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SUBMITTED BY:- Gurpreet Singh

Registration No. 11000563

Roll No. RR1003A03

SUBMITTED TO:- Mr. Lokesh Jasrai

To be meaningful, every work must have to formulate the objectives of the study.
Furthermore, objectives are more generally suitable to the research community as
evidence of the researcher’s clear sense of purpose and direction. So in the light of the
research topic, the objective of this study is to show how microfinance works, by using
group lending methodology for reducing poverty and how it effects the living standard
(income, saving access to health and education, etc.) of the poor people in rural India.
Micro finance has proved to be successful step towards poverty alleviation and
empowerment rural area.
We also tested if gender had a role to play with respect to repayment tendency.

Semantic differential scale was used to understand the degree of satisfaction of below
poverty line people regarding various sources of finance.


 Microfinance:

According to International Labor Organization, “Microfinance is an economic

development approach that involves providing financial services through institutions to
low income clients”.

Microfinance is an economic development approach that involves providing financial

services, through institutions, to low-income clients, where the market fails to provide
appropriate services. The services provided by the Microfinance Institutions (MFIs)
include credit saving and insurance services. Many microfinance institutions also provide
social intermediation services such as training and education, organizational support,
health and skills in line with their development objectives.


SHGs are a small group of rural poor , who have voluntarily come forward to form a
group improvement of the social and economic status of the members.

Homogeneous group of about 15 to 20.

Every member to save small amounts regularly.

Every member learns prioritization and financial discipline.

Conditions required for membership for SHGs

 Members should be between the age group of 21-60 years

 From one family only one person can become a member of Shag.
 A group normally consists of either only men or only women.
 Members should be homogenous i.e. should have the same social and financial

Women empowering activities:

1. Overcoming the resistance from husband and other members of the family
To join the SHG;

2. Increased participation in decision-making within the household to issues

That was usually considered outside the domain of woman;

3. Improved status and increase in respect within the household;

4. Feeling fearless, open and confident;

5. All group members learn to sign their names and some have joined adult
Literacy programmers;

6. Adopting family planning measures;

7. More mobile, can move out of the house and the village more frequently;

8. Talking to the male persons in their village, which they were not confident to
Do before because of cultural reasons;




 Targeting the poor people

 Poverty reduction through social protection
 Women’s empowerment
 Business development services
 Insurance services
 Pension services
Alleviation of poverty and unemployment is not fully deducted or eradicated
From the rural areas of India.


Researcher has analyzed and found the steps that poverty still exists due to:
1) Population growth is more
2) Standard of living is low


In the light of problem, background leads to the following problem statement, which will
also be the overarching question/statement for this investigation:

What is the impact of micro finance on living standards, Empowerment and poverty
alleviation of the poor people in rural India?


Null hypothesis: Micro finance and SHGs are beneficial to rural India.

Alternative Hypothesis: Micro finance and SHGs are not beneficial to rural

Easton, T. (2005) A recognizes microfinance as a strategy towards poverty alleviation.

Traditionally, the poor were not viewed as investment worthy and were excluded from
financial services. Other barriers to developing financial services for the poor include
high and volatile inflation in developing countries, incompetent governments, and a lack
of necessary legal framework for financial services. Corruption is a major deterrent to
curb financial services because it raises the cost of each financial transaction and it
undermines customers’ confidence in the financial system. A World Bank study in India
found that borrowers paid bribes ranging from 8 to 24% of the price of their loans. Also,
inadequate public services like electricity to power computers make it difficult for
financial firms to expand their services.
In recent past (since 1970’s), there is a rise in experimentation and provision of
microfinance for the poor that uses a bottom-up approach, ranging from credit, savings,
remittances, to insurance. The non-profit organizations such as Opportunity International
in Colombia and Graeme Bank in Bangladesh offer small loans to the very poor with low
interest rates. Loans are offered to group members who must monitor and keep each
other accountable for repayments, and in so doing, members are allowed to borrow
larger sums of money. Microfinance seems successful in poverty alleviation. A World
Bank report shows that there is a strong correlation between financial access and higher
income groups. The local and international banking giants are tapping into the
microfinance market day by day.

Evans, T. G., A. M. Adams, et al. (1999) Micro credit schemes are a means of poverty
alleviation, their accessibility to the poorest is of obvious concern. This paper examines a
targeted micro credit program in Bangladesh to assess its coverage among the poor, and
to identify program- and client- related barriers impeding participation. A population
survey of over 24,000 households reveals that although three-quarters are eligible for
micro credit, less than one-quarter participate. Rates of participation in micro credit are
higher among poorer households. Multivariate analysis identifies lack of female
education, small household size and landlessness as risk factors for nonparticipation,
based on a 7% random sample of this population. The implications of these findings for
poverty alleviation policies and programs are discussed.

De Again, B. A. and J. Murdoch (2000) Micro lending is growing in Eastern Europe,

Russia and China as a flexible means of widening access to financial services, both to
help alleviate poverty and to encourage private-sector activity. We describe mechanisms
that allow these programmers to successfully penetrate new segments of credit markets.
These features include direct monitoring, regular repayment schedules, and the use of
non-refinancing threats. These mechanisms allow the programmers to generate high
repayment rates from low-income borrowers without requiring collateral and without
using group lending contracts that feature joint liability. JEL classification: D82, L14,
O12, O17.
Mosley, P. and J. Rock. (2004) we examine a range of six African microfinance
institutions with a view to assessing and if possible enhancing their poverty impact. The
impact of microfinance loans is variable between institutions, with a tendency in
particular for savings services to be taken up by people well below the poverty line,
especially in South Africa and Kenya. However, many benefits to the poor from
microfinance programmers, in Africa at least, are likely to come via an indirect route,
via 'wider impacts' or 'spin-offs', rather than by through direct impacts on borrowers.

Develtere, P. and A. Huybrechts (2005) a comparative overview of the most relevant

findings from studies of the impact of microcredit institutions like the Grameen Bank
and BRAC in Bangladesh. It first evaluates the evidence on economic impacts, which
suggests that the vulnerability of bank members has been reduced even if there is no
consensus about whether the two institutions also reduce poverty. It then considers the
social impact, especially in relation to the situation of poor women and to various spill-
over effects in different spheres of social and economic life.

McIntosh, C., A. de Janvry, et al. (2005) the data from Uganda's largest incumbent
microfinance institution to analyze the impact of entry by competing lenders on client
behavior. We observe that rising competition does not lead to an increase in client
dropout rate, but induces a decline in repayment performance and savings deposited with
the incumbent, suggesting rising multiple loan-taking by clients. This joint effect on
dropout and repayment is consistent with some negative information about clients and is
being shared across lenders. However, the observed decline in repayment rates in a
context of raising multiple loan-taking shows that information sharing about clients is far
from complete.

McIntosh, C. and B. Wydick (2005) Competition between microfinance institutions

(MFIs) in developing countries has increased dramatically in the last decade. We model
the behavior of non-profit lenders, and show that their non-standard, client-maximizing
objectives cause them to cross-subsidize within their pool of borrowers. Thus when
competition eliminates rents on profitable borrowers, it is likely to yield a new
equilibrium in which poor borrowers are worse off. As competition exacerbates
asymmetric information problems over borrower indebtedness, the most impatient
borrowers begin to obtain multiple loans, creating a negative externality that leads to less
favorable equilibrium loan contracts for all borrowers.

Benjamin, L., J. S. Rubin, et al. (2004) Community development financial institutions

(CDFIs) help to address the financial needs of under-served, predominantly low-income
communities. CDFIs include community development banks, credit unions, business and
micro enterprise loan funds, and venture capital funds. Although CDFIs are a rapidly
growing and an increasingly important area of community economic development, they
have not received proportionate attention from academic researchers. This article begins
to address the gap. It outlines the history of the CDFI industry and details how CDFIs
are responding to three specific development needs: basic financial services; affordable
credit for home purchase, rehabilitation, and maintenance; and loan and equity capital
for business development. The article then considers the strengths and limitations of
CDFIs, concentrating especially on the relationship between CDFIs and conventional
financial institutions. It concludes by examining the impact that these alternative
financial institutions realistically can hope to achieve.

Godquin, M. (2004) A comprehensive analysis of the performance of microfinance

institutions (MFIs) in terms of repayment. We focus the analysis on the impact of group
lending, nonfinancial services and dynamic incentives on repayment performance. We
test for endogeneity of loan size and use instrumental variables to correct for it. In the
second section of the paper, we use a comparative analysis of the determinants of the
repayment performance and of loan size in order to make policy recommendations on
the allocation of loans by MFIs.

Tsai, K. S. (2004) Banking authorities in both China and India have attempted to limit
most forms of informal finance by regulating them, banning them, and allowing certain
types of microfinance institutions. The latter policy aims to increase the availability of
credit to low-income entrepreneurs and eliminate their reliance on usurious financing.
Nonetheless, the intended clients of microfinance continue to draw on informal finance
in both rural China and India. This article argues that the persistence of informal finance
may be traced to four complementary reasons-the limited supply of formal credit, limits
in state capacity to implement its policies, the political and economic segmentation of
local markets, and the institutional weaknesses of many microfinance programs.

Johnson, S. (2004) the direct impact of microcredit provision on users to examine

whether microfinance institutions (MFIs) have had wider impacts within the local
financial markets in which they are operating. It considers the potential for both
competition and demonstration effects on other financial providers. In the context of
local financial markets in and around the small town of Karatina in Central Kenya,
supply side information is used to investigate the key changes in provision between 1999
and 2003. The paper concludes that changing macroeconomic conditions have been the
main driver increasing competition for middle and lower income clients and that few
competition or demonstration effects resulting from the MFIs are in evidence

Ssewamala, F. M. and M. Sherraden (2004) The Affect saving performance among

participants in a subsidized saving program who intend to use their savings to help
capitalize a micro enterprise. Using data from 14 community-based organizations
promoting self-employment among the poor, and drawing on institutional theory, we
find that individual-level theories do not fully explain the variance in savings and those
institutional influences also are predictive. Policy makers may want to consider a range
of institutional characteristics when designing policies and programs aimed at promoting
self-employment among poor families.
Weber, H. (2004) the rise of the 'new economy' in many of the advanced capitalist states
since the 1970s has entailed a re-organization of global social and political relations
generally. These changes become apparent in analyses that focus on trends and shifts in
the global political economy. In the context of these adjustments, discourses of 'poverty
reduction' have come to prominence, with a particular financially steered strategy
emerging as a key approach to 'poverty reduction' on a global scale, namely micro credit.
I argue that the micro credit approach to poverty reduction is strategically embedded in
the global political economy. It has been appropriated primarily to facilitate the
implementation of financial sector liberalization on a global scale. Additionally, the
contexts in which these programmes are implemented also reflect the motive of
achieving a form of social disciplining aimed at commanding compliance for neo-liberal
restructuring more generally.
Johnson, S. (2004) the role of institutions-rules and norms-in markets is increasingly
recognized in development discourse. This paper considers the role of gender relations
for rules and norms in financial markets. Using evidence from Central Kenya it develops
a framework for establishing the influence of gender on the demand for and access to
financial services, so explaining the gender differentiated use of rotating savings and
credit associations (ROSCAs). It, first, analyzes intrahousehold norms related to income
and expenditure flows and their management, so identifying gendered patterns of
demand. Second, by conceptualizing financial intermediaries as operating within rules
and norms, it allows the influence of gender relations on access to financial services to
be more systematically investigated. (C) 2004 Elsevier Ltd. All rights reserved.

Cohen, M. and K. Wright (2003) The microfinance agenda is increasingly market-

driven and, therefore, client-focused. The renewed interest in clients is driven by the
industry's concern over competition and drop-outs. This increasing awareness that the
customer matters has led MFOs to be more attentive to who their clients are, learning
how they use financial services and identifying appropriate products and services that
better match the customer's preferences. However, market-led microfinance is not
limited to products. For institutions to better serve their clients, organizational
restructuring may be required to ensure that their systems and modes of microfinance
delivery are more client-responsive.

Pretes, M. (2002) The work of the Village Enterprise Fund, an US nongovernmental

organization, in East Africa as a case study in "equity" based microfinance in low-
income countries. Many small businesses established in high-income countries rely on
some form of equity capital to fund the startup phase and much of the growth of the
business. The success of startup grants and equity financing in high-income countries
suggests that this method might also be applicable in low- income countries. Using the
work of the Village Enterprise Fund as an example, the paper argues that startup grants
and equity finance are useful and appropriate in addition to the more common loan-
based approaches.

McKernan, S. M. (2002) Micro credita programs provide a two-tiered approach to

poverty alleviation: credit for the purchase of capital inputs in order to promote self-
employment and noncredit services and incentives. These noncredit aspects may be an
important component of the success of micro credit programs. However, because they
are costly to deliver and their contribution to the success of the programs is difficult to
measure, they may not be properly valued. This paper uses primary data on household
participants and no participants in Grameen Bank and two similar micro credit programs
to measure the total and noncredit effects of micro credit program participation on
productivity. The total effect is measured by estimating a profit equation and the
noncredit effect by estimating the profit equation conditional on productive capital.
Productive capital and program participation are treated as endogenous variables in the
analysis. I find large positive effects of participation and the noncredit aspects of
participation on self-employment profits.

MkNelly, B. and M. Kevane (2002) We summarize lessons learned by a credit program

for women in Burkina Faso. Three observations are made regarding program design: (a)
high membership turnover means mutual guarantee groups should be smaller and more
central to non-repayment penalties; (b) high turnover in economic activities implies
more training in best practices and more variety and experimentation in credit and
savings mechanisms; and (c) high degrees of stocking activity suggests the need to
develop instruments to mitigate commodity price risk at the individual and program
level. Three observations are made regarding program implementation: be more
consistent in the treatment of debts of deceased borrowers; become more sensitive to the
complexity and variety of procedures followed in the event of non-repayment; and
devote more attention to preventing and mitigating the effects of staff embezzlement.

Patten, R. H., J. K. Rosengard, et al. (2001) The Bank Rakyat Indonesia (BRI) unit
system is recognized as one of the largest and most successful microfinance institutions
in the world. Indonesia has been more drastically affected by the East Asian monetary
crisis than other countries in the area. It is therefore worthwhile looking at the BRI
experience during the crisis-not only the experience in micro enterprise credit, but also in
small, medium and corporate credit and in savings mobilization. The comparative
performance of different parts of BRI during the East Asian crisis suggests essential
Features in the future design of sustainable microfinance institutions, products, and
delivery systems.

Snow, D. R. and T. F. Buss (2001) Micro credit is a concept that has gained
widespread acceptance by international development agencies and major donors. It is
viewed as a may to correct both governmental and market failure in Sub-Saharan Africa.
Many view micro credit as a method for linking the formal and informal sectors of
African economies to increase the reach of the formal sector. Extending the reach of the
formal economy through micro credit is possible, and desirable, depending on
macroeconomic reforms, respect for traditional financing relationships, and local control
of institutions. However, very little has been done to determine the extent to which micro
credit programs actually increase economic well-being. The model program, Grameen
Bank of Bangladesh, has been studied and evaluated, but replications may not be
inherently successful. The literature accepts that micro credit will increase economic
well-being, if programs are correctly designed. Program design issues cannot be
resolved, however, until economic well-being is measured and associated with specific

Bhatt, N. and S. Y. Tang (2001) Three major controversies in the microfinance field:
vehicles, technologies, and performance assessments for financial service delivery. Then
it proposes that these controversies be resolved by a perspective emphasizing
institutional plurality and external and internal efficiencies for individual programs.
Questions for further research are discussed in the conclusion.

Buckley, G. (1997) Micro enterprises in the informal sector in Kenya, Malawi and
Ghana. It seeks to provoke critical reflection on the uncritical enthusiasm that lies behind
much proselytizing of microfinance for informal sector micro enterprise. It questions
whether the extensive donor interest in micro enterprise finance really addresses the
problems of micro entrepreneurs or whether it offers the illusion of a quick fix. It
suggests that the real problems are more profound and cannot be tackled solely by capital
injections but require fundamental structural changes of the socioeconomic conditions
that define informal sector activity and a fuller understanding of the ''psyche'' of informal
sector entrepreneurs

Livermore, M. (1996) Micro enterprise development by social workers as a social

development strategy. The origins of micro enterprise development are reviewed, both
as a social development strategy and as a social work intervention. By providing an
implementation framework that addresses psychological, economic and social
components, the author argues that social workers are ideally placed to design and
participate in these programs. A number of issues that affect social work involvement in
the field are discussed.
The basic research design that will be used in this “Survey Research”. This method
actually focuses on a specific population or universe. Under this arrangement, data
will be collected and processed through analysis. For the constraint imposed by time,
cost and space, the entire population of the micro finance sub sector cannot be
studied. On the basis, a careful selected sample size has been chosen to form the basis
of our investigation. The sampling technique used in this respect is the Probability
Sampling Method. It employs the principle of randomization where every element of
the population has an equal chance of being selected to form part of a sample.


As it has often been repeated in this project, the sample size of the study is 100.


I choose the descriptive questionnaire design

Research Methodology

Data Collection.

Sources of Data
1. Primary Data Source
2. Secondary Data Source

A both primary and secondary data source has been used for data collection.

Primary Data Source-The major source of data will be the “Primary source”

Primary data will be collected from:-

• Survey-Questionnaire
The major source of data will be taken from the primary source. The primary data will
collected from a sample of 100 respondents, by circulating the questionnaire to the

Secondary source – Secondary data will be collected from different journal and
reports on Micro Finance Activities.

Sampling tool- Data will be collected by preparing a set of questionnaire.

Sample Size: We have taken the sample design of 100.

Data Analyzed: Data will be analyzed through survey which is going to be held in
some part of Doaba Region of Punjab.

Report Writing:

Report is going to be prepared in case of descriptive and diagnostic research studies,

where descriptive research studies are those studies which are concerned with describing
the characteristics of particular individual, or of a group, whereas diagnostic research
studies determine the frequency with which something occurs or its association with
something else. The studies concerning whether certain variables are associated are of
diagnostic research studies. As against this, studies concerned with specific predictions,
with narration of facts and characteristics concerning individual, group or situation are all
examples of descriptive research studies.

We can see the poverty alleviation, unemployment, women empowerment



• To understand the degree of satisfaction of “people who live in rural areas”

regarding various sources of finance.

7 6 5 4 3 2 1
Money Lender

Timely Not Timely

7 6 5 4 3 2 1
Easy (to get)
Difficult (to get)

7 6 5 4 3 2 1

Not Exploitative
7 6 5 4 3 2 1

7 6 5 4 3 2 1
Not Courteous

Co-op credit
Societies 7 6 5 4 3 2 1
Timely Not Timely

7 6 5 4 3 2 1
Easy (to get)
Difficult (to get)

7 6 5 4 3 2 1

Not Exploitative
7 6 5 4 3 2 1

7 6 5 4 3 2 1
Not Courteous
7 6 5 4 3 2 1 PEERS


Timely Not Timely




age income

age Pearson Correlation 1 -.252*

Sig. (2-tailed) .045

N 100 64

income Pearson Correlation -.252* 1

Sig. (2-tailed) .045

N 64 64

*. Correlation is significant at the 0.05 level (2-tailed).

Cross tabs

factors * preference Cross tabulation




factors 31 0 0 0 0 31

I.F 0 18 6 15 1 40

L.I.R 0 2 2 20 0 24

P&S OF L 0 2 0 3 0 5

Total 31 22 8 38 1 100
There are number of limitations in this study. Firstly, the respondents were limited (150
respondents or samples) in terms of size and composition. Secondly, the data collection
was restricted only within the areas nearby the Calendar city which may fail to represent
the actual scenario of the whole country. While fill the questionnaire the people, we have
faced problems in explaining the questions as most of the people, who are involved in
microfinance program, are illiterate and living in villages. Therefore, it was too difficult
to make them understand some of the technical terms: like capital, income etc.

Finally, the accuracy of the analysis heavily relied on the data provided by the people
involved in microfinance in rural areas of India.


At last we can conclude that Micro Finance and Self Help Groups are beneficial to rural
India because in current time micro finance and SHGs are taking many steps to get rid off
the poverty and unemployment. Due to it we find out that in this developing world still
there is the big problems like poverty and unemployment. We found that how micro
finance and self help groups help the rural areas. The main impact of these on rural areas
is that people who are living in rural areas now know about the main things related to
micro finance.
SHGs help the women in the field of women empowerment. SHGs providing platforms
for poor women to discuss and resolve their problem.




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We would be thankful if you share some of your valuable opinion regarding the
following questionnaire.
I assure you that the information provided by you will be kept confidential and will be
used for academic purpose only.
Please put a tick (√) in appropriate brackets.

Name: __________________________________
Age (in years): ____________________________
Gender: _________________________________
Educational Profile: ________________________
Monthly Income (in Rupees): _________________

1) Do you know about Microfinance Services?

(a) Yes (b) No

2) Rate the essence of Microfinance on the scale of 10-100?

Bad Neither good Good

Nor bad
10 20 30 40 50 60 70 80 90 100

3) Do you think interest rate charged by Microfinance Institution’s (Mafia’s) is

(a)Yes (b) No

4) Do you think banks have good scope through Microfinance?

(a)Yes (b) No

5) Would you prefer to take loan from?

(a) Banks (b) MFIs

6) According to you which factors are more crucial for rapid growth of Mafia’s?
a. Low interest rate
b. Availability
c. Processing & sanctioning of loan
d. Installment Factor

7) Do you think Microfinance has helped in Rural India?

(a)Yes (b) No
8) Microfinance concept makes relevance in rural area as well as urban area of Dab
Region. Do you agree?

(a) Yes (b) No

9) Microfinance Institutions can help unemployed rural youth in Dab Region of

(a)Yes (b) No

10) Do you think Microfinance is a tool to eradicate poverty?

(a)Yes (b) No

11) How do you anticipate the future of Microfinance; rate on the scale of 10-100?
Bad neither good Good
Nor bad
10 20 30 40 50 60 70 80 90 100

12) Do you have ever borrowed micro credit from the banks/ Mafia’s, if yes specify for
which purpose?

.q .................

13) Are you aware about the Interest Rates charged by the Banks/Mafia’s for providing
Microfinance Services?

(a) Yes (b) No

14) Are you currently availing any microfinance facilities from the bank /Mafia’s?
(a) Yes (b) No