CHAPTER - I Introduction
CHAPTER I INTRODUCTION 1.1 Introduction 1.2 An overview of micro finance and financial inclusion 1.3 Need for the study 1.4 Statement of the problem 1.5 Objectives of the study 1.6 Hypotheses for the study 1.7 Scope of the study 1.8 Research methodology 1.9 Chapterization scheme 1.10 Limitations of the study
CHAPTER I INTRODUCTION 1.1 INTRODUCTION In the development paradigm, Micro-finance has evolved as a need-based policy and program 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 organizations and policy makers have included access to credit for poor people as a major aspect of many poverty alleviation programs. Micro-finance programs 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 programs 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. According to Vice President of World Bank Micro finance can be the biggest instrument in the fight against poverty. Despite the South Asian Region s pioneering experiments in micro finance-successful instances include the Grameena Bank in Bangladesh and Self Help Group commercial bank linkage in Rural India More than 3/4 th of the poor families in the region still do not have reliable and organized financial services. This means that they and their little business cannot link up to the modern banking facilities. Micro financing has attained a special role as an instrument in poverty reduction the world over. There is a realization at both the government and donor agency levels that Micro-finance programs in India also enable empowerment of women. However, there have been doubts about this role of improvement in livelihoods and access to resources and social benefits such as improvement in knowledge and participation of selected Micro-finance programmes. Thus, Microfinance has become one of the most effective interventions for economic empowerment of the poor. 1
1.2 AN OVERVIEW OF MICRO FINANCE AND FINANCIAL INCLUSION: The word Micro-finance and its gradual ascent as a popular poverty alleviation tool may be relatively new to most of us, but the concept is not new. Informal credit and saving institutions for the poor have been around for decades, providing customers who were traditionally neglected by commercial banks, a way to obtain credit through co-operatives and development finance institutions. Some examples of these informal saving and credit groups that have operated for centuries are the " SUSUS" of Ghana, " TONTINES" of West Africa, "CHIT FUNDS" in India, TANDAS" in Mexico, "ARISAN" in Indonesia, " CHEETU" in Sri Lanka and "PASANAKU" in Bolivia, as well as numerous savings clubs found all over the world. These informal groups are also known as Rotating Savings and Credit Association (ROSCAs). ROSCAs consist of a group of men and /or women who contribute to a collective fund and decide either by auction or collective decision, to contribute collected money to one of the group members. The other type of informal group is known as saving and credit co-operatives, (SACCOs). One of the earlier and longer-lived micro credit organizations providing small loans to rural poor with no collateral was the Irish Loan Fund system. This began in the early 1700s by the notable author and nationalist Jonathan Swift. Swift's idea began slowly but by the early 1840s had become a widespread institution of about 300 funds all over Ireland. Their principal purpose was making small loans with interest for short periods up to 20 weeks. Despite small size of the loans, from as small as 4 pounds to a maximum of 10 pounds per person, the funds constituted one of the larger financial organizations in Ireland. The idea of repayment was based on "Social Capital" so that if the borrower could find two other people to verify his or her trust, then they could secure the loan. In the 1800s, various types of larger and more formal savings and credit institutions began to emerge in Europe, organized primarily among the rural and urban poors. These institutions were known as People's Banks, Credit Unions, and Savings and Credit Co-operatives. The concept of the credit union was developed by Friedrich Wilhelm Raiffeisen and his supporters. Their altruistic action was motivated by concern to assist the rural population to break out of their dependence on money lenders and to improve their welfare. From 1870, the unions expanded rapidly over a 2
large sector of the Rhine Province and other regions of the German states. The cooperative movement quickly spread to other countries in Europe and North America, and eventually, supported by the co-operative movement in developed countries and donors. Viewed purely from a historical perspective the origin of Micro-finance could be traced back to the beginning of the co-operative movement in Germany, where the movement was started in 1944 in the field of co-operative-based credit system by the "Raiffeisen Societies" as well as "Rochdale Pioneers" in England. Similarly, the enactment of the Cooperative Credit Societies Act, 1904 could be considered as the beginning of Micro-finance in India. In the late-19 th Century, various types of larger and more formal savings and credit organizations began to emerge in Europe and were organized primarily among the rural and urban poor. These institutions were known as People's Banks, Credit Unions, and saving and Credit Co-operatives. In Indonesia, the Indonesian People's Credit Banks or the Bank Perkreditan Rakyat opened in 1895. The (BPR) became the largest microfinance system in Indonesia with close to 9,000 units. Most of these institutions were owned by either Govt agencies or private banks and were mostly dependent on subsidies and grants of various rural development schemes. Over the years, these institutions became inefficient and widely discredited as a development intervention. Beginning in the 1950s, development projects began to introduce subsidized credit programmes targeted at specific communities. Rural development banks suffered massive erosion of their capital base due to subsidized lending rates and poor repayment discipline and the funds did not always reach the poor, often ending up concentrated in the hands of the better - off farmers. 3
1.3 NEED FOR THE STUDY Though Self Help Group are started with a clear objective of economic and social development for economically weaker sections of the community, they are not performing at the expected level in some parts of the state especially in the area of social upliftment and economic development. Though a large number of organizations are registering every year, organizations objectives are not met at the expected level. Further more, a microscopic study at district levels was not carried out in an extensive manner. A macro level study may not depict the overall and actual performance. At the gross root level, they are executing the proposed operations yet it has not been come to the lime light. Hence, there is a need to study the exact and actual functioning of these organizations and organizations role in linking the rural masses to the banking and other allied activities. 1.4 STATEMENT OF THE PROBLEM Alleviation of poverty, the core of all developmental efforts has remained a very complex and critical concern for developing countries. Experience has shown that many of the poverty alleviation programmes have not achieved the expected level of success. In spite of considerable improvement in the status of women, they still comprise the largest section of deprived population. Empowerment of women is seen as one of the most important means of poverty eradication. Lack of financial resources is a serious constraint to the development of poor women in rural and urban areas who find little or no access to credit. Credit can help women to take-up farming and allied activities such as rearing milching cattle, poultry or independent small enterprises, enabling them to respond to the opportunities created by the process of development. Micro credit for women has been the mantra that has worked like nothing else in pulling the poor women out of poverty and empowering them wherever it was introduced. In the field of Micro-finance, Financial Inclusion and Self Help Groups Bank Linkage Programme,playing a major role with the active support of Government of India and NABARD for wiping out absolute poverty from the country. 4
1.5 OBJECTIVES OF THE STUDY 1. To understand the significance of micro finance and bank linkage programme 2. To explore the importance of micro finance institutions for economic development of rural masses. 3. To evaluate the performance of Self Help Groups with reference to social and economic development. 4. To assess the progress of Self Help Groups in delivering micro finance. 5. To analyse importance and impact of Bank Linkage Programme of Self-Help Groups. 1.6 HYPOTHESES F0R THE STUDY The study has the following hypotheses 1. Self-dependency and economic upliftment of the rural poor is possible through Self Help Groups 2. Self Help Groups are playing a major role in financial education and financial inclusion of the rural masses. 3. Self Help Groups are playing a significant role in financial inclusion and BankLlinkage Programme. 1.7 SCOPE OF THE STUDY The scope of the study is to analyse the progress of Micro-finance, Financial Inclusion and Self Help Groups Bank Linkage Programme in Chamaraja Nagara District of Karnataka State in order to know how far it has achieved its objectives in empowering women through micro financing. The study was conducted in Chamaraja Nagara, Yelandur, Gundlupet and Kollegal taluks of Chamaraja Nagara District. The sample consists 400 SHG members from four taluks of Chamarajanagara. Further from Gundlupet Taluk 244,Kollega l72, Chamarajanagar 24 and Yelandur 60 SHGs members were selected randomly. 5
OPERATIONAL DEFINITIONS (i) Women Empowerment Women empowerment is a process whereby women become able to organize themselves, to increase their own self reliance, to assert their independent right to make choices and to control resources which will assist in challenging and eliminating their own subordination. In this study it refers to empowerment of women especially the women under BPL category residing in rural and urban areas by various dimensions - economic, political, social, cultural, personal and familial. (ii) Economic Empowerment A woman is said to be economically empowered when she gains power as a result of increased access to economic resources. The means of achieving economic empowerment are: access to micro finance, increase in income, ability to make decisions regarding the utilisation of money/credit, etc. (iii) Social/Cultural Empowerment A woman is said to be socially/culturally empowered when she has the power to participate in collective/cultural activities in the society. The means of achieving social/cultural empowerment are: social status, mingling with others, access to various organisations, social involvement, participation in cultural activities/ seminars/ competition, etc. (iv) Personal Empowerment A woman is said to be personally empowered, when she has the power to increase her own self-reliance and self-strength. The means of achieving personal empowerment are economic freedom, freedom of action, ability and involvement in decision making, self-esteem, gender equality, improvement in health and knowledge etc. (v) Familial Empowerment A woman is said to have familial empowerment when she has the power to increase her own family welfare. The means of achieving familial empowerment are 6
improvement in family income, support from the spouse, improvement in family relationship, education to children, medical care to family members, improvement in basic facilities and amenities, etc. (vi) Micro Finance NABARD has defined micro-finance as provision of thrift, credit and other financial services and products of very small amount to the poor in rural, semi-urban and urban areas for enabling them to raise their income levels, and to improve living standards. The terms micro finance and micro credit have been used interchangeably in the thesis. (vii) Self Help Groups (Neighborhood Groups) Self Help Groups are voluntary organizations of the poor at grass root level, which mobilize thrift and disburse micro credit to its members for various purposes such as production, consumption, education, etc. 1.8 RESEARCH METHODOLOGY The study was based on both primary and secondary sources of data. Sources of Data Primary data: The study is basically depending upon primary data which was collected by using a structured questionnaire. Randomly 400 Self-Help Groups members covering all the four taluks of Chamarajanagara district, were selected. Secondary data: The study extensively used the secondary data as well. The purpose of secondary data was to analyse the existing level of functioning of SHGs across different districts of the state. The secondary data was collected from published reports from journals and various publications and articles. Tools used for analysis Statistical tools such as Correlation, Chi-square ( 2 ) test, Analysis of Variance (ANOVA), and Multivariate Analysis techniques were used apart from application of 7
SPSS tool, as the study involves sampling analysis for comparing the variance with multiple samples. 1.9 CHAPTERIZATION SCHEME Chapter 1: Introduction It deals with an overview of Micro-finance, Financial Inclusion and Self Help Groups Bank Linkage Programme and the Need for the study, the statement of the problem, Objectives of the study, Hypotheses, Research Methodology evolved, and scheme of Chapterisation. Chapter 2: Micro-finance; Financial Inclusion and Self Help Groups Bank Linkage Programme-A Theoretical Overview This chapter deals with theoretical concepts such as Micro-finance, Financial Inclusion and Self Help Groups Bank Linkage Programme. Chapter 3: Review of Literature This chapter consists of literature survey as a process of developing an insight into both conceptual and research based studies available both at national and international level on the topic chosen. Chapter 4:A Profile of ChamarajaNagara-Sample District This chapter envisages the profile of Chamarajanagara District of Karnataka in brief and its Geographical, Political and Economical activities. Chapter 5: Data analysis and Interpretation This chapter deals with analysis and interpretation of data collected from primary and secondary sources relating to Microfinance, Financial Inclusion and Self Help Groups Bank Linkage Programme. Chapter 6: Summary of Findings, Suggestions and Conclusions: This chapter summarized the research findings with suitable recommendations. Further, identified the scope for further research and conclusions were drawn 1.10 LIMITATIONS OF THE STUDY 1. The study is mainly focused on Chamarajanagara District of Karnataka; obviously the findings of the study may not be generalized for the entire State. 2. The finding of the study is confined to semi urban population of Chamarjanagar district. As Chamarajanagar itself is one of the most backward districts of the 8
state, the findings and observations definitely vary from developed and developing districts of the state. 3. The mechanism and functioning of SHGs in Chamarajanagar districts, is very informal as most of the sample groups were identified by the researcher only after several frequented visits. This may not be the case of SHGs in rest of the districts in the state. 4. As the sample district was one of the most backward districts, the privileges and priorities given to Chamarajanagar may not be same with other districts. 9