The Hindu Business Line : ‘Micro-finance needs new strategies to reach more’

Outreach hurdles
SHG-Bank Linkage programme has enabled more than 41 million poor household to gain access to micro finance, registering a 24 per cent growth over 2005-06.
There has been a skewed distribution of SHGs in favour of the Southern region.
The MFI model was comparatively costlier in delivery of financial services because of the low volume and size of the loan.

Our Bureau

Mumbai, Nov. 27 The Reserve Bank of India has identified large gap in the demand and supply of credit to the poor and suggests the urgent need to widen the scope, outreach and scale of financial services to cover the unreached populace.

Estimates reveal that the credit support for poor households in India is of the order of Rs 450,000 crore. Some micro level studies show that the poor still continue to depend on informal sources of credit, up to 60 per cent of the household demand.

Micro finance initiatives, which were mooted as supplementary credit delivery networks centred round two models – the SHG-Bank Linkage programme and the Micro Finance Institutions (MFIs).

These initiatives, which were started as an outreach programme, not only aimed to promote thrift and credit but made immense contribution towards empowerment of rural women. The phenomenal outreach of the SHG-Bank Linkage programme has enabled more than 41 million poor household to gain access to micro finance from the formal banking system, registering a 24-per cent growth over 2005-06.

While there have been continued efforts to improve the micro finance system and extend its outreach, the RBI has in its ’Report on Trend and Progress of Banking in India, 2006-07’ observed that the system faced certain challenges such as regional imbalances, quality of the SHGs, high cost of delivery, emergence of SHG federation etc.

The Report notes a skewed distribution of SHGs in favour of the Southern region. While the predominance of the Southern region has registered a decline in recent years on account of rapid progress in promotion and credit linkage of SHGs in other regions, the coverage has been comparatively low.

Fault lines

Following the fast growth in the SHG-Bank Linkage Programme, the quality of the SHG appears to have come under stress as now as it has taken a target-oriented approach with some Government departments promoting SHGs, inadequate incentives to NGOs for nurturing SHGs and low level skills among SHG members.

The challenge for the SHG-promoting institutions is in building capacity through training programmes, particularly due to the absence of quality resource centres at the district level.

The more critical challenge, the Report noted would be in inducing SHGs to graduate to more mature levels of enterprise, livelihood diversification, access to supply chain, linkages to capital market and appropriate production and processing technologies. The progress revealed that many SHGs turned morbid, particularly the older groups as they did not avail credit from banks after the initial few rounds.

The Report also noted that the MFI model was comparatively costlier in delivery of financial services because of the low volume and size of the loan. The report suggests the need to develop strategies for increasing the range and volume of financial services.

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