The Impact of Microfinance on

alleviation of rural poverty and social

upliftment Dr.N.Moogana Goud

Prof and DirectorSJC Institute of Technology

CHICKBALLAPUR

In the world today, 1.2 billion, 20% of the worlds

population, live on less than one dollar per day,

325 million boys and girlsdo not have access to

primary education, 856 million adult are illiterate of which

64 percent are women

In the world today, 1.2 billion, 20% of the worlds

population, live on less than one dollar per day,

325 million boys and girlsdo not have access to

primary education, 856 million adult are illiterate of which

64 percent are women

INTRODUCTION

WHAT IS POVERTY? Poverty is a situation or a condition of

people where it deprives people of their security and well-

being;  deprives people not only of safe water and

adequate food, clothing and shelter, but also education and healthcare

takes away people’s rights, and their freedom, dignity and peace of mind;

Puts people's lives in danger and robs them of their future.

As of 2010,more than 37%of India’s population of (1.35 billion) still lives below the poverty line. More than 22% of the entire rural population and 15% of the urban population of India exists in this difficult physical and financial predicament (economy watch)

Poor people usually depend mostly on informal delivery channels of finance that is offered at a high rate of interest involving the stringent recovery measures.

The poor and downtrodden has a rare accessibility to organized financial institutions, since they are unable to meet the minimum stipulation of the banks.

Forget about availing loan, they are even finding it difficult to open their savings bank account as the banks insist for the introducer to open an account

Forget about availing loan, they are even finding it difficult to open their savings bank account as the banks insist for the introducer to open an account

In this contest the Microfinance is a boom for the poor and downtrodden.

WHAT IS MICROFINANCE?

WHAT IS MICROFINANCE?

Micro credit and microfinance are relatively new terms in the field of development, first coming to prominence in the 1970s

Microfinance offers • basic financial services such as

loans, savings, money transfer services and micro insurance. means for self-empowerment.

• It enables the poor, especially women, to become economic agents of change

• they increase income, become business-owners and reduce their vulnerability to external shocks

MICROFINANCE AND MICRO CREDIT. In the literature, the terms

micro credit and microfinance are often used interchangeably

• Micro credit refers to small loans

• whereas microfinance is appropriate where NGOs and MFIs1 supplement the loans with other financial services (savings, insurance, etc)”.

PURPOSE OF STUDY

Analyze the impact of micro finance in alleviation of poverty and achieving economic growth of developing nations. To study and understand the role micro finance in alleviation of poverty and achieving socio- economic development of the developing nations with special reference to india

LITARATURE REVIEWThe researcher has reviewed the following

works from different Researchers• Robinson (2001) world Bank Report• Finca Client Assessment—2003)• Fernando. A. December 1999• (Robin.B and Rohini Pande, August 2003).• Abijit. V.Banerji July 2009• Mohammad Arifujjaman Khan and Mohammed Anisur

Rahaman, 2007 • Etc

Micro Finance in India Microfinance has made

tremendous strides in India over the years

Self Help Groups (SHGs) have become the common vehicle of development process, converging all development programmes

• SHG–Bank Linkage Programme launched by NABARD way back in synthesis of formal financial system and informal sector has become a movement throughout the country

The banks operating, presently, in the formal financial system comprises of Public Sector Commercial Banks (27), Private Sector Commercial Banks (28), Regional Rural Banks (86), State Cooperative Banks (31) and District Central Cooperative Banks (371).

It is observed that most of the banks participating in the process of microfinance have reported their progress under the programme.

Particulars 2006-07 2007-08 2008-09

No. of SHGs

Amount No. ofSHGs

Amount No. ofSHGs

Amount

A. SHG-Bank Linkage Model

Savings of SHGs with Banks as on 31 March

4160584

3512.71 5009794(20.4)

3785.39(7.8)

6121147(22.2)

5545.62(46.5)

BankLoansdisbursedto SHGsduring theyear

1105749

6570.39 1227770(11.0)

8849.26(34.7)

1609586(31.1)

12253.51(38.5)

Bank Loansoutstandingwith SHGsas on 31March

2894505

12366.49

3625941(25.3)

16999.91(37.5)

4224338(16.5)

22679.84(33.4)

Table: 1- Overall Progress under Microfinance during the last three years in India (Rs in crores )

NOTE: Data in the bracket furnished indicate the percentage of growth to previous year

Particulars 2006-07 2007-08 2008-09

No. of SHGs

Amount No. ofSHGs

Amount No. ofSHGs

Amount

B. MFI-Bank Linkage Model

Bank Loansdisbursedto MFI’sduring the year

334 1151.56

518(55.1)

1970.15(71.1)

581(12.2)

3732.33(89.4)

Bank Loansoutstandingwith MFI’sas on 31 March

550 1584.48

1109(101.6)

2748.84(73.5)

1915(72.7)

5009.09(82.2)

Table: 2- Overall Progress under Microfinance during the last three

years (Rs in crores)

SELF HELP GROUP (SHG) - BANK LINKAGE Savings of SHGs with BanksAs on 31 March 2009, total 61,21,147 SHGs were having saving bank accounts with the banking sector with outstanding savings of Rs.5,545.62 crore as against 50,09,794 SHGs having savings of Rs.3785.39 crore as on 31 March 2008, thereby having growth rate of 22.2% and 46.5% respectively.

SELF HELP GROUP (SHG) - BANK LINKAGE

Bank loans disbursed to SHGsDuring the year 2008-09, the banks financed 16,09,586 SHGs, including repeat loan to the existing SHGs, with bank loan of Rs.12,253.51 crore as against 12,27,770 SHGs with bank loan of Rs. 8,849.26 crore during 2007-08 registering a growth rate of 31.1% (No. of SHGs) and 38.5% (Bank Loan disbursed).

SELF HELP GROUP (SHG) - BANK LINKAGE

Recovery performance of Bank Loans to SHGsOn the basis of data reported by banks, out of 267 banks which have reported the recovery data, 181 banks (67.8%) had more than 80% recovery of SHG loans as on 31 March 2009 which is observed to be the same as on 31 March 2008.

Bangladesh is currently the eighth most populous country in the world with the highest population density—about 950 people per square kilometre.

Eighty percent of its population lives in rural areas and half of its population stills lives below the poverty line

Bangladesh is a champion of Micro finance

The average annual growth rate in the microfinance sector in Bangladesh over the five years 2003–2008 was 23 percent. It is expected to reach 25 percent annually over the next three years (2009–2012) as a result of growing demand for larger loan sizes.

LESSONS FROM BANGLADESH

The Indian micro-finance sector has many lessons to learn from the Bangladesh experience.

savings, micro-credit

pension, insurance

loans for business

agriculture, housing

disaster management

guardians of street children

They offer a wider choice of financial services,

S.L.NO Particulars Amt in USD

1 Gross loan portfolio 2.0 billion

2 Number of active borrowers 20.7 million

3 Average loan balance per borrower

93.1

4 Deposits 1.4 billion

5 Total assets 3.0 billion

6 Number of depositors 25.2 million

As on 2008 Bangladesh Performance

IMPACT OF MICRO FINANCE ON SOCIO ECONOMIC DEVELOPMENT

• microfinance made a big impact in bringing socio economic reformation in developing countries.

• The poor and downtrodden has a accessibility to organized financial institutions

• Microfinance sector has covered a long journey from micro savings to micro credit and then to micro enterprises and now entered the field of micro insurance, micro remittance, micro pension and micro livelihood.

• They have joined hands proactively with informal delivery channels to give microfinance sector the necessary momentum

• Littlefield, Murduch and Hashemi (2003, p.4) state that access to MFIs can empower women to become more confident, more assertive

• Microfinance interventions have also been shown to have a positive impact on the education of clients’ children.

• Robinson (2001) in a study of 16 different MFIs from all over the world shows that having access to microfinance services has led to an enhancement in the quality of life of clients, an increase in their self-confidence, and has helped them to diversify their livelihood security strategies and thereby increase their income.

• the NABARD Data on Microfinance shows that – There is substantial growth in respect of savings of

the people through SHG’s i.e. 46.5% in 2008-09 only against the growth of 7.8% in the year 2007-08.

– The loan disbursement and loan disbursement is also growing at the rate of 35% and above.

CONCLUSIONThe emergence of microfinance concept in the

year 1972 has brought new hopes to the people living in the developing countries. More specifically it had a definite strategy at empowering rural women who were hitherto the unsung leaders in the rural economy in different developing nations. India and Bangladesh have seen the tremendous turnaround in their rural economy due to the impact of microfinance. Thus microfinance has played a vital role in alleviation of rural poverty and social upliftment in many developing nations.