43

Microfinance and Rural Development in the North East India

Arup Roy
Assistant Professor, Dept. of Business Administration, Tezpur University. Assam, India.

Abstract
Nearly half the planet, some three billion people, lives on less than US$2 a day and nearly one billion live on less
than US$1 a day. There are various efforts made to eradicate poverty worldwide and microfinance is one such
tool. The power of finance to transform the lives of the rural poor is well understood when we look at the success
stories of Gramin of Bangladesh, BRI of Indonesia and Bandhan, SKS Microfinance of India. Consistent with the
need to continue to better understand and find ways and means of improving the situation of microfinance industry,
this study is an attempt to find out the role of microfinance in rural development in the NER in terms of savings
mobilization, loans disbursed, loans outstanding, non performing assets (NPAs) and recovery performances. An
attempt is also made to explain the microfinance delivery mechanism in the NER and its opportunity at the Base
of the Pyramid (BoP). Lastly we focus on the major challenges that microfinance is facing in the NER of India.

Introduction (Rutherford, 1999). Microfinance started as "a

Nearly half the planet, some three billion people, lives collection of banking practices built around small loans
on less than US$2 a day and nearly one billion live on (typically without collateral) and accepting tiny savings
less than US$1 a day. There are various efforts made deposits" (Armendariz de Agion and Morduch, 2005).
to eradicate poverty worldwide and microfinance is one Microfinance though started in a small way to help
such tool. The power of finance to transform the lives especially to the poor has now turned into a global
of the poor is well understood when we look at the industry. Enormous hopes continue to be held out for
success stories of Gramin of Bangladesh, BRI of microfinance as an instrument of poverty reduction;
Indonesia and Bandhan, SKS Microfinance of India. the Microcredit Summit of February 1997, it will be
There are hundreds of evidences worldwide which recalled, pledged itself, perhaps over-optimistically
shows that successful microfinance institutions have [Rogaly, 1997; Mosley and Hulme, 1998] to reach 100
managed to implement financial service delivery million families, or one-half of the world's poor, with
mechanisms that meet the needs of the poor, at a lower this one instrument alone before 2005. Initially though
cost than most accessible. The importance of the skeptics considered achieving this goal to be
microfinance in the field of development was reinforced impossible, but the number of borrowers who are among
with the launch of the Microcredit Summit in 1997. the poorest has increased to 106.6 million by the end of
The Summit aims to reach 175 million of the world's 2007, achieving the Microcredit Summit Campaign's
poorest families, especially the women of those families, original goal and representing growth in the number of
with credit for the self-employed and other financial very poor borrowers of 30% per year. Including the
and business services, by the end of 2015 (Microcredit families of borrowers, more than 500 million of the
Summit, 2005). The United Nations Year of Microcredit poorest people are now benefiting from access to credit
in 2005, the award of Nobel Peace Prize to Mohammed and financial services.
Yunus, and the performance of Grameen Bank till 2009
gave considerable public recognition to microfinance According to N Srinivasan's State of the Sector Report
as a development tool and attracted world attention. on Microfinance, published by Sage, over 800
microfinance institutions (MFIs) now operate in India,
Microfinance refers to the means by which poor people reaching out to over 140 lakh clients, with an outstanding
convert small sums of money into large lump sums cumulative loan of Rs 5,900 crores in small loans. Over
 44
54 million clients from the Self Help Group (SHG) - The poor's lack of collateral can be overcome with
Bank linkage programme and MFIs, today access joint liability within a group of borrowers. This concept
microfinance services. The Indian microfinance sector of this joint liability has resulted in very high repayment
has seen phenomenal growth in the last few years. In rates. Micro finance institutions have consistently
2007-08 alone, MFIs have had a growth rate of 40 reported repayments upwards of 95% in a number of
percent. developing countries. The NPAs of the microfinancial
institutions are much less than that of the formal banking
Considering the world success on microfinance, the system. Thus we see that microfinance is emerging as
Government of India has also taken some initiatives a developmental tool worldwide for the rural poverty
like:- alleviation and if managed legitimately, can bring a
• Setting up of the Rashtriya Mahila Kosh to re- positive socio-economic change to the society.
finance microfinance activities of NGOs
• Encouraging National Bank for Agriculture and Literature Review
Rural Development (NABARD) to set targets for The relationship between the financial system and
the self-help group (SHG) - Bank linkage economic growth has been scrutinized by a large
programme number of studies in India and abroad. Financial
• Emergence of SIDBI Foundation for Micro-Credit development is considered as a cause of economic
as a financier of microfinance institutions (MFIs) growth (Schumpeter 1911; Hicks 1969). Hicks (1969)
• Setting up of Regional Rural Banks all over India argued that without financial innovation the industrial
• The pronouncements of the Reserve Bank of India revolution would not have taken place. The level of
(RBI) from time to time -such as financial development predicts future economic growth
(i) including lending to SHGs as a part of priority sector and future productivity advances (King and Levine,
targets 1993). King and Levine (1993) show that if financial
(ii) exempting non-profit companies doing microfinance deepening had increased from the mean of the slowest
from registering as as an NBFC growing countries to the mean of the fastest growing
(iii) permitting the establishment of local area banks countries, a country would have increased its growth
(now withdrawn) rate by close to 1 percent per year. This accounts for a
• Routing some poverty oriented schemes such as difference between the slowest growing countries and
the Swarnajayanti Gram Swarozgar Yojana the fastest growing countries of around 5 percent.
(SGSY) through SHGs Improving the financial deepening variable would
• The close linkage built by DWCRA schemes decrease the difference between the countries growth
• The initiatives of various state governments in rates by 20 percent.
promoting schemes such as Swa-Shakti (Gujarat),
Velugu (Andhra Pradesh) Greenwood and Jovanovic (1990) discussed how
• Setting up of NEDFi specifically for the financial intermediaries may induce people to change
development of NER of India. their savings from unproductive liquid assets to
productive illiquid ones and in this way promote capital
The central government has established all these accumulation. Financial intermediaries make it possible
bodies like NABARD, RRBs, Co-operative Banks, for small savers to pool funds and allocate them to the
NEDFi to reach the rural poor and help them by providing highest return investment, and then to provide capital
the risk capital at a subsidized rate. The micro credit for investing in costly new technology (King and Levine
experience of the last three decades worldwide has 1993; Greenwood and Smith, 1997). Innovative and
shown that the poor can be as creditworthy as the rich. appropriate financial intermediation may play a vital
 45
role in less developed countries to stimulate pro-poor Prize for Peace for his efforts at empowering rural
growth and develop the financial sector as a whole. women through credit access in Bangladesh. The
Thus, we see that a well developed, innovative and international community seems to have finally caught
appropriate financial intermediation may facilitate the microfinance fever. In recent years, Microfinance
growth that is specifically concerned with poverty has branched out to incorporate private sector
reduction. According to Levine (1997) reported that a partnerships and integration with international capital
well developed financial system reduces information markets. These trends mean that the worldwide
and transaction costs and influence saving rates, estimated 500 million small scale entrepreneurs may
investment decisions, technological innovation and long- soon have greater opportunities to become economic
run growth rates. In this context, microfinance has engines for lifting their communities out of poverty.(
emerged as a financial innovation tool to serve the Nmachi Jidenma, 2007)
millions of poor households that are out of reach of the
formal banking and financial institutions. Microfinance The emerging microfinance revolution with appropriate
is the result of financial service innovations which designed financial products and services enable the poor
includes microcredit, microsavings, money transfer to expand and diversify their economic activities,
vehicles and microinsurance. It is a special kind of increase their incomes and improve their social well-
financial service designed to cater the needs of poor being (Bennett and Cuevas, 1996; Ledgerwood, 1999).
people who are unemployed, entrepreneurs or farmes Past studies of many researchers found that
who are not bankable. microfinance has very beneficial economic and social
impacts (Holcombe, 1995; Hossain, 1988; Otero and
Microfinance has become, in recent years, a fulcrum Rhyne, 1994; Remenyi, 1991; Schuler, Hashemi and
for development initiatives for the poor, particularly in Riley, 1997). A recent study by Emma Svensson
the Third World countries and is regarded as an examines microfinance movement for economic growth
important tool for poverty alleviation. The microfinance by exploring the linkages of microfinance, the financial
revolution, particularly the success stories of institutions system and economic growth. He found some evidence
like Grameen Bank in Bangladesh, Banco Sol in Bolivia, of the microfinance clients engaging in growth-
and Bank Rakyat in Indonesia, attracted several enhancing economic activities. There has been change
economists to study microfinance in the latter half of in income and productivity in micro-enterprises and the
the 1990s. Some studies argue that microfinance has economic sectors relevant to microfinance clients. He
very beneficial economic and social impacts (Holcombe, also found that the character of the informal sector
1995; Hossain, 1988; Otero and Rhyne, 1994; Remenyi, seems to be inhibiting for micro-enterprise growth.
1991; Schuler, Hashemi and Riley, 1997). "Microcredit
is a critical anti-poverty tool and a wise investment in In India also many studies are conducted by various
human capital. Now that the nations of the world have autonomous agencies like NABARD, NEDFi, SIDBI,
committed themselves to reduce by half by the year DRDA, RGVN etc. including RBI from time to time.
2015 the number of people living on less than $1 a day, These organizations practice microfinance. Most of the
we must look even more seriously at the pivotal role studies are on the impact assessment of the
that sustainable microfinance can play and is playing in beneficiaries of microfinance. Very few studies are
reaching this Millennium Development Goal." (United conducted on microfinance at the NER level in India.
Nations Secretary General Kofi Annan at Global Most of the studies focus on Self-Help Groups
Microcredit Summit 2006). The United Nations named (Agarwal, Shalini 2007; Gopisetti, Rambabu 2007;
the year 2005, the International Year of Microcredit Gaonkar, Maya Sairoba 2008; Sarkar, Soumitra 2008;
and the founder of the Grameen Bank won the Nobel Nagarajan, P.S 2009). Some studies are also conducted
 46
on poverty reduction and empowerment (Prakash, organisations like NABARD, SIDBI, NEDFi etc. take
Jayasheela 2009). Some researchers have also worked initiative to form the SHGs. These SHGs are trained
on group based credit programmes (Sarangi, Niranjan by the NGOs, SPHIs, MFIs or federation of SHGs
2008). There were many studies where the researcher and bank linkage is also done. The banks keeps the
has evaluated the performance of Regional Rural Banks savings of the group as collateral and the credit of the
(Abdul, Hadi (2005). Some studies were found to focus group corpus is linked to the amount of savings. After
on the relationship between microfinance and micro- six months of regular savings, these SHGs become
enterprises (Kanaskar, Mukesh Prabhakar 2008; eligible to apply loan from the bank. Based on their
Natarajan, Jeyaseelan 2007). In this paper we first savings corpus, number of meetings and internal
explain the microfinance delivery mechanism and its lending, bank gives credit to the good SHGs. Once loan
opportunity at the Base of the Pyramid (BoP). Next is sanctioned to the SHG, the concerned NGOs, SPHIs,
we try to find out the progress of microfinance in the MFIs or federation of SHGs take the entire
North East India in terms of savings mobilization, loans responsibility to monitor the loan amount and their
disbursed, loans outstanding and non performing assets periodic installment payments. In the initial phase of
(NPAs). Lastly we focus on the major challenges that the SHG movement, as the groups were formed by the
microfinance is facing in the NER of India. NGOs or MFIs, the start-up costs were low for banks.
However, over the years, banks have also evolved as
Microfinance Delivery Mechanisms in the NER SHPIs. In the process, the start-up costs of group
In India as well as in the NER, microfinance is basically formation, etc. have devolved on the banks, impacting
delivered to the rural poor in three different models. their pricing policies.
Firstly, different public and private sector banks take
initiative to form the SHGs with less than 20 members. It is an accepted fact that banks will base their lending
Once the group is formed, each member of the SHG rate decisions on three important criteria - their cost of
has to deposit small amount daily, weekly or monthly funds, transaction costs and the required spreads. While
as per the group's decision. After some months, the the sources of funds will determine the cost of funds,
corpus can be used for on lending among the group the transaction costs will depend mostly on the efficiency
members. The SHG members have to meet bank staffs with which the transfer of funds is enabled. Banks need
on regular periodic intervals and show their proceedings, to recognize the cost elements involved in the decision-
internal books and accounts. The bank provides credit making process while approving credit linkage and in
on the basis of accumulated savings, number of maintaining the accounts of the group, throughout the
meetings and their internal lending. This SHG - Bank repayment period. Considering the small value of loans
linkage model (Model 1) involves the SHGs financed purveyed to groups, the rate of interest charged will
directly by the banks viz., Public and Private Sector also be in the lower slabs, thereby earning on thinly
Commercial Banks, Regional Rural Banks (RRBs) and spread margins. The other major component of costs,
Co-operative Banks. One of the distinctive features of viz., risk costs, is intrinsically low in SHG lending and,
the SHG - Bank Linkage Programme has been very therefore, could play a limited role in pricing of credit
high on-time recovery. As on June 2005, the on-time products for SHGs.
recovery under SHG- Bank Linkage Programme was
90% in commercial banks, 87% in RRBs and 86% in In the third SHG - Bank linkage model (Model 3), the
cooperative banks. NGOs or MFIs helps in forming the SHGs, provide all
necessary capacity building training and act as a
In the second SHG - Bank linkage model (Model 2), financial intermediary. Bank supplies wholesale credit
MFIs, SPHIs, federation of SHGs or Government or subsidized credit to these NGOs and MFIs at rates
 47
which are cheaper compared to the rates at which the global poverty is the absolute poverty line set by the
bank lends directly to the SHGs. The NGOs or MFIs World Bank in terms of Purchasing Power Parity
lends to the SHGs at the same rates as the banks (PPP). The PPPs measure the relative purchasing
charges under Model 1 and Model 2. The SHGs get power of currencies across countries. Poverty is set at
the funds at the same rate irrespective of the model of an income of $2 a day or less, and extreme poverty is
operation. In some cases, we find that the interest rates set at $1 a day or less. This line was first created in
charged by NGOs or MFIs are higher than the bank 1990 when the World Bank published its World
rate charged under Model 1 and Model 2. The NGOs Development Report and found that most developing
and the MFIs are allowed to earn a small profit in order countries set their poverty lines at $1 a day. The $2
to cover their operating costs and maintain financial mark was created for developing nations with slightly
sustainability. better income levels than their $1 a day counterparts.
This threshold is higher in middle and emerging high
SHGs are having close relationship with the banks. Each income countries, such as Malaysia, Singapore, and
of the SHGs open savings account in the name of the Kazakhstan. Globally, the BoP market is liberally
informal entity called "SHG". Bank loans are available estimated at $4-5 billion with thresholds much higher
to the SHGs as multiples of pooled thrift after 6 to 12 ($4-$5 daily income) than applied in the Asian context.
months through a rating process developed by The Nobel Prize winner Muhammad Yunus was
NABARD or based on their own assessment. Rating capable of comprehending the experience of life at the
of SHGs is done to appraise group dynamics, financial BoP. He could also think of a creative solution and find
intermediation, governance and management. The SHG out the market opportunities that exist at BoP in terms
group dynamics is assessed in terms of meetings, of credit to the poor women in Jobra in Bangladesh.
attendance and fines. The financial intermediation is This enabled him to appreciate that poverty was not
assessed in terms of regularity in savings, loans, defined in terms of daily income but instead by the
repayment. The governance mechanism of the SHG is experience of being excluded from the formal banking
measured in terms of the groups' transparent decisions. system. Microlending was not born from grand
The management capability of the SHG is judged in economic theory, but from listening attentively to poor
terms of quality of periodic proceedings, accounts and people (Yunus, 2003). Bazerman and Chugh (2007)
record of decisions taken. Thus, good SHGs become rightly commented that what we fail to see can hurt
eligible for getting the loan. The weak SHGs will have us. In other words, what we fail to see hurts our ability
to wait until their performance is good. The SHGs to do business there.
decide on how to use the loan, and set their own terms
and conditions agreed upon by all members. SHGs Defining Indian Poverty: According to the National
receive collateral free loan from banks at commercial Council of Applied Economic Research (NCAER)
rates of interest, presently varies from 8% to 13% p.a. estimates on earnings and spendings during 2009-2010,
on reducing balance. the high income households in India outnumbered those
in the low category for the first time in Indian history.
Microfinance and BoP Opportunity According to the estimates, India has 46.7 million high
Global poverty is seen as both an unacceptable outcome income households as compared to 41 million in the
of the current economic system and a threat to low income category. Households earning less than
commerce and security in the wealthier nations (London, Rs 40,000 per annum (at 2001-02 prices) are considered
2007). Generally, poverty is defined as the state of being as low income, whereas those with earnings over Rs
poor or deficient in money or means of subsistence 1.80 lakh fall in the high income category. Those earning
(Barker 1995). The most commonly used definition of between Rs 45,000-Rs 1.80 lakh per annum are
 48
considered middle income households, whose number there are huge business opportunities at the bottom of
surged to 140.7 million out of the total of 228.4 Indian the pyramid and the corporate houses must come
million families at the end of 2009-10. Thus we find forward to tap this unlimited business space.

Table 1 : Poverty Estimates for Asia and Pacific

(ADB's Developing Member Countries)
Actual Without Crisis With Crisis
2005 2009 2010 2009 2010
Very Poor ($1.25) Million People 903.4 666.2 586.5 719.4 666.2
Percent of Population 27.10% 19.20% 16.7% 20.7% 18.9%
Moderate Poor ($1.25-$2.00) Million People 899.2 860.9 844.9 879.0 872.8
Percent of Population 26.90% 24.70% 24.0% 25.3% 24.9%
Vulnarable Poor (Below Million People 1802.6 1527.1 1431.4 1598.4 1539
$2 Poverty Line) Percent of Population 54.00% 43.90% 40.7% 46.0% 43.8%
Source: ADB (Dec 2009)
Defining a Base of the Pyramid (BoP) Business: The decision-making process. For example, a firm can sell
term BoP is developed by Hart and Prahalad at the shampoo sachets to the BoP but at the same time,
Center for Sustainable Enterprise and now popularized educate the communities about the hygiene with
by Prahalad's book entitled "The Fortune at the Bottom community chiefs and NGOs.
of the Pyramid". The BOP proposition argues that large
companies can make a fortune by selling to poor people Thus we see that the BoP businesses need to
and simultaneously help eradicate poverty. It refers to understand both the consumer and their community what
the poorest people in the world in any community strata. Prahalad and Brugmann referred as 'co-creation'.
These poor people had to pay more for the same food Moreover, in this era of liberalisation, globalisation and
and products compared to the rich class. They tend to privatisation, business is all about thinking globally and
borrow at a higher rate of interest than the rich people acting locally to sustain in this competitive world. The
and are usually underserved by financial markets and firms should think of working together as a BoP
other basic livelihood services. This segment of the poor community with the customers, local NGOs and other
people still represents a huge market if affordable private and government bodies.
products and services can be offered to them as per
their needs and requirements. We should be as practical Figure 1 The Unrealized Opportunity at the Bottom
and flexible as possible and seek to adapt to an ever
Purchasing Power Population Estimates
changing world. BoP business entails not only selling Parity in US Dollar
to the poor but also provide the opportunity to the
community to be involved in the company's strategic >$20,000 75-100 million
decision-making process. If that were the case, then Tire 1
cigarette companies would be the biggest legal BoP
>$1500-$20,000 Tire 2-3 2,000 million
business in the world. Selling to the poor is a good first
step to developing a BoP business, since it requires
management to think about the target customer. It is
thus a strategic decision about which customers are of <$1500 Tire 4 4000 million
interest to the firm. The uniqueness of this BoP business
model is that it involves engaging the BoP community
who are low income people in the company's strategic Source: Prahalad and Hart (2002)
 49
BoP relies on the philosophy that since business is a Lower Assam. Further reading of the article brings to
part of the community, a community should also be part front the need for increased planning and study of
of a business. This BoP community should be included demographics to ensure that resources are targeted
in the supply chain management of the firm to add properly and benefit more people with lesser wastage.
customer value and differential advantage of the
product. BoP community members can create a value NABARD emphasizes growth of strong and efficient
chain by offering their local knowledge and contacts to SHGs internal loans to its members for productive
the focal firm. The BoP community members may be purposes, irrespective of APL (above poverty line) or
business partners, employees, retailers or distributors BPL (below poverty line) families. DRDA, under its
of the focal firm. This would certainly stimulate the Swarnajayanti Gram Swarojgar Yojana (SGSY)
inclusive community growth with a lower operating cost emphasizes on the growth of SHGs among BPL
and higher customer value and above all increasing families for fulfilling the objective of poverty alleviation.
opportunities to pull oneself out of poverty. In this NEDFi, under its micro-finance scheme, lends a
context microfinance can play a vital role and help the minimum of Rs. 20000 and a maximum of Rs. 4 lakhs
community members to empower themselves. The to an SHG with good record for on-lending to the needy
NER is no exception and also satisfies the BoP for taking up productive activities. Prime lending rate
proposition. Thus microfinance may be used as an and administrative charges are decided by NEDFi.
overall community development tool and trap the
unlimited opportunity at the BoP of the NER. The SHG movement in southern states of India has
been successful to a great degree in uplifting the socio-
MFIs and SHGs for the Development of NER economic conditions of the down-trodden, which can
MFIs and SHGs are instrumental for the development also be achieved in Assam provided adequate
of the microfinance sector. Both the MFIs and SHG encouragement is provided. The Andhra Pradesh
numbers and business turnover are increasing at a Government had taken up the theme of women's
faster pace. Self Help Groups, or SHGs consist of a empowerment (through SHGs) as one of the strategies
group of 15-20 people who come together with the to tackle poverty. All villages in the state have atleast
objective of creating a financial cushion in times of one SHG and 75% of the villages have 15-20 groups in
individual or collective exigencies. The concept of SHG each. Nearly 60% of the women took up activities like
was introduced in India by NABARD in 1992, inspired vegetable and flower cultivation, food crops, pulses and
by its success in Bangladesh. Today it is the largest oil seeds cultivation on leased land. Small business
rural development programme, going on with the active activities, handicrafts and handloom products making
cooperation of NABARD, DRDAs and NEDFi. SHGs etc are also taken up by 25% of the poor women force.
also promote independent thinking and inculcate a sense The SHG movement in Andhra Pradesh has helped
of responsibility since the money and effort involved significantly in reducing rural poverty to 11% by 1999-
belong to the members themselves. The primary aim 2000. Of late, the movement has started to show similar
of setting up SHGs was to address the problem of rural signs in Karnataka and Tamil Nadu.
unemployment, remove disillusionment among youth and
bring them back to mainstream from the path of SHG-Bank Linkage Programme, since its pilot in 1992,
militancy, he said. Moreover, gradually the young and has emerged as the leading micro-Finance (mF)
educated unemployed rural population are equipping programme in the country. It is recognized as an
themselves to take up income generating activities by effective tool for extending access to formal financial
organising themselves into SHGs. A survey conducted services to the unbanked rural poor. Encouraged by
by Nanda Talukdar Foundation found out that Upper the success, the programme has been adopted by State
Assam has benefited more from the state government Governments as a major poverty alleviation strategy.
initiative even though the actual intent was to benefit It has also led to the emergence of Micro-Finance
 50
Institutions (MFI) as a bridge between the banking accounts and had savings worth Rs.3,785.39 crore. The
sector and the rural poor. programme has covered more than 7 crore poor
households, making it the largest mF programme in the
During the year 2008-2009, 10,81,474 SHG were credit world. The overall progress of the mF programme is
linked with banks and bank loan of Rs.11,131.74 crore given in Table 2. Actual Number of MFI provided with
(including repeat loans) disbursed taking the number bank loans would be lower as several MFIs have availed
of SHG credit linked to Rs.47,07,415 SHG. As on 31 loans from more than one bank.
March 2008, 50.09 lakh SHG maintained savings bank
Table 2 : Progress of the SHGs & MFIs (As on 31 March)
Particulars Self-help Groups Self-help Groups Microfinance Institutions
2007 2008 2007 2008
No. Amount No. Amount No. Amount No. Amount
Loans Disbursed 11,05,749 6,570.39 12,27,770 8,849.26 334 1,151.56 518 1,970.15
Loans Outstanding 28,94,505 12,366.49 36,25,941 16,999.90 550 1,584.48 1,109 2,748.84
Savings Accounts
with Banks 41,60,584 3,512.71 50,09,794 3,785.39 … … … …

Source: State of the Sector Report 2008-09.

SHG movement has unfortunately started very late in 10000 among themselves. Even though, SHG is still a
the North Eastern States. Among the NER, it was first new concept in rural North Eastern States. Widespread
implemented in Assam. Since 2000, a sizeable number poverty and unemployment can be treated through these
of SHGs have started to crop up in almost every district SHGs. SHG programme has lightened the burden of
of Assam. Of the total 66125 SHGs in the state in mid- life for the average member of a SHG in many ways.
2003, Sonitpur and Kamrup districts had 15000 and 7000 There have been perceptible and wholesome changes
respectively. But only 4000 SHGs have accessed in the living standards of the SHG members in terms of
institutional credit till March 2003. Banks are still ownership of assets, increase in savings and borrowing
apprehensive of loan recovery. NGOs with professional capacity, income generating activities and in income
skills are not coming up in this state. At present, the levels. SHGs develops saving habits and bring people
66125 SHGs roughly cover 1 million people in the state. closer to the banking system by helping in getting loans
The need is to cover at least 14 million poor and nearly easily and frequently. Looking at the successful model
poor population. The credit needs of the poor are very of SHGs in India, it is worldwide accepted that SHG
small. What they need most are guidance and support. movement can add a new dimension to the fight against
Group savings can meet only the members' recurring poverty and underdevelopment in rural North Eastern
demand for small loans for consumption and other States. (Satatus of Microfinance Report 2009).
contingent needs.
Progress of Microfinance in NER
The funds available to the SHGs are very negligible. NABARD has been instrumental in facilitating various
Most of the SHGs find it difficult to maintain their activities under microfinance sector in the NER.
accounts properly. Formal training in this respect will NABARD sanctioned Rs.39.15 lakh for implementing
be of immense help. Products of SHGs lack market the project 'micro-Finance Vision 2011' to Government
exposure. Some people form SHGs in order to satisfy of Arunachal Pradesh and Rs.33.66 lakh to Essomi
vested interests, distributing the revolving fund of Rs Foundation Trust for setting-up Resource Centre at
 51
Itanagar. The 'State Support Project on SHG' in Tripura the savings mobilisation. Then the regional data is also
aims to promote livelihood activities, credit link 11,500 given to understand the relative growth of NER with
existing SHG and form and credit link 35,000 new SHG. respect to other regions of India. Among the NER, the
The 'State Support Project on SHGs' designed by the state of Assam is having 75% SHGs with 62% savings
Government of Tripura and supported by NABARD mobilized which is the highest followed by Tripura with
was launched in December 2008. The project aims to 9% SHGs and 27% savings mobilisation. The other
credit link 11,500 existing SHG, forming and credit NER states are lagging far behind. If we compare the
linking 35,000 new SHG and promoting livelihood NER with respect to the other regions of India, we
activities among its 3 lakh members upto 31 March find that NER comprises only 4% SHGs and 1.8 %
2012. NABARD is to provide technical and capacity savings mobilisation. On the other hand the southern
building support, besides helping in designing systems region having the highest number of SHGs and savings
and procedures for smooth implementation of the mobilisation with 46.2 % and 46.3% respectively. Thus
project. Besides NABARD, there are some other we find that at the regional level, the performance of
agencies like SIDBI, NEDFi, RRBs, Co-operative microfinance is best in the southern states and worst in
Banks and public and private commercial banks are the NER. Another important observation is that the most
also playing an important role for the development of nearby region of NER, i.e., the eastern region is having
microfinance sector in the NER. Below we highlight 20% SHGs and 29% savings mobilisation with respect
the overall progress under microfinance in the NER to NER figures of 4% and 1.8% respectively. Thus we
during the last three years. find that the microfinance environment in the NER is
not very active. So their lies tremendous scope and
Table 3 : Savings Mobilisation through opportunity for the growth of microfinance in the NER.
Microfinance 31st March 2009
Table 4 : Loan Disbursed by Banks
(Amount in Rs. Crores)
during 2008-09
States Total (Amount in Rs. Crores)
No. of SHGs Savings Amount States Total
Assam 1810.0 63.0 No. of SHGs Bank Loan
Meghalaya 96.3 3.3 Assam 264.5 157.0
Nagaland 60.6 1.6
Manipur 9.0 4.9
Tripura 228.1 28.6
Meghalaya 10.0 5.1
Arunachal Pradesh 51.5 0.9
Sikkim 9.8 12.5
Mizoram 42.3 1.8
Manipur 94.7 1.9 Tripura 47.7 54.3
Sikkim 17.5 1.0 Nagaland 0.9 2.0
NER 2400.9 102.1 Arunachal Pradesh 3.9 2.3
Northern Region 3110.0 227.0 Mizoram 9.2 8.4
Eastern Region 12336.4 1596.9 NER 355.1 246.4
Central Region 7129.2 386.8 Northern Region 426.9 302.4
Western Region 7962.6 664.3 Eastern Region 2367.9 1237.7
Southern Region 28272.4 2568.5
Central Region 1010.6 781.4
All India 61211.5 5545.6
Western Region 1251.7 583.9
Source: Compiled from NABARD Annual Report Southern Region 10683.7 9101.7
Table 3 highlights the state-wise progress of All India 16095.9 12253.5
microfinance in NER in terms of number of SHGs and Source: Compiled from NABARD Annual Report
 52
Similarly, Table 4 highlights the state-wise progress of Table 5 shows the state-wise progress of microfinance
microfinance in NER in terms of number of SHGs and in NER in terms of number of SHGs and amount of
amount of loan disbursed by Commercial Banks, RRBs, loan outstanding by Commercial Banks, RRBs, and
and Cooperative Banks. Then the regional data is also Cooperative Banks. The regional data is also given to
given to understand the relative growth of NER with understand the relative growth of NER with respect to
respect to other regions of India. Among the NER, the other regions of India in terms of bank loans outstanding.
state of Assam is having 74% SHGs with 64% disbursed Among the NER, the state of Assam is having 75%
bank loans which is the highest followed by Tripura SHGs with 70% outstanding bank loans which is the
with 13% SHGs and 22% disbursed bank loans. The highest followed by Sikkim with 3.4% SHGs and 8.3%
other NER states are lagging far behind. When we bank loans outstanding as on 31st March 2009. The
compare the NER with respect to the other regions of other NER states are lagging far behind. If we compare
India, we find that NER comprises only 2.2% SHGs
the NER with respect to the other regions of India, we
and 2% disbursed bank loans. On the other hand the
find that NER comprises only 2.8% SHGs and 2% bank
southern region having the highest number of SHGs
loans outstanding. On the other hand the southern region
and disbursed amount of bank loans with 66% and 74%
having the highest number of SHGs and disbursed
respectively. Thus again we find that at the regional
amount of bank loans with 54% and 66% respectively.
level, the performance of microfinance is best in the
Thus again we find that at the regional level, the
southern states and worst in the NER in terms of bank
loan disbursed. Another important observation is that performance of microfinance is best in the southern
the most nearby region of NER, i.e., the eastern region states and worst in the NER in terms of bank loan
is having 15% SHGs and 10% disbursed bank loans outstanding. Again, the nearby eastern region is having
with respect to NER figures of 2.2% and 2% 22% SHGs and 13.3% outstanding bank loans with
respectively. Thus we find that the microfinance respect to NER figures of 2.8% and 2% respectively.
environment in the NER is not very active in terms of Thus we find that the microfinance environment in the
bank loans disbursed. NER is not very active in terms of bank loans
outstanding. (Table on next page)
Table 5 : Bank Loans Outstanding against
SHGs as on 31st March 2009 Table 6 shows the state-wise progress of microfinance
(Amount in Rs. Crores) in NER in terms of Non Performing Assets (NPA) of
States Total SHGs out of the total loans outstanding in Commercial
No. of SHGs Bank Loan Banks, RRBs, and Cooperative Banks. The regional
Assam 888.8 328.6 data is also given to understand the relative growth of
Manipur 34.1 7.1 NER with respect to other regions of India in terms of
Meghalaya 31.2 11.4 NPAs. Among the NER, the state of Assam is having
Sikkim 39.8 39.4 the highest amount of gross NPAs (31.1 crores) as its
Tripura 104.0 37.1 business volume is much higher compared to the other
Nagaland 8.8 8.9 norther eastern states. But in terms of percentage of
Arunachal Pradesh 48.7 23.0 NPAs to outstanding bank loans of SHGs, the situation
Mizoram 22.8 13.9 is worse in Meghalaya among the north eastern states
NER 1178.1 469.3 as well as the other regions of India. Manipur and
Northern Region 1665.1 678.9 Nagaland are also facing the problem of high NPAs of
Eastern Region 9334.9 3023.0 11.7% and 11.3% respectively. Among the NER,
Central Region 3321.2 2045.3 Tripura is doing exceptionally well in its loan recovery
Western Region 3935.0 1551.1 with the minimum percentage of 1.7% NPAs to the
Southern Region 22809.1 14912.1 outstanding bank loan of SHGs, which is even below
All India 42243.4 22679.8 the all India average of 2.9%. If we compare the NER
Source: Compiled from NABARD Annual Report
 53

Table 6 : Non Performing Assets for Bank Loans to SHGs & Recovery Performance
(Amount in Rs. Crores)
States/Region Amount of Outstanding Amount of % age NPAs of Outstanding
Loans to SHGs Gross NPAs Bank Loans to SHG
Assam 317.6 31.1 9.8
Manipur 24.7 2.9 11.7
Meghalaya 6.9 1.3 18.1
Sikkim 0.02 0 0
Tripura 66.6 1.1 1.7
Nagaland 9.1 1 11.3
Arunachal Pradesh 7.3 0.4 5.3
Mizoram 11.2 0 0
NER 443.5 37.8 8.5
Northern Region 644.3 42.6 6.6
Eastern Region 2754.7 92.9 3.4
Central Region 1878.5 167.7 8.9
Western Region 1459.6 81.4 5.6
Southern Region 14380.5 203.5 1.4
All India 21561 625.9 2.9
Source: Compiled from NABARD Annual Report

with respect to the other regions of India in terms of Challenges of Microfinance Sector in the NER
loan recovery performance, we find that NER The microfinance program has proved to be successful
comprises the second highest percentage of NPAs in southern states of India but failed to achieve its goal
(8.5%) after the central region. On the other hand, the to benefit poorer states (Pankaj Kumar & Ramesh
southern region having the lowest percentage of NPAs Golait, 2009). SHG movement has unfortunately started
(1.4%) with respect to the outstanding bank loan of very late in the North Eastern States. Among the NER,
SHGs. Thus again we find that at the regional level, it was first implemented in Assam. Since 2000, a
the performance of microfinance is best in the southern sizeable number of SHGs have started to crop up in
states and worst in the NER in terms of NPAs to loan almost every district of Assam. The microfinance
outstanding. Again, the nearby eastern region is having movement in southern states of India has been
only 3.4% NPAs against the NER average NPA of successful to a great degree in uplifting the socio-
8.5%. Thus we find that the microfinance environment economic conditions of the down-trodden, which can
in the NER is not very active in terms of recovery also be achieved in NER provided government
performance of the bank loans to SHGs. Among the motivation and support is provided in the right direction
NER states, there remains huge disparity in the to NGOs and MFIs. The microfinance sector in the
microfinance activities and in all India scenario, the NER is facing lot of problems and constraints, some of
microfinance sector is not performing well and is still them are pointed out below:-
underdeveloped. (a) Lack of professional expertise to run the MFI
operation successfully and profitably,
 54
(b) Lack of usage of technological advanced IT tools globalization have given a tremendous opportunity to
and efficient management information system for develop but this development has been restricted to a
the MFI operation and maintenance. certain group of people. This has resulted in an
increasing gap between the haves and have-nots of
(c) Lack of funding sources for MFIs at a lower rate
the society. In this context, microfinance can help
of interest,
reduce this disparity and lead to a more equitable growth
(d) The need for MFIs to borrow money from of the country. Savings-driven microfinance
commercial banks at a higher rate of interest, environment is feasible in rural as well as urban areas.
If properly regulated and supervised, they have great
(e) The high administrative costs to manage the
potential in poverty alleviation and development, both
microfinance programs due to the low density of
in rural and urban areas. Most of the world's poor lack
some populations in the NER.
access to basic financial services that would help them
(f) Lack of appropriate training programme for the manage their assets and generate income. With the
microfinance officials, loan officers and capacity inefficient functioning of the Development Banks in
building programme of the MFI as a whole, the rural areas to the extent that is required, some forms
of local financial services also disappeared. In this
(g) Lack of a simple regulatory environment and the
context, microfinance has emerged to fulfill the demand
difficulty to mobilize resources,
of rural credit.
(h) Lack of traditional bank interest and involvement
in microfinance, The emerging microfinance revolution with appropriate
designed financial products and services enable the poor
(i) Lack of awareness level of microfinance among
to expand and diversify their economic activities,
the poor,
increase their incomes and improve their social well-
(j) Lack of local and effective capacity building being SHG movement has unfortunately started very
infrastructures, late in the North Eastern States. Among the NER, it
was first implemented in Assam. Since 2000, a sizeable
(k) Lack of SHG and JLG federations,
number of SHGs have started to crop up in almost every
(l) Lack of a distribution channels for better delivery district of Assam. At present, the 66125 SHGs roughly
of microfinance services, cover 1 million people in the state. The need is to cover
at least 14 million poor and nearly poor population. The
(m) Periodic renewal system of NGOs by the state
credit needs of the poor are very small. What they
government after every three years requires lot of
need most are guidance and support. Group savings
unnecessary money and time and is a complete
can meet only the members' recurring demand for small
de-motivating phenomenon for the growth of
loans for consumption and other contingent needs.
microfinance,
(n) Lack of savings driven microfinance environment The BOP proposition argues that institution can make
which provides the cheapest source of finance, a fortune by selling to poor people and simultaneously
help eradicate poverty. It refers to the poorest people
(o) Lack of a coordinated government effort to
in the world in any community strata. These poor people
organise the microfinance sector.
had to pay more for the same food and products
compared to the rich class. They tend to borrow at a
Conclusion
higher rate of interest than the rich people and are
For the last two decades, Indian economy has been
usually underserved by financial markets and other
growing at a faster rate but not all have benefited by
basic livelihood services. This segment of the poor
this excellent growth. Liberalisation, privatisation and
people still represents a huge market if affordable
 55
products and services can be offered to them as per Most of the SHGs find it difficult to maintain their
their needs and requirements. There remains great accounts properly. Formal training in this respect will
business opportunity at the BoP. The BoP community be of immense help. Products of SHGs lack market
members may be stakeholders, business partners, exposure. Some people form SHGs in order to satisfy
employees, or client of the MFIs. This would certainly vested interests, distributing the revolving fund of Rs
stimulate the inclusive community growth with a lower 10000 among themselves. Even though, SHG is still a
operating cost and higher customer value and above new concept in rural North Eastern States. Widespread
all increasing opportunities to pull oneself out of poverty. poverty and unemployment can be treated through these
In this context microfinance can play a vital role and SHGs. SHG programme has lightened the burden of
help the community members to empower themselves. life for the average member of a SHG in many ways.
The NER is no exception and also satisfies the BoP There have been perceptible and wholesome changes
proposition. Thus microfinance may be used as an in the living standards of the SHG members in terms of
overall community development tool and trap the ownership of assets, increase in savings and borrowing
unlimited opportunity at the BoP of the NER. capacity, income generating activities and in income
levels. SHGs and MFIs develop saving habits and bring
We have tried to measure the progress of microfinance people closer to the banking system by helping in getting
sector in terms of four criteria viz., (i) savings loans easily and frequently. Microfinance sector in the
mobilisation, (ii) loans disbursed, (iii) loans outstanding, NER is unexplored to a greater extent and their remains
and (iv) non performing assets. The results of the study huge opportunity at the rural NER. There is an urgent
reveal that the NER comprises only 4% SHGs and 1.8 need to take a coordinated government effort for the
% savings mobilisation of India. The bank loan development of microfinance sector at DONER and
disbursement and total loans outstanding is also very overcome the challenges discussed in this paper.
low in the NER which is just 2% of all over India. Looking at the successful model of SHGs in India
Unfortunately, the bank loan recovery performance is particularly in the south, it is worldwide accepted that
also worse in the NER. When we compare the NER SHG movement can add a new dimension to the fight
with respect to the other regions of India in terms of against poverty and underdevelopment in rural North
loan recovery performance, we find that NER Eastern States.
comprises the second highest percentage of NPAs
(8.5%) after the central region. On the other hand, the References
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