Microfinance is a novel economic development tool aimed at alleviating poverty through financial inclusion, socioeconomic empowerment, and self-sufficiency. By virtue of a large and poor population, India is one of the largest microfinance markets in the world. Microfinance is a type of banking service that is provided to low-income or unemployed individuals who do not have access to typical banking services. Ultimately, the goal of the field is to give these individuals the opportunity to become self-sufficient and sustainably lift themselves out of poverty. Microfinance is a general term used to encompass a vast variety of financial services to serve the poor, such as microcredit, micro savings, micro insurance, and fund transfers. The two main mechanisms for the delivery of these financial services are: (1) relationship-based banking for individuals and (2) group-based models for several individuals to come together to apply for loans and other services as a team.

Background:

The beginning of the micro finance movement in India was started way back in 1992 with National Bank for Agriculture and Rural Development (NABARD) initiating self-help group (SHG) bank linkage programmes. In the initial stages, micro finance institutions (MFIs) are functioning mainly as societies, trusts and co-operatives. The extent to which micro finance programs are able to reach the poorest of the poor remains an open debate. Access to finance and inexperience are the dominant factors distressing small business owners in the current down turn.

Several studies have been conducted in India and abroad which focus on the nature of microfinance institutions, their functioning and role in income mobilization of the rural poor and those who do not have regular employment. Studies which were devoted to microfinance impact include Pitt and Khandker (1996, 1998), McKernan (1996), Zeller, Diagne and Mataya (1998), Mcnelly and Dunford (1998), Diagne and Zeller (2001), Zeller et al. (2001) and Kondo et al. (2008). These impact studies have contributed immensely towards empirically explaining the impact of microfinance on poverty. Microfinance has been termed as instrumental to uplift lively hood of downtrodden people in developing societies.

Indian Context:

In India more than 65% of the population lives in villages and most of these villages are underdeveloped. Research and development sector in our country brings number strategies in favour of these people every year. Implementation of these technologies in the rural sector can alleviate poverty, create employment opportunities and generate good growth. However, for implementing these technologies micro financing through public and private sector agencies is the need of the hour. Microfinance can be a critical element of an effective poverty reduction strategy. Improved access and efficient provision of savings, credit, and insurance facilities enable the poor to smoothen their consumption, manage their risks better, build their assets gradually and develop their micro enterprises. Government, NGOs and other financial institutions have introduced various welfare schemes and activities to reduce poverty. Microfinance, by providing small loans and savings facilities to those who are excluded from commercial financial services has been developed as a key strategy for reducing poverty throughout the world. In India, a substantial microfinance system based on self-help groups(SHGs) was developed. It allows poor people to protect, diversify and increase their sources of income, the essential path out of poverty and hunger.

Objectives:

(i) To analyze the growth of microfinance sector developed in India and to see the potential for the microfinance institutions, NGOs, SHGs in the market.

(ii) To analyze the structure and pattern of microfinance programme in rural Indian by the MFIs, NBFCs.

(iii) To understand the nature and scope of micro-credit and its relationship with poverty alleviation.

(iv) To find out issues and challenges faced by micro finance institution.

(v) To understand the impact of micro credit on marginalized sections of the society

In Globalization:

In recent years, especially after globalization wave, micro-finance in India has become an important tool for rural development and poverty alleviation. We have many a number of microfinance institutions including NGOs, NBFIs and Government agencies had intensively intervened. Government as well as NGO’s along with others is doing efforts to boost up the credit flow in rural area and slumps in especial in urban centers. The massive step taken by the NABARD on SHG- Bank Linkage Programme is really commendable which latter considered as one of the biggest microfinance interventions in the world. According to Reserve Bank of India, SHGs may be registered or unregistered group of people, mostly micro-entrepreneurs having homogeneity in their socioeconomic background, who join hands together to contribute regular savings to a common fund and meet their emergency needs on mutual help basis.

The pressure from the lending agencies ensures the best use of credit use and timely repayments. The peer pressure and collective wisdom substitute the collateral for loans. In most of the developing countries today, more and more emphasis is laid on the need for development of women and their active participation in the main stream of development process. It is also a fact that apart from managing household, bearing children, and poor women bring income with productive activities ranging from traditional work in the fields to working in factories or running small and petty businesses. It is widely established that women can be better entrepreneurs and development managers in any kind of human development activities in comparison to others. Therefore, it is very necessary to make poor women empowered in taking decisions to enable them to be in the central part of any human development process. In India, women entrepreneurs face many difficulties in establishing an enterprises with compared to men entrepreneurs. Among them are negative socio-cultural attitudes, legal barriers, practical external barriers, lack of education and personal difficulties. In spite of this for women and especially for poor women, micro-enterprise ownership has emerged as a strategy for economic survival.

Poverty: Global Issue:

Perhaps poverty, being a global phenomenon especially in developing world creating many hindrances to development. It is omnipresent in the global context with its varied genesis and dimensions. The third world countries are the main sufferers which are facing serious challenges before development paradigm. India is among those third world countries which are more or less spending a huge amount on poverty alleviation. Since Independence, the Government of India has taken several initiatives to tackle the scourge of poverty through area development approach and or sectorial approach. The percentage of persons below the Poverty Line in 2011-12 has been estimated as 25.7% in rural areas, 13.7% in urban areas and 21.9% for the country as a whole. The respective ratios for the rural and urban areas were 41.8% and 25.7% and 37.2% for the country as a whole in 2004-05. It was 50.1% in rural areas, 31.8% in urban areas and 45.3% for the country as a whole in 1993-94. In 2011-12, India had 270 million persons below the Tendulkar Poverty Line as compared to 407 million in 2004-05, that is a reduction of 137 million persons over the seven year period.

According to the NITI Aayog (earlier Planning Commission), during the 11-year period 1993-94 to 2004-05, the average decline in the poverty ratio was 0. 74% points per year. It accelerated to 2.18% points per year during the 7-year period 2004-05 to 2011-12. Therefore, it can be concluded that the rate of decline in the poverty ratio during the most recent 7-year period 2004-05 to 2011-12 was about three times of that experienced in the 11-year period 1993-94 to 2004-05. It is important to note that although the trend decline documented above is based on the Tendulkar poverty line which is being reviewed and may be revised by the Rangarajan Committee, an increase in the poverty line will not alter the fact of a decline. While the absolute levels of poverty would be higher, the rate of decline would be similar. To illustrate the point, details about the magnitude of decline in poverty ratio at various levels above and below the Tendulkar Poverty Line.

Much has been said that poverty eradication is not only a development goal. It is a central challenge for human rights in the 21st century. It is necessary to consider things like increase the income levels of the poor, reduce their vulnerability, and increase their self-confidence and dignity at the time of framing policy for eradication of poverty. In this regard, Micro finance is often advocated as a solution to multiple social problems in order to minimize poverty impact on masses. It was felt that poor households with access to credit can make investments that bring them out of poverty, household and regional income and wealth disparities are reduced. A large number of micro finance institutions that serve the poor have modified their micro finance products so as to make them more responsive to poor and small businessmen in both rural and urban contexts. In this study attempt has been made to find our answer of the following questions:

1. What is the nature and scope of Micro finance institutions in India?

2. How Micro finance institutions are playing an important role for eradication of poverty both at rural and urban level?

3. What are the problems faced by these beneficiaries of micro finance?

4. To what extent beneficiaries are having awareness about micro finance?

Poverty Estimation in India:

The methodology for estimation of poverty followed by the NITI Aayog has been based on the recommendations made by experts in this field from time to time. In December, 2005, Planning Commission constituted an Expert Group under the Chairmanship of Prof. Suresh D. Tendulkar to review the methodology for estimation of poverty. The Tendulkar Committee submitted its report in December 2009 and computed poverty lines and poverty ratio for 2004-05. For comparison they also computed poverty line and poverty ratio for 1993-94 with identical methodology.

The next Large Sample Survey of Household Consumer Expenditure was conducted in 2009-10. Following the Tendulkar Committee methodology, Planning Commission made estimates of poverty for 2009-10 which were released through a Press Note on 19th March 2012. Since several representations were made suggesting that the Tendulkar Poverty Line was too low, the Planning Commission, in June 2012, constituted an Expert Group under the Chairmanship of Dr. C. Rangarajan to once again review the methodology for the measurement of poverty. Tendulkar methodology uses implicit prices derived from quantity and value data collected in household consumer expenditure surveys for computing and updating the poverty lines. The Rangarajan Committee is deliberating on this issue. Since the data from the NSS 68th round (2011-12) of Household Consumer Expenditure Survey is now available, the Planning Commission has updated the poverty estimates for the year 2011-12 as per the methodology recommended by Tendulkar Committee.

Estimates for 2011-12:

For 2011-12, for rural areas the national poverty line using the Tendulkar methodology is estimated at Rs. 816 per capita per month and Rs. 1, 000 per capita per month in urban areas. Thus, for a family of five, the all India poverty line in terms of consumption expenditure would amount to about Rs. 4, 080 per month in rural areas and Rs. 5, 000 per month in urban areas. These poverty lines would vary from State to State because of inter-state price differentials.

Micro Finance and Poverty Alleviation:

Microfinance and poverty alleviation has been very closely associated with each other. Poverty has been a core issue to development in all the developing countries. Huge amount has been spent on the poverty targeted programs since planning era started in India. The role playing participation of public sector banks in improving economic status of rural and urban poor have proven that poverty cannot be eradicated only through some programs. Hence, it is very pertinent to note that micro finance can also play a very important role.

Thus, it has been replicated (from the Grameen Bank model) in countries such as the United States hence disproving the notion that developed countries cannot learn from the developing ones, where the movement was started. Developed countries such as the US realized the potential embedded in the provision of microfinance to the poor (Carr and Zhong, 2002). According to Carr and Zhong (2002), the developed country (i. e., USA) also learnt from a developing country (i. e., Bangladesh) about microfinance. Magner (2007) observes that from previous studies and research, it is clear that microfinance is importantly a catalyst for the alleviation of poverty.

Role of Micro Finance:

Self-Employment:

Micro finance has been instrumental to uplift living standard of the poor people in every country. Poverty cannot be alleviated only through government jobs. Self-employment is very much necessary to eradicate poverty. It has long been a high priority for the Government of India to generate self-employment. Therefore, microfinance has been an experimental tool in its overall strategies for development of the poor sections of the society. Most of poor people manage to optimize resources over a time to develop their enterprises. Financial services could enable the poor to leverage their initiative, accelerating the process of generating incomes, assets and economic security. However, conventional finance institutions seldom lend down-market to serve the needs of low-income families and women-headed households. Therefore, fundamental approach is to create the self-employment by financing the rural poor through financial institutions. Microfinance, thus, creates the hope and increases the self-esteem of the poor by giving the opportunities to be employed.

Women Empowerment:

Women empowerment through micro finance has been experienced a major success in all the developing countries. In rural and urban areas, women living below the poverty line are unable to realize their potential. It is, currently being promoted as a key strategy for simultaneously addressing both poverty alleviation and women‘s empowerment. The self-help group (SHGs) of women as sources of microfinance has helped them to take part in productive activities. The participation of women in SHGs made a significant impact on their empowerment both in social and economic aspects. Vast sections of the rural poor are even now deprived of the basic amenities, opportunities and oppressed by social customs and practices. Several programmes were implemented by various governments and non-governmental organizations to uplift them both economically and socially. In India, it has been an accepted principle that women were not given enough opportunities to involve themselves in the decision making process of the family as well as in the society. However, since the last decade, women have been given due weightage in decision making bodies such as Panchayats, Legislative Assemblies, Lok Sabha and Rajya Sabha. Such efforts have brought women in the mainstream of the development process. Microfinance is termed as an effective way to assist and empower poor women, who make up a significant proportion of the poor and suffer from poverty. Following is an example to empower women in order to play effective role in transforming their status.

‘Parivartan’---An SHG --Driver of change:

‘Parivartan’ is one of the SHG which was formed initially by a group of 4 courageous women in order to assist widows of the persons who died due to bad drinking (alcohol etc. ) habits in slumps called ‘Shikaribas Mohalla’ of urban area of Alwar. For this holly purpose, they formed a group of some women called ‘Parivartan’ in order to all widows.Initially many difficulties came in their way. However, some donors of the Alwar city came forward to help this group in order to make them economically self-reliant so that they could earn their livelihood. They floated an idea to engage them in any economic activity at their home. These widows did not have sufficient amount to start any such activity. And also these women were not in position to go outside for employment because of their small kids. Volunteers of the city who were of the opinion to assist these widows held various round of talks. It was decided to provide stitching machines to each of these women so that they could start self employment at their home. Gradually many people come forward to see and to help these women. These women volunteer collected some amount at their own and also got some financial assistance from the local branches of the banks. Also some donors donated stitching machines to this group. Initially only 4 widows were made member of this group which aimed at making those widows self-reliant. They were provided one machine to each to start their Work at their home. Training sessions were also organized for those who were untrained. Some of the well-established tailors extended their helping hand to provide training free of cost. The basic objective behind this was to uplift the living standard of those widows through self-employment. For the purpose, door to door survey was conducted to identify the approximate number of such widows. A total number of 31 widows were registered out of the total 230 families in the Basti.

During the survey, it was found that these widows were having 4 to 5 children in their families. To look after their children, they were insufficient source of income. Initially, some local people opposed this initiative but ultimately they were persuaded to support these women. Finally, group of volunteers remained successful to make it a drive. In the last 8 years, more and more women were made members were added with this SHG keeping in view their social and economic status of the adjacent Jhuggies. Today this Parivartan group has more than 123 women as its active members and they have been benefited to the extent that they have become self-reliant and financially strong than ever before. Now they are in a situation to take their decision at their own. They are now head of their respective families and have been living with dignity and self-respect. Today they enjoy social status as they are earning sufficient income through SHGs.

More and more women are being added with this’ Parivartan’ group. To make them financially strong,, all were provided stitching machines to work in their local areas where most of the dwellers live in unhygienic conditions. For selling these readymade clothes, market was also made available to them. People of the surroundings slumps/ jhuggies do not have regular employment, therefore they do not have sufficient source of income to buy new branded clothes for their own and their children. These branded clothes are comparatively costly.Therefore, these people prefer to purchase cheap clothes rather than branded.

After two years of the start of this project, latest survey reveals that those women of SHG are economically strong. Now most of those are living in pucca houses, using safe drinking water, toilet, electricity connection, fans, coolers and other basic items of necessities. Prior to this, they were lacking all these basic items. As far as their social status is concerned, they are getting respect and honour within their society. Even in the society, those widows were not being treated equal with others in the society just before joining this SHG. . They were discriminated by the males who have been living in their neighbourhood. Today they are enjoying life of respect and life of dignity. Even, they were denied to their fundamental right to live and to speak. Their children were having no access to education, health and medical, food etc. Children of those deprived women were orphan and were very far from schools.

During the survey, we found that most of the member women were made aware to their right. Out of those, some women volunteer took one initiative. They visited all the members and asked them to send their children to school. These women volunteers made this impossible job to possible. The boys and girls who were not going to schools were forcefully sent to schools. Once they started to go to schools, now most of them are attending schools regularly. In schools they were being provided Mid-Day Meal(MDM) under the government run scheme which lessen their dependence on their mothers. This helped these children to ensure their regular presence in the school.

However, some of these women members of this SHG’s are sending their children to the English medium public schools. Out of 71 women of ‘Parivatan’ group, 23 are sending their children in private/public schools for better education, even some of them are in better off situation. The concerned teachers were asked to treat these children properly so that they could make ensure their stay in the schools.

Their children are enjoying all basic needs and requirements for happy life. Now a day they are able to think on technical and professional education for their children. These beneficiaries’ women groups have their identity and recognition in their respective locality and society. Now they have been living in better living conditions. Almost all the beneficiaries are living in pucca houses made by cement and bricks. Now, government has deputed some nursing staff on their demand in this locality on regular basis. In case of any emergency, they started to approach government run dispensary. Before joining this ‘Parivartan’ most of these women and their children were having no access to these medical and health facilities. Untimely death of their kids was very common without timely assistance of doctors. They are also getting benefit of the government run schemes. Now some volunteers of the city have come forward to educate their children. These volunteers have started to teach their children at their door step. Many new activities might come up in the days to come. All this has changed their life in the last few years and more and more women coming to join this group. This has proved that micro finance have changed life style of the deprive people in rural and other areas. Government should come forward to make such groups which are facing financial problem to run their activities. This has become an example in the city.

Poverty Alleviation through ‘Parivatan’:

It has been said earlier that microfinance was found as a critical element of an effective poverty reduction strategy in most of the developing countries. It is globally accepted that most of the Asian and other African countries have massive poverty due to various reasons. Improved access and efficient provision of savings, credit, and insurance facilities in particular can enable the poor to smooth their consumption, manage their risks better, build their assets gradually, and develop their micro enterprises. Microfinance is only a means and not an end. The ultimate goal is to uplift their living standard by reducing poverty. Government, NGOs and other financial institutions have introduced various welfare schemes and activities to reduce poverty. We have found the following impact based conclusion from the study in the following manner which shows a dramatic change in the socio-economic life of the downtrodden widows of the ‘Shikari Bas Basti’ of urban Alwar:

(i) Impact on Income and consumption: Micro finance through ‘Parivartan’ has brought tremendous change in the life of the beneficiaries women. They now earn more than ever before. Their level of income has been increased remarkably during the last years. Most of them have said that they found more than 5 times increase in their income. Now they are in the position to spend more on consumption items such as on healthy food, better education, health, drinking safe water etc. More than 67% of the beneficiaries replied that they felt comfortable in spending on basic necessities.

(ii) Impact on Savings and Investment: Access to financial services by the poor people capacitates them to mobilise savings. Their savings consequently improve their capacity to invest. An increase in their investment capacity is followed by enabled consumption smoothening and ability (by the poor) to face external shocks hence improving their coping strategies. Microfinance through ‘Parivartan’ also sets the poor free from the ‘chains’ of usurious private moneylenders hence reducing the severity of social exclusion and poverty. Poor people also benefit from insurance, housing and health facilities that are brought about by microfinance programs that promote savings and investments.

(iii) Impact on Assets: Assets that are normally bought are in the small economic activities category that include animals, household utensils, farm equipment and in some cases building houses. ‘Parivartan’ based beneficiaries said that the strongest impact on poverty status was the increase in asset ownership due to their link to the SHG’s. The study found that 59% of the clients were classified as non-poor because of increased assets ownership.

(iv) Impact on education: Attainment of education represents human capital investment that improves the productive capacity of individuals. An increase in productive capacity will in turn improve production hence reducing poverty through increased output, income and employment. But they found mixed results on education where education for girls increased only when women borrow from the ‘Parivartan’ an SHG’s based in Alwar.

(v) Impact on health: There has been seen tremendous change in the life style of these families linked to the ‘Parivartan’. Almost all these families enjoy good health in comparison to the others who have no source of earning and living in the same locality in same conditions. More than71% of the respondents replied that they usually visit to doctor or nursing staff whenever they are in need. They now have started to spend a major share of their income on health and medical. As per the survey we found that more than one third of the total respondents spent nearly24% on health diseases of their income.

(vi) Impact on Social life: Microfinance enables poor people to work in cohesive teams hence improving social integration. ‘Parivatan’ like group methodology helped people to take advantage of ‘social capital’, which involves networking and cementation of social relations in local communities. Social capital is the glue that brings the society together hence the poor people co-operate for a focused group goal. Most rural areas in developing countries have a higher percentage of women population composition than men. This is because men migrate to urban areas for employment seeking. Women are left for a long time with children, hence the need for them to be empowered to make economic decisions within the household.

(vii) Impact on employment: Microfinance helps poor people to create their own employment. Consequently, spill-over effects are that they can also employ other family and/or community members. This has an overall effect of reducing unemployment hence reducing poverty levels and improving the standards of living of the people in the rural communities. The members of the ‘Parivartan’ also employing to neighbours and others for their own help in employment generating activities.

(viii) Other Impacts: According to Carr and Zhong (2002), microfinance is regarded as an innovative policy instrument that promotes social justice. Often, it is posited that microfinance improves the well-being of participants through job creation, increasing income and building assets. It makes poor people to be homeowners through schemes such as “housing microfinance”, which is a hybrid of microfinance and mortgage finance. Microfinance program provide access to the financial sector by the poor who suffer from exclusion. They also manage to enjoy the numerous benefits that are associated with the sector such as access to loans, ability to accumulate savings and in other cases managing to get insurance and health facilities.

All this indicates that Micro finance through ‘Parivartan’ plays an input supplementary role in creation of assets of the poor widows. There we found two dimensions of the impact of micro finance. Firstly, it facilitates the SHG members in general and enhancing their income which helps in strengthening their livelihood, increases the self confidence in managing their micro finance programmes. Secondly, the strategy for poverty reduction accelerate the rapid economic growth with a focus on micro finance, access to basic minimum services for improving the quality of life of poorest of poor; and direct state intervention in the form of targeted antipoverty programmes. Alleviation of rural poverty can be achieved by identifying income-generating activities with focus on micro finance as the basic input for socio-economic development

Issues and Challenges:

No poverty alleviation intervention has been found to be insulated from challenges. Thus the microfinance strategy is neither a panacea nor a ‘magic bullet’ in poverty alleviation (Armendariz de Aghion and Morduch, 2005; Ahmed, 2010; Zhan and Wong, 2014). It is one of the strategies that can be employed to assist the poor to manage their precarious lives. The most conspicuous challenge facing microfinance is its ‘micro’ nature. People do not want to be associated with small things. Usually, they look down upon them. Traditional banks want to deal with large amounts of money and not the ‘small’ amounts associated with microfinance. The other challenge is the ‘customers’ that are served by this sector. Rich people do not want to work with poor people.

The provision of microfinance still faces a number of problems. These include; inadequate financial infrastructure, unfavourable policy environment, limited institutional capacity, inadequate investments in microfinance, inadequate investments in social intermediation and microfinance misconceptions. The Asian Development Bank (2014) states that the microfinance policy environment remains unfavorable in many countries. It does not support sustainable growth and development of the microfinance industry. This scenario applies to almost all developing countries including India. Government interventions in microfinance, to address perceived market failure through giving subsidized credit to the poor, undermine sustainable development. Poorly performing government supported microfinance programs have had an effect of distorting the market thus discouraging new entrants into the industry.

Most MFIs have limited institutional capacity. They lack financial leverage and cannot provide a wide range of products to clients. This is because they are not well resourced making them perpetual ‘infants’lacking sustainability.

The poor lack access to financial resources hence reducing their capability to meet their health requirements. Microfinance could be an alternative for them to be in a position to meet their demand for health services. Could microfinance benefit the poor’s access to health? Sickness leads to income losses, and incapacitation of borrowers. A 2005 study carried out by the Harvard Medical School and Harvard Law School established that 50 percent of all people interviewed cited illness and unaffordable medical bills as the primary causes of bankruptcy.

One of the challenges of microfinance is that the poor people are not protected by insurance hence their activities tend to be risky. Todd (1996) as cited in Magner (2007) carried out a study of Grameen Bank clients and discovered that serious illness in the family always forces households to liquidate assets in order to pay for medical treatment and/or keep the family afloat. Illiteracy contributes to poor business management hence borrowers backslide into poverty and/or default on loans. To mitigate these challenges microfinance needs to take an integrated approach so as to provide a full microfinance package. The three inhibiting factors are intertwined. Magner (2007) suggests that microfinance should incorporate some prevention and mitigation measures so as to reduce vulnerability among the poor clients. Microfinance, as a strategy needs to pay attention to policy objectives that address the commonplace challenges. Adoption of the triangle of microfinance is one such example.

CONCLUSION:

This paper carried out an empirical literature review, finding out more from other authors, an understanding of microfinance and poverty alleviation through ‘Parivartan’. This presented an empirical reflection of microfinance and poverty alleviation in urban slumps. Theoretical and empirical literature suggest that microfinance can be used to support savings and investments, consumption smoothing and food security, agricultural activities, non-farm activities, enterprise development and social cohesion. However, microfinance has its own challenges that include inadequate physical and financial infrastructure, unsupportive policy environment, limited institutional capacity, inadequate investment in the rural areas, inadequate support in social capital development, microfinance misconceptions and so on.

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15.

Received on 03.07.2016

Modified on 28.08.2016

Accepted on 11.09.2016

Research J. Humanities and Social Sciences. 7(4): October- December, 2016, 259-267.

DOI: 10.5958/2321-5828.2016.00041.3