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Micro-finance in Far East India

Micro-finance in Far East India

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Published by: ddas@gu on Oct 08, 2009
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Microfinance Drive: Where does the North East India stand?
Debabrata DasReader, Department of CommerceGauhati UniversityGuwahati-781014Email: ddas_gu@rediffmail.com
Cell 9435015074
1. The Context
Asian Development Bank’s recent estimates indicate that Asia is still home to themajority of the worlds poor. Despite significant progress in poverty reduction during lastdecade, about 2 billion ‘poor’ people (380 million households) live in the region whichincludes 690 millions ‘extremely poor’
people (138 million Households). The WorldSummit on Micro Enterprises (2001) and Consultative Group to Assist the Poorest(CGAP)
highlighted the serious concern of the international community to reduce thelevels of poverty, both in terms of income levels and deprivation of basics needs for adecent living. It was broadly accepted that ‘robust economic growth that is labour-intensive and equitable, combined with larger outlays of social expenditures, especiallydirected towards the poor (estimated at 1. 3 billion people), are a winning combination inthe fight against poverty’ (UN, 2007). In this context, Micro finance has been recognizedand accepted as one of the new development paradigms for alleviating poverty throughsocial and economic development of the poor in general and women in particular. Theidea of micro credit was inculcated by Nobel Laureate Prof. Muhammad Yunus whoinitiated imagining the poorest of the poor in to self-help groups and makes them realizethe very basic theory of survival way back in 1976. The inability of formal financialinstitutional set-up to deal with the credit requirements of the poorest class effectively hasled to the emergence of micro credit system. Micro credit is developed to be analternative credit delivery system, which can cater to the needs of the poor locallyinvolving them in the system itself 
.The micro credit approach received increased attention in the mid 1990 after the WorldSummit for Social Development held at Copenhagen in March 1995.
Emphasizing the
importance of easy access to credit for the poorest section, the Summit urgedgovernments of nations to give a new thought to their legal, regulatory and institutionalframeworks in order to make credit easily accessible to the poor. Subsequently, in 1997the World Micro Credit Summit at Washington DC announced a global target of ensuringdelivery of credit to 100 million of the world’s poorest families, especially the woman of these families by 2005 which was achieved well ahead in time.Since the launch of the Millennium Development Goals (MDGs)
at theMillennium Summit in New York in September 2000, the MDGs have become a widelyaccepted yardstick of development efforts. The first and foremost goal, among others, isto eradicate extreme poverty and hunger. This goal targeted to halve the proportion of  people whose income is less then US$ 1 a day and the proportion of people who suffer from hunger between 1990 and 2015(UN,2001). Almost all the countries in the world,including India have committed themselves to attaining the targets by 2015 as embodiedin the Millennium Declaration. Resorting to these resolutions, many developing countrieshave put micro finance in their agenda as a tool of reaching the MGDs.
2. Best Practices
Over the past decade, microfinance institutions have adopted innovative ways of  providing credit and savings services to the entrepreneurial poor. An innovative approachthat has been used successfully by Grameen Bank's credit-delivery system is "peer-groupmonitoring" to reduce lending risk, although some studies have suggested that the reasonfor the Grameen Bank's high repayment rates is also partly due to the practice of weeklymeetings - at which attendance is compulsory - for the repayment of loan installmentsand the collection of savings. It is reported that the meetings reinforce a culture of discipline, routine repayments and accountability. Not all microfinance institutions use peer-group monitoring. Other institutions such as the Bank Rakyat of Indonesia, whichserves 2.5 million clients and 12 million small savers, rely on character references andlocally recruited lending agents in place of physical collateral. Thailand's Bank of Agriculture and Agricultural Cooperatives serves approximately 1 million micro- borrowers and 3.6 million micro-savers. Newcomers such as the Association for SocialAdvancement of Bangladesh, with half a million clients, and the People's Credit Funds of Vietnam with more than 200,000 members or clients, are other examples of the potential
for growth in the industry. Other institutions such as the Association of Cambodia LocalEconomic Development Agencies, Buro-Tangail of Bangladesh, the Self-EmployedWomen's Association Bank of India, and Amanah Ikhtiar Malaysia are also reported to be making good progress (UN, 2007). The microfinance institutions ‘revolutionalized’traditional views by showing that the poor are bankable and it is only because of theconventional banking practices they were categorized as non-bankable (Nagarajan andMeyer, 2005).
3. India’s Microfinance Experiment
In early 1990, NABARD started an experiment with MYRADA-NGO in Karnataka by promoting groups, mobilizing their savings and linking them with banks for creditsupport. In fact, linking self help group
 with banks was started as pilot project by Asia-Pacific Rural and Agricultural Credit Association (APRACA) with technical supportfrom German Technical Cooperation (GTZ) in several countries in Asia during early90’s.Later on NABARD replicated this project all over India under the SHGs Bank Linkage Programme in 1992 and many NGO’s came forward to implement this projectwith the co-operation of banks. In 1994 following the success of NABARD, SmallIndustries Development Bank of India (SIDBI) also came forward to provide bullending to NGO’s for on-lending to groups/ individuals. Ministry of Human ResourceDevelopment, Govt. of India established Rashtriya Mahila Kosh (RMK) for providingloan to NGO’s to on lend to poor women. Other National and State financialCorporations also entered in to the micro finance sector. International funding agenciesalso started micro-finance services in India through their projects.Making a modest beginning in the year 1992 by linking 255 SHGs with banks anddisbursing credit of Rs. 29 lakhs the programme has showed a great success. The number of SHGs linked to bank rose to 50 lakhs with bank loan of Rs. 17000 corers as on 31
March 2008, which covered over 7 crores poor households. State like Andhra Pradesh,Tamil Nadu, Karnataka, Orissa, Uttar Pradesh, Maharastra and West Bengal remained inthe forefront followed by other states such by Rajasthan, Kerala and Madhya Pradeshwith encouraging trend. Performance is excellent, and impact is deeply felt by the

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