Programme on Informal Micro Finance Delivery SystemEntrepreneurship Development Institute of India
Price on request
Despite the wide network of banking sector in India, the poor have limited access to formal credit, as they are unable to provide collateral. Bankers perceive them as high risk, not credit worthy, and thus "Unbankable". Moreover, under the new economic dispensation, banks are expected to follow prudent norms and be profitable . This has also led to hesitancy among bankers in providing credit to the poor. As a consequence, the rural poor continue to depend heavily on money lenders and others informal sources to meet their credit needs.
In order to fulfill their social commitment, a number of Non-Government Organisations (NGOs) and banks and other semi-government and government agencies operating at the grass-root level (GRAs) have started organising the rural poor into small homogeneous saving and credit groups to facilitate access to credit. It is assumed that this will help them augment their meager resources through better access to credit (even informal and small in quantum), and improve their quality of life.
The NGOs sensitise the community to form Self Help Groups (SHGs), inculcate habit of saving and a banking culture in availing and repaying loans to gain economic sustenance and financial discipline . SHGs are expected to manage this portfolio to attain sustenance, self sufficiency and in the long run self financing. Many financial institutions in the country are also willing to provide loans to such effective SHGs through NGOs and GRAs.
With this approach of formation and management of savings and credit SHGs by NGOs and GRAs, efforts can also be made towards improving the quality of life of the rural poor, as they can generate income by starting their own ventures. For NGOs and GRAs this approach leads to community participation in which they can guide the rural people to sustain delivery of the services so far being provided to them through various development projects by NGOs / GRAs or Government.
EDI's interactions with a number of NGOs and GRAs involved either in extending micro-credit or planning to enter this sector, indicate that the major problem they face in organising micro-credit is their lack of awareness or experience in credit delivery management. A number of Chief Executives have expressed the need to get their Middle Level Executives trained in operational mechanism of managing Informal Micro Credit Delivery Systems (IMCDS).