A Study of Self Employment Opportunities through Microfinance

INTRODUCTION
India is one of the developing countries in the world where poverty is reckoned as
major problem. Since independence, the country put stress on providing financial
services as assistance to poor people. During early 1980‟s, the banking policies,
procedures and systems were not suitable to meet the needs of poor. Absence of credit
facility to under privileged people is the main root due to which they are not able to
come out of poverty. Demand of credit is high but supply is near to the ground. This
gap not merely arises due to shortage of funds in financial sectors; however it arises
because financial sectors does not show interest in ending money to poor as it
becomes costly for them. Low income group peoples are generally ignored by
commercial banks and other lending Institutions. Lending to poor involves high
transaction cost and risk associated with moral hazards. This leads to unequal
distribution of wealth and resources and poor people become poorer. Taking into the
consideration, micro finance Institutions were introduced by government for the
welfare of poor society so as to avail the micro credit services. Micro-financing is
considered as a tool for socio-economic upliftment. It plays a vital role in poverty
alleviation and development. Mohammed Yunus was awarded the Noble Prize for
application of the concept of microfinance, with setting up of the Grameen Bank in
Bangladesh. NABARD recommended that alternative policies, systems and
procedures should be applied to save the poor from the clutches of moneylenders.
Thus, the concept of microfinance was introduced in banking sector.
The present study is focused on “Indore District” of Madhya Pradesh state in Central
India. This district is industrially very progressive. Most of the people engaged
themselves in agriculture while some of them engaged in trading of cloth or are self
employed in micro enterprises categorized as small shop keeper, person running their
own little kiosk or a cart rider (thele wala) etc . These people take loan to fulfill their
day today needs.
Majority of population does not have access to have finance from formal source. In
such case financing through micro credit serve a lot. We have discussed the positive
aspect of microfinance. But there are also some questions which arise in the mind of
researcher like -How effective are the groups in managing their financial transactions?
Are the groups sustainable? Do they help in mobilizing women to take social action?
How effective are such actions? Who is really benefiting? Do the poorest benefit, do
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 A Study of Self Employment Opportunities through Microfinance

they not join at all or if they do join, are they more likely to drop out? Therefore, it is
essential to know how the existence of microfinance evolves as a powerful tool for
eradication of poverty, women empowerment, bringing psychological and socio
economic upliftment and ultimately generate the opportunity amongst the people of
Indore District in becoming self reliant.

Features of Microfinance:
Microfinance is the provision of a broad range of financial products and services. It
includes life insurance, live-stock insurance, bank accounts, payment services,
financial advisory services, micro-leasing, micro-insurance, money-transfer to assist
the very or exceptionally poor in expanding or establishing their businesses, non-life
insurance products, saving products, credit products, insurance products and
remittance products. Therefore, microfinance is defined as financial products and
services provided to poor and low income clients so as to help them raise their
income, thereby improving their standard of living.

1. Microfinance plays a vital role in financing poor urban- rural households.

2. It deals in multiple services such as loans, savings, insurance, transfer
services, micro credit loans etc.
3. Loans under Microfinance Program are very small.
4. It is not profit oriented rather more service-oriented.
5. It is one of the most effective and necessary Poverty Alleviation Strategies.
6. It is supplied to the poor households and small entrepreneurs.
7. It require simple procedures for reviewing, processing and approving loan
applications and delivering credit;
8. It motivates to take hold of the self-employment opportunities.

The two main mechanisms for the delivery of financial services to such clients are: (1)
relationship-based banking for individual entrepreneurs and small businesses; and (2)
group-based models, where several entrepreneurs come together to apply for loans
and other services as a group.
Micro credit thus becomes distinct from other regular credit where not only credit
amount is small and clientele is poor, but also credit is provided with collateral

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 A Study of Self Employment Opportunities through Microfinance

substitute‟ instead of traditional collateral and non-financial services for increasing

the productivity of credit (Rajaram Dasgupta, 2005)15.

The importance of financial and outreach transparency is much essential for the
development financial progress of the poor. In sum, the microfinance is the key factor
for reducing poverty and generating self-employment among the poor. The
microfinance is playing important role in the generation of self-employment
opportunities. This study is aimed at to study the effectiveness of microfinance in
generation of self-employment opportunities in Indore district.

1.1 Key Players of Micro Finance

 National Bank for Agriculture and Rural Development (NABARD) -

National Bank for Agricultural and Rural Development is an Apex Institution
was developed on 12th July 1982. The main aim of NABARD is to provide
credit support and other related services to agricultural sectors, small scale
industries, handicrafts and other rural areas. By the means of micro credit
innovations schemes, NABARD make possible for the poor people to access to
financial services. There are various schemes launched by NABARD such as
Kisan credit cards (help farmers in purchasing agricultural inputs like seeds
fertilizers etc.), Swarojgar Credit Schemes (aims to provide timely credits) and
many more.

 Reserve Bank of India (RBI) - The efforts put by Reserve Bank of India in
the area of micro credit makes a significant role. The function of RBI categorize
into three: Traditional functions which includes acting as an advisor, maintaining
domestic currency; Supervisory function which includes periodical review of the
work and giving directions to commercial Banks and Promotional functions
which does not only help to small scale industries but also provide facilities for
the provision of agricultural credit through NABARD. In the year 1994, the RBI
composed an operational group on SHGs. As per the proposal of RBI, SHGs
would be considered as a part of granting loan to weaker sections of Society
under the supervisions of Banks and also at the State Level Bankers‟ Committee
(SLBC) level. Banks were also suggested that SHGs, registered or unregistered,
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 A Study of Self Employment Opportunities through Microfinance

who are occupied in promoting the saving among their group members, would
be entitled to open savings bank accounts with banks irrespective of the
availability of the credit facilities from banks.
The micro credit given by the banks is reckon as part of their priority sector
lending, and they are free to device appropriation loan and saving products in
this regard (Y.V. Reddy, 2005).

 Micro Finance Institutions (MFIs) - Micro Finance Institutions in India

generally exists in various forms such as NGOs, NBFCs, cooperative societies
etc. Some private microfinance Institutions are at initial stage, doing efforts and
therefore are unregulated. Some of them are experiencing growth in demand like
Bandhan, Grameen Koot, etc. The largest MFIs of India, such as SHARE,
SPANDANA, CDF, MYRADA, SKS and PREM are also concentrated
Microfinance institutions fill a needed gap within the financial services industry
by offering small loans, or micro-loans, to unbanked people. MFI also provide
support to government efforts.

 Self Help Groups (SHG) - A self-help group may be registered or

unregistered, composed of 10–20 members usually women. Members in the
group saves small amount regularly and contribute for few months until the
group has enough capital to lend. With the help of money collected by group,
members are made available loan amount with the expectation of making them
financially strong. The group members use collective effort and peer
pressure ensuring proper use of credit and timely repayment. This system
eliminates the need for collateral and is closely related to that of solidarity
lending, widely used by micro finance institutions1.

 Non Government Organizations (NGO) - Non Government Organizations

engaged in promoting SHG and link them with Banks. NGO form the members
in group; provide training regarding credit availability and linkage with formal
financial agencies and helping them in availing available opportunities.

1
Reserve Bank of India
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 A Study of Self Employment Opportunities through Microfinance

 Public, Private and Co-operative banks through Self Help Groups – Large
number of Institutions in public as well as private sectors is also offering Micro
finance services. At present besides NABARD, there are some other agencies
like through which microfinance Institutions obtain finance like SIDBI, RRBs,
Co-operative Banks and public and private commercial banks. The guidelines
are issued by RBI.

1.2 ORIGIN OF MICROFINANCE

The concept of micro financing services to poor people has its roots from past. Saving
and credit groups were formed all over the world and were known for different names
in different countries viz: “chit fund” in India; tandas in Mexico; pasanaku in Bolivia;
arisan in Indonesia etc.
Earlier in the year 1950s, small farmers were financially supported by international
aid donors and government. Major efforts were put in 1960s and 70s by Agriculture
Development Banks for expansion of rural finance and provision of credit schemes.
Microfinance in India was started in the year 1974 in Gujarat when Self Employment
Women Association (SEWA) formed Shri Mahila Sewa Sahakari Bank. The main aim
of SEWA is to provide banking credit services to poor employed women. In the year
1976, Muhammad Yunus, a professor of Economics at Chittagong University of
Bangladesh executed an experimental research. He provided 856 taka ($27) to 42
poor bamboo weavers as a credit and found that small loan amount change the lives of
people. The people are able to pay loan amount with interest. This pilot research made
Prof. Yunus to establish Grameen Bank in 1983. Hence, he was considered as a
founder of Grameen Bank of Bangladesh. The success of this program then applied
worldwide. Later on in the year 1980s, Microfinance evolves with the concept of
informal Self Help Groups. During 1992, NABARD started linking SHGs to banks of
India together with NGOs. The system of Microfinance has been tested in many
developing countries like: Bank Rakyat Indonesia (BRI) in Indonesia, Bancosol in
Bolivia, Bank for Agriculture and Agricultural Co-operatives (BAAC) in Thailand,
Grameen Bank, and Bangladesh Rural Advancement Committee (BRAC) of
Bangladesh, NABARD in India.

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 A Study of Self Employment Opportunities through Microfinance

In the development strategy adopted by independent India, institutional credit was

perceived as a powerful instrument for enhancing production and productivity and for
alleviating poverty. The formal view was that lending to the poor should be a part of
the normal business of banks. The strategy devised for this purpose comprised of:

 Expansion of the institutional structure,

 Directed lending to disadvantaged borrowers and sectors and
 Interest rates supported by subsidies.

The institutional vehicles chosen for this were cooperatives, commercial banks and
Regional Rural Banks (RRBs). Between 1950 and 1969, the emphasis was on the
promoting of cooperatives. The nationalization of the major commercial banks in
1969 marks a watershed in as much as from this time onwards the focus shifted from
the cooperatives as the sole providers of rural credit to the multi agency approach.
This also marks the beginning of the phenomenal expansion of the institutional
structure in terms of commercial bank branch expansion in the rural and semi-urban
areas. For the next decade and half, the Indian banking scene was dominated by this
expansion. However, even as this expansion was taking place, doubts were being
raised about the systemic capability to reach the poor. Regional Rural Banks were set
up in 1976 as low cost institutions mandated to reach the poorest in the credit-
deficient areas of the country. In hindsight it may not be wrong to say that RRBs are
perhaps the only institutions in the Indian context which were created with a specific
poverty alleviation - microfinance – mandate.
During this period, intervention of the Central Bank (Reserve Bank of India) was
essential to enable the system to overcome factors, which were perceived as
discouraging the flow of credit to the rural sector such as absence of collateral among
the poor, high cost of servicing geographically dispersed customers, lack of trained
and motivated rural bankers, etc. The policy response was multi dimensional and
included special credit programmes for channeling subsidized credit to the rural sector
and operationalising the concept of “priority sector”. The latter was evolved in the late
sixties to focus attention on the credit needs of neglected sectors and under-privileged
borrowers. The key problem areas visualized for under privileged segment includes-
lack of credit, absence of modern technology in the field of agriculture as well as

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 A Study of Self Employment Opportunities through Microfinance

industries, low savings capacity in rural and related areas and prevalence of usurious
moneylenders. It is impossible for these people to grab the opportunities of banking
and other related services. These institutes require lots of formalities and securities,
the fulfillment of which can never be done by these people.
According to Umesh Gadekar in his paper, “Understanding Microfinance as a Tool of
Poverty Eradication”, the main reason of failure was absence of any recognized
employment and hence absence of collateral with the poor. The high risk and the high
transaction costs of banks associated with small loans and savings deposits are other
factors, which make them non-bankable. The lack of loans from formal institutions
leaves the poor with no other option but to borrow money from local money-lenders
on huge interest rates.2 In different countries including India, efforts have been made
by their governments to deliver formal credit to rural areas by setting up special
agricultural banks/rural banks or directing commercial banks to provide loans to rural
borrowers. However, these programmes have also not worked well due to various
reasons. The common reasons found by researchers are the political difficulty for
government, to enforce loan repayment and the selection of relatively wealthy and
influential people, rather than the poor, for bank loans (Adams et al., (1984)3, Adams
and Vogel (1986)4, World Bank, (1989)5, Women‟s World Banking (1995)6 estimated
that in most developing countries, the formal financial system reaches to only top 25
per cent of the economically active population. This leaves the bottom 75 per cent
without access to financial services apart from those provided by money-lenders and
family. Thus, the inability of formal credit institutions to deal with the credit
requirements of poor effectively has led to emergence of microfinance as an
alternative credit system for the poor.
As a failure of formal financial institution, microfinance approach was innovated for
developing as well as backward regions. In current scenario the role of micro

2
Umesh Gadekar, Assistant Professor,Dept. of Sociology, MSW Course,ShivajiUniversity, Kolhapur,
“Understanding Microfinance as a Tool of Poverty Eradication”, source:
https://www.academia.edu/4052922/Paper_on_Poverty_and_Microfinance.
3
Adams, D.W.; Graham, Douglas H.; and Von Pischke, J. D. (1984), Undermining Rural Development
with Cheap Credit, Westview Press, Boulder, Colorado, USA.
4
Adams, D.W.; and Vogel, R.C. (1986), “Rural Financial Markets in Low-income Countries:Recent
Controversies and Lessons”, World Development, Vol. 14, pp. 477-88.
5
World Bank (1989), World Development Report 1989, Oxford University Press, New York.
6
Women‟s World Banking, (1995), The Missing Links: Financial Systems that Work for the Majority,
Women‟s World Banking, New York.

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 A Study of Self Employment Opportunities through Microfinance

financing becomes important as it has raised the welfare level of thousand of rural and
urban people. Micro financing are the financial institutions developed over the last 30
years, offering small-scale financial services in both the forms – credit and savings
and deliver very small loans to unsalaried borrowers, taking little or no collateral.

The evolution of microfinance foster income generation, reduce poverty through self-
employment. Generally, low-income group person who do not have access to formal
financial institutions, are turned towards micro financing. Microfinance clients
include self-employed, household based entrepreneurs especially women
entrepreneur. In rural areas, there are usually small farmers or others who are engaged
in small income-generating activities such as food processing and petty trade. In
urban areas, microfinance activities are more diversified including shopkeepers,
service providers, artisans, street vendors, etc. There are various medium of
microfinance, of which most prominent among them is Self Help Groups (SHGs). The
self-help group (SHG) model with bank lending to groups of poor women without
collateral has become an accepted part of rural finance.

On the account of above development in the sphere of credit to poor people,

transformation from formal Banking to Microfinance is shown in Table No. 1.1.

Table No. 1.1:- Formal Banking System and Microfinance

S. No. Features Formal Banking Micro Finance
1. Duration of Loan Medium and long Short
2. Thrift Focus on loan only with Emphasis on thrift as well as
security deposit loan without collateral

3. Procedures Access to member with Groups are formed through

some formal procedures informal methods

4. Enforcement of legal pressures for Weekly / half monthly /

Repayment Repayment monthly Repayment

5. Organization form Commercial form Social form

6. Motive Profit motive Non economic motive

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 A Study of Self Employment Opportunities through Microfinance

1.3 Microfinance Models in India

The beginning of microfinance movement could be sketched to Self Help Group
(SHG) – Bank Linkage Programme (SBLP) started as a pilot project in 1992 by
NABARD in India. A Self Help Group (SHG) is a small economically homogeneous
group of 10 to 20 persons of rural poor who come together to mutually contribute to
common funds for meeting their emergency needs. The fund created by collective
contribution is used to provide collateral free loans to members on terms decided by
group. All decisions are made collectively. Conflicts and disputes are resolved
through collective leadership and discussion.
SHGs have been traditionally supported by NGOs or by Government agencies. They
are considered as agents of change, which are expected to change the lives of poor.
The main objective of SHGs is to provide small loans to poor in order to help them
invest in their livelihood.
This programme was proved very successful and had also developed as the most
popular model of microfinance in India. The institutions which provides microfinance
services includes NABARD, Small Industries Development Bank of India (SIDBI),
Rashtriya Mahila Kosh, Commercial Banks, Regional Rural Banks, Cooperative
Banks and Non Banking Financial Companies (NBFCs), etc.
In India, microfinance services are provided mainly by two models. One is Self Help
Group - Bank Linkage Programme (SBLP) Model and another one is Micro-Finance
Institutions Model (MFI). These both together have more than 7 crore clients.

A. SHG - Bank Linkage Programme (SBLP) - Self help group an informal group
are credit linked with formal financial institutions - Bank Linkage program was
introduced in India taking into account number of borrowers and loan outstanding.
This model is flexible and provides freedom of saving and borrowing according to
requirement of groups. Under this programme three major models have emerged. The
models are as follows:

(i) Model I- SHGs promoted, guided and financed by banks.

As the name itself explicate that SHGs are formed and directly finance by
Banks. Banks open up their account and starts up micro loan facilities.

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 A Study of Self Employment Opportunities through Microfinance

Formation, Nurturing Credit

Banks Self Help Groups (SHGs)

Saving

(ii) Model II- SHGs promoted by NGOs / government agencies and financed
by banks.
Here, various formal agencies and NGOs play a vital role of catalyst where
groups are formed, training is provided and messages are disseminated. Bank
ultimately link with this group and directly provide loan to them.

Formation, Nurturing and Monitoring Saving

NGOs/Govt. SHGs Banks

Agencies

Credit

(iii) Model III- SHGs promoted by NGOs and financed by banks under
NGOs / formal agencies as financial intermediaries.
In this model, NGO act as a channel as well as financial intermediaries. The
task performed by NGO is same as above. At the end NGO approach to Bank
for lending this loan.

Formation, Nurturing and Monitoring

NGOs
Federations Credits Savings SHGs
Banks

Credits

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 A Study of Self Employment Opportunities through Microfinance

(iv) Model IV- NGO Guided but self-supported SHGs:

Yet another category of SHGs which are very rarely found are the SHGs formed and
initiated by the NGOs, guided by them on the rules and regulations, accounts to be
maintained etc. But no financial support either directly or through the linkage with
banks is arranged but only the savings of the members is used for internal lending as
well as for starting an enterprise. Of all the four groups mentioned above, this group
seems to be different, self-dependent and accordingly may be encouraged. However,
by not getting any external support, the size of the enterprises initiated may be too
small and also expansion is not possible.

(v) Model V- Completely Self-Supported SHGs:

This category of SHGs are entirely formed and supported by the group members,
neither getting any assistance or support from bank nor from NGOs. By observing the
group formed in the
neighborhood areas,
these groups have
initiated themselves and
function as others models
mentioned above.

B. Micro Finance Institutions

(MFls)
Micro Finance institutions
(MFIs) include NGOs, trusts, social and economic entrepreneurs; these lend small, sized
loans to individuals or SHGs. They also provide other services like capacity building,
training, marketing of products etc. MFIs operate under following models.

(i) Bank Partnership Model:

a) MFI as Agent: In this model, the MFIs act as an agent and it takes care of
all relationships with borrower from first contact to final repayment.
b) MFI as Holder of Loans: Here MFI holds the individual loans on its books
for a while, before securitizing them and selling them to bank.

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 A Study of Self Employment Opportunities through Microfinance

(ii) Banking Facilitators Model:

Banking facilitators / correspondents are intermediaries who carry out

banking functions in villages or areas where it is not possible to open a
branch. In January, 2006, RBI permitted banks to use services of NGOs,
MFIs and other civil society organizations to act as intermediaries in
providing financial and banking services to poor.

C. Other Models

(i) Grameen Model -

The Grameen model is based on the concept of social capital. It is world
widely spread delivery model. Prof. Muhammad Yunus, was the founder
of Grameen bank of Bangladesh. In this model, full capacity of center is of
40 members. There are eight groups consisting of five members in each
group; (8x5). Now there are variations in the size of groups forming 5 to 8
groups within the center. Center is the operational unit for the MFI, which
means that MFI deals with a Center as a whole. Any two members are then
issued small loan amount. These groups must meet once in a week in front
of field staff (an officer) of MFIs to repay loan amount. This meeting
deals with financial transactions and other social matters are not discussed.
In case, any of the group members fails to pay amount, the entire group are
not eligible for fresh loan amount. This means group and centre are jointly
responsible and MFIs recovers full amount if any member has defaulted.
The programmes of Banco Sol in Bolivia and most of the solidarity group
model in Latin America follow this methodology.

(ii) Joint Liability Groups (JLG) -

Joint Liability Group (JLG) model an up-gradation of Self Help Groups
(SHGs) has been introduced by NABARD. JLG are financed by State
cooperative banks and Regional rural banks, who themselves get support
from NABARD. JLG is an informal group comprises of 4 to 10 members,
who individually avail the credit facility from banks through group
mechanism. All the members are required to sign on joint liability contract
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as a security deposit, making each one jointly responsible for repayment of

loan. It does not require any periodic meeting, as in above cases. In India
these types of groups are generally made by most of the MFIs because
such groups are easy to make as there are very less restrictions regarding
the utilization of loan.

Table No. 1.2:- Difference between SHGs and JLG

S. No. Particulars Self Help Groups Joint Liability Groups
(SHGs) (JLG)

1. Size of Group 10-15members in a group 4 members in a group

2. Basis Based on trust Mutual guarantee

Provision of saving is
3. Saving No provision of saving
there
Monthly Group account is
4. Account Personal Account
opened for beneficiaries
Transferability of
5. Applicable Not applicable
loan
Beneficiaries follow rules
Rules of Societies and
6. Rules and regulation as decided
Banks are considered.
by Group itself.
Direct relation with
Moderate relationship
7. Relationship people, with low
with more formalities
formalities
Responsibility to repay
If one is not able to pay
loan amount in case of
8. Responsibility loan then 3 of them takes
default held upon
their responsibility
President /secretary

Advantages of SHGs over MF

In microfinance loan disbursement process takes place once in every week and
members are bound to pay installment. But in case of SHGs monthly installment are
required to be paid. In microfinance minimum two loan amount from same company
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or different company can be taken. Members are not allowed to take loan from more
than two different/same companies. There should be at least 5 members in a group. 5
members in each 8 groups make a SANGAM of 40(8*5). Weekly payment of
installment becomes a burden for members which become drawback for MFI. There
are some other MFIs where installments are to be paid in twice in a month. The
criteria of loan disbursement and installment process depends upon firm to firm
But if any member in a group is unable to pay installment then loan will not be
delivered to remaining members of a same group. They themselves bear a loss and try
to recompense it. If in case any of the member deny to pay installment, then either
some legal action will be taken against him or the valuable things/ items will be
seized from his/her house. This makes MF rigid. On the other hand in case of SHGs,
authority lies on President/secretary. In SHGs formal as well as informal meeting take
place, where people gathered at one place, share the problems of life‟s and help each
other. Therefore if any of the members in SHGs could not be able to pay installment
then they get support from other members for the time being.

Limitations

 Misuse: President/ leader of SHGs have decision making power. There is a

chance of mistreatment or mishandling of money.
 Management Skills: The whole process in functioning of Self help group
requires management skills as the person/ mediator involves during this
process are expected to be vigilant. Members are required to receive training
from supporting institutions and learn leadership qualities.

(iii) Individual Method:

As the name depicts it‟s meaning that micro loans are directly provided to
borrower. MFIs have to maintain close contact with individual borrower
and can provide credit facility without the involvement in any group.
Before granting loan amount, following points are taken into consideration
by MFIs like: borrower‟s source of income, his reputation in society, his
personal knowledge and business positions.
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MFIs may also ask for individual guarantors or take post-dated cheques
from borrowers. Individual guarantors come from friends or relatives who
are well known to the borrower and who are ready to take liability of
repaying the loan, in case borrower fail to do so. Sometime, MFIs may
also take some collateral security if the loan amount is significantly larger.
It is most successful for larger, urban-based, production-oriented
businesses. The model is followed by many financial institutions like the
Association for the Development of Micro-Enterprises (ADEMI) in
Dominican Republic, Bank Rakyat Indonesia, Senegal Egypt, Self-
Employment Women‟s Association in India, etc.

(iv) Village Banking Model:

This village banking model is an expansion of the group approach. This

model was developed in Bolivia during the mid 1980s by the Foundation
for International Community Assistance (FINCA), a non-profit
microfinance organization. In this model, a Village Bank is developed by
grouping 30 to 100 low-income individuals who seek to improve their
lives through self-employment activities. The bank is financed by internal
mobilization of members' saving fund as well as loans provided by the
sponsoring MFIs. The MFIs lend capital to the bank, which then lends the
money to its members. Members themselves run the village bank; they
choose their members, elect their own officers, establish their own by-
laws, distribute loans to individuals and collect savings and payments.
Loan amounts are linked to the aggregate amount saved by individual bank
members. Loans are repaid weekly in small instilments. Thus, village
banks have a high degree of democratic control and independence. The
model is used by various MFIs like Co-operative for Assistance and Relief
Everywhere (CARE) in Guatemala; Save the Children in El Salvador;
Burkina Faso in Bolivia, Mali, and Ghana; Freedom from Hunger and
Catholic Relief Services in Thailand and Benin, Opportunity International,
Consultative Group for Assisting the Poor (CGAP), etc.

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SHG v/s MFI Model

Some features of SHG and other models of MFIs (Grameen/ JLG and Individual)
have been compared in Table No. 1.3. In SHGs single loan is provided to the group as
a whole, which is then divided by the group member, whereas in Grameen and Joint
liability groups the MFIs provide loans to individual members, although disbursement
and collection are facilitate by the group mechanism. In this way, there is limited
participation of group members in Grameen and JLGs. Therefore, individual lending
results in less empowerment of its clients as compared to the SHG-BLM.

Table No. 1.3:- Features of SHG and other models

S. No. Features SHG Model Grameen Individual Banking
1. Type of members Primarily women Primarily women Women/Men
Size of Group 10-20 members in a Usually 5 Individual Clients
2. group members in a
group
Focus Focus on Services Focus on Services Only Credit
3.
and credit and credit
4. Credit Delivery In the name of group Individual Individual
Role of field staff Organize, Guide and Organize (group Organize
5. Facilitate dependent on
staff)
6. Record keeping By group By field staff By field staff
7. Group Meetings Monthly Weekly No meetings
Meetings with Monthly Weekly Unscheduled
8.
officials
Amount of Saving Rs. 20-100 per Rs. 5-25 per week Flexible
9.
month
Initial loan 3-4 times of group Rs. 2,000-Rs. Rs. 5,000- Rs. 150,000
10.
amount saving 5,000
Interest rate 9-11 per cent Varies largely Generally, more than
11. between MFIs Grameen model
(12-30 per cent)
Effect on High Low Very low
12.
Empowerment

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1.4 Role and Importance of Microfinance

Microfinance institutions are those which provide credit and other financial services
and products of very small amounts to poor in rural, semi-urban and urban areas for
enabling them to raise their income and improve their standard of livings. Let us have
a look on utility of microfinance on the part of poor people.

 Credit to rural and urban Poor: Usually rural sector depends on non-
institutional agencies for their financial requirements. The micro financings have been
successful in taking institutionalized credit to the doorstep of the poor and have made
them economically and socially sound.

 Poverty Alleviation: Due to micro finance poor people get employment. It also
helps them to improve their entrepreneurial skills and encourage them to
exploit business opportunities. Employment increases income level which in turn
reduces poverty.

 Economic Growth: Finance plays a key role in stimulating sustainable

economic growth. Due to microfinance, production of goods and services increases
which increases GDP and contributes to economic growth of the country.

 Social Welfare: With employment generation the level of income of people

increases. They may go for better education, health, family welfare etc. Thus micro
finance leads to social welfare or betterment of society.

 Women Empowerment: Normally more than 50% of SHGs are formed by

women. Now they have greater access to financial and economical resources. It is a
step towards greater security for women. Thus microfinance empowers poor women
economically and socially.

 Mobilization of Savings: Microfinance develops saving habits among people.

Now poor people with meager income can also save and are bankable. The financial
resources generated through savings and micro credit obtained from banks are utilized

17
 A Study of Self Employment Opportunities through Microfinance

to provide loans and advances to its members. Thus microfinance helps in

mobilization of savings.

 Development of Skills: Micro financing has been a boon to potential rural

entrepreneurs. SHGs encourage its members to set up business units jointly or
individually. They receive training from supporting institutions and learn leadership
qualities. Thus micro finance is indirectly responsible for development of skills.

 Mutual Help and Cooperation: Microfinance promotes mutual help and

cooperation among members. The collective efforts of group promote economic
interest and helps in achieving socio-economic transition.

1.5 Microfinance in India

In India, microfinance has started budding in the early 1980s. It has grown with the
formation of informal Self Help Group (SHG) for making availability of financial
services to the needy people who are deprived of credit facilities. This concept of
microfinance approach is involved in the provision of thrift, credit and other financial
services and products with an aim to boost income levels, raise employment
opportunities and improve living standards.
The regulator for microfinance sector, National Bank for Agriculture and Rural
Development and Small Industries Development Bank of India are offering their
financial resources and time towards the development and popularity of microfinance
in Rural India.

1.5.1 State-wise position of MFIs

Microfinance is one of the fastest growing sectors of India. It is leading intense
competition among the largest players. Microfinance institutions have reached to 50
million households and about 38 million borrowers in rural and urban India by the end
of March 2009. As per NABARD report, by March 2009, both SHG bank linkage and
MFIs have collectively disbursed US$3.9 billion to the poor. It is shown in the Table
No. 1.4.

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 A Study of Self Employment Opportunities through Microfinance

Table No. 1.4:- State-wise position of MFIs

S. No. No. of MFIs Share%
Andhra Pradesh 484 62
Bihar 44 6
Gujarat 8 1
Jharkhand 1 0
Karnataka 20 3
Kerala 18 2
Madhya Pradesh 14 2
Maharashtra 15 2
Odisha 28 4
Rajasthan 18 2
Tamil Nadu 101 13
Uttar Pradesh 5 1
West Bengal 30 4
Source: NABARD

From the Table No. 1.4, it is found that the state Andhra Pradesh has largest number
(484) microfinance institutions with 62 percent share in India. Tamil Nadu is also
having more than one hundred microfinance institutions. The states like Uttar
Pradesh, Jharkhand and Gujarat are trying hard to increase microfinance institutions.
In Madhya Pradesh there are 14 microfinance Institutions with 2% of share in india.
Many micro finance Institutions like SKS, Spandana Sphoorty, Equitas, Trident,
Bandhan and many more targeting to low income group people for microloans.
There are many different legal forms under which microfinance is provided in India.
The Institutions like, Commercial Banks, Cooperative Banks, Regional Rural Banks
(RRBs), Local Area Banks (LABs), Cooperative Societies, SHGs and Federations,
Societies, Trusts, Section 25 (Not-for-Profit) companies, Non-Banking Finance
Companies (NBFCs) and organizations under Business Facilitator/Business
Correspondent guidelines of the Reserve Bank of India are offering microfinance to
Self Help Groups to meet their normal financial needs. The members of SHGs need
micro-finance to undertake economic activity, smoothening consumption, mitigating
vulnerability to income shocks (in times of illness and natural disasters), increasing
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 A Study of Self Employment Opportunities through Microfinance

their savings and support self- empowerment.7 According to Mohanty, S. et al (2013)8

(Among these, the MFIs can either take up the form of a Society, Trust, Co-operative
Society, or NBFC. There is no centralized database on the number of microfinance
institutions that operate in the country; however, estimates have put it anywhere
between 800 and 1,200. The overwhelming majority of MFIs are societies and trusts,
followed by cooperative and section 25 companies. Among the large MFIs, most are
NBFCs. It is estimated that top 20 MFIs account for 80% of the total portfolio.9In
India microfinance operates through two channels: 1. Self Help Group – Bank
Linkage Programme (SBLP) and 2. Micro Finance Institutions (MFIs).

1.5.2 Self-Help Group-Bank Linkage Programme

This is the bank-led microfinance channel which was initiated by NABARD in 1992.
Under the SHG model the members, usually women in villages are encouraged to
form groups of around 10-15. The members contribute their savings in the group
periodically and from these savings small loans are provided to the members. In the
later period these SHGs are provided with bank loans generally for income generation
purpose. The group‟s members meet periodically when the new savings come in,
recovery of past loans are made from the members and also new loans are disbursed.
This model has been very much successful in the past and with time it is becoming
more popular. The SHGs are self-sustaining and once the group becomes stable it
starts working on its own with some support from NGOs and institutions like
NABARD and SIDBI.
Despite the vast expansion of the formal credit system in the country, the dependence
of the rural poor on moneylenders somehow continued in many areas, especially for
meeting emergent requirements. Such dependence was pronounced in the case of
marginal farmers, landless labourers, petty traders and rural artisans belonging to
socially and economically backward classes and tribes whose propensity to save is

7
Mahapatra, R. K., Micro-Finance and its Role in India (October 24, 2010). Available at SSRN:
http://ssrn.com/abstract=1697251 or http://dx.doi.org/10.2139/ssrn.1697251.
8
Mohanty, S., Mohapatra, R. and Khuntia, S, “Micro Finance : A Poverty Reduction Tool” Special
Issue of International Journal on Advanced Computer Theory and Engineering (IJACTE), ISSN (Print)
: 2319 – 2526, Volume-2, Issue-1, 2013.

20
 A Study of Self Employment Opportunities through Microfinance

limited or too small to be mopped up by the banks. For various reasons, credit to these
sections of the population had not been institutionalized. The studies conducted by
National Bank for Rural and Agriculture Development (NABARD), Asia-Pacific
Rural and Agricultural Credit Association (APRACA) and Indian Labour Law (ILO)
on the informal groups promoted by Non-Governmental Organizations (NGOs)
brought out that Self-Help Savings and Credit Groups had the potential to bring
together the formal banking structure and the rural poor for mutual benefit and that
their working had been encouraging. The Reserve Bank constituted four informal
groups in October 2002 to examine various issues concerning micro-finance delivery.
Linking of SHGs with banks have been emphasized in the Monetary policy of
Reserve Bank of India and Union Budget announcements from time to time and
various guidelines have been issued to banks in this regard. To scale up the SHGs
linkage programme and make it sustainable, banks were advised that they may
consider lending to SHGs as part of their mainstream credit operations both at policy
and implementation level. They may include SHG linkage in their corporate
strategy/plan, training curriculum of their officers and staff and implement it as a
regular business activity and monitor and review it periodically.10
In the Table No. 1.5, it is seen that the SHGs Bank linkage programme is the most
dominant model of microfinance in India in terms of number of borrowers and loans
outstanding (Ghate, 2006).11 This linkage has shown a magnificent growth in terms of
coverage and outreach of credit to the rural poor. The total number of SHGs was 255
in 1992-93. This has reached to 10112504 in the year 2011-12. The cumulative
disbursement of bank loan was Rs. 0.29 crore in 1992-93, which increased to Rs.
4.81billion in 2000-01 and further Rs. 846.07 billion in 2011-12. Total refinance
increased from Rs.0.27 crore in 1992-93 to Rs. 3.94 billion in 2000-01 and Rs. 191.08
billion in 2011-12.

10
RBI/ 2013-14/89, RPCD.FID. BC.No.10/12.01.033/2013-14, Master Circular on SHG-Bank Linkage
Programme.
11
Ghate, P. (2007), Indian Microfinance: The Challenges of Rapid Growth, Sage Publications, New
Delhi.

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 A Study of Self Employment Opportunities through Microfinance

Table No. 1.5:- Self-Help Group-Bank Linkage Programme

No. of SHGs Financed Bank Loan Refinance
Year (End by Banks (Lakhs) (Rs. Billion) (Rs. Billion)
- March) During During During
Cumulative Cumulative Cumulative
the year the year the year
1992-93 255 255 0.00 0.00 0.00 0.00
1993-94 365 620 0.00 0.01 0.00 0.00
1994-95 1502 2122 0.02 0.02 0.02 0.02
1995-96 2635 4757 0.04 0.06 0.04 0.06
1996-97 3841 8598 0.06 0.12 0.05 0.11
1997-98 5719 14317 0.12 0.24 0.11 0.21
1998-99 18678 32995 0.33 0.57 0.31 0.52
1999-00 81780 114775 1.36 1.93 0.98 1.50
2000-01 149050 263825 2.88 4.81 2.51 4.01
2001-02 197653 461478 5.45 10.26 3.96 7.97
2002-03 255882 717360 10.22 20.49 6.22 14.19
2003-04 361731 1079091 18.56 39.04 7.05 21.24
2004-05 539365 1618456 29.94 68.98 9.68 30.92
2005-06 620109 2238565 44.99 113.97 10.68 41.60
2006-07 1105749 3344314 65.70 179.67 12.93 54.53
2007-08 1227770 4572084 88.49 268.17 16.16 70.68
2008-09 1609586 6181670 122.54 390.70 26.20 96.88
2009-10 1586822 7768492 144.53 535.24 31.74 128.62
2010-11 1196134 8964626 145.48 680.72 31.74 160.35
2011-12 1147878 10112504 165.35 846.07 30.73 191.08
Note: 1. Data for 2011-12 are provisional.
2. Data relates to Commercial Banks, RRBs and Co-operative Banks.
3. From 2006-07 onwards, data on number of SHGs financed by banks and bank loans are inclusive of
'Swarnajayanti Gram Swarozgar Yojna‟(SGSY) SHGs and existing groups receiving repeat loans. Owing to this
change, NABARD discontinued the publication of data on a cumulative basis from 2006-07.
Source : NABARD

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 A Study of Self Employment Opportunities through Microfinance

Many studies related to SHGs advocates that the on-time repayment of SHGs loans of
banks was over 90 percent and highly profitable for the banks relative to other
financial products despite interest rates which are among the lowest in developing
countries (Seibel and Dave. 2002).12
From the Table No. 1.6, it is seen that there does not exist any uniformity with regard
to the progress of SHG-Bank Linkage Programme across the regions. It is very much
successful in southern regions where as in the northeast and northern region, its
progress is at very low pace. The central region is also showing a poor progress in
SHG-Bank Linkage Programme. The growth of the SHG-Bank Linkage Programme
has been devastating in the south. The southern region is continuously leading in
terms of share in client outreach as well as loan disbursement and outstanding. The
Table-1.6 shows that the share of the southern region was about 68.6 percent in 1990-
00 and still it has a larger share of 55 percent in 2008-09 whereas for North-Eastern
region it was 0.17 and 2.84 percent respectively. In the Southern region, the progress
was impressive because the movement was facilitated in the State and region-specific
developed by NABARD in consultation with Banks, NGOs and the State
Government.13

12
Seibel, Hans D. and H.R. Dave. (2002), Commercial Aspects of SHG Banking in India, Paper
presented at the Seminar on SHG-banl Linkage programme at New Delhi, November 25-26, 2002.
13
Vikas Batra and Sumanjeet (2011), The Sate of Microfinance in India: Emergence, Delivery Models
and Issues, AIUB Bus Econ Working Papers Series, No 2011-02, http:orp.aiub.edu/.

23
 A Study of Self Employment Opportunities through Microfinance

Table No. 1.6:- SHG-Bank Linkage Programme-Regional Spread of Physical

Progress (Cumulative)
Regions
Year Northern North Eastern Central Western Southern All India
Eastern
1999-00 3222 196 9398 15256 7983 78720 114775
(2.81) (0.17) (8.19) (13.29) (6.96) (68.59) (100)
2000-01 9012 447 22258 28581 15543 187690 263531
(3.42) (0.17) (8.45) (10.85) (5.9) (71.22) (100)
2001-02 19321 1490 45892 48181 29318 317262 461464
(4.19) (0.32) (9.94) (10.44) (6.35) (68.75) (100)
2002-03 34923 4069 90893 81583 42180 463712 717360
(4.87) (0.57) (12.67) (11.37) (5.88) (64.64) (100)
2003-04 52396 12278 158237 217009 54815 674356 1169091
(4.48) (1.05) (13.54) (18.56) (4.69) (57.68) (100)
2004-05 86018 34238 265628 197365 92266 938941 1614456
(5.33) (2.12) (16.45) (12.22) (5.71) (58.16) (100)
2005-06 133097 62517 394351 267915 166254 1214431 2238565
(5.95) (2.79) (17.62) (11.97) (7.43) (54.25) (100)
2006-07 182018 91754 525881 332729 270447 1522144 2924973
(6.22) (3.14) (17.98) (11.38) (9.25) (52.04) (100)
2007-08 134783 103424 753048 326763 446550 1861373 3625941
(3.72) (2.85) (20.77) (9.01) (12.32) (51.33) (100)
2008-09 166087 117609 893126 326602 357775 2283992 4145191
(4.01) (2.84) (21.55) (7.88) (8.63) (55.1) (100)
2009-10 152491 133785 1027570 497922 457476 2582112 4851356
(3.14) (2.75) (21.18) (10.26) (9.43) (53.22) (100)
2010-11 149109 150021 1105533 358872 316821 2786408 4786763
(3.11) (3.13) (23.09) (7.50) (6.62) (58.21) (100)
2011-12 212041 159416 985329 352452 289472 2355732 4354442
(4.87) (3.66) (22.63) (8.09) (6.65) (54.10) (100)
2012-13 213955 143660 1020656 362521 295451 2415191 4451434
(4.81) (3.23) (22.93) (8.14) (6.64) (54.26) (100)
Source: SHG-Bank Linkage, Status of Microfinance, Various years, NABARD.
Note: The figures in the parenthesis are the percentage value.

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 A Study of Self Employment Opportunities through Microfinance

It is seen that the southern region is also progressing quite impressive in 2012-13.
This region is leading in India throughout the period as compared to other regions. It
is also found that the progress of all regions is quite stagnant during 2009-10 and
2012-13.

The top five states in terms of loans outstanding accounted for 74 per cent of total
loans in the country. Andhra Pradesh with 36 per cent share and Tamil Nadu with 14
per cent share of total loans indicate little left for other states. In terms of average
loans outstanding, Karnataka occupied the top position with Rs. 1,10,300 per group
which was 88 percent more than the national average of Rs.58,370 per group . In
recent years, NABARD has initiated special measures to stimulate the low growth
states.14

As far as Saving Balances, Loan Disbursements and Loan Outstanding of SHGs-Bank

Linkage are concerned, it is found that there is a rising trend in saving balance over
the year from 2008-09 to 2012-13 (Table No. 1.7). The Loan disbursement is also
increasing over the years. The loan outstanding is tremendously increasing the years.

From the Figure No. 1.1, it is seen that during 2008-09, saving growth rate was about
46 percent. The loan disbursement growth was 38.47 percent. The loan outstanding
had increased by 33.41 percent in the year 2008-09. However, there was a drastic
change in the growth of saving, loan disbursement and loan outstanding by 11.78
percent, 17.95 percent and 23.63 percent respectively. The year 2011-12 has shown a
6.63 percent fall in saving balances. From the Figure 1.1 and Table 1.7, it is also
clearly seen that the overall growth of saving balance and loan disbursement are
increasing over the years. The growth of loan outstanding is decreasing over the
period of 2008-09 and 2012-13.

14
Roy, A. (2013), “Micro-Finance and its Inter-State Disparities in North-East India” the Echo, An
Online Journal of Humanities and Social Science” Vol-I, Issue-IV, ISSN 2278-5264. Website:
www.thecho.in

25
 A Study of Self Employment Opportunities through Microfinance

Table No. 1.7:- SHGs-Bank Linkage

Particulars 2008-09 2009-10 2010-11 2011-12 2012-13

Saving
5545.62 6198.71 7016.3 6551.41 8217.25
Balances

Growth % age 46.50 11.78 13.19 -6.63 25.43

Loan
12253.51 14453.30 14547.73 16534.77 20585.36
Disbursements
Growth % age 38.47 17.95 0.65 13.66 24.50

Loan
22679.84 28038.28 31221.17 36340 39375.3
Outstanding
Growth % age 33.41 23.63 11.35 16.39 8.35
Source: SHG-Bank Linkage, Status of Microfinance, Various years, NABARD.

Figure No. 1.1:- Highlights of SHGs-Bank Linkage

Saving Balances
40000
Loan Disbursements
35000
Loan Outstandings
30000

25000

20000

15000

10000

5000

0
2008-09 2009-10 2010-11 2011-12 2012-13

26
 A Study of Self Employment Opportunities through Microfinance

1.5.3 SHGs Credit Linkage

Though SHG–bank linkage is a savings-led and savings-linked programme,the main
thrust of the SBLP has been in the provision of microcredit. According to NABARD
data as on 31 March 1996, following the main streaming of the pilot programme, the
number of SHGs that had been credit linked had risen to 4,757 with an estimated
80,000 members. By March 1999, the cumulative number of SHGs credit-linked had
increased nearly sevenfold to almost Rs. 33,000, and further nearly eightfold in the
next two years with the figure standing at Rs.263,825 by March 2001. Table No. 1.8
gives data on the performance of SHG–bank linkage over the period 2008-09 to 2012-
13. With regard to the number of SHGs credit-linked annually, the figure rose from
Rs. 149,040 during 2000–01 (i.e., year ended on 31 March 2001)to Rs. 539,365
during the year 2004–05. The bank loan disbursed during the year went up more than
10 times from Rs. 2.87 billion in 2000–01 to Rs. 29.94billion during 2004–05.
Similarly, the average loan size per SHG increased from Rs. 19,257 in 2000–01 to
over Rs. 55,510 during 2004–05. In the initial years, most of the loans disbursed were
new loans but by 2005–06 over half of the loans were repeat loans.
The Table 1.8 shows the positions of SHG Savings with Banks as on 31March, Loans
Disbursed to SHGs during the year, Loans Outstanding against SHGs as on 31 March.
These factors are in terms of Total SHGs, of which SGSY Groups, Percentage of
SGSY Groups to Total, All Women SHGs, and Percentage of Women Groups to
Total. It is found that all the figures are increasing over the period of time (2009-13).
It is seen that of the total number of saving linked and credit linked SHGs, exclusive
women SHGs with banks were 80 per cent and 85.9 per cent, respectively during
2008-09. The total number of saving linked and credit linked SHGs, exclusive women
SHGs with banks have increased to 76.4 per cent and 81.6 per cent, respectively.
Further, the percentage of loans outstanding of exclusive women SHGs to loans
outstanding of total SHGs which was 81.9 per cent as on 31 March 2009 has
increased to 82.1 per cent as on 31 March 2010.
It is also seen that of the total number of saving linked and credit linked SHGs,
exclusive women SHGs with banks were 77.9 per cent and 85.5 per cent, respectively
during 2011-12. The total number of saving linked and credit linked SHGs, exclusive
women SHGs with banks have increased to 79.3 per cent and 86.7 per cent,
respectively. Further, the percentage of loans outstanding of exclusive women SHGs
27
 A Study of Self Employment Opportunities through Microfinance

to loans outstanding of total SHGs which was 83.8 per cent as on 31 March 2012 has
decreased to 83.3 per cent as on 31 March 2013.
It is also seen that of the total number of saving linked and credit linked SGSY
Groups to total SHGs with banks were 21.3 per cent and 16 per cent, respectively
during 2011-12. The total number of saving linked SGSY Groups to total SHGs with
banks has increased to 22.2 percent and credit linked SGSY Groups to total SHGs
with banks has decreased to 10.7 percent, respectively. Further, the percentage of
loans outstanding of SGSY Groups to loans outstanding of total SHGs which was
83.8 per cent as on 31 March 2012 has decreased to 83.3 per cent as on 31 March
2013.

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 A Study of Self Employment Opportunities through Microfinance

Table No. 1.8:- Overall Progress under SHG-Bank Linkage for last 5 years
Years Particulars SHG Savings with Banks as on 31March Loans Disbursed to SHGs during the year Loans Outstanding against SHGs as on 31 March
Total Of which % of All % of Total Of which % of All % of Total Of which % of All % of
SHGs SGSY SGSY Women Women SHGs SGSY SGSY Women Women SHGs SGSY SGSY Women Women
Groups Groups SHGs Groups Groups Groups SHGs Groups Groups Groups SHGs Groups
to Total to Total to Total to Total to Total to Total

No of 61.20 15.06 24.6 48.64 79.5 16.10 2.65 16.4 13.75 85.4 42.24 9.77 23.1 32.77 77.6
SHGs (22.2%) (25.1%) (22.0%) (13.1%) (7.3%) (32.0%) (16.5%) (6.5%) (12.3%)

5545.62 1563.38 28.1 4434.03 80 12253.51 2015.22 16.4 10527.3 85.9 22679.84 5861.72 25.8 18583.54 81.9
(46.5%) (93.1%) (42.6%) (38.5%) (8.5%) 8 (33.4%) (21.7%) (39.4%)
2009 Amount
(40.8%)

No of 69.53 16.94 24.4 53.10 76.4 15.87 2.67 Ss 12.94 81.6 48.51 12.45 25.7 38.98 80.3
SHGs (13.6%) (12.5%) (9.18%) (-1.4%) (1.0%) (5.8%) (14.8%) (27.5%) (18.9%)

6198.71( 1292.62 20.9 4498.66 72.6 14453.3 2198 15.2 12429.3 86 28038.28 6251.08 22.3 23030.36 82.1
2010 Amount 11.8%) (-17.3%) (1.46%) (17.9%) (9.1%) 7 (23.6%) (6.6%) (23.9%)
(18.1%)
No of 74.62 20.23 27.1 60.98 81.7 11.96 2.41 20.1 10.17 85 47.87 12.86 26.9 39.84 83.2
SHGs
(7.3%) (19.4%) (14.8%) (-24.6%) (-9.9%) (-21.4%) (-1.3%) (3.4%) (2.2%)
7016.30 1817.12 25.9 5298.65 75.5 14547.73 2480.37 17 12622.33 86.8 31221.17 7829.39 25.1 26123.75 83.7
2011 Amount
(13.2%) (40.6%) (17.8%) (0.01%) (12.8%) (1.6%) (11.4%) (25.2%) (13.4%)
No of 79.60 21.23 26.7 62.99 79.1 11.48 2.10 18.3 9.23 80.4 43.54 12.16 27.9 36.49 83.8
SHGs
(6.7%) (5.0%) (3.3%) (-4%) (-2.9%) (-9.2%) (-9.0%) (-5.4%) (-8.4%)
6551.41 1395.25 21.3 5104.33 77.9 16534.77 2643.56 16 14132.02 85.5 36340.00 8054.83 22.2 30465.28 83.8
2012 Amount
(-6.7%) (-23.2%) (-3.7%) (13.7%) (6.6%) (12.0%) (16.4%) (2.9%) (16.6%)
73.18 20.47 28 59.38 81.1 12.20 1.81 14.8 10.37 85.1 44.51 11.93 26.8 37.57 84.4
No of
SHGs
(-8.1%) (-3.6%) (-5.7%) (6.3%) (-13.8%) (12.4%) (2.2%) (-1.9%) (2.9%)
8217.25 1821.65 22.2 6514.86 79.3 20585.36 2207.47 10.7 17854.31 86.7 39375.30 8597.09 21.8 32840.04 83.3
(-16.5%)
2013 Amount (25.4%) (30.6%) (27.6%) (24.5%) (26.3%) (8.4%) (6.7%) (7.8%)

Source: SHG-Bank Linkage, Status of Microfinance, Various years, NABARD.

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 A Study of Self Employment Opportunities through Microfinance

1.5.4 Microfinance Institutions and Bank Linkage Programme

Those institutions which have microfinance as their main operation are known as
micro finance institutions. A number of organizations with varied size and legal forms
offer microfinance service. These institutions lend through the concept of Joint
Liability Group (JLG). A JLG is an informal group comprising of 5 to 10 individual
members who come together for the purpose of availing bank loans either individually
or through the group mechanism against a mutual guarantee. The reason for existence
of separate institutions i.e. MFIs for offering microfinance are as follows:
 High transaction cost – generally micro credits fall below the break-even point
of providing loans by banks
 Absence of collaterals – the poor usually are not in a state to offer collaterals
to secure the credit
 Loans are generally taken for very short duration periods
 Higher frequency of repayment of instalments and higher rate of Default
Non-Banking Financial Companies (NBFCs), Co-operative societies, Section-25
companies, Societies and Trusts, all such institutions operating in microfinance sector
constitute MFIs and together they account for about 42 percent of the microfinance
sector in terms of loan portfolio. The MFI channel is dominated by NBFCs which
cover more than 80 percent of the total loan portfolio through the MFI channel.
In a joint fact-finding study on microfinance conducted by the Reserve Bank of India
and a few major banks, the following observations were made.
Some of the microfinance institutions (MFIs) financed by banks or acting as their
intermediaries or partners appear to be focusing on relatively better banked areas,
including areas covered by the SHG-Bank linkage programme. Competing MFIs were
operating in the same area, and trying to reach out to the same set of poor, resulting in
multiple lending and overburdening of rural households.
Many MFIs supported by banks were not engaging themselves in capacity building
and empowerment of the groups to the desired extent. The MFIs were disbursing
loans to the newly formed groups within 10–15 days of their formation, in contrast to
the practice obtaining in the SHG – Bank linkage programme, which takes about six
to seven months for group formation and nurturing. As a result, cohesiveness and a
sense of purpose were not being built up in the groups formed by these MFIs.

30
 A Study of Self Employment Opportunities through Microfinance

Banks, as principal financiers of MFIs, do not appear to be engaging them with regard
to their systems, practices and lending policies with a view to ensuring better
transparency and adherence to best practices. In many cases, no reviews of MFI
operations were undertaken after sanctioning the credit facility.
Based on the data available in the report of NABARD, in 2009-10, banks have
financed to 779 MFIs with bank loans of Rs.10728.50 crore as against 581 MFIs with
bank loans of Rs. 3,732.33 crore during 2008-09, representing growth rate of 187.4
percent in bank loans disbursed. As on 31 March 2010, the outstanding bank loans to
1659 MFIs was Rs.13955.75 crore as against Rs. 5009.09 crore to 1915 MFIs as on31
March 2009, showing doubling of bank loan over the previous year. It is shown in
Table No. 1.9.

Table No. 1.9:- Progress under MFI Bank-linkage Program (in Crores)
Particulars 2008-09 2009-10 2010-11 2011-12 2012-13
No. of Amount No. of Amount No. of Amount No. of Amount No. of Amount
MFIs MFIs MFIs MFIs MFIs

Loan Disbursed
581 3732.33 779 10728.50 471 8448.96 465 5205.29 426 7839.51
by Banks to
(12.2%) (89.4%) (34%) (187.4%) (-39.5%) (-21.3%) (-1.3%) (-38.39%) (-8.4%) (50.6%)
MFIs
Loan
Outstanding 1915 5009.09 1659 13955.75 2315 13730.62 1960 11450.35 2042 14425.84
against MFIs (72.7%) (82.2%) (-13.4%) (178.6%) (39.5%) (-2.0%) (-15.3%) (-16.6%) (4.2%) (26.0%)

As on 31 March
Fresh loan as %
of Loan - 74.5 - 76.9 - 61.5 - 45.5 - 54.3
Outstanding
(Figure in the parenthesis indicates growth/decline over the previous year)
Note: Actual No. of MFIs availing loans from Banks would be less than the figures shown as most of
the MFIs avail loans from more than one bank/ more than one loan account
Source: SHG-Bank Linkage, Status of Microfinance, Various years, NABARD.

Further, in 2012-13, banks have financed to 426 MFIs with bank loans of Rs.7839.51
crore as against 465 MFIs with bank loans of Rs.5205.29 crore during 2011-12,
representing growth rate of 50.6 percent in bank loans disbursement. As on 31 March
2013, the outstanding bank loans to 2042 MFIs was Rs.14425. 84crore as against
Rs.11450.35 crore to 1960 MFIs as on31 March 2012, showing big rise of bank loan
over the previous year (Figure No. 1.2). As far as fresh loan is concerned, it is 74.5
percent of loan outstanding during 2008-09. It increased to 76.9 percent in 2009-10.
Since 2010, fresh loan against loan outstanding has been decreasing. It was 61.5

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percent of total loan outstanding and reached to 54.3 percent in 2012-13 (Figure No.
1.3). However, there is an improvement in 2012-13 as compared to 2011-12.

Figure No. 1.2:- Amount of Loan Disbursed by Banks to MFIs and Loan
Outstanding against MFIs as on 31 March
30000 Loan Outstanding against
MFIs As on 31 March
Loan Disbursed by Banks
25000 to MFIs

20000

15000

10000

5000

0
2008-09 2009-10 2010-11 2011-12 2012-13

Figure No. 1.3:- Fresh Loan Disbursed by Banks to MFIs as percentage (%) of
Loan Outstanding against MFIs as on 31 March
90
Fresh loan as % of
80 Loan Outstanding
70
60
50
40
30
20
10
0
2008-09 2009-10 2010-11 2011-12 2012-13

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1.5.5 Progress under MFI Bank-linkage Program Agency wise

During the year 2009-10, SIDBI had financed to 88 MFIs with financial as assistance
of Rs. 2665.75 crore and the loan outstanding against 146 MFIs as on 31 March 2010
was Rs. 3808.20 crore. Further, it has decreased to 41 MFIs with financial assistance
of Rs.408.27 crore and the loan outstanding against 102 MFIs was Rs. 1880.63 crore
as on 31 March 2013 (Table No. 1.10).

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Table No. 1.10:- Loans to MFIs by Banks / Financial Institutions

Loan disbursed to MFIs during Loan outstanding against MFIs as
Financing
Period the year ( in crores) on 31 March (in crores)
Agency
No. of MFI Amount No. of MFI Amount
2006-07 327 1,151.34 541 1,584.27
2007-08 497 1,968.60 1,072 2,745.24
2008-09 522 3718.93 1,762 4,977.89
All Commercial
2009-10 645 8038.61 1407 10095.32
Banks
2010-11 460 7601.02 2153 10646.84
2011-12 336 4950.98 1684 9810.98
2012-13 368 7422.66 1769 12467.72
2006-07 7 0.22 8 .20
2007-08 8 1.51 24 3.58
2008-09 59 13.40 153 31.20
Regional Rural
2009-10 46 24.14 103 52.22
Banks
2010-11 9 4.16 23 42.01
2011-12 113 13.28 128 37.51
2012-13 14 4.58 153 70.66
2006-07 0 0 1 0.01
2007-08 13 0.04 13 0.02
2008-09 0 0 0 0
Cooperative
2009-10 0 0 3 0.01
Banks
2010-11 NA NA NA NA
2011-12 4 1.61 19 4.75
2012-13 3 4.00 18 6.83
2009-10 88 2665.75 146 3808.20
2010-11 2 843.78 139 3041.77
SIDBI
2011-12 12 239.42 129 1597.11
2012-13 41 408.27 102 1880.63
2006-07 334 1151.56 549 1584.48
2007-08 518 1970.15 1109 2748.84
2008-09 581 3732.33 1915 5009.09
Total 2009-10 779 10728.5 1659 13955.75
2010-11 471 8448.96 2315 13730.62
2011-12 465 5205.29 1960 11450.35
2012-13 426 7839.51 2042 14142.32
Source: SHG-Bank Linkage, Status of Microfinance, Various years, NABARD

As far as Cooperative Banks are concerned, it had financed to 13 MFIs with financial
assistance of Rs.0.04 crore and the loan outstanding against 13 MFIs as on 31 March
2008 was Rs.0.02 crore. Further, it has decreased to 03 MFIs with financial
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assistance of Rs.4 crore and the loan outstanding against of 18 MFIs was Rs. 6.83
crore as on 31 March 2013.
During the year 2009-10, Regional Rural Banks had financed to 59 MFIs with
financial assistance of Rs.13.4 crore and the loan outstanding against 153 MFIs as on
31 March 2010 was Rs.31.2 crore. Further, it has increased to 113 MFIs with
financial assistance of Rs.13.28 crore and the loan outstanding against of 128 MFIs
was Rs. 37.51 crore as on 31 March 2012. However, it has decreased to 14 MFIs with
financial assistance Rs. 4.58 crore at the end of financial year 2013. The loan
outstanding against of 153 MFIs was Rs. 70.66 crore on March 2013.
All commercial banks including public and private banks have provided loan to 327
MFIs during 2006-07. It increased to 645 MFIs as on 31 March 2010. Then, it started
decreasing and reached to 368 MFIs in the year 2012-13. The loan disbursed to MFIs
was Rs. 1151.34 crore during 2006-07. It increased to Rs.8038.6 crore in 2009-10.
The loan disbursed to MFIs had decreased to Rs. 4950.98 crore in the year 2011-12.
However, it has touched to Rs7422.66 crore as on 31 March, 2013. As far as loan
outstanding is concerned, as on 31 March 2007, it was Rs.1584.27 crore and it has
gradually increased and reached to Rs. 10646.84 crore in the year 2010-11. The loan
outstanding has reached at Rs.12467.72 crore as on 31 March 2013.

1.5.6 Comparison of Loan Outstanding and Non Performing Assets of SHG and
MFIs as on 31st March
As far as Comparison of Loan Outstanding and Non Performing Assets of SHG and
MFIs is concerned, it is found that the loan outstanding of SHGs was Rs. 21561 crore
against loan outstanding of MFIs as Rs.5009 crore. The non performing assets (NPAs)
of SHGs were Rs. 625 crore against Rs. 66 crore for MFIs. There is a rising trend of
loan outstanding and NPAs of SHGs and MFIs since 31 March 2009. It is shown in
the Table No. 1.11. The loan outstanding and NPAs for SHGs are Rs. 39375 crore and
Rs.2786 crore as on 31 March 2013. On the other hand the loan outstanding and
NPAs for MFIs are Rs. 14425 crore and Rs. 885 crore respectively as on 31 March
2013.

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Table No. 1.11:- Loan Outstanding VS NPAs (Rs. Crore)

Years SHGs Loan MFIs Loan SHGs-NPAs MFIs-NPAs
Outstanding Outstanding
2009 21561 5009 625 66
2010 28038 13955 823 94
2011 31221 13730 1474 133
2012 36340 11450 2212 254
2013 39375 14425 2786 885
Source: Status of Microfinance in India, NABARD, 2012-13
Note: (MFIs (NPA) figures-reported at bank level, does not include restructured assets)

Figure No. 1.4:- Loan Outstanding VS NPAs (Rs. Crore) of SHG and MFIs
Bank loan-Trends as on 31st March

Source: Status of Microfinance in India, NABARD, 2012-13

From the above figure, it is seen that there is a steady growth trend in SHG loan
outstanding, where as the NPAs of SHGs bank loan has steep growth trend for the
period 2008-09 and 2012-12. But, there is an unstable growth trend in MFIs loan
outstanding, where as the NPAs of MFIs bank loan has more steady growth trend up
to year 2011-12 and after that there is steep growth trend since the year 2011-12.
The Microfinance programme has become one of the popular concepts of financing
the poor for self-employment. In India it has grown at a tremendous pace in recent

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years, but the major concentration is in the Southern states. The performance of
North-Eastern Region was worst. Moreover, there are huge inter-state variations
among the regions of India. The differences in the progress of SHGs scheme in all the
regions are mainly due to lack of geographical positions, literacy, proper
communication, and in addition to the differences between the activities and
availability of the banking agencies.
The growth rate of SHG savings, Bank loan and outstanding bank loan is increasing
in India over the period of time. It is also found that that the growth rate of SHGs
having outstanding bank loan is poor compare to RRBs and Co-operative Banks. But
in case of growth amount of outstanding bank loans to the SHGs, Commercial Banks
again shows highest growth rate compare to the other agencies.
This may be concluded that the loan disbursements to MFIs are increasing but there is
an unsteady growth rate. The loan outstanding of MFIs is also increasing over the
period of time. It is also found that that the growth rate of MFIs having outstanding
bank loan is poor in case of RRBs and Co-operative Banks, but in case of growth
amount of outstanding bank loans to the MFIs, Commercial Banks again shows
highest growth rate compare to the other agencies. A greater concentration of micro
finance is possibly owing to the already well-developed banking infrastructure in the
states but it further reinforces the existing inequality between states in the
development of banking infrastructure.
Comparing SHGs and MFIs, it is also found that there is a steady growth trend in
SHG loan outstanding, where as the NPAs of SHGs bank loan has steep growth trend.
But, there is an unstable growth trend in MFIs loan outstanding, where as the NPAs of
MFIs bank loan has more steady growth trend.
Thus it may be concluded that the micro finance sector in India is at an inflexion point
with new generation of MFIs and commercial bank driving rapidly. Micro-finance is
one of the ways of building the capacities of the poor and graduating them to
sustainable self-employment activities by providing them financial services like
credit, savings and insurance. To provide micro-finance and other support services,
MFIs should be able to sustain themselves for a long period.

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1.6 INDORE DISTRICT

The Indore district is one of the well-known districts in the state of Madhya Pradesh
in India. This district is located on the Malwa plateau. According to 2011 Population
census, population of Indore District stands at 32,72,335. Following cities and towns
are included in Indore district: Betma, Depalpur, Hatod, Indore, Manglaya sadak,
Mhow, Mhowgaon, Palda, Rau, Runji Gautampura, Sawer. Out of these present study
is based on 6 selected towns/cities namely Indore, Rau, Mhow, Sawer, Hatod and
Depalpur.
Indore District is not only culturally diversified but also it is viable. Indore District
has wider scope in finance, research, media, technology art, fashion, political affairs
and many more. As Indore District engaged with small medium, large and service
Industries, it build development opportunities and penetrate markets. In Indore district
at one end we can see Automobile Industries, fabric dealing, software industries at
another end the district diversified itself to Pharmaceuticals sectors, freehold property
and retailers. As these sectors are broadly diversified and is having wider scope, it
gives growth to employment opportunities. In Indore district most of the poor people
living in rural region or slum areas of city. Indore district comes under rural and semi
urban areas, where people have to earn daily.
It has been recognized that if right track and opportunity exist, poor people who wish
to come out of poverty can increase their economic status. Generally poor people
engaged in farming, herding activities, fish folk sellers, operating micro enterprises
where goods are repaired, recycled, work for wages in small industries, gained
income from selling / renting a part of land, working in others home as maid/cook,
involving in stitching activities, make home made products and put them in market for
sale, establish small kiosk centre i.e. kirana store, eggs, papad etc. These poor people
hesitate to enter in bank, are not able to understand the paper / documents formalities
for small amount of loan and in fact Banks do not provide small amount of loan. In
such cases various Microfinance Organizations like NGOs, MFIs approaches to
people by offering them different kinds of small loan who are registered under it with
no collateral. In Indore District Mainly two model are more in demand: 1) through
MFIs 2) SHGs. In Indore district around 90,000 people are associated and obtain the
services of these models. The present study titled, “A study of self employment

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opportunities through microfinance” puts an effort on examining the impact of

microfinance in generating employment opportunities, socio-economic conditions and
women empowerment of Indore District.

INDORE
The Indore City is metropolitan area is fastest developing city of central India. Indore
is commercial capital of Madhya Pradesh. According to Indian census 2011, Indore is
the most populous city in the central India, with an estimated 23,84,382. It boasts all
well developed industrial areas like pithampur and sanwer. Indore is the growing
education hub and is the only city that has both Indian Institute of Management (IIM)
and Indian Institute of Technology (IIT). As Indore expands it share its border with
two cities, Ujjain and industrial town called Dewas. It is well connected by road, rail
and air. India‟s third largest stock exchange is Madhya Pradesh stock exchange.

RAU
Rau, an urban area is situated on national Highway 3, connected with Indore City-
Mhow and Pithampur. There is a municipal corporation in Rau and these areas come
under the control of Indore collector. Rau is not only an electoral area but also is well
known for educational domain. Numerous management colleges like Indian Institute
of Management, Engineering colleges affiliated to DAVV and RGTU are located in
Rau. As per 2011 India census, the total population of Rau consist of 83,124. The
average literacy rate of Rau is 71.8% which is quite good.

MHOW- A MILITARY AREAS

In some articles it was revealed that MHOW stands for Military Headquarters‟ of
wars, therefore Mhow is well known for military areas. Several police quarters are
founded in Mhow. As per 2011 India Census, population of MHOW is around
304,363. Whether its‟ Indian army or doctors Mhow is training and research centres
where people are provided a platform to learn new things, enhance their knowledge
and explore it. The average literacy rate of Mhow is 76%.

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MAP OF MADHYA PRADESH

Source: www.mapsofindia.com

MAP OF INDORE

Source: www.mapsofindia.com

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SAWER
It is a small town which has its root in Ujjain. Total population of Sawer Tehsil is
188,172. Sawer is now becoming residential area, concentrates on development of
new projects. This town comes under urban city and is famous for steel industries.

DEPALPUR
Depalpur (now called Bade Gaun) which were earlier stated as one of the 10 mahals
of Ujjain Sarkar in Malwa Subah, becomes a division of Indore. Presently the
population of Depalpur is 211,603 (as per Census 2011). This village is famous for
involvement of various political parties.

HATOD
Hatod is another town in Indore District. This town has Nagar Panchayat / Nagar
Parishad. According to India Census 2011, the total population of Hatod is 100,691.
As it is totally bucolic area, average literacy rate is even lower than that of Depalpur.
People living in Hatod engaged in agriculture or trading activities.
The idea behind this study is to know about the impact of micro finance on people of
Indore District. Therefore the prime criterion for choosing a particular District is to
focus on rural, urban, Industrial, service sector class and the people of slum areas who
become self employed after accessing microfinance.

1.6.1 Profile of Microfinance in Indore

There are many microfinance institutions, which are working in Indore. These
microfinance institutions are providing credit and other financial services and
products of very small amounts to poor in rural, semi-urban and urban areas for
enabling them to raise their income and improve their standard of living. Earlier,
usually, rural poor depends on non-institutional agencies for their financial
requirements. Micro financing has been successful in taking institutionalized credit to
the doorstep of poor and have made them economically and socially sound. Due to
effective microfinance acceptance in Indore district, poor people are getting
employment. It is also helping them to improve their entrepreneurial skills and
encourage them to exploit business opportunities. As employment increases, income
level also increases, which in turn reduces poverty. Normally more than 50% of SHGs
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 A Study of Self Employment Opportunities through Microfinance

are formed by women. Now they have greater access to financial and economical
resources. It is a step towards greater security for women. Thus microfinance
empowers poor women economically and socially.
Microfinance is developing saving habits among poor people. Now poor people with
not enough income are also saving and are using banking facility. The financial
resources generated through savings and micro credit obtained from banks are utilized
to provide loans and advances to its members. Thus microfinance helps in
mobilization of savings.
Micro financing has been a boon to potential rural entrepreneurs. SHGs encourage its
members to set up business units jointly or individually. They receive training from
supporting institutions and learn leadership qualities. Thus micro finance is indirectly
responsible for development of skills. Microfinance is also promoting mutual help and
cooperation among SHG members. The collective efforts of group are promoting
economic interest and helps in achieving socio-economic welfare. With employment
generation, the level of income of people increases. The poor are getting better
education, health, family welfare etc. Thus microfinance leads to social welfare or
betterment of society.

Working of Microfinance: Working of microfinance is same in Indore district as the

branches of micro finance Institutions are widely spread. An officer of particular
Microfinance Institution approach to women with some document formalities and
open the way for them by providing micro loans. These loans are provided between
the ranges of Rs.5,000 to Rs.30,000. The interest rate also varies between 2% to 4%
per month depending upon the amount of loan taken by women beneficiaries. Women
are required to pay interest loan amount on weekly basis or in 15 days or on monthly
basis.
With help of this loan amount some women establish their own business; some of
them give such amount to their husbands for setting up of new or further expansion of
their business or some of them use that money in their existing business.
There are various microfinance institutions listed in table No. 1.12 of Indore City
through which loan disbursement process takes place. These Microfinance Institutions
provide loan to women in group of minimum 5 and maximum 16.

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Table No. 1.12:- List of Some Microfinance Institutions and SHGs working in
Indore District.
S. No. Name of MFIs in Indore District

1. SKS Microfinance Ltd (SKSMPL)

2. Share Microfin Limited (SML)

3. Equitas Micro Finance India P Ltd (Equitas)

4. Setting

5. BASIX

6. Priya Sakhi(SHG)

7. Spandana Sphoorty Financial Ltd (SSFL)

8. Bandhan Financial Services Pvt Ltd (BFSPL)

9. Janalakshmi Financial Services Pvt Ltd (JFSPL)

10. Ish vandana

11. Swashraya Mahila Saakh Sahakarita marya

12. Trident

13. Anarkali(SHG)

14. Vaishnavi Samuh(SHG)

15. Guru Swayam Sahayata Samuh

16. Krishna tulsi Samajik Vikas Sanstha(NGO)

17. Disha

1.7 Rationale of the Study

Indore District engaged in Trade Commercial and service sectors. Bulk of its trade
coming from Small, medium and large scale manufacturing & service industries
connected with Pithampur and Sanwer. The former is famous for Automobiles and
Pharmaceutical industries while later has legendary in Steel. In the field of education
Indore is the only city of India that has both an Indian Institute of Management (IIM)
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and Indian Institute of Technology (IIT).As Indore expands, it shares its border with
two cities, Ujjain and an industrial town called Dewas. As technology spread out it
gives rise to Indore district; it opens the door of employment in various sectors like
service sectors; civil construction, medical, education, commercial activities and
many more. There seems a radical shifting of population to Indore.
Due to high cost living in Indore, the survival of these people becomes quite difficult
and unaffordable which adversely affected the socio-economic conditions. This
compelled people to commence their own microenterprises at part time and full time
level. Although Indore District is progressive, culturally diversified and adaptive in
nature, there is a need to figure out what low income class people do for the survival
of living, how they start up their ventures? The nature of economy of study can be
applicable at national level.

Upshots
The benefits of microfinance are very significant. It helps to manage the assets of the
poor and generates self-employment and in return it increases income. Through
microfinance institutions such as credit unions, financial non-governmental
organizations and even commercial banks poor people can obtain small loans and
safeguard their savings. With a lot of benefits, there are some limitations of
microfinance. It is seen that in micro financing process, with savings plan participants
are losing money by having to pay a fee. The microfinance users can also repay their
loans whenever they want. Therefore, the microfinance is encouraging a borrower to
have various outstanding loans. The lender is also defenseless in that there is no
guarantee of the loan being repaid in the given arranged timeframe. Thus, the
consequences to defaulting are not defined. With a majority of the customers being
illiterate, and a majority of them needing consumption loans and a majority of them
requiring high documentation and collateral security, the products are not reaching the
rural poor. The rigid systems and procedures result in lot of time delay for the
borrowers and de-motivate them to take further loans. Although the interest rate
offered to the borrowers is regulated, the transaction costs in terms of the number of
trips to be made, the documents to be furnished etc. plus the illegal charges to be paid
result in increasing the cost of borrowing. Thus, it is making it less attractive to the
borrowers. Micro-finance has historically been seen as a social obligation rather than
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a potential business opportunity. However, with all these benefits and limitations, the
microfinance is able to generate self-employment among rural and urban poor.

1.8 Organization of the study

 Chapter No. 1:- Introduction

In this chapter, focus has been given on basic features of microfinance in India. This
chapter discussed the hurdles of traditional financing system in India; origin of
microfinance; highlights the models of micro financing along with the roles and
importance of microfinance. It also includes the magnitude of SHGs and Bank
Linkage programme and Microfinance Institutions and Bank Linkage Programmes in
India as well as in Madhya Pradesh. Information of microfinance in Madhya Pradesh
is collected from secondary source. The discussion about working of micro finance in
Indore District has also been explained. Finally, with rationale of the study, this
chapter concludes.

 Chapter No. 2:- Review of Literature

In this chapter, literatures on the related subject have been collected from various
sources. Around 100 research papers has been gathered and reviewed. The collected
research papers are related to micro financing, Self Help Groups, impact of
microfinance on employment and socio-economic conditions of rural poor. The
research gap has also been identified in this chapter.

 Chapter No. 3:- Objectives & Hypothesis

In this chapter objectives and hypothesis of the study has been discussed.

 Chapter No. 4:- Research Methodology

This chapter concentrates on research methodology where a profile of study area is
discussed followed by research design including sample size and sampling method.
The description of model specification and various statistical tools in the research
have been elaborated.

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 A Study of Self Employment Opportunities through Microfinance

 Chapter No. 5:- Result & Discussion

In this chapter collected primary data has been divided into three broad sections:
(I) Analysis of demographic features of respondents
(II) Analysis of survey- On the basis of analysis and other information this part is
further sub divided into 2 sub parts according to the objectives of study i.e.
(A) Survey related to Microfinance and (B) Survey related to SHG. All these
2 sub parts have been evaluated on the basis of primary data.
(III) Hypotheses Testing-
Objective No.1- Effectiveness of Microfinance in Generation of Self
Employment Opportunities
Objective No. 2- Impact of Microfinance on Socio-Economic Condition of
People of Indore District. This part is again categorized into two sections: In
Section A, the impact of microfinance on economic condition of the
microfinance users has been analyzed and in Section B the impact of
microfinance on social conditions of the microfinance users have been
studied.

 Chapter No-6: Finding, Suggestion and Conclusion

In this chapter, findings of the research have been given. Important suggestions have
been given to increase the employment opportunities through Microfinance.

46