Performance of the Micro Finance Providers in Maharashtra

1. INTRODUCTION AND RESEARCH METHODOLOGY

1.1 GENERAL INTRODUCTION

An estimated of about 300 millions in India and around 1.2 billion population worldwide live in absolute poverty. They are unable to meet their most basic human needs for food, clothing, shelter and minimum health care. Since 1947, the absolute number of poor has doubled despite the significant growth in agriculture production and employment over the past five decades of development planning. Rural poverty continues to pose the greatest challenge in India. India today retains the dubious distinction of having the largest number of poor people on the planet. Poverty in India is closely associated with poor population, or an imbalance between population and land resources. In India landless or near landless people live close to the margin of existence experiencing seasonal unemployment and nutritional stress. The burden of such poverty falls heavily upon women and children. The low level of human development is both a cause and consequence of poverty.

The Vision of Micro finance: "Five years hence, we are looking for a process change leading to

empowerment of 2cr poor households, and more particularly of the women from these households, through strong and viable people's structures like SHGs and MFIs which draw strength and support from the banking system with the message that banking with the poor is a profitable business opportunity for both the poor and the banks." In the development paradigm, micro-finance has evolved as a needbased policy programme to cater to the so far neglected target groups

(women, poor, rural, deprived, etc.). Its evolution is based on the concern of all developing countries for empowerment of the poor and the alleviation of poverty. Development organisations and policy makers have included access to credit for poor people as a major aspect of many poverty alleviation programmes. Micro-finance programmes in the recent past have become one of the more promising ways to use scarce development funds to achieve the objectives of poverty alleviation. Furthermore, certain micro1

Performance of the Micro Finance Providers in Maharashtra finance programmes have gained prominence in the development field and beyond. The basic idea of micro-finance is simple: if poor people are provided access to financial services, including credit, they may very well be able to start or expand a micro-enterprise that will allow them to break out of poverty. There are many features to this seemingly simple proposition, which are quite attractive to the potential target group members, government policy makers, and development practitioners. For the target group members, the most obvious benefit is that micro-finance programmes may actually succeed in enabling them to increase their income levels. Furthermore, the poor are able to access financial services, which previously were exclusively available to the upper and middle-income population. Finally, the access to credit and the opportunity to begin or to expand a micro-enterprise may be empowering to the poor, especially in comparison to other

development initiatives, which often treat these specific target group members as recipients. For development practitioners, the success of microfinance programmes is encouraging. Too often in the past, costly largescale development initiatives have failed to achieve any sustainable benefits, especially after funds have dried up. Thus, micro-finance has become one of the most effective interventions for economic

empowerment of the poor. The term Micro Finance is of recent origin though we do not find this word in text books dealing with finance and financial management. But, now a days, it is freely used in the media, national/international forums, literature relating to development and prosperity of relatively

disadvantaged sections of the society etc. Microfinance (MF) has become, in recent years, a fulcrum for development initiatives for the poor, particularly in the third World countries. It has been practiced in varying forms in different countries and it has been regarded as an important tool for poverty alleviation. Although micro finance could possibly include a range of financial services targeted to the poor, in common parlance, however, micro-credit and MF are often used interchangeably with emphasis on provision of credit to the poor.

Performance of the Micro Finance Providers in Maharashtra It has been approximately 25 years since the birth of Microfinance with the Founding of the Grameen Bank in Bangladesh by Professor Mohammad Yunus. The field has spread with the adaptation and evolution of Professor Yunus ideas to various countries and contexts. The UN Year of Micro credit in 2005 indicated a turning point of Microfinance as the private sector began to take a more serious interest in what has been considered the domain of NGOs. However, with all the excitement about the prospects of the field to contribute to poverty alleviation and the integration of the worlds poor into the rapidly evolving globa l market system, the Consultative Group to Assist the Poorest (CGAP) estimated that microfinance probably reaches fewer than 5 per cent of its potential clients. Although this is a very rough estimate of those not reached by formal financial institutions, it might serve to provide a general idea of what share of the potential clients of microfinance have yet to be reached. India is home to growing and innovative sector of microfinance. With a large portion of the worlds poor, India is likely to have a large potential demand for microfinance. Micro finance has already made a positive impact on the quality of life of millions of poor people by providing greater access to credit, savings, insurance, transfer, remittances and other financial services which would otherwise are unreachable. Micro finance is a financial service of small quantity provided by financial institutions to the poor. These financial services may include savings, credit, insurance, leasing, money transfer, equity transaction, etc. that is, any type of financial service provided to customers for meeting their normal financial needs, life cycle, economic opportunity and emerging with only qualification that transaction value is small and

customers are poor. Micro finance is generally associated with poverty alleviation

interventions, income distribution amongst a wider section of population, Purchasing power redistribution where a large number of people do not have enough purchasing power to participate in a market economy. It is associated with savings in small amount and small loans, the

affordability, availability, accessibility of small loans in a flexible, sensitive and responsive manner. The availability of timely, adequate
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Performance of the Micro Finance Providers in Maharashtra uninterrupted finance that cannot provide collateral in a non-bureaucratic style. It is a spring board for creating micro entrepreneurs and gender development. On an average, there is at least one retail credit for about 5000 rural people or every 1000 households. Rural credit from non-institutional sources (informal credit) was more than 36 per cent, indicating the role of money lenders in the rural credit system. United Nations launched the year 2005 as the International year of Microfinance. And it is stated that microfinance is an integral part of collective effort to meet the Millennium Development Goals in the reduction of poverty in rural areas. The need for rural credit in India had been recognized even before independence by the erstwhile British

Government as early as 1793 when it issued regulations for Taccavi loans to farmers and subordinate tenants for various purposes. The measures initiated to reduce indebtedness and regulating money lending activities for agricultural purposes failed to provide a long term solution. The Cooperative Societies Act which was passed in 1904 to provide necessary legislative support to the financing of agriculture and

regulating credit in the interest of cultivators then signalled the entry of credit for agriculture from the institutional sector. Since then, and till the late Fifties, cooperatives have been the major institutional source for all agricultural loans. The syndicate bank which was started functioning in 1921 concentrated on raising micro-deposits in the form of daily, weekly, savings and micro loans for its constituents. And after bank

nationalization in 1969 micro finance concept in the banking institutions once again come to the discussion. A number of special programmes aimed at meeting the credit needs of the disadvantaged sections of the society have been implemented in the past. Over the years, special poverty alleviation wage and self

employment programmes like Jawahar Rozgar Yojana, Indira Awaz Yojana, Employment Assurance Scheme, Development of Women and Children in Rural Areas (DWCRA), Swarnjayanti Gram Swarojgar Yojana, Training of Rural Youth for Self Employment (TRYSEM),
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Performance of the Micro Finance Providers in Maharashtra Integrated Rural Development Programme (IRDP), etc. have been

implemented by the government of India and State governments for creation of wage and self employment opportunities. Today, there are about 60,000 retail credit outlets of the formal banking sector in the rural areas comprising 12,000 branches of district level cooperative banks, over 14,000 branches of the Regional Rural Banks (RRBs) and over 30,000 rural and semi-urban branches of commercial banks besides almost 90,000 cooperatives credit societies at the village level. On an average, there is at least one retail credit outlet for about 5,000 rural people. This physical reaching out to the far-flung areas of the country to provide

savings, credit and other banking services to the rural society is an unparalleled achievement of the Indian banking system. Despite having a wide network of rural bank branches in the country, a large number of the poor continue to remain outside the fold of formal banking system. In 1992 NABARD launched IRDP programme which was perhaps the biggest micro-credit programme of our country and in the world as well. Due to not meeting with desired success, In spite of all these noble

efforts, the disadvantaged section of the society could not access financial services from the formal financial systems and they had to either depend on the informal system or on themselves for their credit needs and this created the birth of micro finance. The programme of linking SHGs to banks, which was started on pilot basis in 1991-92, made rapid progress over the years. The SHG-bank linkage

programme perhaps is the largest micro-finance programme of the world now in terms of its outreach. From a modest beginning in 1992-93 with 255 SHGs in 10 states, the number of SHGs increased substantially to 7.17lakh in 2002 2003 covering all states and Union Territories. Cumulatively, till 31 March 2003, 7.17lakh SHGs were provided bank loan aggregating Rs. 2048.70crore and benefiting an estimated 78lakh poor households. Total bank loans disbursed to SHGs during the year

aggregated to Rs. 1022.30crore involving a refinance of Rs. 622.30crore by the National Bank. More than 90 per cent of the SHGs linked to banks were exclusive women SHGs.

Performance of the Micro Finance Providers in Maharashtra Micro finance is a 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. The term micro literally means small, but the task force has not defined any amount. But RBIs micro credit special cell says borrowers accounts up to the limit of Rs. 25,000 could be levelled as micro credit products and this amount could be gradually increased up to Rs. 40,000 over a period of time which roughly equal to Rs. 81,500 a standard for South India as per international perceptions. Micro-finance is providing financial services, savings and credit to poor households that do not have access to formal financial institutions. It is considered as an important tool in poverty alleviation. Recovery experience has been quite satisfactory. The microfinance clients are low-income persons typically self-employed and often household-based entrepreneurs. In rural areas, they are usually small farmers and others who are engaged in small income-generating activities such as food processing and petty trade. In urban areas, microfinance activities are more diverse and include shopkeepers, service providers, artisans, street vendors, etc. Micro financial institutions are organizations that offer financial services to low income population. Almost all of these offer micro credit and only take back small amounts of savings from their own borrowers, not from the general public. Within the microfinance industry, the term micro financial institutions have come to refer to a wide range of organizations dedicated to providing these services. There is a wide variety of institutions in India catering, with various degrees of success, to the micro finance needs of poor families. As indicated above, they comprise of micro finance providers in the formal financial sector comprising of commercial banks, Regional Rural Banks and cooperative banks and micro financial institutions comprising Non-Government Organizations, Self-Help Groups federations and certain non-bank cooperative societies in the non-financial sector.

Performance of the Micro Finance Providers in Maharashtra The various players in the microfinance sector can be classified as follows: 1. SHG-Bank linkage Model: This model contributes about 58% of the outstanding loan portfolio. 2. Non-banking finance companies: This accounts for about 34% of the outstanding loan portfolio. 3. Others: Includes trusts, societies etc. This accounts for the remaining 8% of the outstanding loan portfolio.

CHALLENGES FACING BY MICROFINANCE PROVIDERS Increasing client incomes and decreasing vulnerability by giving proper access to the required financial resources Ensuring women empowerment Achieving self sustainability Deepening the reach of services to the poorest of the poor A diversity program that targets groups with different economic profiles Integration of microfinance with other forms of development schemes Introduction of new products to suit the needs of the poor people

1.2. OBJECTIVES OF THE STUDY 1. To study the growth and pattern of micro finance in Maharashtra 2. To evaluate the business performance of the micro- finance providers 3. To study the impact of micro-financial institutions on member enterprise 4. To identify the constraints faced by micro-finance providers 5. To study the financial performance of microfinance institutions in India 6. To analyse Profitability and Efficiency of micro finance providers

Performance of the Micro Finance Providers in Maharashtra

1.3 SCOPE OF THE STUDY The interest rates are deregulated not only for private micro finance institutions but also for formal banking sector. In the context of softening of interest rates in the formal banking sector, the comparatively higher interest rate (10%-24% per annum) charged by the micro-financial institutions has become a contentious issue. The high interest rate collected by the micro financial institutions from their poor clients is perceived as exploitative. It is argued that raising interest rates could undermine the social and economic impact on poor clients. Since, most of the micro financial

institutions have lower business volumes, and their transaction costs are far higher than that of the formal banking channels. The cost structure of micro financial institutions would affect their sustainability in long run. Self Help Groups, as micro financial invitation emerged as an impetus for community action. An informal supplementary credit delivery mechanism by lending at group level, the SHGs are in existence the scope of study influenced by the chief objective to study the income generating activities and how it contribute to the empowerment of poor. 1.4 SIGNIFICANCE OF THE STUDY This study is an eye opener to all micro finance providers. If the recommendations given in this study implemented then there will be proper utilisation of the funds given by the Government. This study will also help in ensuring proper training, demonstration or any other skill developmental activities to the SHGs. This study will also helpful in smooth and effective functioning of process of microfinance. This will also helpful in the improving recovery performance of the providers of microfinance. This study will also help in improving the financial performance of the microfinance providers. This study helps in self sustainability of the micro finance providers. This study will also helpful in achieving the goal of the financial inclusion by reaching to the rural customers.

Performance of the Micro Finance Providers in Maharashtra 1.5. RESEARCH METHODOLOGY A. Collection of data 1) Primary Data was collected through Survey. 2) Secondary data includes: the journals, magazines, Research papers etc. And data from websites of NABARD and different microfinance

institutions. B. Research Instrument Tables and Charts. A questionnaire consisting of 10 questions was prepared. The

questionnaire was structured with close ended questions. C. Sampling Plan The sample size chosen is 30. D. Research Design Exploratory- Literature survey, Websites Descriptive- The Data is analyzed by using the statistical tools Eg:- Simple Percentage method

E. Research Limitation:It was not possible for me to cover all areas in Maharashtra so the study is carried out in particular area.

Performance of the Micro Finance Providers in Maharashtra 2. REVIEW OF LITERATURE 1. FINANCIAL PERFORMANCE OF MICROFINANCE INSTITUTIONS OF INDIA Abstract:- For a country like India, poverty remains to be one of the biggest policy concerns. Amongst various measures to eradicate it, Microfinance, of late, has provided a ray of hope. The Task Force on Supportive Policy and Regulatory Framework for Microfinance constituted by NABARD defined microfinance as the provision of thrift, saving, credit and financial services and products of very small amount to the poor in rural, semi-urban and urban areas for enabling them to raise their income levels and improve their standard of living. In numerous studies done across the world, it is generally believed that various microfinance initiatives have been able to make a difference in the target populations lives. However, increasing doubts have been raised over the financial sustainability of microfinance institutions. MFIs need to be economically viable and sustainable in the long run but economic implications of long term sustainability are not being considered (Srinivasan et al., 2006). At least in India, there does not seem to be any working model of analyzing the financial performance and thereby sustainability of microfinance institutions. This problem is compounded by the absence of a dedicated legislation on working and management of microfinance institutions. The lack of a regulatory mechanism for financial disclosures by microfinance institutions also abets the problem. The present study is an attempt to analyze the financial performance of various microfinance institutions operating in India. It assumes significance because it is imperative that these institutions be run efficiently given the fact that they are users of marginal and scarce capital and the intended beneficiaries are the marginalized sections of society. MFIs must be able to sustain themselves financially in order to continue pursuing their lofty objectives, through good financial performance. BY- Pankaj K. Agarwal* S.K. Sinha** Delhi Business Review X Vol. 11, No. 2 (July - December 2010) http://www.delhibusinessreview.org/V_11n2/v11n2d.pdf

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Performance of the Micro Finance Providers in Maharashtra

2. MEASURING

THE

PERFORMANCE

OF

MICROFINANCE

INSTITUTIONS IN INDIA

Abstract:- Measuring the performance of microfinance institutions (MFIs) is not a trivial task. Indeed, looking at the financial sustainability of an MFI only gives one feature of its performance. As many MFIs primarily exist in order to help the poorest people, one also has to include aspects of outreach in their performance. Hence, MFIs' performance can be termed multidimensional. This paper illustrates how some statistical tools can offer new insights in the context of MFIs' performance evaluation. Factor analysis is used in a first step to construct performance indices based on several possible associations of variables without posing too many a priori restrictions. The base variables are thus combined to produce different factors, each one representing a distinct dimension of performance. We then use the individual scores ascribed to each MFI on each factor as the dependent variables of a simultaneous-equations model and present new evidence on the determinants of MFIs' performance.

Date posted: July 27, 2006; Last revised: January 29, 2008

BY- Giovanni Ferro-Luzzi (University of Geneva) Sylvain Weber (University of Neuchatel - Institute for Research in Economics (IRENE)) http://papers.ssrn.com/sol3/papers.cfm?abstract_id=918750

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Performance of the Micro Finance Providers in Maharashtra 3. THE TRANSFORMATION OF MICROFINANCE IN INDIA:

EXPERIENCES, OPTIONS AND FUTURE Abstract:- The paper looks at the growth and transformation of microfinance organisations (MFO) in India. At the outset, we try to define microfinance and identify the value attributes of microfinance, which differentiates MFOs from other forms of organisation. We then look at the setting of MFOs identifying who promotes MFOs, and what would be their objectives. The setting helps us to map various organisations undertaking microfinance and how central is it to the NGOs developmental agenda. Having chosen only those MFOs that have microfinance as the core, we look at the transformation experiences. In order to understand the transformation experiences better, it is important for us to find out what are the issues that trigger transformation. We identify five issues that trigger a movement for the microfinance operations to move away from an NGO format to the mainstream format. These issues are size, diversity of services, financial sustainability, focus and taxation. Having identified these issues, we look at transformation experiences internationally to understand the type of responses that have come in from the international arena. We examine the Bolivian, Kenyan, Bangladeshi and the Indonesian experience. Each of these countries has important lessons on transformation to offer, which is examined in detail. We then move to look at the Indian experiences. In the Indian case, we argue that the transformation experiences in numbers are not significant enough. However, we have found that there are three forms of organisations that seem to be popular in the microfinance sector the Non-Banking Finance Companies, the Banks both Local Area Banks and Urban Co-operative Banks and the Co-operatives. We then argue that in the Indian case, we find that the MFO spins off from the NGO rather than the NGO transforming itself. Having examined the various options for moving into the mainstream, we conclude that there is no ideal or easy path for MFOs to mainstream in India. This has implications for regulatory framework. We argue that there should be regulatory changes that allow smaller MFOs to get into more complex forms as they grow organically. We also argue that NGOs should be allowed to invest in the equity of MFOs and MFO promoted banks, as is the case in
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Performance of the Micro Finance Providers in Maharashtra Bolivia and Africa. We maintain that entry norms on capitalisation for the current forms of organisations (NBFCs, Co-ops and Banks) need not be changed to ensure only genuine MFOs make use of the legislation and not other organisations masquerading as MFOs. Date posted: September 2002 BYM S Sriram Rajesh S Upadhyayula www.iimahd.ernet.in/~mssriram/jmf.pdf

4. ROLE

OF

MICROFINANCE

INTERVENTIONS

IN

FINANCIAL

INCLUSION: A COMPARATIVE STUDY OF MICROFINANCE MODELS Abstract:- Microfinance intervention is considered an important component of development strategy to mainstream the poor rural households with the formal financial system in India. However, there is some evidence for the reverse, that microfinance may, in fact, increase informal money lending, if clients need to top up micro-loans, or borrow to repay according to the instalment schedule. The objective of this paper is to examine the relationship between the level of indebtedness to moneylenders and the type of microfinance model through a case study in Varanasi, U.P. Comparing two microfinance models prevalent in the research area, the authors conclude that the level of indebtedness to moneylenders is higher in the case of clients of Microfinance Institutions (MFI) model and without complete information on the credit-worthiness of borrowers, MFIs may contribute to the overindebtedness of their clients as well as damage in their performance.

Date posted: The Journal of Business Perspective l Vol. 13l, No. 3l, JulySeptember 2009 BYDeepak Barman, Himendu P. Mathur Vinita Kalra

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Performance of the Micro Finance Providers in Maharashtra 5. MICROFINANCING THROUGH SELF HELP GROUPS:- A CASE STUDY OF BANK LINKAGE PROGRAMME OF NABARD

Abstract:- Poverty is omnipresent but the third world countries are the main sufferers. Even after more than 50 years of planning and employing various poverty alleviation programmes, official estimates shows that 26.1 per cent of total population lives below poverty line in India. Since, independence government has taken several initiatives to tackle the scarce of poverty through area development approach, sect oral approach. But all the initiatives failed to achieve the target due to faulty planning and improper implementation and lack of will. Formal banking sector also ignored the poor due to risk involved in lending to poor as they do not have collaterals and apprehension of non-bankability. Against this backdrop SHG bank linkage from NABARD is considered as best alternative to reach the poor. The provision of small and regular repayment schedule made possible very high recovery rate. After 1990s microfinance has taken it momentum and now it is the largest microfinance movement in the world.

Date posted: APJRBM SSN 2229-4104

Volume 1, Issue 3 (December, 2010)

BYDr. B.B. Mansuri Department of Commerce, Womens College, A.M.U. ALIGARH- 202002.

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Performance of the Micro Finance Providers in Maharashtra 6. A STUDY OF MICROFINANCE AS AN INNOVATIVE CREDIT DELIVERY MECHANISM IN RURAL INDIA

Abstract:- The key problem of Indian agriculture is finance. Several weaknesses of the rural financial delivery system, have not been corrected even after almost 40 years of bank nationalization of 1969 which focused on enhancing the outreach and access to rural credit in India. In addition to reviewing agricultural credit policies followed in India and assessing the trends and progress in the credit flow and access, this paper aims at examining the suitability of governmentdirected microfinance activities as an alternate tool to the formal credit delivery mechanism in rural areas. Drawing upon the field surveys conducted in four districts of two federal states in India, the paper not only indicates the wide recognition the program has gained within the rural community but also reflects the inequitable impact of microfinance initiative, and highlights a few prominent flaws in program

implementation and administrative mismanagement which reduce the effectiveness of the program. While the survey findings reveal the main problem areas like unfriendly attitude of bank officials, inaccessible bank branches, non-availability of timely and adequate credit, sub-optimal selection of key economic activities and market-related problems, the regression result points out that land-based activities are not remunerative for the microfinance beneficiaries. This analysis also indicates that literacy, interest rate on loanable funds, ownership of productive assets and savings are the major determinants of the income function. The paper concludes with some policy implications for improving the design for implementing the program. The paper adds to the extant knowledge about microfinance programs by comparing the performance of formal banking with the informal banking through microfinance initiatives in a developing country like India. BYK K Tripathy Sudhir K Jain The IUP Journal of Agricultural Economics Vol.- VIII No. 3, 2011
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Performance of the Micro Finance Providers in Maharashtra 7. MICRO-FINANCE IN THE INDIA: THE CHANGING FACE OF MICROCREDIT SCHEMES

Abstract:- Micro-Finance is emerging as a powerful instrument for poverty alleviation in the new economy. dominated by Self Help Groups In India, micro-Finance scene is

(SHGs) - Banks linkage Programme,

aimed at providing a cost effective mechanism for providing financial services to the 'unreached poor'. In the Indian context terms like "small and marginal farmers", " rural artisans" and "economically weaker sections" have been used to broadly define micro-finance customers. Research across the globe has shown that, over time, microfinance clients increase their income and assets, increase the number of years of schooling their children receive, and improve the health and nutrition of their families A more refined model of micro-credit delivery has evolved lately, which emphasizes the combined delivery of financial services along with technical assistance, and agricultural business development

services. When compared to the wider SHG bank linkage movement in India, private MFIs have had limited outreach. However, we have seen a recent trend of larger microfinance institutions transforming into Non-Bank Financial Institutions (NBFCs). This changing face of microfinance in India appears to be positive in terms of the ability of microfinance to attract more funds and therefore increase outreach. In overall terms an organizational structure will help them achieve more transparency and efficiency.

BYWanchoo Rajat (Engineer, Aricent Communications, Presidency Tower-A, Sector 14, Gurgaon, India) wanchoo.rajat@gmail.com Ph No +919911411824 Dated:- 10. June 2007 http://mpra.ub.uni-muenchen.de/3675/1/MPRA_paper_3675.pdf

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Performance of the Micro Finance Providers in Maharashtra 8. TRANSFORMATION OF MICRO-FINANCE OPERATIONS FROM NGO TO REGULATED MFI

Abstract:- The transformation of micro-finance (MFI) non-governmental organizations (NGOs) into regulated financial institutions is a model that has been evolving since the late 1980s. It has become appealing to an increasing number of MFIs due to its anticipated benefits, such as an ability to mobilize public deposits, access to private sources of capital, improvement in governance and transparency, with an ultimate goal to reach significant scale and financial sustainability. An overview of the transformation experience in micro-finance is summarized in this paper. This paper sets the agenda for the workshop "Transformation of Micro-finance Operations from NGO to a Regulated MFI" at Microcredit Summit in 2006. It presents key issues and challenges before, during and after transformation. The paper proposes a tool that will help managers of micro-finance NGOs as they assess their situation and make a decision on whether or not to transform, and if so, how. At the end, the paper summarizes the key findings and sets the agenda for moving forward. The paper has primarily utilized secondary sources of data. The main studies used in this paper are: (1) a study commissioned by the Asian Development Bank on the achievements of expectations of institutional transformation as of February 2003, and (2) Case studies of three institutions representing Latin America, Africa and Asia, commissioned by Micro-finance Network in 1999. In addition, the author acquired additional information on the latest progress in institutional transformation through inquiries on major micro-finance list-serves, search on internet-based clearinghouses, and email and phone correspondences with key informants.

Written by: Gaamaa Hishigsuren, PhD Director of Research IDEAS, USA

http://www.microcreditsummit.org/papers/Workshops/3_Hishigsuren.pdf

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Performance of the Micro Finance Providers in Maharashtra 9. REGIONAL RURAL BANKS PERFORMANCE IN INDIA Abstract:- RRB s were established in 1995.Since their inception, regional rural banks (RRBs) have taken deep roots and have become a sort of inseparable part of the rural credit structure in India. The financial viability of the RRBs has, however, been a matter of concern since the 1980s, just five years after their existence. A number of committees have gone into the issue of their financial viability and possible restructuring. This study follows the introduction of RRBs. Subsequently, an attempt is made to enquire as to factors that influence the performance of the RRBs. The empirical analysis has been taken five RRB and compared their performance with the previous years and made suggestions ByD.V.V NARENDRA Dated:- 26th July, 2010 http://www.scribd.com/doc/47527846/RRB-Performance

10. A FINANCIAL PERFORMANCE ANALYSIS OF RRBS: PRE AND POST TRANSFORMATION

Abstract:- In this paper an attempt has been made to study the performance of the RRBs since 1980 to 2009. In order to know the implications of transformation of RRBs in 2004, the study focuses financial results before and after amalgamation. RRBs were established with a view to developing the rural economy by providing, for the purpose of development of agriculture, trade, commerce, industry and other productive activities in the rural areas, credit and other facilities, particularly to small and marginal farmers, agricultural labourers, artisans and small entrepreneurs, and for matters connected therewith and incidental thereto(RRBs Act, 1976). RRBs alone have organized roughly 12lakh self-help groups, 45 per cent of the total selfhelp groups in the country. RRBs have also issued over 40lakh Kisan Credit Cards to the farmers and organized over 5,000 out of 11,000 farmers clubs under NABARD scheme. Though the growth in credit when seen in isolation gives an impression of the impressive strides made by RRBs in disbursing
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Performance of the Micro Finance Providers in Maharashtra credit, they account for a very small proportion (around 3 per cent) of the total assets of the Indian banking sector, despite their significant branch network. While C-D ratio for 50 RRBs was more than 60 per cent that for 87 banks was less than 40 per cent in March 2004. The Government of India (Ministry of Finance) issued notifications on September 12, 2005 for amalgamation of 28 RRBs into nine new RRBs sponsored by nine banks in six States. These amalgamations have become effective from September 12, 2005. After amalgamation, RRBs transformation has resulted in a 200 per cent increase in net profits, a 100 per cent increase in business, a gradual reduction in the number of loss-making banks and addition of 1,000 outlets. All this has been because of consolidation among RRBs. The Central government initiated the process of amalgamating RRBs in September, 2005. Then there were 196

RRBs. The study reveals that, RRBs seem to have better Non-Performing Assets (NPA) management with net NPA coming down every year after the amalgamation. In 2005-06, the net NPA stood at 3.96 per cent. It declined to 1.98 per in 2008-09. RRBs are extending loans to non-agricultural sector in rural areas also. They are broad-basing their credit pattern. Malaprabha Grameen Bank went ahead to finance vehicles for rural transport system. Financing of vehicles for rural transportation helped villagers, as they sold their produce in urban areas. The reduction in number of RRBs has not resulted in any sudden reduction in staff strength since there was no termination of services of employees after amalgamation. Unlike commercial banks no voluntary retirement schemes were introduced in RRBs.

ByDr. Ishwara. P (Associate Professor, Department of Commerce, Mangalore University, Mangalagangothri, Konaje, Karnataka State, INDIA) Dr. Ishwara, Int. J. Eco. Res., 2011, 2(1), 142-151 ISSN: 2229-6158

www.ijeronline.com/documents/volumes/.../ijer20110201(13).pdf

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Performance of the Micro Finance Providers in Maharashtra 3. NATIONAL POLICY ON MICROFINANCE

The structure of rural financial market in India is dualistic both formal and informal financial intermediaries. Consensus is growing among

researchers that the formal financial sector is not effectively serving the rural population in the third world countries. This is mainly attributed to the failure of financial intermediaries in fulfilling their basic functions viz.. o o o

Production credit to finance income generating activities Consumption credit to maintain and expand human productive capacity Quality saving schemes for increasing risk-bearing capacity of the

rural households The performance of formal financial institutions particularly in their lending to the poor in India has been unsatisfactory. They face a number of constraints in broadening their services to the poor. A large number of rural households are with limited land resource and small economic activity accompanied with poor technology. But their demand for credit has been rising due to growing family size increased consumption requirement, social obligations and so on. But the institutional agencies not only lacked the required mechanism to assess their credit needs but also often overlooked their demand for credit on the ground that their needs are for non-productive purpose. Besides, pursued high risks transaction cost in small scale rural lending and absence of collateral securities kept the poor away from the fold of formal financial intermediaries. There is a strong case for a formal recognition of mF, just like institutional credit, as a strategic tool for poverty alleviation and rural development, both at the policy and implementation level. The Task Force therefore recommends that Government of India (GOI) may consider making a

suitable Policy Statement recognizing the role of micro finance. On this direction, the Government of India (GOI) made announcements in the budget speeches of 1998-99 and 1999-2000 regarding SHG-Bank Linkage Programme. This endeavour may have to be carried further by

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Performance of the Micro Finance Providers in Maharashtra recognizing the other initiatives of the voluntary sector in providing mF services to the poor. Self Help Group (SHG) banking is the primary mode of microfinance in India today, reaching over six million families. In spite of its considerable outreach, successful savings mobilization and high repayment rates, as with most other microfinance models, the financial viability of SHG banking has not been clear. SHG federations attempt to provide financial viability and sustainability to SHG banking. The acceptance and recognition of mF as an essential tool for poverty alleviation envisages adoption of a National Policy on mF. The major components of the National Policy are, encouraging initiatives and

participation of different types of institutions in mF, Bringing the microfinance activities, irrespective of the type of institutions within the regulation and supervision by competent authorities, creating policy environment for closer linkages of the mF sector with the formal banking channels and making available equity, start-up capital and capacity building funds for the existing and prospective institutions engaged in mF including banks and various mF structures from institutional sources in the country. The poor already save in ways that may not consider as "normal" savings--investing in assets, for example, that can be easily exchanged to cash in the future (gold jewellery, domestic animals, building materials, etc.). After all, they face the same series of sudden demands for cash may be for health, school fees, need to expand the dwelling, burial, weddings.

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Performance of the Micro Finance Providers in Maharashtra

4. SHGs IN INDIA
4.1 CONCEPT OF SHG Generally Self-Help Group consists of 10 to 20 women. The women save some amount that they can afford. It is small amount ranging from Rs. 10 to 200 per month. A monthly meeting is organised, where apart from disbursal & repayment of loan, formal and informal discussions are held on many social issues also. Women share their experiences in these groups. The minutes of these meetings are documented and the accounts are written. The President, Secretary and Treasurer are three official posts in any SHG. If the SHGs are connected with some NGOs, they take part in other social activities of those NGOs. Of late, the organisational structure of various micro-financial groups is undergoing significant changes. There are Thrift groups; Credit management groups, Income generating groups, Self-help groups and Mutual help groups. Sometimes the institute that promotes the SHG, itself provides loan facilities. It is called as Micro-finance Institute. 4.2 Objectives of SHGs Basically the SHGs are economic organisation. Small funds are raised for day today needs. The saving groups when transformed to earning groups not only increase the productivity of women but the credibility also. Doors are wide open to women to understand and gain knowledge about Banking, Gram Panchayats, Zilla Parishad, Law and Judiciary etc. As economical solutions are available, the family structure is maintained. SHG is a good way to stop the exploitation of consumers.

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Performance of the Micro Finance Providers in Maharashtra

Broadening of view is a major gain. The ascending order of family, group, village, Tahsil, Zilla, Zone, State, Nation, World, makes the vision global.

Development of self-confidence is achieved. A common platform is available for a dialogue and sharing of views.

4.3 SPECIAL FEATURES OF SHGS SHG is an organisation with fundamental principles like democratic approach and common decision-making, transparency, self-helping, repayment of loans and group development. The credibility of the group is dependent on these principles. Not only economical progress but also an entire development is the aim and mutual trust among the members is the credo of SHG. 4.4 SHGs and Microcredit Microcredit has worked largely through SHGs, in general, and women groups, in particular. Since SHG is a small group of 10 to 20 persons drawn from relatively homogeneous backgrounds, the members who join the groups know what benefit they would attain from the group through microcredit. Microcredit has to be utilized in such a way that it benefits the SHGs to improve the quality of life of their members and their productivity to earn a sustainable income. The SHGs need to firm up their financial and economic norms meant for selection of appropriate beneficiaries and subsequent disbursement of credit to the needy. The borrowing member chooses economic activities for income-

generation purposes and knows clearly the goals or objectives he/she has to attain for own sustenance and stability of the group. The members, through participative decision-making process, prioritize their goals in terms of their urgency. All members are aware of their individual needs so as to converge them with group objective. They can utilize team
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Performance of the Micro Finance Providers in Maharashtra effort in addressing their problems and issues while approaching their target. Unity, group effort and team-work help them in achieving their goals. India has adopted the Bangladeshs model in a modified form. To alleviate the poverty and to empower the women, the micro-finance has emerged as a powerful instrument in the new economy. With availability of micro-finance, self-help groups (SHGs) and credit management groups have also started in India. And thus the movement of SHG has spread out in India. In India, banks are the predominant agency for delivery of micro-credit. In 1970, Ilaben Bhat, founder member of SEWA (Self Employed Womens Association) in Ahmadabad, had developed a concept of women and microfinance. The Annapurna Mahila Mandal in Maharashtra and Working Womens Forum in Tamil nadu and many National Banks for Agriculture and Rural Development (NABARD)-sponsored groups has followed the path laid down by SEWA. SEWA is a trade union of poor, self-employed women workers. Since 1987 Mysore Resettlement and Development Agency (MYRADA) has promoted Credit Management Groups (CMGs). CMGs are similar to self-help groups. The basic features of this concept promoted by MYRADA are: 1] Affinity, 2] Voluntarism, 3] Homogeneity and 4] Membership should be limited to15-20 persons. Aim of the CMG is to bestow social empowerment to women. In 1991-92 NABARD started promoting self-help groups on a large scale. And it was the real take-off point for the SHG movement. In 1993, the Reserve Bank of India also allowed SHGs to open saving accounts in banks. Facility of availing bank services was a major boost to the movement. The movement of SHG was nourished in the states of Gujarat, Maharashtra, Andhra Pradesh, Rajasthan, Tamil nadu and Kerala. Now nearly 560 banks like NABARD, Bank of Maharashtra, State Bank of India, Co-operative Banks, Regional rural banks, the Government institutions like Maharashtra Arthik Vikas Mahamandal (MAVIM), District Rural Development Agency

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Performance of the Micro Finance Providers in Maharashtra (DRDA), Municipal corporations and more than 3,024 NGOs are collectively and actively involved in the promotion of SHG movement. 4.5 SHG MODEL IN INDIA In India three different models of linkage of SHGs to the financial institutions have emerged. They are: Banks, themselves, form and finance the SHGs. SHGs are formed by NGOs and other agencies but financed Byby banks. Banks finance SHGs with NGOs and other agencies as financial intermediaries. The second model is the most popular model. Almost three-fourths of all the SHGs come under this model. Only 20% of the SHGs are covered under the first and 8% under the third model respectively. The Committee on Financial Inclusion headed by Dr.C.Rangarajan has observed that the SHG Bank Linkage has emerged to be a major plank of the strategy for delivering financial services to the poor in a sustainable manner. This observation emphasises the importance of SHG movement in India, in taking forward the agenda of financial inclusion. The SHG model which was started over three decades ago has seen a tremendous growth covering a large number of people, primarily women . As per the NABARD, 74.62lakh SHGs covering 7.08crore poor households have been linked with the banking system with saving bank accounts. More than 90 per cent of such groups are exclusive women groups . Total number of SHG groups credit linked during (excluding SGSY) declined to 2.41lakh during the year, compared to 2.67lakh groups in the previous year. The number of new groups credit linked has declined by 32 percent.

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Performance of the Micro Finance Providers in Maharashtra 5. THE SHG MOVEMENT IN MAHARASHTRA The concept of SHG was not new to Maharashtra. Beginning with a tiny amount of only 25 paisa, the women of Maharashtra from Amaravati District had established one SHG long back in 1947. Further in 1988, Chaitanya Gramin Mahila Bal Yuvak Sanstha started promoting SHGs in Pune District, informally. In Southern part of India, SADHAN, DHAN foundation and ASA worked to promote SHGs. But their thrust was on economic aspects only. Whereas in Maharashtra, the NGOs not only have catered to the economic needs of the participants, but also involved in the process of social development. Aim of Chaitanya is also the same to empower the women in both ways, economically and socially. Presently, numerous NGOs and governmental institutions promote SHGs on a large scale The Statistics is given in the following tables: Number of SHGs formed by various agencies Physical Achievements Number of new SHGs formed by formal agencies during 2009-10 Number of new SHGs formed by NGOs during 200910 90 percent SHGs are comprised only of women members. 106228 92774

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Performance of the Micro Finance Providers in Maharashtra 6. IMPACT OF SHGs IN THE EMPOWERMENT OF WOMEN The year 1975 was declared as a year for women. Also, the decade from 1975 to 1985 was declared as a decade for women. During this period, the movement for empowerment of women received a fillip. The importance of role of women, which consists 50% of the society, was highlighted in this span of period. It was emphasised that woman should get the same opportunities as that to men. The year 2001 was declared as a year of women empowerment. Efforts were being made in the direction that women should have a role in all walks of life; and special provisions should be made in the budget for activities related to the development of women. Many schemes were planned and started to be executed, at government level, in respect of women education, laws regarding prevention of atrocities on women, their participation in economic and political spheres etc. At this juncture, SHG movement also started and in a way journey towards women empowerment began. WHAT IS EMPOWERMENT? Empowerment is a process of change by which individuals or groups gain power and ability to take control over their lives. It involves access to resources, resulting into increased participation in decision-making and bargaining power and increased control over benefits, resources and own life, increased self-confidence, self-esteem and self-respect, increased well being. It means empowerment is a multi-fold concept that includes economic, social & political empowerment. a) Economic Empowerment

For economic empowerment it is necessary for a woman to have access to and control over productive resources and to ensure some degree of financial autonomy. According to the report by National Commission for Women (NCW) - (Status of women 2001), in India, women work for longer hours than men do. The proportion of unpaid activities to the total activities is 51% for females as compared to only 33% for males. Over and above this unpaid work, they have the responsibilities of caring for household which involves cooking,
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Performance of the Micro Finance Providers in Maharashtra cleaning, fetching water and fuel, collecting fodder for the cattle, protecting the environment and providing voluntary assistance to vulnerable and disadvantaged individuals in the family. This shows that though there is still a long journey ahead towards women empowerment. To achieve the goal, there is an urgent need of change in the mindset of the entire society. In rural region, where winds of changes development have yet to reach and basic economic needs are yet to be fulfilled,. The main source of employment for women is farm labour. But this does not fulfil all their needs. Indebtedness has become the hallmark of the rural life. Participation in self-help groups helps in saving some money out of their daily household expenses. Also, they can avail loan with lower interest rates. This has led a sort of change in the societys view towards woman, in general. b) Social empowerment

Constitutionally and legally, man and woman are equal. In real practice, however, woman still finds a secondary place. Examples of inequalities are women-men birth rate, education, and participation in matters financial and political. Atrocities are perpetrated on woman. She is viewed not as a human being but as delectable thing. Efforts are being made to change this situation and bring about a stage where man and woman would be viewed equally. Many Schemes are being implemented for equal education and equal opportunities of employment, so that, women would have equal rights. Consequently, there is seen some progress in this respect. As the woman has now increased presence in banks, Gram Panchayats, various Government committees etc., her social status is seen somewhat elevated. However, this process is slow. To get a boost to this process, mindset of the society as a whole should change. The social empowerment means that the woman should get an important place in her family and society, and should have a right to enable her to make use of available resources. The members of SHGs are mostly women. They save money and invest in SHG. They can use it at the time of their needs. As they
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Performance of the Micro Finance Providers in Maharashtra can have money in their hand, they get some status in their family. It has resulted in developing self-confidence, self esteem and self respect also. c) Political empowerment

The political element entails that women have the capability to analyse, organise and mobilise the surrounding situation for social transformation. Leadership qualities are also developing in women, because they now participate in the social activities, like trying to solve the problems of their basti/ locality, village. In 1991, constitutional provision for 33 percent reserved seats in Gram Panchayat in our country came into being. In the beginning, the process of participation of women was slow, but now the situation is fast changing. Due to advent of SHGs, women were able to see the outside world. They understood the processes involved in solving the local problems through political participation. By and by, their participation in political process started increasing. In SHGs, they found an opportunity to become a leader of SHG. In some places, local SHGs acted as pressure groups for or against a particular political candidate in Panchayat elections. The SHGs played an important role to hone the leadership skills in women in the rural region. Thus, Self-help Group has proved an important means in taking the process of women empowerment to rural region. Thus the SHG programme has been successful in strengthening collective self-help capacities of the poor at the local level, meeting their peculiar needs leading to their empowerment. The rural poor, with the intermediation of voluntary organisations also join together for self-help to secure better economic growth. This has resulted in the formation of large number of SHGs in the country; and the SHGs have mobilised savings and recycled the resources generated among the members. OVERALL PICTURE OF SHG IN INDIA Pathak (1992) SHG being comprised of group of persons, gets empowered to solve most of their problems of non-financial nature like raw materials, inputs supply, marketing, better adoption of technology

education and training for realizing the human potential for development.
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Performance of the Micro Finance Providers in Maharashtra The SHGs of Kerala have become centers for initiating social action against dowry system, alcoholism, illiteracy and divorce (NABARD 1997). Dinakar Rao (1994) reported that networking of SHGs and Self-help promoting institution are elements of propagating self-help. And that SHGs linked with formal credit agencies had advantages of pooled enterprises, economics of scale and organisation to relish exploitation. Harper (1996) in his study Self-help groups some issues from India indicated that in India, as in other parts of the developing world, the banking community is extending its services to the poor by lending to selfhelp groups. By providing single larger loans, relying on the group, on NGOs, to monitor the on lending of micro-loans, the banks transaction charges are reduced, making the operation potential profitable. Kumaran (1997) examine self-help groups promoted by a voluntary agency in A.P and their role in promoting thrift and credit activities among the poor. Further he also examine in detail the process of development of self-help groups, structure and function, resource mobilization and socioeconomic, activities. Various factors responsible for active functioning, passivity and disbandment of self-help groups are examined in detail. Ramalakshmi (1998) pointed out that, inadequate working capital, is the most serious problem restricting the performance of many DWCRA groups and also the group members need training for skill enhancement especially for items such as soft made garments, foot wear, woolen blankets etc. Puhazhendhi and Jayaraman (1999) reported that the SHG members taking up more than one activity increased from about 30% during pre group formation situation. They undertook supplementary activities such as animal husbandry, poultry etc, and non-farm activities like Petty shop, Kirana shop, Flower selling business etc. Hartwig (1999) noted that SHG of Africa have increased the family income thereby ensuring food security and children education.

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Performance of the Micro Finance Providers in Maharashtra Suriakanthi (2000) reported that bank transactions are essential activities of SHGs. Credit and subsidy under the (SGSY) Swarna Jayanthi Gram Swarozgar Yojana Scheme can be availed only through banks. Dadhich (2001) stated that effective implementation of micro-finance can be a means not only to alleviate poverty and empower woman but also be a viable economic and financial proportion. Raghavendra (2003) reported that the average participation level of SHG members has been quite good. Officials of Commercial Banks and RRBs together account for 50 per cent of total participation followed by Co-operative banks at45 per cent and the balance 5 percent by NGOs. Southern region accounts for over 2/3rd of total participation. Satya Sundaram (2005) stated that micro-finance in India is making steady and satisfactory progress. NABARD has set a goal of covering 10 million poor, i.e. one third of the countrys poor population through one million SHGs by 2003. Thorat (2005) stated that micro-financial services provided to the poor in sustainable manner is consistent with high repayment rates. Which meant that if the services to the poor were provided in a sustainable manner than the beneficiaries would go in for repayments that are quite high in consideration to a staggered manner of provision of services. PROGRESS OF MICROFINANCE DURING 2010-11 The progress under the micro Finance program has been discussed separately under the SHG-Bank linkage program where the financing banks extend services like savings and credit to the groups directly while other stakeholders like NABARD, Banks, NGOs, Government

Departments, Insurance providers, etc. extend support services including organization and nurturing of groups, capacity enhancement of their members, etc. and lending to SHG members through micro Finance Institutions (mFIs).

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Performance of the Micro Finance Providers in Maharashtra 7. SHG-BANK LINKAGE PROGRAMME

The SHG- Banks linkage program which commenced as a pilot program during 1992 to link 500 SHGs with banks, has grown exponentially during the last two decades and over 97mn rural households have now access to regular savings through 74.62lakh SHGs linked to different banks. Of these, over 47.8lakh SHGs also have access to direct credit facilities from the banks. Nearly 12lakh SHGs were extended fresh loans to the extent of Rs- 14548cr during 2010-11 by all FIs. The total loan outstanding of SHGs already credit linked as on 31003011 was Rs- 31221 Cr. As Much as 81.7 percent of SHGs already linked to banks are exclusive women groups- one of the most distinguishing features of microfinance sector in country. About 27 percent of SHGs have been linked through Swarnjayanti Gram Swarojgar Yojana Program- the rural poverty alleviation program of the government of India.

7.1 INSTITUTIONAL LINKAGES OF SHGs Nanda (1999) conducted impact studies of self help and found that the most outstanding impact of the linkage programme could be the socioeconomic empowerment of the poor more particularly the women. Gurumoorthy (2000) reported that the SHGs are linked with banks for the internal credit under the projects of rural development. The appraisal consists of bank managers, rural development officers, NGOs, project

implementation units visit the groups for providing financial assistance to the respective entrepreneurial activities. Barik and Vannan (2001) reported that the project of linking SHGs with banks has gained momentum in India from 1992. And he reported that three broad models have emerged, model-I: Bank-SHG, member formed 14 per cent, model-II: bank (facilitating agency) SHG-members formed70 percent and model-III: Bank-NGO-MFI-SHG-members formed 16 per cent of SHGS linked during the 1999-2000.

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Performance of the Micro Finance Providers in Maharashtra Namboodiri and Shiyani (2001) reported that the SHGs that are promoted by the NGOs had a better saving performance compared to that of SHPI. However, the repayment performance of the SHGs promoted by the SHPI was superior to that of NGOs. Pankaj (2001) reported that the SHG-bank linkage programme launched by NABARD in 1992 is a landmark in the field of micro financing in India. This programme aims to organize SHGs 10 to 20 persons from the

economically homogeneous strata regularly save the amounts from their earnings. Satish (2001) reported that the NGOs due to the nearness to the people and flexibility of operations seem to be better equipped to undertake SHG formation. And linking the SHGs to bank helps in overcoming the problem of high transaction costs to banks in providing credit to the poor. Kothal et al (2003) stated that there could be four different models of linkage between SHGs and banks. Acceptance of a particular model depends on the perception of the bank and the strength of the SHGs and the NGO. The programme of SHGs organized by various NGOs and banks in different part of the country is reported to be highly satisfactory. Kala (2004) reported that the linking of the self help groups (SHGs) with formal rural banking started after the launching of the pilot scheme by NABARD in February 1992 and that linkage of SHGs is possible only if the SHGs have successfully collected savings, made loans and recovered them for six months. Selvachandra (2004) stated that SHG and its linkage with banks is an important vehicle to promote micro finance in India. This programme helps to promote financial transactions between formal banking systems with the informal SHGs as clients. Asokan (2005) reported that among the three models of linkages introduced, the second model i.e., SHG formed by NGOs and formal

agencies but directly financed by bank is the best model. And he stated that the role of NGOs is very important to form SHGs Joseph.
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Performance of the Micro Finance Providers in Maharashtra Bhagwati (2006) stated that the micro- credit advanced through the mechanism of self-help groups linked to bank credit is associated with higher level of loan recoveries and that tree linkage project has facilitated socio-economic empowerment of weaker sections including women folk. Joseph and Easwaran (2006) sated that in all parts of the country, selfhelp groups are organized by governmental and non-governmental

organizations

(NGOs).

The government, banks and non-governmental

organizations facilitate them by providing revolving fund, organizational and training, credit etc. Subbiah and Navaneetha (2006) reported that there are three models under the SHG-bank linkage programme, about 72% of the SHGs are formed by NGOs/government agencies and the like financed by banks. They stated that the programme has been advantageous not only to members of SHG but also to the banks. 7.2 SHGs BANK LINKAGES IN MICROFINANCE Puhazhendhi and Jayaram (1999) found that the in formal groups of rural poor with active intervention of NGOs adequately supported by training significantly improved womens participation both from economic and social aspects. Nanda (1999) conducted impact studies of self-help groups and found that the most outstanding impact of the linkage programme could be the socioeconomic empowerment of the poor more particularly the women. Gurumoorthy (2000) reported that the SHGs are being linked with banks for the internal credit under the projects of rural development. The appraisal consists of bank managers, rural development officers, NGOs; project implementation units visit the groups for providing financial assistance to the respective entrepreneurial activities.

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Performance of the Micro Finance Providers in Maharashtra Barik andVannan (2001) reported that project of linking SHGs with banks has gained momentum in India from 1992. And he reported that three broad, models have emerged, model I: Bank-SHG- member, formed 14 per cent, model-II: Bank (facilitating agency) SHG- members, formed 70 per cent and model-III: Bank-NGO-MFI-SHG-member formed 16 per cent of SHGs linked during the 1999-2000. Namboodiri and Shiyani (2001) reported that the SHGs that are promoted by the NGOs had a better saving performance compared to that of SHIP. However, the repayment performance of the SHGs promoted by the SHIP was superior to that of NGOs. Pankaj (2001) reported that the SHG-bank linkage programme launched by NABARD in 1992 is activities land mark in the field of micro financing in India. This programme aims to organize SHGs 10 to 20 persons from the economically homogenous strata regularly same the amounts from their earnings. Satish (2001) reported that the NGOs due to the nearness to the people and flexibility of operations seem to be better equipped to undertake SHG formation and linking SHGs to bank helps in overcoming the problem of high transaction costs to banks in providing credit to the poor. Raghavendra (2003) revealed that the total number of SHGs, which were credit linked in the country, reached a phenomenal figure of 4.61 lakh by March 2002. Almost 90 per cent of them were linked to banks were exclusive women groups and periodic studied have revealed that

repayment of loans by SHGs to banks has been consistently over 95 per cent. Kothal et al. (2003) stated that there could be four different models of linkage between SHGs and banks. Acceptance of a particular model

depends on the perception of the bank and the strength of the SHGs and the NGO. The programme of SHGs organized by various NGOs and banks in different part of the country is reported to be highly satisfactory.

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Performance of the Micro Finance Providers in Maharashtra

Kala (2004) reported that the linkage of the Self Help Groups (SHG's) with formal rural banking started after the launching of the pilot scheme by NABARD in February 1992 and linkage of SHGs is possible only if the SHGs have successfully collected savings, made loans and recovered them for six months. Subbiah and Navaneetha (2006) reported that there are three models under the SHG's-bank linkage programme. About 72% of the SHGs are formed by NGOs/ government agencies and the like financed by banks. They stated the programme has been advantageous not only to members of SHG's but also to the banks. SavitaShankar (2006) conducted Studies on efficient credit models in micro finance, in Tamil Nadu; the most popular model for the dispensation of micro credit in India is the group-lending model. As per Sa-dhan (Industry Association of Community Development Finance Institutions in India) data, group loans account for 93% of the microfinance in India. Shylendra et al.,(2007) report the overall performance of the self-help group (SHG) intervention of the Sadguru Water and Development Foundation (SWDF) in India and identifies possible ways to take it forward for promoting savings and credit activities. The study was stated that Self-help groups have become an important instrument in the delivery of microfinance services like savings and credit for the poor. 7.3 PORTFOLIO LENDING BY THE MICROFINANCE PROVIDERS A World Bank study (1995) revealed that 67 per cent of the credit needs of poor people in India is for consumption needs and of the

consumption credit required, 75 per cent was for short periods for emergent needs such as illness and household expenses during the lean monsoon seasons. They also estimate that 75 per cent of production credit (only 33% of total credit) was met by banks while 100 per cent of consumption credit requirement was met by informal resources at interest rate ranging from 30 per cent to 90 per cent per annum.
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Performance of the Micro Finance Providers in Maharashtra Roshan Singh (1978) studied the pattern of flow of credit in Bichpuri development block of Agra district in Uttar Pradesh. They found that the pattern of financing agriculture was similar both at the national and district level. The proportion of bank finance to agricultural showed a steady but slow increase over a period of four years. The overall share of large farmers in total finance to agriculture was much higher as compared to the small and medium farmers in all the years (1972 to 1977). The share of small farmers showed an increasing trend mainly during the years 1976 and 1977 when deliberate efforts were made to direct the flow of bank credit in favour of small farmers. Desai (1988) assessed the institutional credit requirement for agriculture production in 2000 A.D. and observed the growth rate of total credit between 1972-73 and 1982-83 was 17 per cent in nominal terms. The commercial bank share has more than doubled from 16.31 percent in 1972-73 to 35.85 per cent in 1982-83. He estimated short term credit requirement by taking the total value of crop output from the cost of cultivation scheme of government of India for the period from 1974-75 to 1984-85 and found that the growth rate in agriculture advance to be 16.28 per cent. Ramdass (1989) measured the institutional credit flow in Pondicherry and observed that the short term credit advance by the institutions had grown enormously, while the long term credit lagged behind. He suggested the need for institution to come forward to provide long term credit and utilize the saving mobilized in rural areas exclusively for rural investment. Pradeep kumar (1993) used growth rate analysis to analyse the growth in physical and financial performance indicators of horticultural producers cooperative marketing society limited, Bangalore. The indicators considered were membership share capital, owned funds, sales, inventories, fixed assets, current assets, total assets, current liabilities and total liabilities. Pahazhendhi and Jayaraman (1999) concerned about the growth of agriculture advance during 1990-96, pointed out that despite the phenomenal growth in absolute terms, the proportion of amount outstanding advance to priority sector showed a declining trend from 16.9 percent in June 1990 to
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Performance of the Micro Finance Providers in Maharashtra 14.3 per cent in March 1996. The reversal trend was observed in 1996-97 March when the loans for agriculture constituted 16.3 per cent of net bank advances. The share of priority sector lending at all India level whose share had declined from the peak of 42.9 per cent in 1985 marginally improved to 41.7 per cent in March 1997. Nair (2000) reviewing recent trends in rural financial intermediaries and commercial banks in India indicated that the commercial banks credit to rural areas during the late 1980s and early 1990s has shown a deceleration in growth. The relative proportion of bank credit flowing to priority sector, especially agriculture was fallen below the target of 18 per cent at a national level since the mid 1980s. Abate (2000) studied the loan and advances to agriculture from all of the financial institutions shown significant compound growth rate over the study period. Compared to the growth in term loan (13.0 per cent), the growth in crop loan (17.2 per cent), which is a major index of agriculture production finance has shown a higher growth rate in Karnataka state during the study period. Similarly, the growth in agricultural advances (12.5 per cent) has shown higher growth rate in direct agricultural advances (10.9 per cent). However the share of agriculture advance and weaker section had shown a declining trend during the study period. The recovery performance of agricultural advances in commercial banks, regional rural banks and co-operative banks has shown a positive trend. Only the recovery performance of primary cooperative agricultural and rural development bank had shown a declining trend. With respect to the problems encountered in Agriculture credit system mis-utilization of loan amount by borrower, willful and deliberate default by borrowers and diversion of income generated out of the investment have found prime importance in the order. Vishvanath (2002) conducted a study in the management appraisal of district central co-operative bank in Uttar Kannada District of Karnataka and found that growth in number of branches, employees and membership was positive and significant. Except borrowing (8.17 per cent) all other financial variables
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Performance of the Micro Finance Providers in Maharashtra showed a positive and significant growth. The recovery percentage for the selected Karnataka District Central Co-operative bank branches was found to be more than 90 per cent. Gosh (2005) studied that the share of allied activities in agricultural output, namely dairying, fisheries and poultry has been increasing significantly, the share of livestock in the gross value of agriculture (crop and livestock production) increased from under 16 per cent in 1970-71 to 26 per cent in 1995-96, that of fisheries went up over the same period from 1.7 per cent to 3.1 per cent. The share of non-food crop in the cropped area has increased from 25.7 per cent in the triennium ending 1971-72 to 35.1 per cent by 1999-2000. Gosh (2005) studied that the short term credit remained nearly unchanged, significantly at about 14 per cent, the growth of long term credit slowed down from about 20 per cent in the 1970s to about 14 per cent in the 1990s which is too disturbing. Clearly, this trend is bound to have a crippling impact on the capacity of the agricultural sector to grow and prosper. Reddy and Gupta (2006) studied the credit management in Self Help Groups(SHGs) under South Asia Poverty Alleviation Programme (SAPAP) revealed that the data on purpose wise allocation of credit showed that sample groups allocated 34 per cent, 22 per cent and 22 percent of the total credit to small businesses, animal husbandry and agriculture respectively. Under animal husbandry, members take loan to purchase milch animals, sheep and goats, under agriculture members take crop loan to purchase, plough and bullock carts. The other major purposes include domestic consumption (13 per cent) and clearing of old debts (7 percent) and share of health and education is only three per cent. Thus the members in the sample groups have taken credit mainly (78 per cent) for productive/ income generating activities during the study period. Thanarathnam (2006) while studying the working of primary agriculture co-operative banks, analyzed the loan dispersed by the bank. He had used the annual average growth rate of different types of loans given by banks. It was found that the average annual growth rate for the period 1996-97 to 2001-02
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Performance of the Micro Finance Providers in Maharashtra with regard to short term loan was 2.07 per cent, for jewel loan it was 1.35 per cent deposit loan has 3.44 per cent of growth rate. It was really appreciable and it really showed the performance of the bank.

According to the amount of loan dispersed by the bank, a large percentage share was taken by the jewel loan in all the six years and the amount was small with regard to deposit loan. Ramappa and Sivasankaraiah (2007) studied that the share of agriculture loan in the total priority sector advances was considerably large and fluctuated from 73.02 per cent in 1993-94 to 76.79 per cent in 2004-05. It was also evident that of the total agriculture loan in 2004-05, crop loan alone accounted for 93.31 per cent. Among non-agriculture activities retail trade/business enterprise received large quantum of loan followed by Self Help Groups. The percentage share of non-priority sector in total outstanding advances showed increasing trend from 15.16 in 1993-94 to 34.2 in 2004-05. It signifies the change in the lending pattern of the Rayalseema Grameena bank in Andhra Pradesh. Rangietal.(2002) reported that about 59 per cent of the borrowings were for consumption purposes in the household. However, about 32 per cent of the respondents reported those consumption loans were exclusively for routine family expenditure because employment was not regularly available to the respondents households. About 18 per cent of them took credit for repair of their houses and about five per cent each used it for the study of their children and installation of hand pumps.It was found that about 71 per cent of these bank loans were for productive purposes. Among the productive purpose, dairy farming was the most dominant (about 32%) followed by tailor shop (about 19%), cloth shop (about 10%), grocery shop (about 6%) and electrical shop (about 3%). The loans for consumption purposes accounted for about 29 per cent of the cases. The routine family expenditure was dominant reason for taking loans, for this purpose. The other purposes were social functions, medical treatment and house repairs (Rangi et al., 2002).

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Performance of the Micro Finance Providers in Maharashtra Vasudeva Rao (2003) in his study conducted at Andhra Pradesh pointed out that a majority of the people have taken loans for their own occupational development, whereas, only a few have taken for health, education and marriage purposes. The amounts taken are also varying with the purpose. About 75.60 per cent availed loan for dairy activities, while 4.00 and 3.60 per cent of the respondents availed loan from the group for daughters marriage and poultry, respectively (Ritu Jain etal, 2003). 6.4 PERFORMANCE OF SELF HELP GROUPS Ramlingam et al 1987 in their study entitled socio economic impact of IRDP on weaker section:a comparative analysis showed that the social status of the respondents had increased considerably from low status to higher status. Mahabub Hussain (1988) while assessing the performance of the Garmeena Bank in Bangladesh laid the hypothesis that If the poor are supplied with the working capital, they can generate productive self employment without additional external assistance, and the results showed that the Garmeena bank has reached 6 percent of villages and 4 percent target households (1987). Molly (1990) found that there is lions share of NGOs programmes in the selected organizations related to the factory type employment such as readymade garments, Khadi and Village industry, candle making etc. The major productions schemes especially on house hold basis, which occupied 24 percent of total schemes, were animal husbandry, poultry, sericulture, fodder cultivation, kitchen garden and others. Pathak (1992) reported that SHG being comprised of group of persons, gets empowered to solve most of their problems of non- financial nature like raw materials, inputs supply, marketing, better adoption of technology, education and training for realizing the human potential for development.

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Performance of the Micro Finance Providers in Maharashtra Nataraj (2004) in his study on Role and performance of SHGs i n rural credit-an economic analysis reported that the average savings per group and average savings per member incase of RRBs sponsored SHGs was better compared to NGO promoted SHGs Girija (1995) stated that the group provides the women a base for selfemployment and empowerment through group dynamics. The peer

pressure on group members has ensured proper utilization of credit and repayment of loans, savings provided, self-insurance and self-assurance to the group members. Harper (1996) in his study, self help groups-some issues from India indicated that in India, as in other parts of developing world, the banking community is extending its services to the poor by lending to self help groups. By providing single, larger loans, and relaying on the groups, on NGOs, to monitor the on-lending of micro loans, the bank transaction charges are reduced, making the whole operation potentially profitable. McGuire and Conroy (1997) described two studies on Bank NGO linkages and the transactions costs of lending to the poor through groups, one, in India and one in the Philippines. The India study compared the transaction costs incurred by banks while lending to the poor through various channels, and found that the transaction costs were much lower where banks used NGOs and self Help Groups as intermediaries. Transaction costs facing borrowers were also significantly lower. This

suggests an important role for NGOs in the intermediation process. The Philippines study looked at the question from the prospective of NGOs. It found that NGOs could channel credit to the poor with lower transaction cost, as a proportion of loans granted, than most other institution. But the small loans and short maturities inherent in lending to the poor inevitably led to transaction costs being relatively high compared to the value of loans outstanding at any one point of time. The article also highlights the need for NGOs to minimize the costs as for as possible.

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Performance of the Micro Finance Providers in Maharashtra Kumaran (1997) in his study on 21 SHGs found that 19 were active groups and one each was passive and dissolved group. According to him, the individual monthly contribution for savings varied from group to group (Rs.10-Rs.30) and the total savings for 18 groups in a year was Rs.33, 013/while the total credit generated during the same period was Rs.2, 18,223/-, of which business took a large share of 29 per cent followed by others at 28 per cent, cumulative loan at 23 per cent, clearance of old debit at 12 per cent and health expense at 6 per cent. The interest rate on the loan varied from 5 percent to 3 percent between the groups on monthly basis. Sherin (1999) found that seventy six per cent of the respondents were highly self reliant in the functional SHGs where as only 48.27 per cent of the respondents expressed high self-reliance in the non-functional SHGs. The male respondents were significantly greater in self-reliance in comparison with their female counterparts. Prasad (2000) reported that in many villages, community issues like drinking water, roads, electricity and health services were addressed by the womens groups. The women involved themselves in various

activities like desilting of tanks and working towards child development in addition to income generating activities. Arun Kumar (2004) reported that (53.33%) of the groups studied belong to medium level of performance category followed by high level of performance category (33.30%) of groups and remaining 13.33 per cent of groups belonged to low performance category. Selvi and Rathna Krishnan (2004) observed that the majority of the SHG leaders (88.30%) performed the specified leadership roles to the medium level followed by 11.7 percent of them in lowland. Asian productivity organization (2005) reiterated that on the way to improve the measurement of performance in productivity measurement, the total factor productivity should measure the synergy and efficiency of utilizing both labour and capital inputs. Further it stated that an appropriate
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Performance of the Micro Finance Providers in Maharashtra productivity performance measurement system should cover financial, internal business process customers and learning and growing. Asian productivity organization (2005) reiterated that on the way to improve the measurement of performance in productivity measurement, the total factor productivity should measure the synergy and efficiency of utilizing both labour and capital inputs. Further it stated that an appropriate

productivity performance measurement system should cover financial, internal business process customers and learning and growing.

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Performance of the Micro Finance Providers in Maharashtra

8. MICRO ENTERPRISE DEVELOPMENT PROGRAM (MEDP) FOR SKILL DEVELOPMENT Graduation of SHG members to take up micro-enterprises requires provision of intensive training and handholding on various aspects including understanding market, potential mapping, fine-tuning of skills and entrepreneurial abilities. During 2005-06, a focused and location specific micro-enterprise development program (MEDP) on skill up gradation and development for sustainable livelihoods for members of matured SHGs was launched. The MEDP aims at facilitating quick inputs to members of matured SHGs on technical skills, micro entrepreneurial skills and on issues relating to marketing of their products. 8.1 GRANT SUPPORT TO PARTNER AGENCIES FOR PROMOTION AND NURTURING OF SHGS NABARD has been instrumental in the formation and nurturing of quality SHGs by means of promotional grant support to NGOs, RRBs, DCCBs, Farmers' Clubs and individual volunteers and developing capacity building of various partners, which has brought about excellent results in the promotion and credit linkage of SHGs. Further, increasing number of partner institutions functioning as Self-Help Promoting Institutions (SHPIs) over the years resulted in the expansion of the program throughout the country. The financial support provided by NABARD to its partner institutions and their progress in

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Performance of the Micro Finance Providers in Maharashtra SHG promotion / linkage is indicated in Table

A. SUPPORT TO REGIONAL RURAL BANKS (RRBS) The local character and regional spread of RRBs give them an advantage in providing promotional and nurturing support to SHGs. Therefore, NABARD has been encouraging RRBs for this purpose from 1999 onwards. During the year 8 RRBs in 6 States were sanctioned grant assistance of Rs. 2.84 million for promotion and linkage of 2,255 SHGs, taking the cumulative total of grant sanctioned to Rs. 33.39 million for 109 RRBs in 21 States for promotion and linkage of 41,190 SHGs. Out of this, grant assistance aggregating Rs. 13.77 million was availed by banks, which resulted in promotion of 48,281 SHGs, of which 29,783 were provided with bank loans. B. SUPPORT TO COOPERATIVE BANKS NABARD has been supporting capacity building, exposure and awareness creation initiatives among the co-operatives to mainstream SHG-Bank Linkage in the co-operative banking sector. During the year, 15 DCCBs in 5 States have been sanctioned grant assistance of Rs. 8.61 million for promotion and linkage of 6,700 SHGs, taking the cumulative total grant assistance to Rs. 31.64 million for 69 DCCBs for promotion and linkage of 34,810 SHGs. Out of this grant assistance, an amount of Rs. 7.63 million has been released which resulted in promotion of 27,547 SHGs and linkage of 11,258 SHGs.

46

Performance of the Micro Finance Providers in Maharashtra

C. SUPPORT TO NON- GOVERNMENTAL ORGANISATIONS (NGO) Recognizing the core competence of the non-governmental agencies in formation and nurturing of good quality SHGs, NABARD continued to involve an increasing number of NGO partners to take up the function of Self Help Promoting Institutions (SHPIs). The NGOs, which act as SHPIs as an add-on function were provided with supplementary assistance in the form of promotional grant and infrastructural support. During the year, promotional grants aggregating Rs.62.70 million were sanctioned to 337 NGOs for promotion and credit linkage of 25,087 SHGs as against Rs. 42.66 million sanctioned to 317 NGOs for promotion and linkage of 24,234 SHGs during the previous year. The amount of cumulative grant support of Rs. 256.50 million has been sanctioned to 1,515 NGOs for promotion and linkage 164,550 SHGs. As against this, a cumulative grant of Rs 124.96 million was, so far, drawn by the NGOs, which resulted in promotion of 128,104 SHGs and credit linkage of 80,511 SHGs. D. SUPPORT TO FARMERS CLUBS The Farmers Clubs, promoted by banks under the Farmers Club Program of NABARD enjoy local acceptability and good will by being informal ambassadors of the village to the banking system. Cumulatively, as on 31 March 2006, the Farmers' Clubs promoted 12,659 SHGs, of which 6,509 have been credit linked. E. SUPPORT TO INDEPENDENT RURAL VOLUNTEERS (IRVS) Based on the feedback received in respect of a pilot scheme for encouraging socially Committed Individual Rural Volunteers (IRVs) in organizing the rural poor into SHGs, it was decided to extend the scheme to 13 States which account for bulk of the rural poor. During the year, financial assistance of Rs. 7.10 million was sanctioned to 9 RRBs for promotion of 4,275 SHGs through 415 volunteers. As on March 2006, the progress under the Pilot scheme has been good. Total 124 IRVs have been actually associated who have promoted
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Performance of the Micro Finance Providers in Maharashtra 2020 SHGs out of which 701 are credit linked. A grant assistance of Rs. 1.27 million has been released. 8.2 REVOLVING FUND ASSISTANCE MFIS NABARD provides loan funds in the form of Revolving Fund Assistance (RFA) on a very selective basis to MFIs. The RFA provided to these agencies is necessarily to be used for on-lending to SHGs or individuals and the amount is to be repaid along with the service charge within a stipulated period of 5 to 6 years. This enables them to build a credit history , which would help them in future, while trying to access credit facilities through the regular banking channels. Cumulatively, RFA of 273.20 million was sanctioned to 32 agencies and Rs. 215.28 million has been released against which Rs. 92.49 million stands outstanding covering 11 MFIs. 8.3 INITIATIVES IN SPECIFIC REGIONS The Regions which suffer from inadequate development due to inherent lack of institutional framework, non-availability of good infrastructure and the poor presence of non government development agencies continued to receive special attention from NABARD. A series of initiatives were taken for propagating microfinance in the less developed KBK Region in Orissa and the North Eastern Region. A. KBK REGION OF ORISSA The Kalahandi- Bolangir- Koraput (KBK) Region in Orissa continued to receive thrust in microfinance from NABARD. During the year 18,574 SHGs were provided with bank loan, bringing the cumulative number of groups credit linked to 64,550. 3 New NGOs were sanctioned promotional grant assistance of Rs. 0.83 million for promotion and linkage of 350 SHGs in the region, taking the cumulative grant assistance sanctioned to Rs. 6.86 million to 40 NGOs for promotion and linkage of 2282 SHGs. Besides, under the scheme of associating individual rural volunteers for SHG promotion and linkage, Kalahandi Anchalik Gramin Bank was sanctioned a grant assistance of Rs. 0.39 million for promotion of 500 SHGs through 30 rural volunteers over a

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Performance of the Micro Finance Providers in Maharashtra period of two years in Kalahandi , Nuapara, Kandhamal and Boudh districts of Orissa. B. NORTH EASTERN REGION (NER) During the year, 28,279 SHGs were provided with Rs. 637.40 million as loans by banks in the NER. As on 31 March 2006, the cumulative number of SHGs credit linked in the NER rose to 62,517 with bank loan of Rs.1657.00 million disbursed to them. Grant assistance aggregating Rs. 5.65 million was sanctioned to 23 NGOs during the year, taking the cumulative amount of grant assistance sanctioned to Rs. 12.28 million to NGOs for promotion and linkage of 6,226 SHGs in the region. As against this, grant amount of Rs 4.98 million was released so far, resulting into promotion of 6,732 SHGs. In order to ensure that needy SHGs are not deprived of loan funds due to poor banking infrastructure in the NER, RFA of Rs. 65.89 million was sanctioned to 6 NGOs for lending to groups or individuals. An amount of Rs. 18.31 million has so far been released to the NGOs. Further, 6 RRBs in the region have been sanctioned grant support of Rs. 1.63 million to function as SHPIs. 8.4 PARTNER AGENCIES BANKS During the year 2005-06, 44,362 branches of 547 banks participated in the SHG-Bank Linkage program .The broad category-wise number of these banks, total branches participated and their percentage to the total achievements is presented below: COMMERCIAL BANKS The SHG-Bank Linkage became a part of business for all the 27 public sector banks and 20 private sector banks. SBI credit-linked the highest number of SHGs (142,034) during 2005- 06, followed by Indian Bank (30,632) and Canara Bank (18,445). During the year, many more banks registered impressive growth in SHG-Bank Linkage. These were Indian Overseas Bank, Punjab National Bank, Andhra Bank, Bank of India, and Bank of Baroda. The private sector banks which significantly supported SHG financing were ICICI
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Performance of the Micro Finance Providers in Maharashtra Bank Ltd (6,746), Dhanalaxmi Bank (1,201) followed by the Lord Krishna Bank (1,181). REGIONAL RURAL BANKS The Regional Rural Banks (RRBs) financed SHGs in a very significant way during 2005- 06. All the 158 RRBs in the country participated in the SHGBank Linkage program. During the year 2005-06, maximum number of SHGs have been linked by Pragjyotish Goanlia Bank in Assam (9,190 SHGs) followed by Bolangir Anchlik Gramya Bank (7,278 SHGs) in Orissa and Karnataka Vikas Gramin Bank (5,819 SHGs) in Karnataka. The other RRBs showing significant achievement were Pandian Gramin Bank in Tamil Nadu, Nagarjun Gramin Bank, Sri Rayalseema Gramin Bank and Shri Vishakha Gramin Bank in Andhra Pradesh, Kalahandi Anchalik Gramya Bank in Orissa and Pragati Gramin Bank in Karnataka. The State-wise and RRB-wise number of SHGs financed is indicated at CO-OPERATIVES Cooperative Banks, though comparatively late starters, have begun making forays into the mF sector on a large scale. The amendments made by many of the States in their respective Co- operative Societies Acts enabled Cooperative banks to take up the activity of promotion and nurturing of SHGs. Influenced by the pioneering performance of District Central Cooperative Banks (DCCBs) like Hoogly (West Bengal), Chandrapur (Maharashtra) and South Canara (Karnataka) in the SHG-Bank Linkage program, many other DCCBs also evinced keen interest in SHG Bank Linkage Program. The number of partners for the SHG-Bank Linkage in the cooperative banking sector increased to 340 upto March 2006. During the year, maximum number of SHGs have been linked by Kolhapur (4,229 ) in Maharashtra followed by Hooghly DCCB (4,115 SHGs) in West Bengal, Chandrapur DCCB (4,027 SHGs) in Maharashtra and Mursheedabad DCCB (3,944 SHGs) in West Bengal. The other DCCBs showing significant achievement cumulatively were Hassan DCCB and South Canara DCCB in Karnataka, Thiruchirapalli

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Performance of the Micro Finance Providers in Maharashtra DCCB in Tamil Nadu, Thrissur DCCB in Kerala, Sangli DCCB in Maharashtra. STUDY ON COMPARATIVE PERFORMANCE OF SHG BANK LINKAGE PORTFOLIO At the behest of Parliamentary Standing Committee, a study on the comparative Performance of SHG Bank Linkage Program vis--vis other priority sector was undertaken during the year. The findings are based on the data received from 27 commercial banks, 192 RRBs and 114 cooperative banks. Some of the major observations of the desk Study are as under: i. Current borrowers of the banking system with loan outstanding of Rs. 42 billion. ii. For the commercial banks as a whole, the share of the SHG portfolio was 0.88% of the priority sector portfolio and 0.36 % of the overall loans and advances. The share of SHG business of the RRBs was close to 6% in the overall business and 8% of their priority sector portfolio. For the cooperatives, the share of the SHG portfolio was 1.33% of the priority sector and 0.81% of their overall loans and advances outstanding. iii. The number of SHGs having outstanding savings account with the banking system were 2,630,510 with an outstanding savings balance of Rs. 23.9 billion as on 31 March 2006. iv. The overall portfolio at risk (NPA) of the Program was 1.36% which was very commendable for a program that was 13 years old and growing at a fast pace. The NPAs under the SHG Portfolio of the Commercial banks was at a level as low as 0.93% as against an overall NPA ratio of 2.65% for their normal lending activities. The NPAs under the SHG Portfolio of the RRBs was 2.32% as against an overall NPA ratio of 8.70% for their normal lending activities. The NPAs under the SHG Portfolio of the Cooperative Banks was 2.14% as against an overall NPA ratio of 18.84% for their normal lending activities. 41,630 (i.e. 76%) rural branches lend to SHGs.
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PROGRAM

VIS--VIS

OTHER

PRIORITY

SECTOR

Performance of the Micro Finance Providers in Maharashtra

9. ECONOMIC IMPACT ON SHGs Dwarakanath (2001) reported that the DWCRA programme helped the rural women to earn an additional monthly income ranging from Rs.250Rs.2000 depending on entrepreneurial activities taken up by them. Savitha (2004) reported that economic empowerment was high for agricultural laborers (53.33%) followed by small farmers (26.67%) and landless farmers (6.67%). Sentil and Sekar (2004) reported that income generation through SHG members gained additional income and employment through SHGs. Asokan (2005) reported that National Institute of rural development (NIRD) conducted a study on micro enterprises, which are developed by SHGs in Kerala. The characteristics of micro entrepreneurs under SHGs revealed that a high proportion (90%) of them were unemployed prior to joining SHG and tailoring was found to be the most preferred activity (47%). The study also found that the average monthly turnover of micro project taken by members of SHGs members was around Rs. 1917 and net profit worked out to be Rs.700 per month. This indicates a high level of profit i.e. 60 per cent of individual units have investments less than Rs. 5,000. A study conducted in Trchirapalli rural area found that before starting micro- enterprises their annual income was increased to the tune of Rs. 50,879. Ganesh (2005) reported that in Akola district of Maharashtra an SHG formed under SGSY in record time of one and half years, all the families belonging to BPL status have uplifted to Owner of Brick Kiln status. Their net profit per 1000 bricks amounts to Rs.550/- to Rs.650/approximately. And their turnover has increased to more than Rs.3.5 lakhs.

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Performance of the Micro Finance Providers in Maharashtra NABARD (2005) studied the impact of SHGs on economic

empowerment of its members in Ballir district, Uttar Pradesh. And reported there was an increase of the monthly income of each of the families by at least Rs.700/month and this increase was solely due to the business that they were able to do by virtue of taking loan after the activities of SHG started. Rao (2005) reported that the highest average annual household income (Rs.45, 600) is from among respondents of papads and pickles and lowest (Rs.38, 600) from respondents of chalk making activity. And the micro enterprises roughly provided 117-mandays/respondent, which was a great contribution. Dasarathararamaiah etal. (2006) reported that 10.0 per cent of

beneficiaries had income between Rs.7, 201 and above, 20.67 per cent have income between Rs.4, 801 to 7,200 and 31.33 per cent have income Rs.3, 601 to 4,800 and 38.00 per cent have income below Rs.3, 600 per annum after implementation of DWCRA. And it was found that there are no persons without any income. And it was also found that 50 per cent of beneficiaries have less than 100 man-day of employment, 21.67 per cent of the beneficiaries have employment between 101 to 180 man-day, 20.00 per cent of the beneficiaries have employment between 181 to 240 man-day as against 8.33 per cent of the beneficiaries who have employment between 241 and above man-day of employment per annum. Gangaiah et al (2006) conducted study on impact of SHGs on income and employment generation. They reported that on an average the loans received generated 184 person days of employment per household. Non-farm activities generated higher number of person days of employment. Idly, shop cloth business and tailoring generated 300 each. They also found that SHGs had favourable impact in generation of income in the village selected. The averag3e income generated was Rs.19, 578/-. Income generated in the selected activities shows that it b varies from Rs.5000 per annum in case of idly shop to Rs.26, 541 in the case of agriculture.

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Performance of the Micro Finance Providers in Maharashtra Joseph and Easwaran (2006) conducted a study to identify the

constraints in functioning of SHGs and its impact on the members. And it was found that 51.28 per cent of respondents had income between Rs.25000 to Rs.50000. Majority of respondents had assets worth below Rs, 1 lakh and more than one-half of the respondents as whole (51.28%) had assets below Rs.1lakh.They also studied the perceived impact of SHGs on tribal development. When studied the relationship between the composition and impact of SHGs. The perceived impact of SHGs was found to be significantly associated with three variables duration of membership, members participation and perceived group cohesion.

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Performance of the Micro Finance Providers in Maharashtra 10. INNOVATIVE PROJECTS BY NABARD TO PROMOTE MICRO-FINANCE NABARD has launched a few pilot projects to assess the suitability of various innovative initiatives in the Indian milieu and also enhance the sustainability of microfinance activities. 10.1 GRAIN BANKS AND SHGS To explore the possibilities of monetizing the savings-in-kind in the form of grains, a pilot Project was implemented in 17 tribal villages of Kerpai & Nakrundi Gram Panchayats of Thuamul Rampur block of Kalahandi district in Orissa. Members of SHGs can save both in cash and kind depending on the convenience. Loans also can be provided either in cash or in the form of grains. RRBs to consider Grain stock to arrive at the loan eligibility of the SHGs.Three grain banks have been established in Silet, Sikerguda and Maltipadar tribal villages in two blocks of Kalahandi district, Orissa. 29 SHGs are participating. Grant assistance of Rs 0.38 million was sanctioned for the project. So far, 29 SHGs have saved up to Rs.72, 350 and 2,580 kg in cash and kind, respectively. The project enabled the poor to save in kind, raise resources against such savings and provide access to self-managed, participative food security systems. Encouraged by the successful

establishment and maintenance of the Grain Banks by SHGs formed by tribal communities, NABARD sanctioned another project in the predominantly tribal areas of Chhattisgarh state involving a grant assistance of Rs. 0.24 million for construction and establishment of 5 grain banks each in Mylibeda and Merkatola villages of Bastar and Kanker districts involving SHGs. As at the end of March 2006, 29 SHGs have been formed under the project and have been provided training on running the grain banks. One exposure visit to grain banks in Kalahandi district was organised for the members of SHG. So far Rs 47,500 has been released under the project.

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Performance of the Micro Finance Providers in Maharashtra 10.2 PROJECT ON PROCESSOR CARDS With a view to reducing paper work, saving time and maintaining upto date records, a Pilot project was launched for providing processor cards to active clients like KCC holders and SHGs as also automation of bookkeeping of groups. NABARD has extended grant assistance to 2 Regional Rural Banks under this project. It is expected to test the acceptability and adaptability of IT in rural areas, as also address MIS needs in rural banks. It is being implemented in 5 branches of Sri Visakha Grameena Bank in Andhra Pradesh and has gone on line in two branches. Processor cards for SHGs are being customized by the technology provider. The field staffs of the concerned branches and DRDA functionaries were trained in the operation of computers for recording transactions of SHGs. The project has also been extended to cover five branches of Krishna Grameena Bank, Gulbarga, Karnataka. Grant of Rs.3.5 million has been sanctioned of which Rs.1.91 million has been released. 10.3 PROJECT ON 'E-GRAMA' NABARD has part funded establishment of 13 Village Information Centres (egrama centres) through an NGO in Davanagare district of Karnataka to help SHGs / villages to have access to Information Communication Technology. These e-grama centres make available information on areas like weather conditions, crop inputs, product prices, land records etc. Besides this, add-on services like bookkeeping of SHGs, DTP, scanning, etc., are also being provided. The NGO has facilitated setting up 50 centres (including 13 with NABARD's assistance). Commercial banks and RRB are extending necessary credit support to entrepreneurs. Grant assistance of Rs 0.21 million has been released by NABARD during the year.

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Performance of the Micro Finance Providers in Maharashtra 10.4 JOINT LIABILITY GROUPS The project on Joint Liability Groups (JLGs), initiated during 2004-05 is being Implemented through 10 RRBs and 1 PCARDB located in eight states vizMaharashtra, West Bengal, Tamil Nadu, Madhya Pradesh, Bihar, Karnataka, Kerala & Assam by adopting a flexible approach and giving the partner banks enough freedom to implement the project, keeping the ground realities and context in perspective. During the year the participating banks provided credit support of Rs. 79.30 million to 565 groups. Cumulatively 850 JLGs have been extended bank finance aggregating Rs 124.00 million. NABARD undertook a sample study in three states, viz., Kerala, Maharashtra and West Bengal to assess the progress made in implementation of the JLG project and the results have corroborated the projects initial assumption that financing JLGs could emerge as an effective mechanism for purveying credit to small traders, small / marginal and tenant farmers who cannot offer physical collaterals to avail loans from banks. On successful completion of pilot project, the JLG scheme has been extended to other areas in the country. NABARD prepared the guidelines for implementing the JLG scheme and as advised by RBI, Indian Banks' Association (IBA) has already issued the guidelines to all banks. 10.5 FINANCING RYTHU MITHRA GROUPS Rythu Mithra Groups (RMGs) consists of about 15 members who are like minded and belong to small farmer, marginal farmer and tenant farmer categories. Since 2003, Government of Andhra Pradesh has been promoting such groups in the state to bring about a holistic development of farmers through collective action. RMGs are expected to serve as a conduit for its members for technology transfer, facilitate access to market information and assist in carrying out activities like soil testing, training, health camps, assess input requirements, etc. A pilot project for financing RMGs by banks was launched in 13 districts during 2004-05. Encouraged by the success, the project was extended to all the districts of the states. During the year 12468 RMGs have been extended loan amount of Rs.1317.70 million by 20 commercial banks, 16 RRBs and 9 DCCBs participating in the project. A

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Performance of the Micro Finance Providers in Maharashtra study of 67 groups in three districts was conducted to assess the functioning of RMGs. 10.6 SETTING-UP OF COMPUTER MUNSHI Proper bookkeeping in SHGs is one of the gray areas owing to the illiteracy among the group members. NABARD sanctioned financial assistance of Rs 0.61 million to PRADAN - an NGO to develop system & local resources to address the issue. It involves training skilled local youth in computer operations and specially designed software to maintain SHG accounts. The project is being implemented in 4 districts (9 units) in Jharkhand and 1 district (1 unit) in Orissa. So far, 10 youths have been trained and their services are being availed of by 1220 SHGs in these states. Grant assistance of Rs 0.49 million has so far been released under the project. 10.7 SOCIAL SECURITY SYSTEM FOR SHG MEMBERS Another innovative project which has been approved by NABARD entails creation of community based social security system for members of SHGs in rural areas for improving their livelihood and securing them from uncertainties of life. The project components include provision of a package of health insurance, life insurance etc for SHG households by paying premium generated through discounts offered by service providers like grocery shop, cloth merchant etc in the project area for SHG members in rural areas. It is being implemented through an NGO-Organization for Awareness of Integrated Social Security (OASIS) in two villages covering 500 poor households from Betul district of Madhya Pradesh state, involving a grant assistance of Rs. 0.80 million. Self Employed Groups (SEGs) from SHGs would be formed by the NGO to provide various services involving selling of products at a discount.

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Performance of the Micro Finance Providers in Maharashtra 10.8 MICRO-ENTERPRISE PROMOTION BY SHGS NABARD has initiated a pilot project for promotion of micro-enterprises by members of matured SHGs in 9 select districts across the country, viz., Ajmer (Rajasthan), Chandrapur (Maharashtra), Kangra (Himachal Pradesh), Madurai (Tamil Nadu), Mysore (Karnataka), 24 North Parganas (West Bengal), Panchmahal (Gujarat), Puri (Orissa) and Rae-Bareilly (Uttar Pradesh), in association with Marketing And Research Team (MART) as the technical partner. The project will adopt the 3M Model approach (See Box) developed by the MART wherein identified NGOs act as Micro-Enterprise Promotion Agencies (MEPA) and assist members of matured SHGs to take up income generating activities on a sustainable basis. Survey of villages and SHGs by NGOs has been undertaken and micro Business Development Plans have been preparted for each district wherein potential activities have been mapped for the benefit of SHGs / members of SHGs, who would setup their microenterprises based on these activities.

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Performance of the Micro Finance Providers in Maharashtra 11. SUPPORT TO MFI NABARD has initiated various steps for linking MFIs with banks. Rating of MFIs - With a view to promoting flow of commercial loans from banks to MFIs, a scheme was launched by NABARD during 2005-06 to provide financial support to banks towards rating of MFIs by CRISIL. This scheme has since been revised to be operational up to 31 March 2008 and banks can now avail the services of other credit rating agencies viz., M-CRIL, ICRA, CARE & Planet Finance including CRISIL. Further the quantum of assistance has been increased to 80% of the cost up to a maximum of Rs.80, 000/-. This scheme would help MFIs in accessing commercial loans from banks. Capital / Equity Support to MFIs - In view of the announcements made by the Hon'ble Finance Minister in his Union Budget 2005-06, a scheme called "Capital / Equity Support to MFIs from MFDEF" has been announced under which Capital/ equity support to various types of MFIs would be provided by NABARD to enable them to leverage capital / equity for accessing commercial and other funds from banks. This would help MFIs in providing financial services at an affordable cost to the poor. Collaboration with external agencies The NABARD- GTZ Linkage Banking Program came to an end on 31December 2004 and implementation agreement between GTZ and NABARD on a new project "Rural Finance Program" was signed on 31 January 2006. The project period is up to 31 December 2007. The program has two components and one of the components is "Linking savings and credit SHGs to Banks". The objective of this component is that the quality and viability of financial services under SHG Linkage Banking are improved.

60

Performance of the Micro Finance Providers in Maharashtra Under the program, (i) a study is being undertaken to assess the transaction cost of various agencies such as Commercial Banks, RRBs, Coop. Banks and MFIs in purveying microfinance through SHGs or other types of groups (ii) Training modules have been developed to sensitize bank branch managers and SHG members for monitoring groups through early warning system so that the risks in lending can be minimized. The training modules have been circulated to the leading training institutions involved in microfinance.

61

Performance of the Micro Finance Providers in Maharashtra

12.CHALLENGES TO MICROFINANCE PROVIDERS

12.1 COST RECOVERY AND SUSTAINABILITY It is important for banks to carefully work out their actual costs for SHG lending. While the SHG portfolio is often only a small part of the total bank lending, and since the portfolio quality is good, it may be possible to reduce interest rates while ensuring recovery of costs. In the initial phase of the SHG movement, the groups were formed by NGOs and hence start-up costs were low for banks. However, over the years, banks have also evolved as SHPIs. In the process, the start-up costs of group formation, etc. have devolved on the banks, impacting their pricing policies. It is an accepted fact that banks will base their lending rate decisions on three important criteria their cost of funds, transaction costs and the required spreads. While the sources of funds will determine the cost of funds, the transaction costs will depend mostly on the efficiency with which the transfer of funds is enabled. Banks need to recognize the cost elements involved in the decision-making process while approving credit linkage and in maintaining the accounts of the group, throughout the repayment period. Considering the small value of loans purveyed to groups, the rate of interest charged will also be in the lower slabs, thereby earning on thinly spread margins. The other major component of costs, viz., risk costs, is intrinsically low in SHG lending and, therefore, could play a limited role in pricing of credit products for SHGs. In this regard, the Committee perused the analysis made by the RBI on cost of transactions for small accounts. Further, there is an element of indirect subsidy as presently NABARD supports the costs involved in formation and nurturing of SHGs up to the stage of credit linkage. This financial support is around Rs. 3,000 per SHG. The Ministry of Rural Development (MoRD) has established a norm of Rs. 10,000 per group for the Swarnajayanti Gram Swarojgar Yojana (SGSY) Programme, payable over four phases. If an additional one million SHGs have to be

62

Performance of the Micro Finance Providers in Maharashtra formed, the fund support would amount to nearly Rs. 1,000 crore, going by the MoRD norms. Accordingly, the Committee is of the view that the existing dispensation of subsidy in the form of a revolving fund initially and as capital subsidy for income generating activities in the second stage may not be sustainable with the exponential growth recently observed in the formation of groups under the program. At present, banks do not incur incremental costs for lending to SHGs, as it is done through the existing branch network. SHG lending to members has been reportedly at interest rates ranging between 15% and 24%. While this has been considered high, it is also reported that members borrow for short periods and do not feel the annualized burden of interest rates. Further, the interest income of SHGs is ploughed back into the corpus for lending and is beneficial to all members. 12.2 REGIONAL IMBALANCES The spread of the SHG - Bank Linkage Program in different regions has been uneven on account of various factors like pro-active role of State Governments, presence of well performing NGOs, socio-cultural factors, better performance of SHGs, etc. In March, 2001, 71% of the linked SHGs were from Southern Region consisting of Andhra Pradesh, Karnataka, Kerala and Tamil Nadu. The share of Southern Region has come down progressively over the years but it is still at 44%. Many States such as Uttar Pradesh and Bihar with high incidence of poverty have shown poor performance under the program. One of the major concerns was the slow progress of the SHG Bank Linkage movement in the north-eastern and central parts of the country. It was even argued in some quarters that the SHG strategy was not suitable to the social configurations that prevailed in the north-east. As a result of the special efforts made by NABARD, progress in the Regions / States where imbalances and low performance had been observed has picked up considerably.

63

Performance of the Micro Finance Providers in Maharashtra 12.3 MONITORING, CAPACITY-BUILDING AND SYNERGY ISSUES The general reports on the progress of SHGs show statistics of growth and spread of SHGs without providing details on the development process and internal health of SHGs. The system for monitoring of SHGs and compiling data on the health indicators need to be built up in order to ensure long term sustainability of the groups. There could be a separate SHG Monitoring Cell in every State promoted by the State Government in cooperation with other stakeholders. Currently, the major emphasis of capacity building efforts is on bankers, NGOs and government officials involved in promoting and financing SHGs. Since many of the SHGs are maturing and their business level has increased substantially, the focus should shift to capacity building of SHG members so that the accounts keeping, auditing and credit management at the group level improves. There are a few Government sponsored program, particularly the SGSY that are also using the group approach for addressing poverty alleviation. The main objective of the SGSY is to organize the identified families into groups and assist them in coming out of poverty by providing them income generating assets through a mix of bank loan and government subsidy. It covers all aspects of self-employment of the rural poor, viz., organization of the poor into groups and their capacity building, training, selection of key activities, planning of activity clusters, infrastructure buildup, technology and marketing support. 7.24 The program has some positive features such as (i) per capita loans to SGSY group members for undertaking economic activities is much higher than under the SHG - Bank Linkage Program; and (ii) there is a good coverage of SC / ST and disabled persons. The success of the SHG-Bank linkage program has motivated the Government to borrow its design features and incorporate them in their poverty alleviation program. This is certainly welcome but for the fact that the SGSY has an inbuilt subsidy element which tends to attract linkage group members and cause migration generally for the wrong reasons. Also, micro level studies have raised concerns regarding the process through which groups are formed under the SGSY and have
64

Performance of the Micro Finance Providers in Maharashtra commented that in many cases members are induced to come together not for self help, but for subsidy. Therefore, there is a need to bring better synergy between SGSY groups and the SHGs of the linkage program which are premised on savings. 12.4 JOINT LIABILITY GROUPS SHGs are now emerging as an effective credit delivery channel for mid segment clients such as share croppers and tenant farmers as their loan requirements are much larger. For developing an effective model for this group, NABARD had introduced a pilot project for formation and linking of JLGs. A JLG is an informal group comprising 4 to10 individuals coming together for the purposes of availing bank loan either singly or through the group mechanism against mutual guarantee. The JLG members are expected to engage in similar type of economic activities like crop production. Under the Scheme, tenant farmers cultivating land either as oral lessees or sharecroppers and small farmers who do not have proper title of their land holding will be eligible for collateral-free credit through formation and financing of JLGs. Towards ensuring greater inclusion of these vulnerable groups, all the members of the JLG, which is intended primarily to be a credit group, will be encouraged to open individual no frills account. NABARD had piloted the project for formation and linking of JLGs during 2004-05 in 8 States of the country through 13 RRBs through the mechanism of joint liability approach. During the year 285 JLGs with bank finance of Rs. 4.48 crore were promoted. During 2005-06, banks disbursed Rs. 6.79 crore to 488 JLGs Based on the considerations indicated above, the Committee makes the following recommendations for deepening microfinance interventions and making it an effective tool in achieving greater inclusion 12.5 Encouraging SHGs in Excluded Regions Funding support In order to further increase efforts in addressing regional imbalances, there is a need to involve State Governments. In some States, the program is driven mainly through NGOs and other SHPIs like banks, farmers clubs, individual
65

Performance of the Micro Finance Providers in Maharashtra rural volunteers, etc. The Committee is of the view that if the program is to reach a critical scale, the Department of Women and Child Development at the State-level should be actively involved in promoting and nurturing of SHGs. The State Government and NABARD may, therefore, set aside specific funds out of the budgetary support and the Micro Finance Development and Equity Fund (MFDEF) respectively for the purpose of promoting SHGs in regions with high levels of exclusion. The spread of SHGs in hilly regions, particularly in the North-Eastern Region, is poor. One of the reasons for this is that the population density in hilly areas is often low and the banking network is weak. There is a need to evolve SHG models suited to the local context of such areas. 12.6 Capacity building of Government functionaries Certain deficiencies in the involvement of Government Departments have been brought to the Committees notice, including poor follow up, ineffective monitoring and inadequate training and capacity building efforts which have, in turn, diluted the quality of program implementation. The Committee is, therefore, of the view that adequate safeguards may be devised and built in future program implementation strategies. NABARD can also facilitate this process by providing support for capacity building of Government functionaries from grass root level upwards within the SHG framework. 12.7 Legal Status for SHGs As of now, SHGs are operating as thrift and credit groups. They may, in future, evolve to a higher level of commercial enterprise. The question of providing a simplified legal status to the SHGs may have to be examined in full, in this context. This would also facilitate their becoming members of PACS. 12.8 Maintenance of participatory character of SHG movement A movement of such large scale involving peoples participation could lead to attempts towards politicization. This must be avoided. Sufficient care has to be taken to ensure that the SHG movement retains its participatory and self-help character.
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Performance of the Micro Finance Providers in Maharashtra

12.9 NABARD to open Project Offices in identified Priority States The Committee further notes that NABARD is managing the MFDEF with a corpus of Rs. 200 crore. One of the major focus of the fund should be promoting the SHG-Bank Linkage Program in States where it has been comparatively slow moving. NABARD has already identified 13 States with large population of the poor, but exhibiting low performance in implementation of the program. The ongoing efforts of NABARD to upscale the program in the identified States need to be given a fresh impetus. In this context, it is recommended that NABARD can open dedicated project offices in the 13 States for up scaling the SHG - Bank Linkage Program by strategizing interventions such as stronger involvement of State Governments, capacity building of NGOs, broadening the range of SHPI, etc. 12.10 Incentive package for NGOs Many of the NGOs have played a commendable role in promoting SHGs and linking them with banks. NGOs, being local initiators with their low resources are finding it difficult to expand in other areas and regions. There is, therefore, a need to evolve an incentive package which should motivate these NGOs to diversify into other backward areas. Incentive package could be in the form of expeditious and hassle-free grant support. RBI/NABARD TO STUDY THE ISSUE OF EVER GREENING It was also noted by the Committee that a certain element of ever greening of loans is taking place among credit linked SHGs. This, if established, is a matter of concern. The Committee advises RBI/ NABARD to expeditiously study this aspect and come out with suggestions for reversing this unsettling trend.

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Performance of the Micro Finance Providers in Maharashtra 12.11 Transparency in maintenance of records In order to ensure sustainability of the SHGs, their activities and linkages, the Committee recommends that there should be better transparency in the books of accounts maintained at the group level. These books should reflect the position of deposits in members accounts, interest paid on savings, distribution of corpus or operating surplus among members, ever greening of loan accounts, etc. The Committee also recommends that the banks, with the help of NABARD, should evolve a checklist for concurrent monitoring of SHGs. SHGS TO EVOLVE NORMS FOR DISTRIBUTION OF SURPLUS Many of the SHGs do not have the practice of distributing the surplus generated from their business activities within the group and the awareness on this issue among the SHG members is very low. The Committee recommends that there is a need to evolve norms for distribution of surplus (akin to dividend) especially at the time when a member drops out of the group. 12.12 Need to restructure design & direction of SGSY subsidy It is recommended that subsidies provided under SGSY are restructured. Various studies, conducted by the National Institute of Bank Management (NIBM) and National Institute of Rural Development (NIRD), point out that linking credit with subsidy is not an effective approach for reaching out to the poor. The Committee is of the view that there is a need to formulate a single program synergizing the positive features of SGSY such as specific targeting of below poverty line (BPL) families, etc. and those of the SHG Bank Linkage Program such as group cohesiveness, discipline, etc. While recognizing that individual subsidies are distortionary, the Committee recommends that the Government may consider redirecting subsidy in the SGSY Program for the following purposes: Capacity building of NGOs and other field based agencies such as Krishi Vigyan Kendras, to form and strengthen SHGs.

68

Performance of the Micro Finance Providers in Maharashtra Exposure visits to successful models by bankers, government officials and SHG leaders etc. For strengthening input supply and marketing arrangements. Some of the State Governments like West Bengal and Andhra Pradesh have initiated efforts in this direction. Further, it is understood that the proposals are awaiting approval of the GoI. The Committee recommends that the approaches adopted by these States for bringing synergy between SGSY groups and the SHGs of the linkage program can be studied so that the same can be replicated in other States. The need for technology adoption for effective disbursal of Govt. subsidy should be recognized. The existing dispensation of subsidy under SGSY and payouts under NREGP could be routed thru bank accounts, with suitable technology support. 12.13 Interest rate subsidy It has been brought to the notice of the Committee that certain States are providing a subsidy on interest rates being charged by banks to the SHGs. While the average rate of interest on banks lending to SHGs is around 12%, most SHGs charge interest rates of around 22%-24% to members. The margin available to SHGs is, thus, sufficient to take care of operational costs, even after considering the small amounts of loan provided to members. The Committee is of the opinion that a subsidy on interest rates cuts at the very root of the self help character of SHGs. As already indicated the subsidy could be re-directed towards capacity building efforts or in providing input supplies and marketing support to the SHGs. 12.14 Resource Centers For ensuring the long term sustainability of SHGs and for helping the members of mature SHGs to graduate from microfinance to micro-enterprises, it is proposed that resource centers on the lines of the Andhra Pradesh Mahila Abhivruddhi Society (APMAS) can be set up in different parts of the country.

69

Performance of the Micro Finance Providers in Maharashtra The SHG - Bank Linkage Program is now more than 15 years old. There are a large number of SHGs in the country which are well established in their savings and credit operations. The members of such groups want to expand and diversify their activities with a view to attain economies of scale. Many of the groups are organizing themselves into federations and other higher level structures. To achieve this effectively, resource centers can play a vital role. Resource centers can be set up by various stakeholders such as NGOs, banks, Government departments, NABARD at the State/ district level to play an important role in preparing training modules, developing a cadre of trainers, conduct of field studies and in promoting interface between SHG members and service providers. The specific role of Resource Centers would be to: i. ii. iii. iv. v. vi. Work towards a comprehensive capacity building of SHGs, Share innovative ideas and models that can be replicated elsewhere, Enhance functional literacy among SHG members, Support livelihood interventions among SHG members, Facilitate availability of all services to SHG members under one roof. The committee recommends that the cost for setting up Resource Centers can be met out of the Financial Inclusion Fund and/ or the MFDEF. SHGS TO PROVIDE ALTERNATIVE SAVINGS PRODUCTS One of the distinguishing features of the SHGs is that it is a savings-led model providing opportunities to its members to pool their small savings within the group. Most of the SHGs encourage compulsory savings with equal small amounts by members on a regular basis. SHGs need to offer a wide range of savings products so as to capture the huge potential of savings that remains untapped. Groups should be free to design savings products suiting to members requirements. Certain level of experimentation could be attempted by the Resource Centers in designing new saving products and NABARD should encourage and support such experiments.

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Performance of the Micro Finance Providers in Maharashtra ADOPTION OF JLG MODEL TO COVER MARGINALIZED GROUPS Based on the encouraging experience gained in implementation of the pilot project, a scheme for financing JLGs of tenant farmers and oral lessees has been evolved by NABARD for implementation by all the commercial banks, RRBs and cooperatives. The committee recommends adoption of the concept of JLGs which, if properly grounded, could be another effective method for purveying credit to mid segment clients such as small farmers, marginal farmers, tenant farmers, etc. and thereby reduce their dependence on informal sources of credit. 12.15 From Microcredit to Microenterprise - Challenges The present challenge is to induce SHGs and their members to graduate into matured levels of enterprise, factor in livelihood diversification, increase their access to the supply chain, linkages to the capital market and appropriate production and processing technologies. A spin off of this challenge is how to address the investment capital requirements of matured SHGs, which have initially met members consumption needs and are now on the threshold of taking off into enterprise. There is evidence in MYRADA experience where lending for productive purposes has already been given greater emphasis by SHGs. The Community Managed Resource Centers (CMRCs) organized by MYRADA provide a variety of linkage services to SHGs and individual entrepreneurs among SHG members. This model requires to be studied. The SHG - Bank Linkage Program needs to introspect whether it is sufficient for SHGs to only meet the financial needs of their members, or whether there is also a further obligation on their part to meet the non-financial requirements necessary for setting up business and enterprises. Ideally, it must meet both. GREATER ROLE FOR NABARD The Committee is of the view that while greater emphasis is needed for growth and spread of SHGs across the country, the quality in terms of outreach of financial services, capacity building, sustainability etc., needs to be reemphasized. NABARD shall play a pro-active role and identify new
71

Performance of the Micro Finance Providers in Maharashtra initiatives that will contribute to effectively improving outreach to the poor thru SHGs, MFIs, etc. FEDERATIONS Federations of SHGs at village and taluka levels have certain advantages. However, the disadvantage is that banks lose their direct contact with SHGs if federations act as intermediaries between the financing banks and SHGs. Further, federations may become intrusive, thereby diluting the democratic features of SHG operations. The Committee is of the view that federations, if they emerge voluntarily from amongst SHGs, can be encouraged. However, the Committee feels that they cannot be entrusted with the financial intermediation function. In Andhra Pradesh, federations are registered as societies under the MACS Act. The SHG members (as individuals) are permitted to be members in the federation. In Uttarakhand, SHGs are permitted to become members of PACS directly. States may adopt similar enabling legislation. The Committee recommends that the voluntary establishment of federations could be supported out of the Financial Inclusion Fund and the MFDEF. While extending support, it should be ensured that federations: emerge voluntarily, on the felt need of the SHGs Provide other value added services to member SHGs. Based on a study of Federations operating across the country, a broad list of such services and the modus operandi of federations in providing such services can be prepared and circulated by NABARD. In terms of distance, operate in close proximity to members.

12.16 Urban Microfinance There are no clear estimates of the number of people in urban areas with no access to organized financial services. This may be attributed, in part at least, to the migratory nature of the urban poor, comprising mostly of migrants from the rural areas. Even money lenders often shy away from lending to urban poor. There have been a few instances of MFIs venturing into this area of
72

Performance of the Micro Finance Providers in Maharashtra lending to urban poor who are undertaking micro-enterprises and small business activities. Urban branches of banks, even though having manpower and technology support, are not attuned to SHG lending or microfinance. They are busy with multiple and diversified activities and generally find no time to cater to the microfinance market segment. Lending opportunities in other sectors dissuade them from attempting the laborious task of micro lending. The migratory nature of parts of the low income urban population is also contributing that urban bankers are not venturing into this field. Opening of specialized microfinance branches / cells in potential urban centers exclusively catering for microfinance and SHG - bank linkages could be thought of, to address the requirements of the urban poor. BFs / BCs could be the mechanism to reach the target clientele in these areas. However, banks need to implement proper risk management practices, develop suitable models and products tailor-made to this segment. Banks can also consider associating with MFIs undertaking urban micro lending as a viable option. 12.17 Amendment to NABARD Act At present, NABARD is permitted, as per its Act and Mandate, to support micro finance activities in rural and semi-urban areas only. Considering the levels of exclusion prevalent among the urban poor, the unique nature of difficulties faced by them in accessing institutionalized banking services and with a view to leveraging the expertise of NABARD in microfinance, the Committee recommends that an enabling provision be made in the NABARD Act, 1981 permitting NABARD to provide micro finance services to the urban poor.

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Performance of the Micro Finance Providers in Maharashtra

13. CONSTRAINS FACED BY SHGs Kumaran (1997) concluded that passivity in self-help group is mainly on account of irregularity in payment of savings and employment of loans, non-adherence to norms set by the group and lack of mutual trust and confidence among members. Regular defaulting by some members resulted in dissolution of some SHGs. Prita (2001) studied the performance of Self Help Groups in Dharwad district found that the major constraints faced by the members were in diversification/ starting of activities (41.67%),

difficulties

misunderstanding among SHG's members (38.17%), lack of space for storage of materials (28.24%) and inadequate availability of raw material at the right time (16.03%). Sentil and Sekar (2004) stated that political interference in selection of beneficiaries under peoples plan, lack of timely credit facilities, lack of adequate credit, lack of adequate farm women oriented schemes and delay in operation of development programmes were the major constraints perceived by the SHG members. Darlingselvi (2005) reported that from the study conducted in kanyakumari district that the members came across certain difficulties in marketing their products in time. Rao (2005) reported that though problems varied across activities, social taboos as also lack of communication skills came out to be major factors. Lack of transportation, competition from established brands and lack of capital were voiced by women. Joseph and Easwaran (2006) identified the perceived constraints in the functioning of SHGs and found that lack of government attention was first and foremost problem i.e. 39 %. High rate of interest was felt by 33.43 % of members, followed by insufficiency of loan for income generation, inability to repay the loan etc
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Performance of the Micro Finance Providers in Maharashtra

14.PERFORMANCE OF REGIONAL RURAL BANKS

14.1 FORMATION The Govt. of India, in July 1975, appointed a Working Group to study in depth the problem of devising alternative agencies to provide institutional credit to the rural people in the context of steps then initiated under the 20 Point Economic Programme. The Narsimham committee conceptualized the creation of RRBs in 1975 as a new set of regionally oriented rural banks, which would combine the local feel and familiarity of rural problems characteristic of cooperatives with the professionalism and large resource base of commercial banks. The Government of India promulgated the Regional Rural Banks Ordinance on 26th September 1975, which was later replaced by the Regional Rural Bank Act 1976. 14.2 EXPANSION OF RRBS RRBs started their development process on 2nd October 1975 with the formation of a Prathama Grameen Bank. From a modest beginning of 6 RRBs with 17 branches covering 12 districts in December 1975, the numbers have grown into 196 RRBs with 14,446 branches working in 518 districts across the country in March 2004.

Particulars Number of RRBs Number of Branches Number of Districts Covered

1975 6 17 12

1985 188 12206 -

1995 196 14509 425

2004 196 14446 518

2005 196 14484 523

2009 86 15235 525

Expansion of Regional Rural Banks

RRBs have a large branch network in the rural area forming around 43 per cent of the total rural branches of commercial banks. The rural orientation of RRBs is formidable with rural and semi urban branches constituting over 97 per cent of their branch network. The growth in the branch network has enabled the RRBs to expand banking activities in the unbanked areas and mobilize rural savings.

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Performance of the Micro Finance Providers in Maharashtra 14.3 PERFORMANCE OF RRBs IN 2005, 2009 AND 2010 The position RRBs improved during 2008-09 when 81 of the 86 banks turning profitable. RRBs, as a system have attained a landmark business level of Rs.180, 157 crores and earned a net profit of Rs.1712 crores. The loan outstanding was Rs.65, 840 crores. There has been spectacular achievement in loan recovery performance, NPA management, and branch and staff productivity. Further, State-wise consolidation of banks has the potential to unleash considerable synergies in terms of manpower redeployment and fund resources manoeuvrability, initiation to new product launches, especially those driven by technologies like internet banking, remittance transaction, debit/credit cards and anywhere banking services, transaction cost savings, etc. in the long term. Larger area of operations consequential to consolidation also provides considerable leverage in profit and viability prospects of RRBs due to their ability for cross-transfer of business risks across different regions of operational areas and sectors. Consolidation can lead to creation of a number of modest and medium sized banks, which will no longer remain tiny banks with little means. RBI's recent policy prescription for the financial sector reforms also laid considerable emphasis on banking consolidation and self-reliance. Particulars 2005 Number of RRBs 196 Number of Branches 14484 Number of Districts523 Staff 68219 covered Deposits 62143 Borrowings 5224 Investments 36762 Loans outstanding 32870 No. of RRBs having83 accumulated losses No. of RRBs in profit 166 Recovery (%) 78% Owned funds 6181 No. of RRBs in losses 30 Performance of RRBs of RRBs are increased in 2005, 2006, 2009.
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2006 196 14494 523 68629 71329 7303 41182 39713 58 111 80% 6647 85

2009 86 15235 525 68629 114317 12250 51159 65481 35 81 78% 10318 5

The number of RRBs which are making profits out of the total number

Performance of the Micro Finance Providers in Maharashtra

15. DATA ANALYSIS AND INTERPRETATION 1) Funds Utilisation- FIF and FITF
(1 April 2011 to 31 March 2012)
st st

Name of fund

Target for1112

Commercial bank

RRB

Cooperative bank

Others

TOTAL (Rs. in crore)

D FIF 22

S 0.15

D 0.70

S 2.31

D 1.52

S 0.22

D 0.24

S 16.32

D 6.75

S 19

D 9.21

FITF

28

2.72

0.41

97.75

52.27

0.09

1.24

0.54

0.08

101.10

54

TOTAL(Rs.
in crore)

50

2.87

1.11

100.06

53.79

0.31

1.48

16.86

6.83

120.10

63.21

S: Sanctioned

D: Disbursed

Interpretation:An amount of 19 crores under FIF and 101.10 crores under FITF were sanctioned towards Financial Inclusion during the year. As against the targets of 22 crores and 28 crores to be disbursed, respectively under FIF and FITF during 2010-11, 9.21 crores and 54 crores were disbursed under the funds where as the cumulative sanction as on 31 March 2011, was 38.66 crores for 150 projects under FIF and 122.41crore for 55 projects under FITF.

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Performance of the Micro Finance Providers in Maharashtra

2) Agency wise ground level credit flow

Agency wise ground level credit flow

Agency

2009-10

2010-11

201112

Growth Rate (Rs. In Crore) 2010-2011* 2011-2012* 10.41

Co-operative Bank Regional Rural Bank Commerical Bank TOTAL

45966

63497

70105

38.14

26765

35217

43968

31.58

24.85

228951

285800

332706

24.83

16..41

301908

384514

446779 27.36

16.19

# Compound Annual growth Rate, * Percentage Change Over previous Year Interpretation:i. As against the target of 3, 75,000 crores of credit flow to agriculture for 2010-11, the banking system disbursed 4, 46,779 crores as on 31 March 2012, achieving 119.14 per cent of the target. Commercial banks, Co-operative banks and Regional Rural Banks disbursed 3, 32,706 crores, 70,105 crores and 43,968 crores, respectively, sharing 74 %, 16% and 10 %of the total credit flow during 2011-12 (Table 15.2). ii. During the period 2005-10, the Ground Level Credit (GLC) flow for agriculture and allied activities registered a Compound Annual Growth Rate (CAGR) of 19.57%. iii. Data shows that there is growth in the Ground Level Credit flow for agriculture and allied services in every year. But this growth is not constant in terms of percentage. Growth rate for the year 2011-12 has fallen down in comparison with the growth of 2010-11.

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Performance of the Micro Finance Providers in Maharashtra

3)

Progress of the micro- finance program

Progress of the micro- finance program As on 31st March 2011 Sr.no. Particulars Self Help Group No. 1 Loan disbursed during the year 1586822 (267403) 2 Loan outstanding 4851356 Amount 1445330 (2198000) 28038.28 Micro-Finance Institution No. 779 (88) 1659 (146) ---Amount 1072849 (2665.75) 13955.14 (3808.20) ----

(1245394) (6251.08) 3 Saving Accounts with Banks 6953250 6198.71

(1693910) (1292.87) *Actual number of MFI provided with bank should be lower as several MFI availed loan from more than one bank

Interpretation:As on 31 March 2010, there were more than 69.53 lakh savings- linked Self Help Group (SHG) and more than 48.51 lakh credit-linked SHG which covers 9.7 crores poor households under the micro-finance program. As on 31 March 2010, the share of bank loans outstanding to SHG, as a percentage to loans outstanding to weaker sections by scheduled commercial banks, improved marginally to 16.3 per cent from 15.8 percent in the previous year

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Performance of the Micro Finance Providers in Maharashtra 4) Utilization percentage under Rural Infrastructure Development Fund

Interpretation:It is observed from the above table that the average percentage utilization for west zone is 87.27% which is more than the industry average of 83.5% and for Maharashtra it is more than the average of west zone that is 87.62%.

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Performance of the Micro Finance Providers in Maharashtra 5) State wise details are given in the below table

State

Percentage Percentage Est. No. of No. of of poor Est. No. of of total rural household Rural Poor Rural rural houses already Household households household holds covered s already s covered covered 48882 11262358 213833 5356103 18415006 5801 3920732 36605 12066 83864 110283 6934163 3306299 1233561 1826964 5007389 7510506 3491101 2824 10507580 12309088 379925 473794 105807 2801372 6990247 78868 9776 2252472 71848 1949622 10257158 1282 2160323 17534 5780 13083 30989 2711258 819962 308390 257602 2583813 2816440 705202 570 5632063 5896053 149310 66331 24336 280137 4250070 18061 61332 17249523 77972 2660570 2809720 9723 1226447 0 0.0 34114 91887 1858638 412355 541047 66458 941799 7892781 7153888 1865 1531072 7719934 109924 109620 53980 99824 6215124 373699 627.3 765.8 108.5 136.5 27.4 758.4 56.8 0.0 0.0 260.8 296.5 68.6 50.3 175.4 25.8 36.4 280.2 1014.4 326.9 27.2 130.9 73.6 165.3 221.8 35.6 146.2 2069.1 125.5 153.2 36.5 49.7 15.3 167.6 31.3 0.0 40.7 83.3 26.8 12.5 43.9 3.6 18.8 105.1 204.9 66.0 14.6 62.7 28.9 23.1 51.0 3.6 88.9 473.8

Andaman Nicobar* Andhra Pradesh Arunachal Pradesh Assam Bihar Chandigarh(UT)* Chhatisgarh Dadra & Nagar Daman & Diu Haveli Delhi Goa Gujarat Haryana Himachal Pradesh Jammu & Kashmir Jharkhand Karnataka Kerala Lakshadweep Madhya Pradesh Maharashtra Manipur Meghalaya Mizoram Nagaland Orissa Pondicherry

Interpretation:It is observed from the above table that the highest percentage of total rural households covered is in Kerala with 204% whereas the Maharashtra has covered only 62.7% of the total rural households.

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Performance of the Micro Finance Providers in Maharashtra

Questionnaire Analysis:1) Age: 21 to 30 years 31 to 40 years 41 to 50 years 51 to 60 years 5 14 6 5

21 to 30 years 31 to 40 years 41 to 50 years 51 to 60years

Interpretation:17% of the respondents were between 21 to 30 years, while 47% of the respondents were from age 31 to 40 years, 20% were from 41 to 50 years,& 16% were from the age between 51 to 60 years.

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Performance of the Micro Finance Providers in Maharashtra

2) Sex: Male Female 19 11

Male Female

Interpretation:63% were Male respondent, while 37% were Female respondent.

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Performance of the Micro Finance Providers in Maharashtra

3) Civil Status: Single Married Separated 7 22 1

Single Married Seperated

Interpretation:Majority of the respondent were Married around 74%, while 23% were single and 3% were separated

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Performance of the Micro Finance Providers in Maharashtra

. 4) Highest Educational Attainment: No Schooling High School College Graduate Post Graduate 3 5 12 6 4

No Schooling High School College Graduate Post Graduate

Interpretation:Most of the respondents have the highest education attainment only few were from no schooling background.

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Performance of the Micro Finance Providers in Maharashtra

5) Do you need Loan? Yes No 24 6

Yes No

Interpretation:80% of the respondent need loan for their different activities in their day to day life, while 20% dont need loan.

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Performance of the Micro Finance Providers in Maharashtra

6) From where would like to take loan? Bank MFIs Non-banking companies Trust Others 13 8 3 4 2

Bank MFI's Non-Banking Co. Trust Others

Interpretation:44% respondent feels that loan taken from bank is much better than from others, while 27% of respondent feels that loan taken from MFIs is better because they provide additional advantage to them.

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Performance of the Micro Finance Providers in Maharashtra

7) What kind of approach do you think the RBI has towards the microfinance sector? Positive Negative Neutral 12 11 7

Postive Negative Neutral

Interpretation:40% of the respondent thinks that RBI has positive approach towards MFIs, while 36% thinks the RBI has negative approach towards MFIs by changing the interest rate cap & 24% thinks that the RBI has neutral approach towards MFIs.

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Performance of the Micro Finance Providers in Maharashtra

8) What you do with that Loan Amount (Loan Use)? Emergency Reason Expanding business Working Capital Debt reimbursement House Improvement Own Consumption Occasional Reasons 6 8 3 2 6 3 2

Emergency Reason Expanding business Working Capital Debt reimbursement House Improvement Own Consumption Occasional Reasons

Interpretation:20% take loan for emergency reason, 28%take loan for expanding business, 10% take loan for working capital, 6%take loan for debt reimbursement, 20% take loan for house improvement, 10%take loan for own consumption, while 6%take loan for occasional reasons

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Performance of the Micro Finance Providers in Maharashtra

9) According to you which is better loan? Local Zamindars Microfinance Institution Bank Others 4 10 12 4

Local Zamindars Microfinance Institution Bank Others

Interpretation:40% respondent says that loan from bank is better because of their facilities and fixed interest rate, 33%respondent says that loan from MFIs is better because of their flexible interest rate and facilities to the poor people, while 14% says that loan from local zamindars is better & 13% says that loan from others is better.

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Performance of the Micro Finance Providers in Maharashtra 10) Have you ever faced any violation on you, if you could not able to repay loan amount? Yes No 8 22

Yes No

Interpretation:There were some cases on which MFIs have taken strict action on not paying the instalment payment on time, where MFI used this forceful way to regain their amount, but 74% of the respondent feels that they MFIs dont do any violation to them.

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Performance of the Micro Finance Providers in Maharashtra

16. FINDINGS

1. The pattern of growth of SHGs in the state from 2005-2006 to 2010-2011 are discussed in detail. Here there is data on three aspects of the growth of Micro finance in the state they are the number of SHGs credit linked, bank loan disbursed and the refinance that is provided. In the year 2005-06 the total number of SHGs credit linked were only 61730 but it has grown to more than 10 lakh in the 2010-11.The compound growth rate of number of SHGs credit linked increased at the rate of 57% per annum. Similarly, bank loan disbursed to SHGs was found to be growing at the compound growth rate of 71.97%. The rate of growth in bank loan is higher than the growth in both the SHGs credit linked and refinanced. This higher growth in micro finance may also be possible because of refinance support provided by the apex level institutions involved in Micro finance. 2. The SHG model which was started over three decades ago has seen a tremendous growth covering a large number of people, primarily women. From the above data 74.62 lakh SHGs covering 7.08 crores poor households have been linked with the banking system with saving bank accounts. More than 90 per cent of such groups are exclusive women groups. Total number of SHG groups credit linked (excluding SGSY) declined to 2.41 lakh during the year, compared to 2.67 lakh groups in the previous year. 3. From the above data it is observed that there is tremendous growth of regional rural banks in India up to 2005 but after 2005 there is constant decrease in the Regional Rural Banks. Because the commercial banks reaching in the rural areas also. 4. Data shows that there is growth in the Ground Level Credit flow for agriculture and allied services in every year. But this growth is not constant in terms of percentage. Growth rate for the year 2011-12 has fallen down in comparison with the growth of 2010-11. 5. 80% of the respondent need loan & around 44% of them refers bank for loan amount. 6. People take loan for various purposes like for expanding business, debt reimbursement, house improvement & for own consumption.
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Performance of the Micro Finance Providers in Maharashtra 7. MFIs have introduced many new products to suit the needs of the poor people. 8. 33% respondent says that loan from MFIs is better because of their flexible interest rate and facilities to the poor people.

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Performance of the Micro Finance Providers in Maharashtra 17. CONCLUSION

The structure of rural financial market in India is dualistic both formal and informal financial intermediaries. Consensus is growing among researchers that the formal financial sector is not effectively serving the rural population in the world. This is mainly attributed to the failure of financial intermediaries in fulfilling their basic functions viz. Production credit to finance income generating activities, Consumption credit to maintain and expand human productive capacity, Quality saving schemes for increasing risk-bearing capacity of the rural households. The performance of formal financial institutions particularly in their lending to the poor in India has been unsatisfactory. They face a number of constraints in broadening their services to the poor. A large number of rural households are with limited land resource and small economic activity accompanied with poor technology. But their demand for credit has been rising due to growing family size increased consumption requirement, social obligations and so on. But the institutional agencies not only lacked the required mechanism to assess their credit needs but also often overlooked their demand for credit on the ground that their needs are for non-productive purpose. Besides pursued high risks transaction cost in small scale rural lending and absence of collateral securities kept the poor away from the fold of formal financial intermediaries. Of course, lack of capital is only one factor keeping poor rural households from improving their welfare. In rural areas of Maharashtra, illiteracy is high, basic social and market infrastructure is lacking, and many people are in poor health. When seed or irrigation water for the farmer, market access for the rural producer, or elementary book keeping skills for the would-be entrepreneur are absent, the returns to financial services will be low or sometimes even wasted.

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Performance of the Micro Finance Providers in Maharashtra Self Help Groups (SHGs) form the basic constituent unit of the microfinance movement in India. An SHG is a group of a few individuals usually poor and often women who pool their savings into a fund from which they can borrow as and when necessary. Such a group is linked with a bank a rural, co-operative or commercial bank where they maintain a group account. Over time the bank begins to lend to the group funded out of the savings generated by the group members themselves, are called inter-loans. The Role of NGOs in Microfinance: Self Help Groups are almost always formed with outside assistance. Developmental NGOs, often with considerable history of working in a particular area for projects like literacy, sanitation etc., take to organizing SHGs, bringing together people, explaining the concept to them, attending and helping coordinate a few of the initial group meetings, helping them maintain accounts and linking them with the banks. Of late, some of the rural banks themselves are being designated as Self Help Promoting Institutions (SHPIs) and they help in the formation and nursing of SHGs.

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Performance of the Micro Finance Providers in Maharashtra 18. RECOMMENDATION There should be enough procedures that should be followed for the employment of more staff and the amount that needs to be paid to them should be properly notified in order to maintain sufficient staff to look after all the procedures and processes of all the SHGs that come under a NGO. There is also a urgent need for the establishment of different skill development facilities at the block level in order to ensure a proper training, demonstration or any other skill developmental activities to take place in that block for the SHGs through the NGOs. Some major steps need to be taken in the direction of imparting proper education to both the staffs of the NGOs and also the members of the SHGs. This would ensure that the whole process of microfinance runs smoothly and it should also ensure that the recovery performances should be enhanced in order to avail higher loans. Thus, the stress for the need for education to both staff of the NGOs and the members of the SHGs. New products should be introduced to suit the needs of the poor people especially in the Maharashtra. Maharashtra has covered only 62.7% of the total rural households due to high illiteracy. So, the Government has to take step towards it, government should try to improve literacy rate.

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