Acknowledgement

ACKNOWLEDGEMENT

All the praises and thanks to Allah, the Almighty Creator and Sustainer of the world, I thanks Almighty Allah for granting me health, strength and wisdom to complete this research.

It is with utmost pleasure that I include the names of those who have, in some possible way, contributed to the production of this work, supported me, and favoured me during the arduous journey of my research.

I am delighted to take this opportunity of expressing deep sense of gratitude to my supervisor, Prof Shamim Ahmad, Department of Agricultural Economics & Business Management, A.M.U., Aligarh, who has directed me, freed me to explore, and listened to the problems that i have faced, suggested me the ways to find solutions, and best of all, praised me whenever it was necessary. His supportive, positive and easy approach made all things comfortable for me. His vast intellect, profound learning, his multidisciplinary vision, his patient and dedicated supervision, keen interest and above all his devotion helped me in the completion of this work. I have been intensely benefited from his concrete and objective criticism, wholehearted cooperation and helpful suggestions during the course of this thesis. The present thesis is a function of his unflinching guidance and this work would not have seen the dawn without his cooperation and help. I thank him from the deepest core of my heart.

The painstaking part of this research work has been greatly eased and facilitated by the help and cooperation of my colleagues Mohammed Jamshed and Waseem Khan. Special thanks are due to him for their generous help in every part of my thesis

With immense pleasure, I also express my thanks to Prof Akram Khan the chairperson of the Department of Agricultural Economics & Business Management, A.M.U., Aligarh, for his on-going valuable support.

A special word of thanks is due to Prof. Saghir Ahmad Ansari, Prof Rais Ahmad and Mr. Shamsuzaman Department of Agricultural Economics & Business Management, A.M.U., and Aligarh they all have been extremely helpful, encouraging and suggestive during my research programme as well.

My acknowledgement would be incomplete without mentioning my cordially thanks to them. Most important of all, I am highly obliged to my father and mother and specially my elder brother and my whole family Ahmad Saeed Sherwani, Hafiza Khanam & Imran Khan Sherwani , Iffat Yasmeen , Kamran Sherwani, Fehreen Sherwani , Qurratul Ain Khan , Yeshfeen Sherwani, Burhan Sherwani and all my khalas and khalus

I would like to express my heartfelt thanks and sincere gratitude to respect my maternal grandfather and mother (Hafiz Isa khan and Kaneez Fatima) and Uncle Dr Mufti Zahid Ali former Chairman at Faculty of Theology, A.M.U. Aligarh, for his continuous guidance and moral support in every part of my studies.

1 dedicated this thesis and words fail me to express my appreciation to my wife Safia Ahmad her supportive, positive attitude encourage me every time during the course of this thesis. Furthermore, her whole family specially my mother in law Hameendun Nisa brother in laws and all sisters in laws Sadat Ali Khan, Irshad Ahmad, Abdur Rehman, Asma Ahmad, Aisha Ahmad, Zakia Ahmad, Ruqaiya Ahmad and Taiyeba Ahmad.

I am also equally happy to acknowledge my sincere regards and thanks to the elders Late Prof Ali Ahmad, Prof Snaullah Khan, Prof Frahiem Khan, Prof Fazle Azeem, Dr Adam Malik Khan and Imran Ahmad they encourage me always in the journey of my study.

1 would like to pay my sincere thanks to the non-teaching staff of the Department of Agricultural Economics and Business Management, A.M.U. Aligarh, especially Mr. Tehseen Iqbal Siddiqui, Mr. Matloobur Rehman, Mrs HinaAzmat (Section Officer) , Mr. Shahzad, Shamshuddin and Mr Mohd Asim.

I must acknowledge my gratitude to my child hood friend and best cousins Ali Sufyan, Arfa Khanam, Bushra Khanam and all other cousins.

I am indebted to colleagues Abu Zr Nomani, Dr Afaq, Dr Tajdar Qaiser, Suhail Khan and Farheen Khan for giving me their full support and helps in data collection proof reading and in completion of thesis.

Finally, I would like to thank my cooperative friends Nazim, Umair, Hamid and everybody who was the part of my field visit and contributed their important time to make this journey possible and successful, as well as expressing my apology that I could not mention their names personally one by one.

Thanks with regards

Faizan Khan Sherwani

Abstract Introduction Micro Finance a tool of inclusive growth which provides the financial services and small credit to the poor in rural, semi urban or urban areas, for enabling them to raise their income levels and improve living standards. The emerging issues and challenges in India need a pragmatic framework to empower microfinance arrangements supporting, in turn, the essential processes of entrepreneurship, capacity building, education, health, and hygiene etc. The achievement of inclusive growth and overall development of the country is highly dependent on the poverty eradication from the country. However, the poverty eradication is not possible without the development of community and households. As we know that the indicators of community development are employment generation, education development, women empowerment and equality and prosperity among the communities. Development of family largely depends upon the women earning potential, financial literacy, skills development, savings, team building, poverty alleviation, rural and semi urban entrepreneur development and community building capabilities. Hence from the past decades’ microfinance has played a significant role in overall development of the country. In short, it is inaccurate that microfinance is the greatest achievement of inclusive growth and best tool to eradicate poverty. Though the microfinance sector has witnessed remarkable growth over the last few years and the government making the quantum of credit available to the needy and financially weaker section the society the expenditure has gone up to Rs.30000 crores furthermore a number of clients benefitted crossed 30 million as of March 2014 (Sa-Dhan,2014). However, it is proved that UN Millennium Development Goals are not going to meet expected results in fighting against hunger and poverty globally because microfinance institutions charging a high-interest rate to meeting their high operating working cost. This study introduces the concept of microfinance and traces its origin in India. It also looks at how the existing models could not really help the cause of financial distress resulting into the birth of Microfinance Institutions. It briefly dwells on the various forms of business models in which they exist in India and the current status of Microfinance in India.

Figure 1: Demographics, Poverty Index of India

Source: FII 2017

In the context of overall declining poverty rates in India and the relatively small (micro) size of micro-credit the data indicating the sharp decline in poverty percentage in 2016. World Bank Index Survey (2012) states that only 35% of Indian adults had access to a formal bank account and 8% borrowed from a formal financial institution in last twelve months. The level of financial inclusion among Indian adults has increased by 20% between 2014 and 2015 (FII, 2015). As per the IMF, economic growth in the 20 most imperative microfinance markets in 2015 would be double the rate of developed economies (Etzensperger, 2015).

Figure 2: Financial Inclusion in India

Source: FII, 2017

‘moderately poor,’ which we might also consider poverty alleviation approach. This is a general statement that shows how well an MFI does in targeting poor clients based upon those considered poor by either national standards of living or by the rough measure of loan size as used by some MFIs. Some MFIs such as BASIX have used small loan size as a rough estimation of whether their clients are likely to be ‘poor’. The challenge here will be to find data that is comparable as MFIs tend to have varying ways of measuring social impact using different measures.

Purpose of Research

India still accommodates a vast majority of the population which is economically deprived in terms of income, access to resources, control over resources and political power, gender biases, child labour, different forms of human abuse, etc. One of the prime reasons for this, which the researchers have often pointed out is the unavailability of timely credit Microfinance has emerged as one of the ways for fighting against poverty in rural areas, where most of the India's poorest people live. It puts credit, savings, and other basic financial services within the reach of poor people so for conducting the study two main factors have been focused first to analyse the level of satisfaction between conventional and interest free microfinance customers for eradicating poverty in India and second to suggest policy makers that they regulate interest free microfinance system by bank linked model or Grameen model or another model which is suitable in Indian context. So for this purpose first we gone through various studies on conventional and interest free microfinance in global and Indian in three perspectives (I) microfinance in global and Indian perspective (ii) interest free microfinance in global and Indian perspective (iii) comparative study of conventional and interest free microfinance in global perspective finally so it is identified research gap the comparative study of interest free microfinance system and Indian microfinance system. The emerging issues and challenges in India need a pragmatic framework to empower interest free microfinance arrangements supporting, in turn, the essential processes of entrepreneurship, capacity building, education, health, and hygiene etc. The achievement of inclusive growth and overall development is highly dependent on the equality and prosperity in the society. The analysis shows an encouraging result of interest free microfinance arrangements and identifies significant changes in rural and semi urban entrepreneurship through them. The discussions in the study are mainly concerned with the empirical review of the

3 impacts and influences of conventional and Interest-free microfinance on the life style of microfinance users before loan and after taken loan i.e. their income, expenditure, saving, entrepreneurship, consumption, women participation in earning in the India. This study analyzes factors like problem & procedure of taken loan, effects of the loan on their life style, income, consumption, family financial status, the impact of business and society which compare the potential of interest free microfinance with conventional microfinance system and their role in poverty alleviation.

Organization of the Study: The thesis has been divided into eight chapters. Chapter 1: The chapter gives a brief idea of current scenario and background of issues in the Conventional Microfinance Models and Indian microfinance system and its role in the poverty alleviation in the global context and the need and significance of the study. Furthermore, the emerging problems and challenges in India. Then elaborate the role and prospects of the study in the Indian context. What are the purposes of conducting such research? Lastly, there is an elaboration on the implication of the study.

Chapter 2: this chapter discuss the Review of literature which is divided into two parts. Initially, literature of conventional microfinance and interest free microfinance in global context as well as Indian context further divided into various aspects i.e. Microfinance and Poverty Alleviation, Microfinance and Women Empowerment, Microfinance and Education Development, Microfinance and Employment Generation, Microfinance and Financial Reach ability, Microfinance and Team Building Capacity, Microfinance and Policy Review is discussed then detailed literature about the comparative study of interest free microfinance and conventional microfinance related to the present research including the techniques and the methods that have been used by the other researchers in the research of same nature is analyzed. The chapter also highlights the gaps in the existing literature. Chapter 3: This chapter details out the statement of the problem, the scope of the study and highlights the objectives for carrying out the study. The hypotheses formulated for this study and the research design that has been adopted to carry out the study, have been presented in this chapter. This chapter also contains the questionnaire design and its administration, the sampling method adopted and work plan of survey. The chapter also highlights the methods used in the data collection

4 along with statistical methods and analysis techniques. It also includes the instrumentation, reliability, and validity of the tool used. Chapter 4: this chapter analyze the comparative advantage of conventional and interest free microfinance system. Brief discuss on present status of microfinance in India. Examined the different models of Indian microfinance system and also elaborate the legal structure of Indian microfinance system and role of MFIs and socio-cultural analysis. Interest free microfinance movement origin, prospects and principles of interest free microfinance is also explored. Brief discussion regarding the Products of interest free microfinance is also taken up and issues & challenges for interest -free microfinance are also analyzed in the present chapter. Chapter 5: this chapter analyze the performance and evaluation of microfinance institution and their profiling. Then brief discussion on the phases of Microfinance movement in India furthermore, evaluate mechanisms & compatibility of Interest Free Micro Finance in India (Socio-cultural, regulatory issues) after this brief details on Micro Finance Institutions which were used in data profiling. Chapters 6: this chapter discuss the analysis and interpretation deals with testing of various hypotheses formulated. This chapter also analyzes the level of satisfaction between interest free microfinance and conventional microfinance beneficiaries. Measure the performance of beneficiaries before taking loan and after taking loan and to measure the factors of poverty eradication by comparative analysis of conventional microfinance and interest free microfinance in India

Chapters 7: this chapter discusses the Poverty Alleviation through Women Empowerment. And brief, discussion the role of women in rural economy and its effect on poverty eradication. Furthermore, the study also discusses Government Initiative to eradicate poverty through MGNREGA. In addition this the study analyze the case study of Mewat (Haryana) and measure the performance of MGNREGA in Mewat (Haryana).

Chapter 8: this chapter concludes the various findings and implications of the study based on the findings, various recommendations and suggestion have been given. The chapter also represents the, highlights various limitations that current study is suffering from and the directions for the future research have been discussed at the end Review of literature

Review of literature discusses published information in a particular subject area within a certain time period. A literature review plays an important role in finding out information on the work done in the past by different researchers and provides an important course of action in framing the theoretical framework of research at the time of research design. Keeping this phase in mind, the review of literature has been distributed in this study into three parts viz. conventional microfinance, interest free microfinance system, and comparative study of interest free and Indian microfinance system then these three context further divided into context Microfinance and Poverty Alleviation, Microfinance and Women Empowerment, Microfinance and Education Development, Microfinance and Employment Generation, Microfinance and Financial Reachability, Microfinance and Team Building Capacity Microfinance and Policy Review. An attempt has been made in this study to assess various concepts and views related to the present research.

Research Gap

As a matter of fact, multiplicity and variety in the available researches made it difficult to identify the research gap or the comparative analysis of interest free microfinance and conventional microfinance systems. Hundreds of studies have already been conducted on conventional microfinance and non-conventional microfinance separately and a good number of researches are also found on the comparative aspects of the two systems. Plenty of work is also noticed which is focusing on the impact of these microfinance systems on poverty alleviation in India as well as elsewhere. Keeping this in view the literature has been picked up here for review ranging from broad concept to narrow issues. Graph 2.1 is drawn below to categorize and picturise the scattered works to help us evaluate and identify the research gap. As apparent in Graph 2.1, researches are available on microfinance in global as well as Indian context. Some are on the conventional banking system and others are on interest free or Islamic system. The impact on poverty alleviation is also taken up in a number of studies which have been taken up for review in the above paragraphs. In a particular context, comparative evaluation of certain selected parameters is also found but those have limited time, area and factor validity.

Some work is conducted on comparative analysis of conventional and non- conventional microfinance system but these studies have only done a comparative analysis of financial data and do not compare the performance of conventional microfinance and interest free microfinance on customers. When we go through the literature on Indian microfinance system we find a number of studies which have analyzed conventional microfinance customers and some have focused on interest free microfinance customers. Microfinance and its role in poverty alleviation are also a subject of study in some researches. Now there is a need to consolidate, validate and broaden all these contextual and outdated tasks performed in different parts of India (or outside India) for the purpose of arriving at the current state of both the banking systems in India and knowing their role in poverty alleviation. it is also desirable to do a comparative study of interest free microfinance clients and conventional microfinance clients and getting the first- hand knowledge of its impact on the eradication of poverty in the Indian context. This research proposed to study both the banking systems in India and learning from the global experiments arrive at a system or a blending of the two systems which best fits Indian conditions and which is best for the purpose of poverty alleviation, a priority agenda in the country. For this purpose, going first to analyze global microfinance system, then to Indian microfinance system and finally doing the comparative analysis of both to arrive at the best solution for India for poverty alleviation is attempted in this research. The study is to focus the major beneficiaries

7 i.e. the poor Indian for whom the microfinance is to be designed here. Therefore, this study is proposed to be a ‘microfinance customers ‘study. Determinants Snapshot The comprehensive review of literature has given some guidance about the determinants to check the performances of conventional and interest free microfinance. These determinants are required for designing the questionnaire. A complete list of determinants with their respective research studies are as under;

S.No. DETERMINANTS AUTHORS BASIC AMENITIES & Ali, J., Kapoor, S., & Moorthy, J. (2010); Aziz, T., 1 HOUSEHOLD ITEMS & Alam, M. S. (2012); Khan, A. A. (2008) Morduch, J., & Haley, B. (2002); Alamgir, D. A. H., Hassan, M. K., & Dewan, H. H. (2010); Aziz, T., & Alam, M. S. (2012); Oxford Policy Management. DRINKING WATER (2006); Riwajanti, N. I. (2013); Obaidullah, M.

(2008); Ahmed, H. (2004); Yonis, A. M. (2012); Tiwari, P., & Fahad, S. (2004); Chirkos, A. Y. (2014); Morduch, J. (2000) ELECTRICITY Khan, A. A. (2008); Oxford Policy Management. CONNECTIONS/POWER (2006); Nadeem, A. (2010); Yonis, A. M. (2012) KITCHEN Tiwari, P., & Fahad, S. (2004)

Khan, A. A. (2008); Oxford Policy Management. BATHROOM (2006); Nadeem, A. (2010); Yonis, A. M. (2012) Nisar, S. (2004); Ali, J., Kapoor, S., & Moorthy, J. TOILET (2010) Morduch, J., & Haley, B. (2002); Anam, A., Jamal, N., & Sheikh, M. A. (2013); Obaidullah, M. (2008); Khan, A. A. (2008); Augsburg, B., De Haas, R., PRIMARY EDUCATION Harmgart, H., & Meghir, C. (2012); Ali, J., Kapoor, S., & Moorthy, J. (2010); Nair, A., & Bank, W. (2005) Malhotra, A., & Schuler, S. R. (2005); Morduch, J., COOKING GAS & Haley, B. (2002); Mat Rahim, S. R., & Zakaria,

R. H. (2013) Rogaly, B. (1996); Nayak, A. K. (2015); Oxford TELEVISION Policy Management. (2006); Ali, J. (2013) Seibel, H. D. (2008); Aziz, T., & Alam, M. S. CYCLE & (2012); Ahmed, H. (2004); Masyita, D., & Ahmed, SCOOTER/MOTOR- H. (2013); Edbiz Consulting. (2012); Chintaman, S.

BIKE A., Com, M., & Ph, D. (2014); Saini, Y., Bick, G., & Abdulla, L. (2011); Nair, A., & Bank, W. (2005)

Hassan, S., Abdul Rahman, R., Abu Bakar, N., Mohd, R., & Muhammad, A. D. (2013); Said, P., Shafqat, M., & Rehman, Z. U. (2007); G, N. (2011); MOBILE Augsburg, B., De Haas, R., Harmgart, H., &

Meghir, C. (2012); Al-Muharrami, S., & Hardy, D. C. (2013); Mosley, P., & Hulme, D. (1998); Personal, M., & Archive, R. (2011) Morduch, J., & Haley, B. (2002); Bogan, V. L., Hermes, N., Lensink, R., Meesters, A., Annim, S. K., Abate, G. T., Abdul Samad, M. (2013); Tiwari, P., & Fahad, S. (2004); Chirkos, A. Y. (2014); M- CRIL. (2012); Obaidullah, M. (2008); Micro-, T. H. E. P. O. F., Towards, T., & Study, A. C. (2012); Aseanty, D., & Hassan, A. (2013); Abdelkader, I. Ben, & Salem, A. Ben. (2013); Malhotra, A., & CHILDREN Schuler, S. R. (2005); Oxford Policy Management. 2 EDUCATION STATUS (2006); Khadijah M, S. A., P Saleh, N. E., & Kamarudin, M. F. (2013); Ahmed, H. (2007); Khan, A. A. (2008); Augsburg, B., De Haas, R., Harmgart, H., & Meghir, C. (2012); Edbiz Consulting. (2012); Evans, T. G., Adams, A. M., Mohammed, R., & Norris, A. H. (1999); Mizanur, M. R. (2010); Ali, J., Kapoor, S., & Moorthy, J. (2010); Hunt-ahmed, K., & Shawamreh, C. (2009); Nair, A., & Bank, W. (2005) Harper, M. (2002); Amanah Ikhtiar Malaysia. (2012); Tiwari, P., & Fahad, S. (2004); Chirkos, A. Y. (2014); Obaidullah, M. (2008); Micro-, T. H. E. P. O. F., Towards, T., & Study, A. C. (2012); Seibel, H. D. (2008); Ahmad, A., -Rehman, K.-U., & Safwan, N. (2011); Malhotra, A., & Schuler, S. R. (2005); Abdul Rahman, A. R., Rahman, A., & Rahim, A. (2007); Ahmed, H. (2004); Ahmed, H. (2007); Masyita, D., & Ahmed, H. (2013); Khan, A. A. (2008); Augsburg, B., De Haas, R., Harmgart, EDUCATIONAL 3 H., & Meghir, C. (2012); Edbiz Consulting. (2012); DEVELOPMENT Evans, T. G., Adams, A. M., Mohammed, R., & Norris, A. H. (1999); Rahim, A., & Rahman, A. (2007); Morduch, J., & Haley, B. (2002); Khan, J. A., & Nisar, S. (2004); Mosley, P., & Hulme, D. (1998); Chintaman, S. A., Com, M., & Ph, D. (2014); Personal, M., & Archive, R. (2011); Nisar, S. (2004); Mizanur, M. R. (2010); Hanif, M., Tariq, M., Tahir, A., & Momeneen, W. (2012); Ali, J., Kapoor, S., & Moorthy, J. (2010); Basu, P., & Srivastava, P. (2005); Hunt-ahmed, K., &

Shawamreh, C. (2009); Nair, A., & Bank, W. (2005); Ahmad, A., -Rehman, K.-U., & Safwan, N. (2011)

Sofi, F. J. (2012); Tiwari, P., & Fahad, S. (2004); M-CRIL. (2012); Anam, A., Jamal, N., & Sheikh, M. A. (2013); Obaidullah, M. (2008); Mayoux, L. (2000); Soma Sharma, M., & Anant Deshmukh, D. (2013); Oxford Policy Management. (2006); EMPLOYMENT 4 Alamgir, D. A. H., Hassan, M. K., & Dewan, H. H. GENERATION (2010); Ahmed, H. (2004); Ahmed, H. (2007); Khan, A. A. (2008); Sofi, F. J. (2012); Evans, T. G., Adams, A. M., Mohammed, R., & Norris, A. H. (1999); Morduch, J., & Haley, B. (2002); Personal, M., & Archive, R. (2011) Mayoux, L. (2000); Malhotra, A., & Schuler, S. R. (2005); Soma Sharma, M., & Anant Deshmukh, D. (2013); Harper, M. (2002); Hailey, P. (2009); Amanah Ikhtiar Malaysia. (2012); Chirkos, A. Y. (2014); M-CRIL. (2012). M-CRIL Microfinance Review (2012); Obaidullah, M. (2008); Rogaly, B. (1996); Aseanty, D., & Hassan, A. (2013); Abdelkader, I. Ben, & Salem, A. Ben. (2013); Nayak, A. K. (2015); Devaraja, T. S. (2011); Oxford Policy Management. (2006); Abdul Rahman, A. R., Rahman, A., & Rahim, A. (2007); WOMEN 5 Das, P. K. (2014); Aziz, T., & Alam, M. S. (2012); EMPOWERMENT Alamgir, D. A. H., Hassan, M. K., & Dewan, H. H. (2010); Khadijah M, S. A., P Saleh, N. E., & Kamarudin, M. F. (2013); Ahmed, H. (2004); Ahmed, H. (2007); Masyita, D., & Ahmed, H. (2013); Khan, A. A. (2008); Evans, T. G., Adams, A. M., Mohammed, R., & Norris, A. H. (1999); Rahim, A., & Rahman, A. (2007); Morduch, J., & Haley, B. (2002); Banihani, S. (2012); Personal, M., & Archive, R. (2011); Mizanur, M. R. (2010); Mohammad A. Asharaf. (2010); Basu, P., & Srivastava, P. (2005)

Nisar, S. (2004); Bogan, V. L., Hermes, N., Lensink, R., Meesters, A., Annim, S. K., Abate, G. T., Abdul Samad, M. (2013); Allen, & Llp, O. (2009); Johnes, J., Izzeldin, M., & Pappas, V. (2014); Mohd Azmi, O. (2012); Singh, J., & Yadav, P. (2013); Hassan, S., Abdul Rahman, R., Abu Bakar, N., Mohd, R., & Muhammad, A. D. (2013); Harper, M. (2002); Hailey, P. (2009); Riwajanti, N. I. (2013); Sofi, F. J. (2012); Tiwari, P., & Fahad, S. (2004); Chirkos, A. Y. (2014); M-CRIL. (2012); Anam, A., Jamal, N., & Sheikh, M. A. (2013); Obaidullah, M. (2008); Micro-, T. H. E. P. O. F., Towards, T., & Study, A. C. (2012); Rogaly, B. (1996); Abdelkader, I. Ben, & Salem, A. Ben. (2013); Nayak, A. K. (2015); Laila, T. (2010); Mayoux, L. (2000); Seibel, H. D. (2008); Devaraja, T. S. (2011); Malhotra, A., & Schuler, S. R. (2005); Oxford Policy Management. (2006); Sabi, M., & Colleges, T. S. (2014); Parveen, J. A. (2008); Aziz, T., & Alam, M. S. (2012); Report, M. A. S. (2007); COMMUNITY 6 Khadijah M, S. A., P Saleh, N. E., & Kamarudin, DEVELOPMENT M. F. (2013); Ahmed, H. (2004); Masyita, D., & Ahmed, H. (2013); Khan, A. A. (2008); Sofi, F. J. (2012); G, N. (2011); Akhter, W., Akhtar, N., & Jaffri, S. K. A. (2009); Edbiz Consulting. (2012); Sole, J. (2007); Morduch, J., & Haley, B. (2002); Development, I., & Organisation, L. A. W. (2009); Al-Muharrami, S., & Hardy, D. C. (2013); Khan, J. A., & Nisar, S. (2004); Johnson, K. (2013); Ali, J. (2013); Banihani, S. (2012); Chintaman, S. A., Com, M., & Ph, D. (2014); Personal, M., & Archive, R. (2011); Hanif, M., Tariq, M., Tahir, A., & Momeneen, W. (2012); Seminar, N. (2009); Segrado, C. (2005); Moin, M. S. (2008); Yumna, A., & Clarke, M. (2009); Mohammad A. Asharaf. (2010); Kakakhel, S. J., Raheem, F., & Tariq, M. (2011); Nisar, S., & Aziz, M. (2004); Economic, T. H. E., Of, N., & Islamic, E. (2012); Hunt-ahmed, K., & Shawamreh, C. (2009); Nair, A., & Bank, W. (2005); Loan, A., Financing, G., & Financing, A. (2012); Allen, & Llp, O. (2009);

(1999); Morduch, J., & Haley, B. (2002); Mizanur, M. R. (2010); Mohammad A. Asharaf. (2010); Ali, J., Kapoor, S., & Moorthy, J. (2010) Morduch, J., & Haley, B. (2002); Edbiz Consulting. EDUCATION (2012) Riwajanti, N. I. (2013); Edbiz Consulting. (2012); HEALTH Riwajanti, N. I. (2013); Aseanty, D., & Hassan, A.

(2013); Masyita, D., & Ahmed, H. (2013) Saini, Y., Bick, G., & Abdulla, L. (2011); Ali, J., Kapoor, S., & Moorthy, J. (2010); Wright, G. A. N., ENTERTAINMENT Kasente, D., Ssemogerere, G., & Mutesasira, L. (2001) SOCIAL CUSTOM Ahmed, H. (2004); Segrado, C. (2005)

Morduch, J. (2000); Wright, G. A. N., Kasente, D., Ssemogerere, G., & Mutesasira, L. (2001); Alamgir, TRANSPORTATION D. A. H., Hassan, M. K., & Dewan, H. H. (2010);

Ahmed, H. (2007); Annim, S. K. (2010); Morduch, J., & Haley, B. (2002); Mizanur, M. R. (2010);

Saini, Y., Bick, G., & Abdulla, L. (2011); Arun, T., Imai, K., & Sinha, F. (2006); Schreiner, M., & Woller, G. (2003); Annim, S. K. (2010)

Khan, J. A., & Nisar, S. (2004); Basu, P., & Srivastava, P. (2005); Riwajanti, N. I. (2013); M- CRIL. (2012); Obaidullah, M. (2008); Schreiner, M., & Woller, G. (2003); Laila, T. (2010); Ahmed, H. (2004); Aziz, T., & Alam, M. S. (2012); Vogelgesang, U. (2003); Masyita, D., & Ahmed, H. (2013); Khan, A. A. (2008); Wright, G. A. N., DEBT REPAYMENT Kasente, D., Ssemogerere, G., & Mutesasira, L.

(2001); Sole, J. (2007); Rahim, A., & Rahman, A. (2007); Evans, T. G., Adams, A. M., Mohammed, R., & Norris, A. H. (1999); Edbiz Consulting. (2012); Abdul Rahman, A. R., Rahman, A., & Rahim, A. (2007); Augsburg, B., De Haas, R., Harmgart, H., & Meghir, C. (2012); Personal, M., & Archive, R. (2011) Beck, T., Demirg-Kunt, A., & Merrouche, O. (2013); Imai, K.S., & Azam S. (2010); Nadeem, A. (2010); Annim, S. K. (2010); Devaraja, T. S. BUSINESS (2011); Khan, A. A. (2008); Rahim, A., & Rahman, INVESTMENT A. (2007); Augsburg, B., De Haas, R., Harmgart, H., & Meghir, C. (2012); Beck, T., Demirg-Kunt, A., & Merrouche, O. (2013) Chirkos, A. Y. (2014); Abdelkader, I. Ben, & Salem, A. Ben. (2013); Seminar, N. (2009); Finance, I. (1998); Chirkos, A. Y. (2014); Oxford SAVINGS Policy Management. (2006); Wright, G. A. N., Kasente, D., Ssemogerere, G., & Mutesasira, L. (2001); Mizanur, M. R. (2010) Mohammad A. Asharaf. (2010); Harper, M. (2002); Tiwari, P., & Fahad, S. (2004); Alamgir, D. A. H., Hassan, M. K., & Dewan, H. H. (2010); Nayak, A. K. (2015); Alkassim, F. a. (2005); Moin, M. S. ECONOMIC 8 (2008); Park, A. (2001); Personal, M., & Archive, INDICATORS R. (2011); Rahman, M., Luo, J., Hafeez, A., & Sun, T. (2015); Bogan, V. L., Hermes, N., Lensink, R., Meesters, A., Annim, S. K., Abate, G. T., Abdul Samad, M. (2013)

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Research objectives

The broad objective of the research, as stated earlier, has been to assess the current status of different kinds of microfinance services in India and measure the impact and potential of its two kinds viz. conventional and interest free systems for the poverty alleviation in India. In the light of this the more specific objectives have been set which are as under:

i. To study the working model of Interest free and conventional microfinance systems ii. To study the products that are used by Interest free and conventional microfinance systems iii. To study the delivery process of Interest free and conventional microfinance systems iv. To measure the economic and social growth of Interest free and conventional microfinance beneficiaries after taking loan v. To analyse the change in the livelihood of the customers of Interest free and conventional microfinance after taking loan vi. To analyse the performance of interest free and conventional microfinance and their role in poverty eradication vii. To explore the scope of Interest free microfinance in India

14 viii. To analyse the problems and challenges for implementing interest free microfinance models in India

Survey Design

The questionnaire was structured and non-disguised and included questions on various demographic characteristics of respondents to know their profile e.g. gender, age, education, number of family members, economic status, types of houses etc. Loan related questions included process of taking loan, collateral, occupation, rate of interest, period of taking loan and purpose of taking loan. Questions related to loan impact included basic amenities, status of children education, social factors, economic factors, economic state, consumption level, financial condition etc. Many of the things were queried for before and after loan periods. Structured close ended questions and some dichotomous questions were asked to collect the information from the respondents. The same set and context of questions was given to all interviewees and they received exactly the same interview stimulus. Multiple choice answers had the exhaustive and mutually exclusive list of alternatives and dichotomous questions had the choice between yes or no. ‘Likert Scale’ questions on agreement/ satisfaction (on 5 points scale) were also used to measure the respondents’ perceptions/ attitude This was used to measure the perceived impact of microfinance on the living standards or economic parameters. Three-point scale was also used to analyse the bipolar factors like change in expenditure in different heads.

To test the hypotheses in the study, specific statistical tools such as means, standard deviations and t-tests were applied. A cross-sectional view of demographic characteristics of respondents was facilitated by cross analysis with frequency tables.

Further one more state has taken for case study women empowerment through MGNREGA District Mewat (Haryana).

Data Collection

Data were collected by a structured questionnaire. The researcher and the respondents come in contact with each other if this method of survey is adopted. Questionnaires were given to the respondents with an interview to elaborate and assistance the respondents to give correct replies because most of the respondents were illiterate or less educated. In many cases the researcher himself asked all the questions from the microfinance beneficiaries and ticked the replies on their behalf. In this study 2000 respondents sample were taken from the population ‘such that 1000 were from conventional microfinance data taken from 5 to 6 SHGs from each district and 1000 from interest free microfinance category. In both category, the respondents were very scattered and hence it was required to take their database the data was taken from the major areas of 20 districts in 5 states namely UP, Bihar, Maharashtra, Karnataka and Kerala in India which is shown in the following table.

Pune Janseva Co. Credit Soc. Ltd. SKS Microfinance Ltd. Mumbai Bait-ul-Maal Co. Credit Soc. Ltd. Svasti Microfinance Private Mahim Barkat Leasing and Fin. Ser. Ltd. Hindusthan Microfin. Pvt. Ltd. Jogeshwari Sahulat Microfinance Society Maharashtra Gramin Bank Maharashtra Patna Sahulat Microfinance Society Bharat Financial Inclusion Ltd Ara Al-Khair Co. Credit Society Ltd. Navjeevan Microfinance Ltd

Bihar Sasaram Al-Khair Co. Credit Society Ltd. Bihar Gramin Bank Gaya. Janseva Co. Credit Society Ltd. Saija Finance Private Limited Kozhikode. Alternative Inv. & Credits Ltd Esaf Microfinance & Invest. Malappuram Palisha Rahitha Nidhi Malappuram Dist. Co. Bank Ltd Ernakulum Cheraman Fin. Services Ltd. Muthoot Fincorp Ltd. Kerala Thrissur Palisha Rahitha Nidhi ESAF Small Finance Bank Bangalore. Al-Ameen Co-op. Credit Society Spandana Sphoorty Financial Ltd. Mysore Janseva Co. Credit Society Ltd. Sanghamithra Rural Fin. Services Bhatkal Al-Taqwa Finance Pvt. Ltd. Karnataka Vikas Grameena Bank

Karnataka Hassan Safa Baitul Maal Grameen Financial Ser. Pvt. Ltd

Hypotheses formulation

The comprehensive study of microfinance organizational scenario and their services in India was given the idea about the research problem. The examination of research problem was restated in a way that an analytical treatment may be given to the study. The general topic and subject of study was reframed into specific research problems with its parameters and variables well defined. The researcher could do it with the help of literature survey as elaborated in the previous chapter. On the basis of the research gap identified from the literature survey the working hypotheses were formulated. In other words, tentative assumptions were made in order to test them through logical or empirical evidences. For the primary data analysis (as to figure in Chapter 6) the following hypotheses were formulated for testing in research:

Ho1: there is no significant difference between interest free micro finance and conventional micro finance in the process of taking loan further divided into three factors i.e.

a) It is difficult to get micro finance,

b) Procedure is complicated, and

c) Delay in reciting of loan

Ho2: there is no significant difference between interest free micro finance and conventional micro finance economic aspects related to

a) amount of loan,

b) interest or processing fees,

c) easy to repay loan and

d) customers’ need fulfilment.

Ho3: there is no significant difference between interest free micro finance and conventional micro finance in social impact related to

a) education,

b) poverty reduction,

c) employment generation,

d) women empowerment and

e) community development.

Data Analysis

Data were organized and entered into SPSS version 22.0 to apply specific statistical tools to test the hypotheses of the study. About 2000 Micro finance users were asked self-administrated close ended questions to report their sensitivity about the agreement or disagreement regarding the respective factors i.e. income, investment, saving, women participation, children education, growth & diversification in business, consumption pattern on foods and non-foods items. The study investigated the level of satisfaction among micro finance customers by the application of descriptive statistics or simply by comparing means. The cross analysis frequency tables were used for measuring respondents’ profile microfinance type-wise. However, mean, standard deviation, sample t-test, independence sample t-test, and other tests of independence/ significance were applied to compare the two independent groups i.e. conventional microfinance users and interest free microfinance users. It assumed that the variables in the analysis are split into independent and dependent variables. The model assumes that a difference in the mean score of the dependent variable is found because of the influence of the independent variable. Thus, the independent sample t- test is an analysis of dependence. It is one of the most widely used statistical tests, and is sometimes mistakenly called the independent variable t-test. The independent samples t-test is also called unpaired t-test. It is the t-test used when two separate independent and identically distributed variables are measured. (Morgan and George, et al. 2004)

Limitations of the Study

The study although covers the analysis of experiments, problems and prospects of different kinds of microfinance throughout the country and around the world but the comparative analysis of the two types of microfinance in terms of its coverage and impact is mainly confined to selected districts of selected states as the primary data was collect only from these 20 district. The investigation through sample survey was restricted to the selected respondents in various areas of 20 districts.

18 world and from different states of the country but the data on desired parameters was available only of the selected districts. Travelling, approaching and convincing the banks and other interest free institutions for sharing their financial data could not be possible for an individual researcher due to limited funds, time, energy and efforts. This study, for many covered parameters, is restricted to a few selected agencies especially of interest free microfinance sector which are not supported by Government of India.

The study is also limited in its relevance and validity mainly because its findings and recommendation are based on the coverage of a very limited region and a small sample survey in a single district of only one state of the country.

Moreover, the respondents of the sample survey were not educated enough to give accurate and objective ratings of many variables under study. And lastly the interest free microfinance subject itself is in its infancy stage in India and even the respondents who borrowed loan from these agencies were not much aware about the products of interest free microfinance. The above constraints have restricted the relevance, capacity and utility of the study.

Interpretation and Conclusion

Indian microfinance system largely working with the aim is to facilitate women. There are many microfinance institutions are found during the data collection period, which are exclusively working for women. The existence of female dominance is much higher with CMF in comparison with IFMF. Majority of male respondents under the study are representing women beneficiaries. The family size of most of the respondents has found large. It is justified by Sampson and Laud (1994) that large family size means more expenditure and less savings which can cause poverty. Large part of the respondent has belonged to the mature age group in both the microfinance setups. About 80% of the respondents are literate but less than graduate. According to Solga and Heike (2002) less educated people decreasing employment opportunities. More than 90% families are dependent on the employment of one or two individuals in the family under both of the microfinance arrangement. The borrowers are largely either self-employed or engaged in private jobs. The dependency on additional finance is higher among family of less income or irregular income generation capacity. Nuclear families are much likely to face problem of financial crunch than

19 joint families. Around 85% of respondents are APL in both of the microfinance setups. It is the technical issue arises due to political decisions in the past; MFIs want to ignore any chances of loan waiver because of BPL. The penetration of interest free microfinance is lesser in rural areas. There are majority of borrowers in the CMF lives in kaccha or semi-kachcha houses while presence of interest free respondents is comparatively high in urban locations. The absence of rate of interest on borrowed amount and lesser processing charges are making IFMF more attractive than CMF. IFMF facilitates 1-2 years loan period on the higher side while the spread of loan period in different categories are well balanced with CMF. In general, the respondents are taking loans for situational or occasional reasons. The purpose of taking loan for business support is not impressive under both of the microfinance arrangements.

The growth in basic amenities can provide the shift in life style of borrowers. CMF borrowers have registered growth in almost every basic amenities selected in the study. On the other hand, IFMF respondents have focused more towards kitchen, cooking gas and motor-bike. The basic amenities & household item growth shows that CMF borrowers are allocating money in different needs. The expenditure pattern in basic amenities shows that IFMF borrowers are poorer than CMF. The negligible growth rate of IFMF respondents on expenses for drinking water and mobile phones justifies that their priority of expense is more towards the household infrastructure and daily necessities. The remarkable success has reported in the children education status after loan in both class of microfinance arrangement.

IFMF and CMF are further evaluated on the basis of operational ease and user friendly processes. The unique selling prepositions (USP) of IFMF are low processing fees and accessibility while CMF’s USP is capacity of giving high amount of loan. Majority of respondents are agreed that microfinance institutions are helpful to reduce poverty, employment generation, women employment, community development. The respondents are giving more favourable remarks for IFMF in employment generation, community development. Women empowerment is more focused with CMF. IFMF respondents have noticed that borrowing may increase expenditures in food consumption, health, social custom, transportation while CMF respondents have seen significant increase in food expenditure. The financial capacity of IFMF borrowers have increased more than CMF borrowers while financial liability of IFMF borrowers have reduced significantly more than CMF. Number of borrowers has increased in

Investment and Savings with IFMF than CMF. IFMF borrowers have responded positive with income and investment growth while CMF borrowers have noticed the increase in income, women participation and children education expenditure.

IFMF respondents are consuming more with the increase in expenditure while CMF respondents have reduced their consumption. The food intake of IFMF borrowers have increased. It advocates that they are taking more nutritional food than earlier. The CMF borrowers having less consumption mean they have moved towards quality food and non food items with increase in expenditure. IFMF gives significant impact on increase in income for self-employed, government job and private job borrowers because of less liability (interest of loan) while borrowers from government job category is more benefited under CMF. Both the financial arrangement borrowers are not getting support for business diversification and purchase of machinery for business. The women participation is relatively very low in the case of government job borrowers under IFMF. The expenditure in children education is relatively high with IFMF under government job borrowers’ category. It means just the financial capabilities of the borrowers are not the real reason for women participation and children education. The cost of borrowing is essential for giving microfinance but it should not be on the higher side. The comparative analysis shows that borrowers with 5-12% processing fees or cost of borrowing are registered higher income growth than borrowers with less than 5% cost in the IFMF.

The cross sectional evidence shows the impact of education in getting loan, alleviation of poverty, women empowerment, employment generation and community development for both IFMF and CMF. IFMF respondents are very conversant with the process and highly satisfied with the procedure and system. The shift in respondent’s education from illiterate to graduate and above, changes the perception of respondents positively about microfinance operation. The pattern of impact due to changes in educational background with CMF is almost same but the level of satisfaction differs. So, education plays a significantly positive role to become accustomed with microfinance institutions working. Most of the respondents are finding that CMF process, accessibility, time-lag and processing fees are on the toughest side. The IFMF organizations have lesser capacity to finance than CMF because of their small loan book. The repayment capacity of CMF is lower than the IFMF. It means either the return on investment is unfavourable or the purpose of

21 getting loan is not to increase income directly or indirectly. The comparative study shows that IFMF respondents are agreed that microfinance arrangement will be helpful in reducing poverty, generating employment, empowering women and developing community. Contrarily CMF respondents (other than individuals with higher education) hardly believe on the microfinance arrangements capability to reduce poverty, generate employment, empower women and develop community. The highly educated respondents agreed that CMF is beneficial for society. The financial inclusivity is found higher with Muslim funds and Gramin banks.

The poverty alleviation target through government rural development program focuses more on women participations. But the women participation is continuously declining from 2012-2016 in ‘Mewat’ (Haryana) the most backward district in India. Such decline may be due to the lack of interest from the government side or individuals (workers) are not getting value for their work. The investigation of workers side revealed that women under rural development program were much benefited. The lack of continuous program support causes difficulty in their day-today life. The selected samples for the study of women inferences about the program revealed that majority of the women are illiterate. They are not getting minimum support days job security as guaranteed in program reflects the lack of proper implementation of the program. The proper reachability and accessibility of the program can create the differences. Even after many hiccups, the income generation facility through rural development program gives significant positive changes in ease of life, self reliance, social recognition, saving/investment, reduction of family debt, children education, health consciousness, family building, new business startups, economic freedom, social acceptance and satisfaction among women workers.

Summary of Findings

Microfinance has been observed as an effective instrument to counter poverty and open doors for the lower income groups and individuals of the society, especially in developing countries. There are a few investigations which demonstrate that microfinance can prompt an expansion in income generation, greater business openings, better nourishment for families, more prominent secondary school participation, strengthening of women, and in this way alleviate poverty (Borbora and Mahanta, 1995; Gaonkar, 2001; Mishra and Hossain, 2001; Dunn and Arbuckle,

2001; World Bank, 1999; Puhazhendhi and Satyasai,2000; Manimekalai, 2001; Dunn and Arbuckle, 2001; Mishra et al, 2001; Hossain , 1988; Todd , 2001; Chen and Donald, 2001; Barnes, 2001; Pronyk PM, et al., 2006).

In any case, despite what might be expected, there are few literature which raise questions on the viability of microfinance in achieving the core poor, the truth behind the prompt and high reimbursement rates and the high obligation of recipients because of cross obtaining and so on. The achievement of microfinance has been repudiated by exceptional feedback in the present writing, especially with respect to credit reimbursement, high loan costs, misuse of women borrowers, ineffectual microfinance arrangement to target groups (Holt, 1994; Dignard and Havet, 1995; Ditcher, 1996; Hulme and Mosley, 1996; Christen, 1997; Rahman, 1999; Mallik, 2002; Assaduzzaman, 2002; Amin et al, 2003; Baru and Woller, 2004; Coleman, 2004 Deheija , 2005; ).

Henceforth, to maintain a strategic distance from the previously mentioned shades of malice of customary (interest based) MFIs, a modest bunch of interest free microfinance service providers have approached lately to give interest free financial set-ups. A couple of nations including USA and UK have started interest free micro finance and banks. Meanwhile, Habib Ahmed (2002) found that interest free microfinance is more fruitful in curbing poverty and coming to the poorest of the poor than Interest based microfinance. The consideration towards IFMFIs additionally expanded when the ADB report (2006) said the extraordinary attributes of interest free arrangements and its capacity to give elective intends to reach underserved bunches in rural poor of untouched parts of the country. In India, the awareness towards IFMFIs was begun and additionally helped when Reghuram Rajan (2008), expressed the role that IFMFIs can play to lessen the vulnerability of financial illiteracy, which is accepted to be the principle reason behind outrageous poverty in the nation.

It is astonishing that very few studies have endeavoured to examine the execution of interest free microfinance regarding sustainability, outreach & impact (famously known as the triangle of microfinance) in a deliberate way while these ideas set off a ton of level headed discussion and talk in the field of microfinance. Aside from that, the confirmation exhibited in the literature is blended and commonly episodic. With

23 the points of shutting this crevice and in this manner growing the assemblage of existing observational works, the present investigation requires a top to bottom examination on whether IFMFIs achieve financial sustainability and outreach while giving more inclination to serve the necessities of the poorest. The colour of investigation became more interesting with the inclusion of comparative understanding of MFIs with interest (CMF) and without interest (IFM) perspectives.

Micro finance Institutions are facilitating Self-help groups to touch the bottom of the pyramid through uplifting women and alleviate poverty of the nation. It can be seen by the EY report on Evolving landscape of microfinance institutions in India (2016), CARE report on Microfinance Sector: Evolution and Impact of Demonetization (2017) and PWC report on Shifting trends in the microfinance ecosystem in India (2016) with regards to microfinance, SHGs are involved in saving collection and thrift exercises with the objective of securing credit. The 1990s saw a multiplication of women SHGs all over India, especially in the South India. Copestake (2001) additionally utilized the effects of microfinance on performance of business as another indicator of general prosperity. He characterized performance of business as the shift in business profitability prior and then afterward getting the loans & advances. Since business profits are another wellspring of income for the borrowers, and where every respondent were entrepreneurs by design, incremental shift in business profits would mean growth in household income. Henceforth as far as this proposition is concerned income generation is one of the critical indicators to measure the growth and furthermore growth will be evaluated on the basis of profit earned from the business activities on which micro finance credit must be disbursed or used. It is demonstrated that the majority of the micro finance clients are economically and socially built up their living standard by utilizing micro finance credit arrangement. It specifically battle against hunger and poverty by giving income generation capability, work opportunity and savings in the hands of individuals. Satyasai (2003) considered the effect of micro finance on customers’ standard of living (both economically and socially) and reasoned that microfinance had positive effect in regard of fearlessness, financial and social improvement and skill development in Andhra Pradesh and social strengthening of the individuals in Tamil Nadu. The essential purpose behind Child work is poor income of family. The income generation with the help of SHG creates job prospects for the women consequently the surplus income may cause for sending

24 their kids to school (Barnes et al., 2001). The absence of actual merit from the credit arrangement for the poor through microfinance creates puzzle among the policy makers. The largest chunk of the credit should be utilized for the purpose of income generation which can lead towards the poverty alleviation, women empowerment, financial inclusion etc. Even though, the actual spirit is not as per standard but large population of respondents are agreed that microfinance is helpful in solving the issues.

On the other hand, the rural development program envisages lack of focus implementation and struggling to pass benefit to the rural poor. The linking of AADHAR for direct benefit transfer and launch of national electronic fund transfer system to transfer wages beneficiary directly to their accounts on daily basis can give ease of operation. It is agreed across the board that poverty alleviation is necessary for inclusive growth and achieving poverty free nation requires a proper targeted initiatives. The income generation stands the key for the alleviation of poverty. Women participation is the central issue for income generation in microfinance and rural development programs. The facilitation for poor is the agenda of both rural development programs and interest free microfinance.

Implication of the study

The implication of this study is heterogeneous. The microfinance institutions can rethink on their strategy to serve more customers. The awareness among customers can bring significant changes in the field of microfinance arrangements. The respective states can compare the performance of microfinance institutions for growth in basic amenity, expenditure, consumption etc are aligned with the national performances. The comparative study creates a competitive environment to serve the customers more smartly by reducing hiccups. The impact of such initiatives can further improve the service quality. The quality improvement can provide ease in operation & procedures, customer centric approach, project assistance and so on. It may further cause the launch of quality capacity building programs, innovative business start-up promotion, resource mobilization, employment generation programs etc. The study revealed that the interest free microfinance is possibility and it touches the weaker section of the society. The need to assist such initiative can bring rapid poverty alleviation. Further, the rural development programs assessment highlights

25 the shortfalls and misconception about the programs. It is beneficial to give credit help in the form of income generation and not for free of cost. The government schemes are creating differences among the weaker and deprived section of the society. The program has given significant changes in the life of illiterate women gives indication to the policy maker to think differently on such initiatives. Further, there is need to think the existence of a sustainable model for upliftment of the poor and weaker section of society without creating a misrepresentation.

The future research can be much needed for the state wise comparative performance analysis of microfinance institutions. There is enough scope of work on the comparative study on the customers’ willingness to purchase microfinance credit and bank credit. The perception analysis of microfinance customers’ with interest free and conservative arrangement in the selected deprived districts can check the service potential of microfinance institutions. The research on SERVQUAL model with specific reference with conservative and interest free microfinance has great potential to attract more organized ventures in this field

Recommendations & Suggestions

The recommendations are based on the quantitative assessment of the respondents’ data and evaluation of the available literature by experts of the microfinance area and include the analysis of diverse experiments on microfinance conducted by the practitioners and development agencies in India. Malegam Committee, Sa-Dhan and Nachiket Mor Committee reports (see chapter 4) are also reviewed before reaching to the final recommendations which are as under: 1. The lending limit should be doubled from the current levels and the criteria of annual household income should be less than Rs 2,50,000; It should move as per the income tax exemption limit in various categories. 2. MFIs should be allowed to design their loan products based on time period, amounts and interest rates etc. 3. The criteria and limit of loan dispersal must be as per the need of business and non-business uses. The leverage for business loan must be higher and based on definite business plan. There must be separate credit products for modification of old business, purchase of new machinery and new start-ups.

4. There are different ministries taking care of various tasks on upliftment of deprived or weaker sections of society i.e., Ministry of Micro, Small and Medium Enterprise, Ministry of Housing and Urban Affairs, Ministry of Rural Development, Ministry of Skill Development and Entrepreneurship, Ministry of Agriculture and Farmer Welfare, Ministry of Women and Child Development, Ministry of Social Justice and Empowerment etc. There is a need to develop a collaborative structure where these different functions could be catered by one single co-ordinating department or ministry. The target of such department or ministry should be to alleviate poverty by empowering rural or urban poor. Microfinance Institutions should work with such co-ordinating agency. 5. The MFI's credit for business or start-ups must be linked with ‘Skill India Mission’ of the Government of India. The collaborative working can perform better among poor individuals and households. 6. The MFI’s venture should not used for getting banking license and it should not treated as an entry criterion into Indian Banking System. The MFIs should focus on upliftment of deprived households and societies. The policy should promote MFIs as a different structure other than that of usual bank. The facilitation of NBFIs is creating more competition among MFIs but the objective is to make money from the poor of the nation. 7. The alternative source of earning is desirable for MFIs to achieve operational efficiency and quality services. The government shall involve MFIs in infrastructural development programs, national health programs, educational programs, national crop insurance programs, crop yield programs, employment generation programs and other such ventures in order to facilitate alternative sources of income for them. The pressure of reducing cost of borrowing to save borrowers will trouble MFIs in the long run but strategic alliance with government programs will act as two-bladed sword. It will solve the implementation issues of government programs and generate revenues for the MFIs. 8. The social welfare programs of government need to be implemented by engaging MFIs. The earnings of these institutions shall not come utterly from interest income like those of banks. 9. In the long run, MFIs should not be developed as competitors to commercial banking units in the system.

10. There must be a centralized body for monitoring the MFIs development and protecting the borrower’s interests and approval of loan products etc. 11. The capital requirement (minimum) for MFIs must be based on the operational strength (loan book) and should be raised gradually and systematically. 12. There should be ‘microfinance stabilization fund’ for already affected MFIs and clients. 13. The newly start-ups microfinance providers should get a few year’s loan (debt) from banks at lesser rate to penetrate in the market. 14. The interest rate charged from the MFIs should be based on their serving capability to the government programs. The weaker segments should get maximum handholding and so on. 15. Government should start an index to rate the performance of MFIs. The criteria to get maximum rating should be based on basic factors such as borrowers’ productivity, loan productivity, penetration of scheme, quality service, women empowerment, healthy life, nutrition intake, employment generation, innovation, poverty alleviation etc. It is easy to get the data on such parameters as most of the borrowers may be attached with the government schemes.

CONTENTS Acknowledgement i-ii Preface iii-v Abbreviation ix-x List of Figures xi List of Tables xii I Introduction 1-12 1.1 Current Scenario 1-3 1.2 Issues of Indian Microfinance System 3-4 1.3 Emerging Noticeable Changes 4-5 14 Significance of the study 5-6 1.5 Problem Statement 6-7 1.6 Role and prospects of the study 7-8 1.7 Purpose of Research 8 1.8 Implications of the study 9-10 1.9 Organisation of the study 10-11 References 11-12 II Literature Review 13-66 2.1 Conventional Microfinance 13-33 2.2 Interest Free Microfinance 33-40 2.3 Comparative Study 41-48 2.4 Research gap 48-50 2.5 Determinants Snapshot 50-55 References 55-66 III Research Methodology 67-79 3.1 Research Approach 67-68 3.2 Nature of Research 68-70 3.3 Scope of Research 70 3.4 Specific Objectives 70-71 3.5 Research Design 71 3.6 Information Sources 71-72 3.7 Survey Design 72-77 3.8 Limitation of the Study 77-78 References 78-79 IV Conventional and Interest Free Microfinance System 80- I Conventional Microfinance I. 80-87 4.1 Conventional Microfinance – An Introduction 80 4.2 Present Status of Microfinance in India 1. 80-81 4.3 Different Models 2. 81-83 4.4 SHGs Formation Process 3. 83-84 4.5 Legal Structure 84-85 4.6 MFIs and Socio-Cultural Analysis 85-87 II Interest Free Microfinance System 88-103 4.7 Interest Free Microfinance – An Introduction 88-90 4.8 Principles of IFMF 90-93 4.9 Products of IFMF 93-99 4.10 Issues & Challenges of IFMF 99-100 4.11 Sustainable Financial Models 100-101 4.12 Fiqhi Issues Analysis 101-102 Conclusion 102-103 References 103-105 V Microfinance Institution Evolution and Profiling 105-131 5.1 Indian Microfinance Institution: An Overview 105 5.2 MFIs Evolution & Growth 106-110 5.3 Evolution of Indian Interest Free Microfinance 110-111 5.4 States Profiling 111-115 5.5 Microfinance Institutions Covered 115-127 References 127-131 VI Comparative Analysis 132-148 6.1 Socio-Demographic differences 132-137 6.2 Pre-loan & Post loan status 137 6.3 Children education wise differences 137-138 6.4 Loan Process and their Economic & Social effects 138-139 6.5 Effect on Expenditure in different heads 139-140 6.6 Economic effect in last five years 140-141 6.7 Effects on Consumption 141 6.8 Effect of Occupation 141-143 6.9 Economic effects on Cost of Loan 143-144 6.10 Effect of education on getting loan 144 6.11 Types of banking 144-145 6.12 Hypotheses Testing 145-147 References 147-148 Appendix -Tables 149-154 VII Alternative Arrangement For Women Empowerment 155-167 7.1 Women in Rural Economy 1. 155-157 7.2 MGNREGA_A Positive Initiative 2. 157-158 7.3 Mewat_A Deprived Lot 3. 158-159 7.4 Methodology 4. 159 7.5 Analysis 5. 159-162 7.6 Performance Review 6. 163-164 7.7 Major Recommendations 7. 164-165 7.8 Findings & Conclusion 8. 165 References 9. 165-167 VIII Conclusion 168-177 8.1 Findings 168-171 8.2 Conclusions Summarized 171-173 8.3 Implications 174-175 8.4 Recommendations 175-177 Appendix Questionnaire 177-180

LIST OF FIGURES

Figure No Title Page No. 1.1 Demographics, Poverty Index of India 2

1.2 Financial Inclusion in India 2

2.1 Research Gap 49

4.1 SHG - Bank Linkage Model 81

4.2 SHG-NGO Model 82

4.3 MFI-Bank Linkage Model 82

4.4 SGSY Model 83

4.5 Simple Mudarabah 93

4.6 Re-Mudarabah 94

4.7 Musaharakah 95

4.8 Murabahah 97

5.1 Evolution of MFI sector in India 107

5.2 Krishna Crisis 2006 and Inferences on Causality 109

5.3 Top ten states with loan portfolio share 112

7.1 Countries with GDP opportunity Vs. 156 Women Involvement Gender Parity 7.2 Total Workers vs. Women Workers 160

7.3 Women Worked Under MGNREGA 161 LIST OF TABLES

No. Title Page No

2.5 Determinants Snapshot 50-55

3.1 States Wise Microfinance Organisations 75

4.1 Possible Features Of Interest Free Microfinance 89

5.1 Number of Micro-Finance Institutions as on 31st December 112 2016 5.2 Loan Disbursal With Growth (%) Among Top Ten States 114

5.3 Matrix of client addition/business penetration for MFIs 114

5.4 Total Loan Disbursement 115

5.5 Critical evaluation of Microfinance Institutions in India 116

6.1 Socio-demographic analysis of Conventional v/s Interest Free 149-150 Users 6.2 Pre-loan & Post loan status on basic amenities 151

6.3 Children education differences 151

6.4 Loan Process and their Economic & Social effects 151

6.5 Effects on Expenditure/Financial capacity in different heads 152

6.6 Economic effect on types of microfinance (less than five years) 152

6.7 Effects on Consumption after taking loan 152

6.8 Effects of Occupation on Economic factors 153

6.9 Economic Effect of Cost/ Rate of interest or processing fees 153

6.10 Effect of Education on getting loan 154

6.11 Types of banking used by type of microfinance customers 154

6.12 t test Analysis 145

7.1 Individuals Worked Under: MGNREGA 160

7.2 Profile of MGNREGA Women Beneficiaries-2016 162

7.3 Impact of MGNREGA on women empowerment 162 ABBREVIATION

AICMEU All India Council of Muslim Economic Upliftment Mumbai

APL/ BPL Above Poverty Line/ Below Poverty Line

BASIX Bhartiya Samruddhi Investments and Consulting Services

BCCS Bait-ul-Maal Co-operative Credit Society

BFIL Bharat Financial Inclusion

BIMB Bank Islam Malaysia Berhad

BMT Baitul Maal wat Tamwi

BPR Bank Perkreditan Rakyat

BPRS Bank Perkreditan Rakyat Syaria

BRI Bank Rakyat Indonesia

BVM Bhoodan Vikas Mandal

CCI Community Coordination Initiative

CDS Community Development Society

CGC Credit Guarantee Corporation

CMF Conventional Micro Finance

DHAN Development of Humane Action

DRDA District Rural Development Authority

FII Financial Inclusion in India

GCC Gulf Cooperation Council

HMPL Hindusthan Microfinance Private Limited

IBBL Islamic Bank Bangladesh Limited

IDB Islamic Development Bank IFI Islamic Financial Institutions

IFMF Interest Free Micro Finance

IFSB Islamic Financial Services Board

IMF International Monetary Fund

IRDP Integrated Rural Development Program

JLG Joint Liability Group

MACS Mutually Aided Cooperative Societies Act

MBL Meezan Bank Limited

MENA Middle East and North Africa region

MFI Micro Finance Institution

MFO Micro Finance Orgnisations

MGNREGA Mahatma Gandhi National Rural Employment Guarantee Act

MUDRA Micro Units Development & Refinance Agency Limited

MYRADA Mysore Resettlement and Development Agency

NABARD National Bank for Agriculture and Rural Development

NBFC Nonbanking Finance Companies

PMGSY Pradhan Mantri Gram Sadak Yojana

PMJDY Pradhan Mantri Jan DhanYojana

RDS Rural Development Scheme

RRB Regional Rural Banks

SGSY Swarnajayanti Gram Swarojgar Yojana

SHG Self Help Groups

SSB Shariah supervisory board

Introduction

1. Current Scenario Micro Finance is a tool of inclusive growth which provides the financial services and small credit to the poor in rural, semi urban or urban areas, for enabling them to raise their income levels and improve living standards. The emerging issues and challenges in India need a pragmatic framework to empower microfinance arrangements supporting, in turn, the essential processes of entrepreneurship, capacity building, education, health, and hygiene etc. The achievement of inclusive growth and overall development of the country is highly dependent on the poverty eradication from the country. However, the poverty eradication is not possible without the development of a community and households. As we know that the indicators of community development are employment generation, education development, women empowerment and equality and prosperity among the communities. Development of family largely depends upon the women earning potential, financial literacy, skills development, savings, team building, poverty alleviation, rural and semi urban entrepreneur development and community building capabilities. Hence from the past decades’ microfinance has played a significant role in overall development of the country. In short, it is inaccurate that microfinance is the greatest achievement of inclusive growth and best tool to eradicate poverty. Though the microfinance sector has witnessed remarkable growth over the last few years and the government making the quantum of credit available to the needy and financially weaker section of the society the expenditure has gone up to Rs.30000 crores furthermore a number of clients benefitted crossed 30 million as of March 2014 (Sa- Dhan,2014). However, it is proved that UN Millennium Development Goals are not going to meet expected results in fighting against hunger and poverty globally because microfinance institutions charging a high-interest rate to meeting their high operating working cost. This study introduces the concept of microfinance and traces its origin in India. It also looks at how the existing models could not really help the cause of financial distress resulting into the birth of Microfinance Institutions. It briefly dwells on the various forms of business models in which they exist in India and the current status of Microfinance in India. Figure 1: Demographics, Poverty Index of India

Source: FII 2017

Figure 2: Financial Inclusion in India

Source: FII, 2017

This is an elementary impact assessment tool that gives a clear idea about Poverty Alleviation approach. However, it is an assessment of APL (above poverty line) and BPL (below poverty line) group or the analysis to recognize being ‘very poor’ to ‘moderately poor,’ which we might also consider poverty alleviation approach. This is a general statement that shows how well an MFI does in targeting poor clients based upon those considered poor by either national standards of living or by the rough measure of loan size as used by some MFIs. Some MFIs such as BASIX have used small loan size as a rough estimation of whether their clients are likely to be ‘poor’. The challenge here will be to find data that is comparable as MFIs tend to have varying ways of measuring social impact using different measures.

Average outstanding loan size or loan portfolio analyzes the average outstanding loan balance per microfinance client and is extensively used as a rough estimation of the depth of outreach among lower income clients. Although a number of factors other than income level of the client contribute to smaller loan sizes, there is a correlation between this ratio and the average income level of the areas served. Therefore, it might be useful to monitor this ratio in light of GNI per capita and cost per client.

2 Issues of Indian Microfinance System

2.1 Regional Rural Banks (RRBs): In 1975, for the purpose financial inclusion, Government of India established the Regional Rural Banks for the expansion of formal credit systems to the rural population. The birth of RRBs indicated a new age of the Indian banking and their role was visualized in the framework of the overall development of rural economy, which consists of poor, poverty afflicted, unemployed and illiterate peoples. The motive of setting up of RRB as laid down in the preamble of RRB Act 1976 is to provide adequate incentive to the rural areas by the provision of the suitable and timely micro credit. The primary prospect was thus to bridge the gap between the backward class and upper class of society. Rural micro credit and its recovery are still remaining as a challenge for the Indian banking system. Because of RRBs were only established in the rural sector in their functioning are severely affected by the default syndrome. The higher volume of NPA (Non- Performing Assets) coupled with high operational expenses has generated heavy accumulated losses for RRBs. Particularly during the age of liberalization, criticism has been raised over the feasibility of RRBs. Being the upholder of public money, they have to expand the existing resources through the generation of more money, side-by-side meeting that stated objectives protected by the act. But the failure of these banks has put a question mark on their operation. The major reason for this financial failure is considered to be as the RRBs have never been permitted to charge for their services at rates which reimburse them for the cost of operation and in particular for the cost of the defaulter. 2.2 Cooperatives: Rural credit cooperatives in India were initially visualized as a tool for bringing the resources of people with small means and providing them financial access for different financial purposes. The main purpose of rural credit cooperatives to maintain a chain of cooperatives was set up in India and to serve the poor in urban and rural areas. However, foremost development in the cooperative field since Independence was the formation of Rural Credit Survey Committee. The Cooperative Credit Societies do not cater to all the credit requirements of the farmers. They grant loans only for agricultural operations. Farmers approach the money-lenders to meet their other requirements. This divided commitment to the co-operative society and the money-lender stands in the way of the growth of the cooperative movement. The cooperatives have resource restraints as their owned funds hardly make a sizeable portfolio of the working capital. With weak owned fund base, the borrowings of the cooperatives from the central financing agency are considerably conditioned. This has stood in the way of adequately meeting the credit requirements of the existing as well as new members.

3 Emerging Noticeable Changes

Because of high risks of fund deficiency and costs involved per financial transactions, low profitability and absence of physical security in most cases discourage financial agencies from focusing on the economically backward classes in rural and semi urban areas. To cover this area and to provide financial services to low-income clients, MFIs have emerged, significantly even though their role in the Indian financial system has suffered a change from the time that they commenced working. Yet microfinance agencies have developed latest credit techniques; instead of demanding collateral, they minimized risk through group guarantees model, assessments of clients by providing micro initial loans for testing clients. Nevertheless, Microfinance agencies have changed from non-government organizations(NGO) to nonbanking finance companies (NBFCs), with RBI recognition and how they raise and lending finance. Now, (NBFCs-MFIs) raise funds from not only banks and financial agencies but also by issuing share capital. The government has undertaken a number of initiatives to enhance the financial requirement for households from lower income groups. Such as launching of various scheme i.e. Pradhan Mantri Jan DhanYojana (PMJDY) it was launched on 28th August 2014, to deliver every individual with a bank account and basic insurance cover as of 22 June 2016, 221.8 million accounts (with a total balance of INR391.53 billion) have been opened under this scheme. The government launched Micro Units Development & Refinance Agency Limited (MUDRA) and Pradhan Mantri MUDRA Yojana (PMMY) in 2015, which guided and monitoring the banks how to lend to micro credit agencies, with a total target of 1,22,188 crore INR credit disbursal. The RBI granted licenses for 11 payments banks in August 2015 and 10 small finance banks in September 2015. These specialized banks are expected to become operational during the year 2016–17. These banks will provide a further push in terms of accessibility to formal finance channels and in turn, contribute to inclusive growth. The Government also approved the creation of a credit guarantee fund for MUDRA loans, which is expected to provide a guarantee to loans worth more than 1,00,000 crore Indian rupees to microfinance agencies. These latest advances in banking and financial system have changed banking from the outdated brick-and-mortar infrastructure like operated branches to a system supplemented by other cash fewer channels like credit/debit cards, internet banking, paytm, online money transfers, etc. However, arguable point is that access to these advanced technologies is constrained only to certain segments of the society (PWC, 2016)

4 Significance of the study

Poverty is a severe problem not only for India but all over the world. Poverty eradication has been always one of the objectives of every five-year plan since independence in India and it is always one of the major goals of the planning commission in Indian economy. Therefore, it is one of the basic needs of a state to formulate specific policies and programs for poverty alleviation and create a generation of income for poor, so it accumulates a considerable part of national income in India. The estimation of the poverty in the country at the National and State level separately for rural and urban areas, is done by the Planning Commission. The identification of families living Below Poverty Line both in rural and urban areas is crucial to make the implementation of poverty alleviation programs effective and to achieve the objective of poverty alleviation in India. According to data released by the Planning Commission in July 2013, there were 269.3 million people below the poverty line – 216.5 million in rural areas and 52.8 million in urban areas, That meant about 75% of rural and 35% of urban households, therefore, need microfinance. Banks Linked with microfinance, the SHG approach and movement has now been accepted as an effective intervention strategy for poverty alleviation. Despite the presence of a massive linkage of commercial, cooperative and rural banks and other financial institutions present in the rural and semi urban areas. There is significantly low impact has been made to eliminate poverty situation prevailing in India. Most importantly, the failure of the state led formal and informal microfinance system in reaching to the country poor give rise to the emergence of interest free microfinance models in India. This study is based on the demographic, sociocultural and regulatory framework of Indian microfinance. Survey of conventional & non-conventional microfinance beneficiaries reveals the status of women earning, financial literacy, skills development, employment generation, household savings and poverty alleviation. Exploratory and cross section analysis are used to understand the satisfaction level among conventional and non- conventional micro-finance arrangements 5 Statement of the Problem With a population of over, 1.34 billion India has an enormous consumer market for potential financial enterprises. According to a report prepared by (Pwc, 2015), In 2015 the report pointed out that India’s unbanked population that year was 233 million. This was half the number it was in 2011, at 557 million, primarily because of the Pradhan Mantri Jan DhanYojana scheme aimed at making it easier for people to open new accounts. Since that report, in October 2015, the Jan DhanYojana has grown even further, adding 68 million accounts as of the most recent report on November, 2016. More than two decades’ microfinance plays a significant role in alleviation of poverty, generation of employment, empowerment of women in India and many developing nations. Nevertheless, out of it high- interest rate charged by MFIs empirically proved that UN Millennium Development Goals are not going to meet expected results in fighting against hunger and poverty globally, with microfinance institutions charging interest rate of 24% to 36%, or even more per annum to meet their high working costs. More than 60% of MFIs (Micro-finance Institutions) fund are availed from commercial banks at their lending rates. Despite increased interest charges many MFIs are still depending on donor funds, government grants, and subsidies to survive. Eventually, microfinance beneficiaries charged heavily so they unable to develop their entrepreneurship. In fact, the majority of MFI clients spirally in debt - covering loan payment by acquiring a new loan from other MFIs. The result shows that MFI users struggling from over indebtedness, anticipating bigger credit risks ahead (Sherwani, 2014).

6 Role and prospects of the study in Indian context

In 2010 a major disaster occurred in India’s microfinance sector. Microfinance system was characterized by the charging of excessive rates of interest, by using unethical ways of recovering loans i.e. forfeited the property or any other thing, unmannerly language, combining multiple products like savings, insurance and loans to ensure prompt recovery and aggressively pilfering from government and banks to capture their borrowers (Legatum Ventures Hamish Banks, 2011). In short, it can be said that the microfinance lost its motive and this resulted in the exploitation of the poor through high-interest rates, excessive debt burdens, and coercive recovery practices. Finally, in October 2010, with no warning or consultation with microfinance institutions and agencies, the Government of Andhra Pradesh issued the Andhra Pradesh Microfinance Institutions (Regulation of Money Lending) Act, 2010 effectively shutting down all private sector microfinance operations in the state. The act does not, however, apply to Andhra Pradesh government-backed microfinance business, which directly competes with private sector microfinance institutions (MFIs). As a result, microfinance lost its main aim of poverty eradication. In recent years’ interest-free microfinance system in different developing nations are rendering microfinance to the rural and semi urban based micro entrepreneurs. The study focuses on the impact of conventional & interest free microfinance system on the women earning, financial literacy, skills development, savings, team building, poverty alleviation, rural and semi urban entrepreneur development and community building capabilities. Further, the analysis reveals the effect on their family, the standard of living and future prospects. India has the second largest Muslim population in the world; this may an option of the interest free microfinance model. Simultaneously, interest free micro finance model can also offer an alternative paradigm for millions of poor people who are currently not served by conventional microfinance. Because of low rates of interest or processing fees it could be beneficial for better recovery rates and increased organizational and borrower sustainability, as well as more effectively meeting microfinance’s core objective of poverty alleviation, women empowerment, gender equality, prosperity and reduction unemployment.

7 Purpose of Research

India still accommodates a vast majority of the population which is economically deprived in terms of income, access to resources, control over resources and political power, gender biases, child labour, different forms of human abuse, etc. One of the prime reasons for this, which the researchers have often pointed out is the unavailability of timely credit Microfinance has emerged as one of the ways for fighting against poverty in rural areas, where most of the India's poorest people live. It puts credit, savings, and other basic financial services within the reach of poor people. Therefore, for conducting the study two main factors have been focused first to analyse the level of satisfaction between conventional and interest free microfinance customers for eradicating poverty in India and second to suggest policy makers that they regulate interest free microfinance system by bank linked model ,Grameen model, SHGs model which is suitable in Indian context. So for this purpose various studies were analyzed on conventional and interest free microfinance in global and Indian in three perspectives (i) microfinance in global and Indian perspective (ii) interest free microfinance in global and Indian perspective (iii) comparative study of conventional and interest free microfinance in global perspective. Hence, research gap is identified in the comparative study of interest free microfinance system and Indian microfinance system. The analysis shows an encouraging result of interest free microfinance arrangements and identifies significant changes in rural and semi urban entrepreneurship through them. The discussions in the study are mainly concerned with the empirical review of the impacts and influences of conventional and Interest-free microfinance on the life style of microfinance users before loan and after taken loan i.e. their income, expenditure, saving, entrepreneurship, consumption, women participation in earning in the India. This study analyzes factors like problem & procedure of taken loan, effects of the loan on their life style, income, consumption, family financial status, the impact of business and society which compare the potential of interest free microfinance with conventional microfinance system and their role in poverty alleviation.

8 Implications of the study

India like many of the developing countries is facing the problem of extreme poverty particularly in the rural or semi urban areas where almost 80% of our population lives.(Government of India, 2013) According to the data of planning commission government of India, while the percentage of people below poverty line in India fell gradually the number of the poor barely changed over the last four decades (321.3 million in 1973,322.9 million in 1983, 320.3 million in 1993–94 to 301.7 million in 2003–04 and 2013, 269.3 million). Thus, even after 60 years of independence, over a quarter of our population still remains poor. A large section of Indian population is still in existence which is surviving well below the standard of living who can subsequently become active participants in the larger economy. It has been suggested that interest free microfinance could be a powerful model that contribute to the success of poverty alleviation programs. Therefore, commercial banks along with conventional microfinance should also start interest free microfinance model as they have expert human resource and proper infrastructure, this can assist in the development of this industry as a mass tool for poverty alleviation. The irony is that with interest free microfinance, its target group is most ignorant part of the society. Therefore, a massive campaign of advertisement and consultancy is required for it. Indian Government should also take some concrete steps for the establishment of interest free microfinance by establishing some banks for the application of interest free microfinance in different part of the country. Microfinance clients would have to be apprised of the different types of Islamic banking techniques for example, Capital financing (Mudaraba),Partnership financing (Musharaka), Markup or Costs-plus-profit based financing (Murabaha), Cost plus sale under deferred payment, (Bai-Muajjal) Leasing (Ijara), Advance purchase(Bai-Salam), Hire-Purchase investment under (ShirkatulMeelk). Hence, it clears the doubts about Islamic banking models and explores greater awareness about the knowledge of interest free microfinance products. To start with, microfinance customers should be able to distinguish between interest free microfinance and conventional microfinance system, Innovations of interest free microfinance model should be firmly based on Islamic (sharia) system so it creates to explore the specific market opportunities, providing medium or small amounts of credit at reasonable interest rates i.e. only 12% P.A. by simple interest method thereby providing people with the readiness and know-how an opportunity to set up a small business and stable inflow of cash, security to financial agencies for prompt recovery. 9 Organization of the Study: The thesis has been divided into eight chapters. Chapter 1: The chapter gives a brief idea of current scenario and background of issues in the Conventional Microfinance Models or Indian microfinance system and its role in the poverty alleviation in the global context and the need and significance of the study. Furthermore, the emerging problems and challenges in India. Then elaborate the role and prospects of the study in the Indian context. What are the purposes of conducting such research? Lastly, there is an elaboration on the implication of the study.

Chapter 2: Review of literature is examined into three parts. Initially, literature of microfinance in global context is discussed then detailed literature about the Indian microfinance system is also elaborated and finally comparative study of interest free microfinance and conventional microfinance related to the present research including the techniques and the methods that have been used by the other researchers in the research of same nature is analyzed. The chapter also highlights the gaps in the existing literature.

Chapter 3: This chapter details out the statement of the problem, the scope of the study and highlights the objectives for carrying out the study. The hypotheses formulated for this study and the research design that has been adopted to carry out the study, have been presented in this chapter. This chapter also contains the questionnaire design and its administration, the sampling method adopted and work plan of survey. The chapter also highlights the methods used in the data collection along with statistical methods and analysis techniques. It also includes the instrumentation, reliability, and validity of the tool used. Chapter 4: Comparative study of conventional and interest free microfinance system. Brief discuss on present status of microfinance in India. Examined the different models of Indian microfinance system and also elaborate the legal structure of Indian microfinance system and role of MFIs and socio-cultural analysis. Interest free microfinance movement origin, prospects and principles of interest free microfinance is also explored. Brief discussion regarding the Products of interest free microfinance is also taken up and issues & challenges for interest -free microfinance are also analyzed in the present chapter.

Chapter 5: Performance and evaluation of microfinance institution and their profiling. Then brief discussion on the phases of Microfinance movement in India furthermore, evaluate mechanisms & compatibility of Interest Free Micro Finance in India (Socio-cultural, regulatory issues) after this overview on States Profiling for Micro Finance Institutions. Chapters 6: Analysis and interpretation deals with testing of various hypotheses formulated. This chapter analyzes the level of satisfaction between interest free microfinance and conventional microfinance beneficiaries. Measure the performance of beneficiaries before taking loan and after taking loan and to measure the factors of poverty eradication by comparative analysis of conventional microfinance and interest free microfinance in India

Chapters 7: Poverty Alleviation through Women Empowerment. Brief, discussion on women in rural economy, poverty eradication through MGNREGA _ A Positive Initiative by Government with case study of Mewat (Haryana) and measure the performance of MGNREGA in Mewat (Haryana).

Chapter 8: Concludes the various findings of the study. Based on the findings, various recommendations and suggestion have been given. The chapter also represents the implications of the study, highlights various limitations that current study is suffering from and the directions for the future research have been discussed at the end

References: ADBI. (2016). The status of financial inclusion, regulation, and education in India Government of India. (2013). Poverty Estimates For 2011-12 . New Delhi: Government Of India Press Information Bureau.

Khursheed, K. (2016). Dimensions of Poverty, Unemployment and Inequality in India. Asian Journal of Multidisciplinary Studies ISSN: 2321-8819 (Online) 2348-7186 (Print). Legatum Ventures Hamish Banks. (2011). Microfinance In India: A Crisis at the Bottom of the Pyramid. Dubai, 71082: Adfactors PR Pvt Ltd:.

Pwc ,(2015). Disrupting cash ,Accelerating electronic payments in India. PricewaterhouseCoopers International Limited (PwCIL).

Pwc, (2016). Shifting trends in the microfinance ecosystem Kolkata

Sa-Dhan. (2014). Directory of Microfinance Institutions (MFIs) in India. New Delhi: Sa Dhan.

Sa-Dhan. (2016). The Bharat Microfinance Report 2016. Sherwani, F. (2014). Islamic micro financing models issues & challenges. Bi Annual referred international Journal of commerce & social sciences Varanasi - Vol. 4, Issue 1. Chapter-2 2. Review of Literature Review of literature discusses published information in a particular subject area within a certain time period. A literature review plays an important role in finding out information on the work done in the past by different researchers and provides an important course of action in framing the theoretical framework of research at the time of research design. Keeping this phase in mind, the review of literaturehas been distributed in this study into three parts viz. global microfinance, Indian microfinancesystem, and interest free microfinance system. An attempt has been made in this study to assess various concepts and views related to the present research.

2.1 Conventional Microfinance

This section covers the studies that are produced around the world on the subject and are having different contexts and coverage areas. These have been presented here in the chronological order. 2.1.1 Microfinance and Poverty Alleviation A. Rogaly, B. (1996): In this study, the author aims to measure the potential of micro-finance institutions to reduce poverty. He suggested that before analyzing how to design anti-poverty financial intermediation the important work was to increase resource allocation in this sector by applying sustainable solutions. Further, he suggests that Micro-finance cannot be assumed to reduce poverty just because it achieves high levels of outreach for very poor people. This study emphasizes on 'blueprint' approach to anti-poverty action and also suggests that if agencies are serious about using the latest advances in the design of financial services in reducing poverty, they must be more diffident in their desires of profit maximization. Lastly, he wants, firstly to measure whether a current mix of financial services (pre- intervention) is beneficial or not to different groups of poor people and secondly to find out how this mix changes following the intervention; and thirdly to be prepared to withdraw or change their strategy to alleviate poverty, not the microcredit. B. Khandker, S. R. (1998): According to the study the performance of Grameen Bank can be evaluated in terms of whether it is financially self- sufficient and it must be judged against the performance of traditional rural financial institutions, such as commercial and agricultural development banks. The purpose was to judge Grameen Bank to determine whether these bankswere financially viable and, hence, whether it was possible to transform them into specialized banks. Because microcredit programs' prime objective is to eradicate poverty, their performance must be judged accordingly. So it is a better approach for evaluating Grameen Bank and other microfinance institutions and evaluates their financial performance as banks or bank-like organizations delivering financial services to the poor, or as mechanisms for social transfer. C. Mosley, P., & Hulme, D. (1998): According to the authors MFOs generated massive support from government and nongovernment organizations (NGOs) for the purpose of reducing poverty and self-sufficiency. The study emphasized on the impact of 13 microfinance institutions in seven developing countries on poverty alleviation and its effect on the microfinance institutions’ structures. According to the authors, every institution providing microfinance impacted on poverty alleviation and found that the institutions gave greater preference to consumption loans so the impact of advancing loan on the beneficiary’s household income tended to increase at a decreasing rate but due to the limited range of funding the recipient’s income had adverse effect on his asset position which did not improve. D. Harper Malcolm (1998): He suggested in his study “Profit for the Poor: Cases in microfinance” that the microfinance must be for every poor people and he also advocated that the ultimate aim for microfinance should be to become as widely available as any other consumer product. Decisions about funding ownership and the system should be made toward this entire end. According to him, microfinance needs to have institutional flexibility and efficient management. He argued that microfinance was a business and microfinance programs which aimed to help the poor must be designed and managed in a business like way and that microfinance institutions must be managed like any other business with open minds. E. Evans 1.b. (1999): This study is based on RDP (Rural Development Programme) of BRAC (Bangladesh Rehabilitation Assistance Committee) in which two key observations have emerged. First, poorer households were more likely to be BRAC members. Second, the majority of poor households were not participating in microcredit. He concluded that the greater participation rates among poorer households in BRAC's RDP contradict the widespread notion that microcredit programs favor the wealthy poor. He also found that despite the favorable trend in participation among the poorest, a large majority of the poor in areas of well-established microcredit programs did not participate. Recognizing that universal coverage of the poor is not an explicit program objective and that some eligible nonmembers may not want, or be able to participate, the study indicated great potential for the expansion of microcredit participation within the areas in which RDP was then operating. F. Morduch, J. (2000): In this study, the author suggested a win-win or tradeoff approach as the energy for microfinance movement. In this study, the author suggested that profit maximization and poverty eradication were two different phenomena and he encouraged constructive dialogues and the adoption of a serious pragmatic approach that could help resolve the problems of microfinance institutions. The author also emphasized the main objectives of microfinance movement as financial sustainability, self-sufficiency and depth of outreach to the poor household with organizational development. The study also refers to the debate between institutionists and welfarists as the microfinance schism. G. Mayoux, (2000): In this study, the author focused on women empowerment and poverty alleviation. According to author poverty eradication was not possible without gender equality and prosperity so to optimize the contribution of microfinance to women’s empowerment which required equality in access to all micro-finance services with an adequate and non- discriminatory governing framework. A regulatory framework must be an integral part of the system as implied in the Micro-Credit Summit Campaign. Gender policy goes much further and integrates productive and reproductive work, welfare concerns and measures to address power inequalities in strategies for both women and men. This approach implied a strategic thinking through ways of mainstreaming empowerment questions. According to the author, women empowerment was required for financial sustainability and poverty alleviation. Among poor households, the key issue observed was that pointing poverty did not necessarily contribute to women empowerment and may leave out many disadvantaged groups of women who did not belong to very poor households. The study also pointed out the exclusion of women who had skills and experience to contribute as role models for other women. The author suggested out that empowerment approach required working with these SHGs to develop collective strategies to overcome gender inequality and to have gender equality as a constitutional element of decision-making in programs. H. Mayer (2001): According to this study microfinance is a tool by which the country can target poverty and food security but the author suggested that only self-sufficiency and financial stability within the poor was not enough to fulfill financial sustainability and eradicate poverty. It required three strategies viz. to cover each and every poor, to know the total number of poor served by the microfinance and to identify the depth of poverty within the microfinance users. Microfinance does this through providing loans, savings and other financial services that increase investment, reduce the cost of self-insurance, and contribute to consumption expenditure. According to the author though the microfinance expanded to large part of India but it was needed to be developed by a strong mechanism to be capable of serving each and every poor in a sustainable environment. The researcher concluded that the policy of supportive SHG linkages with banks had merit in a country with a large bank network, but it should not be the only model to be encouraged. That is why additional efforts were desired to maintain and develop competitive MFIs willing to experiment with other models. I. Puhazhendi and Badatya (2002): In this study, the authors analyzed the impact of microfinance through SHG Bank Linkage program. The data was collected from microfinance clients (SHGs) in the states of Jharkhand, Orissa, and Chhattisgarh. The sample of 115 members of 60 SHGs was taken for both the situations i.e. pre and post SHG formations. Both the situations were compared to find out the social and financial impact of the SHG Bank Linkage Programme on the members. According to the study, the SHG Bank Linkage Programme played a significant role in the social and economic improvement of SHGs members. By comparing the pre and post SHG situation, the study reported that there was a growth in family savings and assets building for the SHG members after they formed the group. About 23 per cent enhancement was observed in savings over a period of time. About 100% growth was recorded in the mean annual savings of the members (from Rs 952 to Rs 1863) after joining the SHGs. About 45 per cent out of the total sampled households reported arise in asset building after formation of the group. The study further stated that about 15 per cent of the SHGs member households were able to raise their income levels satisfactorily to cross the poverty line. There was also an extraordinary development in the women of SHGs in terms of self-confidence, contribution in decision-making, better communication skills etc. J. Matin, I., Hulme, D., & Rutherford, S. (2002): In this study, the authors suggested planned & strategic policies to reach every poor of the state to eradicate the poverty through microfinance input. Microfinance is a support that the poor can use to raise their own prospects for an escape from poverty. This paper reviewed the attainments of the ‘microfinance revolution’ through a broad scanning of literature. The paper concludes that microfinance system had enormous opportunities to improve financial products for the poor by the innovative delivery system. Lastly, the authors suggested helping the poor in doing their business, savings, and consumption and in their personal, social and asset-building needs. MFIs helped them to fight poverty by providing the poor people with effective financial services. K. Brau, J. C., & Woller, G. M. (2004): The purpose of this study was to analyze the various comprehensive reviews of the existing literature about microfinance and micro-financial institutions and the authors wanted to raise the issues of MFI sustainability, products, and services of microfinance institutions, MFI practices, customer targeting, regulation and policy issues which have been the matters of interest for the microfinance academicians, practitioners and the institutions. The authors also discussed the impact and assessment of MFI performance after examining the summary of literature review. The authors have also drawn the attention of scholars to the important problems of MFIs. Many of the tools, models, and frameworks discussed in the present microfinance literature can effectively be used to tackle the problem of world poverty and have the potential to significantly move forward both the theory and practice of microfinance. Microfinance offered a financial discipline and offered a possible opportunity to make a significant difference in the lives of millions of poor people. L. Rajesh Chakrabarti (2005): In this study on “The Indian Microfinance Experience – Accomplishments and Challenges” the author suggested that the major challenge in thedevelopment of Indian microfinance system was to measure the investment potential of the borrowers. According to the author, the availability of micro-credit was not the only means to eradicate poverty but other issues needed attention to this cause i.e. micro-consulting, business planning and services like marketing which needed proper handling with greater importance. The author also suggested that microfinance alone could not solve the rural development problems. According to him, the micro-credit would succeed only when it lends the credit with higher rates of interest which are sustainable. M. Sriram M.S. (2005): in this paper on “Information Asymmetry and Trust: A Framework for Studying Microfinance in India” the author made a comparative analysis of formal and informal microcredit agencies to examine the position of poor in the exercise of poverty alleviation. According to the author, the interpersonal relationship was found better in aninformal financial institution than the formal financial institutions. However, the formal financial institutions were significantly better in maintaining records, clarity in financial transactions, stability and security to borrowers. According to him, formal financial institutions had better scope for growth and development because they went beyond interpersonal trust and moved towards systematic procedures. N. Raghavan V. P (2009): In this paper entitled “Micro-Credit and Empowerment: A Study of Kudumbashree Projects in Kerala, India” the author mentioned the socioeconomic impact of micro-finance. Data were collected from the selected sample institutions, beneficiaries and poor through questionnaire specially designed for the purpose and through personal interviews. The researcher found that although the micro-finance programs helped poor people to move them on income generating paths, it did not reach the poorest people due to systems, procedure, and conditions adopted by the micro finance providers. The researcher further observed that although all the micro finance institutions used to claim to serve the people below poverty line; but in general they could not cater to the poor people. Financial facilities were enjoyed mostly by the people who were able to payback. People who could not afford and could not find guarantors were not identified by these micro finance providers in the Ampara district. The researchers concluded that most of the micro finance programs benefited the people who could afford for repayment, pay high-interest rates and who could find a guarantor. 2.1.2 Microfinance and Women Empowerment A. Baydas, M. M., Meyer, R. L., & Aguilera-Alfred, N. (1994): According to his study on discrimination against women in formal credit markets: Reality or ‘Rhetoric? a careful analysis and investigation of the issue of discrimination against women were taken up and they tested for confirmation of discrimination against women micro entrepreneurs by formal financiers in Ecuador. They found that men and women had equally small probabilities of being restricted for loans and concluded that gender discrimination was not widely practiced in Ecuadorian credit markets. This analysis is conducted by, first exploring the distribution of applicants and non-applicants for formal credit among men and women micro entrepreneurs and, second measuring the degree of success they had in obtaining the size of loan requested. B. Goetz, A. M., & Gupta, R. S. (1996): According to this study, household size and female education were more important indicators than health or socio-economic variables of the population to measure the poverty. These demographic factors needed more attention so that they might function as important determinants of microcredit access and achievement. According to this paper, the heterogeneous nature of the population was critical in explaining disparity to access microcredit opportunities and greater participation of female-headed households, which would be critical for dynamics of development, eradication of poverty and hence female membership deserved more attention. The data indicated the existence of a complex set of programs and client-related barriers to participation in BRAC's RDP. While these factors were neither clearly expressed nor well understood, one might debate that they represented an ``invisible hand'' or ``natural selection'' mechanism that efficiently identified more creditworthy households C. Ehlers, Tracy Bachrach, and Karen Main, (1998): The study considered the development of microenterprise programs for poor US women and argued that the microfinance assistance was more harmful and problematic than sponsors believed. The authors based their conclusion on the fact that few women "graduated" their business into the formal sector due to gender constraints on the type of businesses they chose to run and due to inappropriate microfinance training. D. Anand Jaya (2002): The purpose of this study was to analyze the performance of selected SHGs and NHGs (Neighborhood Groups) and to measure its effect on microfinanceprogram on women empowerment. The data was collected from 70 SHGs members working under three selected microfinance agencies of Kerala - Shreyas, BVM- (Bhoodan Vikas Mandal), and CDS- (Community Development Society). Five groups each from the three agencies were selected for a detailed study. The selected members were interviewed by using a structured questionnaire. All SHGs members totally agreed that the most outstanding advantage of the microfinance was the saving module and that was because of the saving component they had been freed from the control of moneylenders. The saving module also provided them a support to even out the incomes throughout the off-season. According to the report that all the SHGs members had taken up individual economic activities but group performance of SHGs was not better. The contribution of MFIs to the family income was 35 percent in BVM, 25 percent in CDS, and 27 percent in shreyas. The result showed that microfinance had a positive impact on the income of families of the SHGs members so it meant the positive change in the attitude of the beneficiaries. The report also suggested that the SHGs had provided an opportunity for women to express their concern and express their desires for change and empowered them to see what was happening outside the house. The positive of women empowerment was that they took actions against the dowry system, alcoholism, illiteracy, and divorce. E. Jayaraman (2005): According to his paper on “Performance Analysis of Fisherwomen Self Help Groups (SHGs) in Tamil Nadu” microfinance provided an opportunity to the banks to serve the ‘unreached’ coastal poor and to make a profitable business. In this study, the data was collected from 725 fisherwomen members from 41 SHGs of five coastal villages. After analysis of the data, the research found that the fisherwomen SHGs performed well in availing and repayment of loans regularly which contributed to their socio – economic development and better life style. The report also stated that the micro-credit and bank loan credit were used for various development purposes by the SHGs members. The study also found that microfinance through SHGs had contributed to the overall socio-economic development and also created awareness among the poor women about the PRI (Panchayat Raj Institution). F. Rajivan (2007): In this study on “Micro-credit and Women’s Empowerment: A case study of SHARE Microfinance Limited” the author assessed the level of impact of microfinance as a tool for women’s empowerment, source of increasing income flow (of household) into the hands of women and also looked into other benefits drawn by women. For his research, many group discussions were held with around 88 Share Microfinance Limited members, focus group discussions were held with 86 mature members, and visits were made to households of 13 women members. The findings of the study indicated that 100 per cent of the mature members confirmed a significant increase in their income and better living standards through access to microcredit. Also, 32 new members and non-members were met to compare differences between them and mature members. Very few members reported an increase in income. An increase in the self-confidence among the participating women was also noted. Participating women also discouraged their sons from dropping out of the school and even wanted to send them for higher education. Women with a relatively longer-term membership (two years or more) showed an increase in their control over income, assets, and expenditure. Women member’s access to government hospitals and health centers had improved after joining the group. A sharp reduction in dependence on money lenders and a diversification of the rural economy were also pointed out in the report. Andhra Pradesh had good reasons to worry about micro lending. Numbers from the Reserve Bank of India (RBI) showed that over 53% of loans there were sourced from moneylenders. Tamil Nadu followed, with moneylenders accounting for 40% of all borrowings. Moneylenders account for more than 30% of all lendings in four more states: Bihar, Manipur, Punjab, and Rajasthan. G. Ghate Prabhu (2007): in this paper entitled “Consumer protection in Indian Microfinance: Lessons from the Andhra Pradesh and the Microfinance Bill’ the research pointed out the diversification of the rural economy. Because of these small loans, several new activities had sprung up like petty shops, bicycle rentals, stone polishing, readymade clothes, fruit and vegetable sales, flowers, mutton shops, small hotels, tea shops, and so on. Thus it was concluded in the study that a triggering off for women’s empowerment had taken place with a strong economic foundation and thus a precondition for further change was established. He suggested in his study that micro-finance organizations should explore financial products for a range of other needs including housing, education and even cultural needs. He asserted that many micro-finance organizations or NGOs undertook capacity building and technical assistance to support the purposes for which clients had borrowed but there were very few financial products that enabled the clients to acquire education and skills. So filling this gap could provide important additional security for poor households. H. Planning Commission (2008): This study entitled “A Report on the Success and Failure of SHG’s in India – Impediments and Paradigm of Success” found that 100 per cent of the mature members confirmed a significant increase in their income and better living standards through access to micro-credit. Also, 32 new members and non-members were met to compare differences between them and mature members. Very few members reported an increase in income. An increase in the self-confidence among the participating women was also noted. Participating women also discouraged their sons from dropping out of the school and even wanted to send them for higher education. Women with a relatively longer-term membership (two years or more) showed an increase in their control over income, assets, and expenditure. Women member’s access to government hospitals and health centers had improved after joining the group. A sharp reduction in dependence on money lenders and a diversification of the rural economy was also pointed out in the report. The report further pointed out the diversification of the rural economy, because of these small loans several new activities had sprung up like petty shops, bicycle rentals, stone polishing, readymade clothes, fruit and vegetable sales, flowers, mutton shops, small hotels, tea shops, and so on. Thus it could be concluded from this study that a triggering off for women’s empowerment had taken place with a strong economic foundation, and a precondition for further change was established. I. Athambawa Jahfer and Rauf F. Hansiya A. (2009): This was a study to check if the micro finance facilities reached the poorest and affected people. But a problem, which the study pointed out, was the dependence of families on money lenders for about 50% of their credit needs. According to the study, members had attained more empowerment during last three years. The increase in different sets of empowerment indicators, viz. awareness, access to resources, control over resources, decision making, mobility, political participation and social concern vary from nominal to average. In a few cases like mobility specially to banks and shops outside the village, the improvement is significant. Overall the study found that association with SHGs had indeed contributed to the overall socio-economic empowerment of the SHGs members. J. Devi M.S Rama and Sultana S. Tabassum (2009): This study was conducted in the city of Hyderabad covering 150 SHG women members in 2008. These members were interviewed to find out about the effectiveness of the group formation. The researchers found that after joining the SHGs the borrowings from money lenders had reduced to great extent, women members were also collectively able to access to the benefits such as gas connections, houses which individually they could have not. Because of group formation, women were successful in counseling their husband about the consumption of alcohol, which helped in reduction of consumption of alcohol by their husbands. Many of the SHG members were successfully turned into fruit and vegetable vendors from their earlier occupation of daily laborers. There was also an increase in the intelligence and awareness level among the SHG members K. Khosla Vinod (2010): In this article entitled “Lending a Helping Hand” the author explains how microfinance enabled women to improve their socio economic condition, and how sometimes they became successful local employers. He is of the view that the micro-finance should be taken to the next level and microfinance should lead the financial services industry to responsible lending practices. According to him, social investors could help in monitoring short-term financial objectives of purely commercial investors who entered the micro finance sector just for financial purposes. He suggested that investment in technology and R&D could improve the efficiency of microfinance lending. He concluded that microfinance would open up cheaper distribution channels into the rural economy and accelerate rural GDP growth, ultimately having far more impact than most of the world's foreign aid and similar non- scalable, non-sustainable efforts. He cautioned about the abuses of this opportunity and for this authority needed to be vigilant and responsive. L. Balasubramanian R. (2010): In this study, the author suggested that the Indian microfinance sector had played a laudable role in improving a lot of the economically disadvantaged. The study provided some important clues, like very few people even at the state headquarters or at the district level really understood the funding pattern for the SGSY scheme. The study also highlighted a very interesting fact that women members repeatedly pointed out that instead of improving their work lives, joining the SHGs had increased their workload. This was mainly because joining the SHGs had provided them with some supplementary work, but the new activities could not generate enough income for them to give up any of their earlier tasks. The study suggested that policy makers needed to appreciate the fact that, if the lives of the poor are to be changed significantly, the outside agencies have to bring in substantial inputs of the kind that they want but cannot get. Also, there must be lot more publicity given to the potential beneficiaries of the scheme and its contents as well as the authorities in charge and their responsibilities. That way the targeted population can seek help and question authorities if the latter fails to deliver. For this extensive use should be made of all forms of media and particularly of the visual media. M. Ajay Tankha (2012): This study was conducted by MYRADA on women’s empowerment of SHG members in 2002 for NABARD. In this study, the author conducted the study of four professionally managed NGOs (DHAN, RASS, CHASS, and MYRADA) from the states of Kerala, Tamil Nadu, Karnataka and Andhra Pradesh and interviewed 13SHGs. The data is collected from two types of groups, first, those groups who were formed over three years’ time and the second groups which were formed less than one year ago. The main objective of the study was to measure the impact factors of SHGs on women empowerment and social and economic status of the SHGs members. Most of the SHGs members were of mature group i.e. (26-35 years), married women in both types of SHGs and over 45 per cent of respondents in both groups were uneducated. As far as changes in financial position were concerned 89 per cent of interviewees in the old group agreed that their financial position got better after joining the SHGs. The level of satisfaction of member was higher after taking aloan. According to author the members of the old group had more confident, had more financiallystability, and had improved of their life style.

2.1.3 Microfinance and Education Development

A. Puhazhendhi and Satyasai (2000): This study was conducted for NABARD to examine the social and economic impact of SHG-Bank Linkage Programme in 2000. The data were collected from throughout the country from about 560 SHG member households by 223 SHGs located in 11 states. In this study pre and post-financing groups were compared to examine the impact of SHGs on living standards of the group members. The study analyzed the various socio-economic factors like borrowings, savings, consumption, assets, unemployment, level of income, level of education among children, expenditure pattern, financial literacy, team building, self-confidence, women empowerment, behavioral changes, and family problems etc. which were taken into consideration to find out the overall change in the socio-economic condition of the group members. The results of the study concluded that there was an improvement in women empowerment, education level, saving capability and in decision-making abilities and communication skills of the group members after joining the SHGs. The study also found that there was a substantial improvement in their self- confidence. The study further recognized its positive role in family discipline and in reduction of family violence after joining the SHGs

2.1.4 Microfinance and Employment Generation

A. Baydas, M. M., Meyer, R. L., & Aguilera Alfred, N. (1994): This study is based on a

survey of small scale MFIs conducted in Ecuador‐ in 1990. They examined credit rationing in Ecuador by microenterprises and estimated a supply and demand model to analyze factors of MFIs by using ration credit and found that MFIs had less profitability, had less education and had smaller demand for microcredit. By in-depth interviews with 625 small business persons selected out of non-participants and participants in special MFIs programs, that either directly granted loans or assisted borrowers to get commercial loans. A total of 248 small entrepreneurs applied for loans from the special programs during the year, of which 172 received loans, while the rest did not get access to loan amounts and were completely rejected. B. Buckley, G. (1997): This study is based on socioeconomic conditions of MFOs informal sector in Kenya, Malawi and Ghana. In the study, the author suggested that the real problems of informal sector micro entrepreneurs was more deep and could not be solved only by financial enhancement but required fundamental structural changes of the socioeconomic conditions that define informal sector activity and a fuller understanding of the “psyche”. According to the author, the microenterprise credit cannot be assumed to improve microenterprise performance. Despite the unbelievable growth over the last 15 years in microenterprise credit programs throughout Africa, there appeared to be little indication of sustainable positive impacts on microfinance beneficiaries in terms of increasing income flows or levels of employment. The most commonly advertised indicator of the success of microenterprise credit programs was the loan repayment rate but this, in fact, indicated only that borrowers were able and willing to repay, it said virtually nothing about theimpact on enterprise operations. C. Ledgerwood, J. (1998): According to this study by the research team of World Bank the generation of cash income might empower women within the household, increasing consumption for them and their children and contributing to other measures of welfare such as primary education, food, and health. One measure of this increased empowerment is the fact that women’s borrowing has an independent effect on the allocation of household resources, with men investing more in physical capital and women investing more in human capital. These results represent only the short run effects of microcredit programs. Whether these effects are sustainable over time remains to be seen. But even if they are sustainable, microfinance should not be considered a solution for reducing poverty or reaching poor women. Only people who have the ability to be self-employed can borrow, and only about 40 percent of the eligible poor households in Bangladesh participate in microcredit programs. Entrepreneurial ability is unevenly apportioned among any population—including women and poor people. Other programs, such as wage employment schemes, are required for those who cannot make productive use of microcredit.

D. Evans, T. G., Adams, A. M., Mohammed, R., & Norris, A. H. (1999): This is an empirical study about the participation of poor households in microfinance sector in Bangladesh. The authors found that only 25% of eligible households participated and that rate of participation was higher among the poorer. Multivariate analysis indicated that lack of female education, small household size, and landlessness were risk factors for nonparticipation. E. Planning commission (2002): In this study entitled “Micro Finance and Empowerment of Scheduled Caste Women: An Impact Study of SHGs in Uttar Pradesh and Uttaranchal” the research covered the states of Uttar Pradesh and Uttarakhand and the data was collected for the sample of 1120 microfinance recipients and 173 officials and non-officials, 224 SHG’s, 143 villages, 28 blocks and 7 districts. The research highlighted the importance to identify women’s needs at micro level, and not at macro level which is not only for self-employment but it should require a programme that is designed to know women’s overall development and to coordinate their efforts so that their work becomes supplementary and complementary in serving women. There is also a need to sensitize the bank staff about the requirements, limitations, and issues of women. F. Fisher (2008): in this book “Beyond Micro-Credit-Putting Development into Micro-Finance”, the author made a micro level study of five SHGs formed by the DRDA under the SGSY scheme. The five SHGs were located in the Quepem taluka of South Goa District. The five SHGs selected for the study were formed in the last three-year period i.e. since 2003. Given the fact that these SHGs were relatively young, members agreed that their average incomes had been on the rise and they were able to save a part of their incremental incomes too. Membership of the SHGs had also helped in increasing the purchasing power of the SHG members. Members of the groups cited several difficulties, chief among them being a lack of co-operation from the banks and lack of marketing support. G. Chatterjee (2009): In this study, the author conducted the survey of the district of North 24 Parganas of West Bengal. The study attempted to assess the social and economic impact of group formation on the group members, created under SGSY program of Government of India. Data were collected from group members as well as from non-group members. The study covered 300 group members of 27 groups from all four sub-divisions of the district where the program was under operation. The sample size for people who were not members of the group was 143. These individuals were selected as non-members of SHGs. Data were collected on different socio-economic-demographic factors like religion, family size, the number of children in the family, occupational pattern, family income level, family savings level, family consumption expenditure, food expenditure, health related expenditure, the number of school dropouts in the family from group members and non-group members. The data revealed that there was an increase in individual income of group members and this had also increased their family income and reduced the relative income inequality. Also, the median income had increased at constant prices, which implied that greater number of people were then concentrated in the higher income class than the pre-group joining level. As far as the employment was concerned the study reported that out of the 300 individuals interviewed, 125 (41.66 per cent) of them were unemployed before joining the group. All of them were gainfully employed after joining the self-help group and from the lowest income class, a large number of families had shifted to the upper-income classes. Also, it was found that formation of SHGs had promoted the habit of saving among the group members. Another important point which the report pointed out was that all female group members were employed and also their family health related expenditure was significantly lower than that of non-group members (i.e. there was an improvement in health awareness).The study also reported that there was a significant decline in the school dropout rate in the families of group members than those of non-group members. Thus the findings of the study reflected the fact that the women empowerment through group activities was improving the level of family welfare. These results also signified the importance of group forming agency in the overall welfare of the group members. 2.1.5Microfinance and Financial Reachability A. Conning, J. (1999): The author suggested that MFOs should draw up the plans to maximize impact, target the poor and achieve financial self-sufficiency. Using data from 72 MFIs, he found that sustainable MFIs that target poorer borrowers charged higher interest rates, had higher staff costs, and had less leverage effect than those targeting less poor borrowers. B. Karmakar, K. G. (1999): According to the author hemain problem of Indian microfinance system was the repayment and recovery of the loans at the defaulter’s level and the consequent failure of the entire financial system. So the main reasons as identified were defective loan policies and procedures, poor supervision & monitoring and improper management. He also pointed out that the external problems which occurred like natural floods and famines, the absence of backward and forward linkages, defective legal frame work, and lack of support from the government agencies in recoveries. He also emphasized on the various problems of rural credit delivery system in India. The author concluded that organizing resources for rural development did not achieve the target as the programs for rural development had actually consumed scarce monetary resources and had not worked out to the advantage of the rural borrowers, the bank, and the government. C. Harper (2002)): In his study on “Promotion of Self Help Groups under the SHG Bank Linkage Programme in India the author suggested that the banks should not emphasize on the ‘social’ characteristics of SHGs, but they must regularly supervise SHGs in order to avoid ‘client drift’ away from the poor. Banks are only responsible for observing the financial performance of their SHGs members like that of any other client. The author also suggested that if there was a special focus to SHGs, reporting requirements may be unproductive in that they may depress banks from doing business with SHGs. The study lastly suggested that NABARD should design a system for appraising SHGs and their membership, which can regularly, promptly, economically and constantly be used to measure the financial and social strength of SHGs incentive schemes. The author also wanted that NABARD should offer to private research firms to design and manage a national SHG sample survey program which monitored the condition of SHGs nationwide, on a regular basis. So it would be a major contribution to country’s policy making for rural developments projects. This way it becomes a nationally important factor for the welfare of the society. D. Prakash L.B. et al.(2005): According to this study entitled “Do India’s Self-help Groups Provide Value for Money”, the authors tried to find out the financial sufficiency of the microfinance programs. For this purpose, the data was collected by two-stage sampling process of 150 SHGs in five different states. Out of these 150 SHGs, 30 in each of five states were promoted by an SHPA (Self Help Promoting Agencies). The SHGs members were interviewed with a structured questionnaire. The results were similar to many other studies. This study also identified the economicalassistances which increased the income of the members but only for 25 percent of the member refused that they did not borrow money from local money lenders. Lastly the authors raised a relevant question for the future i.e. “whether the increasing patronage by politicians and the resulting high growth rate of SHGs and their bank linkage could lead to high default rates?” E. Mathew. P. M. (2005): In this paper on “Micro Finance can help unleash untapped entrepreneurial talent”, the author measured the link between microfinance and entrepreneurship and pointed out that provision of microfinance services would help the poor to develop themselves if the `social capital' was assisted. The major contribution of microcredit was in developing the business services. The author suggested that microfinance not only fulfilled the needs of these enterprises but at the same time helped to unleash the productive human capabilities. A major contribution of microfinance was the social and economic intermediation development. Micro finance played a significant role in the process of entrepreneurship growth and development and fulfilled the financial needs of the enterprise. The focus for microfinance and rural development in India should not be more mathematical targets but the necessities of enterprise development. F. APMAS (2006): This study focuses on the position of microfinance clients to measure several issues and challenges like legal and political system, social and economic position, self-sufficiency and sustainability, communal harmony and social justice, community actions, book-keeping, equity, defaults, and recoveries. For this purpose, the data was collected from 214 SHGs in 108 villages in 9 districts from the states of Andhra Pradesh, Karnataka, Orissa, and Rajasthan. The results showed that around 77 per cent of the SHGs had borrowed loan from banks or microfinance agencies .About 10 per cent of members had dropped out from the operational SHGs due to the reasons are of death or illness, migrations, or with concern to social responsibility. The study reported that at least one member in an SHG joined in local political office and one in every five SHGs had a woman member who was elected either as a ward member at the village level or a ‘Sarpanch’ at the block level. The study found that they did not regularly deal with their fight for social justice. The study also did not find any significant involvement of members in community involvement. Lastly, the study suggested that the growth and development of financial and social would require greater transparency and visualization of objectives and a systematic approach to team building capacity with proper guidance. G. Aiyar (2008): in this article entitled “What MFIs can teach Wall Street”, the author highlighted the ongoing global financial crisis when financial institutions of all sorts were in dire straits across the globe. But one category that remained unaffected was micro-finance. He pointed out that even as the global financial system froze and giants like Lehman Brothers collapsed, the micro-finance institutions (MFIs) were expanding unfazed. He suggested that then the time had come for capital-starved micro- entrepreneurs to move beyond ownership of buffaloes and teashops. He concluded that a big challenge then was to move from microloans to mini-loans of Rs 50,000 to Rs 2 lakh. This alone according to him could transform poor borrowers from objects of pity to objects of envy. H. Aiyar (2009): In this article, ‘how micro-finance institutions beat nationalized banks?’ was highlighted during the growth of microfinance in India. The author found that households getting micro-credit in India then outnumbered poor households. Outstanding micro-finance loans totaled 80 million. Some borrowers had multiple loans, so net beneficiaries might be a total of 60 million households. This was more than the 55 million poor households and more than a quarter of India’s 220 million households. The author opined that many poor households were still left out, while non-poor households had got loans. MFIs had yet to reach or cover large areas in India. But they were spreading fast across most states. I. Kumar M. Karthick et al. (2010): In this study on “Risk Based Pricing in Microfinance” the authors explored the efficient receivable management policies needed for MFIs which could reduce the collection cost and help decrease the interest rates. The objective of the study was to identify the reasons for higher interest rates and the factors contributing the bad debts. In this research, twelve microfinance institutions were identified as the sample and their performance was analyzed using their annual statements. The researchers recommended the ‘neighborhood financing model’, in which the MFIs used to provide credit facilities to the rural borrowers within the 5 km radius. This reduces the cost of collection and operation charges; ultimately this would help in reducing the interest rates. The study also suggests that MFIs must introduce adjustable rates of the loan, in which the rate of interest is linked to the prime lending rate. If the customers adopt adjustable rate loan, they stand to gain if the interest rate drops. Likewise, they need to be prepared to take the risk when the interest rate increases. Therefore, in this case, the gain/loss of interest rate’s fluctuation is borne by the borrower. 2.1.6 Microfinance and Team Building Capacity A. Basu, Priya & Srivastava Pradeep (2005): In this study entitled “Scaling of Micro Finance for India’s Rural Poor” the authors measured the impact of Indian microfinance system on rural poor. They found that India’s rural poor than had very little access to finance from government agencies. Microfinance institutions tried to fill the gap. Among those, the development of SHG Bank Linkage had been particularly outstanding, but outreach remained diffident in terms of the percentage of poor households served. The study suggested that if SHG Bank Linkage was to be cover the gap in finance to the rural masses, it required more attention towards promotion of quality class sustainable SHGs, better targeting of clients, and confirming that banks linked to SHGs offer low rate loans at cost covering level. The study also indicated the opportunity for diverse microfinance approaches B. Ramesh Jairam (2007): in this article on “Self Help Group Revolution: What Next?’ the author tried to find out the ways how SHGs could be used in future for the further development of the country. He suggested that creating a specific role for SHGs was very important so that it did not lose its direction. At the same time, SHGs must be used for responding to new challenges. For instance, when Andhra Pradesh emerged as number one in the HIV/AIDS state prevalence in the country, public health planners should use the extensive SHGs network for combating this scourge. He concluded that Panchayats were the institutions of representation and SHGS institutions of participation. These are the two pillars on which the India’s globalization strategy should rest. C. Henriques. Elizabeth. J (2009): This study was conducted to ascertain the actual impact of the SGSY Scheme, for which a micro level study of five SHGs formed by the DRDA under the SGSY scheme was done. These five SHGs were located in the Quepem taluka of South Goa District. These five SHGs selected for the study were formed in the last three-year period i.e. since 2003. Given the fact that these SHGs were relatively young, members agreed that their average incomes had been on the rise and they were able to save a part of their incremental incomes too. Membership of the SHGs had also helped in increasing the purchasing power of the SHG members. Members of the groups cited several difficulties, chief among them being lack of co-operation from the banks and lack of marketing support. D. Barman, Abheek (2010): In this article on “Microfinance, Macro Problems” the author pointed out the challenges microfinance faced in India and how to unleash the potential of the economically challenged and propelling them up the economic ladder. Over the last two decades, social entrepreneurs, microfinance professionals, government institutions and private initiatives in the country have nurtured the growth of microfinance institutions (MFIs). Microfinance has gained in significance in the last few years. It is now on the threshold of a boom. In the Indian context, the SHG-bank linkage program continues to be dominant, given the wide reach of the banks. He pointed out that challenges ahead were to imparting counseling on ‘savings-credit-protection', ensuring that lending rates were competitive and operations were self-sufficient. E. Das, P. K. (2014): This study is on Microfinance-A tool for socio-economic development in rural India. The author suggested that there was a need for Indian microfinanceto adopts an appropriate system to manage future prospects and challenges so that socio-economic growth and development would be possible. In this paper, the author analyzed the conceptual framework of microfinance system. The growth and development of SHG linked microfinance program, the kinds of microfinance services and changing role of these institutions in rural India and the current status of microfinance policy framework to meet the challenges faced by Indian microfinance system were the issues covered in the study. According to the author, the advancement of the microfinance played a significant role in India for socio-economic development in rural areas and the potential for the development of microfinance institutions was very high in rural India. .

2.1.7 Microfinance and Policy Review

A. Rajshekhar (2010): The study concluded that the nature of the business itself, built around several small cash transactions at the last mile, made it almost impossible to verify claims about collection methods and interest rates without onsite supervision. This complexity was creating problems in regulating the microfinance sector. B. Devaraja, T. S. (2011): According to this study on “Microfinance in India-A tool for poverty reduction” the author suggested that although microfinance played a significant role in poverty alleviation but it was required to measure the feasibility and sustainability the outreach of micro-credit to the poor of the society. The author also suggested that there was a need to pass new regulations for India to tackle the problem of poverty in the country. This paper explained the three aspects which were needed to be implemented by the government. First was to safeguard the rights of the microfinance clients. Second was to attract potential organizations for operating in microfinance sector. Third was to set-up the microfinance institutions who provided the funds access and had innovations in the distribution of microfinance system. The study also discussed the factors and academic places associated with the evolution of microfinance and its global approval based on its trade-off for both Micro Finance Institutions (MFIs) and microfinance users. Lastly, this study examined the impact of microfinance and getting the potential of microfinance in achievement of Millennium Development Goals (MDGs). 2.2 Interest free micro finance

This section covers the studies that are produced around the world and in India on interest-free microfinance and its institutions and clients based attributes i.e. Poverty Alleviation, Employment Generation, Education Development, Women Empowerment, Financial Reachability, Policy Review, financial analysis and banking structure and have analyzed their presence, performance and impact against the conventional financial system. These studies are dealing with their different issues and are also context and coverage wise varying. These have been presented here also in the chronological order. 2.2.1 Interest FreeMicrofinance and Poverty Alleviation

A. Khan, A. A. (2008): According to this study on “Islamic Microfinance Theory, Policy and Practice” the author mentioned that although microfinance played a significant role in poverty eradication an awareness to microfinance through Islamic principles by applying rules and norms of ‘shariah’ was essentially needed. According to the author, around 1.3 billion Muslim population in the world needed Islamic finance. A majority of Muslims did not use the financial services based on interest (Riba) or financial services that do not follow the Islamic financing principles based on ‘Shariah’. Therefore, the demand for Islamic microfinance was remarkable in worldwide. The example of Islamic Relief’s microfinance program in Pakistan was cited which was incapable of meeting the high demand from potential customers in spite of its Islamic loans being double expensive as compared to interest based microfinance offered by other financing agencies working with the same target groups and in the same areas. It was also pointed out that the growth and development of many Muslim owned micro entrepreneurs’ small businesses was challenged due to the unavailability of Islamic financial services. The main objective of this study was to provide practical advice on how a microfinanceprogram based on Islamic financing principles could be established B. Hailey, P. (2009): In this study, the author opined that the Islamic microfinance and Islamic Finance as two models had a relationship and two models were mutually incompatible. But when we combine these two models we could reach a point that both the techniques accommodate the demands according to Sharia’a law and serve the needs of poor masses. Moreover, the study highlighted on community growth and development which was one of the important objectives in both the models. This way according to the author the solution to eradicate poverty provided a framework of Islamic finance to the policy makers C. Bank, B. (2012): According to this report published in 2012 by IBBL (Islamic Bank Bangladesh Limited) Islamic Bank launched a scheme for the development of rural areas in Bangladesh known as Rural Development Scheme (RDS) which was a pioneering Islamic microfinance scheme to concentrate on the welfare of rural areas through providing interest free loans to fulfill the demand of the rural Muslim poor in Bangladesh who were not benefited by conventional micro finance due to their religious beliefs. According to the report, RDS started a pilot project covering four villages in 1995 as a widely accepted model in poverty eradicating program to facilitate more than 600,000 people. The success of RDS scheme depended upon some factors such as institutional and organizational capacity, dedicated management, good working environment and conducive policy environment. The scheme gave the vision to scale up the RDS program in Bangladesh. This case study of RDS also highlighted the lessons of south-south learning and knowledge exchange for countries to match its sustainability and transferability

2.2.2 Interest FreeMicrofinance and women empowerment

A. Rahman, A. R. A., & Rahim, A. (2007): The main objective of this article was to evaluate the potential of Islamic microfinance models in the era of conventional micro financing market. The paper elaborated the concepts of Islamic microfinance and argued that the main objective of Islamic microfinance system was to alleviate poverty and empowerment of women in the way of Islamic financing based on Shariah. According to the authors, Islamic microfinance played an important role for socio-economic growth and development of the poor and small (micro) entrepreneurs as it was based on not charging any interest (riba). Moreover, Islamic microfinance model had ethical and moral characteristics that were required to develop micro entrepreneurs. The authors also found that there was a relationship between Islamic microfinance and conventional microfinance and by applying the elements of Islamic microfinance the banking system could fulfill broader objectives of conventional and Islamic banking. In this article, the authors elaborated the concepts of Islamic microfinance and demonstrated that the various Islamic financing schemes were based on the concepts of mudarabah, musharakah, murabahah, ijarah etc. The authors argued the potential of various Islamic micro financing models which could become the major components in Islamic banking and might require adoption of advanced microfinance techniques to alleviate poverty and unemployment. B. Parveen, J.A. (2009): This study examined the overall sustainability and self-sufficiency of interest-free MFIs and in a newly established microfinance model of Rural Development Scheme (RDS) of Islamic Bank Bangladesh Limited (IBBL). The author took a number of factors to measure the interest free models for the purpose of financial, institutional, and economical sustainability and self-sufficiency. The study showed that the overall financial performance of RDS was acceptable. The author applied qualitative and quantitative indicators to examine the sustainability and self- sufficiency and the results indicated that RDS was sustainable and operative. In this study, the author suggested a policy which would help programs like RDS for effective growth and development of interest free microfinance system. In this study, the measurement of the microfinance was in terms of evaluating the objectives i.e. MFIs should enhance the provision of investment money to microfinance customers so that their income generating activities run smoothly. Secondly, MFIs should issue modes of investment according to customers’ requirements and MFIs should enhance the quantity of field officers and supervisors to increase program outreach and reduce pressure on field supervisors. RDS should be integrated with IBBL's mainstream banking as a regular program to increase outreach. A number of female officers should be increased to serve female customers according to their expectations. The author also suggested providing regular training to the MFIs field officers and MFIs customers to develop ethical values, knowledge, and skills to interest free microfinance users.

2.2.3 Interest FreeMicrofinance and employment generation

A. Ahmad, A. U. F., & Hassan, M. K. (2007): In this research, the authors analyzed the regulatory and legal issues of Islamic banking in Bangladesh. One of the major issues of Bangladesh banking system was found to have the same policy and guidelines for Islamic and conventional banking. According to authors the Islamic banks in Bangladesh should have an autonomous banking act to control, guide and supervises their functions and provide legal assistance to the concerned parties. This well-defined regulatory and supervisory framework should function in line with the doctrines of Shariah. The two financial instruments used by Bangladesh Banks (viz. open market operations and discount rates) were not applicable to the Islamic banking system because those were not permissible in Shariah. It was suggested that the spread of Islamic banking in the country would improve the monetary flows of funds, reduce the inequalities in the cost of borrowing, and mobilize investment resources in the rural areas to improve the living standards of the small and marginal farmers and it would also help in reduction of unemployment.

2.2.4 Interest Free Microfinance and Financial Reachability

A. Bashir, A. H. M. (2001): In this study the author measured the impact and efficiency of Islamic banks. For this purpose, the author analyzed the financial statements of 14 Islamic banks working in Middle Eastern Countries on yearly basis between the period 1993 to 1998. The study measured the profitability and efficiency of internal as well as external banking factors. The study revealed how Islamic banks accomplished their objectives under dynamic market environments i.e. with varying sustainability, self-sufficiency, economies of scale, taxation and market share. The study found that Islamic banks’ profit indicated a direct relationship between capital and loan. According to the study following factors contributed to banks profitability: customer satisfaction, liquidity, non interest earning assets and minimum overhead bank costs. The study also showed that foreign-owned banks were more profitable than local ones. The study also found that taxation played a significant role in the performance of Islamic banks. The study lastly concluded that macroeconomic conditions had a positive effect on performance capacities of banks. Finally, the study recommended that the stock markets were complimentary to the financial funding of the Islamic banks. B. Bagsiraj, M. G. I. (2003): In this study author measured the validity and performance of Islamic Financial Institutions (IFIs) working in India. According to the author, India having second largest Muslim population in the world had about 300 Islamic financial institutions in the country but the majority of the Indian population did not know about them. A very small portion of Muslim population knew about the functioning, socio-economic performance and potential of IFIs (Islamic Financial Institutions) in India. In this research,author did a pragmatic research to examine the progress, problems, and prospects of non-conventional financial institutions. The author also measured the financial performance of IFIs. According to the author, IFIs played important role in socio-economic development of the Indian Muslims as well as Non-Muslims. Lastly,author revealed that IFIs of India could be geared up to attain self-sustained socio-economic growth and development of Indian Muslims in particular and Indians in general. Nevertheless, the true potential of IFIs of India could be established only after a full assessment of their past performance, present problems and future prospects. C. Diganta KR. Mudoi. (2012) mentioned that the Public-Private partnerships can contribute to financial inclusion with government offering the appropriate regulatory framework and incentives to service providers, and private operators increasing their institutional outreach and range of services. Models of banking sector can use to expand financial access include retail banking, wholesale banking in partnership with MFIs, and Franchise (or) agent banking. D. Christabell, P. J. and Vimal Raj. A. (2012) recommended that Microfinance Institutions (MFIs) play a significant role in facilitating inclusion, as they are uniquely positioned in reaching out to the rural poor. Many of them operate in a limited geographical area, have a greater understanding of the issues specific to the rural poor. Even though, in India, the microfinance model extends credit and savings to the poor, the challenges faced by the industry has to be rectified in due course for the effective working of the model. E. Johnson, K. (2013): In this study, the author analyzed the role of Islamic finance in growth and development of the country. According to the author, the dispersion of Islamic banks had no major role in the growth of GDP. Though, Islamic banks played a significant role in the development of the financial sector in French legal origin countries. Rendering Islamic finance to poor populations in less developed countries deserved a policy and financial support as a potential tool of economic growth of the country. However, Islamic banks were growing at a rapid rate and affecting the societies in which they took root. Consequently, their impact might become more apparent as the sector grew. Further research, as more data becomes available, may reveal more conclusive results and provide answers to the financial communities that seek to abide by Islamic economics and Microfinance, opines the author.

2.2.5 Interest Free Microfinance and Policy Review A. Metwally, M. M. (1997): According to the author Islamic finance was introduced in Egypt in the year 1963. It was a first experimented to initialize Islamic finance and examine its possibility and viability in a working environment. According to the study that was a successful experiment in three succeeding years. But because of political pressure, the project was discontinued. However, Islamic banking was the successful and organized projects because it gave a way to attempt Islamic banking in are gulated market. This lead to Islamic banking was established in the 1970s in the Arab world and other Asian countries. At first, Islamic banks were established mostly in Muslim countries. But for a reasonable rate Islamic finance are now running in more than sixty countries. According to author Islamic finance not only worked in Muslim countries but it was even operational in non-Muslim countries and play a significant role indevelopment of Muslim minority like Germany, France, and the United Kingdom etc. While on the other hand, the conventional banking has a very long history, great learning experience from the process of financial banking. B. Kabir Hassan, M. (1999): According to his study Islamic banking in theory and practice: The experience of Bangladesh. To establish Islamic banking system in the country it is to be required the legal frame work or law which were approved by Islamic shariah. However, in Bangladesh, there wa sno regulatory structure which was based on Islamic shariah to operate of Islamic banks in Bangladesh. According to the author in Bangladesh, all financial and taxation laws are based upon the concept of interest. However, Bangladesh (Banking Act of 1991) has regulated to recognized the Islamic banking financial products, but the provisions for interest free microfinance institution were incomplete to define their rights and duties to doing financial transactions. C. Hassan, M. K., & Bashir, A. H. M. (2003): In this study the authors examined the efficiency and effectiveness of Islamic banks for their functioning in altered climate of the competitive banks environment. For this purpose, the authors analyzed the financial data of Islamic banks in 21 nations for 7 years i.e. from 1994 to 2001. This study added some additional factors in a previous study conducted by Bashir (2001). This study showed a positive relationship between profitability and expenses. The huge profits achieved by Islamic banks might have been allocated to higher salaries. It emerged that expense preference behavior ruled in Islamic banks. The study suggested that the capacity of banking setup had unfavorable effect on profitability. D. Obaidullah, M. (2008): In this study the author evaluated the problems and challenges faced in the growth and development of Islamic microfinance models. The author proposed a dialog between the members’ countries of financial policy makers for promoting Islamic microfinance services at the international level. In this study, the author suggested the incorporation of Zakah, Awqaf and Islamic financial agreements for the development micro finance sector to target the poor masses. Another focus of the study was to recommend a financial infrastructure for making financial services available at reasonable prices to the poor and micro-entrepreneurs by cooperation and information dissemination on Islamic microfinance services. Nevertheless, the existence of Islamic microfinance institutions was extremely limited to reach the poor masses. The main recommendation of the study was to develop an infrastructure and coordination for policy and negotiation support for the delivery of Shariah compliant Islamic microfinance services that are widely available. E. Beck, T., Demirgüç-Kunt, A., & Merrouche, O. (2013): In this study firstly the problem and prospects of Islamic finance system through applications of Sharia-compliant methods were analyzed. Secondly, a comparison was drawn between Islamic finance model and conventional banking model. To examine the difference between both the models the authors took various indicators such as efficiency and effectiveness, risk and return, profitability and stability. After the comparison by pragmatic estimations, little significant difference was found between Islamic and conventional banks. Nevertheless, the results revealed that conventional banks were working in countries with a greater share than Islamic banks but Islamic banks were more cost effective but less stable than conventional ones. The authors also analyzed the financial data i.e. balance sheet and income statements to understand better the differences in their financial systems. Lastly, the author indicated a higher scope of future research in this area. F. Ali et. al. (2013): In this study the authors compared the conventional and non-conventional banking on the basis of interest (riba) and services in Peshawar district of Pakistan to examine as to why the people of Peshawar were not choosing non-conventional banking as compared to conventional banking. Was it because the customers of conventional banking were more satisfied as against non-conventional banking or Islamic banking? The author measured both the banking systems by the facilities provided by them. According to the author, most of Muslims were inclined to Islamic laws almost in every field of life. So for that reason, Islamic banking emerged in Muslim countries very rapidly but its speed was not as fast as that of conventional banking due to the facilities, infrastructure, process and long experience. Shariah Board was trying to introduce an interest-free financial system for the productive use of finance and to satisfy consumer needs but if required more focused approach for its growth and development. However, the Islamic financial system worked and grew quite effectively in the global world. G. Banna, S. H. (2016): The purpose of this study was to examine the solvency risk related to the liquidity of conventional and non-conventional banks in Bangladesh through a comparative analysis. Long term solvency and short term solvency risks would emerge from the diverse functioning of different stakeholders related to financial system such as financial intermediaries, promoters, and shareholders as they are fully liable to make available liquidity when required by the third party. In the case of non-conventional Banks, additional efforts were required for scaling liquidity management due to their distinctive features which might be in conformity with Shariah based models. In this study the author analyzed the significant risks of conventional and non-conventional banks by applying the analysis measures like Return on Equity, Net Working Capital ratio, Capital Adequacy and Return on Assets (ROA) relevant for long term solvency risk management in Bangladesh. For this purpose, the financial data was taken from six mid-sized banks, three conventional and three non- conventional as a sample and the annual reports, covering a period of 2007-2011 were used. The analysis revealed that both the models were good but capital adequacy ratio in conventional and Islamic banks was found to be negative. For conventional banks, an estimation to predict the liquidity risk level was proven to be successful but the model failed to generate the desired result in the case of the non-conventional banks.

2.3 Comparative study of Interest Free and Microfinance institutions

2.3.1 Financial Analysis: This section covers the comparative analysis of micro finance and other banking or insurance institution which are studied on the basis of their financial performances. Majority of literatures are covered financial performances of the combo. A. Samad, A., & Hassan, M. K. (1999): In this study, the authors analyzed the performance of BIMB in the field of banking and financing characteristics such as profitability, risk and return, liquidity, and long term solvency and customer’s relationship management. For this, they examined the stability of BIMB (Bank Islam Malaysia Berhad ) for the years 1984 to 1997 using financial ratios. According to authors BIMB had comparatively more liquidity and less risk as compared to a group of 8 conventional banks in Malaysia. The authors also measured the performance by inter-temporal comparison of BIMB. The results found that BIMB had more significant improvement on return on assets (ROA) and return on equity (ROE) during 1984-1997. The liquidity performance analyzed between the periods 1984-89 and 1990-97 in terms of various ratio measures such as cash-deposit ratio, loan-deposit ratio, and current ratio indicated neither weakening nor improvement trend. Nonetheless, interbank assessment of liquidity performance suggested that Islamic bank appeared to have better short term solvency as compared to 8 conventional banks at least in the cash-deposit measure. Risk and insolvency measures between the periods 1984-89 and 1990-97 found that BIMB risk increased and was significant in debt-equity (DER) and equity multiplier (EM). B. Yudistira, Donsyah. (2004): In this study author analyzed the impact of financial trade off point on the profitability of Islamic banks. The author found that there was a degree of incompetence in these banks. Nonetheless, these banks made remarkable contribution in comparison to conventional banks. The author also commented that the condition of Islamic banks during the global crisis during 1997 – 1999 was not better but after that, they consolidated their position. According to the study, the Islamic banks were naturally similar to conventional banks in terms of gross effectiveness, but Islamic banks were more effective in terms of overall performance than the conventional banks. Lastly, the author argued that Islamic banks had more managerial capacity than conventional banks to move to a more standardized system of banking, while the underperformance of conventional bank managers could be inspected in the background of the on-going payment system crisis. C. Alkassim, F. A. (2005): In this study, the author made a comparative study of conventional and Islamic banking in the Gulf Cooperation Council (GCC) for 1997 to 2004 era. This study revealed the determining factors to measure the bank performance to judge the differences in profitability between Islamic and conventional banking. Regression was used for analysis using cross sectional techniques to measure the effectiveness of banks performance. The author suggested that the conventional banks in GCC had better asset quality as compared to Islamic banks. However, Islamic banks were better capitalized. Moreover, pragmatic outcomes in Islamic banks showed that loaning money without charging interest advocated profitability. Furthermore, the study on GCC’s Islamic banks gave a different image of financial intermediation. Even though there was some variation in Islamic and conventional banking activities, profitability terms were still similar. In addition, Islamic banking should not be viewed as a religious movement but as a superior system to conventional banking in the GCC. D. Sufian, F. (2006): This study examines the competence of the Malaysian Islamic banking sector during the period of 2001-2004. For this purpose, a comparative study was done between indigenous and alien banks. In the study author measured three types of elements: scale, technical, and pure technical components. The research utilized Non-Parametric Data Envelopment Analysis (DEA) methodology for examining differences. For analysis of Islamic financial components, the intermediation approach was applied to the description of input-output variables. The study revealed that scale ineffectiveness leads to pure technical ineffectiveness in the Malaysian Islamic banking sector. This way according to the study Malaysian Islamic banks were working at the wrong scale of operations. The author also concluded that the domestic Islamic banks had demonstrated higher technical efficiency compared to the foreign Islamic banks. E. Moin, M. S. (2008): In this study, the author measured the Performance of Islamic Banking and Conventional Banking in Pakistan by a comparative Study taking the first Islamic bank in Pakistan, i.e. Meezan Bank Limited (MBL) with the group of 5 Pakistani conventional banks. The study examined the performance of Meezan Islamic Bank (MBL) in solvency, risk, and return, and growth and development for the period of 2003-2007. For the purpose of comparative analysis financial analytical tools was applied i.e. several financial ratios such as Return on Equity, Return on Asset, Income to Expense ratio, Debt to Equity Ratio, Loan to Deposit Ratio, Loan to Assets ratio, Asset Utilization ratio which was taken to judge banking performance. Some statistical tools such as F-test and T-test were used for measuring the significance level of the differential performance of the MBL and Conventional banks. The study revealed that the return of MBL was less than those of conventional banks and MBL was more solvent (less risky) and also less efficient compared to the average of the 5 conventional banks. However, there was no significant difference in short term solvency from both sets of banks. F. Nimrah, K., Michael, T., & Xavier, R. (2008): In this article, the authors measured the performance of conventional microfinance and interest free microfinance in Bangladesh. According to the authors, conventional microfinance was very successful in most of the Muslim countries. The example of Grameen Bank experiment was cited which was initiated in Bangladesh by the Nobel Prize winner Mohammed Yunus. According to the authors, the majority of Muslim countries had vided microfinance industry and about 44 percent of conventional microfinance users were existing there worldwide. The authors also pointed out the large conventional microfinance industry which was not fulfilling the needs of the majority of the Muslim population as there was the demand for interest free financial products. According to the authors, the demand of interest free microfinance was not only for their religious sentiments but the majority of poor Muslims and non-Muslims alike prefer Islamic finance because of the low rate of interest or processing fee is taken by existing Islamic microfinance agencies as compare to conventional micro finance providers. G. Awan, A. G. (2009): According to this study the author measured the performance of Islamic finance and conventional or interest based banking by the facilities which they were providing to their customers. The author also investigated the indicators by which the banks would attract customers to Islamic banking and conventional banking in Peshawar. According to the study Islamic financing sector at the end of 2008 had reached a scale of US$1.0 trillion and according to another data estimation, the Islamic Financial Industry grew at US $4 trillion at the end of 2008.After measuring both the systems the author found that both the financial systems i.e. Islamic banks and conventional banks were in strong competition with each other in Pakistan. Different types of products were offered from both sides for the satisfaction of their customers. H. Loghod, H. A. (2010): In this article, the author has made a comparative study to evaluate the performance of Islamic banks vis-à-vis conventional banks in the Gulf Cooperation Council (GCC) countries by analyzing the financial data of selected banks from both the systems. In the study, the selected financial ratios are used to measure the differences in financial performance between both types of banks. With the help of important financial ratios, the author applied an econometric LOGIT technique to find out the differences during the period 2000 to 2005. According to the author, the results revealed no significant differences in terms of profitability. Nevertheless, Islamic banks had a low level of solvency risk. Besides this, the conventional banks depended on more on third party liabilities than the Islamic banks. In GCC markets the financial clients were more inclined to use financial products offered by Islamic banks. Lastly, no significant difference was found on internal growth rate for both types of banks, which implied that this largely depended on the management policy and strategy on overall performance of the both the models. I. Rahim, S. R. M., & Zakaria, R. H. (2013): In this article, the authors evaluated the firmness between Islamic and conventional banks using some analytical techniques considering detailed problems and prospects of Islamic finance in Malaysia. According to the findings of the study, the Islamic banking system was significantly stable towards risk in terms of cost income ratio, total assets and 'Herfindahl-Hirschman Index - HHI' and market concentration, inflation and real GDP while conventional bank stability was influenced by debt equity ratio, total assets to debt ratio, income multiplicity. According to the author's more comprehensive research (qualitative and quantitative both) was needed by taking various indicators for both the banks needs to judge the stability of Islamic and conventional banks in Malaysia banking landscape after the financial crisis in 2008. A Large pool of secondary data collected from all Islamic and conventional banks in Malaysia would make the research representative for the country.

2.3.2 Customer based Analysis: This part deals with the customers or other stakeholder’s comparative analysis in context with interest free and conventional microfinance and other related institutions. There are vey less effort has made for such researches as compare to other customer side primary researches. A. Masyita and Ahmed (2011) explore the comparative study between Islamic Microfinance and conventional Microfinance on Indonesian Customers preference and perceptions. He advocates the Islamic MFIs struggling to survive position due to fierce competition in the provision of microfinance services, from both the conventional and Islamic. This paper has examined the factors determining the demand for microfinance services by reporting results from a survey of the perceptions and preferences of 581 MFI’s borrowers from four MFIs— two Islamic (BMT Baitul Maal wat Tamwi and BPRS Bank Perkreditan Rakyat Syaria) and two conventional BRI( Bank Rakyat Indonesia) BPR (Bank Perkreditan Rakyat) in Indonesia. The results showed that while the majority of MFI’s clients indicates preference for Islamic MFIs, in reality their choices of MFI are based on economic (low interest rates and size of loan) and non-economic factors (such as quality of services variables easiness, speed, nearness, method and loan officers’ profile). The results indicated that BRI, a conventional MFI, is ranked the most competitive according to these factors, followed by BPRS (Islamic rural banks), BPR (rural bank) and BMT (Baitul Maal wa Tamwil). The survey identifies the gaps that Islamic MFIs face to fulfill their positive roles and vehicles to reduce unemployment and poverty. As the MFIs clients prefer Islamic MFI compared to conventional, the demand for Islamic microfinance can be enhanced if the level of their economic and non-economic factors can be brought to the levels of conventional MFIs. B. Aribi & Gao 2012 study is to compare the Corporate Social Responsibility (CSR) practices in Islamic and Conventional banking. By using content analysis approach, the paper examines the working of CSR practices in 10 Islamic banks and 10 Conventional banks. The results show positive & little significant difference in the level and the degree of the disclosures between Islamic and Conventional banking. This difference is due to representation of Islamic Financial Institutions with religiosity. The study evaluated the literature and shows the actual difference between of CSR between Islamic and Conventional banking, by comparing disclosures between Islamic and Conventional banking. The paper shows the level of pressure of Islam on CSR in Islamic banking. C. Ringim 2014 determine the level of perception of a Muslim account holder in a conventional bank toward Islamic banking products and to determine the relationship between the perception levels of Nigerian’s account holder’s and their decision to patronize Islamic banking. Personal perception factor is operationalized as opinion or observations, which are able to influence customer’s decision to patronize Islamic banking products and services. A field survey was conducted and samples drawn using proportionate stratified simple random sampling techniques. Out of the 500 questionnaires distributed by hand, only 304 were returned and 286 were usable for the data analysis using SPSS and PLS Modeling Software. First, the means for personal perception variable was 4.91 with standard deviation of 1.007. This indicates the good perception level of Islamic products by Muslim account holders in a conventional bank in Kano, Nigeria. The respondents’ level of decision to patronize the Islamic banking products and services was satisfactory. Second, the results also showed that the research framework model, structural model and hypothesis were supported. In the measurement model, the convergent, discriminant validity and reliability/composite reliability of the perception construct were assessed favorably. The results revealed that perception was positively associated with a Muslim account holder’s decision to patronize Islamic banking products. The study focuses on the Islamic banking customer’s level of perception, government support, quality and availability of Islamic banking products and services that would have an impact on customer decision to patronize Islamic banking products. D. Janjua and Akmal 2014 studied on Islamic finance and insurance penetration in international markets especially after world economic crisis since 2008. This study attempted to analyze customers’ satisfaction for the services of conventional and Islamic insurance companies in Pakistan. A modified SERVQUAL model was used to measure the service quality in the constructs of reliability, responsiveness, empathy, convenience and Sharīah compliance. For this purpose, primary data of 400 customers, 173 from conventional and 227 from Islamic insurance companies, has estimated through propensity score matching as well as linear, non-linear and non-parametric classification techniques. The results on service quality indicated significant gap between expectation and perception of overall insurance industry. No significant difference of service quality was found between conventional and Islamic insurance companies in the constructs of reliability, responsiveness, convenience and empathy. The findings suggested a significant improvement in the service quality of conventional and Islamic insurance industry. Particularly, the conventional insurance companies should focus on young people, private employees and lower income groups, whereas the Islamic insurance companies need to put more efforts to improve Shariah compliance and to attract self-employed and higher income groups. E. Abbas and Saad (2014) Microfinance is a general term that entails the provision of financial services to micro- entrepreneurs or to those who do not have access to banking facilities. The current issues faced by micro-entrepreneurs are difficulties in seeking financing from financial institutions due to lack of sufficient collateral, no credit history, irregular or uneasily verified sources of income. Consequently, they often rely on relatives or local moneylenders who charge high interest rates. Thus, on grounds of equity and justice, Islamic microfinance seems to provide an alternative needed by them. This research deals with the perceptions of micro- entrepreneurs and petty traders towards conventional and Islamic microfinance in Pakistan. It further investigates the intention to use Islamic microfinance and challenges for the micro- entrepreneurs. A total of 270 people were surveyed by means of self- administered questionnaire. The sample comprises 81.3 percent males and 18.7 percent females in three major cities; Rawalpindi, Lahore and Peshawar. Results of this study indicate that Islamic microfinance is a preferred choice as compared to conventional microfinance and best answer to poverty eradication. Although, Islamic microfinance is a new concept but majority of respondents had some understanding of this concept. However, the respondents also expressed their dissatisfaction to the management of Islamic banks. F. Iqbal et. al. 2015 explored the comparison between conventional microfinance banks & interest free microfinance institutes with special reference to poverty reduction. Primary data was collected from conventional microfinance banks including Khushall Bank Ltd, FINCA Microfinance Bank Ltd & Asha Microfinance Trust and interest free microfinance institute including Akhuwat Trust through a questionnaire comprises on 20 items regarding microfinance and poverty reduction including basic needs, living standard & self- employment. For data collection conveyance sampling techniques was used & sample size was comprising on 200 customers out of 100 customer of conventional microfinance banks and 100 customer of Akhuwat Trust. It was observed that customer of interest free microfinance institutes succeeded to reduce their poverty level by improving their basic needs & living standard as compare to the customer of conventional microfinance banks but product line and overall management and loaning procedure of conventional microfinance banks is better. G. Jose, S., & Chacko 2017 The reason for this paper is to look at whether microfinance exercises gone for the bottom of the pyramid buyers are supportable. The investigation takes after a blended strategy, administrator's perspectives on manageability of the projects were gagged by breaking down their reactions in the territories of preoccupation of assets, working cost, financing costs, and return rate of credits through semi-organized meetings. A review was directed to 316 poor microfinance borrowers at the bottom of the pyramid in India in a cross-sectional field examine basis. The examination utilized one specimen t-test to test the supportability of the microfinance exercises. It is found that all else being the same, microfinance activities gone for the borrower's groups are not economical. The real reason to the absence of sustainable practice is the funds diversion, consequences of the two manager’s meetings and purchaser review gives solid confirmation to help this. In spite of the fact that there are issues identified with high loan fee, working expense and low degree of profitability, it appears that the center issue behind this is absence of full interest in the microfinance representatives. The investigation was constrained to just two states in India. The blended idea of the examination implied that semi-organized meetings with a moderately little specimen were the most suitable technique to address the exploratory research. Future examinations with bigger, more illustrative specimen sizes are urged to research how the discoveries can be summed up to bigger populations. 2.4 Research Gap

Some work is conducted on comparative analysis of conventional and non-conventional microfinance system but these studies have only done a comparative analysis of financial data and do not compare the performance of conventional microfinance and interest free microfinance on customers. When we go through the literature on Indian microfinance system we find a number of studies which have analyzed conventional microfinance customers and some have focused on interest free microfinance customers. Microfinance and its role in poverty alleviation are also a subject of study in some researches. Now there is a need to consolidate, validate and broaden all these contextual and outdated tasks performed in different parts of India (or outside India) for the purpose of arriving at the current state of both the banking systems in India and knowing their role in poverty alleviation. it is also desirable to do a comparative study of interest free microfinance clients and conventional microfinance clients and getting the first-hand knowledge of its impact on the eradication of poverty in the Indian context. This research proposed to study both the banking systems in India and learning from the global experiments arrive at a system or a blending of the two systems which best fits Indian conditions and which is best for the purpose of poverty alleviation, a priority agenda in the country. For this purpose, going first to analyze global microfinance system, then to Indian microfinance system and finally doing the comparative analysis of both to arrive at the best solution for India for poverty alleviation is attempted in this research. The study is to focus the major beneficiaries i.e. the poor Indian for whom the microfinance is to be designed here. Therefore, this study is proposed to be a ‘microfinance customers ‘study. 2.5 Determinants Snapshot The comprehensive review of literature has given some guidance about the determinants to check the performances of conventional and interest free microfinance. These determinants are required for designing the questionnaire. A complete list of determinants with their respective research studies are as under;

S.No. DETERMINANTS AUTHORS BASIC AMENITIES & Ali, J., Kapoor, S., & Moorthy, J. (2010); Aziz, T., & Alam, M. 1 HOUSEHOLD ITEMS S. (2012); Khan, A. A. (2008) Morduch, J., & Haley, B. (2002); Alamgir, D. A. H., Hassan, M. K., & Dewan, H. H. (2010); Aziz, T., & Alam, M. S. (2012); Oxford Policy Management. (2006); Riwajanti, N. I. (2013); 1.1 DRINKING WATER Obaidullah, M. (2008); Ahmed, H. (2004); Yonis, A. M. (2012); Tiwari, P., & Fahad, S. (2004); Chirkos, A. Y. (2014); Morduch, J. (2000) ELECTRICITY Khan, A. A. (2008); Oxford Policy Management. (2006); 1.2 CONNECTIONS/POWER Nadeem, A. (2010); Yonis, A. M. (2012) 1.3 KITCHEN Tiwari, P., & Fahad, S. (2004) Khan, A. A. (2008); Oxford Policy Management. (2006); 1.4 BATHROOM Nadeem, A. (2010); Yonis, A. M. (2012) 1.5 TOILET Nisar, S. (2004); Ali, J., Kapoor, S., & Moorthy, J. (2010) Morduch, J., & Haley, B. (2002); Anam et. al. (2013); PRIMARY Obaidullah, M. (2008); Khan (2008); Augsburg et. al. (2012); 1.6 EDUCATION Ali, J., Kapoor, S., & Moorthy, J. (2010); Nair, A., & Bank, W. (2005) Malhotra, A., & Schuler, S. R. (2005); Morduch, J., & Haley, B. 1.7 COOKING GAS (2002); Mat Rahim, S. R., & Zakaria, R. H. (2013) Rogaly, B. (1996); Nayak, A. K. (2015); Oxford Policy 1.8 TELEVISION Management. (2006); Ali, J. (2013) Seibel, H. D. (2008); Aziz, T., & Alam, M. S. (2012); Ahmed, CYCLE & H. (2004); Masyita, D., & Ahmed, H. (2013); Edbiz Consulting. 1.9 SCOOTER/MOTOR- BIKE (2012); Chintaman, S. A., Com, M., & Ph, D. (2014); Saini, Y., Bick, G., & Abdulla, L. (2011); Nair, A., & Bank, W. (2005) Hassan, S., Abdul Rahman, R., Abu Bakar, N., Mohd, R., & Muhammad, A. D. (2013); Said, P., Shafqat, M., & Rehman, Z. U. (2007); G, N. (2011); Augsburg, B., De Haas, R., Harmgart, 1.10 MOBILE H., & Meghir, C. (2012); Al-Muharrami, S., & Hardy, D. C. (2013); Mosley, P., & Hulme, D. (1998); Personal, M., & Archive, R. (2011) Morduch, J., & Haley, B. (2002); Bogan, V. L., Hermes, N., Lensink, R., Meesters, A., Annim, S. K., Abate, G. T., Abdul Samad, M. (2013); Tiwari, P., & Fahad, S. (2004); Chirkos, A. Y. (2014); M-CRIL. (2012); Obaidullah, M. (2008); Micro-, T. CHILDREN H. E. P. O. F., Towards, T., & Study, A. C. (2012); Aseanty, D., 2 EDUCATION STATUS & Hassan, A. (2013); Abdelkader, I. Ben, & Salem, A. Ben. (2013); Malhotra, A., & Schuler, S. R. (2005); Oxford Policy Management. (2006); Khadijah M, S. A., P Saleh, N. E., & Kamarudin, M. F. (2013); Ahmed, H. (2007); Khan, A. A. (2008); Augsburg, B., De Haas, R., Harmgart, H., & Meghir, C. (2012); Edbiz Consulting. (2012); Evans, T. G., Adams, A. M., Mohammed, R., & Norris, A. H. (1999); Mizanur, M. R. (2010); Ali, J., Kapoor, S., & Moorthy, J. (2010); Hunt-ahmed, K., & Shawamreh, C. (2009); Nair, A., & Bank, W. (2005)

Harper, M. (2002); Amanah Ikhtiar Malaysia. (2012); Tiwari, P., & Fahad, S. (2004); Chirkos, A. Y. (2014); Obaidullah, M. (2008); Micro-, T. H. E. P. O. F., Towards, T., & Study, A. C. (2012); Seibel, H. D. (2008); Ahmad, A., -Rehman, K.-U., & Safwan, N. (2011); Malhotra, A., & Schuler, S. R. (2005); Abdul Rahman, A. R., Rahman, A., & Rahim, A. (2007); Ahmed, H. (2004); Ahmed, H. (2007); Masyita, D., & Ahmed, H. (2013); Khan, A. A. (2008); Augsburg, B., De Haas, R., Harmgart, H., & Meghir, C. (2012); Edbiz Consulting. (2012); EDUCATIONAL 3 Evans, T. G., Adams, A. M., Mohammed, R., & Norris, A. H. DEVELOPMENT (1999); Rahim, A., & Rahman, A. (2007); Morduch, J., & Haley, B. (2002); Khan, J. A., & Nisar, S. (2004); Mosley, P., & Hulme, D. (1998); Chintaman, S. A., Com, M., & Ph, D. (2014); Personal, M., & Archive, R. (2011); Nisar, S. (2004); Mizanur, M. R. (2010); Hanif, M., Tariq, M., Tahir, A., & Momeneen, W. (2012); Ali, J., Kapoor, S., & Moorthy, J. (2010); Basu, P., & Srivastava, P. (2005); Hunt-ahmed, K., & Shawamreh, C. (2009); Nair, A., & Bank, W. (2005); Ahmad, A., -Rehman, K.- U., & Safwan, N. (2011) Sofi, F. J. (2012); Tiwari, P., & Fahad, S. (2004); M-CRIL. (2012); Anam, A., Jamal, N., & Sheikh, M. A. (2013); Obaidullah, M. (2008); Mayoux, L. (2000); Soma Sharma, M., & Anant Deshmukh, D. (2013); Oxford Policy Management. EMPLOYMENT 4 (2006); Alamgir, D. A. H., Hassan, M. K., & Dewan, H. H. GENERATION (2010); Ahmed, H. (2004); Ahmed, H. (2007); Khan, A. A. (2008); Sofi, F. J. (2012); Evans, T. G., Adams, A. M., Mohammed, R., & Norris, A. H. (1999); Morduch, J., & Haley, B. (2002); Personal, M., & Archive, R. (2011) Mayoux, L. (2000); Malhotra, A., & Schuler, S. R. (2005); Soma Sharma, M., & Anant Deshmukh, D. (2013); Harper, M. (2002); Hailey, P. (2009); Amanah Ikhtiar Malaysia. (2012); Chirkos, A. Y. (2014); M-CRIL. (2012). M-CRIL Microfinance Review (2012); Obaidullah, M. (2008); Rogaly, B. (1996); Aseanty, D., & Hassan, A. (2013); Abdelkader, I. Ben, & Salem, A. Ben. (2013); Nayak, A. K. (2015); Devaraja, T. S. (2011); Oxford Policy Management. (2006); Abdul Rahman, A. R., WOMEN 5 Rahman, A., & Rahim, A. (2007); Das, P. K. (2014); Aziz, T., & EMPOWERMENT Alam, M. S. (2012); Alamgir, D. A. H., Hassan, M. K., & Dewan, H. H. (2010); Khadijah M, S. A., P Saleh, N. E., & Kamarudin, M. F. (2013); Ahmed, H. (2004); Ahmed, H. (2007); Masyita, D., & Ahmed, H. (2013); Khan, A. A. (2008); Evans et. al. (1999); Rahim, A., & Rahman, A. (2007); Morduch, J., & Haley, B. (2002); Banihani, S. (2012); Personal, M., & Archive, R. (2011); Mizanur, M. R. (2010); Mohammad A. Asharaf. (2010); Basu, P., & Srivastava, P. (2005) Nisar, S. (2004); Bogan, V. L., Hermes, N., Lensink, R., Meesters, A., Annim, S. K., Abate, G. T., Abdul Samad, M. (2013); Allen, & Llp, O. (2009); Johnes, J., Izzeldin, M., & Pappas, V. (2014); Mohd Azmi, O. (2012); Singh, J., & Yadav, P. (2013); Hassan, S., Abdul Rahman, R., Abu Bakar, N., Mohd, R., & Muhammad, A. D. (2013); Harper, M. (2002); Hailey, P. (2009); Riwajanti, N. I. (2013); Sofi, F. J. (2012); Tiwari, P., & Fahad, S. (2004); Chirkos, A. Y. (2014); M-CRIL. (2012); Anam, A., Jamal, N., & Sheikh, M. A. (2013); Obaidullah, M. (2008); Micro-, T. H. E. P. O. F., Towards, T., & Study, A. C. (2012); Rogaly, B. (1996); Abdelkader, I. Ben, & Salem, A. COMMUNITY 6 Ben. (2013); Nayak, A. K. (2015); Laila, T. (2010); Mayoux, L. DEVELOPMENT (2000); Seibel, H. D. (2008); Devaraja, T. S. (2011); Malhotra, A., & Schuler, S. R. (2005); Oxford Policy Management. (2006); Sabi, M., & Colleges, T. S. (2014); Parveen, J. A. (2008); Aziz, T., & Alam, M. S. (2012); Report, M. A. S. (2007); Khadijah M, S. A., P Saleh, N. E., & Kamarudin, M. F. (2013); Ahmed, H. (2004); Masyita, D., & Ahmed, H. (2013); Khan, A. A. (2008); Sofi, F. J. (2012); G, N. (2011); Akhter, W., Akhtar, N., & Jaffri, S. K. A. (2009); Edbiz Consulting. (2012); Sole, J. (2007); Morduch, J., & Haley, B. (2002); Development, I., & Organisation, L. A. W. (2009); Al-Muharrami, S., & Hardy, D. C. (2013); Khan, J. A., & Nisar, S. (2004); Johnson, K. (2013); Ali, J. (2013); Banihani, S. (2012); Chintaman, S. A., Com, M., & Ph, D. (2014); Personal, M., & Archive, R. (2011); Hanif, M., Tariq, M., Tahir, A., & Momeneen, W. (2012); Seminar, N. (2009); Segrado, C. (2005); Moin, M. S. (2008); Yumna, A., & Clarke, M. (2009); Mohammad A. Asharaf. (2010); Kakakhel, S. J., Raheem, F., & Tariq, M. (2011); Nisar, S., & Aziz, M. (2004); Economic, T. H. E., Of, N., & Islamic, E. (2012); Hunt-ahmed, K., & Shawamreh, C. (2009); Nair, A., & Bank, W. (2005); Loan, A., Financing, G., & Financing, A. (2012); Allen, & Llp, O. (2009);

Mizanur, M. R. (2010); Allen, & Llp, O. (2009); Johnes, J., Izzeldin, M., & Pappas, V. (2014); Planning Commission. (2013); Riwajanti, N. I. (2013); Chirkos, A. Y. (2014); M-CRIL. (2012); Obaidullah, M. (2008); Aseanty, D., & Hassan, A. (2013); Laila, T. (2010); Mayoux, L. (2000); Seibel, H. D. (2008); Planning, C. (2010); Malhotra, A., & Schuler, S. R. (2005); Soma Sharma, M., & Anant Deshmukh, D. (2013); Oxford Policy Management. (2006); Alamgir, D. A. H., Hassan, M. K., & Dewan, H. H. (2010); Bader, M. K. I., Mohamad, S., 7 EXPENDITURES Ariff, M. and Hassan, T. (2008); Ahmed, H. (2004); Augsburg, B., De Haas, R., Harmgart, H., & Meghir, C. (2012); Edbiz Consulting. (2012); Evans, T. G., Adams, A. M., Mohammed, R., & Norris, A. H. (1999); Morduch, J., & Haley, B. (2002); Ali, J. (2013); Chintaman, S. A., Com, M., & Ph, D. (2014); Personal, M., & Archive, R. (2011); Nisar, S. (2004); Seminar, N. (2009); Mohammad A. Asharaf. (2010); Nisar, S., & Aziz, M. (2004); Ali, J., Kapoor, S., & Moorthy, J. (2010); Economic, T. H. E., Of, N., & Islamic, E. (2012); Basu, P., & Srivastava, P. (2005); Nair, A., & Bank, W. (2005); Allen, & Llp, O. (2009) Mayoux, L. (2000); Alamgir, D. A. H., Hassan, M. K., & Dewan, H. H. (2010); Augsburg, B., De Haas, R., Harmgart, H., & Meghir, C. (2012); Evans, T. G., Adams, A. M., Mohammed, 7.1 FOOD R., & Norris, A. H. (1999); Morduch, J., & Haley, B. (2002); Mizanur, M. R. (2010); Mohammad A. Asharaf. (2010); Ali, J., Kapoor, S., & Moorthy, J. (2010) 7.2 EDUCATION Morduch, J., & Haley, B. (2002); Edbiz Consulting. (2012) Riwajanti, N. I. (2013); Edbiz Consulting. (2012); Riwajanti, N. 7.3 HEALTH I. (2013); Aseanty, D., & Hassan, A. (2013); Masyita, D., & Ahmed, H. (2013) Saini, Y., Bick, G., & Abdulla, L. (2011); Ali, J., Kapoor, S., & 7.4 ENTERTAINMENT Moorthy, J. (2010); Wright, G. A. N., Kasente, D., Ssemogerere, G., & Mutesasira, L. (2001) 7.5 SOCIAL CUSTOM Ahmed, H. (2004); Segrado, C. (2005) Morduch, J. (2000); Wright, G. A. N., Kasente, D., Ssemogerere, G., & Mutesasira, L. (2001); Alamgir, D. A. H., Hassan, M. K., & Dewan, H. H. (2010); Ahmed, H. (2007); 7.6 TRANSPORTATION Annim, S. K. (2010); Morduch, J., & Haley, B. (2002); Mizanur, M. R. (2010); Saini, Y., Bick, G., & Abdulla, L. (2011); Arun, T., Imai, K., & Sinha, F. (2006); Schreiner, M., & Woller, G. (2003); Annim, S. K. (2010) Khan, J. A., & Nisar, S. (2004); Basu, P., & Srivastava, P. (2005); Riwajanti, N. I. (2013); M-CRIL. (2012); Obaidullah, M. (2008); Schreiner, M., & Woller, G. (2003); Laila, T. (2010); Ahmed, H. (2004); Aziz, T., & Alam, M. S. (2012); Vogelgesang, U. (2003); Masyita, D., & Ahmed, H. (2013); Khan, A. A. (2008); Wright, G. A. N., Kasente, D., 8 DEBT REPAYMENT Ssemogerere, G., & Mutesasira, L. (2001); Sole, J. (2007); Rahim, A., & Rahman, A. (2007); Evans, T. G., Adams, A. M., Mohammed, R., & Norris, A. H. (1999); Edbiz Consulting. (2012); Abdul Rahman, A. R., Rahman, A., & Rahim, A. (2007); Augsburg, B., De Haas, R., Harmgart, H., & Meghir, C. (2012); Personal, M., & Archive, R. (2011) Beck, T., Demirg-Kunt, A., & Merrouche, O. (2013); Imai, K.S., & Azam S. (2010); Nadeem, A. (2010); Annim, S. K. (2010); BUSINESS Devaraja, T. S. (2011); Khan, A. A. (2008); Rahim, A., & 9 INVESTMENT Rahman, A. (2007); Augsburg, B., De Haas, R., Harmgart, H., & Meghir, C. (2012); Beck, T., Demirg-Kunt, A., & Merrouche, O. (2013) Chirkos, A. Y. (2014); Abdelkader, I. Ben, & Salem, A. Ben. (2013); Seminar, N. (2009); Finance, I. (1998); Chirkos, A. Y. 10 SAVINGS (2014); Oxford Policy Management. (2006); Wright, G. A. N., Kasente, D., Ssemogerere, G., & Mutesasira, L. (2001); Mizanur, M. R. (2010) Mohammad A. Asharaf. (2010); Harper, M. (2002); Tiwari, P., & Fahad, S. (2004); Alamgir, D. A. H., Hassan, M. K., & ECONOMIC Dewan, H. H. (2010); Nayak, A. K. (2015); Alkassim, F. a. 11 INDICATORS (2005); Moin, M. S. (2008); Park, A. (2001); Personal, M., & Archive, R. (2011); Rahman, M., Luo, J., Hafeez, A., & Sun, T. (2015); Bogan, V. L., Hermes, N., Lensink, R., Meesters, A., Annim, S. K., Abate, G. T., Abdul Samad, M. (2013) Yonis, A. M. (2012); Mohammad A. Asharaf. (2010); Tankha, A. (2012); Wright, G. A. N., Kasente, D., Ssemogerere, G., & Mutesasira, L. (2001); Oxford Policy Management. (2006); Morduch, J., & Haley, B. (2002); Hunt-ahmed, K., & Shawamreh, C. (2009); Yonis, A. M. (2012); Schreiner, M., & Woller, G. (2003); Mohammad A. Asharaf. (2010); Chirkos, A. NON-FOOD ITEMS - 12 Y. (2014); Edbiz Consulting. (2012); Wright, G. A. N., Kasente, CONSUMPTION D., Ssemogerere, G., & Mutesasira, L. (2001); Soma Sharma, M., & Anant Deshmukh, D. (2013); Khan, A. A. (2008); Park, A. (2001); Augsburg, B., De Haas, R., Harmgart, H., & Meghir, C. (2012); Chakrabarty, A. (2015); Alamgir, D. A. H., Hassan, M. K., & Dewan, H. H. (2010); Aseanty, D., & Hassan, A. (2013); Chirkos, A. Y. (2014); Mayoux, L. (2000);

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3. RESEARCH METHODOLOGY

For obtaining appropriate results and actionable recommendations, a well-defined and structured methodology, strict execution and accurate analysis and interpretation are needed for achieving the research objectives. Thus, an objective, systematic and scientific design of research should be evolved before rushing for the data collection and analysis. With an appropriate methodology the results obtained can be trusted and acted upon for meaningful application on live situations.

The research design refers to the overall strategy selected to organize and integrate all the different components of the study in a rational and logical way; thereby, ensuring the research problem explication, data sources identification, research design formulation, data collection plan, data measurement and analysis of data. In a nutshell, “A research methodology is the arrangement of conditions for collection and analysis of data in a manner that aims to combine relevance to the research purpose with economy in procedure" (De Vaus, 2001). As such the design includes a framework of what the researcher has done from writing the hypothesis and its operational implications to the final analysis of data. The design or the structure of the study happens to be in respect of what, where, when, how much, by what means etc. Preparing a design or a blueprint of the whole research is a pre requisite of every research.

3.1 Research Approach

This research is although measuring the factors quantitatively but may be termed as a qualitative research because it assesses the qualitative phenomena in banking and microfinance sector and its services.

The broad objective of this research is to evaluate the different forms of microfinance offered on different terms and conditions by different kinds of financial institutions and their possible impact on the beneficiaries in terms of poverty eradication and national development objectives. It is basically a consumer research by doing in depth investigations of the microfinance users. It is very easier to measure the quantum of services and the beneficiaries in the area of microfinance in the country but the qualitative phenomena like impact on social and economic conditions covered in this research requires a lot of ingenuity and creativity and the use of applied research techniques. These parameters can be measured by applied inferential statistics put in use on the collected data on consumer attitude and preferences.

The field survey is required to cover the qualitative parameters where a sample of population is probed on those things and then the inferential statistics draws the meanings from the database. The benefit of qualitative approach is that in consumer surveys it makes the researcher interact with respondents face to face and their cooperation helps the researcher to build up a good database. Face to face contact empowers the researcher to use his intelligence to derive important information from them and analyse the data in the light of his/her experience. Qualitative approach requires considerable time and effort in field investigations, sampling, design of questionnaire, questionnaire management and data analysis.

This research uses in addition to secondary data sources, the primary data through consumer survey, for the qualitative assessment. The field survey is structured by and uses personal interview method in data collection. The research is also recording and analysing the individual characteristics, demographics, attitudes, opinions and behaviour. This research is also averaging and doing comparative analysis between the cross-sections of the society and especially between the two groups i.e. conventional and interest free microfinance customers.

3.2 Nature of Research

As mentioned, the research is covering quantitative as well as qualitative aspects both; the nature of this research is of hybrid type. It has certain set parameters on which assessment, evaluation and a comparison are to be made and at the same time socio-economic status of the microfinance users is also to be judged. In addition, means and ways are to be explored to enhance the impact of microfinance for poverty alleviation and achievement of developmental objectives of the country. Therefore, the nature of this study is characterized by the following two features:

1. Exploratory Research.

2. Descriptive research

3.2.1 Exploratory Research

For successful use of microfinance in Indian condition to meet the national objectives the means and ways are to be explored. Experiments have been done around the world in this matter in varying contexts. No readymade conclusions and solutions are available in literature for its application in a country like India. Therefore, the approach of the study is exploratory as it is mainly attempting to build hypotheses and not doing their testing. Exploratory research lays the foundation for the future studies and it is efficient in the sense that it has flexibility and adaptability to adjust with change. An exploratory study saves time and other resources by defining the route of future researches in advance (Hani, 2011). This kind of research is useful for investigating the new emerging areas where the experiments have not very thoroughly been done and problem itself needs to be identified. Such researches are also usually reasonably wide with many unknown variables. This approach was used here because the status of microfinance in India is still in transition and the emerging trends are not guiding to a clear path and especially the interest free microfinance is still in infancy stage in India. Neither are the customers of interest free microfinance system well defined in India, nor do we get enough examples of their impact in this area. Because of this exploratory nature, the coverage of the study has been kept wide enough to cover all possible influencers on the phenomena.

3.2.2 Descriptive Research

The main objective of this research is the description of the state of microfinance beneficiaries as it exists. By this angle the research has been put into the category of descriptive research as well. Its purpose is to obtain information on customer’s attitudes and their level of satisfaction towards the available services. The sources of data in this research are secondary as well as primary. The survey method provides all the required data on beneficiaries for comparative and correlation analysis purposes. Being a descriptive research, it attempts to investigate the complex human behaviour and also attempts to discover causes even when they cannot control the variables (Kothari, C. R. 2009). The research advancement has brought out the refined and organized techniques for studying social phenomena, in a reasonably accurate manner. We cannot accurately predict individual human beings, but collectively we can predict the human behaviour with a reasonable accuracy. Descriptive research is now capable of doing considerably accurate predictions. The primary objective of government and welfare agencies is to offer a better quality of life, and ensure better amenities to the peoples to match the requirements of the society. The present study attempts to measure the achievement of those objectives through microfinance services. Moreover, in this research the comparative study of current state of beneficiaries of interest free and conventional microfinance systems explains that it is descriptive in nature.

3.3 Scope of research The secondary data of microfinance was taken from India as well as from abroad. The experiments as done in different countries have been analysed and cited in the research. The primary data was collected through the survey of microfinance users was however confined to local region (Western Uttar Pradesh) of India. To cover the whole country of India in its full width and length, in primary data, was not possible in the study due to time and cost constraints. This consumer study has therefore covered two types of users viz. those who borrowed loan from interest based financial institutions and those who borrowed loan from interest free financial institutions. For this purpose, the data was taken from the major areas of 20 districts in 5 states namely UP, Bihar, Maharashtra, Karnataka and Kerala in India. However, the findings were judged and selectively generalised for other parts of the country as well.

3.4 Specific Objectives

3.5 Research Design:

The conventional and interest free micro-finance are explained in the first phase of study. Thereafter, the supportive diagnostic test will be conducted for understanding the comparative advantage of the conventional or interest free micro-finance. The supportive data will be collected through primary as well as secondary sources. After finding the advantageous micro-finance service providers among both of the mention above the study will further evaluate one of the government welfare scheme with conventional or interest free micro-finance whichever is leading the edge.

3.6 Information Sources

Primary and secondary source of information were used in this study. Information was pooled from different government and non-government agencies within and outside India. Primary data collected through survey of microfinance users was also used. The information drawn from various sources was then analysed quantitatively and qualitatively.

3.6.1 Secondary Data

Although the result of the research drawn by consumer study is highly dependent on the primary sources that we have gathered from the structured interview, but the major learning of the whole scenario and a review of historical developments and country wide experiments and models were obtained only by secondary sources. Government and private agencies, banks, financial institutions and non-government Indian and international agencies, research and educational institutions and the libraries and digital depositories provided enough material to understand the concepts, definitions, theories and empirical results. Several books, research reports, articles, journals, theses, government and banking sector published material (in printed and digital form) were consulted as secondary sources for our study. Internet was a main tool of locating and drawing the information from all the above sources.

3.6.2 Primary sources

A microfinance users’ (from both the systems of banking) survey was conducted through a structured non-disguised questionnaire administered by interviewing the respondents in the areas of 20 districts in 5 states namely UP, Bihar, Maharashtra, Karnataka and Kerala in India. Another survey was conducted for ‘Haryana’ state to study poverty alleviation through women empowerment using government welfare program as benchmark to understand the capacity of the program. The sample for this study was rural population in District Mewat (Haryana). Further, we had collected sample data from population which was not associated or connected with any of the microfinance organization or lending agency. Both studies were conducted with separate questionnaire. The structured questionnaire was thoroughly cross- checked, edited, processed and analysed using appropriate statistical tools of direct analysis, cross analysis with frequency tables, mean, standard deviation and independent t test to estimate, conclude and interpret the results.

3.7 Survey Design

The primary data was drawn from a survey of microfinance users in the areas of 20 districts in 5 states namely UP, Bihar, Maharashtra, Karnataka and Kerala in India. This study aimed at a cross sectional analysis to identify the sections in which the use of conventional or interest free microfinance works, and also the sections in which the contribution of both the systems exists to explore the optimum combinations. Using stratified convenience sampling method, 2000 respondents were selected, 1000 from each microfinance system and the data were collected through a structured questionnaire by interviewing the selected participants. The next survey was drawn from a survey of NREGA beneficiaries in the 15 gram panchayat of 3 villages in Mewat district of Haryana (India). The cross sectional analysis was used to understand the problems, satisfaction level and impact of the government scheme. The stratified convenience sampling method was used to extract the responses of 450 households from the sample districts. A structured questionnaire was administered through the interviews with the respondents to collect the data.

3.7.1 Cross-Sectional Analysis

The approach used in this research is cross-sectional which has three distinct characteristics: no time constraints, concentrates only on existing differences rather than change and groups are selected based on existing differences rather than random distribution. The cross-sectional design is used to examine the differences between variety of people, subjects, or phenomena rather than a process of change. In other words, cross-sectional designs focus on studying and drawing inferences from existing differences among people, subjects, or phenomena. Keeping in view the elaborate survey essentials, the overall survey process included the following stages:

i. Pilot Survey ii. Sample Size Determination iii. Sample Selection iv. Questionnaire Design v. Field Work vi. Analysis and Testing

A pre-testing of questionnaire in the natural environment necessitated pilot survey which was done on a few locally available respondents. The questionnaire and the sample size were then only finalized.

3.7.2 Sample Selection

It was not relevant to take a simple random sample from the total populations because the study is based on comparative analysis of two independent groups viz. conventional microfinance customers or SHGs who borrowed loan from commercial banks, cooperative banks, RRBs and interest free microfinance customers who borrowed loan from Muslim Funds, Interest free agencies, cooperative societies, welfare trust and NBFCs. Stratification in sampling was therefore essential. For this purpose, a Stratified Convenience sampling was used for study. A sample of 2000 was drawn such that 1000 respondents were selected conveniently from both the segments (conventional microfinance users and interest free microfinance users) there are five states are selected and in each states four districts are covered for data collection.

3.7.3 Data Collection

TABLE 1: STATES WISE MICROFINANCE ORGANISATIONS States Districts Interest Free Organizations Conventional Organizations Aligarh Al-Najib Milli Mutual Ben. Ltd Sonata Finance Pvt Ltd Bulandshahar Anjuman Khadimul Muslim Sarva Up Gramin Bank Bijnour Muslim Fund, Najibabad Savera Microfinance Faizabad Millat Welfare Society Utkarsh Micro Finance Pvt. Ltd Uttar Pradesh Pune Janseva Co. Credit Soc. Ltd. SKS Microfinance Ltd. Mumbai Bait-ul-Maal Co. Credit Soc. Ltd. Svasti Microfinance Private Mahim Barkat Leasing and Fin. Ser. Ltd. Hindusthan Microfinance Pvt. Ltd.

Maharashtra Jogeshwari Sahulat Microfinance Society Maharashtra Gramin Bank Patna Sahulat Microfinance Society Bharat Financial Inclusion Ltd Ara Al-Khair Co. Credit Society Ltd. Navjeevan Microfinance Ltd

Bihar Sasaram Al-Khair Co. Credit Society Ltd. Bihar Gramin Bank Gaya. Janseva Co. Credit Society Ltd. Saija Finance Private Limited Kozhikode. Alternative Inv. & Credits Ltd Esaf Microfinance & Investments Malappuram Palisha Rahitha Nidhi Malappuram Dist. Co. Bank Ltd Ernakulum Cheraman Fin. Services Ltd. Muthoot Fincorp Ltd. Kerala Thrissur Palisha Rahitha Nidhi ESAF Small Finance Bank Bangalore. Al-Ameen Co-op. Credit Society Spandana Sphoorty Financial Ltd. Mysore Janseva Co. Credit Society Ltd. Sanghamithra Rural Fin. Services Bhatkal Al-Taqwa Finance Pvt. Ltd. Karnataka Vikas Grameena Bank

Karnataka Hassan Safa Baitul Maal Grameen Financial Ser. Pvt. Ltd 3.7.4 Hypotheses formulation

The study examined the overall scenario of microfinance organizations and its services in India. Thereafter, the research problem was restated in a way that an analytical treatment may be given to the study. The general topic and subject of study was reframed into specific research problems with its parameters and variables well defined. The researcher could do it with the help of literature survey as elaborated in the previous chapter. On the basis of the research gap identified from the literature survey the working hypotheses were formulated. In other words, tentative assumptions were made in order to test them through logical or empirical evidences. For the primary data analysis (as to figure in Chapter 6) the following hypotheses were formulated for testing in research:

Ho1: there is no significant difference between interest free micro finance and conventional micro finance in the process of taking loan further divided into three factors i.e.

a) It is difficult to get micro finance,

b) Procedure is complicated, and

c) Delay in reciting of loan

Ho2: there is no significant difference between interest free micro finance and conventional micro finance economic aspects related to

a) amount of loan,

b) interest or processing fees,

c) easy to repay loan and

d) customers’ need fulfilment.

Ho3: there is no significant difference between interest free micro finance and conventional micro finance in social impact related to

a) education,

b) poverty reduction,

c) employment generation,

d) women empowerment and

e) community development.

3.7.5 Data Analysis Data were organized and entered into SPSS version 22.0 to apply specific statistical tools to test the hypotheses of the study. About 2000 Micro finance users were asked self- administrated close ended questions to report their sensitivity about the agreement or disagreement regarding the respective factors i.e. income, investment, saving, women participation, children education, growth & diversification in business, consumption pattern on foods and non-foods items. The study investigated the level of satisfaction among micro finance customers by the application of descriptive statistics or simply by comparing means. The cross analysis frequency tables were used for measuring respondents’ profile microfinance type-wise. However, mean, standard deviation, sample t-test, independence sample t-test, and other tests of independence/ significance were applied to compare the two independent groups i.e. conventional microfinance users and interest free microfinance users. It assumed that the variables in the analysis are split into independent and dependent variables. The model assumes that a difference in the mean score of the dependent variable is found because of the influence of the independent variable. Thus, the independent sample t- test is an analysis of dependence. It is one of the most widely used statistical tests, and is sometimes mistakenly called the independent variable t-test. The independent samples t-test is also called unpaired t-test. It is the t-test used when two separate independent and identically distributed variables are measured. (Morgan and George, et al. 2004)

3.8 Limitations of the Study

Being a comparative study for two different groups of customers who borrowed loan from different type of agencies sample survey was inevitable to reach to any conclusion. Secondly data were although collected from across the countries of the world and from different states of the country but the data on desired parameters was available only of the selected districts. Travelling, approaching and convincing the banks and other interest free institutions for sharing their financial data could not be possible for an individual researcher due to limited funds, time, energy and efforts. This study, for many covered parameters, is restricted to a few selected agencies especially of interest free microfinance sector which are not supported by Government of India.

References Adams, K. A., & Lawrence, E. K. (2014). Research methods, statistics, and applications. Sage Publications. De Vaus, D. A., & de Vaus, D. (2001). Research design in social research. Sage Publications Hani, U. (2011). Management of indigenous traditional knowledge in agriculture shodhganga. Khan, M. A., & Rahaman, M. A. (2007). Impact of microfinance on living standards, empowerment and poverty alleviation of poor people: a case study on microfinance in the Chittagong District of Bangladesh. Kothari, C. R. (2009). Research methodology. Methods and Techniques. Labaree, Robert V. (2009) "Research Guides: Organizing Your Social Sciences Research Paper: Types of Research Designs. Lewis-Beck, M., Bryman, A. E., & Liao, T. F. (2003). The Sage encyclopedia of social science research methods. Sage Publications. Morgan, G. A., Leech, N. L., Gloeckner, G. W., & Barrett, K. C. (2004). SPSS for introductory statistics: Use and interpretation. Psychology Press. O'Dwyer, L. M., & Bernauer, J. A. (2013). Quantitative research for the qualitative researcher. Sage Publications. Trochim, W. M. (2006). Qualitative validity. Research methods knowledge base, 1-3. Vogt, W. P., Gardner, D. C., & Haeffele, L. M. (2012). When to use what research design. Guilford Press. CHAPTER 4

CONVENTIONAL AND INTEREST FREE MICROFINANCE SYSTEM

I. CONVENTIONAL MICROFINANCE

4.1 Conventional Microfinance – An Introduction

The history of micro-financing can be outlined back as long to the middle of the 1800s when the philosopher Lysander Spooner was writing over the benefits from micro credits to small business enterprises and farmers as a way getting the people out of poverty. But it was at the end of World War II with the Marshall plan the concept micro credit. However, the originally microfinance was initiated by great economist Dr Mohammad Yunus, a Nobel Peace Prize winner in 2006. He started micro credit experimenting with lending to poor women in the village of Jobra, Bangladesh, during his tenure as a professor of economics at Chittagong University in the 1970s. This experiment was very successful in Bangladesh. Although, United Nation was celebrated 2005 year of Micro-credit. However, Grameen Banks, NGOs and other financial micro credit groups around the world have shown that these micro-enterprise loans can be profitable for borrowers and for the lenders, making microfinance one of the most effective poverty alleviation strategies. (Singh. n.d)

4.2 Present Status of Microfinance in India

Microfinance in India has grown up at a marvelous pace in recent years, achieving substantial outreach amongst the poor as well as low-income households across the country. Banks -linkages with Self-Help Groups (SHGs) maintained by the National Bank for Agriculture and Rural Development (NABARD). Recently Microfinance agencies have emerged as the two most prominent means of delivering microcredit services in India. However, over the last decades’ Indian microfinance system shows a successful experience in providing micro credit to small entrepreneur, agricultural producers and the poor people, they given good response to repay their loans and use the proceeds to increase their income and assets. This is not shocking since the only alternative for them is to borrow micro credit from MFIs because informal agencies interest rates much higher than market rates. India is home to a growing and innovative sector of microfinance. With a larger poor population in the world, India is likely to have a huge prospective demand for microfinance. For this reason, it keeps as a priority area of Indian financial sector and makes a sense to consider the changing face of microfinance in India, in order to shed light on comparable changes in the field all over the world. To be successful, these financial intermediaries (NGOs) MFIs that can provide micro credit services and generate households’ resources must have the capacity to meet high performance standards. They should be strong repayments capacity and provide easy access to microfinance clients. Moreover, they should also build team building capacity, financial sustainability, self-sufficiency and expanding financial reach. In order to do so, MFIs required finding ways to reduce their administrative costs and also to widen their resource base. Cost reductions can be achieved through simplified and easy loan process and collection system, for instance, through group loans which give borrowers responsibilities for much of the loan application process, allow the loan officers to handle more clients and hence reduce costs (Otero et al, 1994).

4.3 Different Models of Indian Microfinance system

According to the annual report of NABARD on microfinance, there are basically two models of microfinance which are involved for bank and credit linkage i.e. SHG - Bank Linkage Model and MFI - Bank Linkage Model. And SHG - Bank Linkage Models also have some sub models such as SGSY Model and Joint Liability Group (JLG) model which are as follows.

A. SHG - Bank Linkage Model: This model involves the SHGs financed directly by the banking agencies viz. Commercial Banks or commercial bank granting loan to Gramin Banks, Regional Rural Banks (RRBs) and Co-operative Banks. In this model, three bodies are involved viz; Bank, SHGs and SHGs members. On the one hand, the saving of the members goes to SHGs which, in turn, credit their savings to them at rates decided by members. On the other hand, these savings are deposited in banks in the name of group where bank credit at the rates decided by the bank.

Figure 4.1 : SHG - Bank Linkage Model B. SHG-NGO Model: In this model, NGOs (Non-government Organizations) create links between SHGs members and banks. In other words, according this model NGO is not the financial intermediary. The NGO’s role is only in group evolution and stabilization, Members saving’s to group and in return, group also lends to the members. At the same time, SHG saving are deposited in bank and bank lends to the group. These all activities are supported and linked by NGO. They actually provide their services to both, bank as well as SHG. Thus, NGOs plays the role of promoter and supporter for the bank and group.

Figure 4.2: SHG-NGO Model

C. MFI - Bank Linkage Model: In this model there is a linkage between Banks and SHGs through Micro Finance Institutions (MFIs) or MFI-NBFSs. SHGs Member saves in a group and these saving are deposited in Banks directly but banks, in return, credit the SHGs indirectly. The Banks provide credit to MFIs and these MFIs lend directly to the SHGs members. Thus, MFIs are playing significant role of creditor and facilitator. Example -Bank of Baroda -SEWA

Figure 4.3: MFI-Bank Linkage Model D. SGSY (Swarnjayanti Gram Swarozgar Yojana) Model: The most important feature of this model is the addition of monitoring authority that is District Rural Development Authority (DRDA). It monitors for all the five agencies i.e., Members, Group, Bank, Department and NGO. Processing of the model is like this, member’s saves and submitted their savings in the name of a Group. Then group deposits this amount of saving to banks where banks, in turn, lends to the group directly. Here NGO and concerned department associated with SHG, Bank and DRDA and Members, DRDA and Banks respectively with their promotional and support services.

Figure 4.4 : SGSY Model E. Joint Liability Group

Joint Liability Group (JLG) is refer to an informal group consist of mostly 4 to 10 persons joint together for the purposes of borrowing bank loan either individually or through the group system against mutual guarantee. The JLG members would offer a joint responsibility or guarantee to the bank that enables them to avail loans. The JLG members are expected to engage in similar type of economic activities like crop production petty rural business. The management of the JLG is to be kept simple with little or no financial administration within the group. JLGs can be formed primarily consisting of small farmers and marginal farmers cultivating land without possessing proper title of their land.

4.4 SHGs Formation Process

A. Village Selection: The branch manager does a village inspection and thereafter selects certain villages where there is a scope for promotion of formation of SHGs.

B. Self-Help Group formation (SHG) is a registered or unregistered group mostly women group of 5 to 15 persons having similar social and economic conditions willingly coming together to save regular small sums of money, mutually agreeing to contribute to a common fund and to meet their emergency needs on the basis of mutual help. The SHGs members use collective co-ordination and peer pressure to ensure proper end-use of credit and timely repayment. This system eliminates the need for collateral and is closely related to that of solidarity lending, widely used by microfinance institutions. To make the book-keeping easy to be handled by the members, flat interest rates are used for most loan calculations. The formations of SHGs are as follows.

B 1. Group Formation and Training: After a number of meetings, one or more groups were formed. Each MFI has its own norm for the number of members in a group. A number of MFIs have a minimum of 5 members per group are usually has two leaders. On forming a group, the field worker commences training of the group members and the group leaders. On completion of the training, a Group Recognition Test (GRT) is held. As part of the GRT there are visits to the residences of the members. The field worker’s supervisor may also be involved in the GRT. The members are tested on MFI principles taught during the training.

B 2. Procedure or Documentation and Disbursement of loan

After taking of GRT (Group Recognition Test), the field worker at the next group meeting brings the prepared documents and members sign them. The cost of stamp paper, revenue stamp, photograph, copies of documents if applicable is shared by group members. At the next meeting disbursement of the loan takes place. In some MFIs, all members receive the loan amount simultaneously after documentation. However, some members receive loan at first week and some members after one or two weeks.

B 3. Monitoring and repayment of loans

The field worker after disbursement makes loan utilization checks by applying MFI RBI norms. The loans are usually for a period of 50 to 55 weeks with weekly collections. However, the groups meet every week.

B 4. Schedule of field workers

Mostly SHGs meetings are held in the early morning hours. Every field workers knows the schedule time of group meetings to attend in the mornings. There after field worker goes to the office to complete the administrative tasks. Then the evenings are kept for field survey, either to form new groups or to provide training to newly formed groups.

4.5 Legal Structure of Microfinance system

The Reserve Bank of India has come out with regulation regulating the NBFC-MFIs (Malegam Committee Report, 2011). The microfinance institutions bill 2012 on development and regulations have given guidelines for regulation of the sector. RBI has induced with power to fix the maximum limit for facilitating credit to borrowers. This has provided the necessary legitimacy and impetus to the sector (Sa‐Dhan, 2014). The MFIs follow the regulation which takes care of client protection issues reported prior to the regulation (Nachiket Mor Committee, 2014). Moreover, Self-Regulatory Organizations (SROs) are also in place to strengthen the regulatory framework for the sector. Currently the Micro Finance Institutions (Regulation of Money Lending) Bill, 2016 is in the parliament.

The main forms of legal structure of Micro Finance Institutions (MFIs) are used in India are as follows (i) Non-Governmental Organizations (NGOs), (ii) Non-Bank Financial Companies (NBFCs), (iii) Local Area Banks (LABs), (iv) Cooperative Societies under the Cooperative Society Act, and (v) Public Societies/Trusts. These agencies are playing a vital role of financial intermediaries in the microfinance sector. They act as an important channel for extending financial services to the micro finance sector in the country by raising funds from Banks and other institutions and distributing loans to SHG members. The legal requirement of microfinance agencies are as follows (Sa-Dhan.2016).

I. MFIs registered under Societies Registration Act, 1860 and/or Indian Trust Act, 1880. They are not for profit entities with an objective of inclusive growth and development and had been 95 NGOs for providing loan to SHGs even before the SHGs Bank linkage program was conceived. II. MFIs registered under State Cooperative Societies Act or Mutually Aided Cooperative Societies Act (MACS) or Multi-State Cooperative Societies Act, 2002. III. NBFC MFIs incorporated under Section 25 of Companies Act, 1956. These NBFCs are functioning “not for profit”, but on rigorous business principles by complementing the efforts of the Banking system to extend the outreach of micro finance and help in financial reach ability. IV. NBFC MFIs registered under Companies Act, 1956 and incorporated with RBI. These MFIs are like the other companies registered under the Companies Act 1956, these NBFCs work purely working on business motive and concentrating on return on investment.

4.6 MFIs and Socio-Cultural Analysis

4.6.1 Social Responsibility of MFIs

Social Responsibility of MFIs is based on four major dimensions of social performance are as follows (A)Proper financial reach ability (B) Suitability of microfinance products by target customers (C) Degree of Transparency (D) Poverty Alleviation approach

A. Proper financial reach ability: Microfinance institutions have usually been developed to reach a unbanked population or the population excluded from the micro credit financial system. MFIs can have the major goal for providing micro credit effectively and timely to the needy and socially excluded population or to simply to allocate financial services in a region where conventional banking systems are not present. The penetration of inclusion of the MFI can be analyzed that its focus on the financial inclusion.

B. Suitability of microfinance products by target customers: It is not sufficient only to reach a target microfinance client. The microfinance agencies must know what is about the target population and work on the designing its financial services to satisfy the needs and wants of the customers. “Pro-poor” services are too often standardized. Social performance indicators could analyze the process of leading to microfinance service and the level to which the MFI knows about its clients’ needs.

C. Degree of Transparency: MFI require degree of transparency or trust between the MFI and the customers that can reduce the transaction costs and improve repayment rates. However, degree of transparency can also create cooperation and coordination between Banks and MFIs and reduce financial repayment risks. For the clients, firming their social and political capital can improve their social association. Social performance indicators should measure the degree of transparency, the effort of the MFI towards giving voice to its clients within the organization and local government as well as national government.

D. Poverty Alleviation approach

In the context of overall declining poverty rates in India and the relatively small (micro) size of micro-credit indicates the following: Primarily rural outreach, though MFIs are beginning to expand into urban/city areas. Depth of outreach (% new microfinance clients below the poverty line) at an estimated 58% below the national poverty line for SBLP (compared to the All India figure of 17% households below the national poverty line). Lower poverty outreach for MFIs, with data benchmarked in the international poverty lines (20% of new clients below the $1.08 poverty line, 62% below the $2/day line, compared to All India household poverty levels of 25% below the $1.08 line, and 75% below the $2/day line). Moderate coverage of marginal communities - Scheduled Castes and Scheduled Tribes at around 30% compared to the 27% in population. Singh, P. (n.d.).

D.1 Number of clients crossing the poverty line: This is an elementary impact assessment tool that gives a clear idea about Poverty Alleviation approach. However, it is an assessment of APL (above poverty line) and BPL (below poverty line) group or the analysis to recognize being ‘very poor’ to ‘moderately poor,’ which may consider for poverty alleviation approach. This is a general statement that shows how well an MFI does in targeting poor clients based upon those considered poor by national standards of living or by rough measure of loan size as used by some MFIs. Some MFIs such as BASIX have used small loan size as a rough estimation of whether their clients are likely to be ‘poor’. The challenge here is to find the data that is comparable as MFIs tends with numerous ways of measuring social impact using different measures.

D.2 Loan Portfolio: Average outstanding loan size or loan portfolio analyze the average outstanding loan balance per microfinance client and is extensively used as a rough estimation for the depth of outreach among lower income clients. Although a number of factors other than income level of the client contribute in smaller loan sizes are there is a correlation between this ratio and the average income level of the areas served. Therefore, it will be useful in monitoring the ratio in light of GNI per capita and cost per client. D.3 Geographical Concentration: Is the microfinance agencies functioning in poor and needy areas? Or does it focus in urban areas or somewhat higher income areas? If the MFI working in areas that are generally considered poor, then it has a much higher possibility of actually having the poor as majority of its customers.

II. INTEREST FREE MICROFINANCE SYSTEM

4.7 Interest Free Microfinance – An Introduction While poverty alleviation remains an unforgettable goal of Islam; and microfinance is the best approach and strategy to eradicate poverty. Many elements of microfinance could be considered consistent with the broader goals of Islamic microfinance. Both systems promote micro-credit or microenterprise expansion and risk sharing and believing that the poor should take part in such activities (Dhumale and Sapcanin, 1999). At a very initial level, the distribution of collateral-free loans in certain instances is an example of how Islamic microfinance and conventional microfinance share common aims. For more then two decades microfinance has played a significant role in the alleviation of poverty, generation of employment and empowerment of women in India and across many other developing nations. But the high interest rate charged by MFIs empirically proved that UN Millennium Development Goals are not going to fulfill expected results in fighting against hunger and poverty globally, microfinance institutions are charging an interest rate of 24% to 36%, or even more per annum to meet their high working costs. More than 60% of MFIs funds are availed from commercial banks at their lending rates. Despite increased interest charges many MFIs are still depending on donor funds, government grants and subsidies to survive. Eventually, microfinance beneficiaries are charged heavily so they are unable to develop their entrepreneurship. In fact, majority of MFI clients spirally in debt - covering loan payment by acquiring new loan from other MFIs. Result shows that MFI users are struggling from over indebtedness, anticipating bigger credit risk ahead. This close relationship would not only provide obvious benefits for needy entrepreneurs who would otherwise be left out of credit markets, but investing in microenterprises would also give investors in Islamic banks an opportunity to diversify their investments. TABLE 4.1 POSSIBLE FEATURES OF INTEREST FREE MICROFINANCE. Items Interest Free MFI External Funds, Saving of Clients, Islamic Charitable Sources (i.e. Source of Fund Zakat, Sadqa and Awqaf) Application of Fund Financial Instrument i.e. interest free loans, profit sharing products Financing Microcredit, Microenterprise expansion included Poorest Funds Transfer Goods Transferred Deduction at Inception No deduction at inception Target Group Poor Families, small business Process of lending Ease of Availability, less documentation Loan Liability (Women) Recipient and Spouse both Incentive of Employees Monetary and Social Dealing with Default G r o u p / C e n t e r / S p o u s e - Guarantee, and Islamic Ethic Social Development Program Religious (includes behavior, ethics and social) (Source: Abdul Rahman 2007). According to the studies the Islamic banks came to existence from early 1960s, but it was an initial phase. In 1963, the first Islamic small rural bank was established known as Mit Ghamr Saving Bank in Egypt. In 1971, this Mit Ghamr Saving Bank was registered as a government controlled institution also known as the Nasser Social Bank. The major drastic change in Islamic banking activities took place in the 1970s. According to (Wilson, 2000) The majority of Islamic banks expansion was due to the growth of oil industry in the Gulf countries. In 1975 the IDB (Islamic Development Bank) was established in accordance with Articles of Agreement done at the city of Jeddah, Kingdom of Saudi Arabia, signed and approved by all member countries for the purpose of social progress and economic development in accordance with the principles of Shari'ah i.e., Islamic Law. During the same period, Dubai Islamic Bank, Faisal Islamic Bank in Egypt, Kuwait Finance House, and Jordan Islamic Bank were established. In 1978, the first Islamic financial institution was established in Luxembourg. The speedy development of Islamic banking worldwide represents that the expansion of Islamic banking was not only confined to the Middle East but it has also grasped the attention of its international counterparts. There were many Islamic banks established in Muslim as well as western countries for example in 1980s, Islamic Bank International was established in Denmark and Dar al-Mal al-Islami was established in Switzerland. In 1983, Berhad bank was established in Malaysia followed by Qatar Islamic Bank. In 1990s, the Indonesian government took the initiative to establish Bank Muamalat Indonesia. Some commercial banks also started offering Islamic banking facilities due to the huge expansion in Islamic banking activities, (e.g. state-owned banks in Egypt, National Commercial Bank in Saudi Arabia). Moreover, the Islamic financial banking product is also offered by the European banks (i.e. Kleinwort Benson of London and the Swiss Banking Corporation). Such developments show that the Islamic financial instruments are increasingly being accepted internationally, even in the non-Islamic countries, and the basic principles are understood (Wilson, 2000). 4.8 Principles of Interest Free Microfinance

4.8.1 Prohibition of Interest (Riba) - Interest free microfinance is based on the prohibition of interest. Interest was prohibited in all forms and intentions in Islamic law. A highly popular book of interest free microfinance was written by Dr. M.N.Siddiqui (Ghair Soodi Bankaari) on 1969 in Pakistan. It was later published in English (Banking without Interest). Thus, the main purpose of is to provide the public with a non-conventional alternative to the conventional microfinance system that was based on interest (riba) (Ziauddin, 1991). In fact, Riba or interest is from time to time considered to be a greater depravity in Islam than drinking alcohol, eating pork, or committing rape (Johnson, 2013). There are mainly two types of interest first credit interest’ (riba’ al-nasi’ah) and second surplus interest’ (Riba’ Al-Fadl) (Az-Zuhayli, 2006). Riba Al- Nasi'ah is originated from Arabic word ''nasa'a'' which means to 'delay" or "defer". In simple words, Riba al-Nasi'ah or credit interest is a type of interest that exists in sale transaction and it improperly benefits one of the counterparties in the form of the extra amount due to delay in delivery at the buyer side of the sale transaction or any delay in settlement of a due debt. On the other hand, Riba’ al-Fadl is derived from Arabic word "fadl" which means "increase" or "growth". In simple words, Riba’ al-Fadl or surplus interest means the exchange of commodity - from-commodity in sale transaction or (barter) in which the exchanged commodities are of the same type but of unequal quantity, or the delivery of one commodity is postponed. According to Islamic finance surplus interest is the sale of same goods with an inequality in an amount in the six classes of goods: barley, salt, gold, silver, wheat and dry dates. For example, a sale of 80 kg of wheat will be paid back, with 100 kg wheat after three months. According to (Qureshi, 1991), there were three main reasons for the prohibition of interest (riba) in Islam. First, the lenders are ensured an extra income or interest paid by the debtor along with the principle and that will lead to the exploitation and create inequality. Charging extra for exchanging one commodity against the other will lead to the misuse of the borrower’s wealth. In Islam (shariah) there is a strong criticism of interest based transactions for the future entity and to maintain equity and to safeguard the borrower from exploitation. Second, the interest imposed to the debtor is fixed by the creditor which was predetermined by him therefore the creditor were free do any work or occupation for getting income and this will hamper the development of day to day life. Third and last the prohibition of interest or riba’ is due to an end of sympathy, social wellbeing and support of mankind and this practice of riba’ may lead to borrowing and extravagant (Qureshi, 1991) and (Rahman, & Rahim,.2007). 4.8.2 Profit and Loss Sharing - In Islamic financing, the facility of profit and loss sharing model is an ideal mode of financing. It promotes micro-entrepreneurship, micro-credit risk sharing and believes that the poor should take part in such activities that focus on social and developmental goals. It also emphasizes on financial inclusion through micro-entrepreneurship and risk-sharing through partnership finance. The main objective of financial assistance is to create wealth by using profit and loss sharing modes with free pricing. The whole process requires complete transparency with proper documentation, responsibility, and accountability with a limited time-bound schedule. It seeks to bring economic and social empowerment for needy families as assimilated units. The Islamic microfinance approach puts emphasis on micro-credit or microenterprise expansion through financial and non-financial assistance besides adherence to principles of transparency, sympathy, and cooperation. It means interest free microfinance models for the eradication of poverty is more inclusive than the other microfinance system. It also fulfills the basic conditions of sustainable and effective microfinance, along with combination of empathy with wealth creation for the poorest of the poor. It also follows that the shariah based approach is a composite of mission based and market-based interventions. According to (Siddiqui, 2001), It is likely to be that profit and loss sharing will be able to suggestively eliminate the unequal distribution of capital and it is possible to control inflation to some extent. Besides, the profit and loss sharing interest free financing is an efficient and optimal allocation of resources as compared to the conventional system. Therefore, the concept of Islamic finance gave birth to the development of Islamic banking where the functions of conventional and Islamic banks are almost same but the philosophy, objectives, and operations differ significantly between the conventional and Islamic Banks (Ziauddin, 1991). Profit maximization is the prime objective of conventional banking because conventional banking operates as a business and the root of this system is based on interest or riba’. On the other hand, Islamic approach is to eradicate poverty by involving charity based characteristics in the form of zakah and sadaqa to fulfill the requirements of destitute people and to create a social safety net by applying the instruments along with the principles while dealing with banking business activities where the operations of the activities are based on the principles of Islamic system (Shariah). 4.8.3 Ethical & Moral Values of Interest Free Microfinance - Interest free microfinance concentrates on social, moral, ethical, and religious factors to promote equality and justice for the welfare of society as a whole. Principles of interest free microfinance; encouraging individual rights and duties, risk sharing, property rights, and the sanctity of contracts are all part of the Islamic code underlying the financial system. In this light, many elements of interest free microfinance are consistent with the broader goals of Islamic finance. Therefore, in a way Islamic microfinance or interest free microfinance advocates a dual approach i.e. use of charity as well as profit and loss sharing microfinance. Charity based approach means the involvement of zakah and sadaqa to take care of consumption needs of the poverty-stricken population and to create a social safety net. In Islamic finance arrangement of poverty eradication, Zakah and sadaqah occupy a central position. Zakah is the third from the five pillars of Islam and payment of zakah is compulsory on every affluent Muslim based on clear-cut standards. Zakah has been specially described by Islamic scholars as a tool of public finance, a tool of rearrangement of income and of course, a mechanism of development and poverty eradication. Rules of Shariah are clear and properly explained in defining the nature of who is liable to pay zakah and who can benefit from zakah. According to (Mohieldin, et al 2011) stated “we find evidence that 20 out of 39 OIC countries can actually alleviate the poorest living with income under $1.25 per day of the poverty line simply with domestic and remittances Zaqah collection”. Another module of charity, the awqaf, is an instrument used for creating and safeguarding assets i.e. land, building, and property that can provide technical along with moral assistance for skill improvement and development of human resources. The social safety net and technical assistance are then linked to financial assistance. The issue of sustainability is addressed in the organization of awqaf through the creation of permanent and income-generating physical assets. Awqaf had played a major role in creating community assets. (Obaidullah, & Khan,.2008). If charity-based funds are inadequate, then recourse must be found in a commercial approach. Islamic microfinance institutions should be able to mobilize resources, either by accepting savings deposits or by obtaining funds from local Islamic banks for onward financing or else from the capital market. This commercial approach entails charging and sharing of profits. Furthermore, it is quite consistent with Islamic Shariah. 4.9 Products of Interest Free Microfinance 4.9.1 Mudarabah - Mudarabah is derived from the word Zerab which is used in the Arabic language and translates “to Struggle”. (Aziz & Farooq, et al.2013). "Mudarabah" is a special type of partnership where one partner gives money to another for investing in a business enterprise. The capital comes from the first partner who is called "rabb-ul-mal", while the management and work is an exclusive responsibility of the other, who is called "mudarib. In other words, Mudarabah is where the lender or microfinance agencies (rabbul mal) and the micro entrepreneur (mudarib) become partners. The profits from the project are shared between the lender and micro entrepreneur, but the loss will be borne entirely by the microfinance institutions. This is due to the principle that a mudarib invests the mudarabah capital on a belief. However, Mudarib is not accountable for any kind of losses except in cases of negligence, misconduct, and wrongdoing. With negligence and breach of the terms of mudarabah contract, mudarib becomes liable for the amount of capital. Mudarabah structure could be based on a simple or bilateral arrangement where Islamic bank provides capital and the micro-entrepreneur acts as an entrepreneur.

Microfinance Institution Micro Entrepreneurs (mudarib) (rabbul mal)

Figure 4,5: Simple Mudarabah Two-tier structure or re-mudarabah where three parties are involved i.e. capital provider (public, government, zakat, waqf etc.), intermediate mudarib (Islamic Bank) and final mudarib (micro entrepreneur).

Capital Bank or MFI Micro Providers Entrepreneurs Figure 4.6: Re-Mudarabah The profit-sharing ratio on mudarabah is pre-determined only as a percentage of the business profit and not a fixed payment. The profit distribution ratio must be clearly decided and must be on the basis of an agreed rate. Profit can only be claimed when the micro entrepreneur makes a profit. Any kind of losses must be compensated by profits of future business operations. After full payment or settlement, the business entity will be owned by the micro entrepreneur. The micro entrepreneur will exercise full control over the business without interference from the bank or MFI but of course with monitoring. On the practical side, there is a problem to determine the actual total profit to be shared because micro entrepreneurs normally do not have proper accounts or financial statement (Rahman, & Rahim,.2007). In the meantime, muzara’ah contract is an another form of mudarabah used in farming where a bank or MFI can provide land or monetary capital for the farming product in return for a share at the time of harvesting and profit distribution on the basis of agreed profit sharing ratio. In the framework of muzara’ah contract, the lender may require a large amount of investment and expertise to manage interest free loan initiative and also needs to manage higher risk because the interest free bank required directly involvement in the farming sector through the provision of an asset such as land (Iqbal and Mirakhor, 1987). 4.9.2 Musharakah - Musharakah is a word of Arabic origin which literally means sharing. In the background of trade and business, it means a joint venture in which all the partners share the profit or loss of the joint enterprise (Usmani, M. T. 1999). The Musharakah, Mutanaqisah Partnership agreement is based on a shrinking partnership concept. However, there are two parts to the contract. Initially, the clients or micro entrepreneur enters into a partnership (musharakah) under the concept of joint ownership contract with the Islamic Bank. Micro entrepreneur or customer pays, for example, 20% as first installment share to co-own an asset or property at the same time as the bank provides for the balance of 80%. The clients will then gradually redeem the financier’s 80% share at an agreed portion periodically until the asset or property is fully owned by the customer. Second, the bank leases its share (80%) in the asset ownership to the customer under the concept of ijarah, i.e. by charging rent; and the micro entrepreneur agrees to pay the rental to the bank for using its share of the property. The intervallic rental amounts will be jointly shared between the bank and the customer according to the agreed percentage shareholding at the initial times of partnership which keeps changing as the customer redeems the banks share. The clients share ratio would increase after each rental payment due to the periodic redemption until eventually it is fully owned by the customer (Meera, et.al, 2005). In other words, Musharakah can also be developed as a micro finance scheme where Islamic bank will enter into a partnership with micro entrepreneurs. If there is profit, it will be shared based on the pre-agreed ratio, and if there is a loss, it will then be shared according to capital contribution ratio. The most suitable technique of musharakah for microfinance could be the concept diminishing partnership or musharakah mutanaqisah.

A: (Bank 80%) 80%

B: (Micro Entrepreneur 20%)

20% Figure 4.7: Musaharakah Mutanaqisah The above diagram shows that in the case of musharakah, mutanaqisah, capital is not permanent and every repayment of capital by the entrepreneur will diminish the total capital ratio for the capital provider. This will increase the total capital ratio for the micro entrepreneur until the entrepreneur becomes the sole proprietor of the business. The repayment period is dependent upon the pre-agreed period. This scheme is more suitable for the existing business that needs new or additional capital for expansion. Musharakah capital may also called as capital impairment risk when a bank has impaired capital and this capital can be liquidated if the bank cannot make up for the deficiency. (Haron, & Hock. 2007). The normal risk mitigation techniques that can be adopted by Islamic banks are also applicable in the case of microfinance i.e. through a third-party guarantee. This guarantee can be obtained and organized for the loss of capital of some or all partners through the active role of the so called Credit Guarantee Corporation (CGC). Another form of musharakah is musaqat. Musaqat is a profit and loss sharing partnership contract for plantations. In this case, the harvest will be shared among all the partners (including micro entrepreneur) according to the capital ratio. All the musharakah principles will be applicable for this form of musharakah. Nevertheless, this scheme could be of riskier, since it requires the expertise and capital for direct involvement in the business especially in managing the plantations or orchards. 4.9.3 Murabahah - Murabahah sale contract is a type of sale contract where the financing agency purchases an asset on behalf of a micro entrepreneur. The agency resells the asset to the micro entrepreneur at an agreed price that covers the original cost and plus profit percentage. Payment is made in the future mostly in installments. The title remains with the financial agency until the full and final payments are made (Aggarwal, et.al, 2000). In other words, the most widely offered Sharia-compliant contract is murabaha, an asset-based sale transaction used in business transactions. Normally, the micro entrepreneur or customer requests a specific commodity for purchase, which the financial agency buys directly from the market and subsequently resells to the micro entrepreneur, after adding some profit or a fixed “mark-up” for the service provided. It is permissible for the financial institution to appoint the client as an “agent” on its behalf (by means of a contract) to directly procure the commodity from the market. Though, the title of the commodity (and the risk inherent thereto) firmly lies with the financial agency or bank until the customer has paid the full amount to the financier. In most cases, clients repay in equal installments. The markup is distinct from interest because it remains fixed at the initial amount, even if the client repays past the due date. The prime conditions for a murabaha sale contract to remain Sharia-compliant or according to Islamic law are (i) the financial agency must purchase the product before selling it, (ii) the product must be tangible, and (iii) the client must agree to the purchase and resale in “mark-up” prices or Sell at a profit or markup price repayment by installment

Financial Micro Agency Entrepreneur

Seller

Figure 4.8: Murabahah to the Purchase The above diagram indicates the application of the extended concept of murabahah i.e. Orderer Murabahah to the Purchase Orderer. This is where a customer or entrepreneur enters into a sale and purchase agreement, or memorandum of understanding to purchase specific commodities required by the customer with the financial agencies. The financial agencies then sell the commodities to the micro-entrepreneur at cost plus mark-up, and entrepreneur can pay back later in lump sum or by installments also known as bai muajal (Khan, et.al. 2007) 4.9.4 Ijarah - Ijarah refers to "Possessing of a usufruct for a consideration" The term ijarah is derived from Arabic verb ‘ajara’ which means ‘recompensing’ or ‘rewarding’. Literally, ijārah originates from the noun ‘al-ajr’ which means reward or compensation, consideration and return to the use of an object. According to Islamic finance, the term Ijarah means an agreement or contract to utilize a lawful object for benefit against a consideration (Al-Zuhayli, 2002). In ijarah, the right to use the object is transferred to the hirer, not its ownership. Hence, ijarah is a contract of sale where the legal right of using and enjoying the profits of something belonging to another as prescribed by the shari’ah. In contract of ijarah the lessor (financial agency or bank) not only possess the title of the asset but also takes the responsibility to maintain and repair the asset in case of mechanical default that is not due to wear and tear. The financial agency or Islamic bank should buy the asset prior to completing of an ijarah contract. The financial agency takes possession of the assets and subsequently offers the asset for lease to the customer. Then the financial agency is responsible for the risks associated with the asset. (Ghuddah, 1998). 4.9.5 Salam - Salam in an agreement between financial institutions or supplier. In other words salam is an advance business financial transaction, where the Islamic bank or financial agency pays in advance for purchasing certain goods or assets, which the seller will supply before date of agreement. By this advance payment, the agreed parties demand a future date for the supply of goods or asset of certain quantity and quality. It may be considered as a kind of liability to the seller for supply of goods on agreed future date, to deliver the object for which advanced payment of the price has already been made. 4.9.6 Bai-Salam – (Advance purchase) A investment approach or contract in which the financial institutions or Islamic bank purchases industrial goods or assets especially agricultural products in advance from their customers and the price is normally paid with the accomplishment of a contract. 4.9.7 Istisna- Istisna’ is a type of deferred payment contract. Under this contract company or builder (contractor) agrees to produce (build) and to deliver a certain good or promises to deliver at a certain price at a certain period of time in future. The payment of goods does not have to be paid in advance like salam. It may be paid in installments or part may be paid in advance with the balance to be paid on later or based on parties’ mutual agreement. 4.9.8 Hire-Purchase investment under Shirkatul Meelk - Hire Purchase under Shirkatul Melk (HPSM) is specific kind of sell agreement in which the financial institution may supply apparatuses, equipment and goods on rental basis that have been approved in Shariah. It is a combination of three contracts: Ijarah, Shirkat, and Sale. The title of equipment and goods will be with the financial institutions or Islamic bank but the customer will be authorized to possess the equipment for certain period. The customers after full and final payment of the installments will be the owner of the apparatuses, equipment and goods. 4.9.9 Takaful - The word takaful derived from the Arabic word “kafala,” which means ensuring each other and joint assurance or mutual insurance, it is equivalent of Islamic insurance. Hence, takaful is a mutual insurance scheme for which each participant contributes to a fund that is used to support the group in times of need, such as death, crop loss, or accidents. Paid premiums are invested in a Sharia-compliant manner to avoid interest or riba. 4.9.10 Jua’lah - According to Islamic law or (sharia) the term Jua’lah or Ju'ala or also known as Ju'l,J u'ala is a contract between two parties for rendering a specific service it means one party pays some amount to another party for executing a specific service in such a manner to fulfill the terms of the contract between the two parties. This contract is mostly used in consultancy, professional services and service organizations such as banks, financial agencies, and insurance. According to Muslim jurists rendering a service against a reward or service fee technically applied in the model of Islamic banking. Bank charges and commission have been interpreted to be ju'alah considered as Islamic law some Islamic Banks also give loans to their customers with rendering a specific service charge. At the end of the accounting year the service fee or any service charge may be calculated accurately only after all administrative expenditures have been calculated. (Hussain, et.al .2015) A Conference was held in Amman, Jordan in 1986 by the Council of the Islamic Fiqh Academy established in this meeting question raised about rendering a service against a reward; service fee so the Islamic Fiqh Academy was permitted that to charge a service fee for loan related service offered by an Islamic Bank. Nevertheless, service charge or service fee should be within actual expenditures and any fee in excess to actual service related expenses is prohibited. Therefore, it is permitted to charge an approximate service fee on the customer to reimburse or claim the difference at the end of the accounting period when actual administrative expenditure is exactly known. A similar contract is ‘Ujrah' in which any work is done against stipulated wage or fee. (Siddiqui, 2001) ( IIBI, 2017) 4.9.11 Qardhul Hasan - The term qardhul hasan is used in lending interest-free loan in the Islamic finance which prohibits borrowing money to get interest. Therefore, the borrower repays only the amount borrowed. However, Qardhul Hasan is a significant product which is mainly used for interest free microfinance purposes. Interest free microfinance institutions or Islamic banks can provide this scheme to the micro-entrepreneurs who require small capital and have no or little business experience. The Interest free microfinance institutions then will only be allowed to charge a processing fee. The term of repayment will be on the basis of installment for an agreed time period. The scheme is mostly relevant for micro entrepreneurs who require small funds to establish their petty businesses and potential to repayment in full settlement. Here, the Islamic bank will bear the credit risk and they need to select the right technique to ensure repayments will be received as agreed. 4.10 Issues & Challenges Interest free microfinance signifies the convergence of the two booming financial models i.e. Islamic banking and microfinance. The prospective of interest free microfinance is to fulfill social, economic and financial needs of poor people by applying Islamic (sharia) codes and microfinance principles for eradication of poverty. However, for the successful implementation of Islamic or Interest free microfinance models it is required to overcome possible challenges which can be identified. (Nabi, 2013) 4.11 Sustainable Financial Models For establishment of successful business model Islamic microfinance needs sustainability and self-sufficiency. However, Islamic microfinance models are still being under developed and no performance standards have been established so far. (Nimrah, et.al. 2008) Though, the areas are to be measured as follows: 4.11.1 Building operative efficiency - Islamic microfinance institutions need to analyze transaction cost for providing cheap financial services to the poor. Managing micro-credit transactions is expensive, Islamic financial institutions may be at an advantage which purchase goods and assets from cheaper prices on the wholesale market, but the costs associated with purchasing, maintaining, selling, or leasing a commodity makes it costly. Therefore, for this reason interest free microfinance agencies must require innovative techniques to reduce transaction costs. However, some Islamic microfinance institutions have cut their costs in murabaha transactions by connecting to the end user or directly marketing the desired commodity. Islamic microfinance institutions should consider developing similar new techniques and practices to minimize costs and offer lesser pricing to their customers. 4.11.2 Building Accounting Efficiency - Islamic microfinance Building Accounting Efficiency is required to build the appropriate structure for transparency, consistency and accountability for global Islamic banking sector. This financial structure would also need comprehensive accounting disclosure guidelines by applying appropriate international accounting standards like IFSB or AAOIFI accounting principles, pricing methodologies and financial audits. Thus, rating services should eventually consider developing global financial reporting standards for growth and development of Islamic microfinance. 4.11.3 Risk analysis - Islamic microfinance risk analysis is another significant factor to create sustainability and self-sufficiency among financial institutions. The conventional microfinance industry has developed latest techniques and practices to manage credit risk, and build their outstanding portfolio. Conventional microfinance agencies generally trust on management pressure and stringent rules and discipline for recovery. These techniques should be applied and executed because interest free principles are embedded in Islamic finance. In addition, more efforts should be required to develop Islamic microfinance agencies staff members by applying latest technical tools and operations.

For example, some suggest that pressure from the religious appeals; to a sense of duty, should complement reliance by management pressure.

4.11.4 Product Assortment Analysis - In the global competitive environment, Islamic microfinance agencies have affected both internal and external environments i.e. social and cultural, political and legal and regulatory environment. However, Islamic microfinance has a variety of products which will be suitable to different kinds of geographical regions. Moreover, microfinance customers have various financial requirements like medical, housing, petty business requirement, diversification in business, purchase machinery and other durable assets which may be more urgent to fulfill consumption needs. At the international levels, many donor agencies can play a significant role in expanding Islamic micro finance in various countries by facilitating existing microfinance agencies through funding pilot projects; testing various Islamic financing business models. 4.12 Fiqhi Issues Analysis In Islamic finance, the problem about Islamic financial products becomes particularly critical because of different views among Islamic fiqh scholars which create a major challenge for applying Islamic finance in various countries. Another issue is many Muslim countries permit some variations from the standardized set of Islamic financial contracts. So it makes some diversions in practicing Islamic microfinance and also opens up room for debate in Fiqhi issues. 4.12.1 Shariah supervisory board - Every Islamic microfinance agency should assure their stakeholders and customers that they conform to Islamic finance Fiqhi principles by setting up Shariah Supervisory Board (SSB). The board members are usually eminent scholars and experts of Islamic law or fiqh who approve the compliance of Islamic financial products and reliability of operations with Shariah. According to various researches, most Islamic microfinance institutions have instituted SSBs. Setting up SSBs for Islamic microfinance institutions are costly hence it requires the establishment of alternative approaches. 4.12.2 Different Perceptions - Customers negative perceptions about Islamic finance products is a major challenge for the growth and development of Islamic microfinance sector. However, these perceptions are rooted because of unawareness of the customers towards fiqhi principles which governs the various riba-free mechanisms. However, there was sufficient evidence for the authenticity of Islamic microfinance products. Some of the Critics suggest that the processing costs or service charge of some Islamic microfinance products is too closely parallel to the interest of conventional microfinance products. So from their perception it is simply a “rebranding” of conventional finance and not truly reflective of Islamic principles. (Nimrah, et.al. 2008)

Conclusion

The Indian MFIs have two important models for financial inclusion - the SHG Bank Linkage model and the MFI Bank Linkage model. However, the MFI Bank Linkage model is growing rapidly. Additionally, the SHG Bank Linkage model is by and large the more dominant model in terms of financial inclusion. Both these models are very different from each other in methodologies and regulatory forms of institution involved in providing microfinance services. SHG Bank Linkage model is supported by the apex agricultural bank (NABARD) through the commercial banks while the MFI Bank Linkage model is supported by commercial banks or they managed privately with some institutions being regulated by the Reserve Bank of India. Although, staff productivity in Indian MFIs has improved consistently over the years and has now reached a level that is considered to be amongst the best in the prominent regions offering microfinance. The NBFCs and Grameen model were the most efficient in comparison with other legal forms and models.

Islamic micro finance exists in priority sector for a couple of decades. Not only Muslim Nations but many other countries have also started focusing their attention towards Islamic microfinance for alleviation of poverty and wellbeing of poor and lower segment of the society in their nation. According to data about 255 agencies provide Islamic Microfinance all over the world, in East Asia and Pacific, there are 164 agencies and in MENA countries 72 agencies providers. About 1.28 million Poor clients are using Sharia-compliant Islamic microfinance products (CGAP, 2013). Shariah compliance is definitely the differentiating factor between a conventional and non-conventional microfinance. Interest free microfinance institutions must not only conform to Islamic law (Shariah) in all their practices but they should also make their working dynamic for innovative design for wide range of Sharia-compliant products and services that could provide greater financial access to a large segment of the society. Low-income population often relies on local religious scholars. Therefore, Islamic financial institutions need to address and make aware these local religious scholars and leaders and they must be convinced of the authenticity of Islamic financial products then Islamic microfinance can fulfills its objective. Secondly greater efforts should be explored to increase collaboration between financial and Sharia experts on product authenticity, encouraging exchange of experience among religious leaders (particularly those serving poor populations at the local level) relating to Sharia compliance of microfinance products and educate low-income populations, in collaboration with local religious leaders, on how financial products comply with the Islamic law. References

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MICROFINANCE INSTITUTION EVOLUTION & PROFILING

5.1 Indian Microfinance Institution: An Overview Microfinance is seen as an important tool for poverty alleviation over the years and microfinance institutions (MFIs) over the years have helped in achieving the objective of financial inclusion. The microfinance programs were initiated by NABARD in collaboration with Banks and Non-Government Organisations (NGOs) for population in unbanked areas through Self Help Group (SHG) - bank linkage program in 1992. The sector evolved with private sector participation leading to formation of microfinance institutions (MFIs). The MFIs accessed bulk funds from banks and did on-lending to the end borrowers (either through SHG members or joint liability group (JLG) members). JLG typically consists of 5 member group where members provide mutual guarantee to the loan taken by others. There on the microfinance activities were being implemented by the two channels - MFI model and SHG-Bank linkage model. The sector has shown robust growth over the years amidst various challenges and has been able to cater to lowest strata of the society which was earlier completely dependent on money lenders. Looking at the important role being played by the MFIs in financial inclusion, RBI as a regulator has also been supporting the sector through various measures and has shown faith in the sector and chosen eight MFIs for conversion into Small Finance Banks out of the ten licenses being awarded.

5.2 MFI Evolution & Growth

Since inception the microfinance sector has seen a ups and downs in almost every vertical causes which it is currently in a complete transformed stature. The categorization of the entire period of transformation can give broader perspective of microfinance future and prospect. For our study, the journey of micro-finance has divided into five broad phases –

1. Phase I: Setup different agencies and startups (till 2001) 2. Phase II: Policy interventions and inclusion into Primary Sector Lending(2001-2006) 3. Phase III: High volatility and Crisis evolved (2006-2010) 4. Phase IV: Consolidation and Formation of Committee (2010 – 13) 5. Phase V: Resumed high growth with transformations (2013 – 17) Figure 5.1: Evolution of MFI sector in India

1974 – Sewa Bank 2002 – SHG 2006 – Krishna 2009 – MFIN 2012 – Malegam 2015 – MUDRA Bank First form of Loans on par with Crisis in launched Committee & launched; 8 MFIs granted microfinance secured loans Andhra Pradesh RBI guidelines SFB licenses by RBI

1984 – NABARD 2004 – MFI 2007 – Entry of 2010 – SKS IPO, 2014 – RBI gave Trust for SHGs lending treated PE players Andhra Crisis & universal banking as PSL Ordinance license to Bandhan INITIAL PHASE CHANGES CRISIS CONSOLIDATE GROWTH Adopted from: EY, 2016 Phase I (INITIAL PHASE) had witnessed new entries in the sector wherein there was a shift in orientation with organizations moving from non- profit motive (NGOs) to for profit making (NBFCs). The purpose was to develop themselves for higher scale of operations with quality deliverable. The shift in operational efficiency and higher customer base makes them attractive destination to pool funding through equity and debt financing arrangement especially from the private equity investments. The lending activities by micro-finance institutions were arbitrary in the absence of any common regulatory framework and formal MFI set-ups. This period has registered the high growth rate of loan portfolio but was for short duration and in selected demographics. There are two notable developments in this period. Firstly in 1974 the inclusion of women bank “Shri Mahila Sewa Sahakari Bank” which has owned and managed by ‘women’ and provide financial services to ‘women’ in the unorganized sector. The advocacy of NABARD for SHG linkage for alleviation of poverty has proven as another milestone. The benefit of this phase is marginal because of absence of established regulatory agencies, social intervention and absence of political intention.

Phase II (CHANGES) development begins with two major models under micro-finance, namely, Self-Help Group-Bank Linkage (SHG-BL) and Micro-Finance Institutions (MFIs). Banks have started facilitation of SHG and enable savings and credit services directly to SHG. Upto March 2006, total numbers of SHGs financed were from this category was 20 percent (NABARD, 2006). Further, Banks are providing savings and credit linkage to SHGs which are even facilitated by NGOs or other Self Help Promoting Institutions. Upto 31st March 2006, this type of arrangement have the major share of SHGs finance with 74 percent of the total number of SHGs comes under it (NABARD, 2006). Another arrangement is based on MFIs where Banks lend to MFIs, then MFIs assist the formation of SHGs and to lend them. Upto March 2006, there was 6 percent SHGs linked under this arrangement (NABARD, 2006). During this period the Self-Help Group (SHG)-Bank Linkage arrangement has appeared to be an important form of micro-finance movement in the country. Upto March 2006, around 2.2 million SHGs were linked to banks with cumulative bank loans amounting to Rs.11,398 crore (RBI 2005-06). As reported by RBI 2005-06, the commercial banks involvement in financing of SHGs has increased over the years. The total number of households supported has increased from 5 million in 2001 to 24 million in 2005. The average bank loan (per SHG) increased from Rs.18,227 in 2001 to Rs.32,012 in 2005. There are some notable developments during this period. In 2002, the provisioning norm for the unsecured lending to SHG brought on par with other secured loans. In 2004, the RBI included MFI lending within the priority sector and recognized MFIs as a tool for financial inclusion. In 2006, The Government shut down branches of some microfinance companies due to allegations of high interest rates, unethical recovery practices and poaching clients from SHGs.

Phase III (CRISIS) 2006-10 periods was started with crises. It has not stop with Krishna district crisis. During this period, the microfinance sector reported high growth which was supported by strong loan demand from borrowers. Mostly these borrowers were abandoned by the banking system. The investors or fund managers are excited to invest corpus in the highly attractive and growing micro-finance industry. The detail reasons, consequences and inferences are depicted in figure 2 below. However, in 2010, the sector was repeated 2006 crisis and severely affected by the Andhra Pradesh crisis and the State Government promulgating an ordinance to curb the activities of microfinance companies. Some of the important developments in this period are as under;

2007: Highly Favorable regulations for Institutions, economies of scale and significant growth drew Private Equity players into the market. Micro Finance Industry loan book stood at Rs 35 billion.

2009: Microfinance Institutions Network (MFIN) was started; all NBFC-MFIs are eligible for membership.

2010: Andhra crisis unfolded — allegedly coercive debt collection practices led poor borrowers to suicide. This led to an Ordinance from the Government and significant clamp down on MFI activities. Figure 5.2: Krishna Crisis 2006 and Inferences on Causality

Phase IV (CONSOLIDATE) action has started with resolving the AP crisis, with the regulatory intervention through AP ordinance adopted by state government causes sharp deterioration in asset quality of MFIs. The reason of such negative impact is due to geographic concentration of MFIs in AP. The borrowers was overleveraged and involved with multiple MFIs lending to the same borrower. This ambiguous operational mechanism causes bankruptcy of many MFIs that had created blot on Andhra Pradesh micro-finance institutions and resultant into funding constraints for the nationwide micro-finance industry. The important development in this period is adoption of Malegam Committee recommendation. In 2012, The Malegam committee recommended significant changes in the sector and the RBI issued final notifications. Thereafter, with RBI’s common regulatory framework in 2011 for NBFCs undertaking microfinance activity, the sector went into the consolidation mode for operational understanding and amended towards the new norms with operational setup and lending practices. It gives a declining trend in loan portfolio from almost Rs.20,000 crore in 2011 to Rs.14,600 crore in 2013 (CARE 2017). Phase V (GROWTH) It is acknowledged after consolidation in operations, the sector has started with signs of growth by fresh funds infusion from the equity investors as well from the debt market. This phase is due to more stable regulatory environment; support of credit bureaus; activities of self-regulatory organizations; availability of secure funds; and rapid growth in client base and loan portfolio. There are two important steps taken during this period. Firstly, the RBI issued universal banking license to Bandhan, the largest microlender in India in terms of assets in 2014. Secondly, Micro Finance Institution Network was formally recognized by the RBI as a self regulatory organization in 2015. Thirdly, the Government of India has launched MUDRA Bank to help finance small businesses in 2015.

During this Phase V MFIs started to focus on quality operational deliverable to boost their earning and offer lower interest rates to borrowers. Indian Microfinance Industry has expanded above 60% to Rs 54,329 crore during 2015-16 as compared to the last year, as stated by Sa-Dhan in Bharat microfinance report 2016. Average loan dispersal per client has increased from Rs.8000 to Rs.16000 and number of borrowers per employee ratio has increased marginally from 351 in 2013 to 365 in 2017 (CARE 2017). The increase in loan disbursement amount along with technology intervention in certain processes and shift in collection cycles are providing the possibilities for the loan officers to work with larger credit portfolios. The micro finance industry has found another transformation by getting future prospect like small bank licenses. During this phase, some of the successful NBFC-MFIs got license to work as small finance banks/bank. Some obstacle arises with the implementation of demonetization that causes poor collections leading towards deterioration of asset quality of MFIs. Otherwise this phase has given positive outcome till the end.

5.3 Evolution of Interest Free Microfinance Model in India A Conference was held in Amman, Jordan 11-16 October 1986 by the Council of the Islamic Fiqh Academy established in this meeting question raised about rendering a service against a reward; service fee so the Islamic Fiqh Academy was permitted that to charge a service fee for loan related service offered by an Islamic Bank. Nevertheless, service charge or service fee should be within actual expenditures and any fee in excess to actual service related expenses is prohibited. Therefore, it is permitted to charge an approximate service fee on the customer to reimburse or claim the difference at the end of the accounting period when actual administrative expenditure become exactly known. (Siddiqui, 2001) ( IIBI, 2017). However, this service charge is very low compared to the normal conventional bank interest rate and helps the community in great deal by expelling usurious moneylenders, sahukar and mahajans. Some of interest free microfinance institutions, like Muslim funds Najibabad, are established by Mr. Zaki against the exploitations of these moneylenders, whose family was suffered by these moneylenders. Some interest free microfinance institutions like Nagina and Bijnor Muslim funds also avoid application of interest, and taking service charge for the security deposits kept as collaterals against loans. According to Islamic law or (sharia) the term Jua’lah or Ju'ala or also known as Ju'l,J u'ala is a contract between two parties for rendering a specific service it means one party pays some amount to another party for execution a specific service in such a manner to fulfill the terms of the contract between the two parties. This contract is mostly used in consultancy, professional services and service organizations such as banks, financial agencies, insurance. In other words, according to Muslim jurists rendering a service against a reward; service fee technically applied in the model of Islamic banking. Bank charges and commission have been interpreted to be ju'alah considered as Islamic law some Islamic Banks also give loans to their customers with rendering a specific service charge. At the end of the accounting year the service fee or any service charge may be calculated accurately only after when all administrative expenditure has been calculated. (Hussain, et.al .2015) 5.4 States Profiling for Micro Finance Institutions The presence of Indian micro finance is not same across the nation. The region-wide availability of micro-finance institution is given in table no 1. We have taken at least one state from each region. Such selected sample state must not be in the nascent stage in micro-finance activity. Further, the state where micro-finance has faced serious problem is not taken in sample. The study considers the districts (sample state) where enough customers of interest free micro finance are available. The proximity between districts is considered for making survey easier. Along with the language barrier causes some distress and to avoid such hindrances the help of local people have taken.

Table 5.1: Number of Micro-Finance Institutions as on 31st December 2016 REGION STATES/UNION TERRITTORIES NORTH & Delhi (8), Haryana (14), Rajasthan (16), Punjab (9), Chandigarh (3), CENTRAL Himachal Pradesh (5), Jammu & Kashmir (1), Madhya Pradesh (25), Uttarakhand (13), Uttar Pradesh (19), Chhattisgarh (21) EASTERN & Bihar (20), Orissa (14), Jharkhand (17), West Bengal (14), Andaman, NORTH EASTERN Assam (10), Manipur (1), Tripura (5), Nagaland (1), Sikkim (2), Meghalaya (6), Mizoram (2), Arunachal Pradesh (2) WESTERN Gujarat (15), Maharashtra (31), Goa (4), Dadra & Nagar Haveli, Daman and Diu SOUTHERN Andhra Pradesh (3), Karnataka (20), Kerala (9),Tamil Nadu (15), Telangana (7), Puducherry (7) TOTAL 339 Source: MFNI 2017

The selection of states for data collection is based on three filtration process. At first, the identification of top ten states have determined on the basis of loan portfolio percentage during December 2015 to February 2017. The cumulative highest loan portfolio during this period have considered for selecting top ten states. These top ten states are representing the entire population. It means every region is having an equal chance of selection. Region-wise allocations of states are as follows;

Figure 5.3: Top Ten State With Loan Portfolio Share

West Bengal 5.8 6 6 6

Gujarat 3.7 4 4 4

Orissa 6.1 6 5 6 s te Kerala 4.4 5 5 5 ta Dec-15 S 5.4 6 7 7 Bihar Jun-16 en TMadhya Pradesh 7.8 7 7 7 Sep-16 op T Uttar Pradesh 10.9 10 11 11 Feb-17 Maharashtra 11.9 12 11 11

Karnataka 13.8 13 14 12

Tamil Nadu 16.1 16 12 14

0 10 20 30 40 50 60 Portfolio Share (%) Source: MFIN Reports Dec 15 - Feb 17

1). North & Central Region: Madhya Pradesh and Uttar Pradesh

2). Eastern & North Eastern: Bihar, Orissa, and West Bengal

3). Western Region: Gujarat and Maharashtra

4). Southern Region: Karnataka, Tamil Nadu, and Kerala Here, Uttar Pradesh has highest loan portfolio share among other north & central region states. Bihar is marginally high in the eastern and north eastern region. Maharashtra is showing highest among all other states in the western region. In the southern region, Andhra Pradesh is lowest side in loan portfolio available while Tamil Nadu is on the top.

Second step of filtration is based on average loan disbursal per account (ALDPA) among top ten states. The Quarterly data of average loan disbursal/account has collected from various reports of MFIN micrometer during 2015-16. The calculation of percentage growth of average disbursed loan per account gives clarity of top performing states among regions. It shows that the loan disbursal per account has increasing in the state. It suggests that both saving per account and recovery of loan has increasing in the state. The availability of higher leverage causes incremental shift of loan disbursal per account. On the basis of loan disbursal growth, the region wise positioning of state is as under;

1). North & Central Region: (1) Uttar Pradesh and (2) Madhya Pradesh

2). Eastern & North Eastern: (1) Bihar, (2) West Bengal, and (3) Orissa

3). Western Region: (1) Maharashtra and (2) Gujarat

4). Southern Region: (1) Karnataka, (2) Tamil Nadu, and (3) Kerala Table 5.2 : Loan Disbursal With Growth (%) Among Top Ten States Average Loan Disbursed Per Account (Rs) Top Ten States % Growth 1st Quarter 2nd Qarter 3rd Quarter 4th Quarter (2015-16) 2015-16 15-16 15-16 15-16 15-16 Tamil Nadu 15,148 14,946 16,874 22,060 47.59 Karnataka 12,319 11,068 14,216 17,899 61.71 Maharashtra 15,242 15,575 18,071 21,106 35.51 Uttar Pradesh 19,557 19,680 21,042 22,423 13.93 Madhya Pradesh 17,723 20,003 19,351 21,458 7.27 Bihar 19,464 16,856 18,135 18,515 9.84 Kerala 14,890 16,243 17,726 20,863 28.44 Orissa 16,437 18,342 16,770 18,674 1.81 Gujarat 20,446 20,793 22,971 25,372 22.02 West Bengal 14,967 17,820 16,885 19,036 6.82 Source: From Various Reports of MNIF 2015-16 The third filtration gives indication about speed of acquisition of new customers. The growth of total loan disbursement (TLD) reveals the capacity of state to serve higher client base. The number of clients can be calculated by dividing total loan disbursement with average loan disbursed per account. The state with higher growth in loan disbursement and relatively low average loan disburse per account growth have highest clients among regional peer group. Similarly, states with low loan disbursement growth or negative growth and relatively high percentage growth in average loan disbursed per account have lowest clients among regional peer group. The Client addition or business penetration matrix for micro-finance institution is as follows;

Table 5.3: Matrix of Client Addition/Business Penetration for Micro Finance Institutions NEW CLIENT ADDITION % GROWTH IN ALDPA % GROWTH IN TLD

HIGH GROWTH LOW HIGH

MODERATE GROWTH NEGATIVE LOW

LOW GROWTH HIGH LOW

NEGATIVE GROWTH LOW NEGATIVE

The above matrix provides the result of leading client acquisition or business penetration among the top ten states. Kerala is among the top of the chart while West Bengal is among the major looser.

Table 5.4: Total Loan Disbursement Top Ten States 2016 2015 Growth (%) Karnataka 13857 9284 49% Tamil Nadu 10522 6943 52% Uttar Pradesh 7791 5140 52% Maharashtra 7435 4985 49% West Bengal 4623 9449 -51% Madhya Pradesh 4530 3530 28% Bihar 4496 4675 -4% Orissa 3834 2869 34% Kerala 3010 1467 105% Gujarat 2334 1620 44% Source: The Bharat Microfinance Report 2016

The consolidation of results in above all filtration tables has given inferences about selecting states from their respective regions. The selected states are highlighted with color in the below table???. The selected states are Uttar Pradesh (North & Central Region), Bihar (Eastern & North Eastern Region), Maharashtra (Western Region), Karnataka & Kerala (Southern Region).

5.5 Microfinance Institutions & Network Covered

The study is based on the 20 interest free organization and 20 conventional organizations across Indian states. Here, the purpose of incorporating the brief introduction about the covered institutions can enlighten the understanding about the perception of the population. The actual meeting or interview with correspondence is much higher than the actual collected questionnaires. The borrowers are reluctant to give specification due to some reasons or others. The area and organizations covered under survey is mentioned below;

Table 5.5: Critical evaluation of Interest & Interest Free Microfinance Institutions in India States Districts Interest Free Organizations Conventional Organizations Aligarh Al-Najib Milli Mutual Ben. Ltd Sonata Finance Pvt Ltd (A) Bulandshahar Anjuman Khadimul Mus. I. Idara Sarva Up Gramin Bank Bijnour Muslim Fund, Najibabad Savera Microfinance Uttar Faizabad Millat Welfare Society Utkarsh Micro Finance Pvt. Ltd Pradesh Pune Janseva Co. Credit Society Ltd Bharat Financial Inclusion Ltd Mumbai Bait-ul-Maal Co. Credit Soc. Ltd. Svasti Microfinance Private

(B) Mahim Barkat Leasing & Fin. Serv. Ltd. Hindusthan Microfinance Pvt. Ltd. Jogeshwari Sahulat Microfinance Society Maharashtra Gramin Bank Maharashtra Patna Sahulat Microfinance Society Bharat Financial Inclusion Ltd

(C) Ara Al-Khair Co. Credit Society Ltd. Navjeevan Microfinance Ltd Begusarai Muslim Fund, Begusarai Madhya Bihar Gramin Bank

Bihar Gaya. Janseva Co. Credit Society Ltd. Saija Finance Private Limited Kozhikode. Alternative Invest. & Credits Ltd Esaf Microfinance & Investments (D) Malappuram. Palisha Rahitha Nidhi Malappuram District Co. Bank Ltd Ernakulum. Cheraman Financial Services Ltd. Muthoot Fincorp Ltd

Kerala Thrissur Palisha Rahitha Nidhi ESAF Small Finance Bank Bengaluru Al-Ameen Co-op. Credit Society Spandana Sphoorty Financial Ltd. Mysore Janseva Co. Credit Society Ltd. Sanghamithra Rural Financial Ser.

(E) Bhatkal Al-Taqwa Finance Pvt. Ltd. Karnataka Vikas Grameena Bank

Karnataka Hassan Safa Baitul Maal Grameen Financial Serv. Pvt. Ltd

A. STATE - UTTAR PRADESH

Al-Najib Milli Mutual Benefits Ltd., Aligarh (U.P)

Al-Najib Milli Mutual Benefits Ltd. Aligarh (AMMBL) was established as a Public Ltd. Company in 1990, by the Management of Muslim Fund Najibabad, the largest interest-free lending Society of India. AMMBL received registration from the central govt. as Nidhi Company in 1993. A Nidhi Company is followed to mobilize Deposits and lend money at variable rates of return to its members, which is in conformity with the principle of Islamic finance. It is also exempted from complying with the Prudential Norms of RBI set for Financial Companies. The setting up of Nidhi Company was necessitated by the statutory limits on rapid Deposit growth of Muslim Fund Najibabad. Nidhi format was adopted mainly because it allowed the Management of MFN to continue its policies and practices. It is the first and the only Islamic Financial Company that has got itself declared as a Nidhi Company. AMMBL has grown to have 43 branches spread all over the country, though more concentrated in Uttar Pradesh. The city branch of Al-Najib Milli Mutual Benefits Ltd is at Jamal Pur, Aligarh, Uttar Pradesh 202002 Sonata Finance Pvt Ltd, Aligarh (U.P) Sonata Finance Pvt Ltd is a Non-Banking financial company (NBFC) and registered under companies Act 1956 established on 2006.It head office at Madan Mohan Malviya Marg, George Town Allahabad - 211002, (UP) it offered Micro Credit, Micro Insurance. It covered four states namely Uttar Pradesh, Madhya Pradesh, Uttrakhand, Haryana and it has up to 150 branches in different cities.it has more than 3 lakh customers. The city branch at Lobhi Puram Colony, Sasni Gate, Aligarh, Uttar Pradesh 202002. It mainly concentrates on poor and needy women. Drishtee Development & Communication Limited Muslim Fund Najibabad 1971, Bijnour (U.P) Muslim Fund Najibabad (MFN) was established in the year 1971 in Najibabad after partition and Abolition of zamindari system, the Muslim masses of North India had become increasingly poor. Their poverty and indebtedness had driven them into the vicious clutches of moneylenders and mahajans who were exploiting them to the hilt. The Islamic model of interest-free Economic Fund was developed to encourage poor farmers and workers to save smaller amounts on daily or weekly basis and to get interest-free loans. Dozens of such funds led by Muslim Fund Deoband were started in northern India especially in U.P. between 1960 and 1980. Muslim Fund Najibabad with 29 branches throughout the country is the biggest one.

Savera Microfinance and Welfare Foundation, Bijnour (U.P) Savera Microfinance and Welfare Foundation is a private company incorporated on 26 May, 2011. Its registered office is at 395, Meghawala House, Shivpuri Lane Civil Line-Ii, Bijnor, Uttar Pradesh and paid-up capital is INR 1.0 lacs. It CIN no is U74120UP2011NPL044986. It offered Micro Credit to the poor and needy peoples for petty business.

Anjuman Khadimul Muslim Imdadi Idara, Bulandshahar (U.P)

Anjuman Khadimul Muslim Imdadi Idara was established in the year 1973 in District Bulandshahar. It has mainly three branches Muslim Fund Bulandshahar, Muslim Fund Khurja and Muslim Fund Sikandrabad which has been working efficiently since their establishment. They lend microfinance Muslim as well as non-Muslim about 40000 borrowers taking loan from it and about 700000 account holders. However, these Muslim fund have even lack of professionalism and technicality but working effectively because its simple procedure for taking loan and low interest rate or processing fees.

Sarva U.P. Gramin Bank, Bulandshahar (U.P)

Sarva U.P. Gramin Bankwas established in 2007 supported by Punjab National Bank one of the foremost commercial Bank of India, with the amalgamation of 4 Regional Rural Banks i.e. (Uttar Pradesh Gramin Bank Meerut, Kisan Gramin Bank Budaun, Rani Laxmi Bai Kshetriya Gramin Bank Jhansi and Devi Patan Kshetriya Gramin Bank Gonda). Its Head Office in Meerut. The Bank’s operational area spreads in 17 Districts viz. Bulandshahar, Ghaziabad, Meerut, Gautam Budh Nagar, Hapur, Baghpat, Shamli, Saharanpur, Muzaffaranagar, Bijnor, Haridwar, Gonda, Balrampur, Sambhal, Budaun, Jhansi and Lalitpur. The Bank has 434 Branches working in the area spread in whole Uttar Pradesh.

Millat Welfare Society, Faizabad (U.P) Millat Welfare Society Faizabad established in the famous District in Uttar Pradesh. It has become more famous because of Ayodhya. The merchants of vegetable market established Millat Welfare Society (MWS) of Faizabad in 1985. It was registered in the year 1993 as a Society under Societies Act. The Society is also mobilizing Daily Deposits but these are surprisingly not very popular. MWS provides interest-free loans to Deposit holders in the form of only overdrafts. The merchant Deposit holders often need cash for day-to-day purchases of vegetables, fruits etc. Utkarsh Micro Finance Pvt. Ltd, Faizabad (U.P) Utkarsh Micro Finance is a Non-Banking financial company (NBFC) and registered under companies Act 1956 established on 2009.It head office at S-2/639-56, Varuna Vihar Colony, J.P Mehta Road, Cantt. Varanasi-221002 (UP). It offered Micro Credit, Micro Insurance. It covered six states namely Uttar Pradesh, Bihar, Maharashtra, Madhya Pradesh, Uttrakhand, Haryana and about more than 150 branches in different cities.it has more than 3.2 lakh customers. B. STATE - MAHARASHTRA Janseva Co-operative Credit Society Ltd., Pune (Maharashtra) Janseva Cooperative Credit Society Ltd has been registered in March 2010.The head office of Janseva is in 7/25-A, Grants Building, 17Arthar Bunder Road ,2nd Floor, Colaba, Mumbai- 400005. It has 25 branches functioning in the various States of INDIA i.e. A.P. Bihar, Chhattisgarh, Delhi, Karnataka, M.P., Maharashtra, Orissa, Rajasthan, Tamil Nadu, U.P. and West Bengal. It has been encouraged by group of people committed to interest free financial system drawn from different states of India. However, it owes its existence to the decisions of Board of Trustees of All India Council of Muslim Economic Upliftment Mumbai (AICMEU) and Community Coordination Initiative (CCI). Bharat Financial Inclusion Ltd., Pune (Maharashtra) Bharat Financial Inclusion (BFIL) formerly known as “SKS Microfinance Limited” is a Non- Banking financial company (NBFC) and registered under companies Act 1956 established on 2003. It mainly covered 17 states and about more than 1250 branches its client outreach up to 55 lakhs. It is lending microfinance through by a model where poor women guarantee each other’s loans. BFIL also conducted financial literacy training programs and customer must pass a test before they are allowed to take micro-credit. Weekly meetings with borrowers follow a highly disciplined approach. Re-payment rates on our collateral-free loans are more than 99% because of this systematic process. BFIL offers micro-credit, micro-insurance and also deals with housing and energy loan to the poor as well as financing for other goods and services that can help them fighting with poverty. Bait-ul-Maal Co-operative Credit Society Ltd., Mumbai (Maharashtra) Bait-ul-Maal Co-operative Credit Society Ltd. (BCCS), was established in September 1984 at Mumbai by a Non-Government organisation(NGO) known as All India Council of Muslim Economic Upliftment. (AICMEU). AICMEU was registered in December 1982 under Indian Companies Act. 1956 as well as under Mumbai Trust Act. of 1950. AICMEU was the effort of great Islamic finance expert Prof. Dr. Rahmatullah. AICMEU aims at popularising the Islamic financing and socio-economic principles and work for the well-being and economic upliftment of Indian poor community. Within a decade AICMEU has spread its area of work to general Education, Technical Education, Vocational Guidance, Employment Bureau, and Health Besides Islamic Finance. Svasti Microfinance Private Ltd., Mumbai (Maharashtra) Svasti Microfinance Private Ltd.is an urban microfinance operation started in October 2008 to cater to the financial needs of the low income segment of society. Svasti is situated at Pandit Dindayal Upadhyay Marg L.B.S. Cross Road Near MulundChek Naka BEST Depot, Mulund (West) Mumbai. It is established for the purpose to fulfill the financial needs for applying innovative approach to product and process design, technology of the low income segment of society. It is addressing the varied financial needs of people in the low income segment of society and providing products and services suitable to their needs and capacity. Barkat Leasing and Financial Services Ltd., Mahim (Maharashtra) Barkat Leasing and Financial Services Limited is a Non-Banking financial company (NBFC) and registered under companies Act 1956 established on 17 May 1991.It head office at 4/6, B.M.C. Crossroad No. 2, Mahim, Mumbai 400016. According to its financial information its authorized share capital is Rs. 1,000,000 and Barkat Leasing and Financial Services Limited's Annual General Meeting (AGM) was last held on N/A and as per records from Ministry of Corporate Affairs (MCA), its balance sheet was last filed on N/A. Barkat Leasing and Financial Services Limited's Corporate Identification Number is (CIN) U65910MH1991PLC061764 and its registration number is 61764. Hindusthan Microfinance Private Limite, Mahim (Maharashtra) Hindusthan Microfinance Private Limited (HMPL) is a Non-Banking financial company (NBFC) and registered under companies Act 1956 established on 2008.It head office at 706, B Wing Sagar Tech Plaza, Sakinaka Junction, Andheri East Mumbai-400072. It works in both rural and urban areas deals in microcredit. It has 60 branches outreach about 5 lakh customers. Sahulat Microfinance Society, Jogeshwari (Maharashtra) Sahulat Microfinance Society has been established in 2010 under the Societies Registration Act, 1860 is situated at Room No 31, Gate No. 5, Old Collector Compound, Malwani, Malad (West), Mumbai-400095 Maharashtra for assisting the interest free microfinance to uplift the poor families. It is a voluntary non-political, non-profit making social service organization. It aims to provide interest free micro finance options for reducing socio-economic disparities and to achieve justice and equity for educationally and financially backward sections of the public at large. Its main function is to facilitating, organizing and developing institutions, more particularly in co-operative sector.Plot No-15, Room No 31, Gate No. 5, Old Collector Compound, Malwani, Malad (West), Mumbai-400095 Maharashtra. One more office of Sahulat Microfinance is covered under Bihar state, district Patna.

Maharashtra Gramin Bank, Jogeshwari (Maharashtra) Maharashtra Gramin Bank Nasik came in to existence on 20th July 2009 after amalgamation of former Maharashtra Godavari Gramin Bank and Marathawada Gramin Bank as per the notification issued by Government of India, Ministry of Finance, Department of Financial Services ref No F.No. 1/4/2006-RRB(II) dated 20July 2009 with its head office at Nanded. It mainly works for the development of rural areas, microcredit and micro-insurance, particularly to the small and marginal farmers, agricultural laborers, artisans and small entrepreneurs. The Maharashtra Gramin Bank Nasik is sponsored by Bank of Maharashtra. The share capital of the Bank is contributed by Government of India, Government of Maharashtra and Bank of Maharashtra. C. STATE - BIHAR Sahulat Microfinance Society, Patna (Bihar) Sahulat Microfinance Society (Regd. under the Societies Registration Act, 1860) is facilitating the establishment of interest free microfinance cooperative branches all over the country to uplift the poor families. It has been established in 2010 as a voluntary non-political, non-profit making social service organization. It aims to provide interest free micro finance options for reducing socio-economic disparities and to achieve justice and equity for educationally and financially backward sections of the public at large. Its main function is to facilitating, organizing and developing institutions, more particularly in co-operative sector. The patna office address of sahulat is SBCG Project Office, Sadar Gali, Near Old Awami Coop. Bank, Patna City - 800008 Bihar.

Navjeevan Microfinance Ltd, Ara (Bihar) Navjeevan Microfinance is a Non-Banking financial company (NBFC) and registered under companies Act 1956 incorporated on 05 February 2015 Patna. Its authorized share capital is Rs. 1,000,000 and its paid up capital is Rs. 100,000. It is involved in Microcredit and Microfinance intermediation. Its Corporate Identification Number is (CIN) U65999BR2015NPL023643 and its registration number is 23643. Its registered address is Javahar Tola Ara Bhojpur Bihar 802301. It mainly works for the development of rural areas, microcredit and micro-insurance, particularly to the small and marginal farmers, agricultural laborers, artisans. Al-Khair Co-Operative Credit Society, Ara (Bihar) Al-Khair Co-Operative Credit Society registered under Multi State Cooperative Societies ACT, 2002 and it had starts its head office at Haroon Nagar sector-2 Patna on 2002. There are mainly thirteen branches in Bihar and other states also. The society is managed by the Board consisting 21 members. Its unique feature is that it is completely interest free micro-finance institution. The Board is elected by the general body in Annual General Meeting. The Board appoints Chief Executive of the Society. (www.alkhairsociety.com) Muslim Fund, Begusarai (Bihar) The first Islamic model of interest-free microfinance(Muslim Fund) was established byMoulana Sayed Asad Madni with the help of Moulana Shamim Ahmad and others at Darul-Uloom Deoband started the trend setting Muslim Fund in 1961. This Islamic model of interest-free microfinance was developed to encourage poor farmers and workers to save smaller amounts on daily or weekly basis and to get interest-free loans. The Muslim Fund Begusarai is situated at Chil Mil, via Rajdhura, Dist. Begusarai Bihar. There are near about 25 branches of Muslim Fund in Bihar. Bihar Gramin Bank, Beusarai (Bihar) Bihar Gramin Bank sponsored by UCO Bank, came into existence vide Govt. of India notification dated 15th October,2012 by amalgamating 2 RRBs namely Bihar Kshetriya Gramin Bank and Samastipur Kshetriya Gramin Bank in exercise of the powers conferred by sub-section (1) of section 23A of the Regional Rural Banks act, 1976 (21 of 1976). The Bank has covered every village of the 9 districts of Bihar and extended a helping hand in the growth process of the area. The Primary objective of the Bank is to finance farm & non-farm sectors and other employment generation programs, delivering the best possible customer service and also keeping in mind to turn all the branches into profit making business canters. Bihar Gramin Bank Begusarai at Sona Jageshwer Complex, Traffic Chowk, Beusarai, Post Begusarai Pin Code: 851101 Janseva Co-operative Credit Society Ltd., Gaya (Bihar) Janseva Cooperative Credit Society Ltd has been registered in March 2010.The head office of Janseva is in 7/25-A, Grants Building, 17Arthar Bunder Road ,2nd Floor, Colaba, Mumbai- 400005. It has 25 branches functioning in the various States of INDIA i.e. A.P. Bihar, Chhattisgarh, Delhi, Karnataka, M.P., Maharashtra, Orissa, Rajasthan, Tamil Nadu, U.P. and West Bengal. It has been encouraged by group of people committed to interest free financial system drawn from different states of India. However, it owes its existence to the decisions of Board of Trustees of All India Council of Muslim Economic Upliftment Mumbai (AICMEU) and Community Coordination Initiative (CCI). Saija Finance Private Limited, Gaya (Bihar) Saija Finance Private Limited Gaya is a Non-Banking Finance Company (NBFC) formed in 2007 with a focus on providing microfinance services to the urban and rural poor, as well as micro and small businessmen in the underserved geographies of Northern & Eastern India, starting with Bihar. It was formed with a focus on providing microfinance services to urban and rural poor, as well as micro and small businessmen, in the underserved geographies of Northern & Eastern India, starting with Bihar. The geographic regions served by Saija are amongst the poorest in India and also are grossly underserved by formal financial institutions. Saija today serves 2,03,661 clients across 35 districts of Bihar, Jharkhand & Uttar Pradesh, operating with 60 branches. It was founded by Mr. Shashi Ranjan Sinha and Ms. Rashmi Sinha in April 2007. D. STATE - KARNATAKA Al-Ameen Co-op. Credit Society, Bengaluru (Karnataka) Al-Ameen Co-op Credit Society deals with interest free microfinance and micro-credit facilities to poor and needy micro-entrepreneurs. Its corporate Office at Amanath House, Shivajinagar, Bengaluru - 560 001. Phone: +91-80-22957711/12/13/14. Fax : +91-80-22957705,. Spandana Sphoorty Financial Limited, Bengaluru (Karnataka)

Spandana Sphoorty Financial Limited (‘SSFL’) is a public company incorporated under the provisions of the Companies Act,1956 on March, 2003. It covered mainly 12 states expending up to 1100 branches and outreach properly near about 25 lakh customers. The Company was registered as a non-deposit accepting Non-Banking Financial Company (‘NBFC-ND’) with the Reserve Bank of India (‘RBI’) and has got classified as Non-Banking Financial Company – Micro Financial Institution (NBFC – MFI) effective April 13, 2015. The Company is engaged in the business of micro finance providing small ticket unsecured loans to women of low-income households in rural and urban areas. The tenure of these loans is one to two years. The Company provides business loans, income generation loans and Loans against Gold jewellery. Taqwa Finance Limited, Bhatkal (Karnataka) Taqwa Finance Limited is a Non-Banking financial company (NBFC) it is registered and incorporated on 23 December 1994 at Bengaluru. The authorized share capital is Rs. 21,000,000 and its paid up capital is Rs. 500,000. It is mainly focus in Human health activities. Directors of Taqwa Finance Limited are Abdul Kader Shingeri, Mohammed Sayeed, Razia Sayeed and Mohamed Salman Shingeri. The head office of Taqwa Finance Limited is NH 17, Near Rangenkatta Bhatkal, Karnataka 581320 Karnataka Vikas Grameena Bank, Bhatkal (Karnataka) Karnataka Vikas Grameena Bank was established on 12th Sept 2005, by a Govt. of India Notification, amalgamating four Regional Rural Banks sponsored by Syndicate Bank in the state of Karnataka namely Bijapur Grameena Bank, Malaprabha Grameena Bank, Netravati Grameena Bank and Varada Grameena Bank. KVGB providing financial and banking services in area of microfinance and rural development for more than 65 lakh customers in 2033 villages through 617 Branches. Safa Baitul Maal Welfare and Charitable Trust, Hassan (Karnataka) Safa Baitul Maal Welfare and Charitable Trust is established on 2006 as a charitable society for the purpose of social and educational development also deals with interest free microfinance. It has operated in 10 states with nearly 60 branches. The welfare services by the used of zakat and sadqa fund. Its head office at 6-9-408/P/45, Wahed Nagar, Old Malakpet, Hyderabad, Telangana 500036. Grameen Financial Services Pvt. Ltd, Hassan (Karnataka) Grameen Financial Services Pvt. Ltd established in May 1999 as a microfinance institution under the inspiration of microfinance movement, led by Nobel Laureate Professor Muhammad Yunus.it is converted into Non-Banking financial company (NBFC) in the year 2007 and reclassified into a regulated and governed Non-Banking Financial Company - Micro Finance Institutions (NBFC-MFI) entity by Reserve Bank of India (RBI) in 2013. It has operating mainly three states i.e. Karnataka, Maharashtra, Tamil Nadu and it has near about more than 160 branches Grameen Financial Services Pvt. Ltd. Basically deals with Micro Credit, Micro Insurance, Pension, Health, Sanitation and Education.

Janseva Co-operative Credit Society Ltd., Mysore (Karnataka) Address :City Plaza MG Road Udya Giri Mysore 57001 (See Details in point no : ) Sanghamithra Rural Financial Services, Mysore (Karnataka) Sanghamithra Rural Financial Services was incorporated on February 15, 1995 as a Sec 25 Company, with liability of its Members limited by guarantee its head office at No. 612, 1C Main Raod, Domlur Layout, Bengaluru -560071. It has mainly operated in five states Karnataka, Tamil Nadu, Andhra Pradesh, Maharashtra, Madhya Pradesh with up to 80 branches and outreach near about 1.5 lakh customers. It mainly deals with Micro Credit, Micro Insurance, Housing & Sanitation. The Sanghamithra Rural Financial Services visualizes a society that supports a sustainable and vibrant financial and development environment where every self-help Affinity Group of the poor has the ability to access credit at competitive terms as well as skills and linkages in order to maximize the livelihood opportunities of its members.

E. STATE- KERALA

Palisha Rahitha Nidhi, Mallapuram & Thrissur (Kerala) Nidhi means interest free microfinance agencies mostly working in Kerala. There are more than 1000 Nidhis in Kerala – registered and unregistered. All of them provide micro-credit or microfinance to the needy or poor persons with no collateral securities and often with gold or persons as securities. These microfinance institutions help to eradicate poverty and growth and development in petty business activities. (Muhammed Fazal, K. 2016) Malappuram District Co Operative Bank Ltd., Mallapuram (Kerala) incorporated on 16th March 1970. With the objective to develop the society by providing microfinance and microcredit to the needy and poor entrepreneurs. The Malappuram District Co Operative Bank properly works in four sectors viz. agriculture sector, agriculture allied sector, Rural Industrial sector and cooperative Banking sector were benefitted heavily through the above project in improving their infrastructure. It has near about 60 branches throughout the District. Sanghamam Multistate Co-Operative Credit Society Ltd., Thrissur (Kerala) Sanghamam Multistate Co-Operative Credit Society Ltd incorporated on 6th June 2012 under registration of Co-operative Societies Act its area of operation covering in three states Kerala, Tamil Nadu and Pondicherry with the objective to become an efficient and active co-operative society, promoting microfinance and micro-credit through innovative and unique financial services, and also being trustworthy so as to ensure sustainable growth and profitability to all the members and society at large. Promote participatory micro-financing for the betterment of economically marginalized sections. Introduce various interest-free investment and loan schemes - both conventional and innovative. Mobilize our members' savings and utilize it for uplifting of the needy people.

ESAF Microfinance Ltd, Kozhikode (Kerala) ESAF Microfinance is established in 1992 with a small office in Thrissur, Kerala and converted into Non-Banking financial company (NBFC) and registered under companies Act 1956 incorporated on 2nd November 2007. It has nearly 300 branches and client outreach up to 11 lakhs. The RBI registration no is (RBI Reg. No.: B-07-00652). The inauguration of ESAF was propelled by the growing unemployment among the educated youth. Inspired by Nobel Peace Laureate Professor Muhammad Yunus, the founders of ESAF ventured into micro-financing and creation of self-sustainable groups to address the issues of poverty alleviation and employment generation. Alternative Investments and Credits Ltd, Kozhikode (Kerala) Alternative Investments and Credits Ltd is a public limited company which offers loans to business establishments on profit sharing basis. This was formed as an alternative to the interest based financial system. The capital is procured by issuing shares to the investors and the profit obtained is divided among the shareholders. AICL has its headquarters in Kochi and two branches at Kozhikode and Kannur. Head office 2nd Floor, Sunny Estates, Edappally - Palarivattom Rd, Mamangalam, Edappally, Ernakulam, Kerala 682025 Cheraman Financial Services Limited (CFSL), Ernakulum (Kerala) Cheraman Financial Services Limited (CFSL) is a Non-Banking financial company (NBFC) and registered under companies Act 1956 is a Public incorporated on 30 November 2009. By Kerala State Industrial Development Corporation to function as a non-banking finance company (NBFC). The authorized capital of CFSL is Rs. 10,000,000,000 and its paid up capital is Rs. 313,000,000. The deal with mostly in Shari’ah compliant by Islamic financing investment and business in India occurs through the NBFC’s .(THE TIMES OF INDIA, Aug 18, 2013).

Muthoot Fincorp Ltd., Ernakulum (Kerala) Muthoot Fincorp Ltd. is a Non-Banking financial company (NBFC) and registered under companies Act 1956 is a Public incorporated on 30 November 2010. Its Head office is at Muthoot Mahila Mitra 5th Floor, Muthoot Towers Ernakulam, Kerala 682035. It mainly covered 8 states and about more than 255 branches its client outreach up to 9 lakhs. It mainly deals with Micro Credit, Insurance, Remittance, Water & Sanitation, and Animal Husbandry.

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Comparative Analysis of Interest Free & Conventional Microfinance

After conducting a scrutiny of the two microfinance systems separately, this chapter takes up the task of comparative analysis of the two microfinance systems viz. conventional microfinance and interest-free microfinance as reflected in the views expressed by the customers of microfinance services. This chapter is exclusively based on the primary data collected from the customers.

Data has collected through a structured questionnaire from conventional and interest free micro finance beneficiaries in India. About 2000 microfinance users were provided with self- administered close ended questionnaires to report their sensitivity or the agreement/ disagreement regarding the respective factors i.e. income, investment, saving, women participation, children education, growth & diversification in business, consumption pattern on foods and non-foods items. Data were organized, edited, validated and entered into SPSS 22.0 version to apply specific statistical tools to test the hypotheses of the study. The study investigated the level of satisfaction with different factors among micro finance customers by the application of descriptive statistics for comparison between the two sets of banking systems. An overview of demographic characteristics of respondents was making by cross analysis frequency tables. However, mean, standard deviation and t- test were use to examine the significance in the perception of agreement among users of conventional microfinance (CMF) and interest free micro finance (IFMF).

6.1 Socio-Demographic differences under the two systems

The difference in demographic and social factors between the beneficiaries of the conventional and interest free loans reveals the coverage, preference and fitness of the two kinds of services. If the differences are found to be significant, the underlying reasons are to be investigated to draw any meaningful conclusions. Each class of customer may have its own sensitivities. The categories of the customers are taken up separately in the following paragraphs. 6.1.1 Gender wise differences

The table 6.1.1 shows gender wise differences of the taken loan between IFMF and CMF. From the analysis, it has revealed that out of 1000, 330 were male and 670 were female customers in IFMF while on the other hand, 85% were male and 15% were female in CMF. It indicates that male customers are more inclined towards IFMF while CMF is more favorable to female beneficiaries.

6.1.2 Family size wise differences

In classifying the beneficiaries of the two kinds of banks family size-wise, the respondents are divided into four classes: (i) only one member (ii) 2-3 members (iii) 4-8 members (iv) more than 8 members. The analysis revealed that (Table 6.1.2) in IFMF the 2% families had only one member, 22% families had 2-3 members, 62% families had 4-8 members and 14% families had more than eight members. In CMF the 0% families had only one member, 28% families had 2-3 members, 63% families had, 4-8 members and 9% families had more than eight members. The analysis revealed that majority of respondents had a family size of 4 to 7 persons in both kinds of banks, which meant that the family size of the microfinance users was large. When family size is large, higher expenditure and fewer saving are observed resulting in poverty (Sampson and Laub, 1994).

6.1.3 Age wise differences

The analysis (see Table 6.1.3) shows age wise distribution. It is divided into four classes < less than 25, 26-40, 41-60 in IFMF the respondents are as follows less than 25, 8% out of 1000, 26-40 55%, 41-60 36% and above 60 years only 1%. In CMF, the respondents are as follows, less than 25 5% out of 1000, 26-40 35%, 41-60 56% and above 60 years only 4%. So according to the data the majority of the respondents were of the age between 25 to 60 years with the average age of 43 years, indicating a mature group involved in both the micro finance systems. The maximum number of respondents in interest free micro finance is from age group 26-40 years, 55% as compared to conventional micro finance and the maximum numbers of respondents are from age group 41-60 years, 56%. The result shows the age group 26-40 years, respondents favor more to IFMF and age group 41-60 years respondents inclined towards CMF.

6.1.4 Education wise differences

According to the data (see Table 6.1.4) the qualification of IFMF customers are as follows out of 1000, 11%illiterates 24% primary, 25%higher secondary, 11% high school, 16% intermediate, 9% graduate 4% post graduate. The qualification of CMF customers are as follows out of 1000, 22% illiterates, 27% primary 14% higher secondary 13% high school 10% intermediate 10% graduate 4% post graduate. According to the results that the literacy rate of respondents is in interest free micro finance 89% as compared to conventional micro finance 78%. It was observed that minimum numbers of respondents are postgraduates and with various other courses which counts to around 4% in both the systems respectively. It means majority of respondents are less educated according to (Solga and Heike, 2002) in their article “Less‐Educated People's Decreasing Employment Opportunities."

6.1.5 Employment wise differences

Table 6.1.5 shows the total numbers of employed members in each family. In IFMF, the total numbers of employed members are as follows; families having one-employed member in IFMF are 65% out of 1000, families having two employed members are 30% and families having three or more than three employed members are 5%. In comparison to CMF, families having one-employed member are 49% out of 1000, families having two employed members are 44% and families having three or more than three members are 7%. The analysis revealed that CMF families have more employed members in each family as compared to IFMF. It is because IFMF customers are more focus on nuclear families rather than joint families (see Table 6.1.8).

6.1.6 Occupation wise differences

Table 6.1.6 Present occupation status of the respondents divided into three classes self- employed, government job and private job total numbers of respondents are 2000 of 1000 each from IFMF and CMF. From the analysis, it is reveals that out of 1000, 70% were self- employed, 10% were in government job and 20% were in private job. On the other hand, 61% were self-employed, 13 % were in government job and 26% were in private job in CMF. Therefore, according to the results maximum numbers of respondents were self employed which are 65.5% and the minimum number of respondents are in government jobs, which are 11.5%. However, self-employment respondents more inclined are towards IFMF as compare to CMF.

6.1.7 Family Income wise differences

Analysis explores family income of respondents divided into five categories (see Table 6.1.7) less than 20000, 20000 to 50000, Rs 50000 to 100000, 100000 to 200000 and Rs 200000 to 400000. In IFMF incomes are less than Rs 20000 11%, Rs 20000 to 50000 35%, Rs 50000 to 100000 45%, Rs 100000 to 200000 6% and Rs 200000 to 400000 3% and in CMF, it is less than Rs 20000 17% out of 1000, 20000 to 50000 22%, 50000 to 100000 42%, 100000 to 200000 16% and 200000 to 400000 3%. According to the results, the maximum numbers of respondents earn less than Rs.50000-100000 per annum 43.5%. Minimum numbers of respondents earn 200000-400000 per annum 3%. It means both the microfinance customers’ family income is very less. Therefore, it is indicating that the respondents are poor.

6.1.8 Family type wise differences

Family status of the respondents divided into two classes nuclear and joint. From the analysis, (Table 6.1.8) it is found that out of 1000, 82% were lived in nuclear families and 18% were lived in joint families of IFMF on the other hand 67% were lived in nuclear families and 33% were lived in joint families of CMF. Therefore, it is concludes that majority of interest free microfinance customers are focus on self-sufficiency and self-advancement in comparison of conventional microfinance system. According to many studies, joint family create conflict between the family members, which prevent nuclear families (Spillius and Elizabeth, 2014)

6.1.9 Poverty line wise differences

The table 6.1.9 shows economic status of the respondents divided into two classes APL (Above poverty line) and BPL (Below poverty line). From the analysis, it is reveals that out of 1000, 84% are APL and 16% are BPL in IFMF while on the other hand in CMF 88% were found APL and 12% were found BPL. It means majority of respondents were belonged to APL group from both of the microfinance system. 6.1.10 Housing wise differences

Table 6.1.10 shows housing status of the respondents divided into three classes’ kaccha, semi pucca and pucca. The respondents of interest free micro finance lived in pucca house were 37%, in semi pucca house were 49% and in kaccha house were 14%. In comparison to CMF where respondents lived in pucca house were 30%, in semi pucca house around 46% and in kaccha house near about 24%.It means in case of housing interest free microfinance users position is better than conventional microfinance users.

6.1.11 Rate of interest or processing fees differences

Table 6.1.11 present the rate of interest or processing fees. It is divided into four classes <5%, 5% to 12%, 13% to 24% and 25%to 36%. In CMF the class below 5% (zero), 5% to 12% is (1%),13% to 24% (86%), and the class of 25% to 36% (13%) and in interest free micro finance the rate of interest or processing fees is counted in the group of below 5% (1%), 5% to 12% (99%)13% to 24% (zero) and 25%to 36% (NIL). It means rate of interest in conventional microfinance is higher than interest free microfinance system.

6.1.12 Loan Period wise differences

Table 6.1.12 shows period of giving loan by the company has divided into three classes less than one year, 1-2 years and 3-5 years. According to the results in CMF the numbers of respondents borrowed loan for the period less than one year were around 23% as compared to IFMF were borrowed loan for the period less than one year around 21%. Further, during the period of 3-5 years the IFMF were taking loan near about 4% as compared to CMF were around 21%. However, the maximum numbers of respondents borrowed loan in IFMF for the period of 1-2 year were around 73% as compared to CMF 58%. So from the analysis, it has revealed that the majority of the respondents taken loan for the period 1-2 years were 65.5% and the minimum numbers of respondents were borrowed loan for the period of 2-5 years were around 12.5%.

6.1.13 Loan Purpose wise differences

Table 6.1.13 Present the purpose of loan by microfinance users. According to result IFMF customers taking loan for the purpose of marriage about 19%, medical 15%, education 10%, petty business 41%, overseas employment 5%, consumables zero and durables 10%. However, the CMF customers were taking loan for the purpose of marriage 21%, medical 18%, education 13%, petty business 33%, overseas employment 2%, consumables 1% and durables 12%. It means maximum numbers of respondents were borrowed loan for business purposes 37% and minimum number of respondents borrowed loan for consumption purposes 0.5%. Therefore, we concludes that both the microfinance system concentrate on growth and development of microfinance users through employment generation schemes.

6.2 Pre-loan & Post loan status on basic amenities

In Table 6.2 Measure poverty alleviation schemes of IFMF and CMF by comparing basic amenities and household items. According to the results, the growth rate on basic amenities and household items are as follows. In IFMF, facilities were increased after taking loan drinking water 1%, electricity 6.67%, kitchen 23.64%, bathroom 9.46%, toilet 9.2%, education 9.23%, cooking gas 31.67%, television 11.67% cycle 10.84%, scooter 64.29%, mobile 4.17%. In CMF, the growth rate on basic amenities and household items are as follows, drinking water 10.34%, electricity 20%, kitchen 1.47%, bathroom 22.81%, toilet 22.95%, education 15.63%, cooking gas 21.88%, television 20.83% cycle 12.5%, scooter 32.43%, mobile 12.82%, the position of IFMF were better than CMF. Nevertheless, in growth rate the CMF customers are higher than IFMF customers. It means the position of micro finance users became improved after taking loans. However, CMF users are more emphases towards accruing the basic facilities for household purposes. Although, data shows that both the systems play effective role in eradication of poverty.

6.3 Children education wise differences

The education status of children divided into two age groups 4-9 years and 10- 18 years (Table 6.3). In IFMF the literacy rate of the children for age group 04-09 were nearly 89.29% and the age group 10-18 years were around 90%.However, in CMF the literacy rate of the children in the age group 04-09 were around 81.82% and in the age group 10-18 years were around 88.1%. Therefore, according to the results overall literacy rate of the children in the age group 04-09 years around 85.59% and in the age group 10- 18 years were around 89% children. It means overall literacy rate among children of micro finance users is satisfactory and also there is an increase in expenditure child education after taking loan According to (Barnett,1998) “it is generally accepted rule that early childhood education improves the cognitive performance of children in poverty”.

6.4 Loan Process and their Economic & Social effects

The analysis revealed that the respondents show their agreement or disagreement (see Table 6.4). On the following three aspects(i)process of taking loan aspects(ii) Economic aspects and third (iii)Social aspects. By using of five point of scale (-2) extremely disagree (-1) disagree (0) not agree not disagree (1) agree (2) extremely agree. The results shows by using compare mean and standard deviation.

I. Process of taking loan aspects which were further divided in the following factors (a) It is difficult to get micro finance (b) Procedure is complicated(c) Delay in reciting of loan.

II. Economic aspects further divided into following factors (a)Problem of high processing fees(b)Amount of loan sanction is low (c)It is easy to repay micro finance.

III. Social aspects, further divided into following factors (a)It will help in education development (b)It will help in reduction in poverty (c) It will help to employment generation (d)It will help to women empowerment(e) It will help community development.

In IFMF, mean value of process of taking loan aspects. It is difficult to get micro finance (mean-1.14 S.D 0.55), Procedure is complicated (mean-1.13 S.D 0.54), Delay in reciting of loan (mean-1.16 S.D 0.56). Economic aspects: Problem of high processing fees (mean-1.09 S. D 0.62), Amount of loan sanction is low (mean-0.09 S.D 1.14), It is easy to repay micro finance (mean 0.85 S. D 0.80) and this model fulfill your requirement (mean0.93 S.D 0.79). Social aspects: It will help in education development (mean0.32 S.D 0.96), It will help in reduction in poverty (mean0.8 S.D 0.80), It will help to employment generation (mean0.64 S.D 0.82), It will help to women empowerment (mean 0.43 S. D 0.88) and It will help community development (mean0.55 S.D 0.86).

In CMF, the mean value and standard deviation are as follows. Process of taking loan aspects i.e. It is difficult to get micro finance (mean 0.69 S. D 0.95), Procedure is complicated (mean 0.61 S.D. 1.01), Delay in reciting of loan (mean 0.6 S.D. 0.97). Economic aspects: Problem of high processing fees (mean 0.78 S.D. 0.99), Amount of loan sanction is low (mean 0.67 S.D. 1.07), It is easy to repay micro finance (mean -0.38 S.D. 0.96) and this model fulfill your requirement (mean -0.42 S.D 1.01). Social aspects: It will help in education development (mean 0.01 S. D 1.02), It will help in reduction in poverty (mean - 0.46 S.D 0.96), It will help to employment generation (mean -0.31 S.D 1.08), It will help to women empowerment (mean -0.22 S.D 1.05) and It will help community development (mean -0.21 S.D 1.05).

According to results, the respondents of IFMF were more satisfied that the process of borrowed loan is easy as compare to CMF. Moreover, the interest or processing fees in IFMF is less than CMF (see Table 6.1.11) consequently; due to less processing fees, IFMF customers were comfortable to repay the loan. However, in educational development and women empowerment CMF play effective role.

Data is analyzed (see Table 6.4.1) by applying the independent sample t-test through compare means. This test calculate the significant differences between two independents variable and determine whether both come from the population with the same mean. The independent sample t-test tests measures the null hypothesis that the population mean is equal to the number specified by the user. SPSS calculates the t-statistic and its p-value under the assumption that the sample comes from an approximately normal distribution. If the p-value associated with the t-test is small then (0.05), there is evidence that the mean is different from the hypothesized value. If the p-value associated with the t-test is to small (p <0.05), then the null hypothesis is rejected and we can conclude that the mean is not different from the hypothesized value. The table 4.1 indicates that the significance associated with the coefficient from the t test indicates that, in fact, in every pair of compared variables both means are statistically different. In order to test the hypothesis, the table is offered which contains the results by compare means.(Lewis-Beck et al., 2003).

6.5 Effect on Expenditure in different heads According to Table 6.5 the responses frequency was collected on three-point scales (1) expenditure increase (↑), (2) expenditure decrease (↓), and (3) expenditure with no change. These three options were asked to 1000 respondents from IFMF and CMF each in various heads. The results revealed that the performances of IFMF after taking loans in these heads are as follows. Food consumption 560 ↑ 10↓ 430 no change, education 420↑ 20↓ no change 560, health 550↑ 20↓ no change 430, entertainment 430↑ 40↓ no change 530, social custom 580↑ 50↓ no change 370, debt repayment 530↑ 50↓ no change 420, transportation 630↑ 10↓ no change 450, business investment 500↑ 40↓ no change 560, miscellaneous 410↑ 80↓ no change 510, saving 400↑ 80↓ no change 520. In CMF after taking loan the expenditure in various heads are as follows viz food consumption 560 ↑20↓420 no change , education 440↑50↓no change510, health 330↑150↓no change520, entertainment 280↑110↓no change 610, social custom 410↑150↓ no change 440, transportation 340↑130↓ no change 530, Debt Repayment 350↑160↓ no change490 , business investment 350↑150↓ no change 500 , miscellaneous 220↑530↓ no change650, saving 280↑260↓ no change 460. After analysis, it is revealed that the expenditure increase in food consumption both free micro finance systems have same position but expenditure increase in education CMF nearly better than IFMF. Moreover, remaining heads like health, entertainment, social custom, transportation, debt repayment, business investment, miscellaneous, saving the IFMF is better than CMF. 6.6 Economic effect in last five years According to Table 6.6 analysis illustrate that the impact of economic factors in last five years on five points of scale (-2) extremely disagree (-1) disagree (0) neither agree not disagree (1) agree (2) extremely agree. The results shows about micro finance users’ response by using compare means and standard deviation are as follows in factor increase in income shows positive result means near to agreement on both the system i.e. IFMF (means 0.67 S.D 0.73) and CMF (0.14 S.D 0.89).

Second factor is response about increase in investment after taking loan the results shows that the IFMF (mean 0.04 S.D 0.94) and CMF (-0.04 S.D 0.94) it means IFMF respondents are nearly agree and CMF respondents were nearer to disagreement. However, when we compare participation of women in the family income IFMF (mean 0.03 S.D. 1.10) and CMF (mean 0.08S.D. 1.10) and expenditure increased on the children education the data shows that the IFMF (mean-0.3 S.D 1.07) and CMF (-0.3 S.D 0.93). Hence, according to results the CMF is better in comparison to IFMF on women participation and children education. Although, the response in other factors are as follows, increase in saving IFMF (-0.1 S.D. 0.97) and CMF (- 0.51 S.D 0.92), increase in business IFMF (-0.08 S.D 1.00) and CMF (-0.38 S.D 0.86), diversification in business IFMF (-0.46 S.D 0.86) and CMF (-0.34 S.D 0.81), purchased machinery for business IFMF (-0.52 S.D 0.83) and CMF (-0.49 S.D 0.81). Therefore, to conclude this we can say the respondents are nearly disagreed it means income in increase but very nominal rate. However, the analysis revealed that although they agree their income was increase but they disagree that their investment, saving, business venture did not increase. It means their performance was not so good in last five years and their position almost in both of the microfinance system. 6.7 Effects on Consumption after taking loan

According to Table 6.7 analysis illustrate that the effects on consumption after taking loan by use of means and S.D. about food and non-food items on five point of scale (-2) extremely disagree (-1) disagree (0) neither agree not disagree (1) agree (2) extremely agree. The micro finance users’ responses are as follows. In this analysis we take average of both food and non-food items. Accordingly, in IFMF the average of food and non-food items were lied in (mean 0.09 to 0.43 and S.D 0.93 to 0.97) hence results indicate that IFMF users have near to agree that their consumption was increase after taking loan on both food and non-food consumables items. On the other hand, in CMF customers response about food and non-food items that the mean value on an average lie in (mean-0.05 to- 0.23 and S.D 0.76 to 0.91). Consequently, the result indicate that CMF users have nearer to disagreement that their expenditure on food and non-food was not so much increase .Therefore, we can conclude IFMF customers are more satisfied from CMF customers because there is a relationship between consumables and level of satisfaction.

6.8 Effect of Occupation

In Table 6.8 this study is analysed the impact of occupation on types of microfinance by cross analysis on effect of occupation between IFMF and CMF. The types of occupations are as follows S.E. (self-employment) G.J (government job) P.J (private job) on five points of scale (2) extremely disagree (-1) disagree (0) not agree not disagree (1) agree (2) extremely agree.

In IFMF, the factors indicate that the mean value among occupation. Increase in income (S.E. 0.7 G.J 0.7 P.J. 0.6) , increase in investment (S.E 0.1 G.J 0.1 P.J -0.3) ,share of women in family income (S.E -0.2 G.J -0.8 P.J -0.3), increase in saving (S.E 0.0 G.J -0.6 P.J -0.1), increase in business(S.E 0.1 G.J -0.6 P.J-0.6), diversification in business (S.E -0.4 G.J -0.6 P.J-0.7), purchased machinery for business (S.E -0.5 G.J -0.7 P.J -0.6) and increase expenditure in the children education (S.E -0.1 G.J 0.6 P.J -0.1).

Therefore, according to the results in IFMF responses after taking loan that all the classes of occupation agree that their income was increased. However, in investment self-employed and government job were satisfied except respondents of private job were not satisfied, in saving self-employed satisfied although, govt job and private jobs were not satisfied. In women participation in family income, all the classes of respondents were nearer to disagree. In business, self-employed respondents were satisfied that microfinance helps in growth & diversification of business but they did not agreed that microfinance helps in education development. However, government job were satisfied that it helps in education development.

In CMF the position of respondents are as follows. The factors indicate that the mean value among occupation. Increase in income (S.E. 0.1 G.J 0.4 P.J. 0.1) , increase in investment (S.E -0.1 G.J 0.2 P.J -0.1) , share of women in family income (S.E 0.0 G.J 0.3 P.J 0.0), increase in saving (S.E -0.4 G.J -0.2 P.J -0.3), increase in business (S.E -0.3 G.J -0.3 P.J-0.5), diversification in business (S.E -0.5 G.J -0.4 P.J-0.5), purchased machinery for business (S.E -0.6 G.J -0.5 P.J -0.3) and increase expenditure in the children education (S.E 0.1 G.J 0.3 P.J -0.2).

According to the results after taking loan the income of CMF customers has been increase for all types of respondents however, the rate of agreement of IFMF customers is higher than CMF customers in investment the position is same only government jobs have satisfied among all of the customers. In women participation in family income all the CMF customers i.e. S.E. (self-employment) G.J (government job) P.J (private job) are in better position than IFMF customers for the reason that in CMF women respondents are more aware than non- conventional microfinance clients. Therefore, the result revealed that in saving both the customers are not satisfied that their income is increase after taking loan and conventional microfinance somewhat disagree on increase in business, diversification and purchased machinery for business in interest free microfinance customers also near to disagree. However, all the conventional microfinance users i.e. S.E. (self-employment) G.J (government job) P.J (private job) are somewhat satisfied that their expenditure on children education was increase after taking loan mostly those who are in government jobs in both of the microfinance system.

6.9 Economic effects of Cost of Loan

In Table 6.9 Cross analysis and compare means is used for examine the level of satisfaction and impact of rate of interest or processing fees on economic factors of microfinance users on five points of scale. According to data the rate of interest taking by CMF and IFMF agencies mainly on four categories i.e. <5%, 5% to 12% ,13% to 24% and 25%to 36%.

From the analysis, it is reveals in IFMF the respondents mean value with respect to rate of interest are as follows. Increase in income (mean <5% 1.0, 5% to 12% 0.7), in investment (mean <5% 1.0, 5% to 12% 0.0) , women participation(mean <5% 0.0, 5% to 12% -0.3) , saving (mean <5% 1.0, 5% to 12% -0.1) ,increase in business (mean <5% 1.0, 5% to 12% - 0.1) , growth and diversification in business (mean <5% 1.0, 5% to 12% -0.5),purchased machinery (mean <5% 1.0, 5% to 12% -0.5) and increase expenditure in children education (mean <5% -0.1, 5% to 12% 0.00) .

In CMF, the respondents mean value with respect to rate of interest are as follows i.e. increase in income (mean 5% to 12% 1.0 13% to 24% 0.1 25%to 36% 0.2), in investment (mean 5% to 12% 1.0 13% to 24% 0.0 25% to 36% -0.2), women participation(mean 5% to 12% 0.0, 13% to 24% 0.0, 25%to 36% 0.0 ), saving (mean 5% to 12% 1.0, 13% to 24% -0.3, 25%to 36% -0.6),increase in business (mean 5% to 12% 0.0, 13% to 24% -0.4,25% to 36% - 0.2) ,growth and diversification in business (mean 5% to 12% 0.0, 13% to 24% -0.5 25%to 36% -0.7),purchased machinery(mean 5% to 12% -0.1, 13% to 24% -0.5 25%to 36% -0.5) and increase expenditure in children education (mean 5% to 12% 1.0 13% to 24% 0.1 25%to 36% -0.2).

The overall result revealed that the mean value impact on rate of interest effected directly on interest free microfinance customers and conventional microfinance customers because those respondents pay less rate of interest are more satisfied than who paid more rate of interest or processing fees. However, according to results that IFMF customers are more satisfied than CMF customers yet interest rate is directly proportion to the level of satisfaction of customers it means.

6.10 Effect of education on getting loan

Compare means is used to examine and evaluate the education status of the respondents. (see Table 6.10) On five point of scale (i) illiterate (ii) primary& Higher secondary (iii) High school & Intermediate (iv) graduate and above. To measure their sensitivity about the agreement or disagreement regarding the process of getting loan and prospects of getting loan by cross sectional analysis of IFMF and CMF.

According to the results all the classes of IFMF, customers are highly satisfied with process and prospects of loan taking .The results of compare mean show that interest free microfinance customers are disagree that the procedure of getting loan is difficult (mean value -1.14). Delay in reciting of loan (mean value -1.16).Problem of high processing fees (mean value -1.09). Amount of loan sanction is low (mean value -0.09) and they are near to agree that this model fulfil their requirement (mean value 0.93),it will help to reduce poverty (mean value 0.80),it will help in education development (mean value 0.32),it will help to employment generation (mean value 0.64),it will help to women empowerment (mean value 0.43) and it will help to community development (mean value 0.55). The results show that the conventional microfinance customers are not satisfied with process of getting loan and prospects of getting loan.

The compare mean results show that the illiterate respondents are extremely agreed that the procedure is complicated to borrowed loan and it is very difficult to getting loan with, delay in reciting of loan (mean value, 1.18), problem of high processing fees (mean value 1.27), amount of loan sanction is low (mean value 1.00) but the respondents from graduate and above category in CMF are satisfied with process of getting loan and procedure of getting loan the (mean value -0.08 and -0.15) respectively.

6.11 Types of banking used by customers

According to Table 6.11 the results revealed that in IFMF respondents banking services are as follows customers having saving bank accounts 40%, F. D in bank 1%, Muslim fund 54%, Committee 4%, At home 1%. In CMF, the respondents have banking services are as follows customers having saving bank accounts 46%, F.D in bank 8%, Gramin bank 42%, Committee 2%, At home 2%. Maximum number of micro finance beneficiaries like to save in nationalized bank’s saving a/c counted 43% and minimum number of beneficiaries like to save at home. Nevertheless, majority of IFMF have to open their account in Muslim fund a/c 54%. Since, to open account in interest free MFIs is simple to open account as compare to any other banks. However, these Muslim funds registered with cooperative society Act.

6.12 Hypotheses Testing Based on the above analysis the formulated hypotheses (as given in chapter 3) can test. It is mention below: Ho1: there is no significant difference in the Process of taking loan between IFMF with CMF.

Independence t-test has used for analysis to identify the significant difference between IFMF and CMF on different aspects. There are three variables taken in the factor process of taking loan i.e. difficult to get micro finance, procedure is complicated and delay in reciting of loan. On the hypothesis that Ho: there is no significant difference in the procedure of getting loan between IFMF and CMF. According to the result that the p value of the factorprocess of taking loan i.e.it is difficult to get micro finance (P= 0.00 t -16.66), Procedure is complicated (P= 0.00 t -15.12), delay in reciting of loan (P = 0.00 t -15.64) between interest free micro finance with conventional micro finance. Because (p < 0.05) so we reject the null hypothesis of no difference between the IFMF and CMF in process of taking loan. Hypothesis (Ho1) stands rejected.

Ho2: there is no significant difference between IFMF and CMF in Economic Aspects of loan.

By comparing the obtained t statistic value by applying independence t test in SPSS to identify the significant difference on economic aspects between IFMF and CMF. There is four variable taken in economic aspects i.e. Amount of loan, interest or processing fees, easy to repay micro finance and microfinance fulfill the needs of customers. According to the result that the p value of the factor economic aspects viz. Amount of loan (P = 0.00 t - 4.86), interest or processing fees (P= 0.00 t -15.99), easy to repay micro finance (P = 0.00 t 9.85) and microfinance fulfil the needs of customers (P = 0.00 t 10.08) and data of freedom 198. We reject the null hypothesis because (p < 0.05) of no difference between the IFMF and CMF in economic aspects. This hypothesis (Ho2) also stands rejected.

Ho3: there is no significant difference between IFMF and CMF in Social Impact.

Examining the confidence intervals and determining the significant difference on social aspects factor between IFMF and CMF by applying independent t test in SPSS. There are five variables taken in social aspects i.e.in education development, to reduce poverty, to employment generation, to women empowerment and to help in community development between IFMF and CMF. According to the result that the p value of social aspects viz. education development (P = 0.00 t 2.21), to reduce poverty (P = 0.00 t 10.08), to employment generation (P = 0.028 t 7.00), to women empowerment (P = 0.00 t 4.75) and to help in community development (P = 0.00 t 5.62) and the data of freedom 198. As a result (p < 0.05) then we reject the null hypothesis of no difference between the IFMF and CMF in social aspects. Therefore, this hypothesis (Ho3) has also rejected.

The examination of these three aspects from the concerned tables are showing results through statistical tools like mean and standard deviation and t test from the respondents. It indicates that the interest free micro finance customers are more satisfied than conventional micro finance customers in almost all factors i.e. borrowing of loan, procedure for taking loan, reciting of loan, interest or processing fees, amount of loan, reduce poverty, employment generation, women empowerment and community development. However, the results of education development are showing CMF is in better position to address these problems of the beneficiaries.

References

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APPENDIX Table 6.1: Socio-demographic status of Conventional v/s Interest Free Microfinance Users

Respondents profile Types of microfinance 6.1.1 Gender Interest free Conventional Total Male 330 150 480 Female 670 850 1520 Total 1000 1000 2000 6.1.2Total Family Members 1 20 0 20 2-3 220 280 50 4-8 620 630 1250 >8 140 90 230 Total 1000 1000 2000 6.1.3 Age category 60 Year 10 40 50 Total 1000 1000 2000 6.1.4 Education Status Illiterate 220 110 330 Primary 270 240 510 Higher Secondary 140 250 390 High School 130 110 240 Intermediate 100 160 260 Graduate 100 90 190 Post Graduate 40 40 80 Total 1000 1000 2000 6.1.5 Total Employed Members 1 650 490 1140 2 300 440 740 3 50 70 120 Total 1000 1000 2000 6.1.6 Occupation Self Employed 700 610 1310 Government Job 100 130 230 Private Job 200 260 460 Total 1000 1000 2000 6.1.7 Family income less than 20000 110 170 280 20000-50000 350 220 570 50000-100000 450 420 870 100000-200000 60 160 220 200000-400000 30 30 60 Total 1000 1000 2000 6.1.8 Family status nuclear 820 670 1490 joint 180 330 510 Total 1000 1000 2000 6.1.9Economic Status APL 840 880 1720 BPL 160 120 280 Total 1000 1000 2000 6.1.10Types of house kaccha 140 240 380 semi pucca 490 460 950 pucca 370 300 670 Total 1000 1000 2000 6.1.11Rate of interest or processing fees <5% 10 0 10 5%to12% 990 10 1000 13% to 24% 0 860 860 25% to 36% 0 130 130 Total 1000 1000 2000 6.1.12Period of taking loan by the user Less Than One Year 230 210 440 1-2 Years 730 580 1310 2-5 Years 40 210 250 Total 1000 1000 2000 6.1.13Purposes of loan taking Marriage 190 210 400 Medical 150 180 330 Education 100 130 230 Petty Business 410 330 740 Overseas Employment 50 20 70 Consumables 0 10 10 Durables 10 120 220 Total 1000 1000 2000

Table 6.2: Pre-loan & Post loan status on basic amenities for types of microfinance

Interest Free Conventional Total B.L A.L B.L A.L B.L A.L Basic Amenities Yes No Yes No Yes No Yes No Yes No Yes No Drinking Water 970 30 980 20 870 130 960 40 1840 160 1940 60 Electricity 900 100 960 40 750 250 900 100 1650 350 1860 140 Kitchen 550 450 680 320 680 320 690 310 1190 810 1370 630 Bathroom 740 260 810 190 570 430 700 300 1310 690 1510 490 Toilet 870 130 950 50 610 390 750 250 1480 520 1700 300 Education 650 350 710 290 640 360 740 260 1290 710 1450 550 Cooking Gas 600 400 790 210 640 360 780 220 1240 760 1570 430 Television 600 400 710 290 480 520 580 420 1080 920 1290 710 Refrigerator 510 490 550 450 440 560 560 440 950 1050 1110 890 Cycle 830 170 920 80 640 360 720 280 1470 530 1640 360 Scooter 280 720 460 540 370 630 490 510 650 1350 950 1050 Mobile 960 40 990 10 780 220 880 120 1740 260 1870 130

(B.L) Before loan (A.L) After loan. Table 6.3: Children education differences on type of microfinance

Types of loan Interest Free Conventional Total Age Group/ Total School Total School Total School School Going Children Going Children Going Children Going 04-09years 560 500 550 450 1110 950 10-18years 400 360 420 370 820 730

Table 6.4: Loan Process and their Economic & Social effects for types of microfinance Types of loan Interest Free Conventional Factors Mean S.D Mean S.D It is difficult to get micro finance -1.14 0.55 0.69 0.95 Procedure is complicated -1.13 0.54 0.61 1.01 Delay in reciting of loan -1.16 0.56 0.6 0.97 Problem of high processing fees -1.09 0.62 0.78 0.99 Amount of loan sanction is low -0.09 1.14 0.67 1.07 It will help in education development 0.32 0.96 0.01 1.02 It is easy to repay micro finance 0.85 0.80 -0.38 0.96 This model fulfil your requirement 0.93 0.79 -0.42 1.01 It will help to reduce poverty 0.8 0.80 -0.46 0.96 It will help to employment generation 0.64 0.82 -0.31 1.08 It will help to women empowerment 0.43 0.88 -0.22 1.05 It will help community development 0.55 0.86 -0.21 1.05 (-2) extremely disagree (-1) disagree (0) not agree not disagree (1) agree (2) extremely agree

Table 6.5: Effects on Expenditure/Financial capacity in different heads Types of loan Interest Free Conventional Total Factors ↑es ↓es No Change ↑es ↓es No Change ↑es ↓es No Change Food consumption 560 10 430 560 20 420 1120 30 850 Education 420 20 560 440 50 510 860 70 1070 Health 550 20 430 330 150 520 880 170 950 Entertainment 430 40 530 280 110 610 710 150 1140 Social custom 580 50 370 410 150 440 990 200 810 Transportation 630 10 350 340 130 530 970 140 880 Debt Repayment 530 50 420 350 160 490 880 210 910 Business Investment 500 50 450 350 150 500 850 200 950 Miscellaneous 410 80 510 240 220 530 650 300 1040 Saving 400 80 510 280 260 460 680 340 970 Expenditure: (1)↑increased (2)↓ decreased (3) no change Table 6.6: Economic effect on types of microfinance (less than five years) Types of loan Interest free Conventional Total Factors Mean S.D Mean S.D Mean S.D Increase in income 0.67 0.73 0.14 0.89 0.40 0.85 Increase in investment 0.04 0.94 -0.04 0.94 0.00 0.94 Increase in the share of women in family income -0.3 0.93 0.03 0.89 -0.13 0.92 Increase in saving -0.1 0.97 -0.34 0.92 -0.22 0.95 Increase in business -0.08 1.00 -0.38 0.86 -0.23 0.94 Diversification in business -0.46 0.86 -0.51 0.81 -0.48 0.83 Purchased machinery for business -0.52 0.83 -0.49 0.82 -0.50 0.83 Increase expenditure in the children education -0.03 1.07 0.08 1.10 0.02 1.08 (-2) extremely disagree (-1) disagree (0) somewhat agree (1) agree (2) extremely agree

Table 6.7: Effects on Consumption after taking loan on types of microfinance Types of loan Interest free Conventional Total Food and nonfood items Mean S.D Mean S.D Mean S.D Cereals 0.27 0.97 -0.08 0.84 0.095 0.92 Pulses 0.26 0.99 -0.07 0.81 0.095 0.92 Milk, tea/coffee 0.29 0.97 -0.04 0.79 0.125 0.90 Sugar 0.29 0.97 -0.14 0.84 0.075 0.93 Vegetables 0.27 0.97 -0.13 0.90 0.07 0.95 Oil 0.27 0.97 -0.17 0.90 0.05 0.96 Cloth 0.23 0.96 -0.18 0.86 0.025 0.93 Cosmetic 0.09 0.96 -0.23 0.85 -0.07 0.92 Education, health care 0.27 0.97 -0.05 0.91 0.11 0.96 Entertainment 0.14 0.95 -0.15 0.80 -0.005 0.89 Ceremonies/functions 0.25 0.96 -0.18 0.76 0.035 0.89 Firewood/fuel/gas/kerosene 0.27 0.95 -0.23 0.78 0.02 0.90 Mobile or telephone 0.43 0.93 -0.07 0.84 0.18 0.92 (-2) extremely disagree (-1) disagree (0) somewhat agree (1) agree (2) extremely agree

Table 6.8: Effects of Occupation on types of microfinance Types of loan Interest Free Conventional Occupation S.E G.J P.J Total S.E G.J P.J Total increase in income 0.7 0.7 0.6 0.7 0.1 0.4 0.1 0.1 increase in investment 0.1 0.1 -0.3 0.0 -0.1 0.2 -0.1 0.0 share of women in family -0.2 -0.8 -0.3 -0.3 0.0 0.3 0.0 0.0 income increase in saving 0.0 -0.6 -0.1 -0.1 -0.4 -0.2 -0.3 -0.3 increase in business 0.1 -0.6 -0.6 -0.1 -0.3 -0.3 -0.5 -0.4 diversification in business -0.4 -0.6 -0.7 -0.5 -0.5 -0.4 -0.5 -0.5 purchased machinery for -0.5 -0.7 -0.6 -0.5 -0.6 -0.5 -0.3 -0.5 business increase expenditure in -0.1 0.6 -0.1 0.0 0.1 0.3 -0.2 0.1 the children education S.E. (self-employment) G.J (government job) P.J (private job) (2) Extremely disagree (-1) disagree (0) not agree not disagree (1) agree (2) extremely agree

Table 6.9: Economic Effect of Cost/ Interest of Loan on type of microfinance Types of loan Interest Free Conventional Rate of interest or <5% 5% Tota 5% to 13% to 25%to Total processing fees to12% l 12% 24% 36% increase in income 1.0 0.7 0.7 1.0 0.1 0.2 0.1 increase in investment 1.0 0.0 0.0 1.0 0.0 -0.2 0.0 participation of women in 0.0 -0.3 -0.3 0.0 0.0 0.0 0.0 family income increase in saving 1.0 -0.1 -0.1 1.0 -0.3 -0.6 -0.3 increase in business 1.0 -0.1 -0.1 0.0 -0.4 -0.2 -0.4 diversification in business 1.0 -0.5 -0.5 0.0 -0.5 -0.7 -0.5 purchased machinery for 0.0 -0.5 -0.5 -1.0 -0.5 -0.5 -0.5 business increase expenditure in -1.0 0.0 0.0 1.0 0.1 -0.2 0.1 children education -2) extremely disagree (-1) disagree (0) not agree not disagree (1) agree (2) extremely agree

Table 6.10: Effect of Education on problems, prospect & issues of getting loan

Types of loan Interest free Conventional

Total Total

Above Above

Illiterate Illiterate

SSC & SSSCSSC & SSSCSSC

>Graduate &

> Graduate> &

Primary & SSC Factors Primary &H.S.C It is difficult to get micro finance -0.91 -1.15 -1.30 -1.21 -1.14 1.27 0.63 0.93 -0.08 0.69 Procedure is complicated -0.91 -1.12 -1.35 -1.14 -1.13 1.00 0.59 0.85 -0.15 0.61 Delay in reciting of loan -0.91 -1.17 -1.39 -1.14 -1.16 1.18 0.63 0.56 0.08 0.60 Problem of high processing fees -0.86 -1.07 -1.30 -1.14 -1.09 1.27 0.78 0.70 0.54 0.78 Amount of loan sanction is low -0.14 -0.10 -0.09 0.00 -0.09 1.00 0.51 0.81 0.69 0.67 It will help in education development 0.14 0.12 0.39 1.07 0.32 0.09 -0.22 0.26 0.31 0.01 It is easy to repay micro finance 0.91 0.71 0.83 1.21 0.85 -0.55 -0.37 -0.37 -0.31 -0.38 This model fulfil your requirement 0.86 0.76 1.04 1.36 0.93 -0.82 -0.45 -0.30 -0.23 -0.42 It will help to reduce poverty 0.64 0.76 0.78 1.21 0.80 -0.73 -0.57 -0.26 -0.23 -0.46 It will help to employment generation 0.64 0.54 0.48 1.21 0.64 -0.45 -0.65 -0.07 0.62 -0.31 It will help to women empowerment 0.36 0.41 0.30 0.79 0.43 -0.36 -0.39 -0.11 0.31 -0.22 It will help to community development 0.41 0.51 0.61 0.79 0.55 -0.45 -0.29 -0.07 0.00 -0.21 -2) extremely disagree (-1) disagree (0) not agree not disagree (1) agree (2) extremely agree

Table 6.11: Types of banking used by type of microfinance customers Interest Free Conventional Total Saving bank a/c 400 460 860 F.D in bank 10 80 90 Muslim fund 540 0 600 Committee 40 20 60 At home 10 20 30 Gramin Bank 0 420 420 1000 1000 2000

Table 6.12: t test analysis 95% Confidence Mean Interval of the t df P. val Difference S.E.D Difference Lower Upper 1-Process of taking loan It is difficult to get micro finance -16.66 198 0.00 -1.83 0.110 -2.047 -1.613 Procedure is complicated -15.12 198 0.00 -1.74 0.115 -1.967 -1.513 Delay in reciting of loan -15.64 198 0.00 -1.76 0.113 -1.982 -1.538 2- Economic Aspects Amount of loan sanction is low -4.86 198 0.00 -0.76 0.156 -1.069 -0.451 Problem of high processing fees -15.99 198 0.00 -1.87 0.117 -2.101 -1.639 It is easy to repay micro finance 9.85 198 0.00 1.23 0.125 0.984 1.476 Do you think this model fulfil your requirement 10.53 198 0.00 1.35 0.128 1.097 1.603 3-Social Aspects Do you think it will help in education development 2.21 198 0.028 0.31 0.140 0.033 0.587 Do you think it will help to reduce poverty 10.08 198 0.00 1.26 0.125 1.013 1.507 Do you think it will help to employment generation 7.00 198 0.00 0.95 0.136 0.682 1.218 Do you think it will help to women empowerment 4.75 198 0.00 0.65 0.137 0.380 0.920 Do you think it will help to community development 5.62 198 0.00 0.76 0.135 0.493 1.027

Chapter - 7

POVERTY ALLEVIATION THROUGH WOMEN EMPOWERMENT

Social inclusion and gender parity are the priorities of India’s development agenda. But the irony of Indian progress is that the developed regions and sections of the society are growing further and the deprived ones are getting marginalized day by day. To overcome this duality, we need the programs that effectively enforce a balanced growth across the regions and genders. Gender parity is a far cry for Indian socio-economic system due to an absence of commitment and a time bound action plan to this end. Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) 2005 is one such program that promises both these things. It was notified on 7 September 2005 in 200 rural districts in its first phase of implementation which took an effect from February 2, 2006. In 2007–08, it was extended to an additional 130 rural districts. The remaining districts were notified under MGNREGA with effect from April 1, 2008. Since then MGNREGA has covered the entire country with the exception of districts that have a hundred per cent urban population. MGNREGA marks a paradigm shift from previous wage employment programs, either planned or implemented in India’s history. MGNREGA has a distinct feature of having an integrated natural resource management and livelihoods generation perspectives. The other unique aspect is its potential for women empowerment of the rural India. This later characteristic of the scheme is very significant as India can increase its annual GDP by $ 2.9 trillion by 2025 by improving gender parity and engaging the full potential of its women workforce. (McKinsey 2015)

7.1 Women in Rural Economy

Women are perhaps the largest disadvantaged group in Indian society. Women in Indian society represent a totally deprived lot. Their empowerment has a great potential in leading the country to spectacular development. The achievement of inclusive growth and overall development is highly dependent on the gender equality and prosperity of women in the rural society. Indian Constitution like any other developing country guarantees to all the citizens, women or men, equality in opportunities and payment for a work. Things are changing fast in many parameters including the position of women in the society. In spite of the given provisions in our constitution, the harsh reality of deprivation and degradation continues (Dasarathi, 2006). The old system of considering women as the property of men is still deep rooted becoming the instinct in the society. The changes have taken place in a significant portion of urban women, but their counterparts living in rural areas are only marginally affected by these changes. Male dominance in the villages even in panchayat governance, which is now represented by men and women both, is seen evident.

The emerging issues and challenges in rural India also compel us to adopt a pragmatic support system to empower the women. Women have a significant contribution, socially and economically, in protecting and upbringing of their family members more than the men in the times of crisis (Braidotti, 1994) (Moser, 1989). But their actual empowerment requires moving them from the periphery to the centre stage (Dasarathi, 2006) . They should be taken as equal in the society and be given the equal share in decision making. Women’s equality with men will establish when they have the freedom to choose their course of action independently (Sughosh, 2010). Gender parity issue, when analyzed across the global regions, reveals that India has the highest level of opportunity to raise its GDP (Gross Domestic Product) by raising the gender equality in the society. (McKinsey 2015)as shown in Graph 1.

Graph 1: Countries with GDP opportunity Vs. Women Involvement – Gender Parity

Source: McKinsey Global Institute Analysis

Women do have their role in our economy but presently being unaccounted it remains unnoticed. India’s huge women population and present very low score of gender parity, both these factors make its potential in achieving spectacular addition in the economic performance by women empowerment. A serious effort to this end is due upon the administrators and the reformers of the country. The country’s governments and the policy makers have been launching a number of programs, one after the other, for rural and women development. IRDP (Integrated Rural Development Program), PMGSY (Pradhan Mantri Gram Sadak Yojana), Rashtri Krish Vikas Yojana, Pradhan Mantri Aadarsh Gram Yojana, Sampoorna Grameen Rozgar Yojana and National Rural Livelihood Mission are just a few popular ones in the long list of government schemes. One important scheme focused on these objectives is MGNREGA which is under evaluation in the following paragraphs.

7.2 MGNREGA _ A Positive Initiative

National Rural Employment Guarantee Act (NREGA) was enacted on August 25, 2005 with the purpose of rural empowerment through job creation and employment provision for improving their livelihoods. This act was renamed as Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) on October 2, 2009. MGNREGA and its implementation support this agenda through facilitating the essential processes of entrepreneurship, capacity building, education, health and hygiene etc. especially by involving the women folk of the rural India. The women empowerment has not been the main part of this act. However, the provisions of the act like priority of one-third women workers, equal wages gender-wise and deployment within five kilometers from the house etc. have made the scheme conducive for women. The program is an all-in-one initiative towards social protection, livelihood security, a support to marginalized and weaker sections of society, natural resource conservation and utilization, drought-proofing and flood management. The mandate of the act is to provide 100 days of guaranteed wage employment in a financial year to every rural household whose adult members volunteer to do unskilled manual work.

By providing a source of income to women close to their homes in rural areas, MGNREGA is creating a greater degree of economic independence among women. Generation of income by them leads to a positive gender balance in the rural society. The research draws that women are becoming more assertive about their space in the public sphere through their economic contributions (Ahuja, 2012). The significant contribution of MGNREGA has been to provide women the opportunity to earn without forgoing their other familiar obligations. (Singh and. Nauriyal, 2009). The women workers are found to be fully satisfied with MGNREGA work. (Thomas, 2010) The program has enabled many rural women to participate effectively in the civil society. The role of NREGA as a tool of women’s empowerment deserves much more attention than it has received so far (Jandu, 2008) In some cases women were also found investing in fixed deposit schemes in the same bank (Pankaj, 2010). In the backdrop of these apparent and reported prospects of MGNREGA the program and its potential impact on women empowerment in rural areas has been assessed. The study takes up the case of a backward area (Mewat) in an agriculturally developed state (Haryana) to find the solution for such other regions of the country.

7.3 Mewat _ A Deprived Lot

Mewat was made a district in 2005 extracting parts from Gurgaon and Faridabad districts of Haryana. It is predominantly rural region falling in the National Capital Region (NCR) and only 20 km away from Delhi airport. The main occupation of the people of Mewat is agriculture and allied and agro-based activities. The Muslims are the predominant population group and are completely agriculturists. Animal husbandry, particularly dairy is the secondary source of income for people of Mewat and those who live closer to the hilly ranges of Aravali also keep a few sheep and goats. Milk yields are not so low, but due to heavy indebtedness most of the farmers are forced to sell the milk to the lenders at lower than normal price, which drastically reduces their income. In terms of basic amenities, 81.56% rural Mewat households are using open field as latrine, 94.63% are dependent on firewood, crop residue and cow dung as cooking fuel and 72.49% do not have kitchen inside or outside their houses. The government treated source of tap water supply is available to merely 17.93%. Only 38.22% of rural households are using banking services (Census 2011). Mewat has been placed at par with or lower than BRGF (Backward Region Grant Fund) districts due to its extremely low ranking on essential development aspects (Sehgal 2015). Its inclusion under the BRGF scheme has therefore been recommended. Considering all indices of development, Mewat’s performance is worse than all the districts of Haryana (Sehgal 2015).

7.4 Methodology

The study aims at identifying the potential of MGNREGA in less developed regions like Mewat in involving the women participation and consequently impacting their empowerment in terms of different development indicators. The paper explains the potential of this program and its role in individual performance. 15 Panchayats of Mewat district of Haryana have been taken as a sample for the study. Since the data on participation level of women on year to year basis at district and village level is available on Ministry of Rural Development (GoI) website, the primary data collection was made for knowing the impact of the provisions on women participants’ economic, social and educational development. Their overall satisfaction level and capacity building prospects of the scheme were the indicators measured by survey method. A sample of 450 women workers from 3 villages of each Block in Mewat, the most backward district of Haryana was taken in the study. Random sampling method was used for selecting 30 women workers of MGNREGA from each of the 15 Gram Panchayats of Mewat. The sample has the representation of both male and female Categories. The study focuses on the impact of MGNREGP in Mewat region on the women population and their different development indicators. A structured questionnaire was administered through the interviews with the respondents to collect quantitative and qualitative household data relating to problems, satisfaction level and impact of the scheme on different facets of life. In addition to this, focus group discussions had also taken place in order to get deeper understanding of the issues and challenges faced by the women participants. A descriptive and judgemental analysis was provided on the collected data to draw the conclusions.

7.5 Analysis

The program had a target of covering women not less than 33% of the total. National average of women participation in MGNREGA as released by Ministry of Rural Development for the year 2015-16 & 2016-17 is 55 & 56 percent respectively, while Haryana’s women contribution is 45.13 and 45.42 percent respectively (MoRD, 2014-15) Kerala is the leading state with an average of 93% whereas Haryana is having an average of 45%. The individual’s participation in the MGNREGA has declined over the period by about 37% in Haryana and 26% in Mewat. In the case of women participation, Haryana as well as Mewat have registered same declining trend of about 26% from 2012 to 2016. The women participation in Nuh and Punahana (Blocks of Mewat) has declined by about 58% and 63% respectively during 2012-2016. Even with an overall negative trends in the district the rest of the blocks of Mewat are showing positive trend in women participation such as Nagina (1.5%), Ferozepur Jhirka (12%) and Taoru (158%) during the period (see Table 1). Table 1: Individuals Worked Under MGNREGA Years 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 Male Female Male Female Male Female Male Female Male Female Haryana 309120 204880 298342 213658 190221 135779 142662 117338 175748 146252 (state) Mewat 10718 8282 14918 12083 8912 7088 10479 8522 7958 6042 (District) Frz. Jhirka 2067 1596 3103 2341 2079 1608 3437 2763 2088 1403 (Block) Nagina 2695 2228 3193 2681 3376 2666 2892 2391 2787 2194 (Block) Nuh 3053 2298 3775 3008 1505 1183 1780 1406 1221 955 (Block) Punahana 2068 1631 3716 3255 1548 1364 1421 1232 726 594 (Block) Taoru 610 357 1276 859 608 419 1011 764 1143 906 (Block) Source: MoRD, GoI (2016-17) Mewat district has 319 villages with five blocks. There are around 61 villages which have women workers more than 250 while about 80 villages have total workers more than 500 (See Figure 1). 125 villages have a less than 100 women workers’ participation. Most of the villages are not covered by MGNREGA program and the participation level is very thin in many others. Figure 1: Total Workers vs. Women Workers 2012-16

Source: MoHRD, GoI (2016-17) Comparing the figures of five years, it is evident that in some villages like, Beri Taoru, Bhango, Flendi, Khushpuri, Hirwani and Tigaon the growth rate of female workers is increasing and in villages like, Baded, Banarsi, Imam Nagar, Sukhpuri, Bai and chahalka it is decreasing (See Figure 2). Most of the sampled villages have women participation level between 40 and 50 percent. It is in fact better than the state average as 8 of the 15 sampled villages have an average of more than 45% during 2012-2016 (See Figure 2). The sampled villages are not reflecting the actual declining trends of their respective blocks which could be noticed from Table 1 above. The limitation of the sample selection includes the non- availability of the yearly MGNREGA data of the respective villages. We have not taken villages on the basis of proximity but on the basis of the availability of the program in the selected blocks. Figure 2: % of Women Worked Under MGNREGA

A profile of the women beneficiaries of the program in sampled villages of Mewat District was drawn by survey data analysis which highlights their major characteristics (See Table 2). The female population covered in the survey is mostly illiterate and attached with agriculture. The average number of days’ employment MGNREGA gives (to the surveyed respondents) is only 59 as against the guaranteed 100 days’ job security. The country has been able to provide only 3.45% of the rural households a full 100 days’ employment whereas this percentage in Haryana is only 2.39. (MoRD ,2014-15) (MoRD, 2016-17)

Table 2: Profile of MGNREGA Women Beneficiaries-2016 Beneficiaries Number of beneficiaries selected 450 Literate (in %) 16 Average No. of Days Employment 59 Scheduled Castes (in %) 29 General (in %) 37 OBC (in %) 34 Engaged in Agricultural work (in %) 63 Engaged in other casual work (in %) 27 Wages under MGNREGA they are getting (Rs. per day) 225

The impact of the program on the women workers engaged is evaluated in terms of certain parameters as shown in Table 3. The overall satisfaction level of the women is quite high and the highest is found for the factor of ‘reduction in family debt’ which is undoubtedly the achievement of this program. The impact of MGNREGA as reflected by the responses of the sampled workers is significantly positive. The responses in the range of 5 to 18 % are indicating ‘No Effect’ in the matters of their development. For example, only 5% women found no effect of the scheme on ‘Children’s Education’ and 7% on ‘Saving/ Investment’, ‘Debt Reduction’ and ‘Economic Freedom’. This percentage is slightly higher on ‘Social Acceptance’ (18%), ‘New Ventures’ (17%) and ‘Ease of Life’ (16%). A strong positive impact of program on all the indicators of economic well-being of women workers is evidenced by the survey. Table 3: Impact of MGNREGA on women empowerment Significant Marginal No Effect Effect (%) Effect (%) (%) Ease of Life 71 13 16 Self-Reliance 62 26 12 Recognition in society 69 21 10 Savings/ Investments 74 19 7 Reduce family debt 85 9 7 Education of Children 62 23 5 Health Consciousness 58 28 14 Building Family 73 16 11 Starting New Ventures 62 21 17 Able to face challenges 66 26 8 Economic freedom 78 15 7 Social Acceptance 69 13 18 Satisfaction 77 18 5

7.6 Performance Review

MGNREGA program is not designed keeping in mind the women folk of the rural India. The provisions, the work plan, monitoring and the payment systems all designed for rural unemployed population when fitted on women are causing tremendous physical and emotional strains and the expectations from them exceed their capacity. In a typical rural society, they are single handedly taking the load of household chores of cooking and taking care of children and in addition become an earning member too. This way their working hours get longer. The obstacles in the way of successful performance of MGNREGA are numerous and multifarious. The problems mainly fall in four areas viz. design, implementation, monitoring and promotion. a) Design Issues: The MNREGA guidelines do not provide for anything special for women. The procedural requirements, work design, payment conditions and assignment of duties to the local bodies (Gram Sabha and Gram Panchayat) all require reforms to be effective and practical for village women. Involving some voluntary or self help groups or NGOs may be essential to get the work essentially done in the present age. b) Implementation Issues: The plan guidelines provide for the facilities like crèche, resting place, first-aid, recreational facility for children etc. for women workers but such arrangements were generally absent on the worksites as reported by the respondents. The workers are neither getting 100 days of work nor unemployment allowance for that due to lack of interest and initiation by the concerned local bodies in creation and approval of the job projects. The scheme as such loses its main attraction on this account. Similarly delay in job card release and delayed payments have also been the impediments in the participation of poor women. Delay in wage payments is caused as the completion report of every project by area engineer takes time in submission. Another constraint is the payment through bank account. When a single account is linked with the job card the account is generally of the male member of the family. This makes the women still dependant on men for the withdrawal of their own wages. This decreases the enthusiasm and participation level of women in the program. c) Monitoring Issues: The local bodies and the public servants entrusted with the job to monitor the functioning and progress of the scheme are neither dedicated to the poorest of the poor rural people nor are they professionally competent enough to do justice with the task. The whole process is hung on the mercy of Gram Sabha and Panchayat who are not efficient in developmental activities. Lethargy, delays and hurdles are rampant all through the process. The private professional agencies are not involved in the projects. d) Promotion Issues: The awareness of MNREGA provisions and workers’ entitlements is very low. In the villages, illiteracy and poverty are the barriers in getting complete information regarding the government schemes and support system. Most of the people are not aware about how should they apply for work or claim the unemployment allowance in case of not getting work. Those who are aware have no knowledge or skills to fulfill its procedural requirements. They need awareness, counseling and assistance in availing the opportunities around them. A holistic approach if applied to all these steps of design, implementation, monitoring and promotion will require professional hands to combine with the Gram Sabha and Panchayat personnel to reform the whole system.

7.7 Major Recommendations

On the basis of the above problems, the study makes the following recommendations to make MGNREGA a net contributor to women empowerment. a) Some projects should be designed in each block especially to be handled by women as many of the projects are not convenient for them. NGOs involvement which is presently very low should be encouraged. The involvement of professional agencies and voluntary bodies will make the program meaningful and successful. b) The facilities provided in the scheme like shade for children, periods of rest and a first aid box etc. should be implemented and maintained properly. There should be bank accounts in the name of the workers or at least the joint accounts to which the wages are transferred so that the women could easily withdraw money according to their needs. c) Proper monitoring should be done for an efficient functioning of the scheme. Delays in job card issue, project approval, payment transfer etc. should promptly be attended and resolved. Transparency, reporting, audit and fixing accountability through professional hands should be an essential part of every such program entrusted to public bodies. d) The Panchayats, opinion leaders, public and private bodies and the media should extensively be used to create awareness among the prospective workers regarding rights, entitlements, provisions and procedures of the program. It is presently very low causing a poor participation. Facilitating information flows and guidance to all the participants of the scheme viz. workers, sarpanchs, gram pradhans and the officials through all types of communication and information modes (using modern technology) are essential. These and several other such reforms are long due and also figure in many reviews and researches conducted on MGNREGA across the states (Ahuja, 2012; MoRD ,2014-15; MoRD, 2016-17; Haque, 2011; Jha, 2013; Kaushil, 2010; Narang, 2014; Pradeep, 2012; Vinita 2013). An overhaul involving the private agencies with professional touch will only make the scheme effective in a meaningful way.

7.8 Conclusion

The target of MGNREGA to ensure the women participation level of not less than one third of total has been achieved in the country as well as Haryana. The analysis shows an encouraging result of such arrangements and identifies significant changes in rural women entrepreneurship through them. But to be a real contributor to women empowerment the program needs a restructuring, reorganization, promotion and monitoring. It is incumbent on our part to offer the women some concession in working standards or design of the projects to suit them to raise their participation level. External agencies or the voluntary NGOs should be brought in the system to plan, monitor, audit and promote the tasks for its successful and timely completion. The whole process should be transparent and fair; and delays or hurdles should immediately be detected and resolved by a well-coordinated system. References

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CONCLUSIONS

8.1 Findings

Indian microfinance system largely works to facilitate the women. Many microfinance institutions were found during the course of data collection, which are exclusively working for women. The existence of female dominance was much higher in CMF setup in comparison to that of IFMF. Majority of male respondents under the study were representing women beneficiaries. The family size of most of the respondents was found to be large. Its justification is given by Sampson and Laud (1994) as large family size meant more expenditure and less savings which could cause poverty. Large part of the respondents belonged to the mature age group in both the microfinance setups. About 80% of the respondents were literate but less than graduate. According to Solga and Heike (2002) less educated people had decreasing employment opportunities. More than 90% families were dependent on the employment of one or two individuals in the family under both of the microfinance arrangements. The borrowers were largely either self-employed or engaged in private jobs. The dependency on additional finance was higher among families of less income or irregular income generation capacity. Nuclear families were more likely to face problem of financial crunch than joint families. Around 85% of respondents were APL in both of the microfinance setups. It was a technical issue arising due to political decisions in the past; MFIs wanted to ignore any chances of loan waiver because of BPL category. The penetration of interest free microfinance was lesser in rural areas. There were majority of borrowers in the CMF living in kaccha or semi-kachcha houses while presence of interest free respondents was comparatively high in urban locations. The absence of rate of interest on borrowed amount and lesser processing charges were making IFMF more attractive than CMF. IFMF facilitated 1-2 years loan period on the higher side while the spread of loan period in different categories was well balanced under CMF. In general, the respondents were taking loans for situational or occasional reasons. The purpose of taking loan for business support was not impressive under both the microfinance arrangements.

The growth in basic amenities can provide the shift in life style of borrowers. CMF borrowers had registered growth in almost every basic amenities selected in the study. On the other hand, IFMF respondents had focused more on kitchen, cooking gas and motor-bike. The basic amenities & household item’s growth showed that CMF borrowers were allocating money to different needs. The expenditure pattern in basic amenities showed that IFMF borrowers were poorer than CMF. The negligible growth rate of IFMF respondents on expenses for drinking water and mobile phones justified that their priority of expense was more towards the household infrastructure and daily necessities. The remarkable success was reported in the children education status after loan in both of microfinance arrangements.

IFMF and CMF were further evaluated on the basis of operational ease and user friendly processes. The unique selling prepositions (USP) of IFMF were low processing fees and accessibility while CMF’s USP was the capacity of giving high amount of loans. Majority of respondents were agreed that microfinance institutions were helpful in poverty reduction, employment generation, women employment and community development. The respondents were giving more favourable remarks for IFMF in employment generation and community development. Women empowerment was more focused under CMF. IFMF respondents had noticed that borrowing might increase expenditures in food consumption, health, social customs and transportation while CMF respondents had seen significant increase in food expenditure. The financial capacity of IFMF borrowers was increased more than the CMF borrowers while financial liability of IFMF borrowers was reduced significantly more than those of CMF. Number of borrowers was increased in Investment and Savings under IFMF than in CMF. IFMF borrowers had responded positively with income and investment growth while CMF borrowers had reported the increase in income, women participation and children education expenditure.

IFMF respondents were consuming more with the increase in expenditure while CMF respondents had reduced their consumption. The food intake of IFMF borrowers had increased. It advocated that they were taking more nutritional food than earlier. The CMF borrowers having less consumption meant that they had moved towards quality food and non food items with increase in expenditure. IFMF gave significant impact on increase in income for self-employed, government job and private job borrowers because of less liability (interest of loan) while borrowers from government job category was more benefited under CMF. Both the financial arrangement borrowers were not getting support for business diversification and purchase of machinery for business. The women participation was relatively very low in the case of government job borrowers under IFMF. The expenditure in children education was relatively high with IFMF under government job borrowers’ category. It meant that the financial capabilities of the borrowers were not the real reason for women participation and children education. The cost of borrowing is essential for giving microfinance but it should not be on the higher side. The comparative analysis showed that borrowers with 5-12% processing fees or cost of borrowing registered higher income growth than borrowers with less than 5% cost in the IFMF.

The cross sectional analysis evidenced the impact of education in getting loan, alleviation of poverty, women empowerment, employment generation and community development for both IFMF and CMF. IFMF respondents were very conversant with the process and highly satisfied with the procedure and system. The shift in respondent’s education from illiterate to graduate and above, changed the perception of respondents positively about microfinance operations. The pattern of impact due to changes in educational background with CMF was almost the same but the level of satisfaction differed. So, education played a significantly positive role to become accustomed with microfinance institutions working. Most of the respondents were finding that CMF process, accessibility, time-lag and processing fees were on the toughest side. The IFMF organizations had lesser capacity to finance than CMF because of their small loan book. The repayment capacity of CMF is lower than the IFMF. It meant either the return on investment was unfavourable or the purpose of getting loan was not to increase income directly or indirectly. The comparative study showed that IFMF respondents were agreed that microfinance arrangement would be helpful in reducing poverty, generating employment, empowering women and developing community. Contrarily CMF respondents (other than individuals with higher education) hardly believed on the microfinance arrangements capability to reduce poverty, generate employment, empower women and develop community. The highly educated respondents agreed that CMF was beneficial for the society. The financial inclusivity was found higher with Muslim funds and Gramin banks.

The poverty alleviation target through government rural development program focused more on women participation. But the women participation was continuously declining from 2012- 2016 in ‘Mewat’ (Haryana) the most backward district in India. Such decline might be due to the lack of interest from the government side or individuals (workers) might not be getting value for their work. The investigation of workers side revealed that women under rural development program were much benefited. The lack of continuous program support caused difficulty in their day-to-day life. The selected samples for the study of women empowerment through the program revealed that majority of the women were illiterate. They were not getting minimum support days’ job security as guaranteed in program which reflected the lack of proper implementation of the program. The proper reachability and accessibility of the program could create the difference. Even after many hiccups, the income generation facility through rural development program brought significant positive changes in ease of life, self reliance, social recognition, saving/ investment, reduction of family debt, children education, health consciousness, family building, new business startups, economic freedom, social acceptance and satisfaction among women workers.

8.2 Conclusions Summarized

In a number of writings, despite what might be the expected potential of microfinance, there is a section of experts which raises questions on the viability of microfinance in achieving the targets of core poor, the truth behind the prompt and high reimbursement rates and the high obligation of recipients because of cross obtaining and so on. The achievements of microfinance have been repudiated by exceptional feedback in the ongoing writings, especially with respect to credit reimbursement, high loan costs, misuse of women borrowers, ineffectual microfinance arrangement to target groups (Holt, 1994; Dignard and Havet, 1995; Ditcher, 1996; Hulme and Mosley, 1996; Christen, 1997; Rahman, 1999; Mallik, 2002; Assaduzzaman, 2002; Amin et al, 2003; Baru and Woller, 2004; Coleman, 2004 Deheija , 2005; ).

Henceforth, to maintain a strategic distance from the previously mentioned shades of malice of customary (interest based) MFIs, a modest bunch of interest free microfinance service providers have emerged lately to give interest free financial set-ups. A number of countries including USA and UK have started interest free micro finance and banks. Meanwhile, Habib Ahmed (2002) found that interest free microfinance was more fruitful in curbing poverty and reaching to the poorest of the poor than more than through Interest based microfinance. The consideration towards IFMFIs additionally expanded when the ADB report (2006) stated the extraordinary attributes of interest free arrangements and its capacity to give elective intends to reach underserved bunches in rural poor of untouched parts of the country. In India, the awareness towards IFMFIs was begun and was reinforced when Reghuram Rajan (2008) expressed the role that IFMFIs could play to lessen the vulnerability of financial illiteracy, which was accepted to be the principal reason behind outrageous poverty in the country.

It is astonishing that very few studies endeavoured to examine the potential role of interest free microfinance in respect with sustainability, outreach & impact (famously known as the triangle of microfinance) in a deliberate way while these ideas set off a mode of evaluation in the field of microfinance. Apart from that, the confirmation exhibited in the literature is blended and commonly episodic. With the points of shutting this crevice and in this manner growing the assemblage of existing observational works, the present investigation requires a top to bottom examination on whether IFMFIs achieve financial sustainability and outreach while giving more inclination to serve the necessities of the poorest. The variety of investigation became more interesting with the inclusion of comparative understanding of MFIs with interest-based (CMF) and interest-free (IFMF) perspectives.

Micro finance Institutions are facilitating Self-help groups to touch the bottom of the pyramid through uplifting women and alleviating poverty of the nation. It can be seen by the EY report on Evolving landscape of microfinance institutions in India (2016), CARE report on Microfinance Sector: Evolution and Impact of Demonetization (2017) and PWC report on Shifting trends in the microfinance ecosystem in India (2016) with regards to microfinance. SHGs are involved in saving collection and thrift exercises with the objective of securing credit. The 1990s saw a multiplication of women SHGs all over India, especially in the South India. Copestake (2001) additionally analyzed the effects of microfinance on performance of business as another indicator of general prosperity. He characterized performance of business as the shift in business profitability prior and then afterward getting the loans & advances. Since business profits are another wellspring of income for the borrowers, and where every respondent was entrepreneur by design, incremental shift in business profits would mean growth in household income. Henceforth as far as this proposition is concerned income generation is one of the critical indicators to measure the growth and furthermore growth will be evaluated on the basis of profit earned from the business activities on which micro finance credit must be disbursed or used. It is demonstrated that the majority of the micro finance clients economically and socially built up their living standard by utilizing micro finance credit. It specifically battled against hunger and poverty by giving income generation capability, work opportunity and savings in the hands of individuals. Satyasai (2003) considered the effect of micro finance on customers’ standard of living (both economically and socially) and reasoned that microfinance had positive effect in regard of fearlessness, financial and social improvement and skill development in Andhra Pradesh and social strengthening of the individuals in Tamil Nadu. The essential purpose behind Child work is poor income of family. The income generation with the help of SHG creates job prospects for the women consequently the surplus income may result in sending their kids to school (Barnes et al., 2001). The absence of actual merit from the credit arrangement for the poor through microfinance creates puzzles among the policy makers. The largest chunk of the credit should be utilized for the purpose of income generation which can lead towards the poverty alleviation, women empowerment, financial inclusion etc. Even though, the actual spirit is not as per standard but large population of respondents are agreed that microfinance is helpful in solving the issues.

On the other hand, the rural development programs in India could not achieve the targets due to lack of focused implementation and failure to pass benefit to the rural poor. The linking of AADHAR for direct benefit transfer and launch of national electronic fund transfer system to transfer the wages directly to the beneficiary accounts on daily basis can give ease of operation. It is agreed across the board that poverty alleviation is necessary for inclusive growth and achieving poverty free nation requires proper targeted initiatives. The income generation stands as the key for the alleviation of poverty. Women participation is the central issue for income generation in microfinance and rural development programs. The facilitation for poor is the agenda of both in rural development programs and interest free microfinance.

8.3 Implications

The implications of this study are multidimensional. The microfinance institutions can rethink on their strategy to serve more customers. The awareness among customers can bring about significant changes in the field of microfinance arrangements. The respective states can compare the performance of microfinance institutions for growth in basic amenities, expenditure, consumption etc. which are aligned with the national performances. The comparative study indicates a competitive environment to serve the customers more smartly by reducing hiccups. The impact of such initiatives can further improve the service quality. The quality improvement can provide ease in operations & procedures, customer centric approach, project assistance and the like. It may further guide to the launch of quality capacity building programs, innovative business start-up promotion, resource mobilization, employment generation programs etc. The study revealed that the interest free microfinance is a possibility and it touches the weaker sections of the society including the women. The need to assist such initiatives can bring about rapid poverty alleviation. Further, the rural development programs’ assessment highlights the shortfalls and misconception about the programs. It is beneficial to give credit help in the form of income generation and not for free of cost. The government schemes are creating a difference among the weaker and deprived sections of the society. The program has brought significant changes in the life of illiterate women giving indication to the policy makers to think differently on the lines of such initiatives. Further, there is need to think of designing an integrated sustainable model for upliftment of the poor and weaker sections of society without creating a misrepresentation. This a future research agenda.

The future research is also needed for state-wise comparative performance analysis of microfinance institutions. There is an urgent need to work on the comparative models’ evaluation against the customers’ willingness to purchase microfinance credit and bank credit. The perception analysis of microfinance customers’ with interest free and conservative arrangement in the selected deprived districts can check the service potential of microfinance institutions. The research on SERVQUAL model with specific reference to conservative and interest free microfinance systems has great potential to arrive at and devise the best modes of poverty alleviation for the country and its specific states. It will also guide to more organized ventures in this field.

8.4 Recommendations

3. The criteria and limit of loan dispersal must be as per the need of business and non- business uses. The leverage for business loan must be higher and based on definite business plan. There must be separate credit products for modification of old business, purchase of new machinery and new start-ups.

5. The MFI's credit for business or start-ups must be linked with ‘Skill India Mission’ of the Government of India. The collaborative working can perform better among poor individuals and households.

6. The MFI’s venture should not used for getting banking license and it should not treated as an entry criterion into Indian Banking System. The MFIs should focus on upliftment of deprived households and societies. The policy should promote MFIs as a different structure other than that of usual bank. The facilitation of NBFIs is creating more competition among MFIs but the objective is to make money from the poor of the nation.

7. The alternative source of earning is desirable for MFIs to achieve operational efficiency and quality services. The government shall involve MFIs in infrastructural development programs, national health programs, educational programs, national crop insurance programs, crop yield programs, employment generation programs and other such ventures in order to facilitate alternative sources of income for them. The pressure of reducing cost of borrowing to save borrowers will trouble MFIs in the long run but strategic alliance with government programs will act as two-bladed sword. It will solve the implementation issues of government programs and generate revenues for the MFIs.

8. The social welfare programs of government need to be implemented by engaging MFIs. The earnings of these institutions shall not come utterly from interest income like those of banks.

9. In the long run, MFIs should not be developed as competitors to commercial banking units in the system.

10. There must be a centralized body for monitoring the MFIs development and protecting the borrower’s interests and approval of loan products etc.

11. The capital requirement (minimum) for MFIs must be based on the operational strength (loan book) and should be raised gradually and systematically.

12. There should be ‘microfinance stabilization fund’ for already affected MFIs and clients.

13. The newly start-ups microfinance providers should get a few year’s loan (debt) from banks at lesser rate to penetrate in the market.

14. The interest rate charged from the MFIs should be based on their serving capability to the government programs. The weaker segments should get maximum handholding and so on.

15. Government should start an index to rate the performance of MFIs. The criteria to get maximum rating should be based on basic factors such as borrowers’ productivity, loan productivity, penetration of scheme, quality service, women empowerment, healthy life, nutrition intake, employment generation, innovation, poverty alleviation etc. It is easy to get the data on such parameters as most of the borrowers may be attached with the government schemes.