MICRO FINANCING AND RURAL INDIA: WITH REFERENCE TO LIJAT PAPAD

A Submission made by Andlib Imrose

Roll-1915 B.A.LL.B

A Submission submitted to DR.SHIVANI MOHAN

A research submission submitted in fulfilment for the course (Economics I) for

obtaining the degree B.A.LL.B(Hons.) during the Academic year 2019-20.

March, 2019

Chanakya National Law University, Nyaya nagar, Mithapur Patna-800001

1|Page
 DECLARATION BY THE CANDIDATE

I hereby declare that the work reported in the B.A. LL.B (Hons.) Project Report entitle “MICRO

FINANCING AND RURAL INDIA: WITH REFERENCE TO LIJAT PAPAD” Submitted

at Chanakya National Law University, Patna is an authentic record of my work carried out under

the supervision of Dr. SHIVANI MOHAN. I have not submitted this work elsewhere for any

other degree or diploma. I am fully responsible for the contents of my Project Report.

(Signature of the Candidate)

ANDLIB IMROSE
Chanakya National Law University, Patna

2|Page
ACKNOWLEDGEMENT

Any project completed or done in isolation is unthinkable. This project, although prepared by
me, is a culmination of efforts of a lot of people. Firstly, I would like to thank our Professor Dr.
SHIVANI MOHAN for, helping me in making the project on “MICRO FINANCING AND
RURAL INDIA: WITH REFERENCE TO LIJAT PAPAD” for her valuable suggestions
towards the making of this project.

Further to that, I would also like to express my gratitude towards our seniors who did a lot of
help for the completion of this project. The contributions made by my classmates and friends are,
definitely, worth mentioning.

I would like to express my gratitude towards the library staff for their help also. I would also like
to thank the persons asked for help by me without whose support this project would not have
been completed.

I would like to express my gratitude towards the Almighty for obvious reasons. Moreover,
thanks to all those who helped me in any way be it words, presence, Encouragement or
blessings.

ANDLIB IMROSE

3|Page
 TABLE OF CONTENTS

1. INTRODUCTION

1.1 Aims and objective

1.2 Hypothesis

1.3 Research questions

2. RESEARCH METHODOLOGY

3.Micro-Finance in India

4. Self Help Group: Shri Mahila Griha Udyog Lijjat Papad

5. Problems in Microfinance through Self Groups

6. Suggestions and Conclusion

BIBLIOGRAPHY

4|Page
 CH 1-INTRODUCTION

In India almost 30 crores of rural population is dependent on micro enterprises across the country
according to report of ministry of Micro, Small and Medium enterprises report of 2017-18.1
There are various financial services provided to poorer section of rural society which are
provided through credit cooperatives which acts as organised sector to provide credit which is
regularised by RBI and NABARD. Mostly, Self Help Groups plays important role for lending
the money to micro enterprises as it is a mediator between bank and micro enterprises. This was
scheme launched by NABARD in 1992.

Micro financing is financial program that focus primarily on alleviation of the poverty by lending
the amount to the poorer section of the society especially in the rural areas to the people who
lack access to formal institution. Shri Mahila Griha Udyog Lijjat Papad is the organization
started by 7 women in 1959 for empowerment of women. This organization has primary focus on
giving dignified livelihood to woman from poor section of the society. It gives the employment
to people without any racial and religious differences. These groups play an important role in
pooling the amount to use at the time of any need.

1
https://msme.gov.in/sites/default/files/MSME-AR-2017-18-Eng.pdf ( 6th August 23, 2019, 4:00pm)

5|Page
  Aims and Objective of the Research Work

1. To find the impact of micro financing in upliftment of rural women and poverty alleviation by
working with Shri Mahila Griha Udyog Lijjat Papad.

2. To examine number of jobs generated through micro finance

3. To analyze income generation of the people related to micro finance.

4. To determine the problems in implementation of microfinance scheme through Self Help

Groups.

 Research Questions
1. What is the impact of microfinance on employment opportunities, income generation and
poverty alleviation?
2. What is the role of micro finance in uplifting the living standard of people working for
Shri Mahila Griha Udyog Lijjat Papad?
3. How to remove the problems occurring in upliftment of microfinance?

 Hypothesis
1. Microfinance increases the level of income and reduces income inequalities among the
participant households.

2. Microfinance reduces the level of poverty among the participant households.

3. Very poor borrowers get more benefits than already better-off borrowers.

4. As Self-help Groups grow older, the members of the groups are more benefited as compared
to the new entrants

6|Page
 CH-2 RESEARCH METHODOLOGY

Method of Research

The researcher will adopt a purely doctrinal method of research. The researcher has made
extensive use of the library at the Chanakya National Law University and also the internet
sources.

Sources of Data

The following secondary sources of data will be use in the project

1. Books

2. Internet

Method of Writing

The method of writing will be followed in the course of this research paper is primarily
analytical.

7|Page
 CH-3 Micro-Finance in India

The growth of the micro finance sector in alignment with the rest of the economy continued in
the year 2010 but less vigorously than in the previous years. 2The macroeconomic environment
changed marginally for the better during 2010 as compared to the previous year. Across the
world, reports were of painful and slow recovery from the financial sector meltdown of the
previous year, and there was a continuing flow of bad and some good news. 3The bailouts of
financial institutions elaborately designed by different governments had run their course and
gave way to a great deal of attention for improving regulation and supervision of the financial
sector, and especially of the conglomerates.

Pessimism and distrust gave way to cautious attention to set things right. The impact, if any, on
the micro-finance sector had not been overly negative. Of course, the initial withdrawal of funds
both of equity and of loans— was a predictable knee-jerk reaction of investors to consolidate
their liquidity to minimize risks. With the passage of time, both loan and capital funds have
started to flow to the sector but with more circumspection and caution. It is only a matter of time
before the investors return to the marketplace with full force.

The Indian economic environment recovered from slower growth rate of the previous year to
post a GDP growth of 6.8 per cent in 2018–19.4 Industrial production continued to record single
vdigit growth with year on year growth at 4.3 per cent during April–May 2019. Agriculture,
plagued by a deficient monsoon,2 did not fare as well as the secondary and tertiary sector, and
posted a growth of 0.2 per cent. The prospect of a normal monsoon and heightened initial rainfall
activity in the current year has led to a significant increase in area sown across all major crop
categories. The prognosis for the agricultural sector in the current year is positive. However, the
inflation scenario according to the Reserve Bank of India (RBI) is a cause for concern. As
mentioned in Microfinance India: State of the Sector Report 2009, inflation did play a major role
pushing up food prices as also different commodity prices.5

2
https://economictimes.indiatimes.com/small-biz/money/indian-microfinance-industry-will-continue-to-
demonstrate-sustainable-growth/articleshow/58311757.cms?from=mdr 6th August 23, 2019, 5:15pm)
3
https://journals.openedition.org/poldev/144 (6th August 23, 2019 6:10pm)
4
https://countryeconomy.com/gdp/india 7th August 23, 2019, 7:05pm)
5
https://www.microfinancegateway.org/sites/default/files/mfg-en-paper-microfinance-india-state-of-the-sector-
report-2010-2010.pdf (7th August 23, 2019, 9:00pm)

8|Page
The freeing of retail prices of oil from state control saw a spike in the price of fuel which led to
downstream effects on the prices of other commodities, either on account of increased
manufacturing cost or transportation cost. The continuing rise in the prices of food articles places
the poor under considerable stress. 6Though inflation rates have moderated, they are still in
double digits, reflecting a strong upward pressure on prices and, thereby, affordability of food for
the consumers. The forecast for the current year by RBI is a growth rate of 8.5 per cent in the
gross domestic product (GDP) riding on the back of better industrial production and its favorable
impact on the services sector. The forecast for inflation in the Wholesale Price Index (WPI)
terms has been raised to 6 per cent by RBI, reflecting inflationary conditions during the year.

Rapid economic growth and various community programs have not been sufficient to lift
poverty, eliminate social discrimination, and support female employment in rural areas. Access
to resources, employment, and education is limited, causing tremendous suffering to millions of
people across the globe. One potential strategy for implementing social and economic progress is
to encourage and support social entrepreneurs in local communities. Organizations and various
volunteer groups take action to address social problems through the determination, creativity,
and resourcefulness of local communities. Social entrepreneurship is seen as differing from other
forms of business entrepreneurship.

Social entrepreneurship programs could be a catalyst of social changes and address important
social needs. The study aims to conceptually evaluate the literature on social entrepreneurship
and provide insight into the role of self-help groups in women empowerment in India. Social
entrepreneurship is widely spread across India in the form of SHGs. It is therefore important to
evaluate the growth of SHGs in India and the role of social enterprise in supporting local
communities.

6
Rutherford., and Stuart. The Poor and Their Money. Oxford University Press, Delhi, 2000. (9th August 23, 2019,
8pm)

9|Page
 CH-4 Self Help Group: Shri Mahila Griha Udyog Lijjat Papad

SHRI MAHILA GRIHA UDYOG LIJJAT PAPAD (SMGULP), popularly known as lijjat is an
organization which stands for women’s strength and fully owned and run by women. It is the
women’s organization of the women, by the women and for the women. It was started on 15th
March 1959 with 7 lady members with a borrowed sum of Rs. 80 at Girgaon in Mumbai and it
has completed 50 years and it celebrated Golden jubilee year in 2009.7

Any women who can render physical work in this organization without caste, creed and color
and agrees to abide by the objective of the organization can become a member of the
organization from the date on which she starts working.8 Papad production work starts up in the
early hours of the morning i.e. 4.30 a.m. every day. Mini bus is provided which picks up the
members from the closest point of their residence to the branch and back home.

Every branch is headed by a Sanchalika who oversee the production on of the branch. The
central office has managing committee, which consist of 21 members. Every year 4 members
resign and are eligible for re-elected, thus every year, during the General Body meeting there is
election of 4 members.9 After the elections, in the first meeting, the managing committee elects
office Bearers i.e. Presidents, Vice-presidents, secretaries and Treasures.

2.1 Human resource Development at Lijjat

Training and development is subsystem of every organization and it helps organization to sustain
throughout every phase of business. It is considered as a competitive edge over rival company.
So it has a great importance today in the organization. The status of the women in SMGULP
being that of sister-members automatically the principle of HRD cannot be applied to them.

The question then arises as to how organization discipline can be implemented/injected in the
minds of these women and that too when most of the women are illiterates? The answer has been

7
Popat Jaswantiben, Oral testimonial, Economic and political weekly April 24,2017. (10th August 23, 2019, 4pm)
8
Lijjat Patrika, vol. 18, Issue 4, April 1999, p.5 (10th August 23, 2019, 6:05pm)
9
Jyoti Naik, President, Oral Interview, January 2, 2019. (10th August 23, 2019 , 7:30pm)

10 | P a g e
readily worked out by the women themselves.10 The actions of these women are somewhat
similar to that of Honeybees, that they collect the drops of Honey from the flowers and
uninterrupted carry it to the Honeycomb.

In Lijjat too there is no one superior; no one is inferior in discharging their duties to the
11
organization. The collective efforts of the women in SMGULP are aimed at making a quality
product. The HR stipulates a collective approach in making of any efforts towards smooth
functioning of the organization which is inculcated. It revolves only for the members of the staff
and workmen.

It does not however revolve around the owners. It has been brought in the various chapters of
this research work that women’s role in SMGULP is as an owner and not worker or work
women. In the circumstances the various aspects of HRD does not apply to the women whose
study is being undertaken under this research work.12 However, in certain areas where the
question of maintaining quality, punctuality and deliverance of papad as also safety in terms of
food and allied areas are concern.

SMGULP has taken support of HRD and taken massive in depth training of the women, since the
organization deals with women who are semi-literate or no literacy. One of the major aspect of
HRD which is in practice by the organization is to adhere to fundamentals such as monetary-
wise, respect-wise and there is no second thought of dealing with these women.

2.2 Elements of empowerment of rural woman through Shri Mahila Griha Udyog Lijjat
Papad

Information

Information with increasing business other advances the need for information dissemination and
communication among sister members at various branches has increased. The monthly regional

11
https://yourstory.com/2018/03/lijjat-papad-59-years-enterpreneurship( 11th August 23, 2019:8:00pm)
12
https://mhrd.gov.in/sites/upload_files/mhrd/files/upload_document/RTIHE-010917.pdf( 11th August 23, 2019;
9:30pm)

11 | P a g e
meeting, annual general meeting and all India conventions of branches are held to keep the
member aware of organization’s activities and strategies, and to discuss issues such as quality
maintenance, production rates, the handling of accounts and everyday problems to assure a better
work environment.

Lijjat patrika, the in-house magazine, is published and circulated for a nominal rate to those
interested in the activities of Shri Mahila Griha Udyog Lijjat Papad (SMGULP). It is published
in many languages including English, Gujarathi, Marathi and Hindi. Patrika has emerged as
strong mode of communication for information related to significant events and initiatives at
Lijjat, in addition to presenting article on women.

Initially most sisters were uneducated, but realized the important of education for their children,
especially daughters. Lijjat offers Scholarship for these children and encourages better
performance in studies. A literacy campaign for sister also began through literacy classes at
Girgaum on June 18,1999, At first, it was explained that literate women can read or write a letter,
maintain a bank account, pay bill, teach her children, assist her husband in his work; and live
independently.13

Later the managing committee decided to start such classes in all its branches. Besides other
literacy and information based activities, participation in various trade fairs and exhibition held
across India, Contributed to the popularity of the Lijjat brand. Such Participation also builds self-
confidence through exposure and training opportunities for sister-members who plays a
significant role in overall functioning of Lijjat.

Participation

The Combination of inclusion and the active participation of women have endured as Lijjat
Backbone for 43 years. The interest of all sisters is treated equally because the sister hail from
the Lijjat family. Any women irrespective of her religion, caste or class can become a member
after signing a pledge of devotion, which is her assurance for earning an honest income through
co- work.

13
https://www.thehindubusinessline.com/catalyst/all-woman-talk/article7765869.ece (13th August 23, 2019 ;4pm)

12 | P a g e
All sister-members across 142 all branches of Lijjat- recite an all-religion prayer before
beginning their daily activities. The sisters are free to choose their activities such as making the
blend of multiple spices, pounding the flour, weighing the flour, vending the dough, rolling
papads, receiving papads after weighing, checking the papads, packing the papads, distributing
wages, and handling the accounts. Each activity is given equal impotence and sister perform
these activities with mutual cooperation and consent, all these activities are thereto helps it by
guiding and training new members.

Accountability

Lijjat presents an explicit example of organization’s accountability. The managing committee

members are selected from the sister-members on the basis of common consents. Any sister-
members can express her interest to be a managing committee member and will be selected after
due consideration. The discussions are held openly and decision power lies in the hands of the
sister-members who are present on that day. 14
A single member’s objection can nullify the
decision of the whole group.

A member cannot ask an employee to quit the organization without specifying the reason but no
employee can ask a member to quit. However a member can be asked to quite by another
member if found to be involved in false practices or misconduct. Account books are easily
accessible ensuring transparency in Lijjat’s working.

2.3 Important features

1. The organization has consistently improved the quality of papads and in order to broaden
these activities it has also started chappati, Masala, Aata and detergent units. While for
making papad the women are required the work from home for all activities of the
organization which involved women they have to work within the premises of the
organization. The theme being same except same deviations in the work-places.
2. Lastly while on one hand the org. has made quality products which are much in demand
on the other hand it has taken responsibilities of society by adopting philanthropist’s
approach such as constructing full villages in the earthquake affected areas such as
Chinchili jogan in Uamarga taluka in Latur district in Maharashtra and Bhujpur village in
14
http://www.lijjat.com/ (13th August 23, 2019 ;5:30pm

13 | P a g e
 Kutch district in Gujarat. It has also liberally donated monies for Tsunami affected
people.
3. In a Nutshell, it is observed that the organization strives for achieving greater heights of
production of its quality products. It would like to slowly move towards 156 areas where
women are uneducated, have desire to work and can show dedication for manufacturing
of quality products.
4. The organization has therefore widened its Horizon by opening branches in places like
Jammu and Kashmir and Gujarat. It will strive further by opening branches in
unrepresented areas in North Eastern states from Assam to Meghalaya.

14 | P a g e
 CH-5 Problems in Microfinance through Self Groups

3.1 Regional imbalances:

The first challenges are the skewed distribution of SHGs across states. About 60% of the total
15
SHG credit linkages in the country are concentrated in the southern states. However, in states
which have larger share of the poor, the coverage is comparatively low. The skewed distribution
is attributed to the overzealous support extended by some of the State Governments to the
programme, skewed distribution of NGOs and local cultures and practices.

3.2 From credit to enterprise:

The second challenge is that having formed SHGs and having linked them to banks, how can
they be induced to graduate into matured levels of enterprise, how can they be induced to factor
in livelihood diversification, how can they increase their access to the supply chain, linkages to
the capital market and to appropriate production and processing technologies.

A spin off of this challenge is how to address the investment capital requirements of matured
SHGs, which have met their consumption needs and are now on the threshold of taking off into
‘enterprise’. The SHG-Bank Linkage Programme 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
businesses and enterprises. In my view, we must meet both.

15
https://pdfs.semanticscholar.org/3bbf/efd786d91969c7bc376cf1b88b94f2efe5af.pdf ((13th August 23, 2019
;9:00pm)

15 | P a g e
3.3 Quality of SHGs:

The third challenge is how to ensure the quality of SHGs in an environment of exponential
growth. Due to the fast growth of the SHG-Bank Linkage Programme, the quality of SHGs has
come under stress. This is reflected particularly in indicators such as the poor maintenance of
books and accounts etc.

The deterioration in the quality of SHGs is explained by a variety of factors including the
intrusive involvement of government departments in promoting groups, inadequate long-term
incentives to NGOs for nurturing them on a sustainable basis and diminishing skill sets on part of
the SHG members in managing their groups. In my assessment, significant financial investment
and technical support is required for meeting this challenge.

3.4 Emergence of federations:

The emergence of SHG Federations has thrown up another challenge. On the one hand, such
federations represent the aggregation of collective bargaining power, economies of scale, and are
a forum for addressing social and economic issues; on the other hand there is evidence to show
that every additional tier, in addition to increasing costs, tends to weaken the primaries.

There is a need to study the best practices in the area and evolve a policy by learning from them.
Before moving on, let me use this opportunity to sound two notes of caution. One, that while we
are upbeat about the success achieved and the potential that the SHG-Bank Linkage Programme
offers, we need to be realistic and not to view this instrument as a one-stop solution for all
developmental problems.

SHGs are local institutions having an inherent potential to flower as decentralized platform for
development, but multiple expectations could overload them and impair their long-term
sustainability.16 Second, in focusing on the poor let us not forget the rest. The rural sector is a
large field and even today the need for good old-fashioned rural credit and investment in
agriculture and infrastructure continues with the same rigor as yesterday

16
https://www.cgap.org/blog/revitalizing-self-help-group-movement-india (19th August 23, 2019 5:00pm)

16 | P a g e
 CH-6 Suggestions and Conclusion

When the microfinance was in its nascent stage and individual institutions were free to bring in
innovative operational models, the need for a regulatory environment was not a big concern.
However, as the sector completes almost two decades of age with a high growth trajectory, an
enabling regulatory environment is needed that protects interest of stakeholders as well as
promotes growth. In addition to proper regulation of the microfinance sector, field visits can be
adopted as a medium for monitoring the conditions on ground and initiating corrective action if
needed. This will keep an eye on the performance of ground staff of various MFIs and their
recovery practices. This will also encourage MFIs to abide by proper code of conduct and work
more efficiently. However, the problem of feasibility and cost involved in physical monitoring of
this vast sector remains an issue in this regard. It has been seen that instead of reducing the initial
cost, MFIs are opening their branches in places which already have a few MFIs operating.
Encouraging MFIs for opening new branches in areas of low microfinance penetration by
providing financial assistance will increase the outreach of the microfinance in the state and
check multiple lending. This will also increase rural penetration of microfinance in the state.
MFIs should provide complete range of products including credit, savings, remittance, financial
advice and also non-financial services like training and support. As MFIs are acting as a
substitute to banks in areas where people don’t have access to banks, providing a complete range
of products will enable the poor to avail all services. As it has been observed that, MFIs are
employing different patterns of charging interest rates and a few are also charging additional
charges and interest free deposits. All this make the pricing very confusing and hence the
borrower feels incompetent in terms of bargaining power. So a common practice for charging
interest should be followed by all MFIs so that it makes the sector more competitive and the
beneficiary gets the freedom to compare different financial products before buying. Cost MFIs
should use new technologies and IT tools & applications to reduce their operating costs.
Microfinance institutions should be encouraged to adopt cost-cutting measures to reduce their
17 | P a g e
operating costs. Also initiatives like development of common MIS and other software for all
MFIs can be taken to make the operation more transparent and efficient. In absence of adequate
funds the growth and the reach of MFIs become restricted and to overcome this problem MFIs
should look for other sources for funding their loan portfolio. Various alternative sources of fund
for the MFIs may be by getting converted to for-profit company i.e. NBFC, Portfolio Buyout,
and Securitization of Loans etc. To obtain sustainable development there must be continued
growth and diversification of the rural economy, all segments of the population including
farmers, rural micro-entrepreneurs and the poor should have easy access to sustainable financial
services such as savings, credit and insurance provided by self-reliant, sustainable financial
institutions in a conductive macroeconomic policy environment and development of MFIs.
Sustainable rural microfinance requires local initiative and careful donor support for the
development of institutions, enabling them to offer both savings and credit services, mobilize
their own resources, have their loans repaid, cover their costs from their operational income, and
finance their expansion to the poor and non-poor from their profits. We should not support
temporary or ad-hoc solutions with no chance of institutional sustainability.

18 | P a g e
 BIBLIOGRAPHY

Books:
1. Microfinance in India: A Performance Evaluation by S. M. Feroze
2. Indian Microfinance: The Challenges of Rapid Growth by Prabhu Ghate
3. Essentials of Microfinance by M. M. Sulphey and Vivek Viswan

4. Women Empowerment Through Self-help Groups (SHGs) by A. Abdul Raheem

5. Banking on Self - Help Groups: Twenty Years On by Ajay Tankha

Refrences:
1. https://www.jagranjosh.com/general-knowledge/microfinance-institutions-in-india-
1448530197-1
2. https://www.bankbazaar.com/personal-loan/microfinance.html
3. https://shodhganga.inflibnet.ac.in/bitstream/10603/51331/9/09.chapter%203.pdf
4. https://www.livemint.com/Industry/CANuZ2YGAYheLS4lgPR4dO/Microfinance-
rebound-shows-rural-India-recovering-from-demo.html
5. https://www.thehindu.com/business/Industry/microfinance-has-potential-but-is-yet-
to-bounce-back-on-delinquency-ratios/article23035360.ece
6. https://bloncampus.thehindubusinessline.com/columns/brand-basics/lijjat-papad-for-
of-and-by-the-women/article10070547.ece
7. https://yourstory.com/2018/03/lijjat-papad-59-years-enterpreneurship
8. https://www.thehindu.com/news/cities/chennai/msme-self-help-groups-likely-to-get-
a-leg-up/article28300345.ece

19 | P a g e
20 | P a g e