Micro-financing : Oct 17, 2006: News: Economic Times, Mumbai: Micro-financing has a long way to go

MORE than 400 women join the self-help group (SHG) movement in India
every hour, according to the National Bank for Agriculture and Rural
Development (Nabard), the pioneer in micro-financing in India. Over a
whopping 22.50 lakh SHGs have, so far, been offered minimum banking service
and Nabard expects to provide credit support to 5.85 lakh new groups by ’07
with 60% of them coming from 13 underdeveloped states.

Undoubtedly, the statistics appear mind boggling. But looking at the
larger perspective, barely 31% of the Indian population have bank accounts.
But if you just consider adult population, 59% maintain at least a single
account.

Such data tends to also vary widely across states. For instance, while
Kerala has the largest banking penetration, banking habits continue to take
a backseat in the north-eastern states or even in Bihar.

Little wonder then, why Muhammad Yunus, the ’06 Nobel Peace Prize winner
and founder of Grameen Bank in Bangladesh, told ET: “India has a long way to
go in micro-financing. The micro-credit sector is still in its infancy in
India.”

Nabard chairman YSP Thorat is entirely in agreement with Prof Yunus’
observations. “Theoritically, there is no doubt a case for a single
micro-finance lending agency. But in India, unlike Bangladesh, no single
agency provides micro finance. The real challenge before us is how to unite
these agencies,” Mr Thorat said.

In fact, the Rangarajan Committee on financial inclusion, where Mr
Thorat is a member too, is deliberating on this issue closely. Incidentally,
the Reserve Bank of India (RBI) defines micro finance as “provision of
thrift, credit and other financial services and products of very small
amounts to the poor in rural, semi-urban or urban areas for enabling them to
raise their income levels and improve living standards”.

There are three broad principles, on which the micro-credit schemes have
been formulated in India. According to RBI, the intermediate model works on
banking principles with focus on savings and credit activities and where
banking services are provided to the clients either directly or through
SHGs.

“There is also a wholesale banking model where clients comprise NGOs,
MFIs and SHG Federations. This model involves a unique package of providing
loans and capacity-building support to its partners,” RBI says.

The third one is the individual banking-based model that has clients as
individuals or joint liability groups. While programme management and client
appraisal in this model may be a challenge, it is best suited to lending to
enterprises.

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