The article traces the evolution of the Microfinance revolution in India as a powerful tool for poverty alleviation and women empowerment. Where institutional finance failed Microfinance delivered, but the outreach is too small. There is a question mark on the viability of the Microfinance Institutions. There is a need for an all round effort to help develop the fledgling Microfinance Industry while tackling the tradeoff

between outreach and sustainability.

The formal financial institutions in India have ventured into microfinance in a massive way by adopting the SHG-Bank Linkage Program model. The present paper makes an attempt to review the performance of the program in different states of India and across three major institutions - commercial banks, cooperatives, and the regional rural banks. The study also presents vital information about the leading NGOs with major credit linkages in Indian states.

Microfinance has evolved over the past quarter century across India into various operating forms and to a varying degree of success. One such form of microfinance has been the development of the self-help movement. Based on the concept of “self-help,” small groups of women have formed into groups of ten to twenty and operate a savings-first business model whereby the member’s savings are used to fund loans. The results from these self-help groups (SHGs) are promising and have become a focus of intense examination as it is proving to be an effective method of poverty reduction. This paper examines the SHG operating model, the state of SHGs today, their impact on civil society and how they need to be supported going forward.

A study by Ajay Tankha, Development consultant, Sa-Dhan,  prepared for ICCO and Cordaid, The Netherlands

This paper reviews the current level and pattern of access to finance for India’s rural poor and examines some of the key microfinance approaches in India, taking a close look at the most dominant among these, the Self Help Group (SHG) Bank Linkage initiative. It empirically analyzes the success with which SHG Bank Linkage has been able to reach the poor, examines the reasons behind this, and the lessons learned. The analysis in the paper draws heavily on a recent rural access to finance survey of 6,000 households in India, undertaken by the authors. The main findings and implications of the paper are as follows: India’s rural poor currently have very little access to finance from formal sources. Microfinance approaches have tried to fill the gap. Among these, the growth of SHG Bank Linkage has been particularly remarkable, but outreach remains modest in terms of the proportion of poor households served. The paper recommends that,

if SHG Bank Linkage is to be scaled-up to offer mass access to finance for the rural poor, then much more

attention will need to be paid towards: the promotion of high quality SHGs that are sustainable, clear targeting of clients, and ensuring that banks linked to SHGs price loans at cost-covering levels. At the same

time, the paper argues that, in an economy as vast and varied as India’s, there is scope for diverse microfinance approaches to coexist. Private sector microfinanciers need to acquire greater professionalism,

and the government, too, can help by creating a flexible architecture for microfinance innovations, including through a more enabling policy, legal and regulatory framework. Finally, the paper argues that, while microfinance can, at minimum, serve as a quick way to deliver finance to the poor, the medium-term strategy to scale-up access to finance for the poor should be to ‘graduate’ microfinance clients to formal financial institutions. The paper offers some suggestions on what it would take to reform these institutions with an eye to improving access for the poor.

The context for this paper derives from the current overriding emphasis on microfinance in rural finance discourse and its celebration as the new ‘magic wand’ in the fight against poverty. The paper discusses the factors and theoretical position associated with evolution of microfinance and its global acclaim based on it being a Win-Win proposition for both Micro Finance Institutions (MFIs) and Clients. The paper brings out the missing link of impact assessment in the Indian context, which is a precondition for poverty reduction on account of the influence of new paradigm of Institutional viability under commercial microfinance. The paper argues for mainstreaming impact assessment in evaluation of programmes for realizing the full potential of microfinance in achievement of Millennium Development Goals (MDGs).

This paper also draws on the doctoral field research conducted by the author in 2005 to assess socio economic impact of Self Help Group (SHG)-Bank Linkage programme1 of microfinance in India.

A good Management Information System (MIS) is the heart of any organization and this is true for MFIs as well. For e.g. MFIs may have capable and motivated staff, but if they lack systematized information, they will be unable to perform up to their potential.

A sound MIS is the key to achieve sustainability as it helps in providing the right type of information in achieving sustainability. It helps in reducing default, optimal rotation of portfolio, establishing sustainable interest rates, improving operational efficiency, generating reports at various levels for various stakeholders and review the progress.

Microfinance is gathering momentum to become a major force in India. The self-help group (SHG) model with bank lending to groups of (often) poor women without collateral has become an accepted part of rural finance. The paper discusses the state of SHG-based microfinance in India. With traditionally loss-making rural banks shifting their portfolio away from the rural poor in the post-reform period, SHG-based microfinance, nurtured and aided by NGOs, have become an important alternative to traditional lending in terms of reaching the poor without incurring a fortune in operating and monitoring costs. The government and NABARD have recognized this and have emphasized the SHG approach and working along with NGOs in its initiatives. Over half a million SHGs have been linked to banks over the years but a handful of states, mostly in South India, account for over three-fourth of this figure with Andhra Pradesh being an undisputed leader. In spite of the impressive figures, microfinance in India is still presently too small to create a massive impact in poverty alleviation, but if pursued with skill and opportunity development of the poor, it holds the promise to alter the socioeconomic face of the India’s poor.

Transaction Costs in Group Micro Credit in India: Case Studies of Three Micro Finance Institutions by Savita Shankar

This handbook is specially prepared for a reasonably educated and helpful local person, who can help the poor to form Self-Help Groups (SHGs). This book helps to understand the subject in a simple way.