Self Help Groups should hold regular meetings. It can be weekly, fortnightly, and monthly. In case of failure to do so, a fine may be imposed.
Maintenance of financial and other records should be properly done. The books should give the details of number of meetings held, decision taken in meetings, amount of savings of members, credit availed, repayments.
There should be election or nomination of leaders and they should be rotated periodically.
Rate of interest on which loan will be given to the member will be decided by the group.
Group liability and peer pressure act as collateral.
All the initiatives for the management of finance are undertyaken vy the poor at the micro-level (group ) level itself.
funds are mobilised and credit is extended to members by other members themselves.
Selection of borrowers for availing microcredit is done at micro (group ) level itself.
Repayment of loan is ensured through peer monitoring.
Members have collective accountability of financial transactions in the group.
Promote thrift habit among members for the economic betterment of members.
Some of the principles underlying the project and the guidelines that were issued to the implementing groups are listed below :
â€¢ The SHGs are to use part of their funds (almost 60%) for lending to their
members and the rest for depositing in a bank to serve as the basis for
refinancing from the bank.
â€¢ â€¢ The joint and several liability of the members is to serve as a substitute for physical collateral for that part of loans to members in excess of their
â€¢ Credit decisions for onlending to members are to be taken by the group
â€¢ Central Bank refinance is to be at an interest rate equal to the interest rate at
which the savings are mobilised.
â€¢ All the intermediaries (the Central Bank, banks, NGOs and SHGs) will charge
an interest margin to cover their costs.
â€¢ Interest rates on savings and credit for members are to be market rates to be
determined locally by the participating institutions.
â€¢ Instead of penalties for arrears, the banks may impose an extra incentive
charge to be refunded in the case of timely repayments.
â€¢ The ratio of credit to savings will be contingent upon the creditworthiness of
the group and the viability of the projects to be implemented, and is to
increase over time with repayment performance.
â€¢ SHGs may levy an extra charge on the interest rate for internal fund generation
(which would be self-imposed forced savings).
Within the first ten months of the implementation period, by March 1990, 7 private
banks and 11 branches of government banks had made 229 group loans to SHGs,
which had retailed them to about 3500 members. Loans totalling about $0.4 million
had been disbursed , on an average of about $2000 per group and $118 per member.
SHG savings deposits with the bank amounted to about $400 per group, giving a
credit to savings ratio of about 5. NGOs have received loans from the banks at 22 to
24 per cent which is only slightly higher than the refinancing rate of large to small
banks. Rates to end users have been between 30 to 44 per cent after the NGOs and
SHGs have added their margins to cover costs and build funds to cover joint and
several liability. Only one of the participating banks had sought a guarantee under the
scheme from the Central Bank.
SHG can be stated as ‘the plan by the people, of the people and for the people reflecting the real people’s particialption in the process of development at grass root level. The SHG movement hass thus added a new dimention to microfianncing in the country.
Factors behind success of the Grameen Bank are : participatory process in every
aspect of lending mechanism, peer pressure of group members on each other, lending
for activities which generate regular income, weekly collection of loans in small
amount, intense interaction with borrowers through weekly meetings, strong central
management, dedicated field staff, extensive staff training willingness to innovate,
committed pragmatic leadership and decentralised as well as participatory style of
The Grameen Bank experience indicates the vital importance of credit as an entry
point for upliftment programme for rural poor. If a programme is to have an appeal
for people living in abject poverty, it must offer them clear and immediate prospects
for economic improvement. Thereafter, it is easier to sell other interventions of social
development, however unconventional they may appear, once improvements in
standard of living are demonstrated.
The Grameen Bank clearly shows that lack of collateral secuirty should not stand in
the way of providing credit to the poor. The poor can utilise loans and pay them if
effective procedures for bank transactions with them can be established. In case of
the Grameen Bank, formation of groups with a small group of like minded rural poor
has worked well, and group solidarity and peer pressure have substituted for
”””””””””””””””” there is not yet formal official publication on different statistics of SHGs (Dasgupta, 2001).
role and importance of microfinance in growth and development of Indian economy
1.2 Need for Study 2
1.3 Study Objectives 3
1.4 Area of the study 4
1.5 Approach and Methodology 5
1.6 Report format 8
1.7 Limitations 9
However, the gap between demand and supply of financial services still prevails due to shortcomings of institutional credit system as it provides funds only for productive purposes, requirement of collateral and massive paper work leading to inordinate delays. Due to this, there is still exclusion of large number of poor from formal financial systems. Hence, as a response to failure of formal financial system in reaching the poor and destitute masses, the microfinance was innovated and institutionalized in the Indian scenario. The basic objective of microfinance is to provide access to financial services so that poor can come out of vicious circle of poverty.
The mainstream financial institutions are not genuinely interested in microfinance services because of higher transaction cost, greater risk, lower return and unsophisticated clients. Dasgupta R. (2006)
the formal sector Banking Institutions in India have been serving only
the needs of the commercial sector and providing loans for middle and upper income
groups.(Tiwari and fahad,_)
Lack of understanding and cooperation among the members.
inability to reach the market (Kumari and MALATHI, 2009 ” Microcredit and Rural Development” IN book anil kumar thakur and Praveen Sharma, deep and deep publications pvt Ltd
The first chapter is developed to the introduction of the Micro finance and Micro financial institutions and the need for this study and the specification of the objectives.
The second chapter presents a review of literature of the important existing studies on the micro finance.
The third chapter details the description of the study area, nature and source of data, the tools and techniques of analysis adopted for evaluating the objectives.
The forth chapter gives us a brief insight into the results under appropriate heads in consistence with the objectives of the study.
The fifth chapter seeks to interpret the results of the study and also discusses a frame of inference for drawing policy measures.
The sixth chapter summarizes, concludes the results and suggests polices to improve the micro financial activities.
7.56 There are no clear estimates of the number of people in urban areas with no
access to organized financial services. This may be attributed, in part at least, to the
migratory nature of the urban poor, comprising mostly of migrants from the rural
areas. Even money lenders often shy away from lending to urban poor.
7.57 There have been a few instances of MFIs venturing into this area of lending to
urban poor who are undertaking micro-enterprises and small business activities.
Urban branches of banks, even though having manpower and technology support, are
not attuned to SHG lending or microfinance. They are busy with multiple and
diversified activities and generally find no time to cater to the microfinance market
segment. Lending opportunities in other sectors dissuade them from attempting the
laborious task of microlending. The migratory nature of parts of the low income urban
population is also contributing that urban bankers are not venturing into this field.
7.58 Opening of specialised microfinance branches / cells in potential urban centers
exclusively catering for microfinance and SHG – bank linkages could be thought of, to
address the requirements of the urban poor. BFs / BCs could be the mechanism to
reach the target clientele in these areas. However, banks need to implement proper
risk management practices, develop suitable models and products tailor-made to this
segment. Banks can also consider associating with MFIs undertaking urban
microlending as a viable option.
By then Microfinancing by ‘non-formal institutions’ financial organisations had already started. Self Employed Women’s Association (SEWA) owned by women of petty trade groups was established in 1974 in Gujarat. It involved providing banking services to the poor and self-employed.
At this stage, it was realised that the poor really needed better access to these services and products, rather than cheap subsidized credit. Keeping in view the economic scenario, a strong need was felt for alternative policies, procedures, savings and loan products, other complementary services, and new delivery mechanisms, which would fulfil the requirements of the poorest, especially of the women members of such households. The emphasis, therefore, was on improving the access of the poor to microfinance.
Banks provide the group a loan amounting to four times the groups’ savings but, as the group matures, based on the groups’ track record, banks are ready to lend more.
SHG funds may be distributed either to one or more of the members of the group who are then personally responsible to the group for repayment. The group is free to decide the interest rate charged to its members, but typically a member borrows from the group at the rate of 24 percent per annum (Barman et al., 2009). After a loan from bank is fully repaid, the group qualifies for further receipt of the loan.
Process of Group Formation Self Help Groups Model Self help as a concept involves the promotion and enhancement of indigenous ways of becoming socially, economically and politically empowered. ll must lead to su.,winahle development processes at the community level. The self help group ts envisaged as a vibrant, democratic and viable entity at grassroots level. People, men and women, who have never been involved earlier would plan, implement and monitor their own development. They would mobilize internal and external resources, create effective grassroots institutional modalities at the local level and ensure redistributive justice, with respect to access and control over vital natural and other common property resources.
The notion of self help is not new. The movement for independence of India was a testimony to the struggle for self-reliance against colonial powers. “Gram Swara_j”, meaning village self-rule was the process of creating a national vision of development by initiating rural construction with emphasis on village level autonomy. The concept of self-reliance in India is within the history. Unfortunately. the path of planned industrial development resulted in a gradual lo” of control by the poor over local community resources – land. forests. water. seeds, native technology, decision making. and thereby accentuating poverty, particularly in the rural and tribal belts. Women were particularly afkctcd, as development paradigms did not include their realities. TherL’ has also been a sharpening of religious and ethnic identities, engineered by vested political interests, which has resulted in conflicts and schisms in the community. There are some micro-initiatives in the country, where people have taken control over their lives either through struggles orreclaiming their rights over resources (self. community. and intellectual). They have demonstrated alternatives in
environment, agriculture and management of forests, savings and credit programs, population and development i”ues etc., through advocating self help principles.
All communities have self help groups in some form or the other. They could be in the forrn of sanghas, mahila mandals, cooperatives, informal savings groups, literary groups and so on. There are informal systems of knowledge transmission, borrowing, lending. governance, legal redress, monitoring social norms, addressing issues of crisis in the community and the like.
Self help groups (SHGs) arc informal in the initial stages. They are either formed out of existing grours in the community (I he feature of each group formed are distinctive, based on objectives, membership, strategy of development and group processes), or are nuclei of larger processes to be initiated in the community. However, there comes a time when they need to institutionalize themselves for wider outreach. This research focuses on the SHG model and its impact on women’s empowerment. Hence, the model will be dealt elaborately in the following pages.
Given the years of alienation and sub-ordination thai community groups have experienced, SIJGs as a mechanism, are fragile and vulnerable in the initial stage. There is a tendency to become beneficiaries and leave decision making to others. NCiOs and other intermediaries arc needed to support and facilitate their early functioning and growth. Over a period of time. the nature of support and facilitation change depending on the profile and the culture of the group up to a point thai the SHG is in a position to function independently and build institutions which have the
capacity to continue processes well beyond the project period and negotiate power relations.
Such a process will take time and cannot he completed in a priority time slots. Communities go through various stages before they hecome capahle of managing their own affairs, given that they have to acquire literacy, economic security, advocacy, group maintenance, collective leadership and other skills. The informal SHGs also need to develop into a strong organization and federate/coalesce on regional or national basis.
Members of the SHG have impulse toward collective action for a common cause. The common need is meeting their emergent economic needs without being dependent on the outside help. The members form a group of 12-20. The group formation process may be facilitated by an NGO or hy the MFI or bank itself, or it may evolve from a traditional rotating savings and credit group (ROSCA) or other locally initiated group. Some of the features that describe SHG best arc given he low:
I. SHGs are a democratic group for a development purpose and they arc increasingly used for micro credit. The size of the SHGs is neither too large nor too small as it is a development group dealing with credit and other socio economic issues. SHG has it own leaders and holds regular meetings.
2. The SHG members decide to make regular savings contributions. These may he kept by their elected head, in cash. or in kind, or they may be banked.
3. The facilitation NGOs and banks provide capacity building inputs so that they hecome effective and accountahk seeing the needs of its members.
4. After a period of consi,tcnt savings (6 month’ to one year) the SHGs start to give loam; from savings in the form of small internal loans for micro enterprise activities including consumption. Only those SHGs that have utilized their own funds well are assisted with external funds through linkages with hanks and other financial intermediaries.
5. The SHG opens a savings account, in the group’s name, with the bank or MFI, for such funds as are no needed by members, or in order to qualify for a bulk loan.
6. The bank or MFI makes a loan to the SHG, in the name of the Group, which is then used by the Group to supplement its own funds for on-lending to it members.
The SHG need not always go through all these stages; it may satisfy its members’ needs quite effectively if it only goes to the second or even to the first stage, saving money and possibly not even withdrawing it (Harper M 2000, pp. 39-42). The SHG carries out all the same functions as required by the Grameen system, but they do this on their own behalf, since the SHG is a micro-hank, carrying out all the intermediation tasks ot’ saving’ mobilization and lending. The MFI or bank may assist the SHG in record keeping. and they may al’o demand to know who arc the members and impose conditions as to the uses of the loan which they make to the SHG, but the SHG is an autonomous financial institution in its own right. The mcmhcrs have their accounts with the SHG. not with the MFJ or bank, and the MF! or hank does not have any direct dealings with the members.
Table I: Basic Principles and Functions of SHGs
11le basic principles on whiCh the I Functions of the SHGs
I. SHG IS a network of members who fulfill location criteria. They arc resident m the area and arc homogeneous (Homogeneity can be in terms of caste/occupation/farm size/sex or income level).
2. They have rules/norms regarding their functioning.
·’· Savings first, credit thcrcal’tcr.
Personalized services suiting the requiretnents of the members are ensured.
4. SHGs hold regular meetings to
I. Identification of poor families and awareness building.
2. Forming of groups.
3. Guiding groups in developing procedures and systems in savings and credit operations.
4. Helping the groups m
maintenance of books and accounts.
5. Training the members m group functioning and management.
6. Liaison with the banks for linkage of groups and selectively acting as
ensure participation of memhers in
7. Addressing social
the activities of the group.
5. SHGs maintain accounts.
6. Group leaders are elected by members and rotated periodically.
7. Transparency in operations of the group and participatory decision making ensure that the benefits to members are evenly distributed.
X. Market rates of interest on savings and credit are charged.
9. Group liahility and peer pressure
act as substitutes for traditional collateral for loans.
The current inflation situation in Malaysia
Inflation is the controversy issue in world economic development. It causes many others problem to the country all to the world. It because the inflation itself is not only burden to that country, but it also spread the effect to the related country that has relation with them. Not even one single country can avoid the inflation can happen. It always happens but the increasing of inflation can cause others problem worsens.
It is the phenomenon that has features of world wide. It affected that not conclude only to certain country. It always happens to most country in the world. Inflation also spread from the host to others, start from the primary country such as USA if they experience the inflation, then other country also experience it in the various degree of stages.
When the inflation happens, it involved each part of the community. House hold, workers, investor, and even pensioner affected by the inflation. But the effect is also various, certain people get the benefit from it and the others get the losses. It depend on how the money use to us, either it been use to pay debt or to pay goods we buy.
Recently, the world has experience the inflation once again that affected most of the country in the world. It caused by the increasing in price of world crude oil as a main reason. In Malaysia for example, the inflation rate has reach up to 8.5 percent on July 2008. The inflation in Malaysia also happens due to the increase of the government servant salary that increases the power purchase of the most population in the country.
When aggregate demand increase, many sellers and firms take advantages by increase price to gain more profit. The increment is roping from one good to another that suddenly cause the reducing value of money itself.
Compare to the previous years, the July 8.5 % rate is the highest in 26 years. High rate of inflation has brought the country to many problems such as lost investment, economic recession, slow down economic growth and most important is dropping the value of ringgit.
Based on the serious increment, the government has come out with several instrument and measurement to face the inflation. The inflation instrument such as monetary policies, fiscal policies and also the physical control is the application use to control the inflation that occurs. All the instrument use also has negative effect if it been applying for a long term.
The term Inflation can be define as the increase average price of good sustain for a period, in easier word, the increase price of good. The price will sustain increasing for a period of time. It is different from the increasing of good several times in several month or once in the several month either also the sometimes in a year. For example the increase price of good when festive season can be called as inflation because it only happen twice a year and not sustain.
The overall increment of price happen when as in average the price in the economy increase. So, at the time of inflation occur, there is a price that increase high, slowly and also doesnâ€™t change at all. Moreover, there is good that decrease the price. The measurement in the inflation is based on the sustain increases in average price of total good. If the average price of total good decrease, it is not called as inflation, but itâ€™s known as deflation.
The inflation is measure on the percentage rate. But the normal rate of the inflation is different from various countries. In Malaysia, the normal rate of inflation is below 5% per year or per count. Before 1960, normal rate of Malaysia inflation is 2 % a year. After the big wave of inflation that occur on 19970 to 19974, the rate has increase to 5% a year as normal rate, because in that period, 10 percent of inflation is a normally rated by many country in the world. The main cause of the occurred inflation is because the increasing of crude oil by the OPEC by 400 percent, known as the demand shock.
The main reason of inflation occur in Malaysia
The reason behind the inflation is due to several current factors happen to the world. It also been causing by the internal factor that help worsens the situation. The first factor is because the increase of crude oil price. It infect country gas price to increase too because government cannot stand the subsidies increase. Current price of crude oil has increase to USD 150 a barrel, that cause Malaysia to face 7.7 percent inflation on June and increase again on July to 8.5 percent. The increment of the natural resource price has increase the price of local gas to rm 2.7 per liter than before from rm 1.92. Itâ€™s been followed by the increase of the local goods such as cooking oil, flour, and rice and other in that year. The local trader has taking the advantages to increase the prices of good due to the reason of oil price increase.
The value of ringgit has turn down and lowering its value because of the local traders act. By increase the price of good, the value that previously can buy good in certain quantity, has goes down that only by the same good but in the less quantity than before.
For example, the price of 1 kg of rice in 2006 is rm 2.00. Say the price of the same good has increase to rm 2.50 on January 2007. it mean that the price of the same good has increase 25 percent than the previous year. The act of the local trader has reduced the value of the rm by 25 percent than the previous year. So, the inflation has cut down the purchasing power to the households.
It also caused by shock demand due to economist speculation. The news of future price would increase tend to make people to buy good in large quantity that makes certain good gone out of the demand than usually. To reduce the demand, local retail hide the stock and increase the price of good that make the inflation rate increase.
The inflation in Malaysia also occurs because of the increment of salary and wages and also new COLA announcement by the government. The pronounced not only enjoying public servant but also the local trader too. After a few day of the announcement, various type of necessary good increase. It is done by the local retailer and shop owner to gain profit from the situation. The inappropriate act by the local trader gives the kick start to Malaysia inflation to grow. Later, the government has come out with many type of control to decrease the price of good but the trader has worsen it better by hiding the good to increase the price back.
From That reasons above, clearly we can see the main cause of Malaysia inflation is done by the inner problem itself. The act of local retail and traders is the biggest contributor to the inflation. Although many people can see the general effect of the increase of crude oil causing the inflation rate increase, but the government has absorb the burden by giving the subsidies to many necessary good to reduce the cost. It cannot be the best reason to local trader to increase price of good in the market that tend to increase the inflation.
Government action to face the inflation
Government applies the various strategies to face the inflation that barge in Malaysia recently. Bank Negara Malaysia as a central bank act as government agent controls the economic by implementing several policies to the commercial bank and the financial institutions. They also give many advices to public on how to help government to control the inflation.
There are 3 measurement use by BNM to control the inflation in the first way the BNM use to control the inflation is by using the monetary policy. Monetary policies is a policy use to manipulate to money supply for maintaining the stability the in the market. Instruments use in monetary policies such as open market operation, statutory reserve requirement, discount rate and also moral suasion.
First is open market operation. Open market operation is the instrument that act to reduce or adding commercial bank money supply by selling or buying securities. The BNM can force commercial bank and financial institution to buy the securities that can reduce their money supply and then reduce the capability to give loan. Reducing loan giving means reduce the flowing of money in the market.
Next is the use of statutory reserve ratio. It is the instruments that increase the reserve of the commercial bank. BNM control the inflation by increase the reserve ratio to reduce the capability to give credit to customer. By doing so, it also reduce the money supply in the market and tend to reduce the purchasing power of the costumers.
Next is the using the discount rate. Bnm will influence the discount rate on loans and interest charge on the reserve to commercial bank. If the inflation goes up, BNM will increase the discount rate charge to discourage the bankers from making loan and borrowing reserve and then reduce the flow of money in the country.
Moral suasion is the involvement of BNM in bank policies and activities. They tend to give order and direction on how to control the inflation to the commercial and financial institution
This policy dealt with government expenditures and taxes. When the inflation occurs, government will use surplus budget policies by increase the taxes and reduce government spending. This implementation will lead to lower income to public and reduce the purchasing power. Government has introduce the prudent spending program due to this inflation time by minimizing the cost of operation of government and lead the government to spend more wisely. Government also has stop the on going development that increase spending to reduce the outflow of ringgit to the market.
Direct or physical control
Government has implements direct or physical control to face the inflation. The first physical control use is anti hoarding campaign. KDPNHEP has forced out their officer to take action for those retailer and trader that hoarding the goods on inflation, those who hiding goods will be compound and goods will be snatch. For example when the deficiency of cooking oil, KDPNHEP has working out to check from premise to premise to avoid the trader from hoarding the stock. The purpose of stock hoarding is to rising price of the goods. From the campaign, government has introduced the new price of cooking oil to stop the increment of the price.
Government has come out with many measurements to fight back the inflation that occur our country. Some of them looks done and some else donâ€™t make any reaction. For example the increasing rate of bank interest giving hope to reduce loan from customer but the behavior of some traders that hoarding the stock, worsens the situation.
To face the situation in more efficient way, government should make an adjustment on its policy to face inflation. Government should start to encourage public to buy local good and also makes good to buy. Mean that, people should start to join in agriculture that can produce necessary good that can be put in market. Making our own food can reduce the depended on import on food. It reduces the money supply. Moreover, local goods are cheaper than imported product.
Local traders also need to be more competitive. They cannot simply increase the price to gain more profit but they need to find new way to solve their problem. The Malaysia is not done by the increase of oil price but the attitude of the traders itself. Self awareness is the most important thing to be developed in our society today to prevent this act to be inherited to next generation that can make 1998 situation happens again.