CREDIT FLOW MANAGEMENT IN MICRO

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					CREDIT FLOW MANAGEMENT IN MICRO FINANCE –
          AN ECONOMIC ANALYSIS


                     Thesis submitted to the
         University of Agricultural Sciences, Dharwad
        in partial fulfillment of the requirements for the
                             Degree of




        MASTER OF BUSINESS ADMINISTRATION

                               IN

                       AGRIBUSINESS




                               By
              BHAGYALAXMI H. TAKKALAKI




     DEPARTMENT OF AGRICULTURAL MARKETING,
    CO-OPERATION AND AGRIBUSINESS MANAGEMENT
        COLLEGE OF AGRICULTURE, DHARWAD
       UNIVERSITY OF AGRICULTURAL SCIENCES,
                 DHARWAD - 580 005


                        AUGUST, 2007
               ADVISORY COMMITTEE



Dharwad                        (BASAVARAJ B. BANAKAR)

AUGUST, 2007                       MAJOR ADVISOR




                    Approved by:

                    Chairman : ______________________

                              (BAS AV AR AJ B. BANAKAR)


                    Members    : 1.____________________

                                   (H.S. VIJAYAKUMAR)


                                2.____________________

                                    (L.B. KUNNAL)


                                3.____________________

                                    (A.R. BHATT)
                               CONTENTS

Sl. No.                          Chapter Particulars                          Page No.

          CERTIFICATE
          ACKNOWLEDGEMENT
          LIST OF ABBREVIATIONS
          LIST OF TABLES
          LIST OF FIGURES
  1       INTRODUCTION
  2       REVIEW OF LITERATURE
          2.1 SHGs Bank linkages in micro finance
          2.2 Terms and cost of borrowings in different models
          2.3 Activities under taken by the SHGs members
          2.4 Port-folio of lending by the micro finance providers
          2.5 Recovery performance of micro finance providers
          2.6 Problems faced by SHG's groups and members
          2.7 Problems faced by micro finance providers
  3       METHODOLOGY
          3.1 Description of the study area
          3.2 Nature and Source of data
          3.3 Sampling procedure
          3.4 Analytical tools employed
          3.5 Terms and concept used in the study
  4       RESULTS
          4.1 Growth and Pattern of Micro finance
          4.2 The terms and cost of borrowing for the SHG members
          4.3 Portfolio of lending by the micro finance providers
          4.4 Cost and returns structure in major activities under taken by
               the SHG members
          4.5 Recovery performances under different models
          4.6 Problems faced by SHG’s members and Micro finance
               providers
Contd…..


  Sl. No.                         Chapter Particulars                           Page No.

     5      DISCUSSION                                                             77

            5.1 Growth and Pattern of Micro finance                                77

            5.2 The terms and cost of borrowing for the SHG members                84

            5.3 Portfolio of lending by the micro finance providers                85

            5.4 Cost and returns structure in major activities under taken by      86
                 the SHG members

            5.5 Recovery performance of different activities under different       87
                 models

            5.6 Problems faced by SHG’s members and Micro finance                  89
                 providers

     6      SUMMARY AND POLICY IMPLICATIONS                                        91

            REFERENCES                                                             99

            APPENDIX                                                              103
          LIST OF ABBREVIATIONS


CBs       -   Commercial Banks

CGAP      -   Consultative Group to Assist the Poorest

CDF       -   Co-operative Development Forum

IRDP      -   Integrated Rural Development Programme

MG Bank   -   Malaprabha Grameena Bank

mF        -   Micro finance

MFI       -   Micro financial Institution

NGOs      -   Non –Government Organizations

NABARD    -   National Bank of Agriculture and Rural Development

RMK       -   Rashtriya Mahila Khosh

RRB       -   Regional Rural Banks

SHG       -   Self Help Group

SIDBI     -   Small Industrial Development Bank of India
                             LIST OF TABLES

Table                                                                        Page
                                        Title
 No.                                                                          No.

 3.1    Salient features of the study area and sample taluks

 3.2    Land utilization Pattern in the Study Area and Sample Talukas
        (2005-06)

 3.3    Cropping Pattern in the study Area and Sample Talukas (2005-06)

 3.4    Area Irrigated by different source

 3.5    List of SHGs selected for the study

 4.1    Growth in Bank Linkage of SHGs over a period of time in
        Karnataka

 4.2    Growth in Bank Linkage of SHGs over a period of time in Dharwad
        district

 4.3    Bank Linkages of SHGs by micro finance providers in Dharwad
        district (1997-98 to 2005-06)

 4.4    Coverage of Micro finance by different micro finance providers in
        Dharwad district

 4.5    Total amount lent to SHGs in Dharwad district (1997-98 to 2005-
        06)

 4.6    Recovery performance of SHGs in Dharwad district (1997-98 to
        2005-06)

 4.7    Total amount of over dues in Dharwad district (1997-98 to 2005-
        06)

 4.8    Growth of Micro finance under different models in Dharwad district

 4.9    Pattern of Micro finance provided to different activities under
        different models

4.10    Cost of borrowings for SHGs members in borrowing micro finance
        first time under different models
Contd…..

                                             Title
 Table                                                                         Page
  No.                                                                           No.

  4.11     Terms of Lending to SHGs members under different models

  4.12     Portfolio of lending by the Micro finance providers

  4.13     Model wise portfolio of lending by Micro finance providers

  4.14     Cost and Returns Structure in major activities under taken by the
           SHG's members

  4.15     Model wise Cost and Returns structure in Major activities

  4.16     Over due position under different models

  4.17     Factors affecting the over dues

  4.18     Aggregation of Clusters of Variables on the Problems faced by
           SHG's Members in Micro financial activities

  4.19     Opinion about the Problems faced by Micro finance providers
                             LIST OF FIGURES

 Figure
                                          Title                              Page No.
  No.


    1      Selected sample Taluks in Dharwad district

           Growth in Bank Linkage of SHGs over a period of time in
    2
           Karnataka

    3      Growth in Bank Linkage of SHGs over a period of time in
           Dharwad district

    4      Bank Linkages of SHGs by micro finance providers in Dharwad
           district (1997-98 to 2005-06)

    5      Total amount lent to SHGs in Dharwad district (1997-98 to 2005-
           06)

    6      Recovery performance of SHGs in Dharwad district (1997-98 to
           2005-06)

    7      Total amount of over dues in Dharwad district (1997-98 to 2005-
           06)

    8      Growth of Micro finance under different models in Dharwad
           district

    9      Portfolio of lending by the Micro finance providers


                                   APPENDIX
Appendix                                          Title
  No.
   1       Interview Schedule
                                 1. INTRODUCTION
         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 come to be 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.
          Across the countries, it has been recognized that micro finance could be a useful tool
in building up the capacities of the poor, in management of sustainable self employment
activities besides providing them with other useful financial services for savings, housing,
consumption, credit and insurance. Globally, over a billion poor people are still without access
to formal financial service, about 200 million in India.
         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 United Nation 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 world’s poor into the rapidly evolving global
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 world’s 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 other wise 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 generally associated with poverty alleviation interventions, income
distribution amongst a wider section of population Purchasing power redistribution where
large numbers 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 uninterrupted finance that cannot provide collateral in a non-
bureaucratic style. It is a spring board for creating micro entrepreneurs and gender
development.etc
        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 a integral part of collective effort to met 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 signaled 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 comes to the tore.
         In 1992 NABARD lunch IRDP programme and it 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’.
         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 leveled 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 house holds
that do not have access to formal financial institutions. It is consider as world over 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 populations. A microfinance institution is an organization
that offers financial services to low income populations. 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 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.
Karnataka Initiative
        Karnataka does not figure on the top of the tables published by financial institutions, it
shows that show the number of self-help groups formed in each state. This is mainly because
the tables capture data after 1991-92 when the National Bank for Agriculture and Rural
Development (NABARD) launched the SHG-Bank Linkage Programme. However, between
1984 and 1985, MYRADA, a non-governmental organization engaged in rural development
and based in Karnataka, promoted several co-operative societies that were enabled to give
loans to their members. Subsequently, the large co-operatives broke up into small groups,
which were the genesis of the first SHGs, referred to at that time as Credit Management
Groups, with a focus on the management of credit. The concept of each member making a
saving in the group soon followed, as also the establishment of a system of regular meetings,
book keeping and records, and collective decision-making. A pilot study (Puhazhendi and Sai,
2000) gave NABARD the confidence to mainstream the SHG Bank Linkage Programme in
1996 as a normal lending activity. The programme then spread rapidly, if unevenly, across the
country, making it by 2002, the largest microfinance programme in the world. Thus, the
history of SHG promotion started with NGOs taking the lead in the mid-1980s and the lead
passing on to NABARD by the late 1980s. After the SHG-Bank Linkage Programme was
launched in 1991-92, the very first loans to SHGs in the country were given in Kolar district of
Karnataka: by the Vysya Bank.
Delivery models of Micro finance
        The delivery of micro finance was made through different models such as,
1. The SHG Bank Linkage model.
       Under this model the groups for the purpose of outreach are formed by a variety of
agencies known as Self Help promoting institutions.
        The financial interaction takes place in the following channels.
    A) Banks-SHG’s (Groups promoted by either banks or NGO’s)
    B) Bank-NGO’s-SHG’s (Here apart from being a promoter of SHG’s the NGO’s act as
       financial intermediary) MFI / NGO-SHG Model.
2. MFI / NGO-SHG Model.
        Developmental Financial Institution’s (NABARD/SIDBI/RMK)-NGO-SHG’s-Members.
3. NGO / MFI Federation- SHG-Model
        NGO-Federations-clusters- SHG’s-Members.
4. Grameena model
        Here the financial assistance that is loans for productive purposes is provided to the
MFIs / NGOs directly to the members of small groups (affinity groups consisting of about 5-
7members) directly on the strength of group assurance.
5. Co-operative model
        Co-operative Development Forum (CDF), Hyderabad that has relied upon a ‘Credit
Union’ model involving savings first strategy, has initiated this. It has built up a network of
women Thrift Groups and Men Thrift Groups. They are registered under the mutually Aided
Cooperative Society Act and mobilize savings and resources from the members and access
outside/supplementary resources from they institutional systems.
NATIONAL POLICY ON MICRO FINANCE
         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) through the announcements made in the budget
speeches of 1998-99 and 1999-2000 regarding SHG-Bank Linkage Programme. This
endeavor may have to be carried further by recognizing the other initiatives of the voluntary
sector in providing mF services to the poor.
         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
jewelry, 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.
         Micro financial Institutions (MFIs) were exploiting the poor by charging high rate of
interest and intimidating the borrowers with forced loan recovery practices. The recent
suicides by more than 60 SHG members in Andhra Pradesh went unnoticed. There fore, in
Andhra Pradesh state the district authorities close down the 50 branches of two major micro
financial institutions.
        Incidence of indebtedness was reported to be about 27 per cent among rural
households, predominantly in rural areas of Andhra Pradesh, Kerala, Rajasthan and
Karnataka. The performance of micro finance through different models has their own impact
on beneficiaries and lenders. However in some models the loans become a burden on
beneficiaries and in some models facilitated to increase their income and lively hood. Hence,
the study is under taken to asses the model in flow of credit- in micro finance to the
borrowers. Keeping this in view the following specific objectives framed for the detailed study.
OBJECTIVES
1) To study the growth and pattern of micro finance in the selected district.
2) To study the Terms and Cost of borrowing in different models of micro finance service
   providers from apex level institutions to target groups.
3) To analyze the port-folio of lending by the Micro finance providers.
4) To analyze the cost and returns structure in major activities under taken by the
   beneficiaries.
5) To study the recovery performance under different models in the different purposes
   activities.

6) To analyze the problems faced by target groups, micro finance service providers and
   banks in micro-financial activities.

Presentation of the study
        The study is presented in six chapters.
         The first chapter is developed to the introduction of the Micro finance and Micro
financial institutions and the need for this study and the specification of the objectives.
        The second chapter presents a review of literature of the important existing studies
on the micro finance.
        Chapter 3 details the description of the study area, nature and source of data, the
tools and techniques of analysis adopted for evaluating the objectives.
        Chapter 4 summarizes the results under appropriate heads in consistent with the
objectives of the study.
         Chapter 5 seeks to interpret the results of the study and explains the causal
relationships between certain variables and outcome, in micro financial activities. It also
discusses a frame of inference for drawing policy measures.
         The chapter 6 summarizes the results and suggests polices to improve the micro
financial activities.
                       2. REVIEW OF LITERATURE
         Review of literature gives the guidelines from the past researchers and provides a
foundation to the theoretical framework for present investigation. The review of past literature
makes the investigator to get an insight into the methods and procedures to be followed.
Since the available literature relevant to the objectives of the present study were rather
limited. Studies related to other products were also reviewed and highlighted under the
following headings.
2.1 SHGs Bank linkages in micro finance
2.2 Terms and cost of borrowings in different models
2.3 Activities under taken by the SHGs members
2.4 Port-folio of lending by the micro finance providers
2.5 Recovery performance of micro finance providers
2.6 Problems faced by SHG's groups and members
2.7 Problems faced by micro finance providers

2.1 SHGs BANK LINKAGES IN MICRO FINANCE
          Shete (1999) noted that a Indian microfinance had adopted three different models
looking into socio economic situation and all have show that recovery is almost 100 per cent.
It has also proved that microfinance offers lucrative business opportunities to the financial
institution if implement on a commercial bases. Microfinance success in reaching the
unreached with good profit and excellent recovery has been acknowledged by the
government and financial institution. Indian banks know expanding SHG's linkage programme
for helping the rural poor with out directive from the central banking authorities and
government of India.
         Puhazhendhi and Jayaram (1999) found that the in formal groups of rural poor with
active intervention of NGOs adequately supported by training significantly improved women’s
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 socio-economic 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.
        Barik and Vannan (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 nearness to the
people and flexibility of operations seem to be better equipped to undertake SHG formation.
And linking SHGs to bank helps in over coming 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 (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 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 (2005) reported that there are three models under the
SHG's-bank linkage programme. About 72per cent 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.
         Shylendra (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

2.2 TERMS AND COST OF BORROWINGS IN DIFFERENT
MODELS
      The SHG provide economic benefits in certain areas of production process by
undertaking common action programmes like cost-effective credit delivery system, generating
a forum for collective learning with rural people, promoting democratic culture, fostering an
entrepreneurship, providing a firm base for dialogue and co-operation in programme with
other institutions, processing credibility and ensure participation and helping to assess an
individual member’s management capacity (Fernandez, 1992).
        The saving per member per month was Rs 31. The group had authorized two of their
members and the animator to operate the account on behalf of the group. The loan had to be
repaid in ten equal installments with the interest rate of 24 per cent per annum and the
average size of loan was between Rs.100-150 (Prasad, 1998).
           Shete (1999) noted that the amount of the credit varied from Rs 25 to Rs 20 thousand
in case of 50 per cent of the SHG's. About one-fifth of the SHG's availed credit from the
institutional sources varying between Rs.10 and Rs.25 thousand, about 15 per cent of them
had loan ranging from Rs.30 to Rs.50 thousands. It is note worthy to point out that about 11
per cent of these groups availed credit of Rs.50 thousand and above. On the other hand, only
six per cent of the SHGs availed credit to a less than Rs.10, 000 only. The total bank loans
outstanding against the SHGs on March 31, 2001 were to the extent of Rs. 13.69 lakhs in the
district. It may be mentioned that linked with their savings. For rest 59 SHGs in the district, the
credit was not availed from the institutional sources.
         Banerjee (2002) in his study conducted in Tamil Nadu found that the interest rate
charged varied widely among the groups. About 50 per cent of the groups had charged 2-3
per cent per month, which indicated the level of maturity and skill of the group members in
fixing their own rate of interest without causing burden to members. Higher rate of interest
was fixed to business and other income generating activities (IGA). However, in remaining 28
per cent of groups, a uniform interest rate of 3 per cent per month was charged.
          Rangi et al. (2002) revealed that about 23 per cent paid interest on loans at 18 per
cent per annum, where as the rest 77 per cent paid interest at 24 per cent per annum. It is
policy of the SHGs to charge high rate of interest for loans given to the members to enhance
their internal financial resources. This rate of interest is still low as compared with 36 to 60 per
cent per annum paid by low-income groups in Punjab for loans taken from the moneylenders,
big landholders, arhtiyas and others.
        Ritu Jain et al. (2002) found that most of the groups (36per cent) were saving Rs.20
to Rs.25 per cent per month per member, majority of the SHGs (60per cent) deposited
Rs.300 to Rs.400 for opening the bank accounts and 68 per cent SHGs saved Rs.2000 to
Rs.12000. maximum number of SHGs (48per cent) were having cash credit limit of Rs.10,
000 to Rs.20, 000, 28 per cent was having Rs.20, 000 to Rs.30, 000, only 12 per cent groups
were having cash limit of Rs.60,000.
         Shylendra (2006) proposes a suitable policy and legal framework for proactively
promoting the microfinance sector in India. The proposed framework is based on an analysis
of the rationale of microfinance, its current status, and the challenges/constraints confronting
the sector at macro and operational levels
          SavitaShankar (2006) conducted Studies Transaction cost of Micro Finance
Institutions in Tamil Nadu There are three kinds of costs that a lending institution incurs when
it provides a loan: the cost of the money that it lends; the cost of prudent financial practices
such as provisioning for loan defaults; and the cost of transaction, which includes the costs of
identifying and screening the client, processing the loan application, completing the
documentation, disbursing the loan, collecting repayments and following up on non payment.
          Kiiza et al. (2007) conducted studies in Uganda and concluded that microfinance
institutions (MFIs) have been able to reach the poor but economically active people in rural
areas, where the traditional commercial banks deliver limited financial services due to the
high transaction costs and risks involved in lending to this clientele. MFIs have developed
ways of reducing these transaction costs and risks through group lending and solidarity
guarantee, among others.

2.3 ACTIVITIES UNDER TAKEN BY THE SHGs MEMBER
        Weaving bed mats using Pandasus leaves, manufacturing agarbathis under the trade
name “Poicka Agarbathi” manufacture of school bags using second hand machines, land
development under water shed programme, making umbrellas, compost making, mushroom
production and milk testing are some of the activities taken up by SHG members as
commercial ventures. They even provided “Shramdan” to clear flooded village pathways
(NABARD, 1997)
        Snehalatha and Reddy (1998) revealed that the income generating activities taken up
by the women were dairy, forest, nursery, sericulture, vegetable cultivation and petty business
which were carried out as a group activity.
       Prasad (1998) reported that in many village community issues like drinking water, the
Women’s groups addressed roads, electricity and health services. The women involved
themselves in various activities like desalting of taluks and working towards child
development in addition to income generation programmes.
          Puhazhendi (2000) reported the positive impact of employment generation on 45 per
cent of the group members who had under taken income generating activities. The additional
employment generated through SHG lending worked out to 172 man-days per member.
Undertaking supplementary activities such as animal husbandry, poultry etc.and non-farm
activities like petty shop, kirani shop, flower vending business etc. provided employment to
activities greater extent. The annual employment available for the group members has
increased by 85 per cent during the post group formation when compared to the pre group
formation.
         About 75.60 per cent availed loan for dairy activities, while 4.00 and 3.60 per cent of
the respondent’s availed loan from the group for daughter’s marriage and poultry, respectively
(Ritu Jain et al, 2003).
        Raghuprasad et al (2004) in a study conducted in Shimoga district reported that
groups were socially active as they voluntarily involved in general cleaning of the village,
eradication of alcohol centers, encouraging primary education, celebration of festivals etc. But
these groups have not yet taken up any profitable enterprises. However, it is an exception
with three of the SHG’s, which have taken up dairy, preparation of areca leaf plates and
preparation of home made products, as income generating activities.
        Khandker (2006) Microfinance supports mainly informal activities that often have a
low return and low market demand. It may therefore be hypothesized that the aggregate
poverty impact of microfinance is modest or even nonexistent

2.4 PORT-FOLIO OF LENDING BY THE MICRO FINANCE
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 alsostimate that 75 per cent of production credit (only 33per
cent 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.
         Rangi et al. (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 32per cent)
followed by tailor shop (about 19per cent), cloth shop (about 10per cent), and grocery shop
(about 6per cent) and electrical shop (about 3per cent). 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).
         Vasudeva Rao (2003) the study conducted at Andhra Pradesh pointed that majority
of the people have taken loans for their own occupational development, where as, 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 daughter’s marriage and poultry, respectively
(Ritu Jain et al, 2003).

2.5 RECOVERY                  PERFORMANCE                  OF      MICRO          FINANCE
PROVIDERS
        Kumaran (1997) in the study conducted at Andhra Pradesh reported that the
individual monthly contribution for savings varied from Rs.10-30 and the total saving 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, commutative 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 per cent to 32 per cent
between the groups on monthly basis.
        The experience based on micro credit programmes across the world has empirically
proved beyond doubt that poor can save and poor borrowers, especially women, make
productive use of credit for self-employed micro enterprises/small farms and are prompt in
repayment, with average repayments rates above 90 per cent (The World Micro Credit
Summit, 1997)
         Puhazhendi and Jayaraman (1999) found that the total saving per member exceeded
Rs.6000 with annual rate of saving of Rs.1068. in case of stabilized groups the total saving
was higher at Rs.14, 695 while the annual saving touched bout Rs.2000. the total loan per
member was Rs.9560 with 67 per cent of loan used for consumptive purposes while in
stabilized groups, it was production loans which took the major hand at 57 per cent. The
repayment rate was as high as 97 per cent. Further it was seen that the monthly savings per
member during the earlier stages of the group formation ranged from Rs.10-20, which
increased between Rs.40 and Rs 60 after the period of two years of group formation. The
average annual saving per member was Rs 558 during the initial period of group formation,
which all most doubled after a period of four years. They also had a special saving scheme
for education festival etc.
        The loan had an average size of Rs.3976, which had to be repaid in 2-12 equal
monthly installments at an interest rate of 3-5 per cent per month, which was further reduced
to 2-3 per cent after 3 years. In early years, 72 per cent of loans were used for consumption
purposes, which changed during the later period with 69 per cent used for production
purposes. Forty five per cent of members took loan for income generating activities. The
repayment performance of loan was as high as 100 per cent (Puhazhendi, 2000).
        Banerjee (2000) in the study conducted at Tamil Nadu stated that the average saving
per year per member was Rs.558 during the initial period of group formation, this almost
doubled after a period of four years. This trend was observed to be common for different
categories of groups, thereby establishing direct relation between performance and amount of
savings.
         Banerjee (2002) in his study conducted in Tamil Nadu found that the repayment
performance of loans issued from the common fund was 100 per cent. In case of delay
repayment of dues by any member, the causes for such default were debated in the meeting
and all the group members approved necessary postponement of installment, if warranted.
        Rangi et al. (2002) reported that a vast majority (about 85per cent) of them made the
monthly installment of less than Rs.400. due to this reason, out of 50 respondents, 31 of them
took loans from the banks where as this figure was 22 for the internal borrowings from the
SHGs. Three respondents took loans from both internal savings of the SHGs as well as from
banks with the help of SHGs.
        Raghavendra (2003) in the study conducted at Bangalore district revealed that the
total number of SHGs credit linked in the country reached a phenomenal 4.61 lakh by end
March 2002. Around 90 per cent of the SHG's linked to banks were exclusive women groups,
periodic studies have revealed that repayment of loan by SHG’s to banks has been
consistently over 95 per cent.
       Ritu Jain et al. (2003) found that the most of the respondents (71.6per cent) were
having group pressure if loans were not paid timely. Although, half of the respondents
(44.40per cent) had high-level participation in group action followed by 30.00 and 25.60 per
cent women was having their participation medium and low in-group action, respectively.
        Sharma (2003) in the study conducted at Mysore district reported that financing has
been highly successful, adding that recovery has been over 98 per cent; over 1.19 lakh
people are covered under the SHGs financed by the bank. The Cauvery Grameen Bank
covers 1,653 villages in three districts of Karnataka – Mysore, Chamarajnagar and Hassan.
        Raghuprasad et al. (2004) in the study conducted at Shimoga district reported that
out of 50 SHGs contacted, nine SHGs had a capital of more than Rs.50, 000 and 32 SHGs
had a capital ranging from 30 to 50 thousand. This capital was mainly collected from its
members as savings and interests for the loan amount. Only 15 SHGs got financial support
from banks for initiating enterprises. They were regularly conducting meetings and
maintaining proper records. Recovery of loans was also regular with few exceptions here and
there.

2.6 PROBLEMS FACED BY SHG's GROUPS AND MEMBERS
       With respect to the constraints in taking up profitable enterprises among members of
SHGs, 82 per cent of them opined that lack of technical advice is the major problem and 70
per cent of respondent said lack of market for their produce is the major constraint for them.
Further 67 per cent of the respondents said absence of continuous follow up from the
sponsoring agencies as the constraint they are facing. Difficulty in getting required financial
assistance is also the constraint for 66 per cent of the respondents. Apart from these, few of
them also expressed their internal problem like poor leadership, conflicts among the members
and with outsiders, constraints in decision-making, lack of time etc (Gautham and Singh,
1990).
        Martin (1990) explained that the failure of the Indonesia SHG's concept PEKRTI was
due to the specific local, socio-cultural and political conditions rather than limited resources
      Hemalatha (1995) found from his study that 50 per cent of women felt difficulties in
repayment because of uncertain income through the group leaders did not agree with it.
        Thejaswini and Veerabhadraiah (1997) pointed out that as high as 85 per cent of the
beneficiaries were facing the difficulty in getting good price for their produce, the lack of
common work shed, the lack of proper marketing facilities, problems in getting the loans,
money released in time and the lack of training facilities were the problems faced by the 83
per cent and 75 per cent and 50 per cent of the beneficiaries respectively. They were not
getting deserving price for their produce because less demand for these hands made goods,
which were assumed to be inferior in quality to that of machine made goods.
         Snehalatha (1998) listed out the problems faced by group members as selling the
produce without assured market outlets, lack of co-operation team work among group
members, non-availability of sufficient matching grant in time, ineffective group leader ship,
lack of training in group formation, unequal work delegations, mismanagement of accounts,
discontinuance of internal lending .The problems perceived by the group leaders were: lack of
time to perform home, farm and group activities, no reimbursement of money, spent for group
purpose, explaining accounts to illiterate members, resolving group conflicts,
misunderstanding of group members that lender benefits more and there nom economic
incentives for being a group leader.
         Shylender (1998) in the study conducted at Bidai village of Gujarat observed that the
wrong approach followed in the SHG formation by the team, misconceptions about SHGs
goal both among the team and members of SHG and lack of clarity about the concept of SHG
particularly by the team, lead to failure of SHGs.
        Prasad (1998) concluded that, the Gem cutting unit of DWCRA was defunct due to
the reasons like heterogeneity in selecting beneficiaries from different villages, ignorance
about technicalities involved, arbitrary selection of income generating activities against the
philosophy and spirit of group approach, lack of critical awareness about the job performance,
non- cooperation of family members hampering participation.
          Puhazhendi and Jayaraman (1999) attributed non-cooperation of individual members
with group activities as well as personality clash between office and group members to the
disintegration of groups. Lack of follow up action by the field staff of NGOs also played
activities major role in disintegration
        Pratap et al. (2000) on the members of credit management groups, majority of them
(67.8per cent) suggested that sincere efforts by the NGO was necessary for maintenance of
unity among members. More than half of the respondents suggested taking up community
action programmes, while 19 per cent demanded more benefits for members, 15.6 per cent
suggested timely loan repayment and lastly 5.2 per cent asked for linkages with banks and
government agencies.
        Namboodiri and Shiyani (2001) reported that the limited opportunity for income
generating activities and loan portfolio dominated by consumption loan as major constraints.
         Sharada (2001) reported that majority of women perceived the problem of lack of
training and education that is, 71.7 percent.
         Thejaswini et al. (2004) reported that majority of the respondents indicated that lack
of training (85per cent), financial constraints (82per cent), poor quality of raw material (81per
cent), high cost of production (77per cent), lack of quality aspects (73per cent), marketing
problems (65per cent), lack of storage and warehousing facilities as the major constraints.
         Raghuprasad et al. (2004) in the study conducted at Shimoga district reported that
internal problems faced by some groups are lack of good leadership, conflicts among its
members, time constraints, lack of decision making, inadequate space to conduct activities
etc.
       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 through problems varied across activities, social taboos as
also lack of communication skills came out to be major factors. Lack of transportation,
competition from established women voiced brands and lack of capital.
        Viale and Terme (2006) studied major issues and constraints facing small-scale
enterprises in developing countries trying to access microfinance services, and identify ways
to overcome these challenges
         Joseph and Easwaran (2006) identified the perceived constraints in the functioning of
SHGs and found that lack of government attention was first and fore most problems i.e. 39
per cent. High rate of interest was felt by 33.43 per cent of members, followed by in
sufficiency of loan for income generation, inability to repay the loan etc.
       Naresh Singh (2007) stated that Microfinance is a middle path in which poor people
can mobilize their savings, link it with credit and finally become self-employed.

2.7 PROBLEMS FACED BY MICRO FINANCE PROVIDERS
         The problems faced by the officials involved in SHG formation were; heavy work load,
political interference in beneficiary identification, illiterate of group members, lack of
communication network, difficulty in resolving group conflicts, inculcating thrift behavior
without economic incentives
         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 difficulties in diversification/ starting of
activities (41.67 per cent), misunderstanding among SHG's members (38.17 per cent), lack of
space for storage of materials (28.24 per cent) and inadequate availability of raw material at
the right time (16.03 per cent).
                               3. METHODOLOGY
         The description of the methods and procedures followed in conducting this research
is furnished under the following heads.
        3.1 Description of the study area
        3.2 Nature and Source of data
        3.3 Sampling procedure
        3.4 Analytical tools employed
        3.5 Terms and concept used in the study

3.1 DESCRIPTION OF STUDY AREA
3.1.1 Location
          Dharwad district district situated in the Northern part of Karnataka state at 14º31’N
latitude and 74 º 28’ E longitudes. The district comes under the transaction zone. It is
bounded by Belgaum in the north, Haveri in the south, from north east to south east by Gadag
district. The District is divided into 3 belts geographically, viz; Malnad, transition and dry
regions.Malaprabha is the only one major river of the district. It has 5 taluks and 403 villages
in it.Dharwad and Hubli taluks fall in the western part of the Dharwad district. Dharwad and
Hubli talukas surrounded by Kalaghatagi, Kundgol, and Navalgund taluks of Dharwad district
and Gadag taluks of Gadag district.
3.1.2 Geographic and Demographic Features
        The salient geographic and demographic features of the study area and the sample
talukas are presented in Table 3.1. Dharwad district has an area of 4263 sq. km of which
Dharwad taluka has an area of 1032 sq. km and Hubli taluka has an area of 631 sq. km. the
total population of Dharwad district as per 2001 census was 16.05 lakhs and of which
Dharwad talukas was 2.19 lakhs and Hubli taluka acconted for 1.28 lakhs.The density of
population of Dharwad district was 377 per sq. km as against 219 and 207 per sq. km for
Dharwad and Hubli talukas respectively.
3.1.3 Education
         Dharwad is renowned as a center for education. It has two universities namely the
University of Agricultural Sciences and Karnataka University. In Dharwad district there are
746 primary school, 207 high schools, 77 degree Colleges, 5 B.Ed. Colleges, 2 Engineering
Colleges in addition to 8 Polytechnics, 2 Medical, 3 Pharmacy, one Dental, 7 Ayurvedic and 4
Homeopathy Colleges as well as one Physical Education centre. There are 173 primary
schools and 20 high schools present in Dharwad taluka and 114 primary schools and 23 high
schools present in Hubli taluka respectively
3.1.4 Industries
        Dharwad district is rich in 4 clothing and textile units, 8 chemical industries, 78
engineering units and 214 other miscellaneous industries. In all more than 25 thousand
people derive their livelihood from these industries. In case of Dharwad and Hubli talukas
there was 96 and 175 industries are work in process.
3.1.5 Transportation
          Dharwad district is well connected with rail, roads and highways. National Highway
No. 4 connecting Pune and Bangalore runs through Dharwad. All the villages of Dharwad
district enjoy bus service facility. The Karnataka State Road Transport Corporation (KSRTC)
as well as private transport services provides public transport facilities. Dharwad district has
221672 motar Vehicles as against in Dharwad and Hubli talukas have 55748 and 76919
motar Vehicles.
Table 3.1. Salient features of the study area and sample taluks


  Sl.         Particulars          Dharwad       Dharwad          Per      Hubli      Per
  No.                               district      Taluk           cent     Taluk      cent

  1.    Geographical area             4263          1032          24.21     631       14.80
        (in 00’s sq. km)

  2.    No. of Inhabited village      372           110           29.57      58       15.59



  3.    Total Population            1604253       218961          13.65   128380       8.00
        (in 00’s 2005-06
        census)

  4.    Rural population            722336        202671          28.06   128380      17.77



  5.    Urban population            881917         13264          1.50     16290       1.85



  6.    Male population             371275        103941          28.00    66000      17.78



  7.    Female population           351061         98730          28.12    62380      17.77



  8.    Population density            377           219           58.09     207       54.91
        (per sq.km)

  9.    Normal rainfall(mm)           772           838        108.55       693       89.77



  10.   Actual rainfall               969           905           93.40     1496      154.39



Source: Dharwad district at a glance, 2005-06, District Statistical Office, Dharwad
3.1.6 Soils
         Soils in Dharwad district comprise of red, medium and deep black soils. Similar types
of soils were found in Dharwad and Hubli talukas. The major soil in both the talukas is deep
black and red soil which is moderately rich in plant nutrients.
3.1.7 Rainfall
        The south west monsoon is the most crucial for Dharwad district. The district has a
normal rainfall of 969 mm, as against 905 mm and 1496 mm for Dharwad and Hubli talukas
respectively.
3.1.8 Land Utilization Pattern
        The land utilization pattern of Dharwad district is presented in Table 3.2. The net
sown area of Dharwad district is 5,23,470 hectares as against 77,388 and 56,567 hectares for
Dharwad and Hubli talukas respectively. The area under forest was 35,235 hectares for
Dharwad district and 13,676 and 2033 hectares of land covered by forest in Dharwad and
Hubli talukas respectively. The district has 26,876 hectares of the fallow land and of which
8,046 hectares was under Dharwad taluka and 8,049 hectares was accounted by Hubli
taluka.
3.1.9 Cropping Pattern
         The area devoted to different crops in the selected district and talukas are presented
in Table 3.3. The major crops in Dharwad district and Dharwad and Hubli talukas were paddy,
jowar, wheat, ragi, groundnut, red gram, bengal gram, sugarcane and cotton and most of the
area is rain fed.
3.1.10 Area Irrigated by Different Sources
         The area irrigated by different sources in Dharwad district has been presented in
Table 3.4. Canals and wells are the major sources of irrigation in Dharwad district. The total
irrigated area came to 40,356 hectares in Dharwad district and of which 5915 and 5721
hectares was Dharwad and Hubli talukas respectively.
3.1.11 Self help groups in the district
        At the present there are 16 micro financial institutions and 19 non-governmental
organizations working in Dharwad district. The total number of SHG‘s in Dharwad district
stands at 19,584, which include 13,000 Stree Shakti SHG and 6,584 Gen SHG and
NABARD institute which provide refinance to micro finance providers.

3.2 NATURE AND SOURCE OF DATA
         Pertaining to various aspects under, the data was collected from the secondary
source, that is, amount lent under micro financial activities to the          SHGs in the State,
number of SHGs linked to bank, amount of recovery, over dues and cost of borrowing and
terms and conditions involved in micro financial activities were collected for the district as well
as for the state for the year from 1992- 1993 to 2005-06 from various sources and find out
compound growth.
          The primary data with respect to purpose wise port –folio lending by SHG’s / Micro
finance providers, utilization pattern of borrowed funds by the target groups, rate of interest,
service charges and other costs involved in borrowings, cost and returns involved in each
activities under taken by the beneficiaries recovery performance and problem faced by target
groups, banks and other micro finance service provider in micro finance activities were
collected from the target groups for the year 2005-06 with the help of pre-tested questionnaire
and analysed by using cluster analysis.
Table 3.2. Land utilization Pattern in the Study Area and Sample Talukas (2005-06)

                                                                                      (Area in ha)
                                                    Dharwad taluka            Hubli taluka
Sl.N                                 Dharwad
               Particulars
 o                                    District
                                                    Area      Per cent      Area       Per cent

 1.    Area under forest               35235        13676       38.81       2033          5.77

       Land not available for
       cultivation

       i. Non-Agriculture use           3985         680        17.06       1037         26.02
 2.
       ii. Barren land                 21521        8508        39.53       5263         61.86

       Total                           25506        9188        56.60       6300         87.88

       Other cultivable land

       i. Cultivable waste land         2669        1531        57.36       106           3.97

 3.    ii. Permanent pasture            3571        1959        54.86       607          17.00

       iii. Trees and Groves            162           0           0          45          27.78

       Total                            6402        3490       112.22       758          48.75

       Fallow land

       i. Current fallow               21093        6241         30         5199         24.65
 4.
       ii. Other fallow                 5783        1805        31.21       2850         49.28

       Total                           26876        8046        60.80       8049         73.93

 5.    Net sown area                  333310        77388       23.22      56567         16.97

 6.    Total geographical area        427329       111788       26.16      73707         17.25


Source: Dharwad district at a glance, 2005-06, District Statistical Office, Dharwad
Table 3.3. Cropping Pattern in the study Area and Sample Talukas (2005-06)

                                                                                       (Area in ha)
  Sl.       Particulars       Dharwad       Dharwad        Per cent       Hubli          Per cent
  No.                          district      Taluk
                                                                          Taluk

   1.    Cereals

         Paddy                  23825         13328         55.94          724            3.039

         Ragi                    129             0           0.00           26            20.155

         Jowar                  57816         15299         26.46         11314           19.569

         Bajra                   1956            0           0.00           0             0.000

         Wheat                  39502          6941         17.57         5591            14.154

         Maize                  20723          5416         26.14         3835            18.506

         Other cereals           3716          1861         50.08         1216            32.723

         Total                 145711         42845         29.40         22706           15.583

   II.   Pulses

         Bengal gram            39111         14077         35.99         3970            10.151

         Red gram                2893          897          31.01          845            29.208

         Other pulses           50714         12267         24.19         8027            15.828

         Total                  92718         27241         29.38         12842           13.851

  III.   Commercial
         crops

         Oil seeds              87416         25558         29.24         13156           15.050

         Sugar cane              2018          1652         81.86           61            3.023

         Cotton                 86481          5126          5.93         20878           24.142

         Total                 176150         31300         17.77         34365           19.509


Source: Dharwad district at a glance, 2005-06, District Statistical Office, Dharwad.
Table 3.4. Area Irrigated by different source

                                                                                      (Area in ha)

   Sl. No            Particulars           Dharwad          Dharwad Taluk        Hubli Taluk
                                            district


     1.      Canal                              26726              0                   2934


     2.      Tanks                               191              191                    0


     3.      Wells                                0                0                     0


     4.      Bore wells                         13212            5654                  2630


     5.      Other sources                       227               70                   157


             Total                              40356            5915                  5721


Source: Dharwad district at a glance, 2005-06, District Statistical Office, Dharwad
Table 3.5. List of SHGs selected for the study


        Model        Name of the           Village       Micro finance       Name of the
                        SHG                                provider            taluk

        Model-I       Gramadevi             Kotur         Vijaya bank         Dharwad
                        SHG

        Model-I      Kasturba SHG        Dommada          Vijaya bank           Hubli

        Model-I        Om Basav            Sanshi         Vijaya bank           Hubli
                         SHG

        Model-II     Renukashree           Mugad          KVGB Bank           Dharwad
                        SHG

        Model-II      Laxmi SHG          Mummigatti       KVGB Bank           Dharwad

        Model-II      Mukambika           Narendra        KVGB Bank           Dharwad
                        SHG

     Model-III        Maruti SHG            Hubli       NGO(Chinyard)           Hubli

     Model-III       Priyadarshini        Koliwad       NGO(Chinyard)           Hubli
                         SHG

     Model-III      Basaveshwara         Bandiwad       NGO(Chinyard)           Hubli
                        SHG


Note:

Model-I: Commercial bank (Vijaya Bank) -------SHG------Members
Model-II: NABARD-------Regional Rural Bank (MG Bank) ------SHG------Members
Model-III: RMK --------NGO (Chinyard) ------ SHG------Members



3.3 SAMPLING PROCEDURE
       Keeping in view of the objectives of the study, a multi stage sampling procedure was
adopted for the selection of the district, talukas, micro finance providers and SHGs.
3.3.1 Selection of the district
         Dharwad district of Karnataka was purposively selected keeping in view of presence
of many micro finance service provider’s and micro financial institutions financed SHGs in
different models. At the same time researcher is well known to the SHG groups in the study
hence, relatively reliable information can be obtained from them.
3.3.2 Selection of the talukas
          Dharwad district consists of only five taluks.Among the five taluks maximum amount
of micro financial activities are concentrated in two taluks namely Dharwad and Hubli, which
covers seventy per cent of micro financial activities. The selected sample talukas in Dharwad
district was presented in Figure 1.
3.3.3 Selection of the sample for the study
       The credit flow to SHGs consisting of three models in Dharwad district. Two taluks
were selected for the study namely, Hubli and Dharwad. Further, three SHGs from each
model were selected from both the taluks. So, totally nine SHGs were selected to study the
credit flow management in micro finance in the study area. At the further stage, randomly the
sample of 10 beneficiaries were selected from each SHGs, hence the sample size totally
accounted for 90 members. The nine SHGs for the samples as given in the Table 3.5.
Model-I: Commercial bank (Vijaya Bank) -------SHG------Members
        Here SHGs are promoted by the Commercial banks and Financed by Commercial
Banks itself. So, credit flow was takes place from Commercial Bank to SHG then to Members.
Model-II: NABARD-------Regional Rural Bank (MG Bank) ------SHG------Members
       Here SHGs are promoted by the RRBs and refinanced by NABARD. So, credit flow
was takes place from to NABARD to Regional Rural Bank to SHG then to Members.
Model-III: RMK --------NGO (Chinyard) ------ SHG------Members
        Here SHGs are promoted by the NGO but refinanced by RMK so, credit flow was
takes place from to RMK to Non- government organizations to SHG then to Members.

3.4 ANALYTICAL TECHNIQUES EMPLOYED
         3.4.1 Tabular Analysis
         3.4.2 Compound Growth Rate Analysis
         3.4.3 Cluster analysis
         3.4.4 Regression Analysis
3.4.1 Tabular Analysis
        The data collected from primary and secondary sources were analyzed through
tabular analysis for computing averages and percentages.
3.4.2 Compound Growth Rate Analysis
       In order to asses the growth in number of SHGs credit linked , Bank loan, Refinance,
number of family assisted, Recovery, over dues of micro finance providers in Karnataka and
Dharwad district as a whole are worked out for a period of 14 years from 1992-93 to 2005-06.
The Compound growths are computed by using the exponential function of the form.
                           t
                  Yt =AB Ut------------------------------ (1)
Where,
         Yt = SHGs credit linked/ Bank loan/Refinance/number of family assisted/
              Recovery/over dues
         A = Y in the base year
         T = Time period
         Ut = Error term
         B = 1+g, where g = growth rate.
         By taking the logarithm, equation (1) was reduced to the following form
         LogYt = LogA+ (LogB) t+ Log Ut--------------- (2)
       Where log A and logB are the parameters of the function obtained by ordinary least
square method (OLS)
         Defining,
         Qt = log Ut
         Xt = t
         a=logA
         b=logB
         Ut = logUt
Fig. 1. Selected sample Taluks in Dharwad district
         Equation (2) could be written as follows
         Qt = a+bxt+Ut--------------(3)
         Once the above equation is estimated, g can be computed as:
         g = (Antilog b)-1-------------- (4)
         For comparison purposes the growth rates arrived at with the help of Equation (4) is
multiplied by 100 to obtain the percentage change in the variable concerned, that is the
percentage of growth [(Antilog b)-1]x100
3.4.3 Cluster Analysis
         Cluster analysis was a formal multivariate technique which was used by social and
biological sciences to classify the characteristics into meaningful sets. It is simple form of
correlation analysis which provides measure of similarity among different independent
variables. The analysis commences with the data set of independent variables of the sample,
later on which leads to the formation of homogenous groups
         This technique of cluster analysis was adopted to analyse the problems faced by the
SHG's members in micro financial activities, to begin with each variable was considered as a
separate cluster, and then too most similar variables were grouped to form a cluster. This
process of grouping would be continued until a single cluster was formed containing all the
variables. The absolute values of correlation coefficients were used as a measure of
similarity.
         In order to have better understanding and interpretation of the cluster analysis results,
the clusters were further aggregated based on the degree of similarity; the variables having
similarity values greater than mean +0.425 standard deviation were classified as high
aggregate clusters. In the case of variables having similarity values between mean +0.425
standard deviation and mean -0.425 standard deviation were considered as medium clusters
and variables having similarity values less than mean -0.425 standard deviation were
classified as low aggregate clusters. After classification of cluster into different groups. The
variables having higher similarity values were retained in respective clusters.
3.4.4 Regression Analysis
       Regression analysis was carried out using linear and log-linear multiple regression
equations for estimating the impact of independent variables on Overdues. To study the
impact of independent variables on over dues, consists of, amount borrowed, cost of
production, cost of borrowings, and gross returns. However the results of only multiple linear
regression equations are presented since these model fitted better. The parameters were
estimated using least square estimation method. The detail of the regression equations was
given below:
                  Y = f(X1, X2, X3, X4, M1, M2, A1, A2, A3, A4)
Where,
         Y = Overdues (Dependent variable)
         X1 = Amount borrowed
         X2 = Cost of production
         X3 = Cost of borrowing
         X4 = Gross returns
         M1=Model-I (Commercial bank (Vijaya Bank) -------SHG------Members)
         M2=Model-II (NABARD-------Regional Rural Bank (MG Bank) ------SHG------          Members)
         A1=Dairy activity
         A2=Crop production
         A3=Consumption
        A4=Other activities (Vegetable marketing, Kirani shop, Tailoring, Bangle marketing,
            Goat rearing, Papad making, Bakery items, Poultry, Pickle and Leaf making)

3.5 TERMS AND CONCEPT USED IN THE STUDY
Micro finance: 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.
Microfinanacial providers: Micro financial providers are those, which provide thrift, credit and
other financial services and products of very small amounts mainly to the poor in rural, semi -
urban or urban areas for enabling them to raise their income level and improve living standard
which may also includes non-governments.
Overdues: It is conceptualized as the non- repayment of any part or full amount of loan by the
borrower to the any financial institutions within the time specified for the repayment.
Saving: Refer to the various kinds of deposit amount of the farmers/ beneficiaries and others
kept in the any financial institutions.
Micro credit: Refers to a small loan to a client made by a bank or other financial institution.
Loan: When a lender gives money or property to borrower and the borrower agrees to return
the property or repay the borrowed money, along with interest, at a predetermined date in the
future
Interest: The charge for the privilege of borrowing money, typically expressed as an annual
percentage rate.
Repayment: The act of returning money received previously.
Lending: To provide (money) temporarily on condition that the amount borrowed be returned,
usually with an interest rate.
Credit: A contractual agreement, in which a borrower receives something of value now, with
the agreement to repay the lender at some date in the future.
Self employment: The status of an individual who rather than accepting a position as an
employee of another person or organization choose to go into business for him or herself.
Self help groups: These are voluntary groups come together for obtaining loans from financial
institutions in order to employ income generating activities to improve their standard of living.
Credit delivery models: These are the path through which micro finance/credit flow from apex
level institutions to ultimate SHG members.
                                     4. RESULTS
       In consistence with the objectives of the study, the data collected from different
sources were analyzed. The results are presented under the following heads.
4.1 Growth and Pattern of Micro finance
        4.1.1 Growth in Bank linkages of SHG’s over a period of time in Karnataka
        4.1.2 Growth in Bank linkages of SHG’s over a period of time in Dharwad district
        4.1.3 Growth in Bank linkages of SHG’s by micro finance providers in Dharwad
              district
        4.1.4 Coverage of Micro finance by different micro finance providers in Dharwad
              district
        4.1.5 Growth in total amount lent to SHG’s by micro finance Providers Dharwad
              district
        4.1.6 Growth in recovery performance of SHG’s by micro finance providers
        4.1.7 Growth in total amount of Overdues by micro finance providers
        4.1.8 Growth of Micro finance under different models
        4.1.9 Pattern of micro finance provided to different activities under different models
4.2 The terms and cost of borrowing for the SHG members
        4.2.1 Cost of borrowings for SHG’s members under the different models
        4.2.2 Terms of lending to SHG’s members under the different models
4.3 Portfolio of lending by the micro finance providers
        4.3.1 Portfolio of lending by micro finance providers
        4.3.2 Model wise Portfolio of lending
4.4 Cost and returns structure in major activities under taken by the SHG members
        4.4.1 Cost and return structure in Major activities
        4.4.2 Model wise cost and returns structure in major activities
4.5 Recovery performances under different models
       4.5.1 Overdues position under different models
        4.5.2 Factors affecting the Overdues
4.6 Problems faced by SHG’s members and Micro finance providers
        4.6.1 Problems faced by SHG’s
        4.6.2 Problems faced by micro finance providers

4.1 GROWTH AND PATTERN OF MICRO FINANCE
4.1.1 Growth in Bank linkages of SHG’s over a period of time in Karnataka
        The growth in Bank linkages of SHG’s and bank loan given to those SHG’s were
presented in Table 4.1 and Fig. 2. This indicated that at the initial period members of SHG’s
linked to the bank loan were only 114 during 1992-93 and it was grown to 61,730 during
2005-06 in Karnataka. This totally accounted for 2,24,928 SHG’s were total linked to the
banks in the years of the study period. The compound growth rate of number of SHG’s linked
to the bank loan increased at the rate of 26.29 per cent and found to be significant at one per
cent level. Similarly bank loan given to SHG’s grown at the compound growth rate of 33.93
per cent and refinance to banks from Apex level institutions increased by a compound growth
rate of 27.78 per cent. The rate of growth in bank loan is higher than the growth in the
refinance.
Table 4.1 Growth in Bank Linkage of SHGs over a period of time in Karnataka


                                 Number of SHGs             Bank loan         Refinance
 Sl. No.         Year
                                    credit linked           (Rs lakh)         (Rs lakh)

   1.           1992-93                 114                   5.73              5.73

   2.           1993-94                  51                   5.51              5.51

   3.           1994-95                 481                   77.71             70.71

   4.           1995-96                 1,046                145.08            145.08

   5.           1996-97                 760                  159.12            159.12

   6.           1997-98                 1,138                232.19            228.10

   7.           1998-99                 2,002                429.86            422.28

   8.           1999-00                 5,018               1,054.81           649.00

   9.           2000-01                 8,009               1,714.00          1,404.00

   10.          2001-02                18,413               3,475.39          2,229.00

   11.          2002-03                25,146               7,249.50          4,073.55

   12.          2003-04                41,688               13,972.39         6,090.98

   13.          2004-05                59,332               26,653.00         9,951.00

   14.          2005-06                61,730               44,260.02         6,695.43

   15.           Total                2,24,928              99,434.85         32,129.33

              Compound                 26.29**               33.93**           27.78**
   16.
            Growth rate (%)            (0.142)               (0.143)           (0.179)


Note: ** Significant at 1 per cent level
      Figures in parenthesis indicates the standard error
Source: NABARD Office Dharwad.
                                      Number of SHGs credit linked                 Bank loan (Rs lakh)             Refinance (Rs lakh)
70000



60000



50000



40000



30000



20000



10000



   0
        1992-93   1993-94   1994-95   1995-96   1996-97   1997-98   1998-99     1999-00   2000-01   2001-02   2002-03   2003-04   2004-05   2005-06


                                                                         Year


                            Fig. 2. Growth in Bank Linkage of SHGs over a period of time in Karnataka


                              Fig. 2. Growth in Bank Lingage of SHGs over a period of time in Karnataka
Table 4.2 Growth in Bank Linkage of SHGs over a period of time in Dharwad district


                                   Number of SHGs           Bank loan       Number of
 Sl.No.           Year
                                     Credit linked          (Rs. Lakhs)   Family assisted

   1.           1993-94                    51                 45.44            205

   2.           1994-95                   143                 87.03            297

   3.           1995-96                   201                 106.79           335

   4.           1996-97                   243                 119.56           362

   5.           1997-98                   472                 226.01           534

   6.           1998-99                   651                 423.10           526

   7.           1999-00                   746                 638.90           850

   8.           2000-01                   874                 841.13          1,765

   9.           2001-02                   923                 781.31          1,633

   10.          2002-03                  1,240                863.14          2,034

   11.          2003-04                  2,035                919.34          2,856

   12.          2004-05                  3,095                951.02          4,658

   13.          2005-06                  8,910               2,182.66         5,214

   14.            Total                  19,584              8,185.43         21,299

           Compound growth
                                        15.98**               13.45**         12.77**
   15.          rate
                                         (0.108)              (0.111)         (0.058)
                   (%)
Note: ** Significant at 1 per cent level
         Figures in parentheses indicate standard errors.
Source: NABARD Office Dharwad.
                               Number of SHGs Credit linked          Bank loan (Rs. Lakhs)        Number of Family assisted
9000


8000


7000


6000


5000


4000


3000


2000


1000


  0
       1993-94   1994-95    1995-96   1996-97   1997-98   1998-99   1999-00   2000-01   2001-02   2002-03   2003-04   2004-05   2005-06


                                                                    Year


                      Fig. 3. Growth in Bank Linkage of SHGs over a period of time in Dharwad district


                           Fig. 3. Grwoth in Bank Linkage of SHGs over period of time Dharwad District
4.1.2 Growth in Bank linkages of SHG’s over a period of time in Dharwad
district
         The growth of bank linkages of SHG's and bank loan in the selected Dharwad district
that is Dharwad is presented in Table 4.2 and Fig. 3. This indicated that the SHG's linkage in
at the initial period that is in 1993-94 was only 51 SHG’s and it was increased by 8910 in
2005-06. This SHG's linkage has been grown at the compound growth rate of 15.98 per cent
per annum, which is lower than the compound growth rate of SHG's linkages achieved in the
state (26.29 per cent) as a whole, which could be seen in Table 4.1. Similarly, the bank loan
to SHG's grown at the compound rate of 13.45 per cent per annum in the Dharwad district, it
is also lower than the growth achieved at the state level. In the case of number of families
assisted by the bank was also grown by 12.77 per cent per annum and it was found
significant at one per cent level.
4.1.3 Growth in Bank linkages of SHG’s by micro finance providers
         The growth in Bank linkages of SHG’s by micro finance providers in the Dharwad
district shown in Table 4.3 and Fig. 4. This indicates that, there were 11 micro finance
providers in the district. Among the micro finance providers MG Bank have highest annual
compound growth rate which accounted for 54.71 per cent per annum which followed by
Vijaya bank which have (53.49 per cent), Bank of India (33.96 per cent) and NGOs (21.27 per
cent) and all are found to be significant at one per cent level. Similarly all other banks
providing micro finance in the district showed growth was more than 20 per cent but
Karnataka bank showed least that is 16.92 per cent.
4.1.4 Coverage of Micro finance by different micro finance providers
          Among the micro finance providers the commercial banks, regional rural banks (MG
Bank) and NGOs play an important role in micro finance provided to SHG’s in the Dharwad
district. So coverage of micro finance in Dharwad district was shown in Table 4.4, which
indicated that among these micro finance providers in the total number of SHG’s linked to
bank loan, the the Regional rural banks, covers 66.24 per cent and accounted for 97.03 per
cent of the bank loan provided to them in the district, the refinance amount obtained from the
apex level refinancing agency was also more, which accounts for 76.86 per cent of the
refinance. This followed by Commercial banks which accounts to 28.84 per cent of the SHG’s
linked and provide bank loan to the extent of 1.85 per cent and 14.49 per cent of refinance
was availed by them, similarly, NGOs accounts only 4.93 per cent of SHG linked and
provided a bank loan to the extent of 1.12 per cent and constituted 8.65 per cent of refinance
was availed them.
4.1.5 Growth in total amount lent to SHG’s by micro finance providers
         The growth in Total amount lent to number of SHG’s by micro finance providers are
shown in Table 4.5 and Fig. 5. This indicated that among the banks MG Bank have highest
annual compound growth rate (83.09 per cent) per annum. This followed by NGOs, which
have 68.24 per cent, Vijaya bank 63.20 per cent Central bank of India, which accounts to
62.79 per cent. However least growth was found in Karnataka Bank (27.90 per cent) among
all the banks lent to SHG’s in the district.
4.1.6 Growth in recovery performance of SHG’s by micro finance providers
       The growth in recovery performance of SHG’s by micro finance providers showed in
Table 4.6 and Fig. 6. This indicated that, among the banks MG Bank has highest annual
compound growth rate which accounts for 83.40 per cent per annum. This followed by NGOs
(77.12 per cent), Vijaya bank (66.91 per cent) Central bank of India (64.61 per cent).
However, the rate of growth in recovery in the district found to be low in the Bank of Baroda
4.1.7 Growth in total amount of Overdues in micro finance providers
        The growth in total amount of Overdues of SHG’s in micro finance providers was
shown in Table 4.7 and Fig. 7. This indicated that among the banks, Syndicate Bank have
highest annual compound growth rate in Overdues which accounts for 48.82 per cent per
annum. This followed by State bank of India (39.32 per cent) MG Bank (34.85 per cent) and
Table 4.3 Bank Linkages of SHGs by micro finance providers in Dharwad district (1997-98 to
             2005-06)


                                                          2     Compound Growth Rate
   Sl.No.     Name of Banks        Coefficient           R
                                                                    (in percent)

                                       0.29
             Bank of India                                             33.96**
     1.                              (0.016)            0.977

                                       0.22
             Bank of Baroda                             0.818          24.61**
     2.                              (0.039)

                                       0.23
             Canara Bank                                0.926          25.27**
     3.                              (0.022)

             Central Bank of           0.28
                                                        0.845          32.76**
     4.      India                   (0.045)

             Indian oversea            0.24
                                                        0.854          27.51**
     5.      Bank                    (0.041)

                                       0.16
             Karnataka Bank                             0.939          16.92**
     6.                              (0.012)

                                       0.44
             MG Bank                                    0.917          54.71**
     7.                              (0.043)

                                       0.19
             Syndicate bank                             0.929          20.54**
     8.                              (0.018)

             State bank of             0.19
                                                        0.859          20.42**
     9.      India                   (0.018)

                                       0.43
             Vijaya bank                                0.982          53.49**
    10.                              (0.023)

                                       0.18
                                                        0.862          21.27**
    11.      NGO(Chinyard)           (0.017)

Note: Figures in parentheses indicate standard error.
**: Indicates values are significant at 1%.
                                        60



                                        50
Compound Growth Rate (in percent)




                                        40



                                        30



                                        20



                                        10



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                                                                                                                   Name of Banks




                                    Fig. 4. Bank Linkages of SHGs by micro finance providers in Dharwad district (1997-98 to 2005-06)


                                      Fig. 4. Bank Linkages of SHGs by micro finance providers in Dharwad district (1997-98 to 2005-06)
Table 4.4 Coverage of Micro finance by different micro finance providers in Dharwad district




  Sl.                          Commercial         Rural Regional
           Particulars                                                   NGOs            Total
  No.                            Banks                Bank



         Number of                 5,643               12,962             964           19,569
   1.
         SHGs linked              (28.84)              (66.24)           (4.93)          (100)


         Bank Loan                950.73               49,882           573.95          51,407
   2.
         (Rs. Lakhs)              (1.85)               (97.03)          (1.12)           (100)


         Refinance                942.68              5,001.5            563.0          6,507
   3.
         (Rs. Lakhs)              (14.49)             (76.86)            (8.65)         (100)

Note: Figures in parentheses indicate percentage to total


NGOs (14.56 per cent). However, least growth that is negative but not significant in Overdues
found in Bank of Baroda (-13.8 per cent) and Karnataka Bank (-5.36 per cent).
4.1.8 Growth of Micro finance under different models
        The growth of Micro finance under different models in Dharwad district, over a period
of time was presented under Table 4.8 and Fig. 8. This showed that, there was a gradual
increase in SHG’s credit linkage under different models. In aggregate, in the number of SHG’s
linked during initial period was 143.In the aggregate number of SHG’s linked, the model –I
covers 27.97 per cent, model-II covers 57.34 per cent and model-III accounts for 14.69 per
cent.
        In the end of the study period that is during 2005-06 in the aggregate number of SHG
linked was 19,569, of which model-I accounted for 20.48 per cent, model-II accounted for
75.89 per cent and model-III accounting for 3.63 per cent. Aggregate number of SHG linked
to banks in the eleven years of the study period grown by 19.36 per cent and found significant
at one per cent level. In the total aggregate number of SHG linked, model-I. Model-II and
model-III accounted for 28.84 per cent, 66.24 per cent and 4.93 per cent respectively.
        Similarly, in aggregate bank loan provided to the SHG’s, in the initial year of the
study, model-II accounts for a maximum that is 43.15 per cent of the total loan provided by
the banks to SHG’s and model-III accounted for minimum (19.04 per cent).
         In the case of number of family assisted by the micro finance providers under the
different models in the district, at the initial period of the study (1995-96) in the aggregate,
model-II accounts for maximum (57.34 per cent) and model-III accounted for minimum (14.69
per cent). At the end of the study period (2005-06) it was maximum in model-II and minimum
in model-III. Similarly, if it is consider the total number of SHG’s assisted in the total period of
the study, model-II accounted for maximum (66.24 per cent) and model-III accounted for
minimum (4.93 per cent). The growth of families assisted in the study period was maximum in
model-II and minimum in model-III and over all growth was 19.36 per cent in the district.
Table 4.5 Total amount lent to SHGs in Dharwad district (1997-98 to 2005-06)


                                                                          Compound
   Sl.No.      Name of Banks          Coefficient              R2       Growth Rate (in
                                                                           per cent)

                                          0.35
     1.      Bank of India                                    0.915            41.43**
                                         (0.039)

                                          0.20
     2.      Bank of Baroda                                   0.601            21.77*
                                         (0.061)

                                          0.42
     3.      Canara Bank                                      0.829            52.44**
                                         (0.072)

             Central Bank of              0.49
     4.                                                       0.922            62.79**
             India                       (0.051)

             Indian oversea               1.69
     5.                                                       0.958            42.94**
             Bank                        (0.134)

                                          0.25
     6.      Karnataka Bank                                   0.958            27.90*
                                         (0.193)

                                          0.60
     7.      MG Bank                                          0.944            83.09**
                                         (0.053)

                                          0.39
     8.      Syndicate bank                                   0.969            47.63**
                                         (0.025)

                                          0.47
     9.      State bank of India                              0.933            59.39**
                                         (0.042)

                                          0.49
     10.     Vijaya bank                                      0.832            63.20**
                                         (0.084)

     11.                                  0.43
             NGO(Chinyard)                                    0.756            68.24**
                                         (0.073)
      Note: Figures in parentheses indicate standard error.
             ** Indicates values are significant at 1%.
     * Indicates values are significant at 5%.
                                     90


                                     80


                                     70
Compound Growth Rate (in percent)




                                     60


                                     50


                                     40


                                     30


                                     20


                                     10


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                                                                                                            Name of Banks




                                                     Fig. 5. Total amount lent to SHGs in Dharwad district (1997-98 to 2005-06)


                                                       Fig. 5. Total amount lent to SHGs in Dharwad District (1997-98 to 2005-06)
Table 4.6 Recovery performance of SHGs in Dharwad district (1997-98 to    2005-06)


                                                                    Compound Growth
 Sl.No.        Name of Banks         Coefficient           R
                                                                2        Rate
                                                                         (in per cent)

                                         0.37
   1.        Bank of India                                0.872            45.40**
                                        (0.042)

                                         0.22
   2.        Bank of Baroda                               0.593             24.43*
                                        (0.068)

             Canara Banks                0.43             0.828            53.70**
   3.
                                        (0.072)

             Central Bank of             0.50
   4.                                                     0.910            64.61**
             India                      (0.064)

                                         1.67
   5.        Indian oversea Bank                          0.960            33.61**
                                        (0.133)

                                         0.25
   6.        Karnataka Bank                               0.957            29.02**
                                        (0.024)

                                         0.61
   7.        MG Bank                                      0.943            83.40**
                                        (0.054)

                                         0.39
   8.        Syndicate Bank                               0.965            47.46**
                                        (0.034)

                                         0.47
   9.        State Bank of India                          0.923            59.96**
                                        (0.053)

                                         0.51
  10.                                                     0.836            66.91**
             Vijaya Bank                (0.081)

                                         0.36
  11.        NGO(Chinyard)                                0.952            77.12**
                                        (0.026)
        Note: Figures in parentheses indicate standard error.
               ** Indicates values are significant at 1%.
               * Indicates values are significant at 5%.
                                      90

                                      80

                                      70
Compound Growth Rate (in percent)




                                      60

                                      50

                                      40

                                      30

                                      20

                                      10

                                        0




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                                        Fig. 6. Recovery performance of SHGs in Dharwad district (1997-98 to 2005-06)


                                            Fig. 6. Recovery Performance of SHGs in Dharwad district (1997-98 to 2005-06)
Table 4.7 Total amount of over dues in Dharwad district (1997-98 to 2005- 06)



                                                              2     Compound Growth
   Sl.No.       Name of Banks          Coefficient          R
                                                                     Rate (in per cent)


                                          0.11
     1.        Bank of India                               0.090           11.14
                                         (0.133)

                                          -0.15
     2.        Bank of Baroda                              0.227           -13.80
                                         (0.104)

                                          0.26
     3.        Canara Bank                                 0.363          29.29**
                                         (0.132)

               Central Bank of            0.20
     4.                                                    0.136           22.73*
               India                     (0.207)

               Indian oversea             0.02
     5.                                                    0.031            1.75
               Bank                      (0.044)

                                          -0.06
     6.        Karnataka Bank                              0.017           -5.36
                                         (0.153)

                                          0.30
     7.        MG Bank                                     0.562          34.85**
                                         (0.094)

                                          0.40
     8.        Syndicate bank                              0.686          48.82**
                                         (0.106)

               State bank of              0.33
     9.                                                    0.333          39.32**
               India                     (0.171)

                                          0.14
    10.        Vijaya bank                                 0.112           15.34
                                         (0.143)

                                          0.21
    11.        NGO(Chinyard)                               0.423           14.56
                                         (0.197)


          Note: Figures in parentheses indicate standard error.
                 ** Indicates values are significant at 1%.
                  * Indicates values are significant at 5%.
                                      50


                                      40
Compound Growth Rate (in percent)




                                      30


                                      20


                                      10


                                        0


                                      -10


                                      -20




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                                                                              Name of Banks




                                             Fig. 7. Total amount of over dues in Dharwad district (1997-98 to 2005- 06)


                                                 Fig. 7. Total amount of over dues in Dharwad District (1997-98 to 2005-06)
Table 4.8 Growth of Micro finance under different models in Dharwad district

                                        Number of SHGs Linked                        Bank Loan(Rs. Lakhs)                         Number of Families Assisted
    Sl. No.      Years                                          Aggregat                                    Aggregat                                        Aggregat
                              Model-I   Model-II    Model-III              Model-I   Model-II   Model-III              Model-I       Model-II   Model-III
                                                                   e                                           e                                               e
                                 40        82          21         143        2.98       3.4       1.5          7.88      120           246          63           429
      1.        1995-96
                              (27.97)    (57.34)    (14.69)      (100)     (37.82)   (43.15)    (19.04)       (100)    (27.97)       (57.34)     (14.69)        (100)
                                 49        95          25         169        3.02       5.9       1.75       10.67       147           285          75           507
      2.        1996-97
                              (28.99)    (56.21)    (14.79)      (100)     (28.30)   (55.30)    (16.40)       (100)    (28.99)       (56.21)     (14.79)        (100)
                                 95        117         32         244        4.08      25.5       3.6        33.18       285           351          96           732
      3.        1997-98
                              (38.93)    (47.95)    (13.11)      (100)     (12.30)   (76.85)    (10.85)       (100)    (38.93)       (47.95)     (13.11)        (100)
                                 97        126         51         274        27.9      96.3       5.2        129.4       291           378         153           822
      4.        1998-99
                              (35.40)    (45.99)    (18.61)      (100)     (21.56)   (74.42)     (4.02)       (100)    (35.40)       (45.99)     (18.61)        (100)
                                182        191         62         435       40.83     135.2       13.6       189.63      546           573         186           1305
      5.        1999-00
                              (41.84)    (43.91)    (14.25)      (100)     (21.53)   (71.30)     (7.17)       (100)    (41.84)       (43.91)     (14.25)        (100)
                                228        351         53         632       67.62     145.4       25.3       238.32      684          1,053        159           1896
      6.        2000-01
                              (36.08)    (55.54)     (8.39)      (100)     (28.37)   (61.01)    (10.62)       (100)    (36.08)       (55.54)      (8.39)        (100)
                                378        306         88         772       85.61      199        55.3       339.91     1,134          918         264           2316
      7.        2001-02
                              (48.96)    (39.64)    (11.40)      (100)     (25.19)   (58.54)    (16.27)       (100)    (48.96)       (39.64)     (11.40)        (100)
                                830       1,355        96         2281     135.02      303        46.9       484.92     2,490         4,065        288           6843
      8.        2002-03
                              (36.39)    (59.40)     (4.21)      (100)     (27.84)   (62.48)     (9.67)       (100)    (36.39)       (59.40)      (4.21)        (100)
                               1034       3,015       102         4151     170.61      879        71.2      1120.81     3,102         9,045        306          12453
      9.        2003-04
                              (24.91)    (72.63)     (2.46)      (100)     (15.22)   (78.43)     (6.35)       (100)    (24.91)       (72.63)      (2.46)        (100)
                               1267       1,977       178         3422     198.57     1,244       96.1      1538.67     3,801         5,931        534          10266
      10.       2004-05
                              (37.03)    (57.77)     (5.20)      (100)     (12.91)   (80.85)     (6.25)       (100)    (37.03)       (57.77)      (5.20)        (100)
                               1,443      5,347       256         7046     214.49     1,977      253.5      2444.99     4,329        16,041        768          21138
      11.       2005-06
                              (20.48)    (75.89)     (3.63)      (100)      (8.77)   (80.86)    (10.37)       (100)    (20.48)       (75.89)      (3.63)        (100)
                               5,643     12,962       964        19569     950.73    4,988.2    573.95      6512.88    16,929        38,886       2,892         58707
      12.         Total
                              (28.84)    (66.24)     (4.93)      (100)     (14.60)   (76.59)     (8.81)       (100)    (28.84)       (66.24)      (4.93)        (100)
               Compound       18.56**
                                         20.86**    10.56**     19.36**    24.95**   30.04**    23.38**      27.91**    19.97**      22.44**     12.95**        20.88**
      13.      Growth rate    (0.008)
                                         (0.018)    (0.006)     (0.011)    (0.023)   (0.021)    (0.012)      (0.017)   (0.0096)      (0.017)     (0.013)        (0.012)
                  (%)


Note: Figures in parentheses indicate percentage to total
       **: Significant at 1 per cent, *: Significant at 5 per cent
Table 4.9 Pattern of Micro finance provided to different activities under different models
                                                                                                                                          (Rs. In Lakhs)
                                Number of member covered                            Total amount lent                      Amount Recovered
   Sl.
            Activities     Model- Model- Model-                          Model-    Model- Model-                 Model-    Model- Model-
   No.                                              Aggregate                                        Aggregate                                 Aggregate
                              I       II      III                            I        II      III                   I          II     III
                              9       8        5        22                 10.8      2.5     8.3        21.6      10.2        2.4     8.2         20.89
    1.    Dairy
                           (40.91) (36.36) (22.73)    (100)              (50.00)   (11.57) (38.42)     (100)     (49.04)   (11.54) (39.42)        (100)
                              5       7        1        13                 2.6       15.8    0.2        18.6       2.5       13.8    0.15         16.45
    2.    Consumption
                           (38.46) (53.85)  (7.69)    (100)              (13.98)   (84.95) (1.07)      (100)     (15.20)   (83.89) (0.911)        (100)
          Crop                2       4        5        11                 3.7       2.5     4.6        10.8        3         2.5     4.1          9.6
    3.
          production       (18.18) (36.36) (45.45)    (100)              (34.26)   (23.15) (42.59)     (100)     (31.25)   (26.04) (42.70)        (100)
          Vegetable
                              3         3          4            10         1.1       1.5       2.7      5.3       0.96       1.3       2.6       4.86
    4.    marketing
                           (30.00)   (30.00)    (40.00)       (100)      (20.75)   (28.30)   (50.94)   (100)     (19.75)   (26.75)   (53.49)    (100)
                              2         3          2            7          1.5         1       3.1       5.6       1.2       0.96      2.4       4.56
    5.    Kirani shop
                           (28.57)   (42.86)    (28.57)       (100)      (26.79)   (17.86)   (55.35)   (100)     (26.32)   (21.05)   (52.63)    (100)
                              1         2          3            6          2.5       0.75       2       5.25       2.4       0.73      1.8       4.93
    6.    Tailoring
                           (16.67)   (33.33)    (50.00)       (100)      (47.62)   (14.29)   (38.09)   (100)     (48.68)   (14.81)   (36.51)    (100)
          Bangle              4         2                       6          1.2       0.8                  2        1.2       0.72                1.92
    7.                                             -                                            -                                       -
          marketing        (66.67)   (33.33)                  (100)      (60.00)   (40.00)             (100)     (62.50)   (37.50)              (100)
                              3         1                       4          1.75        1                2.75      1.73        0.8                2.53
    8.    Goat rearing                             -                                            -                                       -
                           (75.00)   (25.00)                  (100)      (63.64)   (36.36)             (100)     (68.38)   (31.62)              (100)
                                                  4             4                             0.3        0.3                          0.25       0.25
    9.    Papad making         -         -                                  -         -                             -         -
                                               (100.00)       (100)                          (100)     (100)                         (100)      (100)
                                                  2             2                             0.42      0.42                          0.42       0.42
   10.    Bakery items         -         -                                  -         -                             -         -
                                               (100.00)       (100)                          (100)     (100)                         (100)      (100)
                              1         2                       3          0.5       0.25               0.75      0.45       0.2                 0.65
   11.    Poultry                                  -                                            -                                       -
                           (33.33)   (66.67)                  (100)      (66.67)   (33.33)             (100)     (69.23)   (30.77)              (100)
          Pickle and
                                                  2             2                             0.6       0.6                           0.42       0.42
   12.    leaf plate           -         -                                  -         -                             -         -
                                               (100.00)       (100)                          (100)     (100)                         (100)      (100)
          making
                             30        30         30            90        25.65     31.95     16.45    74.05      23.64      28.1      15.8     67.39
   13.    Total
                           (33.33)   (33.33)    (33.33)       (100)      (34.63)   (43.14)   (22.21)   (100)     (35.07)   (41.69)   (23.44)    (100)

Note: Figures in parentheses indicate percentage total
4.1.9 Pattern of micro finance provided to different activities
        Pattern of micro finance provided to different activities under different models in
Dharwad district were indicated in Table 4.9. This showed among the activities the highest
amount of micro finance was provided to Dairy activity, which contributed 22 of member
involved in that activity. Under the models, model-I covers i.e., 40.91 per cent, followed by
model-II (36.36 per cent) and Model-III (22.73) .In case of Total amount lent to Dairy activities.
Under the models, model-I lent high amount i.e., 50.00 per cent, followed by model-III (38.42
per cent) and Model-II (11.57). In case of recovery performance model-III (49.04) achieved
good recovery performance followed by model-III (39.42 per cent) and model-II (11.54 per
cent). After Dairy activities, the highest amount lent to consumption activities, which
contributed 13 of member involved in that activity. Under the models, model-I covers i.e.,
38.46 per cent, followed by model-II (53.85 per cent) and Model-III (7.69) .In case of Total
amount lent to Consumption activities. Under the models, model-II lent high amount i.e.,
84.95 per cent, followed by model-I (13.98 per cent) and Model-III (1.07). In case of recovery
performance model-II (83.89 per cent) achieved good recovery performance followed by
model-I (15.20 per cent) and model-III (0.911 per cent).
        The least number of members involved in Pickle and plate making (2) and least
amount lent to Papad making activities (0.3 lakhs) and least recovery performance present in
Pickle and plate making.

4.2 THE TERMS AND COST OF BORROWINGS FOR SHG’s
MEMBERS
4.2.1 Cost of borrowing for SHG's member under different models.
         The costs of borrowings for SHG’s members in borrowing micro finance first time
under different models are presented in Table 4.10. Among the different models, model-III
accounts for higher cost that is 42.5 rupees per borrower per Rs 100 borrowed at the first
time. This was followed by model-I which accounts for 39 rupees per borrower per Rs 100
borrowed and model-II accounted to 23.5 rupees per borrower per Rs 100 borrowed. Among
the components of cost, the interest rate charged was highest in model-III (13.5 per cent).
This followed by model-I, which it was 11 per cent and under model-II it was 10.5 per cent.
However there is no service charge and process charge was found in model-I and model-II,
but it was found in model-III. The other charges which include bank account opening charge
for a member found in all models, however it was highest in model-I and model-III, lowest in
model-II.
4.2.2 Terms of lending to SHG’s members under different models
          Terms of lending to SHG’s members under different models was shown in Table
4.11, which indicates period of lending, payment term, security, base of lending and interest
charges in the different models. In the case of period of lending under model-I, they provide
loan for up to 3 years and SHG’s members made monthly installment, which is based on
income generated in the activities, and they do not revise to provide security and charge 11
per cent interest. Under model-II, they provide loan minimum one year to 5 years and SHG’s
members made monthly installment which is based on income generating activities, and they
do not revise to provide security and they charge 10.5 per cent interest. In the model-III, they
provide all loans are up to 1.5 years and SHG members should payment at monthly
installment of 10 per cent of the amount borrowed, and they revised to provide bond paper,
blank cheque and personal agreement as security and lend the loans based on SHG’s
activities and charge 13.5 per cent rate interest.

4.3 PORTFOLIO OF LENDING
4.3.1 Portfolio of lending by micro finance providers
        The Portfolio of lending by micro finance providers presented under Table 4.12 and
Fig. 9, which shows that among the Portfolios dairy activity stands first which followed by
Consumption, Crop production, Vegetable marketing, Kirani shop, Tailoring, Bangle
marketing, Goat rearing, Papad making, Bakery items preparation, Poultry and Pickle making.
Table 4.10 Cost of borrowings for SHGs members in borrowing micro finance first time under different models

                                                                                                              (Rupees per borrower per Rs 100 borrowed)
                                     Model-I                                       Model-II                                      Model-III
 Sl.    Particulars
 No.      of cost       Commercial
                                        SHG      Member       NABARD         RRB        SHGs        Member       RMK      NGO         SHG    Member
                            bank

  1.    Interest cost         -          11         11             -         7.5         10.5         10.5         -       9.5        13.5     13.5

        Service
  2.                          -           -          -             -           -              -         -          -        -          10      0.50
        charge

        Process
  3.                          -           -          -             -           -              -         -          -        -          10      0.50
        charge

        Other
  4.                          -           -         28             -           -              -        14          -        -           -      28
        charge

  5.     Total Cost           -          11         39             -         7.5         10.5         24.5         -       9.5        33.5    42. 5


Note: Commercial bank lends @ 11%, NABARD lend @ 7.5%, RMK lend @ 9.5% rate of interest respectively.
Table 4.11 Terms of Lending to SHGs members under different models


 Sl.No.    Particulars           Model-I                Model-II               Model-III



                                                     Min 1 year to 5       All loans are up to
   1.                         Up to 3 years
            Period of                                    years                   1.5 years
             lending


                           Monthly installment     Installment (based     Monthly installment
            Payment
   2.                      (based on income            on income          at 10 per cent of the
              term
                          generating activities)   generating activity)    amount borrowed


             Security                                                     Bond paper, blank
   3.                               -                       -             cheque & personal
                                                                             agreement


             Base of
   4.                             SHG                     SHG              Based on activity
             lending


   5.      Interest (%)            11                     10.5                    13.5



        That Portfolio wise lending by micro finance providers, in the total number of
members (90), Dairy accounted for 24.44 per cent. This followed by Consumption (44.44 per
cent), Crop production (13.33 per cent), Vegetable marketing (11.11 per cent). The least
number of members followed activities are Bakery items production, Poultry and Pickle
making.
          In the total amount lent for the above purposes also the Dairy activity accounted for
29.17 per cent of the total amount lent by the micro finance providers. This followed by
Consumption (25.12 per cent), Crop production (14.58 per cent). The least amount lent
activities are Papad making, Bakery items making, Pickle making.
4.3.2 Model wise Portfolio of lending
        Model wise Portfolio of lending was presented in table 4.13. Among the Portfolio of
lending in the case of model-I, out of 30 members 30 per cent members are borrowed for
Dairy activities. This followed by Consumption (16.67 per cent), Vegetable marketing (10.00
per cent). The least number of members borrowed for Poultry activities. However no member
was borrowed money for Papad making, Bakery items preparations, pickle and leaf plate
making.
        The amount lent to above activities by the micro finance providers in the model-I,
Dairy activities accounted for highest that is 42.11 per cent. This followed by Crop production
(14.42 per cent), Consumption (10.14 per cent), Tailoring (9.75 per cent). The least amount
lent was for Poultry (1.95 per cent).
          Under model-II, out of 30 members 26.67 per cent members are borrowed for Dairy
activities. This followed by Consumption (23.33 per cent), Vegetable marketing (10.00 per
cent). The least number of members borrowed for Goat rearing activities. However no
member was borrowed money for Bangle marketing, Papad making, Bakery items
preparations, pickle and leaf plate making.
Table 4.12 Portfolio of lending by the Micro finance providers

                                                                                  n=90

             Portfolio/                            Total amount     Total amount of
 Sl.N                           Number of
                                                        Lent           Over dues
  o.         Activities         members
                                                   (Rs. In Lakhs)    (Rs. In Lakhs)

                                     22                  21.6             0.8
  1.    Dairy
                                   (24.44)             (29.17)          (12.01)
                                     13                  18.6            2.15
  2.    Consumption
                                   (14.44)             (25.12)          (32.28)
                                     12                  10.8             1.2
  3.    Crop production
                                   (13.33)             (14.58)          (18.02)

        Vegetable                    10                  5.3             0.44
  4.
        marketing                  (11.11)              (7.16)          (6.61)

                                      7                  5.6             1.04
  5.    Kirani shop
                                   (7.78)               (7.56)          (15.62)

                                      6                  5.25            0.32
  6.    Tailoring
                                   (6.67)               (7.09)          (4.80)
                                      6                      2           0.08
  7.    Bangle marketing
                                   (6.67)               (2.70)          (1.20)
                                      4                  2.75            0.22
  8.    Goat rearing
                                   (4.44)               (3.71)          (3.30)

                                      4                  0.3             0.05
  9.    Papad making
                                   (4.44)               (0.41)          (0.75)

                                      2                  0.5             0.08
  10.   Bakery items
                                   (2.22)               (0.68)          (1.20)

                                      2                  0.75             0.1
  11.   Poultry
                                   (2.22)               (1.01)          (1.50)
                                      2                  0.6             0.18
  12.   Pickle making
                                   (2.22)               (0.81)          (2.70)

                                     90                 74.05            6.66
  13.   Total
                                    (100)               (100)            (100)
Note: Figures in parentheses indicate percentage to total.
Fig. 8. Growth of Micro finance under different models in Dharwad district
25                                                                                                           Number of members

                                                                                                             Total amount Lent (Rs. In Lakhs)

20                                                                                                           Total amount of Over dues (Rs. In Lakhs)



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                                      Portfolio/Activities




                            Fig. 9. Portfolio of lending by the Micro finance providers


                               Fig. 9. Portfolio of lending by the Micro finance providers
Table 4.13 Model wise portfolio of lending by Micro finance providers

                                                           (Amount in Rs Lakhs)
                                 Model-I                   Model-II                   Model-III

 Sl.                    Number                     Number                  Number
          Portfolio
 No.                       of         Amount         of          Amount      of             Amount
                        members        Lent        Member         Lent     Member            Lent
                          lent                     Covered                 Covered
                             9           10.8         8             2.5        5              8.3
  1.    Dairy
                          (30.00)      (42.11)     (26.67)        (7.82)    (16.67)         (50.46)
                             5           2.6          7            15.8        1              0.20
  2.    Consumption
                          (16.67)      (10.14)     (23.33)       (49.45)    (3.33)           (1.22)
        Crop                 2           3.7          4            4.6         5              2.5
  3.
        production         (6.67)      (14.42)     (13.33)       (14.40)    (16.67)         (15.20)
        Vegetable            3           1.1          3             2.7        4               1.5
  4.
        marketing         (10.00)      (4.29)      (10.00)        (8.45)    (13.33)          (9.12)
                             2           1.5          3             3.1        2               1.0
  5.    Kirani shop
                           (6.67)      (5.85)      (10.00)        (9.70)    (6.67)           (6.08)
                             1           2.5           2             2         3              0.75
  6.    Tailoring
                           (3.33)      (9.75)       (6.67)        (6.26)    (10.00)          (4.56)
        Bangle               4           1.2                                   2              0.80
  7.                                                   -              -
        marketing         (13.33)      (4.68)                               (6.67)           (4.86)
                             3          1.75           1             1
  8.    Goat rearing                                                              -               -
                          (10.00)      (6.82)       (3.33)        (3.13)
        Papad                                                                  4              0.30
  9.                         -             -           -              -
        making                                                              (13.33)          (1.82)
                                                                               2              0.50
  10.   Bakery items         -             -           -              -
                                                                            (6.67)           (3.04)
                             1           50            2            25
  11.   Poultry                                                                   -               -
                           (3.33)      (1.95)       (6.67)        (0.78)
        Pickle and                                                             2              0.60
  12.   leaf plate           -             -           -              -
        making                                                              (6.67)           (3.65)

                             30        25.65         30           31.95        30            16.45
  13.   Total
                           (100)       (100)        (100)         (100)      (100)           (100)

  Note: Figures in parentheses indicate percentage to total.
        The amount lent to above activities by the micro finance providers in the model-II,
Consumption activities accounted for highest that is 49.45 per cent. This followed by Crop
production (14.40 per cent), Kirani shop (9.70 per cent) Vegetable marketing (8.45 per cent).
The least amount lent was for Poultry (0.78 per cent).
          Under model-III, out of 30 members 16.67 per cent members are borrowed for Dairy
activities as well as Crop production activities. This followed by Vegetable marketing and
Papad making (13.33 per cent), Tailoring (10.00 per cent). The least number of members
borrowed for Consumption activities. However no member was borrowed money for Goat
rearing and Poultry.
        The amount lent to above activities by the micro finance providers in the model-III,
Dairy activities accounted for highest that is 50.46 per cent. This followed by Crop production
(15.20 per cent), Vegetable marketing (9.12 per cent). The least amount lent was for
Consumption (1.22 per cent).

4.4 COST AND RETURNS STRUCTURE IN MAJOR ACTIVITIES
   UNDER TAKEN BY THE SHG MEMBERS
4.4.1 Cost and returns structure in Major activities
          The cost and return structure in major activities under taken by the SHG’s members
are shown in Table 4.14. Among the activities highest amount of total cost involved in Bakery
items, this accounts to Rs 2833.30. This followed by dairy and Kirani shop. The least amount
of total cost involved was in bangle marketing activities. In case of returns highest amount of
total returns involved in Bakery items which accounts to Rs 3500. This followed by Crop
production and Dairy activities. The least amount of total returns involved in Vegetable
marketing activities respectively. In case of benefit-cost ratio highest B: C ratio was found in
Tailoring which accounts to 2.55. This followed by Crop production and Papad making
activities. The least B: C ratios were found in Vegetable marketing, which accounts to 0.48.
4.4.2 Model wise cost and returns structure
        The model wise cost and returns structure in major activities under different models
were presented under Table 4.15. This indicates that the total cost in the different activities
under the different models. In the case of Dairy the B: C ratio was highest that’s 2.07 in
model-II as compared to other models, owing to least cost in this model as compared to other
models. Similarly in the case of Crop production, Vegetable marketing, Tailoring, Goat rearing
and Poultry activity was found to be higher that is 2.60, 2.05, 3.56, 2.28, and 2.10 respectively
was found to be highest. In model –II as compare to other models owing to the least cost in
model.

4.5 RECOVERY PERFORMANCE
4.5.1 Overdues position under different models
         The Overdues position of micro finance provider under different models was
presented in Table 4.16. This showed that, in aggregate, large amount of Overdues present in
Consumption activity that is 2.15 lakhs. This followed by Crop production (1.7 lakhs), Kirani
(1.04 lakhs) and Dairy (0.8 lakhs).
         Among the models, in the model-I, the Dairy activity (75 per cent) and Crop
production activity (58.33 per cent) accounted for higher Overdues compared to other models.
Similarly in model-II, Consumption activity (93.02 per cent), Kirani shop (67.31 per cent) and
Tailoring constituted higher Overdues, as compared to other models. In the case of model-III,
Vegetable marketing constituted higher Overdues compared to other models. However the
Goat rearing and Poultry activities present only in model-I and model-II and they provide
finance to them and they were having a higher overdue. Similarly Papad making and Bakery
items are only lent in model-III only and found Overdues.
          Recovery performance of different activities under different models in Dharwad
district was indicated in Table 4.16. This showed that among the activities the highest amount
of recovery was in Dairy activity the recovery performance model-III (49.04) achieved good
recovery performance followed by model-III (39.42 per cent) and model-II (11.54 per cent). In
Table 4.14 Cost and Returns Structure in major activities under taken by the SHG's members


                                                                                             Benefit -
                           Fixed      Variable                    Total         Net           Cost
 Sl.No.    Activities                              Total cost
                           cost        cost                      returns      returns
                                                                                               ratio

                             (1)         (2)       (3)=(1)+(2)      (4)     (5)=(4)-(3)      (6)=(3)/(4)

   1.     Dairy            250.00     1,666.00      1,933.00     2,863.00     930.00            1.48

          Crop
   2.                      200.00     1,500.00      1,716.00     3,190.00    1,473.00           1.86
          production

          Vegetable
   3.                      50.00       666.00        716.60      1,060.00     343.30            0.48
          marketing

   4.     Kirani shop      200.00     1,733.00      1,816.00     2,413.30     596.00            1.33

   5.     Tailoring        100.00      666.00        766.00      1,953.30    1,186.00           2.55

          Bangle
   6.                      50.00       666.00        700.00      1,166.60     466.60            1.67
          marketing

   7.     Goat rearing     100.00     1,166.00      1,333.00     2,180.00     846.60            1.64

          Papad
   8.                      50.00       833.00       1,000.00     1,800.00     800.00            1.80
          making

   9.     Bakery items     700.00     2,166.60      2,833.30     3,500.00     666.67            2.40

  10.     Poultry          100.00      1,666.0      1,733.00     2,600.00     866.67            1.50

          Pickle and
  11.     leaf plate       50.00      1,500.00      1,533.00     2,166.60     633.33            1.41
          making
Table 4.15 Model wise Cost and Returns structure in Major activities

                                           Model-I                               Model-II                       Model-III
   Sl.
            Activities                                  Benefit-                            Benefit-                        Benefit-
   No                         Total        Total                       Total     Total                 Total     Total
                                                         Cost                                Cost                            Cost
                              cost        Return                       cost     Returns                cost     Returns
                                                         ratio                               ratio                           ratio
   1.    Dairy               2320.0       2454.0          1.19         1657.1   3436.0       2.07      2450.0   3050.0       1.92
         Crop
   2.    production          2080.0       2734.0          1.33         1480.0   3828.0       2.60      1716.7   3190.0       1.28

         Vegetable
   3.                         860.0        908.0          1.09         614.3    1272.0       2.05      716.7    1060.0       1.32
         marketing
   4.    Kirani shop         2180.0       2068.0          0.95         1557.1   2896.0       1.85      1816.7   2413.0       1.40

   5.    Tailoring            920.0       1674.0          1.08         657.1    2344.0       3.56      766.7    1350..0      1.48
         Bangle
   6.                         840.0        1000           1.10           -         -           -       700.0     1166.       1.63
         marketing
   7.    Goat rearing        1600.0       1868.5          1.17         1142.9   2616.0       2.28        -         -           -
   8.    Papad making           -            -              -            -         -           -       1000.0   1800.0       1.80
   9.    Bakery items           -            -              -            -         -           -       2830.0   3500.0       2.40
         Poultry
   10.                       1800.0       2020.0          1.07         1340.0   3120.0       2.10        -         -           -

         Pickle and leaf
   11.                          -            -              -            -         -           -       1533.3   2166.0       1.41
         plate making
Table 4.16 Over due position under different models
                                                                          (Amount in Rs. Lakhs)
Sl.N                                               Amount over dues
            Activities
 o.                            Model-I         Model-II        Model-III           Aggregate
                                 0.6              0.1             0.1                  0.8
  1.   Dairy
                               (75.00)          (12.50)         (12.50)               (100)
                                  0.1              2             0.05                  2.15
  2.   Consumption
                                (4.65)          (93.02)         (2.33)                (100)
                                 0.7              0.5             0.5                  1.7
  3.   Crop production
                               (58.33)          (25.80)         (25.80)               (100)
       Vegetable                0.14              0.1             0.2                  0.44
  4.
       marketing               (31.82)          (22.73)         (45.45)               (100)
                                 0.3              0.7            0.04                  1.04
  5.   Kirani shop
                               (28.85)          (67.31)         (3.85)                (100)
                                 0.1              0.2            0.02                  0.32
  6.   Tailoring
                               (31.25)          (62.50)         (6.25)                (100)
                                                                  0.08                 0.08
  7.   Bangle marketing           -                -
                                                                 (100)                (100)
                                 0.02             0.2                                  0.22
  8.   Goat rearing                                                   -
                                (9.09)          (90.91)                               (100)
                                                                  0.05                 0.05
  9.   Papad making               -                -
                                                                 (100)                (100)
                                                                  0.08                 0.08
 10.   Bakery items               -                -
                                                                 (100)                (100)
                                0.05              0.05                                 0.1
 11.   Poultry                                                        -
                               (50.00)          (50.00)                               (100)
       Pickle and leaf                                            0.18                 0.18
 12.                              -                -
       plate making                                              (100)                (100)
                                3.21              3.85            0.85                 7.91
 13.   Total
                               (40.58)          (48.67)         (10.74)               (100)

Note: Figures in parentheses indicate percentage to total
case Consumption activity, the recovery performance model-II (83.89 per cent) achieved
good recovery performance followed by model-I (15.20 per cent) and model-III (0.911 per
cent) and among the remaining activities least recovery performance present in Pickle and
plate making.
        In case of Overdues the large amount of Overdues present in Consumption activity
(2.15 lakhs). Among the models model-II accounts large amount of Overdues (93.02),
followed by model –I (4.65 per cent), model-III (2.33 per cent). In crop production activity in
aggregate it accounts to 1.2 lakhs rupees. Under model-I have highest amount of Overdues
(58.33 per cent) followed by model-II (41.67), but model-III do not have Overdues. Among the
remaining activities, Papad making have least amount of Overdues (0.05 lakhs rupees).
4.5.2 Factors affecting the Overdues
         Factor affecting the Overdues presented in Table 4.17. This indicated that n
Overdues, impact of amount borrowed, cost of borrowing, cost of production, gross returns
and other variables are use as dummy that is for activities, Dairy activities (A1), Crop
production activity (A2), Consumption activity (A3) and other activities (A4) were considered.
Similarly, the model dummy was that for model-I (M1) and model-II (M2). The coefficient of
determination was found to be 0.814. Among the independent variables gross returns are
found to be negative (-1.698) and significant at one per cent level. Amount borrowed (0.489),
cost of production (0.379), costs of borrowing (0.411) was found to be significant at one per
cent.
       The activity dummies are found to be significant. The coefficient indicated that,
Overdues are highest in A3 (-2875.9) followed by A4 (-7763.2), A2 (-9321.9), A1 (-10521.21).
       In case of models dummy the coefficient of model-I and model-II dummy were not
only positive but also significant that is M1 (2309.69), M2 (4393.8), this means that, the
Overdues are highest in model-II followed by model-I and model-III.
4.6.1 Problems faced by SHG’s
          To analyse the problems faced by SHG’s members in micro financial activities are
analyzed by using cluster analysis by considering 15 variables. These variables are grouped
into different groups based on similarity values as shown in Table 4.18.
         Out of the 15 variables, four variables were grouped under high aggregate cluster
under model-I, namely, internal lending stage, lack of guidelines, high rate of interest and low
period of repayment with similarity values of 0.6521, 0.6378, 0.5716 and 0.5198 respectively.
The medium aggregate cluster comprised of five variables, namely, accessibility(0.4877),
improper savings (0.4121), caste system in the village/group (0.3792), restrictions in the
family (0.3116) and margin of profit is not sufficient (0.3001). Six variables were found in low
aggregate cluster, namely, lack of banking transaction (0.2713), lack of correct knowledge
regarding SHG’s (0.2435), bank account opening stage (0.2193), high transaction cost
(0.2097), conflict among the group member (0.1278) and lack of assistance from
organizations (0.1173). The SHG’s members felt in respect of high aggregate cluster namely
internal lending stage, lack of guidelines, and high rate of interest and low period of
repayment, which requires priority and to solve the problem, cluster, may be called as priority
problems to be solved. Five variables namely, accessibility, improper savings, caste system in
the village/group, restrictions in the family and margin of profit is not sufficient were observed
in the medium aggregate cluster. This cluster needs certain amount of attention for
improvement. Hence this cluster was named as problems needs to be attained for
improvement. Six variables are found in low aggregate cluster namely, lack of banking
transaction, lack of correct knowledge regarding SHG's, bank account opening stage , high
transaction cost , conflict among the group member and lack of assistance from
organizations. This cluster is called as an area of satisfaction condition.
        In model-II four variables were found in high aggregate cluster namely, low period of
repayment, high rate of interest, internal lending stage, lack of guidelines with similarity values
of 0.7918, 0.7733, 0.7455 and 0.7147 respectively. The medium aggregate cluster comprised
of five variables, namely, improper savings (0.6724), caste system in the village/group
(0.6658), restrictions in the family (0.6453) , margin of profit is not sufficient (0.6298) and lack
of banking transaction(0.2617). Six variables were found in low aggregate cluster, namely,
   Table 4.17 Factors affecting the over dues

         Sl.No.             Independent variables                  Coefficient
            1.         Constant                                     11356.73**
                                                                     (1317.8)
            2.         Amount borrowed                                0.489**
                                                                      (0.122)
            3.         Cost of production                             0.379**
                                                                      (0.241)
            4.         Cost of borrowing                              0.411**
                                                                      (0.420)
            5.         Gross returns                                 -1.698**
                                                                      (0.376)
            6.         M1(Dummy)                                    2309.69**
                                                                     (446.44)
            7.         M2(Dummy)                                     4393.8**
                                                                     (408.69)
            8.         A1(Dummy)                                   -10521.21**
                                                                    (1022.36)
            9.         A2(Dummy)                                     -9321.9**
                                                                      (755.81)
           10.         A3(Dummy)                                     -2875.9**
                                                                      (492.33)
           11.         A4(Dummy)                                    -7763.2**
                                                                    (1059.29)
           12.         R2                                             0.814**

Note: ** Significant at 1 per cent level.
        * Significant at 5 per cent level.
      Figures in parentheses indicate standard error value.
      M1-Model-I
      M2-Model-II
      A1-Dairy Activity
      A2-Crop production
      A3-Consumption
      A4-Other activity (Vegetable marketing, Kirani shop, Tailoring, Bangle marketing, Goat
            rearing, Papad making, Bakery items, Poultry, Pickle and Leaf making)
Table 4.18 Aggregation of Clusters of Variables on the Problems faced by SHG's Members in
            Micro financial activities
Aggregation              Model-I                         Model-II                       Model-III
of Clusters      Variables       Similarity       Variables       Similarity      Variables     Similarity
                                 Measures                         Measures                      Measures
   High       Internal            0.6521      Low period of        0.7918      High rate of       0.8714
              lending stage                   repayment                        interest
              Lack of             0.6378      High rate of         0.7733      Low period of      0.7918
              guidelines                      interest                         repayment
              High rate of        0.5716      Internal lending     0.7455      Internal           0.7415
              interest                        stage                            lending stage
              Low period of       0.5198      Lack of              0.7147      Lack of            0.7366
              repayment                       guidelines                       guidelines
  Medium      Accessibility       0.4877      improper             0.6724      Lack of            0.7121
                                              savings                          assistance
                                                                               from
                                                                               organizations
              improper            0.4121      Caste system         0.6658      Accessibility      0.6817
              savings                         in the
                                              Village/Group
              Caste system        0.3792      Restrictions in      0.6453      improper          0.6692
              in the                          the family                       savings
              Village/Group
              Restrictions in     0.3116      Margin of profit     0.6298      Caste system      0.6217
              the family                      is not sufficient                in the
                                                                               Village/Group
              Margin of profit    0.3001      Lack of              0.2617      Restrictions in   0.6011
              is not sufficient               banking                          the family
                                              transaction
   Low        Lack of             0.2713      Lack of correct      0.2617      Margin of         0.5991
              banking                         knowledge                        profit is not
              transaction                     regarding SHG                    sufficient
              Lack of correct     0.2435      Bank account         0.2453      Lack of           0.5712
              knowledge                       opening stage                    banking
              regarding SHG                                                    transaction
              Bank account        0.2193      High                 0.2219      Lack of           0.4176
              opening stage                   transaction                      correct
                                              cost                             knowledge
                                                                               regarding
                                                                               SHG
              High                0.2097      Conflict among       0.2176      Bank account      0.3152
              transaction                     the group                        opening stage
              cost                            member
              Conflict among      0.1278      Lack of              0.1721      High              0.3002
              the group                       assistance                       transaction
              member                          from                             cost
                                              organizations
              Lack of             0.1173      Accessibility        0.1192      Conflict          0.2154
              assistance                                                       among the
              from                                                             group
              organizations                                                    member
              Mean                0.3641      Mean                 0.4759      Mean              0.5897
              Standard            0.1762      Standard             0.2592      Standard          0.1937
              Deviation                       Deviation                        Deviation
lack of correct knowledge regarding SHG's (0.2617), bank account opening stage (0.2453),
high transaction cost (0.2219), conflict among the group member (0.2176) and lack of
assistance from organizations (0.1721) and accessibility (0.1192). The SHG’s members felt in
respect of high aggregate cluster namely low period of repayment, high rate of interest,
internal lending stage, and lack of guidelines, which requires priority attention and cluster may
be called as area of priority area of attention. Five variables namely, improper savings, caste
system in the village/group, restrictions in the family, margin of profit is not sufficient and lack
of banking transactions were observed in the medium aggregate cluster. This cluster needs
certain amount of attention for improvement. Hence this cluster was named as problems
needs to be attained for improvement. Six variables are found in low aggregate cluster
namely, lack of correct knowledge regarding SHG's, bank account opening stage, high
transaction cost, conflict among the group member and lack of assistance from organizations
and accessibility. This cluster is called as an area of satisfaction condition.
         Under the model-III four variables were found in high aggregate cluster namely, high
rate of interest, low period of repayment, internal lending stage, lack of guidelines with
similarity values of 0.8714, 0.7918, 0.7415 and 0.7366 respectively. The medium aggregate
cluster comprised of five variables, namely, lack of assistance from organizations (0.7121),
accessibility (0.6817), improper savings (0.6692), and caste system in the village / group
(0.6217), restrictions in the family (0.6011). Six variables were found in low aggregate cluster,
namely margin of profit is not sufficient (0.5991), lack of banking transaction (0.5712), lack of
correct knowledge regarding SHG's (0.4176), bank account opening stage (0.3152), high
transaction cost (0.3002) and conflict among the group member (0.2154). The SHG’s
members felt in respect of high aggregate cluster namely high rate of interest, low period of
repayment, internal lending stage, lack of guidelines with similarity values which requires
priority attention to solve the problem and cluster may be called as priority problem to be
solved. Five variables namely lack of assistance from organizations, accessibility, improper
savings, and caste system in the village / group, restrictions in the family were observed in the
medium aggregate cluster. This cluster needs certain amount of attention for improvement.
Hence this cluster was named as problems needs to attempt for improvement. Six variables
are found in low aggregate cluster namely, margin of profit is not sufficient, lack of banking
transaction, lack of correct knowledge regarding SHG’s, bank account opening stage, high
transaction cost and conflict among the group member. This cluster is called as an area of
satisfaction condition.
          In all the models, variables in high aggregate cluster are same. In the medium
aggregate cluster, in all the models improper savings, caste systems in the village/ groups,
restriction in the family are similar. However margin of profit is not sufficient found in only
model-I and model-II but not in model-III. Similarly the accessibility was found in model-I and
model-III but not in model-II. However the variables, which were not appeared in these
models, have appeared in the low aggregate cluster.
4.6.2 Problems faced by micro finance providers
         The opinion about the problems faced by micro finance providers are worked by
using percentage to their total opinions expressed by micro finance providers, are presented
under Table 4.19. This showed that in the model-I facing higher percentage problem lack of
assistance by government or any other refinancing agencies, which accounts for 100 per
cent. This followed by poor recovery (66.7 per cent) and higher amount of Overdues (66.7 per
cent). Under model-II, higher percentage of problem was lack of assistance of government or
any other refinancing agency, which accounts for 100 per cent. This followed by higher
Overdues (66.7 per cent) and bad experience of subsidy-oriented programmes (66.7 per
cent). Under the model-III, a higher percentage problem was assistance of government or any
other refinancing agency, which accounts to 100 per cent. This followed by high rate of
interest charged by the refinancing agency (66.7 per cent) and Shortage of staff/ man power
(66.7 per cent) respectively.
Table 4.19 Opinion about the Problems faced by Micro finance providers

                                                                                     n=3

                                        Model-I           Model-II       Model-III
             Problems
                                       (per cent)        (per cent)      (per cent)


 Bad experience of subsidy
                                          33.3              33.3           33.3
 oriented programmes


 High Transaction cost                    33.3              33.3           33.3


 Poor recovery                            33.3              66.7           33.3


 Shortage of Staff/man power              33.3              33.3           66.7


 Higher over dues                         66.7              66.7           33.3


 High rate of interest                    33.3              33.3           66.7


 Lack of assistance of government
                                          100               100             100
 or any other refinancing agency
                                  5. DISCUSSION
        The finding of the study, which was presented in the previous chapter, is discussed in
this chapter under the major headings to arrive at a meaningful interpretation of the findings.
5.1 Growth and Pattern of Micro finance
5.2 The terms and cost of borrowing for the SHG members
5.3 Portfolio of lending by the micro finance providers
5.4 Cost and returns structure in major activities under taken by the SHG members
5.5 Recovery performance of different activities under different models
5.6 Problems faced by SHG’s members and Micro finance providers

5.1 GROWTH AND PATTERN OF MICRO FINANCE
       The growth and pattern of micro finance in over the period in Karnataka state were
discussed below.
5.1.1 Growth in Bank linkages of SHG’s over a period of time in Karnataka
        The growth of bank linkages of SHG’s and Bank loan in Karnataka was presented in
Table 4.1. This table revealed that, the Compound growth rate of number of SHG’s linked to
the bank loan increased at the rate of 26.49 per cent and found to be significant at one per
cent level. This indicated that after 1993-94 greater emphasis was given by the banks and the
government policy to enlarge the growth in SHG’s was made this high growth rate in linking
SHG to bank. At the same time Bank loan given to SHG’s grown at the Compound growth
rate of 33.93 per cent arising to above reason. This higher growth in micro finance may be
possible because of refinance support provide by the apex level institutions of the micro
finance specially to Regional Rural Banks and Co-operative banks and NGOs.
5.1.2 Growth in Bank Linkages of SHG’s over a period of time in Dharwad
      district
         The growth of bank linkages of SHG’s and Bank loan in Dharwad district was
presented in Table 4.2. This table revealed that, the Compound growth rate of number of
SHG’s linked to the bank loan increased at the rate of 15.98 per cent and found to be
significant at one per cent level. This indicated that after 1993-94 greater emphasis was given
by the banks and the government policy to enlarge the growth in SHG’s linkage to Banks. At
the same time Bank loan given to SHG’s grown at the Compound growth rate of 13.45 per
cent arising to above reason. This higher growth in micro finance may be possible because of
refinance support provide by the apex level institutions especially to Regional Rural Banks,
Co-operative banks and NGOs. However, the rate of growth in number of SHG linked to
banks and amount of loan lent to these SHG’s in this selected Dharwad district was lower
than the state level rate of growth. This may be because of Co-operative banks were not
involved in micro financial activities in the district. Hence, in order to increase the growth in
micro financial activities the Co-operative banks which are nearer to the people has to take
the active role in linking SHG’s to banks and lend to loans to these groups to achieve higher
level of achievements in this district. The growth in Bank loan to SHG’s (13.45 per cent) was
more than the growth in number of families benefited 12.77 per cent may be because of the
SHG’s member take higher loans from the banks in order to start income generating activities.
5.1.3 Growth in Bank linkages of SHG’s by micro finance providers
          The growth in Bank linkages of SHG’s by micro finance providers in the Dharwad
district shown in Table 4.3. This table revealed that among the micro finance providers the
MG Bank has a highest annual compound growth rate of 54.71 per cent in SHG’s Bank
linkage programmes as compared to all other banks. Because these banks are basically rural
oriented banks and may be covers all of the rural villages present in Dharwad district. Among
the Commercial banks, Vijaya bank have highest annual compound growth rate in SHG’s
Bank linkage programme that is 53.49 per cent because, this bank is a lead bank in this
district. The least rate of growth in linking SHG to banks among the micro finance providers in
the district was Karnataka bank that is 16.92 per cent per annum. This may be because of the
private scheduled banks are not given much more emphasis to this activities which needs to
be motivated to link more and more SHG’s by the banks.
5.1.4 Coverage of micro finance by different micro finance providers
          Coverage of micro finance by different micro finance providers in the Dharwad district
was shown in Table 4.4. The table shows that among the micro finance providers in the
district the Commercial banks, Regional Rural Banks (MG Bank) and NGOs play an important
role in micro finance provided to SHG’s. Among these micro finance providers in the total
number of SHG’s linked to bank loan, the Regional Rural Banks covers highest area that is
66.24 per cent due to basically those banks located in rural area and were rural oriented.
Similarly these RRBs provided maximum loans to SHG’s member that is 97.03 per cent. The
above same trend was found in refinance activities that is 76.86 per cent. Coverage was
accounted by RRBs as compared to other micro financial institutions in the district owing to
the same reason mentioned in earlier sentence. However, the Commercial banks coverage
was very low that is 1.85 per cent in the district in lending to SHG’s may be because of less
spread of bank branches in the rural area. Hence there is a need to give more emphasis to
linkage of SHG’s to banks and lend to these SHG’s in this sector. Similarly, owing to less
funds and spread of NGOs also achieved less coverage.
5.1.5 Growth in total amount lent to SHG’s in Dharwad district
          The growth in total amount lent to number of SHG’s by micro finance providers are
shown in Table 4.5. this revealed that among the banks MG Bank have highest annual
compound growth rate that is 83.09 per cent per annum because it promotes large number of
SHG’s groups in all most all villages of Dharwad district, this followed by NGO (Chinyard)
which have 68.24 per cent even, there are concentrated in one taluk of district, because in
Chinyard NGO they provide good financial facilities for their SHG’s members in order to
employ income generating activities, and very much nearer to villages. Similarly among the
Commercial Banks, Vijaya bank had 63.20 per cent growth which was higher than Central
bank of India which accounts to 62.79 per cent this may be the Vijaya banks was a lead bank
in this district.
5.1.6 Growth in recovery performance of SHG’s by micro finance providers
         The growth in recovery performance of SHG’s by micro finance providers are shown
in Table 4.6. this revealed that among the banks, MG Bank have highest annual compound
growth rate 83.40 per cent per annum because it promotes large number of SHG’s groups,
made better supervision and all most all SHG’s were may be under take good income
generating activities hence, there may be had better recovery performance in the district. This
followed by NGO (Chinyard) which had 77.12 per cent recovery growth because in Chinyard
NGO they provide good financial facilities for their SHG’s members and they provide better
supervision and guidance in order to employ better income generating activities may made
possible to achieve better growth in recovery performance. Among the Commercial Banks,
Vijaya bank had a growth of recovery to the extent of 66.91 per cent per annum, Central bank
of India which accounts to 64.61 per cent which were of a major SHG’s linkage Commercial
banks in Dharwad district.
5.1.7 Growth in total amount of over dues in micro finance providers
          The growth in total amount of over dues of SHG’s in micro finance providers was
shown in Table 4.7. This revealed that among the banks, Syndicate bank have highest annual
compound growth rate in over dues which accounts for the 48.82 per cent per annum due to
poor monitoring of the promoted SHG’s groups .The same trend of growth found in State
bank of India that is 39.32 per cent However least growth in over dues that is negative found
in Bank of Baroda (-13.8 per cent) and Karnataka Bank (-5.36 per cent) because of less rate
of growth in linking number of SHG’s to the banks and amount lent to these SHG’s was low in
this district.
5.1.8 Growth of micro finance under different models
        The growth of micro finance under different models in Dharwad district, over a period
of time was presented under Table 4.8. This revealed that, in aggregate the compound
growth rate in SHG’s linkage was 19.36 per cent. Among the models, model-II have 20.86 per
cent growth rate due to very large number of SHG’s were promoted by MG Bank because of
better spread of branches in the rural areas, and good refinance was provided by NABARD. It
was followed by model-I (18.56 per cent) and model-III (10.56 per cent).
         In case of Bank loan provided to SHG, in aggregate the compound growth rate over
the period was accounted for 27.91 per cent. Among the models, model-II had 30.04 per cent
growth rate due good refinance was provided by NABARD, it followed by model-I 24.95 per
cent and model-III 23.38 per cent because of facilities availability and large number of SHG’s
linked by the MG bank compared to all other models followed in the district.
        In case of number of families assisted, among the models model-II had 22.44 per
cent growth rate due to very large number of SHG’s were promoted by MG Bank hence, large
number of families were benefited. It followed by model-I (18.56 per cent) and model-III
(10.56 per cent), may be due to less number of SHG’s linked because of less spread of the
Commercial banks and NGOs in the district in micro financial activities.
5.1.9 Pattern of micro finance provided to different activities
          Pattern of micro finance provided to different activities under different models in
Dharwad district were indicated in Table 4.9. This showed that, there were 12 activities were
under taken by the members. Among the activities under taken in aggregate, large number of
members that is 22 members under taken Dairy activities may be because of better resource
base of members for Dairy activities in the rural area. This followed by Consumption and Crop
production activities which are very much required and suitable for owing to their assets and
income. Among the model, in model-I, the coverage of Dairy activities (40.91 per cent),
Bangle marketing (66.67 per cent) and Goat rearing activities (75 per cent) were found to be
higher as compared to all other models, this may be because of the Commercial banks found
it easy for lending and monitoring these activities in a better way and may be thought of better
income generating activities and advised the SHG’s to tend to these activities. Similarly, in
model-II, the coverage was higher in Consumption activities (53.85 per cent), Kirani shop
(42.86 per cent) and Poultry (66.67 per cent) compared to all the models. This may be due to
nearness of these micro finance providers (MG bank) to members which may facilitated to
monitor the utilization of loan and recovery taken the risk of SHG’s lending to these activities.
In the model-III, Crop production activities (45.45 per cent), Vegetable marketing (40 per cent
), Tailoring (50 per cent ), Papad making (100 per cent ), Bakery item making (100 per cent )
and Pickles and leaf plate making (100 per cent ) activities were found to be high when
compared to in other models. This may be because of NGOs are working very close to SHG’s
and encourage to take other activities which are non traditional to the village women flock,
hence it encourage the member to under take these activities.
          In case of total amount lent among the activities, under taken by the SHG’s members,
in aggregate, large amount lent to Dairy activities (21.6 lakhs) may be because of large
number of SHG’s members are employed in Dairy activities in the rural area. This followed by
Consumption and Crop production activities, due to, coverage of large number of SHG’s
members in these activities because of their assets position other cash needs. Among the
models, in model-I the total amount lent to Dairy activities (50 per cent), Tailoring (47.62 per
cent), Bangle marketing (60 per cent), and Goat rearing (63.64 per cent). Poultry (66.67 per
cent) were found to be higher as compare to other models. This may be because of the
Commercial banks found it easy for lending and monitoring these activities in a better way
and may be thought of better income generating activities and advised the SHG’s to tend to
these activities. Similarly, in models-II, the total amount lent was higher in Consumption
activities (84.95 per cent) as compare to other models, this may be because of all promoted
SHG’s under model-II were present in rural area, so they take loan for their personnel uses
than the employing other generating activities and also due to less rate of interest and
presence of poor farmers families they take loans for their Consumption purpose on one hand
and Regional Rural Banks were well versed with needs of the members and in term of
recovery. In the model-III the total amount lent was higher in Crop production (42.59 per
cent), Vegetable marketing (50.94 per cent), Kirani shop (55.35 per cent), Papad making (100
per cent), Bakery items(100 per cent) and Pickle and leaf plate making(100 per cent) as
compare to other models, this may be because of NGOs lending was based on type of
activities under taken by their SHG’s members , so that they want to achieve good recovery
performance and also they encourage their SHG’s members to under take different non
traditional type of activities to generating income.
         In case of total amount recovered by the SHG’s members, among the activities under
taken, in aggregate, the large amount of recovery was takes place in Dairy activities that is
20.89 lakhs, may be because of large income generated by Dairy activities in rural area. This
followed by Consumption activity and Crop production activities because of members are very
much aware of repaying the loans. Among the models, in model-I, the recovery performance
in Dairy (49.04 per cent), Tailoring (49.68 per cent), Bangle marketing (62.50 per cent), Goat
rearing (68.38 per cent),Poultry (69.23 per cent) were found to be higher as compared to all
other models. This may be because of only selected SHG’s for which amount was lent
keeping in view of the better and active SHG’s. Similarly, in model-II, the recovery
performances in Consumption (83.89 per cent) were found to be higher as compared to all
other models. This may be due to RRBs promoted SHG’s much aware of repaying the loans
to their banks and banks are very well in touch with the clients, so that, they got higher
amount of Consumption activity. In the model-III, the recovery performance in Crop
production (42.70 per cent), Vegetable marketing (53.49 per cent), Kirani shop (52.63 per
cent), Papad making (100 per cent), Bakery items (100 per cent) and Pickle and leaf plate
making (100 per cent) were found to be higher as compare to all other models, this may be
because of the activities under taken by the NGOs promoted SHG’s were monitored day
today so, they have better recovery was achieved.

5.2 THE TERMS AND COST OF BORROWINGS FOR SHG’s
MEMBERS
5.2.1 Cost of borrowings for SHG’s members
        Cost of borrowing for SHG's member in borrowing rupees 100 micro finance first time
under different models is presented in Table 4.10. Among the different models, model-III
accounts for higher cost that is 42.5 rupees per borrower per Rs 100 borrowed at first time,
this was because it includes rupees 13.5 rupees interest, 0.50 paise service charge, 0.50
paise process charge and other charge 28 which was higher than any other models. But in
model-I it accounts rupees 39 which was higher than model-II, though there is here there is
no service charge, process charge. This was mainly because of higher rate of interest. Where
as the model-II accounts for rupee 23.5 and it also does not have service charge, process
charge.
          The cost in all the models found to be higher because for rupees 100 borrowed will
have cost from rupees 23.5 to rupees 42.5, which is almost 24 per cent to 43 per cent cost in
borrowing. Therefore, there is need to reduce the cost of borrowing to these poor and small
activities oriented SHG’s groups to grow at higher level. This may made by reducing the rate
of interest to the level of 4 per cent as it was followed for agriculture finance in Co-operatives
as one hand and on the other the bank account opening charges in case of model-III RMK to
Commercial banks to NGOs to members.
5.2.2 Terms of lending to SHG’s members
         Terms of lending to SHG’s members under different models was shown in Table
4.11, which indicates period of lending, payment term, security, base of lending and interest
charges by under different models. In case of period of lending under model-I, they provide
loan for up to 3 years and SHG’s members made monthly installment which is based on
income generating activities, and they do not required to provide security but they lend the
loans based on SHG’s priority and they charge 11 per cent interest. Under model-II, they
provide loan minimum one year to 5 years and SHG’s members made monthly installment
which is based on income generating activities, and they do not required to provide any
security but they lend the loans based on SHG’s priority and they charge 10.5 per cent
interest. Under model-III, they provide all loans up to 1.5 years and SHG’s members made
monthly installment which is based on 10 per cent of the amount borrowed, and they provide
bond paper, blank cheque and personal agreement as security but they lend the loans based
on SHG’s activities and they charge 13.5 per cent interest. This indicated that there is
uniformity in the terms of lending to SHG’s, hence in order to credit easy flow of credit to
SHG’s uniform terms are to be evolved in micro financial activities.
5.3 PORTFOLIO OF LENDING
5.3.1 Portfolio of lending by micro finance providers
        The Port-folio of lending by micro finance providers presented under Table 4.12,
which shows among the port-folios dairy activity stands first followed by Consumption, Crop
production, Vegetable marketing ,Kirani shop, Tailoring, Bangle marketing, Goat rearing,
Papad making, Bakery items preparation, Poultry and Pickle making respectively. The micro
finance providers lent highest amount (29.17 per cent) to dairy activities where 24.44 per cent
of members engaged in that activity due to more amount required for this activity. Similarly
14.44 per cent of members take loan for consumption purpose accounting for 25.12 per cent
of amount lent by micro finance providers may be because more cash needs for the
members. In case of crop production 13.33 per cent of member take loan which accounts to
14.58 per cent of amount lent by micro finance providers. The least amount is provided to
pickle making activities that is 0.81 per cent because of low amount required for this activity.
In case of amount of over dues by the different portfolios the higher amount of over due
occurred in consumption activity which accounts to 32.28 per cent to the total amount of over
dues. This followed by Crop production which had 18.02 per cent and Kirani shop (15.62 per
cent). The least over dues occurred in Papad making which accounts to 0.75 per cent
respectively.
5.3.2 Model wise portfolio of lending
         The model wise portfolio of lending by micro finance providers are show in Table
4.13, which shows that among the models model –I provides highest amount of finance to
dairy activity which accounts to 42.11 per of the total because large number of members
borrowed and provided by Commercial banks and least amount to Poultry rearing activity that
is, 3.33 per cent of the total may be because of less number of persons to these activity.
Under model-II highest amount of finance to Consumption purpose activity which accounts to
49.45 per of the total because of members required more for this activity. The least amount to
Poultry rearing activity that is, 0.78 per cent of the total using to greater skills of members in
this activity because very less member borrowed the amount for this activity. Model-III
provides highest amount of finance to dairy activity which accounts to 50.46 per of the total.
The least amount to Papad making activity that is, 1.82 per cent of the total due to less
number of members borrowed for this activity.

5.4 COST AND RETURNS STRUCTURE IN MAJOR ACTIVITIES
    UNDER TAKE BY THE SHG’s MEMBERS
5.4.1 Cost and returns structure in Major activities
          The cost and returns structure in major activities under taken by the SHG’s members
are shown in Table 4.14. Among the activities highest amount of total cost involved in Bakery
items which accounts to Rs 2833.30 followed by dairy and Kirani shop respectively may be
owing to higher ingredient costs. The least amount of total cost involved in bangle marketing
activities where no much money was required. In case of returns highest amount of total
returns involved in Bakery items which accounts to Rs 3500.0 due to higher money for bakery
products followed by Crop production and Dairy activity owing to above reason. The least
amount of total returns involved in Vegetable marketing activities because of perishability of
the product, the losses are more in this activity and leads to less returns. In case of benefit-
cost ratio highest B: C ratio was found in Tailoring which accounts to 2.55 owing to higher net
returns in service activities. This followed by Crop production and Papad making activities
owing better returns. The least B: C ratio was found in Vegetable marketing which accounts to
0.48 because of less returns in this activity.
5.4.2 Model wise cost and returns structure
          The model wise cost and returns structure in major activities under different models
were presented under Table 4.15. The table indicated that the benefit cost ratio for all the
activities were highest in model-II compared to all other models owing to least cost involved in
this activity compared to other models. Among the activities, the B:C ratio has found in
Tailoring activity of model-II compared to all other activities, this was because of the Tailoring
activity requires less material cost and it was mainly a service activity, hence the B:C ratio
was higher compared to al other activities. The least B: C ratio, in model-I and model-II was
found in Kirani shop may be it was least in Crop production activity in model-III may be
because of NGOs are less trained in guiding the members in crop production activities and
well versed with non traditional activities, the cost may be higher in this activity in this model
as compared to other models.

5.5 RECOVERY PERFORMANCES OF MODELS
5.5.1 Over dues position under different models
         The Over dues position of micro finance provider under different models were
presented in Table 4.16. this showed that, at aggregate level irrespective of models, large
amount of over dues were found in Consumption activity(2.15 lakhs), Crop production activity
(1.7 lakhs), Kirani shop (1.04 lakhs) and Dairy (0.8 lakhs) in that order. This higher over dues
in these activities may be due to use of money for non production activities in Consumption
and more costs in other activities, such as Crop production, Kirani shop and Dairy tend to
more over dues.
         Among the models, Dairy and Crop production activities having higher over dues in
the model-I as compare to other models. This may due to less monitoring by the micro
finance providers and more cost incurred by the producers resulted in more over dues in this
model. Similarly, Consumption activity, Goat rearing and Tailoring activities represented
higher over dues in model-II compared to other models owing to the similar reasons explained
earlier.
        The Vegetable marketing constitutes higher over dues in model-III compared to other
models, because of more perishable in nature and causing higher cost may lead to higher
over dues in this activity in this model. However other remaining activities amount lent only in
one model or two models only to one or two members, which was received less attention by
the micro finance providers hence over dues in this activities may be takes place.
5.5.2 Factors affecting the over dues
        Factors affecting the over dues showed in the Table 4.17. This revealed that the
independent variables explained 81.4 per cent of the variations in the over dues. Further the
model dummies indicated that the coefficient of model-I (2309.69) and model-II (4393.8),
dummy was not only positive but also significant. This explained that, over dues are highest in
model-II followed by model-I and model-III, this is because of, in model-III, that is, NGO
working very close to the SHG members have there may be low over dues contribution and
advocated non traditional activity under taken by the members and guided them. Hence,
contribution of over dues by this model is less than the other models. However contributions
to Overdues were more in the model –II because the Regional rural banks mainly lend to the
consumption activity in which income generation may be low, it may lead to more overdues.
Hence, care should be taken by these institutions in guiding these SHG’s to take better
earning activities and reduces the Overdues.
         The activities dummies were found to significant. These coefficients were indicated
that over dues are higher in Consumption (-2875.9), followed by other activities (-7763.2),
Crop production (-9321.9) and Dairy activity (-10521.21). This explained that contribution to
over dues were lowest from Dairy activity compare to other activities, because Dairy activities
give rise to regular daily income hence, regular payment made by the SHG members. The
coefficient of other members such as amount borrowed 0.489), cost of production (0.379),
cost of borrowing (0.411) were positive and significant, this indicated that as amount
borrowed, cost of production and cost of borrowing increases, the over dues are also
increases significantly, hence contributions of these variables to over dues are also more.
However the gross return coefficient indicated negative and significant contribution to over
dues. This indicates that as the gross returns increases the over dues decreases and vice
versa, hence if the income generated from the considered activities are good, contribution to
Overdues will be less.
5.6 PROBLEMS FACED BY SHG’s MEMBERS AND MICRO
   FINANCE PROVIDERS
5.6.1 Problems faced by SHG’s
         The problems faced by the beneficiaries as indicated in 4.18, showed that, in the
higher aggregate cluster in all the models are same, that is internal lending, lack of guidance,
high rate of interest and low period of repayment. This may be because of non existence of
guidelines for the distribution of loan amount among the members at the internal stage of
lending, lack of guidance in under taking of different activities by micro finance providers, high
rate of interest and low period of repayment were the problems faced by the members. Hence
this cluster may be called as area of immediate attention by the micro finance providers.
          In the medium aggregate cluster, in all the models, improper savings, caste system in
the village group, restrictions in the family are similar. This indicated that above problem
variable were mainly because of social conflicts and characters in the rural area. Hence, the
social awareness and advantages of co-operation has to be appraised in terms in attaining
better standard of living. This cluster may be called as social conflicts awareness cluster, in
which the suitable activities are to be taken by micro finance providers. However, margin of
profit is not sufficient found in medium cluster of model-I and model-II because activities
under taken were given less margin which needs to be guided in management of these
activities and advocate the other better income generating activities.
5.6.2 Problems faced by micro finance providers
         The opinion about the problems faced by micro finance providers presented under
Table 4.19. This revealed that, among the models, in model-I, they face problem of lack of
assistance by the government for the SHG’s formed by the micro finance providers or any
other refinancing agencies (100 per cent), such as government programmes. The other
problems are shortage of staff/ man power (66.7 per cent). Higher Overdues (66.7 per cent)
was a problem because of less staff to monitor the activities. This may be because of due to
lack of support or assistance from the government that discourage to under take micro
financial activities. Same problems are expressed in model-II and model-III owing to the
above reason.
           6. SUMMARY AND POLICY IMPLICATIONS
INTRODUCTION
          Micro finance 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 has come to be 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.
          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
since 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 or 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 world’s poor into the rapidly evolving
global market system, the Consultative Group to Assist the Poorest (CGAP) estimates that
microfinance probably reaches fewer than 5% 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
world’s 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 other wise be 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 emergency with only qualification that
transaction value is small and customers are poor.
         In 1992 NABARD lunched IRDP programme and it 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 the 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’.
         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 leveled 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.
    Delivery models of micro finance
       The delivery of micro finance was made through different models such as,
1. Model-I: Commercial bank -------SHG------Members
2. Model-II: NABARD-------Regional Rural Bank ------SHG------Members
3. Model-III: RMK --------NGO ------ SHG------Members
         Micro finance institutions (MFIs) were exploiting the poor by charging high rate of
interest and intimidating the borrowers with forced loan recovery practices. The recent
suicides by more than 60 SHG members in Andhra pradesh and went unnoticed admits the
spate of farmers suicides in Vidarbha, because of high rate of interest. Therefore in Andhra
pradesh state the district authorities close down 50 branches of two major micro financial
institutions.
        Incidence of indebtedness was reported to be about 27 per cent among rural
households, predominantly in rural areas of Andhra Pradesh, Kerala, Rajasthan and
Karnataka. The performance of micro finance through different models has their own impact
on beneficiaries and lenders. However in some models the loans become a burden on
beneficiaries and in some models facilitated to increase their income and livelihood. Hence,
the study is under taken to asses the model in flow of credit- in micro finance to the
borrowers. Keeping this in view the following specific objectives framed for the detailed study.
    The specific objectives of the study are
1) To study the growth and pattern of micro finance in the selected district.
2) To study the Terms and Cost of borrowing in different models of micro finance service
   providers from apex level institutions to target groups.
3) To analyze the port-folio of lending by the Micro finance providers.
4) To analyze the cost and returns structure in major activities under taken by the
   beneficiaries.
5) To study the recovery performance under different models in the different purposes
   activities.

6) To analyze the problems faced by target groups, micro finance service providers and
   banks in micro-financial activities.

    Methodology
      The multi stage random sampling was followed. Pertaining to various aspects under the
study was collected from the secondary source, that is related to amount lent under micro
financial activities to the SHGs in the state, number of SHGs linked to bank, amount of
recovery, over dues and cost of borrowing and terms and conditions involved in micro
financial activities were collected for the district as well as for the state for the year from 1992-
1993 to 2005-06 from various sources.
          The primary data with respect to purpose wise port –folio lending by SHG’s / Micro
finance providers, utilization pattern of borrowed funds by the target groups, rate of interest,
service charges and other costs involved in borrowings, cost and returns involved in each
activities under taken by the beneficiaries from the funds borrowed by, recovery performance
and problem faced by target groups, banks and other micro finance service provider in micro
finance activities were will be collected from the target groups for the year 2005-06 with the
help of pre-tested questionnaire and analysed by using cluster analysis.
Findings of the study
        Compound growth rate of number of SHGs linked to the bank loan increased at the
rate of 15.98 per cent in state of Karnataka, this higher growth in micro finance may be
possible because of refinance support provide by the apex level institutions of the micro
finance specially to Regional Rural Banks and Co-operative banks and NGOs
        This higher growth in SHGs bank linkages in micro finance may be possible in
Dharwad district because of refinance support provide by the apex level institutions especially
to Regional Rural Banks, Co-operative banks and NGOs. However, the rate of growth in
number of SHG linked to banks and amount of loan lent to these SHGs in this selected
Dharwad district was lower than the state level rate of growth. This may be because of Co-
operative banks were not involved in micro financial activities in the district.
        There were 11 micro finance providers in the district. Among the micro finance
providers among the micro finance providers the MG Bank has an highest annual compound
growth rate of 54.71 per cent in SHGs Bank linkage programmes as compared to all other
banks. These banks are basically rural oriented banks and may be covered all in the villages
present in Dharwad.
         The growth in amount lent and recovery performance of SHGs by micro finance
provider, MG Bank have highest annual compound growth rate of 83.40 per cent per annum
because it promotes large number of SHGs groups, better supervision and all most all SHGs
were may be under taken good income generating activities. This followed by NGOs (77.12
per cent), Vijaya bank (66.91 per cent) Central bank of India (64.61 per cent). However, the
rate of growth in recovery in the district found to be low in the Bank of Baroda
          Among the activities under taken in aggregate, large number of members that is 22
members under taken Dairy activities may be because of better resource base of members
for Dairy activities in the rural area. This followed by Consumption and Crop production
activities which are very much required and suitable owing to their assets and income.
         The Cost and Terms of lending in all the models found to be higher because for every
rupees 100 borrowed will have cost from rupees 23.5 to rupees 42.5, which is almost 24 per
cent to 43 per cent cost in borrowing. The rate of interest varies from 10.5 per cent to 13.5 per
cent. Cost of borrowing for SHG's member in borrowing rupees 100 micro finance first time
under different models, among the different models, model-III accounts for higher cost that is
42.5 rupees per borrower per Rs 100 borrowed at first time, this was because it includes
rupees 13.5 rupees interest, 0.50 paise service charge, 0.50 paise process charge and other
charge 28 which was higher than any other models. But in model-I it accounts rupees 39
which was higher than model-II, though there is here there is no service charge, process
charge. This was mainly because of higher rate of interest. Where as the model-II accounts
for rupee 23.5 and it also does not have service charge, process charge.
         The port-folios of lending of micro finance providers, the dairy activity stands first
which followed by Consumption, Crop production, Vegetable marketing, Kirani shop,
Tailoring, Bangle marketing, Goat rearing, Papad making, Bakery items preparation, Poultry
and Pickle making. That port-folio wise lending by micro finance providers, in the total number
of members (90), Dairy accounted for 24.44 per cent.
        Among the activities, the amount of over dues found to be in Consumption (2.15
lakhs) because the members enable to repay their loan, and it was followed by Crop
production (1.7 lakhs) and Kirani shop (1.04 lakhs).
        The cost benefit ratios for all activities were highest in model-II compared to all other
models, owing to least cost involved in these activities in model-II. Among the activities, the
higher B:C ratio has found in Tailoring activity of model-II because it required less material
cost and it was mainly a service activity. The least B: C ratio in model-I and model-II was
found in Kirani shop may be because of less margin in these activities.
        The large amounts of over dues were found to be highest in model-II owing to large
amount of finance and coverage followed by model-I and model-III, It is less in model-III
because of NGOs they are very much nearer and involved every day with the SHGs members
and close to them.
        Over dues are highest in model-II followed by model-I and model-III, this is because
of, in model-III, that is, NGO working very close to the SHG members have there may be low
over dues contribution and advocated non traditional activity under taken by the members and
guided them. Hence, contribution of over dues by this model is less than the other models.
However contributions to Overdues were more in the model –II because the Regional rural
banks mainly lend to the consumption activity in which income generation may be low, it may
lead to more overdues. Hence, care should be taken by these institutions in guiding these
SHG’s to take better earning activities and reduces the Overdues.
        Contributions to over dues were lowest from Dairy activity compare to other activities,
because Dairy activities give rise to regular daily income hence, regular payment made by the
SHG members. The coefficient of other variables such as amount borrowed 0.489), cost of
production (0.379), cost of borrowing (0.411) were positive and significant, this indicated that
as amount borrowed, cost of production and cost of borrowing increases, the over dues are
also increases significantly, hence contributions of these variables to over dues are also
more. However the gross return coefficient indicated negative and significant contribution to
over dues. This indicates that as the gross returns increases the over dues decreases and
vice versa, hence if the income generated from the considered activities are good,
contribution to overdues will be less.
         The cluster analysis about the among the problems faced by the SHGs the rate of
interest charged by the micro finance providers were found to be very high followed by lack of
guidelines, improper savings and internal lending stage at SHG's level.
        Among the problems faced by the micro finance providers the lack of assistance by
the government or any other refinancing agencies were found to be highest, followed by poor
recovery, and lack of staff members.

POLICY IMPLICATIONS
  1.   The rate of growth in SHG bank linkage and amount lent was lower in Dharwad district
       compared to state level due to non involvement of Co-operatives in this activity in the
       district. Therefore, Co-operative banks should be strengthen in order to provide micro
       finance and to expand its coverage in the district..
  2.   The SHGs members were mainly undertaken the activities, under micro finance lent,
       there is a need to undertake non-farm and service activities in which there is a greater
       scope for employment and income generation. Hence SHGs should under take skill
       development activities coupled with hands on training in the above activities in
       collaboration with NGOs or entrepreneur-ship development programme (EDP)
       organizations of the government.
  3.   SHG's members were facing the problem in internal lending stage and improper
       savings at SHGs level. Hence micro finance providers should evolve the guidelines for
       distribution of loan to members at the SHGs level.
  4.   The contribution to overdues was more in the model-II (amount lend through RRBs)
       due to more amounts lend to Consumption activities. Therefore care should be taken
       while lending to Consumption activities by shifting priority from Consumption to
       education activities.
  5.   The cost of borrowing was high in model-III that is to SHGs lending due to higher rate
       of interest which needs to reduced by NGOs on one hand and reduce the interest rate
       to 4 per cent by the micro finance providers to SHGs because these loans are used by
       poor and small activity undertaker’s in the rural areas.
  6.   There is no uniformity in terms of lending to SHGs. Hence to achieve easy credit flow
       to SHGs uniform terms are to be evolved by the micro finance providers.
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                                           APPENDIX

                               INTERVIEW SCHEDULE

General Information (A)                                          Respondent No:

   1) Name of the respondent

   2) Village:                              Taluk:                          District:

   3) Name of the SHG to which you belong:

   4) Age                                              :

   5) Caste                                                :

   6) Livelihood activities           - Main       :
                                       - Subsidiary:

  7) Type of Family                                            : Nuclear/Joint

  8) Family size                                 (<5 Member)-Small
                                                  (>5 Member)-Large
  9) Number of Family Members

                      ADULT                                                 CHILDREN
              Men’s                   Women’s                       Boys                 Girls




  10) Age of the Family Member’s

                      Member                                           Age
                       Men’s
                      Women’s
                       Boys
                       Girls

11) Education of Family Members:

    Member            illiterate             Primary               High           PUC       Degree and
                                                                  school                      above
  Men’s
  Women’s
  Boys
  Girls

12) Land holding:

   Landless               Irrigated             Dry Land                   Garden Land           Total


13) Employment Status:
 Main Source of              No. of Member’s Employed in a                   No. of days employed in a year
 Employment                  Family
Agriculture
Dairy
Sheep rearing
Goat rearing
Poultry
Pickle making
Papad making
Bakery items
TV, Redio repair
Other(Specify)
1.
2.
3.
4.
5.

14) Income:

       From main source            From other source                       Total
                                       (Specify)


B. Awareness of SHG

1) When did you come to know about the concept of SHG?

2) Who told you about this for the first time?

3) From whom did you get all the details regarding SHG?

4) Who influenced you to join the group?

5) With what expectations did you join the       Financial security
group? (Please tick)                             Enhancement in status
                                                 Increase in self esteem
                                                 For attainment of power
                                                 Any other(Specify):




(1) Performance of micro finance in Dharwad SHG-Bank Linkage :( 1992-93 TO 2005-06)
  Year           Bank of India              Bank of Baroda              Canara Bank
1992-93 No. of Amt         Amt     Ov No. of Amt     Amt   Ove No. of Amt       Amt   Ove
           SHG . lent recove       er   SHG . lent recov     r    SHG . lent recov     r
           Linke            d     due Linked          ed   due Linke             ed   due
             d                      s                       s       d                  s
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2001-02
2002-03
2003-04
2004-05
2005-06
As on
31
March
2006
 Year          Corporation Bank          Central Bank of India        Indian Oversea Bank
1992-93   No. of Amt      Amt   Ov    No. of Amt     Amt     Ove   No. of Amt     Amt   Ove
          SHG . lent recove      er    SHG . lent recov        r   SHG . lent recov       r
          Linke            d    due   Linked          ed     due   Linke           ed   due
            d                    s                             s     d                    s
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2001-02
2002-03
2003-04
2004-05
2005-06
As on
31
March
2006
 Year           Karnataka Bank               K.V.G Bank              Punjab National Bank
1992-93   No. of Amt     Amt   Ov     No. of Amt    Amt     Ove    No. of Amt    Amt    Ove
          SHG . lent recove     er     SHG . lent recov      r     SHG . lent recov      r
          Linke           d    due    Linked         ed     due    Linke          ed    due
            d                   s                            s       d                   s
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2001-02
2002-03
2003-04
2004-05
2005-06
As on
31
March
2006
 Year           Syndicate Bank              State Bank of India             UCO Bank
1992-93   No. of Amt     Amt   Ov      No. of Amt      Amt     Ove   No. of Amt  Amt      Ove
          SHG . lent recove     er      SHG . lent recov        r    SHG . lent recov      r
          Linke           d    due     Linked           ed     due   Linke        ed      due
            d                   s                               s      d                   s
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2001-02
2002-03
2003-04
2004-05
2005-06
As on
31
March
2006
 Year         Union Bank of India             Vijaya Bank                 ING Vysya Bank
1992-93   No. of Amt    Amt       Ov   No. of Amt     Amt     Ove    No. of Amt    Amt   Ove
          SHG . lent recove       er    SHG . lent recov       r     SHG . lent recov     r
          Linke           d      due   Linked          ed     due    Linke          ed   due
            d                      s                           s       d                  s
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2001-02
2002-03
2003-04
2004-05
2005-06
As on
31
March
2006
 Year
1992-93   No. of Amt     Amt     Ov    No. of Amt      Amt    Ove    No. of Amt    Amt    Ove
          SHG . lent    recove    er    SHG . lent    recov    r     SHG . lent   recov    r
          Linke            d     due   Linked           ed    due    Linke          ed    due
            d                     s                            s       d                   s
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2001-02
2002-03
2003-04
2004-05
2005-06
As on
31
March
2006
Source: Vijaya Lead Bank, Hubli

Growth of micro finance in Dharwad SHG-Bank Linkage (1992-93 TO 2005-06)

     YEAR         No of SHGs         Bank loan         No of      Average        Average
   (Financial)     financed          (Rs lakh)        Families    Loan per       Loan per
                                                      Assisted    SHG(Rs)       Family(Rs)
 1992-93
 1993-94
 1994-95
 1995-96
 1996-97
 1997-98
 1998-99
 1999-2000
 2001-02
 2002-03
 2003-04
 2004-05
 2005-06
 As on 31
 March 2006
Source: NABARD Branch office, Dharwad.

Models to which you belong?

    •   NABARD              RRBs          SHGs            Members.

    •   RMK                 NGO            SHGs            Members.

    •   RRBs                  SHGs          Members.

    •   Commercial bank                SHG’s           Members.


2) To study the Terms and cost of borrowing in different models of micro finance service
providers from apex level institutions to target groups.

Quantum of loan advanced by different agencies:

Different Agencies       No of         Total amount      Frequency of   Max.amount limited
                         SHGs               lent          repayment          to each
                                                                        SHG      Individual
        RMK
        RRBs
   Commercial bank
  Co-operative bank
         NGOs
Terms of Lending by the Agency to Borrowers
                Particulars              Commercial      RRBs                RMK(NGO)
                                            Bank
1.Period of lending
i.Short term
ii.Medium term
iii.Long term
iv.Other
2.Payment Term
I. Single payment
ii.Amotised payment
iii.Period of payment
(weekly/monthly/quarterly/half
yearly/annually)
iv.Other
3.Security                                                        Bond paper,Blank
i.Personnal security                                              cheque,Oppige patra
ii.Colateral
iii.Mortigage of assests
iv.Other
4.Interest term
i.Rate of interest                                                13% flat
iiShort term
iii.Medium term
iv.Long term
v.Over dues
vi.Other
5.Purpose term
i.Agriculture
ii.Cottage industry
iii.SHGs priority
iv.Other

Cost involved in Lending to SHG members under different Models

MODEL-I
  Particulars of   NABARD         RRBs            SHG              Members               Total
       cost
Interest rate             -       6.5%           10.5%                 10.5%               -
Service charge            -         -              -                      -                -
Process charge            -         -              -                      -                -
Other charges             -         -              -                     -                 -
A.                        -    a/c opening         -                     -                 -
B.                                 amt
C.                        -         -               -                    -                 -
D.                        -         -               -                    -                 -
                          -         -               -                    -                 -
Total                     -         -               -                    -                 -
MODEL-II
  Particulars of    RMK         NGO           SHG            Members             Total
       cost
 Interest rate        -          9%          11% Flat            11%               -
 Service charge       -       100/-Seva         -                 -                -
                                shulka
 Other charges           -            -               -                 -                   -
 A.
 B.
 C.
 D.
 E.
 Total

MODEL-III
    Particulars of           RRB                SHG            Members                  Total
         cost
 Interest rate
 Service charge
 Other charges
 A.
 B.
 C.
 D.
 E.
 Total

MODEL-IV
    Particulars of      Commercial              SHG             Members                 Total
         cost             bank
 Interest rate                            11%              11%
 Service charge
 Other charges
 A.
 B.
 C.
 D.
 E.
 Total

MODEL-V
 Particulars of cost   NGO            SHG                  Members                  Total

 Interest rate
 Service charge
 Other charges
 A.
 B.
 C.
 D.
 E.
 Total
Source: Agencies involved in Lending

3) To analyse the cost and returns structure in different purposes of activities.

What are the activities started by the individual after joining the group. (2006-07
     Activity Agriculture Dairy Sheep             Goat      Poultry    Pickle   TV,Redi         Othe
                                       rearin    rearin               making o repair             r
                                         g          g
 Fixed cost
 i.
 ii.
 iii.
 Variable
 cost
 i.
 ii.
 iii.
 Marketing
 cost
 Other cost
 Total cost
 Quantity
 Produced
 Quantity
 sold
 Selling
 price per
 unit
 Total
 returns
Source: Secondary data from pertaining agencies


4) To analyze the port-folio of lending by the Micro finance providers.

   Port              RRB linked SHG               Commercial bank             NGO linked SHG
   folio                                               linked
                                                        SHG
 Agricult   No. of    Amt      Amt      Amt    No. of A Amt Amt            No.      A       Amt     Amt
   ure      mem       lent   recover   overd   mem mt reco overd             of     mt    recover   over
             ber                ed      ue      ber   le vere   ue         me      lent     ed      due
             lent                               lent  nt    d             mbe
                                                                          r lent
 Dairy
 Sheep
 rearing
 Goat
 rearing
 Poultry
 Papad
 making
 Bakery
 items
 TV,Redi
 o repair
 Other
 1.
 2.
 3.

6. To analyze the problems faced by target groups, micro finance service providers and banks
    in micro-financial activities.

Problem faced                   Commercial Bank             RRBs                          NGOs
1.Poor recovery                Low Moderate High      Low   Moderat   High         Low    Moderat   High
                                                              e                             e
2.Rush at a time
3.Service to SHG
required more time
4.Amt of business with
SHG’s are not large for
transaction
5.No. of customers
service is more when
compared to many of
business
6.High transaction cost
7.Shortage of staff to
service SHG’s
Other

Problems faced in micro-financial activities.

           Problems                             SHG                Members

Formation stage                    Low     Moderate   High   Low   Moderate   High
Bank account opening stage
Internal lending stage
At the time of credit linkage
Lack of guidelines
Other problems if any
High rate of interest
High transaction cost
Low period of repayment
Other problems (if any)
1.
2.
3.
4.
  CREDIT FLOW MANAGEMENT IN MICRO FINANCE –
            AN ECONOMIC ANALYSIS

BHAGYALAXMI H. TAKKALAKI                          2007       BASAVARAJ BANAKAR
                                                                 MAJOR ADVISOR
                                         ABSTRACT

            Across the countries, it has been recognized that micro finance could be a useful
tool in building up the capacities of the poor, in management of sustainable self employment
activities. The deliveries of micro finance through different models have their own impact on
beneficiaries.
          Therefore the study was under taken to assess the growth and pattern, terms and
cost of borrowing, portfolio of lending, cost and return structure, loan recovery and problems
faced by the target groups. The primary data with respect to purpose wise portfolio lending,
cost and returns of activities, recovery and problems faced in microfinance activities were
collected from the target groups for the year 2005-06 with the help of pre-tested
questionnaire. Secondary data with respect to SHG linkage, amount lent, overdue and
numbers of families assisted were collected from the year1993-94 to 2005-06.
          The result showed that the compound growth rate of number of SHGs linked to the
bank loan in Karnataka was increased at the rate of 26.29 per cent and 15.98 per cent in
Dharwad district. Similarly growth in bank loan given to SHGs was 33.93 per cent and 13.45
per cent per annum respectively. The RRBs cover 66.24 per cent SHGs provided and 97.03
per cent bank loan and availed about 76.86 per cent refinance. The credit delivery through
NGO accounts for higher cost that is 42.5 rupees per borrower per Rs 100 borrowed at the
first time. Among the portfolio, Dairy activity stands first (29.17 per cent) in total amount lent
by the micro finance providers. An overdue was more in Regional Rural Bank model and low
in NGO model of credit delivery. The contribution to overdue as indicated by regression
coefficients was more in model-II (RRBs). However, coefficient of amount borrowed, cost of
production and cost of borrowing found to be positive and significant. The gross returns
showed negative and significant.

				
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