The Self-Help Group and Bank Linkage Programme in India : Review and Way Forward
THE SELF-HELP GROUP AND BANK LINKAGE PROGRAMME IN INDIA : REVIEW AND WAY FORWARD
INTRODUCTION
Agricultural credit is a vital input in the improvement of agricultural productivity of the country. Since personal resources of the farmers are low, Financial Inclusion will go a long way in not only improving agricultural productivity but also in reducing inequalities of income distribution amongst various sections of rural poor. Most poor people manage to mobilize resources to develop their enterprises and their dwellings slowly over time. Financial services could enable the poor to leverage their initiative, accelarating the process of building incomes, assets and economic security. However, conventional finance institutions seldom lend down-market to serve the needs of low-income families and women-headed households. They are very often denied access to credit for any purpose, making the discussion of the level of interest rate and other terms of finance irrelevant. Therefore the fundamental problem is not so much of unaffordable terms of loan as the lack of access to credit itself.
The lack of access to credit for the poor is attributable to practical difficulties arising from the discrepancy between the mode of operation followed by financial institutions and the economic characteristics and financing needs of low-income households. For example, commercial lending institutions require that borrowers have a stable source of income out of which principal and interest can be paid back according to the agreed terms. However, the income of many self employed households is not stable, regardless of its size. A large number of small loans are needed to serve the poor, but lenders prefer dealing with large loans in small numbers to minimize administration costs. They also look for collateral with a clear title - which many low-income households do not have. In addition bankers tend to consider low income households a bad risk imposing exceedingly high information
INTRODUCTION
Agricultural credit is a vital input in the improvement of agricultural productivity of the country. Since personal resources of the farmers are low, Financial Inclusion will go a long way in not only improving agricultural productivity but also in reducing inequalities of income distribution amongst various sections of rural poor. Most poor people manage to mobilize resources to develop their enterprises and their dwellings slowly over time. Financial services could enable the poor to leverage their initiative, accelarating the process of building incomes, assets and economic security. However, conventional finance institutions seldom lend down-market to serve the needs of low-income families and women-headed households. They are very often denied access to credit for any purpose, making the discussion of the level of interest rate and other terms of finance irrelevant. Therefore the fundamental problem is not so much of unaffordable terms of loan as the lack of access to credit itself.
The lack of access to credit for the poor is attributable to practical difficulties arising from the discrepancy between the mode of operation followed by financial institutions and the economic characteristics and financing needs of low-income households. For example, commercial lending institutions require that borrowers have a stable source of income out of which principal and interest can be paid back according to the agreed terms. However, the income of many self employed households is not stable, regardless of its size. A large number of small loans are needed to serve the poor, but lenders prefer dealing with large loans in small numbers to minimize administration costs. They also look for collateral with a clear title - which many low-income households do not have. In addition bankers tend to consider low income households a bad risk imposing exceedingly high information
References: Tiwari P. and Fahad S.M. “Microfinance Institutions in India”; Housing Development Finance Corporation, Mumbai. Dr. Rangappa K.B., Bai R. and Sandesh A.L. “SHG-BANK LINKAGE PROGRAMME AND FINANCIAL INCLUSION: Rural Household Study in Davangere District of Karnataka” Ray. Debraj (2007) “Developmental Economics”; Oxford University Press, New Delhi. Srinivasan N. (2009) “Microfinance India: State of the Sector Report 2008”, SAGE Publications India Pvt. Ltd., New Delhi.