Microfinance Drive: Where does the North East India stand?

Debabrata Das
Reader, Department of Commerce
Gauhati University
Guwahati-781014
Email: ddas_gu@rediffmail.com
Cell 9435015074
1. The Context
Asian Development Bank’s recent estimates indicate that Asia is still home to the
majority of the worlds poor. Despite significant progress in poverty reduction during last
decade, about 2 billion ‘poor’ people (380 million households) live in the region which
includes 690 millions ‘extremely poor’1 people (138 million Households). The World
Summit on Micro Enterprises (2001) and Consultative Group to Assist the Poorest
(CGAP)2 highlighted the serious concern of the international community to reduce the
levels of poverty, both in terms of income levels and deprivation of basics needs for a
decent living. It was broadly accepted that ‘robust economic growth that is labour-
intensive and equitable, combined with larger outlays of social expenditures, especially
directed towards the poor (estimated at 1. 3 billion people), are a winning combination in
the fight against poverty’ (UN, 2007). In this context, Micro finance has been recognized
and accepted as one of the new development paradigms for alleviating poverty through
social and economic development of the poor in general and women in particular. The
idea of micro credit was inculcated by Nobel Laureate Prof. Muhammad Yunus who
initiated imagining the poorest of the poor in to self-help groups and makes them realize
the very basic theory of survival way back in 1976. The inability of formal financial
institutional set-up to deal with the credit requirements of the poorest class effectively has
led to the emergence of micro credit system. Micro credit is developed to be an
alternative credit delivery system, which can cater to the needs of the poor locally
involving them in the system itself3.
The micro credit approach received increased attention in the mid 1990 after the World
Summit for Social Development held at Copenhagen in March 1995.4 Emphasizing the
importance of easy access to credit for the poorest section, the Summit urged
governments of nations to give a new thought to their legal, regulatory and institutional
frameworks in order to make credit easily accessible to the poor. Subsequently, in 1997
the World Micro Credit Summit at Washington DC announced a global target of ensuring
delivery of credit to 100 million of the world’s poorest families, especially the woman of
these families by 2005 which was achieved well ahead in time.
Since the launch of the Millennium Development Goals (MDGs)5 at the
Millennium Summit in New York in September 2000, the MDGs have become a widely
accepted yardstick of development efforts. The first and foremost goal, among others, is
to eradicate extreme poverty and hunger. This goal targeted to halve the proportion of
people whose income is less then US$ 1 a day and the proportion of people who suffer
from hunger between 1990 and 2015(UN,2001). Almost all the countries in the world,
including India have committed themselves to attaining the targets by 2015 as embodied
in the Millennium Declaration. Resorting to these resolutions, many developing countries
have put micro finance in their agenda as a tool of reaching the MGDs.
2. Best Practices
Over the past decade, microfinance institutions have adopted innovative ways of
providing credit and savings services to the entrepreneurial poor. An innovative approach
that has been used successfully by Grameen Bank's credit-delivery system is "peer-group
monitoring" to reduce lending risk, although some studies have suggested that the reason
for the Grameen Bank's high repayment rates is also partly due to the practice of weekly
meetings - at which attendance is compulsory - for the repayment of loan installments
and the collection of savings. It is reported that the meetings reinforce a culture of
discipline, routine repayments and accountability. Not all microfinance institutions use
peer-group monitoring. Other institutions such as the Bank Rakyat of Indonesia, which
serves 2.5 million clients and 12 million small savers, rely on character references and
locally recruited lending agents in place of physical collateral. Thailand's Bank of
Agriculture and Agricultural Cooperatives serves approximately 1 million micro-
borrowers and 3.6 million micro-savers. Newcomers such as the Association for Social
Advancement of Bangladesh, with half a million clients, and the People's Credit Funds of
Vietnam with more than 200,000 members or clients, are other examples of the potential
for growth in the industry. Other institutions such as the Association of Cambodia Local
Economic Development Agencies, Buro-Tangail of Bangladesh, the Self-Employed
Women's Association Bank of India, and Amanah Ikhtiar Malaysia are also reported to
be making good progress (UN, 2007). The microfinance institutions ‘revolutionalized’
traditional views by showing that the poor are bankable and it is only because of the
conventional banking practices they were categorized as non-bankable (Nagarajan and
Meyer, 2005).

3. India’s Microfinance Experiment

In early 1990, NABARD started an experiment with MYRADA-NGO in Karnataka by

promoting groups, mobilizing their savings and linking them with banks for credit
support. In fact, linking self help group6 with banks was started as pilot project by Asia-
Pacific Rural and Agricultural Credit Association (APRACA) with technical support
from German Technical Cooperation (GTZ) in several countries in Asia during early
90’s.Later on NABARD replicated this project all over India under the SHGs Bank
Linkage Programme in 1992 and many NGO’s came forward to implement this project
with the co-operation of banks. In 1994 following the success of NABARD, Small
Industries Development Bank of India (SIDBI) also came forward to provide bulk
lending to NGO’s for on-lending to groups/ individuals. Ministry of Human Resource
Development, Govt. of India established Rashtriya Mahila Kosh (RMK) for providing
loan to NGO’s to on lend to poor women. Other National and State financial
Corporations also entered in to the micro finance sector. International funding agencies
also started micro-finance services in India through their projects.

Making a modest beginning in the year 1992 by linking 255 SHGs with banks and
disbursing credit of Rs. 29 lakhs the programme has showed a great success. The number
of SHGs linked to bank rose to 50 lakhs with bank loan of Rs. 17000 corers as on 31 st
March 2008, which covered over 7 crores poor households. State like Andhra Pradesh,
Tamil Nadu, Karnataka, Orissa, Uttar Pradesh, Maharastra and West Bengal remained in
the forefront followed by other states such by Rajasthan, Kerala and Madhya Pradesh
with encouraging trend. Performance is excellent, and impact is deeply felt by the
members, the vast majority of them women (Seibal, 2005). The SHG banking model
evolved into one of the rural microfinance models with widest outreach in the world
(Yedra, 2007). Institutions involved in the delivery of microfinance services are
commercial banks, rural banks, cooperative institutions, credit unions and non-
governmental organizations, NBFCs under Section 25 of Indian companies act and
NBFCs registered under Indian companies act and RBI.
4. Women Empowerment
Majority of world’s poor (70%) are women. Women, especially in the rural areas have
fewer opportunities than men due to gender biases in their societies, unequal
opportunities of access to education, employment and asset ownership.7 They have less
occupational mobility, weaker skills and less access to training. Many micro-credit
programmes have targeted one of the most vulnerable groups in society - women who
live in households that own little or no assets. By providing opportunities for self-
employment, many studies have concluded that microfinance have significantly increased
women's security, autonomy, self-confidence and status within the household. Linda
Mayoux (1999) identified three paradigms on microfinance and women empowerment.
Firstly, the Financial Sustainability Programme which focuses on the cost effective
functioning of the credit operation in order to ensure financial sustainability. This results
in greater outreach to the financially excluded and the poor. Women are targeted because
of their high recovery rate. Secondly, Poverty alleviation Programme which is
implemented through women because they are believed to be responsible for wellbeing of
the household. Further additional income with women brings in ‘multiplier effect’ to
multiple generations. Thirdly, Feminist Empowerment Programme aiming at bringing
about ‘change in the lives of women’ focusing gender equity and human rights. This is
reflected in increased income, skills and self confidence and mobility (Bali, 2006)8.

5. Microfinance in North East India

Although lately, microfinance has took its place in the north eastern states. The self-help
group (SHG) model is the predominant one in the region. The progress of microfinance
service delivery under the SBLP and the NGO-MFIs in the region in recent years is
observed better. The data showed the number of SHGs linked under SBLP went up by
more than 80% between March 2005-2006 and that there was an almost 62% increase in
the number of loans disbursed during the period. Additionally several NGO-MFIs are
operating in the region. As on 31st March, 2008, little over 2 lakhs SHGs have been
linked with the banking system and Rs 8633 lakhs have been collected as savings. The
loan outstanding amount is Rs. 35,563 lakhs for entire region. Assam is in the forefront of
the intervention with more the three forth of the SHGs linked and absorbing over 80
percent of loan. The Nagaland, Sikkim Mizoram and Arunachal Pradesh has shown a
legged growth. The share of spread of microfinance of the North Eastern Region is still
negligible in comparison of other region. North Eastern Region shares 4% SHGs linked,
2.28% of savings and 2% of loan of all India figures (NABARD,2008).
It is indeed commendable that the Micro Finance (MFI) sector in the region has been
perhaps one of the few sectors, which can claim to have grown indigenously and with
very little external support. Today, it has offered employment to more than 5500 people
besides servicing 110000 individual clients and more than 60000 SHGs (which means
600000 clients) besides facilitating an equal number for bank linkage. It is perhaps one of
the few demand led services to have evolved and grown despite many constraints and
problems. It is a tribute to the innumerable microfinance institutions (MFIs) across the
regions, which have shown that growth can happen from within rather than emanating
from outside. A few of other microfinance providers in the north east region are:
Rashtriya Gramin Vikas Nidhi, Guwahati
Non-profit organization providing financial and capacity building support to NGO-MFIs
especially in northeast and eastern India for expansion of microfinance. Under its arm
RGVN-CSP it is offering microfinance under JLG models in Assam and Meghalaya.
Asomi, Guwahati
Asomi is an MFI in Guwahati providing micro-finance to the poor in many districts of
Assam. It begged funds from international donor like UNITAS for on-lending under
microfinance drive.
National Bank for Agriculture and Rural Development, Guwahati
Under its SHG-Bank Linkage Program, provides refinancing and technical assistance to
banks and NGOs involved in SHG promotion and lending, also from northeast India.
International Fund for Agricultural Development (IFAD), Italy
IFAD is providing funding support to Government of India and NGOs for promotion of
microfinance and livelihoods programs in the northeast. It ran an eight-year Women’s
Development project (January 1990-December 1998). The project was implemented in
six districts with the poor women as target group. More than 87,000 women received
institutional credit worth Rs. 753 million with a recovery rate of more than 80%. Loans
taken for income generating activities accounted for more than 75% of the total loans.
North Eastern Region Community Resource Management Project for Upland
Areas, Shillong
It is a joint project of IFAD and Govt. of India, to improve the livelihoods of vulnerable
people in the northeast region through building SHGs and Natural Resource Management
Groups.
Industrial Credit and Investment Centre of India (ICICI) Bank
Bank is providing market loans and capacity building support to NGO-MFIs from North-
East India and is developing a strategy to expand operations in North East.
Small Industries Development Bank of India (SIDBI), Guwahati
SIDBI Foundation for Micro Credit (SFMC) provides bulk loans and technical support to
Microfinance Institutions in the northeast region of India.
North Eastern Development Finance Corporation Limited, Guwahati
Providing financial support to MFIs based in northeast India for the development of
animal husbandry, agri-horticulture plantation, medicinal plantation and micro-insurance.
Nedan Foundation, Kokrajhar
Nedan Foundation is an NGO working in the villages of the northeast particularly in the
Bodoland Territorial Council dominated by Bodos community. It is trying to strengthen
existing livelihoods opportunities in this region through forming groups of weavers in
Kokrajhar district. Presently, it is working with 65 home-based weavers and 3 cluster-
based weaving centres. With resources and time at their disposal, a weaver is able to earn
up to Rs. 1,800-2,000 per month .Working in the northeast region particularly at Bodo
Territorial Council for alternative livelihoods promotion in weaving sector and helping
weavers to get loans from MFIs.
Manab Sewa Sangha, Guwahati
An NGO working in northeast India, providing microfinance services to the poor
organized into groups. A development organization involved in microfinance activities, is
presently working in three districts of Assam- Kamrup, Nalbari and Barpeta. Following
the “group methodology,” it is organizing poor women into SHGs and Joint Liability
Groups (JLGs).
Youth Volunteers Union, Manipur
A Microfinance organization imparting microfinance services to the poor based in
northeast India. Youth Volunteers Union is providing microfinance services to rural and
urban poor in the six districts. Presently it is working with 189 Self-Help Groups. It has
4,100 borrowers with a loan portfolio of Rs. 3.9 crores. In this coming financial year, it
plans to expand microfinance operations in urban areas of Guwahati city in Assam.
Agricultural and Processed Food Products Export Development Authority, New
Delhi
Develops agricultural commodities and promotes their exports in the northeast region
with financial assistance for market, infrastructure and quality development. It extend
financial assistance through the group model.
Bandhan,Kolkata
Bandhan is an MFI working with the poor women through community participation
initiatives. Presently it is working in 29 districts of five states. As of February 2007, it has
more than four lakhs active borrowers with Rs. 1168 million loans outstanding. After
looking at the demand potential of MF in northeast, it has now expanded its operations to
Tripura, Assam and Meghalaya. Presently it has more than 13,000 active borrowers with
Rs. 41.17 million loans outstanding.
These apart, diverse nature of civil society organizations present in the region such as
youth clubs and missionaries, which have ,over time, moved into the social sector and are
working as Self-Help Promoting Institutions (SHPI). However, few of these social
institutions, have entered the microfinance business.
6. Challenges Ahead:
The micro-finance movement in northeast mainly consists of Self Help Groups (SHGs)-
bank linkage. Banks are thinly spread in the region and are to be found mainly
concentrated in urban clusters in the valleys. They have not been able to extend their
outreach the remote rural areas of the region. Banks are not only few, they often claim to
be understaffed. Most of the rural branches of banks have two or three employees and
they are not equipped to handle many SHGs that could be spread over several kilometers.
The cost of promoting SHGs in the virtually roadless hilly regions is prohibitive. Looking
at the differences in the socio-cultural and political conditions and infrastructure
provisions, the following challenges to the growth of microfinance in the northeast are
thought of9:
• Absence of an enabling environment, social investments and proper infrastructure
• Perceived security problem in the region
• Lack of appropriate institutional structures
• Shortage of professionals with financial and social educational background
• High subsidy dependency on government aid
• Weak socio-economic and political bodies (Cooperatives, panchayats etc).
7. Conclusion
Despite having limiting factors, there are huge opportunities for scaling up MF services
in the region. The socio-cultural environment in the northeast, the diversity of people,
culture, flora, fauna and topography in the region, needs using different approaches in
different areas. Identification of suitable institutional structures and building innovative
service delivery models and products based on the specificities of the region is an urgent
need. Following steps may be helpful for the scaling up of the microfinance in the
region.
• Finding appropriate institutional structures and creating innovative microfinance
models and products
• Strengthening livelihoods through innovative approaches like contract farming
and warehouse receipts
• Training and capacity building for MFIs in developing systems and process for
effective delivery of MF services.
• Start-up funds for institutions that want to scale up their operations quickly be
provided for.
• Making sound strategic business plans for better management of microfinance
operations
• Strengthening the linkages with the technology partners and adoption of
technology to cut down the transactional and operational costs due to scanty bank
branches in the region. SBI has recently started such an initiative called SBI Tiny
in Mizoram. It was started as a pilot and it seems to have met with initial success.
They are therefore rolling this out in Arunachal Pradesh and also the toughest
terrain in Garo Hills. A new generation of local (North East-based) technical
assistance and capacity development providers required to be promoted.
For scaling-up microfinance in the NE must include livelihoods financing. Looking at
the large number of low-income people depending on agriculture and allied activities
for their livelihoods, respondents apprehended that the scope of consumption
financing is less likely and may not be a desirable strategy. Thus, there is huge
opportunity for MFIs to get into livelihood financing, through public-private-
partnership including banks. Other potential areas for livelihood financing in the NE,
such as in rubber and spices; post-harvest management; Jatropha/bio-diesel,
floriculture, medicinal and aromatic plants; warehouse financing; contract farming;
and cash flow based financing. What is required is a multi-pronged strategy to
overcome the many challenges the region poses. Banks, policymakers and NGOs -
the major actors in the field of micro-finance - must come together to think through
suitable modifications in policy. Banks may have to change their system of assessing
risks. There is need for capacity building and expansion of infrastructure. In some
cases, the SHG model may have to be replaced by other models.
Notes:
1
World development report 1990 defined the “extremely poor” as those who are living on no more than $1 per day per
person measured in terms of 1985 purchasing power parity. The term “poor” includes those who are living on no more than
$2 per person per day. In 1993, the poverty line was updated to $1.08 per person per day at the 1993 PPP exchange rate.
2
CGAP-the World Bank led unit, which comprises 25 members, including United Nations bodies, is a multi-donor effort
for development and dissemination of best practices of microfinance and to address the problems faced by microfinance.
3
Micro-credit may be understood as the narrow concept of microfinance .Micro-credit primarily deals with small lending to
the poor while microfinance make the provision of multiple financial services like savings services, lending ,insurance and
other financial services . However, often the terms micro-credit and micro-finance are used interchangeably (as used in this
article).
4
See Report of the World Summit for Social Development, Copenhagen 6-12 March 1995 in United Nations
publication,Salcs NO. E.96.IV.8
5
The MDGs are a set of numerical and time bound targets developed by UN related to key achievements in human
development to be reached by 2015, from their levels of 1990.They include:
1) Eradicate extreme poverty and hunger, 2) Achieve universal primary education
3) Promote gender equity and empower women, 4) Reduce child mortality
5) Improve maternal health 6) Combate HIV/AIDS, malaria and other diseases
7) Ensure environmental sustainability 8) Develop a global partnership for development.
6
A Self-Help Group (SHG) is a registered or unregistered group of micro entrepreneurs having homogenous social and economic
background, voluntarily coming together to save small amounts regularly, to mutually agree to contribute to a common fund and to meet
their emergency needs on mutual help basis. The group members (usually 10-20) use collective wisdom and peer pressure to ensure
proper end-use of credit and timely repayment thereof. In fact, peer pressure has been recognized as an effective substitute for collaterals.
(NABARD,2000).
7
In Bangladesh and Nepal, literacy rates of women fall far below than men,29% for women compared to 45% men in
Bangladesh(1999) and 17% women compared to 51% men in Nepal(1995)
8
Swain Ranjula Bali’s study on SHG women and micro credit across five states in India observed that women participated
in SHGs had experienced better access to resources, freer mobility, self-confidence, social recognition and participation
reducing their dependence on local money lenders and brining about many benefits to women.
9
Cited in www.solution exchange-un.net.in

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9