ISSN: 2249-7196

IJMRR/ July 2014/ Volume 4/Issue 7/Article No-2/715-721

Nikita/ International Journal of Management Research & Review

AN ANALYSIS OF PERFORMANCE OF MICRO FINANCE IN INDIA

Nikita*1
1
Ph.d Research scholar, Department of Economics, Chaudhary Devi Lal University, Sirsa
(Haryana), India.
ABSTRACT
Micro-finance is the provision of financial services to the poor who are otherwise considered
un-bankable. In India, the National Bank for Agriculture and Rural Development (NABARD)
took this idea and started the concept of microfinance in India. Microfinance is different from
Microcredit- In micro credit; small loans are given to the borrower but under microfinance
alongside many other financial services including savings accounts and insurance. There are
two models in India that link the formal financial sector with lending to low-income
households in India, namely SHG and MFI bank linkage programme. The present study is an
attempt to analysis the performance of Micro finance in India. The present study is based on
secondary data. The relevant data has been collected from National Bank for Agriculture and
Rural Development (NABARD) (Status of microfinance in India report). The study
concludes that first time in the year 2012-13 after the launch of SHGs BLP there is decline in
the number of SHGs who’s saving linked with banks. The study also finds out there was
growth in the loan outstanding of SHG which is the cause of increases in NPAs. Therefore
steps should be taken to improve the performances of programmes launched under Micro
finance time to time.
Keywords: Micro finance, SHGs, SHGs BLP, MFI BLP.
INTRODUCTION
Access to financial credit is a requisite precursor to the progress and development of any
nation in the world. Financial institutions which assume diverse forms and structures act as
intermediaries in this flow of credit between a nation’s savers and borrowers. Credit is
receivable either through formal channels like banks and other financial institutions or
through informal channels like moneylenders. Financial institutions in the country continued
to play a leading role in the microfinance programme for nearly two decades now. They have
joined hands proactively with informal delivery channels to give microfinance sector the
necessary momentum. It was observed poor tended to come together in variety of informal
ways for pooling their savings and dispensing small saving and unsecured loans to the group
member on the basis of their need. According to recent RBI estimates there are over 450
million “unbanked people” in India, most of whom live in rural areas The term “unbanked”
refers to people who have no access to formal financial services, but rather must rely on
either family, or informal providers of finance, such as the village moneylender. Therefore
the Indian Government and the RBI have a policy of “financial inclusion”. Microfinance can
*Corresponding Author www.ijmrr.com 715
 Nikita/ International Journal of Management Research & Review

be called a novel approach to provide saving and investment facility to the poor around
world. Currently Microfinance in India is being provided by three sectors: the government,
the private sector and charities. Over the years, the provision of microfinance has brought
significant increased productivity among the rural poor. Self reliance and sustainability of
income generating and micro enterprise development programmes of self help groups have
been successfully achieved with effective linkage and networking.
CONCEPT OF MICROFINANCE
The terms ‘Microfinance’ refers to the extending the whole range of financial Services from
saving to micro credit to micro insurances to micro enterprises and lot more for the poorest
section of the society. Robinson (2001) gives a very plausible definition of microfinance.
According to him, “Microfinance refers to small scale financial services for both credit and
deposit-that are provided to people who farm or fish or herd; operate small or
microenterprises where goods are produced, recycled, repaired or traded; provide services;
work for wages or commissions; gain income from renting out small amount of land, vehicle,
draft animals, or machinery and tools; and to other individuals and local groups in developing
countries in both rural and urban areas”. The history of micro financing can be traced back as
far as the middle of the 1800s, when the theorist Lysander Spooner was writing about the
benefits of small credits to entrepreneurs and farmers as a way of getting the people out of
poverty. Independently of Spooner, Friedrich Wilhelm Raiffeisen founded the first
cooperative lending banks to support farmers in rural Germany. A group of Indian women
have assembled to make bamboo products that they intend to resell. Two women talk about
financial matters. The woman on the right is a loan officer for the Small Enterprise
Foundation (SEF). The conversation shown is taking place in Tzaneen, South Africa in
February 2010. The system of microfinance was introduced about 28 years back with an
organization of Grameen Bank in Bangladesh by a famous economist Prof. Mohammed
Yunus. He was starting and shaping the modern industry of micro financing. He observed
that most villagers were unable to obtain credit at reasonable rates. So he began to lend them
money from his own pocket, allowing the villagers to buy materials for projects like weaving
bamboo tools and making pots (New York Times, 1997). Another pioneer in this sector is
Akhtar Hameed Khan.
In India, the National Bank for Agriculture and Rural Development (NABARD) took this
idea and started the concept of microfinance in India. Under this mechanism, there exists a
link between SHGs (Self-help groups), NGOs and banks. SHGs are formed and nurtured by
NGOs and only after accomplishing a certain level of maturity in terms of their internal thrift
and credit operations are they entitled to seek credit from the banks. It provides poor people
with the means to find their own way out of poverty. During the current year, microfinance
has registered an impressive expansion at the grass root level.
Types of MFIs

Domestic Commercial Banks including Public Sector, Private Sector and Local Banks

Regional Rural Banks

Co-operative Banks

Co-operative societies

Copyright © 2012 Published by IJMRR. All rights reserved 716

 Nikita/ International Journal of Management Research & Review

Registered NBFCs

Unregistered NBFCs

Others include Societies and Trusts
Main Features of Microfinance are:

Loans to those people who live below the poverty line

Members of SHGs may benefit from micro finance

Maximum limit of loan under micro finance ₨25,000/

Microfinance is different from Microcredit- In micro credit, small loans are given to the
borrower but under microfinance alongside many other financial services including savings
accounts and insurance.
Different Models of Microfinance: There are two models in India that link the formal
financial sector with lending to low-income households in India, namely:
1. SHG – Bank Linkage Programme (SBLP): The SBL model is a home grown model of
microfinance in India which was conceptualized and initiated by NABARD in 1996, when it
launched nation-wide pilot projects to link the existing SHGs with banks. 12-15 people form
a group and start an account with a bank. They start to build up internal funds through thrift
and savings. Once this reaches a substantial level, they begin borrowing from the bank This
model involves the SHGs financed directly by the banks viz., CBs (Public Sector and Private
Sector), RRBs and Cooperative Banks.
2. MFI – Bank Linkage Programme (MLP): Micro Finance Institutions (MFIs) act as an
important conduit for extending financial services to the sector in the country by raising
resources from Banks and other institutions and extending loans to JLG / members. This
model covers financing of Micro Finance Institutions (MFIs) by banking agencies for on-
lending to SHGs and other small borrowers MFIs are of different legal entities viz.

NGO MFIs - registered under the Societies Registration Act, 1860 or the Indian Trusts
Act, 1880.

Cooperative MFIs - registered under the State Cooperative Societies Act or mutually
aided Cooperative Societies Act or Multi State Cooperative Societies Act.

NBFC MFIs incorporated under Section 25 of Companies Act, 1956.

NBFC MFIs incorporated under the Companies Act, 1956 and registered with RBI.
OBJECTIVES OF THE STUDY
 To analyzes the progress of SHG and MFI bank linkage programme.
 To study out agency wise detail of loan to MFI.
 To study out Advantages of Micro Finances Institutions.
NATURE AND SOURCES OF DATA
The present study is based on secondary data. The relevant data has been collected from
National Bank for Agriculture and Rural Development (NABARD) (Status of microfinance
in India report). The time period of the study has been taken 2009-10 to 2012-13.

Copyright © 2012 Published by IJMRR. All rights reserved 717

 Nikita/ International Journal of Management Research & Review

ANALYSIS OF THE STUDY

Table 1: Progress under SHG Bank linkage Programme
Particulars 2009-10 2010-11 2011-12 2012-13

No of Amount No of Amount No of Amount No of Amount

SHG (in (in SHG (in (in SHG (in SHG (in (in
Lakhs) `Crores) Lakhs) `Crores) (in `Crores) Lakhs) `Crores)
Lakhs)
Saving of 69.53 6198.7 74.62 7016.3 79.60 6551.41 73.18 8217.25
SHG with
Banks (7.3%) (13.2%) (6.7%) (-6.7%) (-8.1%) (25.4%)
Loan 15.86 14453.3 11.96 14547.7 11.48 16534.77 12.20 20585.36
Disbursed
by banks (-24.6%) (0.01%) (-4%) (13.7%) (6.3%) (24.5%)
Bank loan 48.51 28038.3 47.87 31221.17 43.54 36340.00 44.51 39375.30
outstanding
with the (-1.3%) (11.4%) (-9.0%) (16.4%) (2.2%) (8.4%)
Banks
Source: NABARD, Note: Figures in parentheses are percentages
Interpretation
(a) Savings of SHGs with the Banks: table depicts the saving of SHGs with banks, as we
see, in the year 2009-10, 69.53 lakh SHGs were having a saving account with the banking
sector with saving of 6198.7 crore. Further, in 2011-12 a total of 79.60 lakh SHGs were
having saving account with saving 6551.41 as against 74.62 lakh SHGs with saving of `
7016.3 crores in previous year. It show that there has been decline in amount of saving
balances with the bank to the extent (-6.7%) as compared to previous year. A similar decline
of number of SHGs savings linked to banks has also been observed in 2012-13 only 73.18
lakh SHGs linked to banks as against 79.60 lakh a year back. For the first time since the
SHG-Bank linkage programme was launched, there is a decline in the number of SHGs to the
extent of (-8.1%) during the year 2012-13, though the savings harnessed by SHGs grew by
25.4%. Increasing awareness at the SHG level about the advantage of using the savings for
internal loaning is also partly responsible for the decline in saving balance with banks.
(b) Loan disbursed by banks: During 2009-10, banks have financed 15.86 lakh SHGs, with
bank loans of 14,453.30 crore, but as we see in the year 2010-11 bank extended fresh loan of
14547.7 crore to 11.96 SHGs. It has been showed a declining of nearly 25% in the number of
SHG as compared to previous year. Further during the year 2012-13 the number of SHGs
availing fresh loans by banks showed an increase of 6.3% and the quantum of fresh loans
issued increased by 24.5% as compared to previous year.
(c) Loan Outstanding with the banks: In the year 2009-10, total number of 48.51 lakh
SHGs were having outstanding bank loans of 28,038.28 crore. Further, the number of SHGs
having loans outstanding against them from banks declined by 9% during the year 2011-12
although the quantum of loans outstanding increased to `36340 crore (16.4% increase over
last year). The growth in the loan outstanding of SHGs with banks in the year 2012-13 (8.4%)
is almost 4 times the growth in the number of SHGs having outstanding loans with banks
(2.2%). So loan outstanding is responsible for increase in NPAs of SHG loans with banks.

Copyright © 2012 Published by IJMRR. All rights reserved 718

 Nikita/ International Journal of Management Research & Review

Table 2: Progress under MFI Bank Linkage Programme

Particulars 2009-10 2010-11 2011-12 2012-13

No of Amount No of Amount No of Amount No of Amount

SHG (in SHG (in (in SHG (in (in SHG (in (in
(in Crores) Lakhs) Crores) Lakhs) Crores) Lakhs) Crores)
Lakhs)
Loan 779 10728.50 471 8448.96 465 5205.29 426 7839.31
disbursed
by banks to (-39.5%) (-21.3%) (-1.3%) (-38.39%) (-8.4%) (50.6%)
MFI
Loan 1659 13955.75 2315 13730.62 1960 11450.35 2042 14425.84
outstanding
against (39.5%) (-2.0%) (-15.3%) (-16.6%) (4.2%) (26.0%)
MFI with
the
Figures in the parenthesis( indicates growth/decline over the previous year)
Note: Actual number of mFIs availing loans from Banks would be less than the figures
shown as most of mFIs avail loans from more than one Bank/more than one loan account.
Interpretation
Table 2 highlights that after 3 years of the mFIcrisis; the MFIs seem to be on the path of
regaining the confidence of the clients as well as with the lending institutions. Fresh loans
issued to MFIs by Banks showed a 50% increase in the year 2012-13 year as compared to
previous year, while the number of MFIs having access to fresh loans declined by 8.4%
indicating selective lending by the Banks. But loan outstanding in banks in the year 2012-13
the highest compared to previous years.
Table 3: Agency wise loan to MFI
Financing Period Loan disbursed to MFI Loan Outstanding against MFI
Agency No of SHG Amount (crore) No of SHG Amount (`crore)
2009-10 645 8038.61 1407 10095.32
All commercial 2010-11 460 7601.02 2153 10646.84
Banks 2011-12 336 4950.98 1684 9810.98
2012-13 368 7422.66 1769 12467.72
2009-10 46 24.14 103 52.22
Regional Rural 2010-11 9 4.16 23 42.01
Banks 2011-12 113 13.28 128 37.51
2012-13 14 4.58 153 70.66
2009-10 0 0 3 0.01
Cooperatives 2010-11 NA NA NA NA
banks 2011-12 4 1.61 19 4.75
2012-13 3 4.00 18 6.83
2009-10 88 2665.75 146 3808.20
SIDBI 2010-11 2 843.78 139 3041.77
2011-12 12 239.42 129 1597.11
2012-13 41 408.27 102 1880.63
2009-10 779 10728.50 1659 13955.75
Total by all 2010-11 471 8448.96 2315 13730.62
Agencies
2011-12 465 5205.29 1960 11450.35
2012-13 426 7839.51 2042 14425.84
Sources: NABARD (status of micro finance in India)

Copyright © 2012 Published by IJMRR. All rights reserved 719

 Nikita/ International Journal of Management Research & Review

Interpretation
Table 3 shows that banks have financed to 471 MFIs with bank loans of `8448.96 crore as
against 779 MFIs with bank loans of` 10728.50 crore during 2010-11. Representing decline
in bank loans disbursed. Further, during the same year (2010-11), the outstanding bank loans
against 2315 MFIs was `13730.62 crore. While in 2009-10, SIDBI had financed to 88 MFIs
with financial assistance of ` 2665.75 crore and the loan outstanding against 146 MFIs was
`3808.20 crore in the year 2009-10. As such the total exposure of banks and financial
institutions to MFIs as on 2012-13 was to the tune of `14425.84 crore which show increase in
loan outstanding against MFI. As we see after 2009-10 Commercial Banks (and financial
institutions like SIDBI) are losing their confidence in lending to mFIs is evident from the fact
that the fresh lending to mFIs by banks during the year declined. There has also been a
marginal decline in the number of mFIs availing fresh loans from Banks. If the trend
continues, this sector is likely to face serious resource crunch and could affect its outreach
plans in the near future. Overall, as we see among the agencies lending funds to mFIs, the
major share belonged to Commercial Banks.
Major Advantages of the Micro Finance

Microcredit empowers women to become independent because in the past, women were
not able to participate in economic activities. Microfinance institutions now provide women
with the capital they require to start business projects.

Microfinance also helps to manage the assets of the poor and generates income through
microfinance.

Microfinance helps the poor people get access or save funds over a period of time with
low interest rates. Also, the poor could solve their own issues by working together as a
community and this creates trust and social capital in their communities. It also leads to
stability and growth in their households, as well as their communities.

NABARD has also been encouraging voluntary agencies, bankers, socially spirited
individuals, other formal and informal entities and also government functionaries to promote
and nurture SHGs

Micro finance institution reduced dependence of SHGs on local money lenders fully or
partially. Loans given by banks to the groups 1-3 times higher than the saving of the groups.

NGO and other government department also provide skill training to SHG members
which prove beneficial for group members. For example after receiving training in animal
husbandry the SHG convinced the local banker for a small loan for every member of an SHG
for dairying. Realising that private milk vendors are exploiting the dairy farmers, they
decided to take over a defunct Milk society in the area and started collecting milk from all
members and sell it to the Apex Milk Cooperative Federation. The individual member’s daily
income shot up from `50 to `84 daily and with it came a hope for the future of their family for
a better standard of living, better education for the children and equally important is the
transformation it brought about in the social status of the women members in the family and
in the community. Today, the entire village is rejoicing at the success of these women in the
village.

Copyright © 2012 Published by IJMRR. All rights reserved 720

 Nikita/ International Journal of Management Research & Review

Micro financing can help create new employment opportunities, which has a beneficial
impact on the local economy.
CONCLUSION
Microfinance sector has grown rapidly over the past few decades. The study concludes that
first time in the year 2012-13 after the launch of SHGs BLP there is decline in the number of
SHGs who’s saving linked with banks. The study also finds out there was growth in the loan
outstanding of SHG and which was responsible of increases in NPAs. At last we find out that
the major share belongs to commercial banks when agency wise loan issued to MFI. At last
steps should be taken to improve the performances of programmes launched under Micro
finance time to time.
References
Kumar, Bohra, Johari A. Micro-Finance as an Anti Poverty Vaccine for Rural India.
International Review of Business and Finance 2010; 2(1): 29-35.
Mahanta, Panda, Sreekumar. Status Of Microfinance In India - A Review. International.
Journal of Marketing, Financial Services & Management Research 2012; 1(11).
Mohanty, Mohapatra R, Khuntia S. Micro Finance : A Poverty Reduction Tool. Special Issue
of International Journal on Advanced Computer Theory and Engineering (IJACTE): 2013;
2(1): 2319–2526.
NABARD. Status of microfinance in India, Annual Report of National Bank for Agriculture
and Rural Development.
Nasir. Microfinance in India: Contemporary Issues and Challenges. Middle-East Journal of
Scientific Research 2013; 15(2): 191-199.
Debadutta P. Self Help through Microfinance: A Paradigm Shift in Orissa, India.
International Journal of Rural Studies 2008; 15(1).
Robinson SM. The Microfinance Revolution: Sustainable Finance for the Poor. International
Bank for Reconstruction and Development, Washington D.C. 20433 usa, 2001.
The New York Times. Micro loans for the very poor, (editorial) February 16, 1997.
http://plancanada.ca/microfinance-benefits//
http://n.wikipedia.org/wiki/Microfinance//
https://sites.google.com/site/cs73nmicrocredit/...micro.../---of-microfinan...
https://www.nabard.org/
http://www.iitk.ac.in/ime/MBA_IITK/avantgarde/?p=475//
http://www.enableindia.net/Comparative%20analysis%20of%20MFIs%20and%20SHG%20b
ank%20linkage.pdf
http:// www.igidra.ac.in Fsrr_pdf_regulatingmicro finance//
http:// mpra.ub.unimuenchen.de_38755_1_mp//

Copyright © 2012 Published by IJMRR. All rights reserved 721