The Journey of Micro Credit
By Sudhansu R Das
The Reserve Bank of India has found a gap in the demand and supply of credit to the poor and suggested to widen the scope, outreach and scale of financial services to cover the unreached. The RBI in its Report on Trend and Progress of Banking in India 2006-07 observed that the system faced certain challenges such as regional imbalances, quality of the SHGs, high cost of delivery, emergence of SHG federation etc. There is a need to induce SHGs to graduate to more mature levels of enterprise, livelihood diversification, and access to supply chain, linkages to capital market and appropriate production and processing technologies.
In fact, Micro Credit has come a long way in addressing rural problems. Its epic journey started with the ancient Hundi system when villagers used to float a common fund or grain bank for exigencies. Those ingenious methods were the brainchild of simple rural folk who knew how to take care of their need at the time of crisis. Today the journey of micro credit has reached the height. As on 31 March 2007, nearly 25.5 lakh SHGs have taken bank credit of Rs 14,320 crore across the country bringing four crore families under the banking umbrella. The journey was made possible with the long and enduring work of the banking sector in rural India. Banking facility for the simple villagers amid countless number of village ailments was unimaginable some 25 years back.
Today, millions of simple villagers have access to bank credit and they are able to protect and preserve their traditional skill to earn livelihood. They also add new livelihood skill to substantiate their farm income. The MNCs’ entry in retail chains in India could help millions of poor SHG members provided the organized retail chain across the country source products from SHG members. This will also develop the SHG products into brands.
Self Help Groups could be the most effective tool to make financial inclusion a reality. A healthy SHG channels the village idle energy into entrepreneurship. The beginning is made with each member of the group depositing regularly Rs 5 to Rs 50 as per their capacity in a common pool. The group, which generally comprises of 15 to 20 members later opens a bank account to deposit the entire amount against which the bank provides loan four times of the deposit after a fixed period. The loan is utilized to meet the entrepreneurship of the members. The group members take the responsibility of recovering the loan and deposit it in the bank. In the process the members learn to save from their income and develop the credit utilization skill. Gradually the money in the SHG account in the bank swells and the bankers provide more credits for bigger enterprises. It takes time for the groups to develop their credit utilization skill. The banks also feel happy as the village credit cycle ticks at less administrative cost of banks.
In the process SHG becomes an invisible agent of socio economic change, which takes shape with people’s participation. SHG movement slowly quarantines villages from caste divide, communalism, political polarization, backwardness and illiteracy etc since economic development becomes the common objective. Group formed on the basis of economic status with common objective cement social divide. The RBI concern for maturing SHG into entrepreneurship groups can happen if banks hone their skill of relationship banking amid a safe atmosphere, which can help expand the productivity hours.