Capturing the Performances of Self-Help Groups Across Indian States: A Dynamic Quantitative Exploration

Introduction

Microfinance is usually referred to the provision of credit services to the poor section of population which are unable to qualify themselves for access to loans from the formal credit market. It has emerged as a virtuous substitute for informal credit and an effects and powerful instrument for poverty reduction through the improvement of the condition of the poor people who are physically and economically active, but financially constrained and helpless. Microfinance covers a broad range of financial services including the provision of loans, deposits of funds and payment services, and insurance to the poor and low income households and their micro enterprises. Micro finance institutions have shown significant contribution to the poor section of population residing in the rural and semi urban or urban areas for making them able for the improvement of the level of their incomes and standard of living. In developing countries like India the economy is dualistic in nature, resultant the economic condition of the rich section of population has been gradually improving and the condition of the poorer section of population has been gradually deteriorating. In addition, poorer section of population faces poor opportunities and deprived from the formal financial services.

Immediately after independence government of India has taken initiative for the improvement of the economic condition of the poor section of population through the five-year plans. Even after almost fifty years of the inception of these policies for the eradication of poverty, a major section of population is still deprived from different aspects of their lives. According to the World Bank reports, India is second populated country in the world, and 70 percent of its population lives in rural area, where the rate of unemployment is significantly high. Majority of people depend on agriculture. The condition of the rural population is relatively worst in different aspects of life. They face poor opportunities which hinder them to achieve better outcome. Moreover, rural people, especially rural poor people suffer from a great deal of indebtedness, and are subject to exploitation in the credit market through high interest rates for informal credit and lack of convenient access to credit. However, the poor people require credit for their working capital needs on a day-to-day basis as well as long term needs like emergencies or other income related activities. This gap between the necessity and availability hinders the improvement of the economic condition of the poor section of population. Therefore, the need for financial assistance to the poor section of population is necessary for the alleviation of abject poverty and for the inclusion of the poor section of population in the mainstream of economics. This process only enables the society to achieve the optimum trajectory of growth with inclusion.

Microfinance is considered as an effective instrument which can execute all these objectives. In India, the commencement of microfinance and its development can be observed from the SHGs-Bank Linkage Programme (SBLP), which has been begun NABARD as a pilot project in 1992. This programme proved to be very successful and has also developed as the most popular model of microfinance in India. The regulatory framework for microfinance in India is not unified. Microfinance is provided by commercial banks, Regional Rural Banks (RRBs), the SHG’s, cooperative societies and institutions that take various forms including those of NGO’s and Non-Bank Financial Institutions (NBFI’s). SHGs are regulated by NABARD, Banks and NBFI’s are governed by the Reserve Bank of India (RBI), and the cooperatives are governed by Registrar of Cooperative Societies (RCS) etc. The rest of the chapter is organized as follows. Next section briefly reviews the existing related studies followed by the documentation of Indian scenario in brief. The objectives of the chapter with the source of the data and methodology used in this study are perfectly discussed before interpreting the empirical findings. The final section summarizes and concludes the chapter.