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Regional Disparities in Indian Microfinance

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					                Indian Microfinance: Outreach and Regional Imbalances1


1. Introduction
True to the spirit of the ‘International Year of Microcredit – 2005;’ Indian Microfinance
has reached new heights in terms of outreach, depth of penetration and variety of
innovative methods used in reaching the un-reached. The country today has probably
more than 40 lakh SHGs, at this juncture it would be quite useful to analyze the level of
penetration and the regional disparities, if any, achieved by Indian microfinance.
The study attempts to analyze the outreach of microfinance and its efficacy to serve the
poor in India. Accordingly, an in-depth research was undertaken where all schemes
which utilize the mode of Self Help Groups (SHGs) in implementation of their objectives
were taken up for analysis. The country today has more than one dozen government
schemes and plethora of other initiatives in which SHGs are being used by government
and non-government organizations in empowering and mainstreaming the poor. At
national level, there is no single authority, which compiles basic data for the different
kinds of SHGs in the country. Hence, it becomes Herculean task to collect the data from
various sources and various players engaged in providing the unique service. For the
study, only important schemes/initiatives, which have tangible coverage of the poor
through microfinance, have been taken up for analysis. The salient interventions, which
have been taken up for analysis are:
        SGSY (Swarnjayanti Gram Swarozgar Yojna)
        NABARD (National Bank for Agriculture and Rural Development)
        AHVY (Ambedkar Hastshilp Viaks Yojna)
        Swayamsiddha
        Swa-Shakti
        RMK (Rashtriya Mahila Kosh)
        MFIs (Microfinance Institutions)

2.       Research Design and Methodology
For undertaking a study in microfinance for a mammoth country like India, it calls for
immense networking, estimations, presumptions and moderation of data. India being the
country with great diversities, it is quite difficult to not only collect the information but
also to put the data to the uniform yardstick for its comparative evaluation. Many states
and many schemes adopted different criteria for collecting the information, compiling the
same and reporting it to the respective authorities. Nevertheless, for the sake of research,
the data collected has been subjected to certain estimations so as to arrive at some
comparative analysis. The major assumptions made in the study are as following:
1. The population census for the country is available for the year 2001. Since the study
   was done for period ending March 2005 necessary projections of population were


1
  Dr. Rakesh Malhotra, 82-A, Model Town, Bareilly, UP. The views expressed in the article are those of
the author and not of the Institution he serves.


                                                    1
     done for the year 2005. It was presumed that growth of population must have taken
     place at the rate of 2 per cent p.a. and accordingly data was adjusted.
2. Similarly, with reference to the BPL population, data is available for the year 1999-
   2000. In order to project the population below poverty line for the year 2005, it was
   again assumed that in India poverty reduced @ 2 per cent p.a.
     It was also assumed for the study that there are five people on and average in one
     family and every member in an SHG represents one family.
3. For the sake of present study, 34 states and union territories of India were categorized
   region wise as following:
         S.No.           Region                                 States & UTs
        1            North India      Chandigarh, Delhi, Haryana, Himachal Pradesh, J & K, Punjab.
        2            South India      Andhra Pradesh, Andaman & Nicobar, Karnataka, Kerala,
                                      Lakshdweep, Pondicherry, Tamilnadu
        3            East India       Arunachal Pradesh, Assam,Bihar, Jharkhand, Manipur, Meghalaya,
                                      Mizoram, Nagaland, Orrisa, Sikkim, Tripura and West Bengal
        4            Central India    Chattisgarh, Madhya Pradesh, Uttaranchal, and Uttar Pradesh.
        5            West India       Maharashtra, Gujarat, Goa, Rajasthan, and Dadra & Nagar Haveli.


3.      Research Findings
After having defined the limitations and assumptions for the study, the data was put to
rigorous analysis and comparative evaluation. The major findings from the study are as
following:
a) Growth of SHGs in the country
The analysis of the data reveals that the scheme wise SHGs promoted, credit linked and
the members given credit was as following:
                                             Table: 1
                            Scheme wise estimate of Total SHGs in India
                                  (Cumulative position as on 31.03.2005)
             S.No.          Name of the       SHGs formed          SHGs        Members
                               Scheme                              credit       credit
                                                                   linked       linked
                 1        Swayamsiddha                115596           63578      1080832
                 2        Swa-Shakti                   17647           12144       170016
                 3        AHVY                         19547           10751       154438
                 4        SGSY                       2060871          777580    10108537
                 5        RMK                             979            979        14692
                 6        NABARD                     2773169         1525243    22878645
                 7        MFIs                        605642          333103      4996548
                 8        Grand Total                5593452         2723378    39403708


The country probably had about 60 lakh SHGs formed of which 27 lakh had been given
credit. Thus, benefiting 3.94 crore members in the nation. However, there was need to re-
look at this data keeping in mind that there was possibility of ‘overlapping’ of figures
being reported. The most important being the figures as reported by NABARD and
SGSY. There was strong probability that ‘double’ reporting of the SHG data could have


                                                    2
taken place in these schemes. Furthermore, it is evident that in Southern states, there
being no demarcation of APL / BPL group, the complete data of the state is being
reported both by SGSY and also under non-subsidized groups. Hence, to adjust for this
double reporting or over inflation of data, it is presumed that (a) 30 per cent SHGs
reported under SGSY may be reduced and (b) in Southern states of Andhra Pradesh,
Karnataka, Kerala and Tamil Nadu, the figure as reported under non subsidized groups
may be presumed to be reflective of the true picture i.e. the same stock of SHGs would
hold good for SGSY also. Hence, an ‘adjustment factor’ was put to use and the grand
total, which had been arrived at Table-1 above was consequently modified so as to arrive
at more pragmatic data. Thus, the figures which could be taken as reflective of the
ground realities have been given in table below:
                                       Table: 2
               Region wise estimates of Adjusted Total of SHGs in India
                             (Cumulative position as on 31.03.2005)
               S.No.   Region              SHG            SHG                 Members
                                           Formed         Credit              Credit
                                                          Linked              Linked
                 1     Central             810308         345228              4939464
                 2     East                846955         442716              6351382
                 3     North               164819         89075               1326246
                 4     South               1734915        954077              14311815
                 5     West                503634         245084              3590291
                       All India           4060631        2076179             30519199



                               Regional Distribution of SHGs in India

                                     West
                                     12%                         Central
                                                                  20%




                                                                           East
                                                                           21%
                            South
                            43%

                                                             North
                                                              4%


It could be seen from the above that nation had about 40 lakh SHGs of which more than
20 lakh SHGs had been given credit by the formal and informal institutions operating in
the country. About 3.05 crore members or their families had been benefited under the
microfinance revolution in the nation. Probably, nowhere in the world a single country
can boast of such an enormous success under the microfinance endeavor. Albeit, it would
be quite interesting to see the regional disparities within the great country like India.



                                                 3
About 43 per cent of the total SHGs formed in the nation were in the Southern states.
Similarly, the credit linkage of the members covered was extremely high in the southern
region as compared to the other regions of the nation. The North India had least number
of SHGs in the country, albeit the coverage of BPL population and geographic coverage
in terms of SHGs per thousand kilometers was the best (explained in succeeding
sections). This was primarily due to best ‘per capita income’ of the region in India, and
also Region’s small size.
b)      Coverage of BPL population by SHGs
                                         Table: 3
                       Region wise coverage of BPL by SHGs in India
                                     (Position as on 31.03.2005)

                    S.No.    Region BPL Families SHG Families BPL Covered
                                      (in No.)     (in No.)      (in %)
                       1    Central    22398547       5298314         23.65
                       2    East       12449944       5650987         45.39
                       3    North       1556177       1667791        107.17
                       4    South       7812140      14311815        183.20
                       5    West        7800623       3590291         46.03
                            All India  52017431      30519199         58.67


Table above gives the summary of the SHGs formed and the proportion of the people
living below the poverty line (BPL) in the various regions of the country. It could be seen
there from that Central India has pre-dominant proportion of the ‘poor’ followed by East
India. It is pertinent to note that there were great regional disparities amongst the
coverage of the poor by the microfinance in the nation. South India probably had covered
183 per cent of the poor in its region. Similarly, the coverage of poor by SHG movement
in the North also seemed to have reached a saturation phase. However, the other regions
i.e. Central, East and West India had not been tangibly able to cover their ‘poor’ in the
SHG movement in spite of more than 12 years of concerted efforts. The status of Central
India seemed to be more pathetic in the sense that it had been able to cover only 23.6 per
cent of the poor as against the national average of 58.6 per cent.
This gives a strong indication to the concerned authorities and the players that, now there
is need to be more focused on Central, East and Western India for promotion of Self Help
Groups.
Mahajan et al (2000)2 estimated that, “with a population of 1,000 million, India has
nearly 400 million people below or just above an austerely defined poverty line. Thus,
approximately 75 million households need microfinance. Of these, nearly 60 million
households are in rural India and the remaining 15 million are urban slum dwellers.” The
observation is in broad consonance with the findings of the study, wherein it had been
estimated that in country there was potential to cover 69 million households (all BPL plus

2
 Vijay Mahajan, Bharti Gupta Ramola and Mathew Titus in “Dhakka Starting Microfinance in India”
Microfinance Emerging Challenges, by Kishanjit Basu and Krishan Jindal; Tata McGraw Publishing
Company limited, New Delhi, 2000.


                                                 4
10 per cent of APL) under microfinance. The estimates by Priya Basu (2004) that the
“combined outreach of SHG bank linkage and MFIs is only 5 per cent of the Indian
poor”, is totally not in consonance with the findings of the study. The research indicated
that microfinance in India has covered more than 58 per cent of BPL population.
c) Per Capita Credit available
Let us now analyze the quantum of credit availed by a member of the SHG in India.
Table below depicts the average amount of credit given under the different schemes.
                                          Table: 4
                             Scheme wise flow of credit to SHGs
                                    (Position as on 31.03.2005)
                                        Average Average Credit / Average Credit /
              S.No.       Scheme       membership  Member             SHG
                                                    (in Rs.)         (in Rs.)
               1      Swayamsidha           17.00            1974           33558
               2      Swa-Shakti            14.00            2000           28000
               3      AHVY                  14.36            2000           24000
               4      RMK                   15.00            2329           34935
               5      NABARD                15.00            2727           40905
               6      SGSY                  13.00          10610          137930
               7      MFIs                  15.00            1303           19545
               8      Weighted average      14.47            4542           65697


It could be seen from the above that there were great disparities amongst the various
schemes in ensuring flow of credit to the needy. The range varied from as little as 1303 to
as high as 10,610. It is important to note that MFIs have extended on and average credit
of Rs.1,303 per member or Rs.19,545 per SHG which apparently was totally inadequate
to cover the various needs of the poor3. Robinson (2005) 4 found that “90 MFIs rated by
M-CRIL in 2003 had, in aggregate, loans of $US 52 million & reached only 1.9 million
clients.” Thus indicating an average loan of Rs. 1,368 per member. The scenario for the
other schemes also is not encouraging. However, under SGSY the average of credit (loan
+ subsidy) extended was Rs.10,610 per member or Rs.1,37,930 per SHG. This was
highest amongst all the schemes being implemented in India, and evidently was most
potent to address the objective of poverty eradication.
From the data above, it was quite evident that amount of financial assistance being
extended is quite inadequate to effectively upscale the livelihood of poor to a micro
entrepreneur stage. In other words, the microfinance movement in India though had
ensured credit to more than 3 crore members of 20 lakh SHGs, albeit, the quantum
seemed abysmally low for meaningful transformation of the poor. Under no
circumstances, this assistance could effectively transform the life of SHG member from
abject poverty to entrepreneur stage. However, this amount could be critical in the sense
that the SHG member had come out of the web of moneylenders and now had access to
3
 Personal Information from of Sa-Dhan, 2005
4
  Marguerite S. Robinson, “The Future of the Commercial Microfinance Industry in Asia,” Asian
Development Bank Regional Conference On Microfinance Manila, 14 March 2005.


                                                5
institutional source of credit. It is, therefore, need of the hour that authorities entrusted
with giving directions to microfinance movement in the country, need to design policies
and strategies for up scaling the quantum of credit.
As per the estimates by Nancy Barry (2004)5 “loans in India are tinier than what are
found in Bangladesh or anywhere else in the world. The missing middles are loans in the
category of Rs. 5,000 – Rs. 1.5 lakh, which is where the bulk of productive investment
rests globally.” The present investigation corroborates the statement.
d)       Potential of Credit under Microfinance in India
After having estimated the average SHG loan available to the member in a group, it
would be quite interesting to estimate the complete picture of microfinance in the nation.
It is an issue for extensive deliberations as to whether the microfinance is a tool for
subsistence existence or sustainable livelihood? By ‘subsistence existence’ it is implied
that the poor are just able to maintain his life, have access to institutional sources of
credit, and probably be out of the clutches of usurious moneylender. On the other hand
‘sustainable livelihood’ connotes “as a set of economic activities, involving self-
employment and/or wage employment by using one’s endowments (human and material)
to generate adequate resources (cash and non-cash) for meeting the requirements of self
and the household. Ideally, a livelihood should keep a person meaningfully occupied, in a
sustainable manner with dignity.6”
Thus, it is important to bear in mind that the ‘poor’ would require credit not only for
productive activities, but also for his maintenance and/or consumption needs. Probably
the latter needs find priority over his entrepreneurship needs. In other words ‘poor’ needs
a holistic support for sustaining his livelihood.
Hence, it becomes essential that under microfinance the mere access of the poor to the
credit is not sufficient but he / she should get timely and adequate credit to cover his full
needs. Thus the credit is required (a) to maintain his life, and (b) to sustain his livelihood.
Table below attempts to construct the two scenarios of credit requirement under
microfinance in India, i.e.
            (a) Credit available at prevailing trend i.e. @ Rs.5,000 per member
            (b) Credit required for sustainable livelihood i.e. @ Rs.35,000 per member
                                               Table: 5
                      Region Wise Credit Flow & Potential under Microfinance in India
                                         (Amount in Crore rupees)
                                         (Position as on 31.03.2005)
                                            Average
S.No                                         Credit     Central   East   North   South     West    All India
                                             (In Rs.)
    A.   Coverage so far (Adjusted Total)       @
    1    SHG formed                                    810308   846955 164819 1734915 503634 4060631
    2    Members already in SHG fold        14 / SHG 11344313 11857373 2307467 24288813 7050870 56848837
    3    SHG Credit Linked                       65697   2268     2909     585     6268    1610    13640


5
    Presentation made at the Microfinance India 2008 Conference held from 24 to 26 th Feb. 2004, New Delhi
6
    A Resource Book for Livelihood Promotion, BASIX, Hyderabad.


                                                         6
    4   Members Credit Linked                  4542       2243    2885    602     6500    1631        13862

    B. Potential Credit Requirement for Sustainable Livelihood
        Additional Credit for Members
    5   already credit linked (4 above)           0        0         0       0       0       0            0
        for sustainable livelihood            30458    15045     19345    4039   43591   10935        92956
    6   Members from unlinked SHGs (2-4)       5000     3202      2753     491    4988    1730        13165
        for sustainable livelihood            35000    22417     19271    3434   34919   12112        92154
    7   Members Left out of BPL families       5000     8550      3399       0       0    2105        14055
        for sustainable livelihood            35000    59851     23796       0       0   14736        98383
    8   Additional 10% of APL population       5000     2448      1352     840    2036    1831         8506
        for sustainable livelihood            35000    17137      9461    5879   14253   12815        59545
    9   Total Potential of Credit (5+6+7+8)    5000    14201      7504    1330    7025    5666     35726
        for sustainable livelihood            35000   114450     71874   13353   92764   50599    343038

    C. The Gap in Credit for Indian Microfinance (9-2)
       Existing Gap for subsistence           5000      11957     4619     728     524    4035     21864
       for sustainable livelihood            35000     112206    68989   12750   86263   48968    329176


It could be seen from the above that the credit to the tune of Rs.13,862 crore was
estimated to have been given under microfinance throughout the nation. Taking into
consideration the various demands such as additional credit required for the members
who have already been given credit, the members who are in SHG fold but yet to be
credit linked, the members of BPL families who have yet to come to SHG fold, and
likelihood of additional membership of around 10 per cent of APL population in SHG
revolution, the canvass of credit requirement becomes quite wide. Let us estimate the
same.
Keeping above in to account and going by the past trends (Rs. 4542 per member) and
presuming the microfinance would be extending credit for subsistence only (say Rs. 5000
per member) it is estimated that total credit requirement would be to the tune of Rs.
35,726 crore. And if we presume the microfinance should assist the poor for sustainable
livelihood @ Rs. 35,000 per member, the credit requirement is estimated to the extent of
Rs. 3,43,038 crore. As per the estimates of Vikram (2005)7, the estimates of the credit
demands is to the extent of Rs. 45,000 to Rs. 50,000 crore. As per Ela R. Bhatt (2005) 8,
“the total demand for credit of Rs. 40 to 50,000 crore hardly 10 per cent had been
achieved with outreach not crossing 10 million families. Even more important was the
demand for financial services which she usually said did not stop with credit, but went
beyond it to savings, insurance, pension and so on.” Mahajna et al (2000)9 estimated
“The current annual credit usage by these households is estimated to be Rs. 495,000
million or US $ 12 billion. Annual credit usage by 60 million rural poor households, at an
average of Rs. 6,000, is Rs. 360,000 million per annum-about two-thirds for consumption
and one-third for production needs (Based on a 1994 study carried out by the first two
authors for the World Bank. The figures have been rounded off and adjusted for 1998

7
  Presented in SIDBI, Sa-Dhan Policy Conference held from 19th to 20th Jan. 2005, New Delhi
8
  Presentation made at SIDBI, Sa-Dhan Policy Conference held from 19th to 20th Jan. 2005, New Delhi
9
  ib id


                                                      7
prices). Annual credit usage by 15 million urban poor households at an average of Rs,
9,000, is Rs. 135,000 million per annum-about 55 per cent for consumption and 45 per
cent for production needs. (Based on a 1995 study carried out by the first author for the
SEWA Bank. The figures have been rounded off and adjusted for 1998 prices).” Sinha
(2004)10 reported for microfinance in India that “…huge unmet demand; potential for
credit estimated at $6- $8 billion.”
                                       Table: 6
                 Region Wise Credit Flow & Potential under Microfinance in India
                                      In Percentage to Total
                              (Cumulative position as on 31.03.2005)
                                      Total Credit Credit        Credit
                        Region       Requirement Available        Gap
                        Central            40           17         55
                        East               21           21         21
                        North               4            4          3
                        South              20           46          2
                        West               16           12         18
                        All India         100          100        100


Now, coming to the actual credit availed till 31st March 2005 under microfinance in the
country. It is seen that of the total financial assistance extended to the poor 46 percent has
conspicuously gone in Southern India. Surprisingly, the Eastern India comes second in
terms of flow of credit, which is almost one-fifth of the total credit flow in the entire
nation. The North India stands out in the sense that it has attracted the least quantum of
credit amongst the five regions of the nation.
Finally, coming to the credit gap, it is pertinent to note that the projections for the Central
India account for the greatest potential of credit absorption in times ahead. More than half
of the credit under microfinance in future is likely to go into this region. The credit gap
for North and Southern India seems to be low and, this implies that there is little potential
further for sustaining the flow of credit in these regions. The Eastern India has the gap of
one-fifth of the total gap of microfinance in the nation.
e)      Banking network and microfinance in India
India is a mammoth country with extensive network of Commercial Banks, RRB,
Cooperative Banks, Primary Agriculture Credit Society and Private Sector Banks.
Presuming that the nationalized banks play a pre-dominant role in credit linkage of
SHGs, let us estimate the average number of SHG per branch in the different regions of
the country.
                                      Table: 7
              Region Wise Potential for Banking Network under Microfinance in India
                                     (Position as on 31.03.2005)
                                                            SHG per
                                                No. of        Bank
                              Region           Branches      branch
                              Central       26001          34

10
   Sinha, Sanjay (2004). “Trend & Future Directions in Microfinance in Asia”. Paper presented at BRI’s
International Symposium on Microbanking. Jakarta: December 2004


                                                  8
                            East        16393        40
                            North       10782        22
                            South       23517        52
                            West        21414        18
                            All India   95353        43


It was seen that the country had approximately 95353 branches. The Central India
accounts for the maximum number of branches while North India had numerically the
least. Co-relating the number of branches with the SHGs promoted in the respective
regions, it was seen that on and average every branch in the country had been catering to
43 SHGs. The regional disparity is quite pronounced in this regard. While, South India
was estimated to have more than 52 SHGs per branch in the Western part of the country,
the average comes to merely 18 SHG per branch.
By March 2005, on and average there were 43 SHGs per every branch and in times
ahead, this figure is likely to increase in a geometric fashion. Probably, attending to more
than 50 SHGs by a branch, particularly that of rural areas is a high expectation! It thus
becomes essential that in order to sustain effective microfinance operations in the rural
areas, the rural branches of the nationalized banks need to be strengthened adequately in
terms of manpower, equipment, motivation, involvement, etc.


4.      Conclusions
In spite of the strides made by Indian Microfinance, there are number of impediments
which need to be addressed to make it more pragmatic and focused. Some of them are
accentuated below:
     1. Perhaps, most important challenge is up-scaling SHGs to ‘micro-enterprise stage.’
        Backward and forward linkages are not sufficiently developed to address this
        aspect. All the efforts are merely focused on promoting SHGs, rather than
        addressing them holistically. Capacity building of SHG members is the eminent
        and imminent need of the hour.
     2. Even after, more than 14 years of grounding of microfinance by the Indian banks,
        there are lot of ambiguities with relation to – documentation; stamp duty on loan
        documents; structure of books and registers; grading of SHGs, quantum of loan,
        etc. There is urgent need to overcome this impediment, particularly in northern
        India.
     3. The banking sector in the country is not adequately sensitized and does not
        visualize ‘microfinance’ as commercial viable preposition. There is need to
        develop sufficient case studies to put home the point.
     4. There is lack of synergy amongst various microfinance schemes being
        implemented by various government departments like – SGSY, NABARD,
        SIDBI, RMK, MMDFC, Sawmsidhha, Swa-Shkati, CSSWA, AHVY, DWCUA,
        etc. Convergence on this account can bring about substantial success in cost
        effective manner.



                                             9
   5. Subsidy driven schemes have started to impart a deleterious effect on the basic
      concept of self-help movement in the country.
   6. The country lacks adequate, adept and committed NGOs, VAs, which can be
      classified as effective SHPI. There is need for capacity building of NGOs /
      Voluntary Agencies in order to up-scale their efficiency.
   7. Though, lot of emphasis is being placed by NABARD, Government of India,
      Banks, MFIs, etc. towards the promotion of SHGs. Albeit, there is in-adequate
      attention being paid towards ‘capacity building’ of the SHG members.
   8. Bulk of MFIs in the country are not viable these is need to draw policy framework
      and implementation strategy to augment their viability.
   9. There is no regulatory framework to monitor MFIs. Better coordination and
      professional relationship between formal financial institutions and MFIs (as
      advocated though Banking Correspondent Model) needs to be built upon.
   10.   There is need for revision of legal & regulatory structure for NBFC.
   11. There is need to set up ‘National Center for Excellence in Microfinance’ for the
       Indian subcontinent.


From the forgoing it could be concluded that in spite of many limitations and also the
marked regional imbalances in propagation of microfinance in India, its outreach in
addressing the needs of the poverty have been remarkable and outstanding. Perhaps, there
is a lesson for everyone, world over, to learn from the innovations and interventions
conceived and implemented by India.




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