was achieved, credit flow to the poor and especially to poor women, neglected scheduled caste and scheduled tribes remained low. This led to initiatives that were institution driven that attempted to converge the existing strengths of rural banking infrastructure and leverage this to better serve the poor. The pioneering efforts at this were made by National Bank for Agriculture and Rural Development (NABARD), which was given the tasks of framing appropriate policy for rural credit, provision of technical assistance backed liquidity support to banks, supervision of rural credit institutions and other development initiatives.

Microfinance refers to the provision of financial services to poor or low-income clients, including consumers and the self-employed. The term also refers to the practice of delivering those services on a sustainable basis. It can also be referred to as a movement that envisions a world in which as many poor households have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance and fund transfers. Microfinance refers to small scale financial services for both credits and deposits- that are provided to people who farm or fish or herd; operate small or micro enterprise where goods are produced, recycled, repaired, or traded; provide services; work for wages or commissions; gain income from renting out small amounts of land, vehicles, draft

2 animals, or machinery and tools; and to other individuals and local groups in developing countries in both rural and urban areas. It includes the provision of financial services such as credit, savings, and insurance to low income individuals who fall just above the nationally defined poverty line and poor individuals which fall below that poverty line. This objective could be complemented with the goal of creating social value. In a country like India where there are gross inequalities in many forms, be it economical, social or religious, it became necessary to search for tools such as microfinance to reduce the gaps. The focus also had to be targeted on women in backward areas. In India, the women are the most disadvantaged section among the poor. They are deprived of the basic health, educational and social needs. Thus, strengthening them with feasible financial resources would serve as a means to push them higher on the social ladder. Microfinance is a social enterprise. As an enterprise, it is a business that aims to cover its costs and be financially sustainable. As a social enterprise, the business is a means to achieve social goals such as serving the poor, providing financial services, contributing to poverty reduction and so on.

Microfinance programs have been embraced around the world as an important strategy for poverty alleviation. Different studies have demonstrated that the poverty alleviation impact of microfinance services include reaching the poor, lifting their economic wellbeing as well as empowering them to become more effective in confronting inequities, especially in case of women and illiterate poor. Providing poor people with financial services is seen to address capital market distortions that exclude the poor and reduce the vulnerability of the poor by providing them with opportunities for income generating activities. Microfinance enables clients to protect, diversify and increase their income, as well as accumulate assets, reducing their vulnerability to income and consumption shocks.

3 SIGNIFICANCE

THE NEED FOR MICROFINANCE Traditionally, banks have usually not provided financial services to clients with little or no cash income. Banks must incur substantial costs to manage a client account, regardless of how small the sums of money involved. Nearly 60-70% of the population in India still fails to hold a bank account and only 15-20% have access to loans. There is a break-even point when providing loans or deposits below which banks lose money on each transaction they make. Poor people usually fall below it. In addition, most poor people have few assets that can be secured by a bank as collateral. Poor people often rely on relatives or a local moneylender, whose interest rates can be very high. Moneylenders usually charge higher rates to poor borrowers than to less poor ones.

In developing economies and particularly in the rural areas, many activities that would be classified in the developed world as financial are not monetized: that is, money is not used to carry them out. Almost by definition, poor people have very little money. But circumstances often arise in their lives in which they need money or the things money can buy, and hence microfinance acts as a great boon under all these circumstances.

MICROFINANCE IN INDIA

In the early 1980s, the GOI launched the Integrated Rural Development Program (IRDP), a large poverty alleviation credit program, which provided government subsidized credit through banks to the poor. It was aimed that the poor would be able to use the inexpensive credit to finance themselves over the poverty line. Against this background, a need was felt for alternative policies, systems and procedures, savings and loan products, other complementary services, and new delivery mechanisms, which would fulfill the requirements of the poorest members of such households. The emphasis therefore was on improving the access of the poor to microfinance rather than just micro-credit. In 1999, the GOI merged various credit programs together, refined them and launched a new programme called Swaranjayanti Gram Swarazagar Yojana (SGSY).

4 Microfinance institutions (MFIs) have also become popular throughout India as one form of financial intermediary to the poor. MFIs exist in many forms including co-operatives, Grameen-like initiatives and private sector MFIs. The Grameen-like initiatives following a business model like the Grameen Bank. Private sector MFIs include NGOs that act as financial services providers for the poor and include other support services but are not technically a bank as they do not take deposits. Recently, microfinance has garnered significant worldwide attention as being a successful tool in poverty reduction. Today, Self-Help Groups and MFIs are the two dominant form of microfinance in India. The liberalization of India’s financial system in the 1990s witnessed a series of structural adjustments and financial policy reforms initiated by the Reserve Bank of India (RBI). A major outcome of these reforms was the easing of interest rates and controls on loans to the poor. It led to the emergence of a microfinance- type model by NABARD based on the Self Help group Linkage scheme. This model then expanded on a large scale at the national level. The microfinance model in India is partly based on the Grameen Bank model as well as the Indonesian and Bolivian models. It also includes the home-grown model of the Self-help groups (SHGs).

Organizations engaged in micro finance activities in India may be categorized as Wholesalers, NGOs supporting SHG Federations and NGOs directly retailing credit borrowers or groups of borrower. The Wholesalers will include agencies like NABARD, Rashtriya Mahila Kosh-New Delhi and the Friends of Women's World Banking in Ahmedabad. Few of the NGOs supporting SHG Federations include MYRADA in Bangalore, SEWA in Ahmedabad, PRADAN in Tamilnadu and Bihar, ADITHI in Patna, SPARC in Mumbai, and ASSEFA in Madras etc. While few of the NGOs directly retailing credit to Borrowers are SHARE in Hyderabad, ASA in Trichy, RDO Loyalam Bank in Manipur. The other financial institutions include non-bank financial companies, insurance companies, provident funds and mutual funds. A total of 140,000 institutional outlets serving the rural sector and the poor imply the availability of one outlet for every 5,600 persons – in theory, a very favorable ratio for catering to the financial needs of the poor.

5 The government of India’s main poverty alleviation programme, The Integrated Rural Development Programme (IRDP) was described as the world’s largest microfinance programme. It involved the commercial banks in giving loans of less than Rs15,000 to poor people, and in nearly 20 years resulted in financial assistance of around Rs 250 billion to roughly 55 billion families.

Over the past 20-25 years the resultant vacuum in the financial system has started to be filled, initially with the pioneering efforts of organizations such as the SEWA bank(Ahmedabad) and Working Women’s Forum (Chennai) , but more vigorously during the 1990s, by the entrance of significant numbers of non-government organizations (NGOS) into microfinance. Current estimates of the number of NGOs engaged in mobilizing savings and providing micro-loan services to the poor lie in the range of 800- 1,000 organizations. Gradually MFIs are increasingly becoming intermediaries between the largely public sector development finance institutions and retail borrowers consisting of groups of poor people or individual borrowers living in rural areas or urban slums. . The poor in India define the micro-finance market. The Planning Commission estimate of 2008-09 says 36% of the population live below the poverty line - there would be 140-150 million women alone living below the poverty line. Assuming that only 30% of the country’s poor women are ready to adopt micro-finance as a method of poverty alleviation, it is estimated that 40-45 million poor women would need credit. As against this, it is estimated that all agencies in India engaged in the provision of micro-finance services, would have together covered barely 4 million poor people by the close of 2008- 09. Microfinance approach is based on certain proven truths which are not always recognized. These are:  That the poor are bankable; successful initiatives in micro finance demonstrate that there need not be a trade off between reaching the poor and profitability - micro finance constitutes a statement that the borrowers are not ‘weaker sections’ in need of charity, but can be treated as responsible people on business terms for mutual profit -

6  That almost all poor households need to save, have the inherent capacity to save small amounts regularly and are willing to save provided they are motivated and facilitated to do so -  That easy access to credit is more important than cheap subsidized credit which involves lengthy bureaucratic procedures - (some institutions in India are already lending to groups or SHGs at higher rates - this may prevent the groups from enjoying a sufficient margin and rapidly accumulating their own funds, but members continue to borrow at these high rates, even those who can borrow individually from banks) -  'Peer pressure' in groups helps in improving recoveries.

POLICY INITIATIVES BY GOI

 In 1991, the Indian government embarked a massive campaign to liberalize the nation’s economy. The government initiated series of financial sector reform policies that helped commercial banks expand into new markets based on their viability rather than directed by government policy. Successive new policy initiatives from the central government and the state governments created a conducive atmosphere for the growth of microfinance and rural credit supply in India.  In 1995 the government of Andhra Pradesh state- a pioneer in the cooperative movement when it passed the Mutually Aided Cooperatives (MACS) Act- granted autonomy to the cooperatives.  In 1996, Reserve Bank of India (RBI) deregulated interest rates for small loans (defined as those below Rs.200,000) made by regional and cooperative banks.  In 1998 Small Industries Development Bank of India (SIDBI) set up its foundation for Micro-Credit with initial capitalization of Rs 1000 million.  In 2000, RBI declared that lending to MFIs would be at the top priority.  Microfinance Development and Equity Fund (MD & EF), 2001 Government of India, in 2001 re-designated the existing Micro Finance Development Fund as Micro Finance Development and Equity Fund with the objective of facilitating and supporting the orderly growth of the microfinance sector, by especially

7 assisting the women and vulnerable sections of the society and also by supporting their capacity building. The size of the fund was also enhanced form the existing Rs.100 crore to Rs.200 crore. The additional amount was to be contributed by Reserve Bank of India, NABARD and the commercial banks in the proportion 40:20:20.  Micro Finance Programme(MFC), 2004. In March 2004, the Ministry of Small Scale Industry introduced the Micro Finance Programme along with the SIDBI. The Government provides funds for Micro Finance Programme to SIDBI, called “Portfolio Risk Fund (PRF)”. This fund is used for security deposit required of the MFIs/ NGOs to get loan. At present SIDBI takes fixed deposit equal to 10% of the loan amount. The share of MFIs/ NGOs is 2.5% of the loan amount (i.e. 25% of security deposit) and balance 7.5 % (i.e. 75% of security deposit) is adjusted from the funds provided by the Government of India.  As part of the initiative to identify at least one suitable district in each State/Union Territory for achieving 100 per cent financial inclusion, which started in April 2006, 431 districts had been identified as on March 31, 2009. The target has reportedly been achieved in 204 districts in 18 States and six Union Territories. All districts of Haryana, Himachal Pradesh, Karnataka, Kerala, Uttarakhand, Goa, Chandigarh, Puducherry, Daman and Diu, Dadra and Nagar Haveli and Lakshadweep have reported achieving 100 per cent financial inclusion. In certain less developed states, such as those in the North Eastern region, Bihar, Chhattisgarh, Jharkand, Himachal Pradesh, Lakshadweep and Uttarakhand, Working Groups appointed by the Reserve Bank have made specific recommendations for financial inclusion, strengthening financial institutions and improving currency and payments systems.  In January 2006, the Reserve Bank permitted banks to utilize the services of NGOs, MFIs (other than NBFCs) and other civil society organizations as intermediaries in providing financial and banking services through the use of business facilitator (BF) and business correspondent (BC) models. The BC model allows banks to do ‘cash in - cash out’ transactions at a location much closer to the rural population.

8  The Micro Financial Sector (Development and Regulation) Bill, 2007 In March 2008, the Finance Minister tabled the bill in the Lok Sabha, which was then referred to the Lok Sabha Standing Committee on Finance. It provides for the regulation and supervision of cooperative societies and non- profit institutions (including societies and trusts) that are providing microfinance. The regulator for all of these institutions would NABARD.  Master Circular on Micro Credit The Reserve Bank of India has come out with a Master Circular on Micro Credit dated July 1, 2008, which pertains to bank lending and NBFC-lending activities in the micro credit segment.

MICROFINANCE PROVISION IN INDIA - ANALYSIS

The SHG-bank linkage programme, being implemented by commercial banks, RRBs and cooperative banks, is the major channel for providing micro finance in the country, with more than 7.01 crore poor households covered. At end-March 2008, a total of 3.6 million SHGs with a total outstanding bank loan of Rs.17, 000 crore were credit linked with the banks. As on March 31, 2008, a total of 5.0 million SHGs were having savings bank accounts with the banking system of which the commercial banks had the maximum share (56.0 per cent) followed by the RRBs (28.0 per cent) and co-operative banks (16.0 per cent).

9 The Bharat Microfinance Report — Quick Data 2009 reveals that Indian microfinance has reached out to 86.2 million clients and the portfolio outstanding of Rs. 351 billion including MFI channel actual data and SBLP estimated data for March 2009. Out of this MFI channel client outreach has grown at 60 per cent in 2009 against 41 per cent in 2008.

10 Source: The Bharat Microfinance Report – Quick Data 2009

The portfolio of MFIs has grown at 97 per cent during 2009 as compared to 72 per cent in the previous year. It has been possible to make a distinction between client outreach and active borrowers. Out of 22.6 million clients of MFIs, 17.9 million (79 per cent) are active borrowers.

Clients, Active Borrowers and SC/ST Borrowers, by MFI, size 2009

Source: The Bharat Microfinance Report – Quick Data 2009

11 POVERTY OUTREACH

Previous reports on the MFIs coverage in poorest districts as per NREGP (phase 1 and 2) identified the number of poorest districts. Out of these 331 poorest districts, MFIs have expanded their operations from 63% per cent in 2008 to 71% per cent in 2009. In total, they operate in 413 districts all over India.

The proportion of women clients in the total clients in the current year remained same (80 per cent) as that in 2008. About 93 per cent of active borrowers are women in 2009. MFIs served 7.7 million clients from SC/ST & minority community background. About 20 per cent of MFI clients belong to SC/ST. The proportion of SC/ST clients declined from 30 per cent in 2008 to 20 per cent in 2009.

While there is an increase in the percentage of borrowers above Rs.10,000 from 2008 to 2009, a decrease in percentage of borrowers below Rs.5,000 is observed. This has been possible due to increased loan size and more matured clients.

Number and Percentage of poorest districts reached by MFIs

Source: The Bharat Microfinance Report – Quick Data 2009

12 Portfolio in Rs. crore; Clients in 10,000 persons

Source: The Bharat Microfinance Report 2008

Indian MFIs serve 4.1 million clients from the SC/ST background. The reported number of SC/ST has been growing alongside the rate of total outreach, thus the SC/ST-share is stable at 3 out of 10 clients. The poor sections of the country have been well served financially by the MFIs. A stable 8 out of 10 clients have been provided loans sized less than Rs. 10,000. The loan segment between Rs. 5,000 and Rs 10,000 has been growing strongest. The reasons for this could be maturing of the borrowers to bigger loans over

13 the loan cycles. Also, urban microfinance starts with comparatively bigger loans than rural finance, assuming greater disposable incomes at the hands of the urban people.

MICROFINANCE AMONGST SCHEDULED TRIBES

Primitive, geographically isolated, shy and socially, educationally & economically backwardness these are the traits that distinguish Scheduled Tribes of our country from other communities. Tribal communities live in about 15% of the country’s areas in various ecological and geo-climatic conditions ranging from plains to forests, hills and inaccessible areas. Tribal groups are at different stages of social, economic and educational development.

There are over 500 tribes as notified under article 342 of the Constitution of India, spread over different States and Union Territories of the country, the largest number of tribal communities being in the State of Orissa. The main concentration of tribal population is in central India and in the North-eastern States. However, they have their presence in all States and Union Territories except Haryana, Punjab, Delhi, Pondicherry and Chandigarh.

Promotion of all round development of tribals inhabiting the length and breath of our country has received priority attention of the government. There are numerous government policies for ensuring the welfare and well being of tribals. The Governments at State as well as Central levels have made sustained efforts to provide opportunity to these communities for their economic development by eradicating poverty and health problems and developing communication for removal of isolation of their habitats. The Constitution further provides social, economic and political guarantees to the disadvantaged sections of people.

DEMOGRAPHIC TRENDS AND PRESENT STATUS

According to 2001 Census, the population of Scheduled Tribes in the country is 8.43 crores, which is 8.2% of the total population of the country. During the Census years

14 1991 to 2001, the decadal growth was 24.45% against the growth rate of 22.66% for the entire population. As per 2001 Census, the ST population in the State of Karnataka has witnessed the highest growth rate of 80.82%. As compared to the sex ratio for the overall population (933 females per 1000 males), the sex ratio among Scheduled Tribes, as per 2001 Census is more favorable, at 977 females per 1000 males.

The literacy rate for overall population has increased from 52.2% to 65.38% between 1991 and 2001. In case of Scheduled Tribes, the increase in literacy has been from 29.62% to 47.10% .The female literacy rate along tribals during the period 1991 to 2001 increased from 18.19% to 34.76% which is lower by approximately 20% as compared to literacy rate of the females of the general population. About 87% of the main workers from these communities were engaged in primary sector activities. These disparities are compounded by higher dropout rates in formal education, resulting in a disproportionately lower representation in higher education.

The cumulative effect has been that the proportion of Scheduled Tribes below the poverty line is substantially higher than the national average. As per a statement provided by the Planning Commission, it is observed that ST people living below poverty line in 1993- 1994 were 51.94% in rural areas, and 41.14% in urban areas respectively. The percentage of ST population living below poverty line has decreased to 45.86% in rural areas and 34.75% in urban areas as per the estimation of below poverty line in the year 1999-2000, and it is 40.32%in rural areas and 27.57% in the urban area in the year 2007-08.

The Scheduled Tribes live in contiguous areas unlike other communities. It is, therefore, much simpler to have area approach for development activities and also regulatory provisions to protect their interests.

SCHEME OF ASSISTANCE TO STATE SCHEDULED TRIBES FINANCE AND DEVELOPMENT CORPORATIONS (STFDCS)

The scheme of assistance to the State Scheduled Castes and Scheduled Tribes Finance and Development Corporations was introduced in the year 1978-79 as a centrally

15 sponsored scheme. These Corporations were catering to the needs of both Scheduled Castes and Scheduled Tribes; however, with the formation of the Ministry of Tribal Affairs in October, 1999, the scheme has been bifurcated from the Ministry of Social Justice & Empowerment from April, 2000. At present Scheduled Tribes Finance and Development Corporations are functioning in States and Union Territories with a sizeable Scheduled Tribe population.

These Corporations act as guarantors and promoters for providing margin money loans and subsidy to the target groups. They play a useful role in the mobilization of finances for economic development of Scheduled Tribes living below the poverty line. The State Corporations mainly take up employment- oriented schemes in the areas of (i) Agriculture and allied sector (ii) Minor irrigation (iii) Trades and Services (iv) Transport and (v) Self Employment schemes. The Ministry of Tribal Affairs provides financial assistance to the State Corporations as 49% share capital investment, the remaining 51% being borne by the State Governments.

A person belonging to a scheduled tribe upto double the poverty line is eligible to get assistance under the scheme. The allocation made and the expenditure incurred under this scheme during the year 2002-03, 2003-04 and 2004-05 are as under:-

(Rs. In lakhs)

Source: Annual Report 2007-08-NCST

NATIONAL SCHEDULED TRIBES FINANCE AND DEVELOPMENT CORPORATION (NSTFDC)

The National Scheduled Tribes Finance and Development Corporation (NSTFDC) was set up in April, 2001 as a governmental company under Section 25 of the Companies Act, 1956 (A company not for profit) following the decision of the government to bifurcate the previous National Scheduled Castes and Scheduled Tribes Finance and Development

16 Corporation (NSFDC). It is a fully Government of India owned Undertaking under the Ministry of Tribal Affairs and is an apex organization for providing assistance for schemes / projects for economic development of Scheduled Tribes.

The broad objectives of NSTFDC include (i) identification of economic activities of importance to the Scheduled Tribes so as to generate employment and raise their level of income, (ii) upgradation of skills and processes used by the Scheduled Tribes through providing both institutional and on- the - job training, and (iii) to provide financial support for meeting the working capital requirement of the Central/ State Government owned agencies and National Level Federations such as TRIFED, for undertaking procurement and/or marketing of minor forest produce / agricultural produces collected/grown by the Scheduled Tribes and / or related products/services.

The Corporation finances viable income generating schemes / projects through State Channelising Agencies (SCAs) for economic development of Scheduled Tribes and grants (through SCAs) for undertaking training programmes for their skill and entrepreneurial development. As per the eligibility criteria, the annual family income of the beneficiary should not exceed double the poverty line income limit (presently Rs. 39,500 per annum for the rural areas and Rs. 54, 500 per annum for the urban areas).

EVOLUTION OF KUDUMBASREE IN KERALA : A CASE STUDY The success of SEWA of Ahmadabad, Myrada of Mysore, and several other experiments in different other parts of the country, has attracted many States for replicating this strategy. It has been widely accepted that the programme, if taken up and implemented in the right sense, would be very effective in poverty eradication and women empowerment. Historically, many church-based development institutions in Kerala have been promoting credit unions. But these credit unions lacked the participatory decision-making found in SHGs. The amazing success of the participatory system of poverty alleviation in Alappuzha Municipality prompted the Government of Kerala in 1994 to extend the scheme to the Wayanad district one of the most backward districts in India (Table 1).

17 Table 1. Kudumbashree –Wayanad District (progress report (2002 - 2007). Total SHGs 7281

Total Tribal SHGs 111 Registered SHGs (Bank) 6988 Total Savings 32.75(crores) Total Loans 105.19

As per 2001 census there were 3.21 lakhs Scheduled Tribes in Kerala State. The Tribal population in Kerala State is 2% of the total population in the State. The literacy status of STs was 57.22% in 1991 as against the general literacy rate of 89.81%. Nearly 23% of the tribal families are living within forest areas. These 398 Groups are the most vulnerable communities among the tribal and are all below poverty Line. The present number of ST households is estimated around 84,000. The Scheduled Tribe Population is even more unevenly distributed in the Districts. The strategy formed the Convergent Community Action and Self Help to enhance the capacity of the family to help meet their basic needs such as drinking water, primary health care, basic education, safe environment and food security. The role of NGOs in the SHG programme is to support women to encourage and launch groups, provide training and aid in the group's effort, both its inner operations and its interaction with banks and other organizations. Its infrastructure and team capability tolerate it to endow with strong and steady sustain in reaction to the needs of the SHGs, which vary according to neighborhood issues and stages of enlargement. NGOs have been supported by the Kerala government through the provision of funding for training and other aspects of the SHG programme. Compared to the Grameen Bank, SHGs are more participatory and ambitious from the masses, while at the same time challenging more skills of women.

ACTION FOR SOCIAL ADVANCEMENT’S MICROFINANCE INTERVENTION IN TRIBAL AREAS OF CENTRAL INDIA

Starting on an experimental basis, Action for Social Advancement (ASA) initiated its micro-finance programme in Dahod (Gujarat) and Jhabua (Madhya Pradesh) districts in

18 1998. By 2002 it had developed a model suitable to the needs of the predominantly tribal population (mainly Bhils and Bhilalas) of the area. At this stage ASA received a grant of RS. 3.7 million from Paul Hamlyn Foundation (PHF), UK, which helped it to establish the model in the field and bring its micro-finance programme to scale. Based on the success of the programme in early 2006, PHF granted Rs. 10.058 million for replicating the programme in eight blocks of Jhabua district covering about 30,000 poor households.

The programme involves establishment of separate self-help groups for men and women. The capacity of these groups to carry out savings and credit activities is built up by ASA through an intensive training and nurturing process. When more than 150 SHGs are formed in a particular block, these are federated. The federation then takes over the hand- holding activity in exchange for a small annual service fee paid by the members of the SHGs to the federation. Over a period 4 years and when with about 350-400 member SHGs the federation covers its total overhead costs. This revenue model has helped to make the Federations financially autonomous. As of now there are 4 federations supporting 831 SHGs. 78% percentage of the SHGs are women’s SHGs. More recently an MFI has been established by ASA in order to provide better access to loans on a bigger scale.

CREDIT CO-OPERATIVE BANK FOR WOMEN AT JHARKHAND

Tribal women in India's eastern Jharkhand province have been running a micro credit society that benefits the impoverished tribal folks to earn livelihoods and cater to emergencies. The bank was set up by the tribal village women of Karamjora in Giridih district with the help of Institute of Rural Management (IRMA), a non-governmental organization. It has now 352 account holders including some local bodies.

Jharkhand is home to a number of tribal communities, including 32 primitive tribal communities. This step taken by the tribal women in Karamjora certainly opens a new chapter in the empowerment of tribal women through co-operation. It strengthens the fact women need to co-operate with each other for their own financial empowerment which is high essential for their active participation in economic development of the nation.

19 WHAT MFIs CAN TEACH THE WALL STREET Even as the global financial system freezes and giants like Lehman Brothers collapse, microfinance institutions (MFIS) are expanding unfazed. MFIS reporting zero default is something extraordinary:  Big financers lend against collateral, a back up if their borrower defaults. But MFIS lend with no collateral at all.  Big financers lend to the most credit worthy corporations. MFIS lend to poor women whom nobody in history considered credit worthy before. Yet these secured loans are bombing while unsecured loans to poor women are being repaid in full. REASON: US banks happily gave mortgages of 100% of the value of houses during the housing bubble, and suffered when house prices fell. Institutions like Lehman Brothers borrowed massively to invest in AAA mortgage backed securities and went bust when value of these services plummeted. LESSON: Depending on collateral is not enough, cash flows of borrowers should be assessed and there should be a cushion to ensure repayment. MFIS deliberately keep loans small, well within repayment capacity. Some MFIS give first loans of just Rs.5000 a year. Those who repay may get higher, maybe Rs.7000. But they set an absolute loan limit ranging from Rs.12000 to Rs.25000, depending on local economic opportunities, to guard over borrowing. MFIS have a fixed interest rate and fixed ceilings on loans. MFIS lend to groups of poor women. If any borrower defaults, the whole group is barred from credit, so other members put social pressure on the defaulter to pay. CONCLUSION

Microfinance constitutes a potentially viable bottom-up policy option in lieu of or, preferably, as a complement to effective macroeconomic poverty alleviation and

20 development policies. Better goal-oriented assessment is needed to determine if microfinance is an effective policy for poverty alleviation. MFIs work toward a double bottom-line—financial and social sector. The specific impacts of microfinance are difficult to pin down and measure. Impact assessments require adoption of research methodologies capable of isolating specific units of measurement to tangible and intangible impacts. The difficulty and cost inherent in assessing social impact are such that most MFIs do not try to assess social impact; nonetheless, donors and policymakers have a legitimate interest in assessing the social returns to their social investments. Making comparisons across impact studies is greatly complicated by the contextual heterogeneity of programs assessed and the diversity of empirical methodologies used. The diversity of empirical methodologies in turn reflects the diversity in methodological options available. Microfinance in India is a growing sector but it has a long way to go and much more needs to be done before we can successfully help our poor with the support of credit and microfinance. The regulatory environment created by the Reserve Bank of India (RBI) is unfavorable for the growth and proliferation of microfinance in India. India is one the largest emerging markets in microfinance in the world, but has been able to penetrate to only one-fifth of the country's poor. For the last two years, many public and private sector banks have been aggressively eyeing the market along with various overseas retail banks. LIMITATIONS OF THE DATA Most of the data is available at the national level. It is difficult to gather data about the economic and financial requirements of the tribals in the deep interior areas. Illiteracy among the tribals and lack of willingness to divulge the details act as major impediments for the researchers in compiling data. The data on the amount of loans dispersed does not establish a relation between the recovery rate and the period of the loan.

Availability of separate data for the tribal concentrated areas is inadequate. Moreover, the data on credit dispersed to women is very limited, due to the social backwardness of women in rural areas and lack of accessibility to them. The data on different purposes for which the loan is utilized is not available at a large scale. It diverts our attention towards

21 the purpose for which the microfinance should be made available particularly whether for productive purposes or for merely meeting the social obligations.

SUGGESTIONS AND POLICY GUIDELINES

. There is imperative need to work out efficient mechanisms involving external entities to cater to the under serviced areas and the rural poor, as banking with the poor is not poor rather profitable banking. . MFIs need to be brought at par with Non-Banking Financing Companies (NBFC). . Microfinance may strengthen the traditional, social and entrepreneurial roles, thereby, earning women greater respect and honor in society. . There is need to redefine the activities financed by microfinance to qualify as ‘micro’. If for some reason the micro activity does not fetch any return the beneficiaries of Microfinance suffer tremendously. . A comprehensive study of different rating models and methodologies may be conducted and suitable standard of rating established for MFIs in India. Keeping in mind the cost and effort involved in developing an appropriate rating model, NABARD can be the lead agency for developing a suitable rating model in consultation with CRISIL, MCRIL, SIDBI and MFI associations. . A very useful guideline from Internal Group to examine issues relating to rural credit and micro finance, under the aegis of the RBI, has been the MFI-Bank Partnership Model.

Some other suggestions at the ground level include:

. To provide literacy and numeric training to the poor women to benefit from the micro-credit schemes. . Generate awareness of the existence of MFIs/ SHGs with compliance training and sufficient gestation period to adapt to the prevalent financial system. . A co-partnership with the existing money lenders could be ventured into, to include them to become a part of the formal financial system.

22 . Training in legal literacy, rights and gender awareness are important complements to micro-credit for the empowerment of women. . The NGOs should act as a facilitator and motivator to constructively mobilize the savings of the people and canalize into productive purposes of common benefit to the group. . The activities in the villages are connected with export trade to generate sufficient surplus for repayment and expansion.

Thus, microfinance is surely a medium to uplift the poor from below the poverty line and remove them from the shackles of deprivation to self-sufficiency and independence. It provides a vision to the policy makers to achieve the complementary goals of economic growth, equality, employment, social peace and harmony.

LIST OF REFERENCES

1. Berger, Marguerite(1989), Giving Women Credit: “The strengths and Limitations of Credit as a Tool for alleviating Poverty:, World Development, Volume 17, No.7 2. Dasgupta, Rajaram (2001): “An informal Journey through Self Help Groups”, Indian Journal of Agricultural Economics, Vol 56, No 3, July-Sept 3. Ghate, Prabhu (2006), "Microfinance in India: A State of the Sector Report, 2007", Microfinance India, New Delhi, 4. Ghate ,Prabhu (2007)"Indian Microfinance: The Challenges of Rapid Growth, Sage, New Delhi. 5. Holvoet N, 2005: “The Impact of Microfinance on Decision-Making Agency: Evidence from South India”, Development and Change, vol. 36 (1). 6. Malik.Khalid (2005) “Asian Conference on Microfinance and women’s development” - 22 Nov 2005, Beijing; www.undp.org 7. NABARD(2004-05) : ‘Progress of SHG- Bank Linkage Program in India’, NABARD, Mumbai. 8. NABARD(2005-06) : ‘Progress of SHG- Bank Linkage Program in India’, NABARD, Mumbai. 9. NABARD (2008-09) ANNUAL REPORT

23 10. NFHS 1,2,3 REPORTS, nfhsindia.org 11. Reddy C.S (2005) “Self Help Groups: A keystone of Microfinance in India”, Mahila Abhivruddhi Society, Andhra Pradesh (APMAS) 12. Reserve Bank of India, Report on Currency and Finance, 1997-98 to.2008-09 13. Sharma, K.C., Micro Financing Through SHG's, Indian Journal Of Agricultural Economic, Vol. 56 (3), July-Sept.,2001. 14. Sinha.Sanjay and Meenal Patole (2002)“Microfinance and the Poverty of Financial Services: How the poor in India could be better served”, Paper no.56, EDA Rural Systems Pvt Ltd, Gurgaon, India. 15. Srivastava, S.P., “Gender Justice And Human Rights Of Women, In Gender Equality Through Women's Empowerment” By (ed.) Surendra Singh And S.P. Srivastava, Opcit, Bharat Book Co., Lucknow, 2002 16. Wydick, W. Bruce, 2002, Microfinance among the Maya: Tracking the progress of borrowers, Development and Change 33, 489-503. 17. World Bank, 2001: Engendering Development: Through Gender Equality in Rights, Resources, and Voice – Summary, Washington. www.worldbank.org/gender/prr/ engendersummary.pdf 18. Yunus Mohammed (2004) “Grameen Bank, Microcredit and Millenium Devt Goals”, Economic & Political Weekly, Septemer 4-10, 2004, Vol XXXIX. 19. Five Year Planning Documents of Planning Commission, GOI 20. www.Gramneen-info.org/ bank 21. www.villagebanking.org 22. www.yearofmicrocredit.org 23. www.mixmarket.org 24. The Economic times 25. The Business Standard

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