Magazine 2014
International Peer-Reviewed Journal
RESEARCH HORIZONS, VOL. 4 JULY 2014
MICRO CREDIT: PROVISION FOR SECURITY,
PROSPERITY AND EMPOWERMENT
G. J. Yajnik
ABSTRACT
Organizing effective and successful banking with the poor requires barefoot bankers with a sense of
commitment. The usual attitude associated with ‘suited-booted’ bankers and bureaucrats has to be
given up.
-
Ela Bhatt
According to the New Oxford American Dictionary, the word finance has its origin in old French. It is
derived from the word ‘finer’ meaning ‘make an end, settle the debt’ or ‘payment of a debt or
compensation.’ This definition indicates that the requirement of finance arises whenever the expenditure
exceeds the income. Whether rich or poor everyone faces such a situation but it is more common
among the less privileged people especially women. It is very difficult for them to get traditional banking/
financial services which are always available against the collaterals. As a result only the rich can avail
of such benefits. It is micro finance which takes care of such people. Micro finance is the process of
providing different financial services to those who do not earn a fixed income or who are poor or
possess very small or no collateral. This paper is divided in two sections. Section I discusses the
importance of micro finance and different components of micro finance in general and micro credit
and its importance as a tool for providing security, prosperity and empowerment to poor women in
particular. Whereas section II examines the efforts of Prof. Muhhamud Yunus and his Grameen Bank in
Bangladesh and another important organization SEWA (Self Employed Women’s Association) started
in India by Ms. Ela Bhatt in the early seventies. SEWA is the world’s first female-led micro credit institution.
SEWA is known for its commitment to fight for the rights of poor women. It is an organisation truly
wedded to the cause of empowering women so that they can fight all kinds of social, political and
economic oppression and exploitation. A comparative analysis of different aspects and products of
micro finance of both the institutions i.e. SEWA and GRAMEEN Bank is attempted in the paper.
Keywords : Micro finance, Micro credit, Women Empowerment, Grameen Bank, SEWA, Poverty
reduction, Security.
Introduction
As a part of the overall economic development of a country, it is very necessary that more and more
people are provided with banking services. Alleviation of poverty and sustainable development are the
fundamental aims of any economic planning of any country. It is estimated that over 500 million of the
world’s poor are economically active. These people are workers or self-employed. For earning their
livelihood they do not have access to financial resources. Further, it is also observed that over 80% of
all households in developing countries do not have access to institutional banking services. This includes
nearly all the poor people in the developing world. When there are no financial institutions to serve
them, poor enterprises and households rely largely on informal sources such as family, friends, suppliers
or moneylenders for their financial needs (Essentials, 1). So far as India is concerned, around 300
million people or about 60 million households are living below poverty line. It is further estimated that
out of these households, only about 20 percent have access to credit from formal banking sector
(
BASIX, 1). The CRISIL Inclusix is India’s first comprehensive measure of financial inclusion in the form
of an index. It is a relative index that has a scale of 0 to 100, and combines three very critical parameters
of basic banking services - branch penetration (BP), deposit penetration (DP), and credit penetration
(
CP) - together into one single metric (CRSIL Inclusix, 9). The all-India CRISIL Inclusix score of 40.1 (on
a scale of 100) is relatively low. It is a reflection of under-penetration of formal banking facilities in most
parts of the country (CRISIL Inclusix, 11).
Section I
The case for micro finance as a mechanism for poverty reduction is simple. If access to credit can be
improved, it is argued, the poor will have finance for their productive activities that will allow income
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growth, provided there are no other binding constraints. This is a route out of poverty for the non-
destitute chronic poor. For the transitory poor, who are vulnerable to fluctuations in income that can
bring them close to or below the poverty line, micro finance provides the possibility of credit at times
of need and in some schemes the opportunity of regular savings by a household itself can be drawn
on (Weiss,4).
As we know that micro finance is the provision of financial services for those who do not have any
collateral to offer. In other words, micro finance refers to small savings, credit and insurance services
extended to socially and economically disadvantaged segments of society. In the Indian context terms
like “small and marginal farmers”, “ rural artisans” and “economically weaker sections” have been
used to broadly define micro finance customers. The recent Task Force on Micro Finance has defined
it as “provision of thrift, credit and other financial services and products of very small amounts to the
poor in rural, semi-urban or urban areas, for enabling them to raise their income levels and improve
living standards”. At present, a large part of micro finance activity is confined to credit only. Women
constitute a vast majority of users of micro-credit and savings services.” (BASIX, 2).
Micro finance includes many financial services or products like collecting deposits or mobilization of
savings, micro credit or loans, insurance services etc. according to CGAP-UNCDF (2009), Micro fi-
nance comprises small savings, saving based credit for consumption, credit for income generating
activities, payment services, money transfer, insurance, linkage between credit integrated with non-
credit inputs such as capacity building, backward and forward linkages for a sustainable development
through micro finance at household level (Canis, 29).
Micro finance is a growing industry. It was pioneered by specialized non-governmental organizations
(
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NGOs) and banks such as Bank Rakyat Indonesia (BRI) Unit Desa (Indonesia), Grameen Bank
Bangladesh), Kenyan Rural Enterprise Programme (K-Rep) (Kenya), Fundacioìn para la Promocioìn y
Desarrollo de la Microempresa (PRODEM), Banco Solidario (BancoSol) (Boliva), and others. They
challenged the conventional wisdom of the 1970s and discovered that with new lending methods, the
rural poor repaid loans on time. These new methods included providing very small loans without
collateral at full-cost interest rates that were repayable in frequent installments. They demonstrated
that the poor majority, who are generally excluded from the formal financial sector, can, in fact, be a
market niche for innovative banking services that are commercially sustainable (Essentials, 1). In India
there are mainstream micro finance institutions (MFIs) like NABARD, SIDBI, HDFC, RRBs, Commercial
Banks, credit co-operatives, registered/unregistered NBFCs etc. whereas there are alternative MFIs
like trusts, societies, NGOs working as SHGs or specially organized cooperatives like SEWA Bank etc.
NABARD has launched SHG-Bank linkage programme to bring poor people out of the vicious circle of
poverty and debt.
NABARD continues to extend various supports to various stakeholders to facilitate sustained access
to financial services for the unreached poor in rural areas through various microfinance innovations
in a sustainable manner. During the year 2011–12, refinance of 30.73 billion was provided to banks
covering their lending to SHGs, which has shown an increase of about 21 per cent over the previous
year. As a proportion of NABARD’s long term refinance disbursements, the SHG’s share increased
from 18.9 per cent in 2010–11 to 19.9 per cent in 2011–12. Under the Microfinance Development
and Equity Fund, 333.1 million was released during 2011–12, of which 286.8 million was grant sup-
port for promotional activities and 46.3 million for Capital Support/Revolving Fund Assistance to
Micro Finance Institutions, as against 299.5 million and 174.3 million, respectively in the previous
year. The JLGs fill a critical gap in the rural areas where marginal farmers and tenant farmers find it
difficult to individually access bank loans. As capacity building efforts 1,914 Micro Enterprise Devel-
opment Programmes (MEDP) were conducted during the year for 56,292 members on various loca-
tion-specific farms, non-farm and service sector activities. So far, 164,948 participants had been
covered under the enterprise development programme. NABARD continues to extend various sup-
ports to various stakeholders to facilitate sustained access to financial services for the unreached
poor in rural areas through various microfinance innovations in a sustainable manner. During the
year 2011–12, refinance of 30.73 billion was provided to banks covering their lending to SHGs,
which has shown an increase of about 21 per cent over the previous year. As a proportion of NABARD’s
long term refinance disbursements, the SHG’s share increased from 18.9 per cent in 2010–11 to
1
9.9 per cent in 2011–12. Under the Microfinance Development and Equity Fund, 333.1 million was
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released during 2011–12, of which 286.8 million was grant support for promotional activities and
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2
6.3 million for Capital Support / Revolving Fund Assistance to Micro Finance Institutions, as against
99.5 million and 174.3 million, respectively in the previous year. The JLGs fill a critical gap in the rural
areas where marginal farmers and tenant farmers find it difficult to individually access bank loans. As
capacity building efforts 1,914 Micro Enterprise Development Programmes (MEDP) were conducted
during the year for 56,292 members on various location-specific farms, non-farm and service sector
activities. So far, 164,948 participants had been covered under the enterprise development programme
(Puhazhendhi, 7).
There are 155 MFIs are reported working in the field with total client outreach of 27534686, their
portfolio outstanding is 22338 crores (INR). These MFIs are serving in 573 districts of our country, out
of which 235 districts are the poorest districts (www.Sa-Dhan.net)
In recent times micro credit has occupied a major place in micro finance and as a result many a times
micro finance and micro credit are used as synonyms. In simple terms micro credit is the provision of
small financial assistance for very needy individual/s or group/s in small amount with or without any
collateral in rural or semi-urban or urban areas. Many methods of providing micro credit are adopted
by different MFIs or NGOs working in this field.
Apart from one of the components of micro finance, micro credit is also aimed at increasing the
standard of living of poor by providing them with an opportunity to generate or increase their level of
income. Therefore, micro credit is considered to be an important tool for poverty reduction and self-
employment generation and women empowerment. The point here is what can be done for women
empowerment especially given its socio-economic relevance in the economic development of a country.
According to Pandit Jawaharlal Nehru, “When woman moves forward, the family moves, the villages
move and the nation moves” (Canis, 30). The tragedy of women as described by Oza et al (2001-02)
is that women have suffered financial and social disadvantage historically. They have faced
disempowerment not only historically but structurally. Caste, patriarchy and family are the structural
institutions which have justified and perpetuated women’s marginalization . . . A patriarchal mindset
and practices deny women access to and control over resources, opportunities and benefits. The
private and public spheres are male domains (Canis, 31). Moreover, women constitute the major part
of the poor population. So it is very necessary to empower women as part of the poverty alleviation
programme. The 2001 census figures reveal that out of a total 89.2 million (89229741) marginal work-
ers, 54.3 (54363078) million were females and their further break up reveals that out of total 80.7
million (80769518) rural marginal workers, 51.03 million (51031616) were females. Further 8.5 million
(
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8573164) females were seeking/available for work in rural areas. According to the 2001 census out of
5.87 million (45871400) illiterate rural marginal workers, 35.12 million (35128855) females were
illiterate. All these figures suggest that there is a substantial presence of women in rural economic
activities and they should be empowered.
Moreover, a scheme for promotion of women SHGs in backward districts of India, With the object of
scaling up SHG promotion activities in “Left Wing Extremism” (LWE) affected and backward districts
in the country, a special initiative was commenced by NABARD with the Govt. of India. The programme
entails promoting “Women” Self Help Groups in 150 districts with the assistance of anchor NGOs and
support organisations identified for the purpose . . . This approach is expected to facilitate sustained
financial inclusion by extending banking services to women members of SHGs, promote sustainable
livelihood opportunities to the members and facilitate effective implementation of other social devel-
opment programmes for women through SHGs. Already MoU has been entered into by 239 anchor
NGOs with the banks, leading to formation and savings linking of 70,000 groups and credit linkage of
1
8,000 groups with the banks. The overall progress under the scheme is encouraging. NABARD is
also supporting the anchor NGOs with capacity building and also promotional grant assistance.
During the year 2012-13, an amount of 16.94 crore has been utilised towards promotional grant
assistance to anchor NGOs and for training and capacity building of stakeholders from Women
SHG Development Fund maintained with NABARD and contributed fully by Government of India.
(
NABARD, 28)
It is also observed that, women entrepreneurs have attracted special interest from MFIs because they
almost always make up the poorest segments of society, they have fewer economic opportunities,
and they are generally responsible for child-rearing, including education, health and nutrition. Given
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their particularly vulnerable position, many MFIs seek to empower women by increasing their
economic position in society. Experience shows that providing financial services directly to
women aids in this process. Women clients are also seen as beneficial to the institution because
they are seen as creditworthy.
Regardless of culture or national context, impact assessments have arrived at positive results for women
with access to financial services. For instance, a study on the impact of micro finance on poverty
alleviation in East Africa, conducted by the UNDP MicroSave-Africa programme, found that participa-
tion in a micro finance institution “typically strengthens the position of the woman in her family. Not
only does access to credit give the woman the opportunity to make a larger contribution to the family
business, but she can also deploy it to assist the husband’s business and act as the family’s banker -
all of which increase her prestige and influence within the household.” (Source: Wright and others,
Vulnerability, Risks, Assets and Empowerment: the Impact of Micro finance on Poverty Alleviation,
March 1999. Quoted in Essentials, Pgs.3-4).
According to Kofi Annan (2004)
“
Micro finance has proved its value, in many countries, as a weapon against poverty and hunger. It can
change people’s lives for the better, especially the lives of those who need it most. A small loan, a
savings account, a affordable way to send a cheque back home, can make all the difference to a poor
or low income family. With access to Micro finance, they can earn more, build up assets, and better
protect themselves against unexpected setbacks and losses”. (Canis, 29).
Now, let us turn to Section II dealing with GRAMEEN BANK and SEWA BANK in the light of the
foregoing.
Section II
Grameen Bank
The concept of microcredit gained popularity in the mid-seventies, particularly after the path-breaking
work of Noble Laureate Prof. Yunus from Bangladesh. Prof. Muhhamud Yunus started Grameen Bank
In 1974 when Bangladesh was in the grip of famine. Everywhere there was nothing but misery. It was
that period when Prof. Muhhamud Yunus was working as the Head of the Economics department at
Chittagong University, Bangladesh. He felt miserable and helpless on seeing the suffering of the people
of his country during the famine. He decided to do something and started studying the rural economy
of Bangladesh. He started his mission at Jobra village where he had firsthand experience of poverty,
unemployment and economic exploitation. He saw that rural poor households are in the grip of money
lenders. There were usurious rates of interests charged by the money lenders (even 10% per day).
These money lenders were using different methods of charging for the credit they provided in rural
Bangladesh e.g. Dadan system. All these systems were oppressive in nature. According to Prof. Yunus:
“
Unfortunately no formal financial institution was available to cater for the credit needs of the poor. The
credit market by default of the formal institutions, had been taken over by local money lenders. It was
an efficient vehicle, creating a heavy rush of one-way traffic on the road to poverty.
People were not poor because they were stupid or lazy, they worked all day long, doing complex
physical tasks. They were poor because the financial structures which could help them widen their
economic base simply did not exist in their economy. It was a structural problem not a personal prob-
lem” (Yunus, 11)
In 1976 he started a micro financial institution called GRAMEEN BANK with its unique micro credit
program for the rural poor. The Grameen Bank got tremendous success leading to the Noble Peace
Prize 2006 awarded to Prof. Yunus and his Grameen Bank.
One innovation that allowed the Grameen to grow explosively was group lending, a mechanism that
easily allows the poor borrowers to act as guarantors for each other (Armendáriz, 12). There are five
member borrowers in each group under group lending system of Grameen Bank. Initially, two mem-
bers of the group get loans. Then another two and then the fifth one, provided all member borrowers
repay according to the rules of the bank. In case of default subsequent loans are denied. So under this
system every member of the group will try to pay regularly and in time. The “joint liability” condition for
the group lending works as peer support and pressure as well.
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Another important feature of the Grameen Bank is that in its total customer base, the share of female
customers is 95%. According to Prof. Yunus providing micro credit to women borrowers is a better way
to reduce poverty.
“
If the goals of economic development include improved standard of living, removal of poverty, access
to dignified employment and reduction in inequality then it is quite natural to start with women. They
constitute the majority of the poor, the under-employed and economically socially disadvantaged.”
(Yunus, 89).
It is observed that female borrowers are more regular, sincere and less risky for the bank so far has
repayment is concerned. According to Prof. Yunus:
“
Poor women had the vision to see further and were willing to work harder to get out of poverty because
they suffer the most.
The women paid more attention, prepared their children to have better lives and were more consistent
in their performance than men.
Money going through a woman in a household brought more benefits to the family as a whole than
money entering the household through men.” (Yunus, 88).
Prof. Yunus and his Grameen Bank struggled a lot against social, religious and administrative opposition
for their drive to lend almost exclusively to women. But they got success at the end. As Prof. Yunus
remarks:
“
We have come a long way from $27 lent to forty-two people in 1976 to $2.3 billion lent to 2.3 million
families by 1998...... Grameen programmes stretch all over the world, from Equador to Eritrea, from
Norwegian polar circle to Papua New Guinea, from Chicago’s inner-city ghettos to remote mountain
communities in Nepal - by 1998 fifty-eight countries have Grameen clones” (Yunus, 13).
2
. Sewa Bank
SELF EMPLOYED WOMEN’S ASSOCIATION known as SEWA is a membership based organisation
working as a confluence of the labour movement, cooperative movement and women’s movement. In
1
971, SEWA was started as an association working for the self-employed women by special efforts of
a noted Gandhian Ms. Elaben Bhatt. In April 1972, SEWA was registered as a Trade Union after much
struggle with labour department. In 1975, SEWA got international recognition when General Secretory
of SEWA Ms. Elaben Bhatt was awarded the prestigious Ramon Magsaysay Award.
The basic and main goals of SEWA are to organize women towards full employment and self-reliance
based on Gandhian philosophy. The notion of full employment at SEWA is different from traditional
economics. According to SEWA:
“
Full employment means employment whereby workers obtain work security, income security, food
security and social security (at least health care, child care and shelter). SEWA organises women to
ensure that every family obtains full employment. By self-reliance we mean that women should be
autonomous and self-reliant, individually and collectively, both economically and in terms of their
decision-making ability.
At SEWA we organise workers to achieve their goals of full employment and self-reliance through the
strategy of struggle and development. The struggle is against the many constraints and limitations
imposed on them by society and the economy, while development activities strengthen women’s
bargaining power and offer them new alternatives. Practically, the strategy is carried out through the
joint action of union and cooperatives. Gandhian thinking is the guiding force for SEWA’s poor, self-
employed members in organising for social change. We follow the principles of satya (truth), ahimsa
(
non-violence), sarvadharma (integrating all faiths, all people) and khadi (propagation of local
employment and self-reliance).” (www.sewa.org)
SEWA is basically a movement for women empowerment. According to Ms. Elaben Bhatt women are
the core of the success of our development strategies. At the acceptance speech at the Indira Gandhi
Prize for Peace on 18 February, 2013 she said:
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“
I have faith in women. Women have shown, if we care to observe, that disarmament in the end is not
a treaty by two nations to render arms useless, though such a treaty is much needed in this world. In
my experience, and I have seen within India and in other countries, women are the key to rebuilding a
community. Why? Focus on women and you will find an ally who wants a stable community. She wants
roots for her family. You get a worker, a provider, a caretaker, an educator, a networker, a forger of
bonds. I consider thousands of poor working women’s participation and representation an integral
part of the peace and development process. Women bring constructive, creative and sustainable
solutions to the table.” (Bhatt, 3)
SEWA is a membership based organisation having sisterhood of 17 lakhs. There are four types of self-
employed women workers in SEWA i.e.Hawkers, vendors and small business women.Home-based
workers
Manual labourers & service providers Producers
SEWA started MAHILA SEWA CO-OPERATIVE BANK a micro financial institute in 1974. The mission of
the bank is to reach to maximum number of poor women workers engaged in the unorganized sector
and provide them suitable financial services for socio-economic empowerment and self-development,
through their own management and ownership. (www.sewabank.com)
It is observed that the majority of workers in India are in the unorganized sector and 96% of all women
workers are in the unorganized sector. The poor self-employed women workers are caught in the
vicious circle of poverty, indebtedness, assetlessness and low level of income. These women are out
of reach of the formal banking services for many reasons. So, SEWA Bank came forward with informal
delivery mechanisms for loans, savings and insurance which help them in caring out of this cycle.
Moreover, SEWA Bank helps women to start the process of capitalization. At SEWA capitalization is
understood as the process of formation of capital towards sustainability and growth, at the level of the
individual as well as at the level of the household. (www.sewabank.com). SEWA realised that women
workers are economically active and with distinct pattern of expenditure depending upon their family
situation and their socio-economic conditions. So SEWA innovated a life-time approach and developed
their products to meet women workers’ financial needs to provide for their planned, unplanned and
productive expenditures during their lifetime. (www.sewabank.com).
In 2001-2002 total deposits of SEWA were Rs.26,81,22,000 which increased to Rs.73,99,70,000 in
2
007-2008. On the other hand SEWA also provides housing and infrastructure loans to its members
keeping in mind the following aims:
Keeping SEWA members and their families out of homelessness.
Helping them to upgrade their home, thereby improving their productivity and quality of life.
Improving access of water, sanitation and other infrastructure services.
Providing an asset to increase their economic security.
SEWA as a membership based organisation constantly evaluates its programs and strategies for the
future betterment of its women members. Members have developed eleven questions as yardsticks to
evaluate SEWA performance. Out of these eleven questions some are linked to the goal of full
employment and some are linked to self-reliance but in fact, all are interconnected. They are as follows:
Have more members obtained more employment?
Has their income increased?
Have they obtained food and nutrition?
Has their health been safeguarded?
Have they obtained child-care?
Have they obtained or improved their housing?
Have their assets increased? (e.g. their own savings, land, house, work-space, tools or work, licenses,
identity cards, cattle and share in cooperatives; and all in their own name.
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Have the workers’ organisational strength increased?
Has worker’s leadership increased?
Have they become self-reliant both collectively and individually?
Have they become literate?
This process of self-evaluation at SEWA exhibits the level of transparency in functioning at SEWA.
Conclusion
It is very clear from the above discussion that both the institutions have a non-conventional approach
towards poverty alleviation and women empowerment. The founders of both the institutions think out
of the box. Both started in the same decade but at different locations under different circumstances.
Both have international presence and international accreditation. Both are women-centric and have
vast social-economic-political impact on society. Both have shown the world a different way of looking
at the most important issues of poverty, equality and sustainable development of marginal classes of
the society, women empowerment in particular and the economy as a whole. On the other hand, many
more efforts are needed to provide financial security, economic empowerment and as result reduce
poverty from the country. The lack of integrity and structural deficiency are obstacles in the success of
microfinance. The findings of the two studies taken up by NABARD on NPAs of loans to SHGs by
banks bring these structural deficiencies to the fore. The mushrooming of the micro finance Institutions
(
MFIs) smelling the “business opportunities” with the poor, also led to an unhealthy trend of more and
more credit being pumped without proper appraisal of the loanees and before assessing their capacity
to repay. The grave crisis of confidence of MFIs and subsequent developments has had a highly
negative impact on the micro credit initiative in the country (NABARD, 3).
References
Canis Jacinta, Arockiasamy Robert, Dabhi Jimmy C. (2012). Savings And Credit Co-operatives And
Women’s Empowerment in Gujarat, Gujarat Sahitya Prakash, Anand, Gujarat, India.
Puhazhendhi, Venugopalan, (2013). Microfinance India - State of The Sector Report 2012, SAGE
Publications India Pvt Ltd, India.
Yunus Muhhamud (2007). Banker to The Poor, Penguin Books India, India.
Web Resources
Armendáriz, Beatriz and Morduch Jonathan (2010). The Economics of Micro Finance, The MIT
Press London, UK.
BASIX (http://www.basixindia.com/micro_finance_in_india.htm)
CRISIL Inclusix, (2013), CRISIL Limited, India.
Ms. Bhatt Ela, (2013). Women, Work and Peace, The acceptance speech at the Indira Gandhi
Prize for Peace on 18 February 2013. (www.sewa.org)
Status of microfinance in India 2012-13, NABARD, India.
UNDP, Evaluation Office (1999), Essentials-Microfinance UNDP, New York, December 1999.
Weiss John, Montgomery Heather and Kurmanalieva Elvira (2003). Micro Finance and Poverty
Reduction in Asia: What is The Evidence?, ADB Institute Research Paper series No:53, ADB,
Tokyo, Japan, December, 2003.
www. sewa.org
www.sewabank.com
www.Sa-dhan.net (http://www.sa-dhan.net/files/sa-dhan-india-map.htm)
Prof. Gaurang Yajnik : Associate Professo & Head, Dept. of Economics, Shree Sahajanand Vanijya
Mahavidyalaya, Ahmedabad.
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