Unlocking the Potential of Microfinance

A nation with 135 crore population and economy of $ 3.2 trillion. We are ranked 2nd on the basis of population and ranked 5th on the basis of economy. But irony is every 5th indian is poor. Sounds strange isn't it? But it is a fact. India is nation of youth. But country is currently facing unemployment rate of 5.36%. Conditions were already critical and then Corona pandemic hit country's economy very badly. Whole India lockdowed. All economic activities stopped suddenly. Will economy survive? Will India be fastest growing economy again? Various questions are raised and no one knows the answers! Most of the senior economists said 'we should maintain our positive approach, everything will be fine soon'. Really, everything will be fine soon? Answer is 'definitely'...

MSME sector of India-

Micro, Small and Medium Enterprises sector is considered as backbone of national economic structure. MSMEs contribute around 6.11% of the manufacturing GDP and 24.63% of the GDP from service activities. Around 80 % indian population lives in rural areas and 20% of the MSMEs are based out of rural areas. MSME sector contributes huge percentage in GDP and national export. If MSMEs are revived again then it will definitely boost our economy and again we will be fastest growing economy. 

Why there is need to revive enterprises?

As we noticed earlier, unemployment rate is 5.36% in India. Obviously government is not a factory of jobs to create millions of jobs every year. But for a change, how will it feel to create vacancies and provide jobs in your own firm instead of begging for it? Revival of enterprises will create job vacancies and unemployment rate will reduce significantly.

Concept of Microfinance-

We know establishing even a small enterprise is not easy as it look like. The biggest hurdel is financial crisis. One may think, 'I want to start small business, but I don't have enough money and also I don't have any assets against which I can borrow cash'. But if there is will there is way.

Microfinance is a form of financial services for entrepreneurs and small businesses who are dealing with lack of access to banking and related services. Microfinance is very broad term which includes financial help (microcredit), savings account, insurance funds. Microfinance was developed as an alternative source to provide financial aid to poor people. Loans given by financial institutions to poor people have many limitations such as lack of security and assets, but for microfinance it not mandatory to exchange your assets with cash or liquidity. In India, microfinance greatly contributed in rural development, woman empowerment and wealth generation by providing financial aid and insurance security to small scale businesses and enterprises.

Why there is need of Microfinance?

20% of MSMEs are based on rural areas and most of population of India lives in rural area. As per the poverty line defined by the HRD (Human Resource Development) i.e. earning of a person below $ 1 a day, the percentage of BPL (Below Poverty Line) population in India comes around 34.9 percent and if it is extended to $ 2 a day, the percentage of BPL in India comes to 79.9 percent (Human Development Report, 2004). To irradicate poverty from India, citizen should earn enough to feed his family through either his job or any small business. Everyone in rural area is not connected with commercial or co-operative banks or Non Banking Financial Services (NBFCs). Microfinance therefore, refers to the provision of small loans without collateral security, to the poor and low income households, whose access to the commercial banks is limited. Microfinance institutions also provides non banking services like individual counselling, training and support to start own business and the most importantly in a convenient way. 

Current status of Microfinance in India (source: NABARD)-

1) Total number of SHGs (Self Helping Groups) saving linked with banks as on 31 March 2019 is Rs. 23,324.48 crore

2) Average loan amount outstanding per SHG as on 31 March 2019 is Rs. 171,543.15 crore

3) Estimated number of families covered upto 31 March 2019 is 1224.

4) As per Microfinance Institute as on 31 March 2019, the microfinance industry has a total loan portfolio of Rs. 187386 crore, representing a year on year growth of 38 %.

5) In November 2014, RBI issued guidelines for establishment of Small Finance Banks and Payments Banks. The share of Microfinance portfolio outstanding of the Small Finance Banks was Rs. 34679 crore as on 31st March 2019.

Women empowerment and Microfinance-

1) Rural Women’s Initiative for Self-sustained Enterprises (RISE):

Self Help Groups have been trained women on enterprise development, improving quality parameters (products, services and processes), MSME registration, e-mobile app and e-market portal. 

The cumulative volume of transactions exceeded Rs. 125 crores by June 2018. By end of the project in 2019, the cumulative sales turnover was projected at Rs. 250 crores.

2) Tejaswini -project by Mahila Arthik Vikas Mahamandal Nigam (MAVIM):

MAVIM has over time promoted 78300 SHGs with about 940000 members in the state of Maharashtra. The main objective of the livelihood and enterprise development strategies is to promote sustainable livelihoods for poor women and their families.

The project in total supported 1.08 lakh households under 4350 MLPs. The project trained 1,200 Pashu Sakhis and 200 Krushi sakhis on veterinary care and cattle feed production. MAVIM has also trained 6.4 lakh women in off-farm and non-farm trades.

According to different studies and researches Microfinance was found very helpful to start any enterprises on small scale. Government had also announced various schemes like 'Mudra Yojana', 'Skill India', 'Pradhan Mantri Kaushal Vikas yojana' to accelerate entrepreneurship in India. Rapid growth of entrepreneurship is directly proportional to job vacancies, improved quality of good due to competition, increase in Foreign Direct Investment (FDI), irradication of poverty in India, increase in revenue of state and central government and ultimately will lead to high GDP growth.

We are aiming towards $ 5 trillion economy. It is not a easy target to achieve. It is difficult but not impossible. India is nation of youth, and every young & energetic citizen has ability to chase his dream. The economy of $ 5 trillion is our dream, let's get ready and achieve the goal.

- Aditya More

References:

1) Report published by National Bank for Agriculture and Rural Development (NABARD) 'Status of Microfinance in India 2018-19' (www.nabard.org)

2) Monthly MBA e-Newsletter published by IIT Kanpur. (www.iitk.ac.in)

3) The World Bank (www.worldbank.org)

4) 'Microfinance in India- by M.Kannan and A. Panneerselvam' published in International Journal of Current Research and Academic Review (www.ijcrar.com)

5) Confederation of Indian Industry (www.cii.in)