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Conditions in Which Microfinance has Emerged in Certain Regions and Consequent Policy Implications M.S.Sriram Radha Kum

Conditions in Which Microfinance has Emerged in Certain Regions and Consequent Policy Implications M.S.Sriram Radha Kumar. Indian Institute of Management Ahmedabad. Background. India has two strands of MF: The mutuals – including SHGs, co-ops, thrift and credit groups

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Conditions in Which Microfinance has Emerged in Certain Regions and Consequent Policy Implications M.S.Sriram Radha Kum

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  1. Conditions in Which Microfinance has Emerged in Certain Regions and Consequent Policy Implications M.S.SriramRadha Kumar Indian Institute of Management Ahmedabad

  2. Background India has two strands of MF: • The mutuals – including SHGs, co-ops, thrift and credit groups • The providers – where the institution is externally owned and managed, but focus on low income clients. For the purpose of this presentation we focus only on SHGs.

  3. What are mutuals? • The mutuals have 10 to 20 members. • All mutuals meet regularly – weekly fortnightly or monthly. • The mutuals start with savings. Some pay interest, some dividends & some accumulate group funds. • The mutuals borrow from banks after a few cycles of group fund rotation. The banks lend a multiple of the group fund. • In areas of multiple SHGs, they may form federations. These deal with the bank on behalf of mutuals. • Mutuals are more liberal than the “providers” in terms of discipline. Repayment terms are more friendly.

  4. Assumptions to be tested There are certain conditions under which mutuals may work. • The “promoters” would go to areas having low economic growth • Areas that have good connectivity are likely to have better access to formal finance, therefore alternative finance will emerge in other areas. • To be cost effective, microfinance would work in areas having relatively dense populations • Microfinance would emerge where formal finance has failed

  5. Data Data were examined from two regions: • South: Karnataka, Kerala, Tamilnadu and Andhra Pradesh • West: Gujarat, Maharashtra and Rajasthan • North and North-East were not considered because of difficulty in comparison

  6. Growth

  7. Connectivity

  8. Population Density and Incidence of Poverty

  9. Formal Sector outlets: Number

  10. Formal Sector outlets: Amounts outstanding (Rs)

  11. CD Ratios

  12. Post Offices (for savings, the figure is small)

  13. Summary

  14. Interpretation • Macro data does not indicate that there is causality between some indicators and growth of SHGs • Microfinance is too small in terms of amounts for such relationships to emerge • Anecdotal evidence suggest a policy push might help

  15. Parentage?

  16. Policy Initiatives • Anecdotal evidence suggests that the push by state (AP) helps not only in SHG movement growing, but with that environment, other models also growing • If the banks focus on the model, they could do wonders (Karnataka) • The power of reach is tremendous (one SHG per 50 HHs in AP) The potential that can be unleashed is significant • The reach has to be leveraged to provide greater variety and quantum of financial services

  17. Thankyou www.iimahd.ernet.in/~mssriram mssriram@iimahd.ernet.in 079-26324855

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