MICRO FINANCE INTERVENTIONS

In the development paradigm, micro-finance has evolved as a need-based policy and programme to cater to the so far neglected target groups (women, poor, rural, deprived, etc.). Its evolution is based on the concern of all developing countries for empowerment of the poor and the alleviation of poverty. Development organisations and policy makers have included access to credit for poor people as a major aspect of many poverty alleviation programmes.

Micro-finance programmes have, in the recent past, become one of the more promising ways to use scarce development funds to achieve the objectives of poverty alleviation. Furthermore, certain micro-finance programmes have gained prominence in the development field and beyond. The basic idea of micro-finance is simple : if poor people are provided access to financial services, including credit, they may very well be able to start or expand a micro-enterprise that will allow them to break out of poverty.

There are many features to this seemingly simple proposition which are quite attractive to the potential target group members, government policy makers, and development practitioners. For the target group members, the most obvious benefit is that micro-finance programmes may actually succeed in enabling them to increase their income levels. Furthermore, the poor are able to access financial services which previously were exclusively available to the upper and middle income population. Finally, the access to credit and the opportunity to begin or to expand a micro-enterprise may be empowering to the poor, especially in comparison to other development initiatives which often treat these specific target group members as recipients.

For development practitioners, the success of micro-finance programmes is encouraging. Too often in the past, costly large-scale development initiatives have failed to achieve any sustainable benefits, especially after funds have dried up.

Thus, micro-finance has became one of the most effective interventions for economic empowerment of the poor.

Understanding the Development Process through Micro-finance

Micro finance is expected to play a significant role in poverty alleviation and development. The need, therefore, is to share experiences and materials which will help not only in understanding successes and failures but also provide knowledge and guidelines to strengthen and expand micro finance programmes.

In India, a variety of micro-finance schemes exist and various approaches have been practised by both GOs and NGOs. In the development sector, credit has been viewed as one of the missing inputs and therefore, a growing emphasis on re-formulating and re-strengthening micro credit programmes is observed. There are examples of spectacular successes and there are also examples of not-so-successful programmes which experienced high default rates and were unable to provide financial services in the long run. Ultimately the aim is to empower the poor and mainstream them into development. Amongst different approaches of micro-finance schemes, the process and stages remain more or less the same.

The development process through a typical micro-finance intervention can be understood with the help of Chart - 2. The ultimate aim is to attain social and economic empowerment. Successful intervention is therefore, dependent on how each of these stages have been carefully dealt with and also the capabilities of the implementing organisations in achieving the final goal, e.g., if credit delivery takes place without consolidation of SHGs, it may have problems of self-sustainability and recovery. A number of schemes under banks, central and state governments offer direct credit to potential individuals without forcing them to join SHGs. Compilation and classification of the communication materials in the directory is done based on this development process.

Classifying Micro-Finance Interventions

There are several Micro-Finance implementing organisations which provide small loans in India. Some of them have successfully expanded their services to thousands of borrowers. Given the fact that most of these borrowers would not have had access to formal financial institutions, that many of the borrowers utilise the loans to enter and/or expand their informal sector micro enterprises, and that the informal sector continues to be an important source of livelihood for many poor people, these Micro Finance Organisations (MFOs) may very well have had a major impact on improving the living standards of millions of poor persons as well as on promoting economic growth. The term MFO has been used for all types of implementing organisations facilitating savings and credit and financial activities at individual and/or group level, not going into details of legal and technical aspects of MFOs.

Some of these organisations have evolved from small NGOs to become important providers of financial services. Realising the potentially important role that MFOs play in deepening the benefits of economic growth, it is necessary that these MFOs should be strengthened by providing them experience-sharing opportunities, materials and training. Furthermore, the relative success of many MFOs soundly refute the claims of some that "the poor are non-bankable" or that MFOs are a waste of scarce development funds. In fact, it would be difficult to find another type of developmental initiative which has been relatively effective on such a large scale in recent years.

In India, there exist a variety of micro finance organisations in government as well as non government sectors. Leading national financial institutions like the Small Industries Development Bank of India (SIDBI), the National Bank for Agriculture and Rural Development (NABARD) and the Rashtriya Mahila Kosh (RMK) have played a significant role in making micro credit a real movement. In India, the size and types of implementing organisations range from very small to moderately big organisations involved in savings and or credit activities for individuals and groups. These groups also adopt a variety of approaches. However, most of these organisations tend to operate within a limited geographical range. There are a few exceptions like PRADAN, ICECD, MYRADA, SEWA who have been successful in replicating their experiences in other parts of the country and act as Resource Organisations. Also, many organisations are involved with SHGs, not only for credit, but for other purposes like watershed, agriculture, etc.

Micro-finance interventions can be identified based on their span of activity, source of funds, route through which it reaches the poor or the coverage. However, it seems that one of the most common practices and approaches prevalent is providing credit through Self-Help Groups. The approach is to make SHGs the main focal point to route all credit to members. Almost all national funding organisations (NABARD, RMK) as well as other Government schemes advocate forming of Self-Help Groups and thus providing or linking with credit. However, many organisations providing individual finance directly also exist. It has been explained in Chart - 3.

The Participating Organisations

The preparation of this resource directory covered about 450 organisations involved in micro-finance activities in 11 states of India. These organisations are classified in the following categories to indicate the functional aspects covered by them within the micro finance framework. The aim, however, is not to "typecast" an organisation, as these have many other activities within their scope :

1. Organisations implementing micro-finance activities

2. Resource organisations or support agencies

3. Formal financial institutions - Banks and development organisations, like NABARD, SIDBI, Association of MFOs etc.

1. Organisations Implementing Micro Finance Activities

Organisations implementing micro-finance activities can be categorised into three basic groups.

I) Organisations which directly lend to specific target groups and are carrying out all related activities like recovery, monitoring, follow-up etc. Some of these organisations are graduating to become exclusive MFOs, but such cases are few.

II) Organisations who only promote and provide linkages to SHGs and are not directly involved in micro lending operations.

III) Organisations which are dealing with SHGs and plan to start micro-finance related activities.

2. Resource Organisations or Support Agencies

These are the organisations who provide support to implementing organisations. The support may be in terms of resources or training for capacity building, counselling, networking, etc. They operate at state/regional or national level. They may or may not be directly involved in micro-finance activities.

A few associations to bring such MFOs on one platform have also been initiated in India. Experience sharing through newsletters and/or meetings/ seminars/training are the methods adopted by the associations/collectives to support implementing organisations.

3. Formal Financial Institutions - Banks

Commercial Banks, Gramin Banks and Rural Banks provide funds to SHGs and also operate their accounts. Funding agencies and development institutions channelise credit through these FIs. Building gender sensitivity and developmental dimensions amongst these agencies is a major need. Banks prefer to route credit through SHGs, though they directly lend to individuals also.

Development Agencies/Nodal Agencies in India, development agencies like NABARD, SIDBI and RMK provide funds for credit. They support MFOs and have separate allocations for SHGs and micro-credit. These organisations have developed guidelines and training materials to help MFOs implement micro-credit activities covered under their preview.