[Solved] “Microfinance as an anti-poverty vaccine is aimed at asset creation and income security of the rural poor in India”. Evaluate the role of Self-Help Groups in achieving twin objectives along with empowering women in rural India. (UPSC GS -2 Mains 2020)

  • Micro-finance is aimed at financially disadvantaged segments of society, for empowering them to raise their income levels largest in terms of population after China. India’s GDP ranks among the top 15 economies of the world. India’s GDP ranks among the top 15 economies of the world. However, around 300 million people or about 80 million households are living below the poverty line, i.e. less than $2 per day according to the World Bank, and the poorest are which earn $1 per day.
  • It is further estimated that of these households, only about 20% have access to credit from the formal sector.
  • India trips under low-income class according to World Bank.
  • It is the second populated country in the world and about 70 % of its population lives in rural areas.
  • 60% of people depend on agriculture, as a result, there is chronic underemployment and per capita income is only $ 3262.
  • This is not enough to provide food to more than one individual. The obvious result is abject poverty,  low rate of education, low sex ratio, and exploitation.
  • The major factor account for the high incidence of rural poverty is the low asset base.
  • As per the Reserve Bank of India, about 51 % of people house possess only 10% of the total asset of India.
  • This has resulted in low production capacity both in agriculture (which contributes around 22-25% of GDP) and the Manufacturing sector.

Achievement Factors of Micro-Finance in Rural India

  • Past the last ten years, successful experiences in providing finance to small entrepreneurs and producers demonstrate that poor person, when given access to responsive and timely financial services at market rates, repay their loans and use the proceeds to increase their income and assets.
  • This is not surprising since the only realistic alternative for them is to borrow from the informal market at an interest much higher than market rates.
  • Community banks, NGOs, and grass-root savings and credit groups around the world have shown that these micro-enterprise loans can be profitable for borrowers and for lenders, making microfinance one of the most effective poverty-reducing strategies.

Micro-Finance as an Anti Poverty Vaccine for Rural India

Contract Farming and Credit Bundling

  • Banks and financial institutions have been partners in contract farming schemes, set up to enhance credit. Basically, this is a doable model.
  • Under such an arrangement, crop loans can be extended under tie-up arrangements with corporate for production of high-quality products with stable marketing arrangements provided – and only, provided – the price-setting mechanism for the farmer is appropriate and fair

Agri Service Centre – Rabo India

  • Rabo India Finance Pvt Ltd. has built agri-service centers in rural areas in cooperation with a number of agri-input and farm services companies.

Non Traditional Markets

Similarly, Mother Dairy Foods Processing, a wholly-owned subsidiary of the National Dairy Development Board (NDDB) has established auction markets for horticulture producers in Bangalore.

Micro-Finance as an Anti Poverty Vaccine for Rural India

• Majority of poor are excluded from financial services. This is due to, inter-alia, the following reasons:

• Bankers feel that it is risky to finance poor peoples because of their creditworthiness.

• High transaction costs

As per the NABARD report (March 2019), one crore SHGs covering 12 crore families had deposits of about Rs 23,300 crore.

  • Around 44.5 lakh women SHGs had a gross NPA ratio of 4.5% which is less than half of the Gross NPA% of the Indian banking sector.
  • This data shows that SHGs in rural India have created assets, consequently generated income for themselves. As a considerable share in it is of women SHGs, women are empowered to scale and replicate it further.
  • Now there are over 66 lakhs SHGs with 7.14 crore rural women in India.
  • SHGs are formed under Deendayal Antyodaya Yojana-National Rural livelihood Mission aiming at a minimum of one woman member from each rural family joining women SHGs.
  • They could utilize Revolving Funds (RF) and the Community Investment Support Fund (CISF) provided to them under the DAY-NRLM program for asset creation and taking up self-employment for income generation.

SHGs including all women stakeholders in rural India have the potential to grow like successful small companies if they get business processes and products reengineered, build capacity, ensure technological support, gain markets and go beyond from social mobilization and financial inclusion objectives to economic development by making the best or most effective use of their existing assets and microfinance available.

Further reading on Micro-Finance

  • Rural India and Microfinance Micro financing has graced important since the possibility of a sub-Rs 1,000 mobile handset has been ruled out in the near future.
  • Rural India can generally afford handsets in the price range of Rs 1,500-2,000.
  • To succeed in India, agribusiness must empower the farmer by making agriculture profitable, not by expropriating him for this particular purpose the farmer should be funded for their basic and small needs.
  • Microfinance is expected to play a significant role in poverty alleviation and development. The need, therefore, is to share experiences and materials which will help not only in understanding successes and failures but also provide knowledge and guidelines to strengthen and expand microfinance programs.
  • The development process through a typical micro-finance intervention can be understood with the help of the following Chart The ultimate aim is to attain social and economic empowerment. A successful intervention is, therefore, dependent on how each of these stages has been carefully dealt with and also the capabilities of the implementing organizations in achieving the final goal, e.g., if credit delivery takes place without consolidation of SHGs, it may have problems of self-sustainability and recovery.

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