Role of Microfinance and Entrepreneurship Development in India

South -Asian Journal of Multidisciplinary Studies (SAJMS) ISSN:2349-7858:SJIF:2.246:Volume 3 Issue 5 Role of Microfinance and Entrepreneurship Develo...
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South -Asian Journal of Multidisciplinary Studies (SAJMS) ISSN:2349-7858:SJIF:2.246:Volume 3 Issue 5

Role of Microfinance and Entrepreneurship Development in India Dr. Sushil K. singh* Ram Pravesh**

Abstract

The entrepreneurship development in any country leads to the employment generation and poverty eradication. That‟s why every country continuously tries to speed up the entrepreneurship. In the scenario of India small entrepreneurs need small fund to boost up the small business but government sector financial lending institutions are now failed to do it. Therefore this creates the dependency of micro entrepreneur on microfinance lending institution. It is seeing in structure of micro enterprise lending. Bangladesh is a pertinent example of, role of microfinance in economic development after that Bangladesh became a model of economic development through micro finance, now developing country applying this modal for economic development. In the same line India is also applying and experimenting the flourish outcome of microfinance. microfinance playing a vital role in economic development by entrepreneurship development in India. The success of small business in India depends upon the accessibility of working capital. It is only possible by microfinance lending. This paper is prepared by use of secondary data. The researcher used internet as source of collection of secondary data. Tables and simple percentage were use in data presentation. For analysis the two broad variables keep in center in the study. First is entrepreneurship development as a dependent variable and second is microfinance as an independent variable. The research paper is divided in three sections. First section reveals the success of microfinance in different region across the country for entrepreneurship development. The second section discloses the relationship between microfinance and entrepreneurship development in the country. The third section concludes the result of the research that is there is positive impact of microfinance institution lending on entrepreneurship development in India.

Keywords- Entrepreneurship, Microfinance, Lending, Development, Financial Institution etc

*Assistant professor, Department of Business management IGNTU Amerkantak MP. **Research Scholar, Department of Business management IGNTU Amerkantak MP. Copyright © Universal Multidisciplinary Research Institute Pvt Ltd

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Introduction The process of industrialization of India was start in second five year plan with the objective of employment generation and to fulfill the hope demand of individuals. Although it was centralized to only a group of industry that why a mass of Indian remain excluded by entrepreneurial orientation because of they have not any idea to do something even does not have finance to initiate. “About 90 percent of people in developing countries lack access of financial services from institution either in form of credit or saving” ( Robinson et all 2002). Therefore so many rural people migrate to big city for employment. After globalization so many multinational companies spread their business in India at rural level but rural people remain unemployed. It is sure that our success of development since independence is not satisfactory. Unemployment, poverty, low living of standard, satisfaction level even our happiness level is very low in rural region. Poverty and mass unemployment is very big challenge for us irrespective of immense opportunity of entrepreneurship in agriculture and rural non- form sector. It is well known that institutional financing system to poor in India is unable to fulfill their credit needs in response of that micro finance is growing. Microfinance is playing a instrumental role in improving the quality of life and eradication of poverty by meeting the needs of credit of rural poor. “ microfinance has already made a positive impact on quality of life of millions of poor people by providing greater access to credit, saving, insurance, transfer remittances, and other financial services which would otherwise be untouchable.” 1 Success of microfinance in Bangladesh to provide livelihood opportunity to rural people have been became an instrument in several less developed countries like Uganda, Bangladesh, Nigeria, and so on for sustainable entrepreneurship development. In India rural people have low capacity to finance their enterprise so productivity is limited, income is low, respectively domestic saving remain low and again any increase in productivity is impossible. Skewed distribution of microfinance institution in India is also breaking the rural people to engage in new entrepreneurial activity, hinder economic growth, which inhibit the sustainability of entrepreneurial activity. Anyhow microfinance acts as a tool to empower the rural people. Therefore now we have to focus on, to what extent microfinance empowers the entrepreneurship in rural people? And what is its contribution to economic development? The economic development is the “process of improving the quality of all human lives” (Todaro 1994). So the economic development consider three characteristic namely growth in income and consumption, speeding self-esteem by institution that enhance human pride, and increasing freedom of people. So it considers the all aspects of human development that is possible by only microfinance, if we talk about poor people. “When the income of poor people rise then they improve their nutrition and send their children to school” (Robinson 2002). Guy Vincent says „it is fundamental to economic development, but also financial services help the poor to expand their economic activities and increase their income and assets, their self-confidence grow simultaneously‟ i

International journal of college science, 3: 2 July 2009, Tiyas Biswas and P. P. Sengupta

*Assistant professor, Department of Business management IGNTU Amerkantak MP. **Research Scholar, Department of Business management IGNTU Amerkantak MP. Copyright © Universal Multidisciplinary Research Institute Pvt Ltd

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Objective 1. To analyze the development of micro financing in India. 2. To analyze the entrepreneurship development in the context of microfinance.

Context of micro finance in India From past to present microfinance sector of India reveal the cash-cow growth pattern. It is fact that 8 MFI have approval to open small finance bank by reserve bank of India and one MFI has already worked as bank. The MFI in India generally covered those areas which are not now covered by main stream financial institution and for those it playing a vital role for financial inclusion. Now microfinance program have the take up the world wide campaign to provide credit to poor by designing product and channels that fulfills the needs of the poor. The economic situation and increasing earning of microfinance institution reveal that poor had great repayment potential and also reveal by extension of its credit to women. at the end of March 2015 478 MFI were functioning in 33 state including Union Territory and 568 District in India and has been reach to 33 million clients with 490 billion credit portfolio among them 40 percent functioning in southern region and 25 percent in eastern region. The contribution of NBFC-MFI is 85 percent of the total clients and 88 percent of the outstanding portfolio further remains contributed by NGO-MFI. The 97 percent of the client of MFI is women and 67 percent is urban at the end of 2015 March.

Region wise Selp-Help Group across the country According to report of status of microfinance in India 2014-15 ( NABARD) there are every region of India except southern region have good potential to open SHGs because huge range of village are not covered by existing SHGs in that region. In the northern region of the country 360858 SHGs is currently functioning

but several village was not covered by them and and

potential of the region to formation of new SHGs is around 680628. The north eastern region of the India has also good potential of new SHGs formation around 162643. Present time 333981 SHGs is functioning in this region. The number of functioning SHGs in eastern region of the country is 1524614. Here it is notable that it covering only half of total need of SHGs in the region. The region has great potential to new SHGs formation around 1450466 that is second biggest potential to open new SHGs. This region has major market for SHGs across all regions in the country. The central region of the country has 817251 SHGs. That cap only small portion of the potential of the region. The region has biggest potential of new SHGs formation across the entire region of the country, which is number of 1793117. The western region of the country has second greater number of SHGs. Now 941144 SHGs is working in this region. The potential of *Assistant professor, Department of Business management IGNTU Amerkantak MP. **Research Scholar, Department of Business management IGNTU Amerkantak MP. Copyright © Universal Multidisciplinary Research Institute Pvt Ltd

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formation of new SHGs in the region is 246033. The region has second lowest potential for new SHGs formation across entire the region of the country. The southern region of the country is rich and enough by number SHGs. The region has 3719621 SHGs as on 31 March 2015. Number of SHGs in the region is more greator than scenario of SHGs among all the region of the country. It is only one region of the country which has enough number of SHGs by number of population. The region has zero potential for new SHGs formation. Table-1: Region wise context o f SHGs in India: Sl. No.

Region

No. of SHGs

Potential for SHGs formation

1

Northern region

360858

680628

2

North eastern region

333981

162643

3

Eastern region

1524614

1450466

4

Central region

817251

1793117

5

Western region

941144

246033

6

Southern region

3719621

0

7

Total

7697469

4332887

Source – NABARD (2014-15) status of microfinance in India

No. of SHGs

Northern region

5% 4%

20%

48%

11% 12%

0%

North eastern region

6%

16%

Eastern region Central region Western region

Northern region

Potential of SHG

4%

North eastern region Eastern region Central region

41% 33%

Southern region

Progress of Micro Finance Program *Assistant professor, Department of Business management IGNTU Amerkantak MP. **Research Scholar, Department of Business management IGNTU Amerkantak MP. Copyright © Universal Multidisciplinary Research Institute Pvt Ltd

Western region Southern region

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The National Bank of agricultural and Rural Development (NABARD) still continues to extend credit to NGOs, RRBs, district central Cooperative Bank and Individual Rural Volunteers (IRV) for accelerating and fostering the SHGs. The NABARD sanctioned 88.36 crore to these institutions during 2014-25 in the form of financial assistance. A 339.83 crore cumulative grant sanctioned to various agencies to promote the 7.19 Lakh SHG until the end of March 2015. As on 31 March At the end of March 2015 93.77 crore grant sanctioned to 4.85 newly formed SHGs. The Non-Government Organization (NGO) worked as most dominant player to promote SHGs. NABARD is helping them to train and enhance the capacity of the stakeholders by various microfinance programs. It has conduct 4402 training programs to train around 1.61 Lakh individuals, stakeholders during 2014-15. As on 31 March 2015 around 33.28 individuals was trained that playing as a strong back up group for execution of the program. It is impressive that around 1087 training program with 31073 participants were conducted by the assistance of Women Selp-Help Group (WSHG) fund. Although, government and Reserve Bank of India is continue to emphasizing to to promote SHGs-BLP for financial inclusion like Prime Minister‟s Jan Dhan Yojana. Despite of that all, the government of India continue all poverty eradication programs by means. Table 2: Growth of Bank Linkage SHGs: S .No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Year 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 Average

No. of Selp- Help Group Linked to bank 18678 81780 149050 197653 255882 361731 539365 620109 1105749 1227770 1609586 1586822 1196134 1147878 1219821 1366421 1141208 1107443.35

Growth rate ----------337.84 82.5 32.60 29.46 41.36 49.10 14.97 78.31 11.03 31.09 -1.41 -24.62 -4.03 6.26 12.01 16.48 44.55

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Growth rate of Bank Linkage SHGs

400 300 200 100 0 -100

growth rate

The table-2 reveals that the growth rate of Bank linkage SHGs is 337.84 in 1990 and 16.48 in 2015 with the average of 44.55. The progress of microfinance in the context of selp-help group with Bank Linkage Program is the good indicator of progress of microfinance. Under the selp help group bank linkage program 13839954 SHGs had linked at the end of 31 March 2015 and they had loaned by Rs. 11575.98 billion during the year even they refinanced by Rs. 312.66 billion as on 31 March 2015. The huge amount of lending by microfinance institution to SHG and again refinance them if they had need show that there is immense opportunity to expand the field of microfinance market in the country. The Selp- Help Group Bank Linkage Program (SHG-BLP) was first initiated on pilot scale in 1992 has expanded significantly. At the end of March 2014 it reached to 74.30 Lakh saving linked SHG that cover over 9.7 crore poor households with the saving of 9897.42 crore. 41.97 Lakh credit linked with SHG under the program. Table 3: Growth of Bank Loan to SHGS (Amount in Billion) S . No. 1 2 3 4 5 6 7 8 9 10 11 12 13

Year 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

Bank Loan to SHGs (in billions) .33 1.36 2.88 5.45 10.22 18.56 29.94 44.99 65.70 88.49 122.54 144.53 145.48

Growth rate ------------312.12 111.76 89.23 87.52 81.60 61.31 50.26 46.03 34.68 38.47 17.94 00.65

*Assistant professor, Department of Business management IGNTU Amerkantak MP. **Research Scholar, Department of Business management IGNTU Amerkantak MP. Copyright © Universal Multidisciplinary Research Institute Pvt Ltd

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14 15 16 17

2011-12 2012-13 2013-14 2014-15 Average

165.35 205.85 240.17 203.84 87.98

13.65 24.49 16.67 -15.12 60.70

Source – www.rbi.com( NABARD)

Growth Rate of Bank Loan to SHGS 350 300 250 200 150 100 50 0 -50

Bank Loan

The table-3 reveals that average growth of bank loan to SHGs is 60.70 during 1990 to 2015. The trend of growth rate is follow decreasing order. Table depict that 32.12 percent growth rate in 1990 and it is continuously going downward direction, reach at -15.12 in 2015. The average amount of bank loan is 87.98 billion during 1999 to 2015. The amount of bank loan is follow increasing trend but growth rate is follow decreasing trend because the number of SHGs is increase and amount of loan is not increasing according to that. Table -4: Growth of Refinance Assistance to SHGs S. No. 1 2 3 4 5 6 7

Year 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05

Refinance Assistance (in billions) .31 .98 2.51 3.96 6.22 7.05 9.68

Growth rate

216.12 156.12 57.76 57.70 13.34 37.30

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8 9 10 11 12 13 14 15 16 17

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 Average

10.68 12.93 16.16 26.20 31.74 31.74 30.73 39.17 37.46 44.93 18.37

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10.33 21.06 24.98 62.12 21.14 0 -3.18 27.46 -4.36 19.94 44.86

Growth Rate of Refinanace Assistance to SHGS 250 200 150 100

Growth Rate of Refinanace Assistance to SHGS

50 0 -50

Sl.No.

1

Table-4 reveals that 216.12 percent growth rate in 1990 and 19.94 percent in 2015 with the average of 44.86. From 1998 to 2015 around 312.45 billion had refinanced to various SHGs across the country. The amount of refinance assistance during 1998 to 2011 was in increasing order. The amount of refinance in the 2012 was decreased as compared to previous year, in this year Rs. 30.73 billion was refinanced. The amount of refinance was same during the 2009 to 2011. Further it is continue to increase in all succeeding year up to March 2015. The growth rate of refinance assistance to SHGs in 2010-11 is zero and it is respectively -3.18 and -4.36 during 2011-12 and 2013-14. Table-5 Progress of micro finance program as on 31 March 2015 (In crore) Particulars SHGs covered under SJGSY Assistance of SIDBI to MFI 2013 2014 2013 2014 Number Amount Number Amount Number Amount Number Amount Loan 1219821 20585.36 1366421 10282.49 24017.36 426 7839.51 545 disbursed during the year *Assistant professor, Department of Business management IGNTU Amerkantak MP. **Research Scholar, Department of Business management IGNTU Amerkantak MP. Copyright © Universal Multidisciplinary Research Institute Pvt Ltd

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2

3

Loans outstanding

4451434

39375.3

Savings accounts with banks

7317551

8217.25

4197338

7429500

42927.52

2042

14425.84

2422

9897.42

SGSY- Swarnajayanti Gram Swarozgar Yojana, SHG- Selp- Help Group. SIDBI - Small Industries Development Bank of India. Sources – NABARD Annual Report 2014-15 The progress of micro finance in the context of loan disbursed, loan outstanding and number of saving accounts with bank during the year is express the progress of micro finance in the country. The number of Selp-Help group and loan disbursed by them is in increasing trend over the year. The number of micro finance institution and loan disbursed by them is also follow the same trend in the respective year. It indicates the scope for extension of micro credit market and also for expansion of micro finance institution in the country. The growth of loan outstanding over the year by financial institution in the country is also indicating increasing trend. The same trend is followed by the Selp-Help Group over the respective periods. That show how much potential of micro credit exist in the rural poor people in the country. In this case one thing is considerable that number of Selp Help group is decreasing during the year but amount of loan outstanding is increasing in a good amount. It indicates the bright future of loan outstanding. The saving account of Selp Help Group with bank is also in increasing trend. The rate of growth of saving account with bank is more than rate of growth of increasing number of Selp Help Group. The Swarnajayanti Gram Swarozgar Yojana (SGSY) is covered the number of SHGs and provide financial help to them year by year. The small industries development bank (SIDBI) is also provide financial assistance to microfinance institution for helping various selp-help group across the country. The amount provided by Small industries Development Bank to micro finance institution is follow increasing trend that depicts that financial assistance by microfinance institution to SHGs is growing. The growing order of financial assistance to SHGs by MFI and other means is strengthening the financial situation of member of SHGs and also helpful in creation of new SHGs across the country. The number of SHGs covered by SGSY is also follow increasing trend and the financial assistance under SGSY is also in growing trend. This all contribute to SHGs development by its own way and provide financial assistance to *Assistant professor, Department of Business management IGNTU Amerkantak MP. **Research Scholar, Department of Business management IGNTU Amerkantak MP. Copyright © Universal Multidisciplinary Research Institute Pvt Ltd

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SHGs by own planed limit. Now their contribution to upliftment of poor is better and surely it is providing the means of life living to the poor across the country. Figure-6 Grant assistance extended to Selp-Help Group promoting institutions, as on 3 March 2015. ( Rs. In Lakh) Agency Cumulative sanction up to 31 March Disbursements up to 31 March 2015 2015 Amount No. of SHGs Amount No. of SHGs NGOs 31276.72 565757 8601.44 374252 RRBs 772.46 44038 223.17 40590 Co-operatives Banks 1394.91 74865 446.20 50870 IRVs 497.86 28910 84.86 12581 Formers clubs 41.18 5118 21.02 7322 Total 33983.13 718688 9376.69 485615 NGO- Non-Government Organization, RRB- Rural Bank, IRV- Individual Rural Volunteer. Sources- NABARD annual report 2014-15 The grant assistance by the government to various Selp-Help Group promoting institutions is also revealing the progress of micro finance in the country. The extension of grant to NonGovernment Organization (NGO), Regional Rural Bank (RRB), Cooperative Bank, Individual Rural Volunteer (IRV) and former club is also witnessing the progress of micro finance in the country. The amount of 33983.13 Lakh has sanctioned to this 718688 SHGs promoting institution. And the disbursement figure is amount of 9376.69 Lakh to 485615 SHGs across the country. The NGO is playing a vital role in the development of SHGs, granted to amount of 31276.72 Lakh and to promote 565757 SHGs in the country up to March 2015. They distributed 8601.44 Lakh to 374252 Lakh to various SHGs across the region of the country. Now NGOs has became smart player to run for poverty alleviation across the world. The RRBs of the country is also playing significant role in development of micro finance in the country. It is associated with 44038 SHGs across the country and granted by amount of 772.46 Lakh up to March 2015. It distributed amount of 223.17 Lakh to 40590 SHGs in the country up to March 2015. It provides various loan products to rural poor to fulfill their micro credit needs. The cooperative banks are also contributing to SHGs development and assist rural poor people. Up to March 2015 74865 SHGs had associated with cooperative banks and it sanctioned to amount of 1394.91 Lakh across the country. it disbursed an amount of 446.20 Lakh to 50870 SHGs up to March 2015. Cooperative bank is now more helpful for rural poor, co-operative societies and former that needs timely financial assistance. Currently Individual Rural Volunteer (IRV) is playing bridge role between supporting institution and rural poor. Yet 28910 SHGs had associated to IRV and sanctioned by amount of 497.86 Lakh up to March 2015 among them amount of 84.86 Lakh disbursed to 12581 SHGs up to March 2015. The former clubs is also playing pivotal role for rural poverty eradication. Although former clubs less contributing as compared to other *Assistant professor, Department of Business management IGNTU Amerkantak MP. **Research Scholar, Department of Business management IGNTU Amerkantak MP. Copyright © Universal Multidisciplinary Research Institute Pvt Ltd

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promoting institution. Now 5118 SHGs associated with former clubs and amount of 41.18 is sanctioned for that. The former clubs had disbursed amount of 21.02 Lakh to 7322 SHGs across the country up to March 2015.

Relationship between micro finance and entrepreneurship Promotion of entrepreneurship and business innovation by microfinance institutions credit to firms is an essential driver of economic growth. The microfinance revolution in India reveals that it is playing a vital role in the vision of poverty eradication with various effort of government of India. The reserve bank of India also provide license of bank to two MFI that will be a big step for development of MFI. It will highly spread the credit disbursement and increase the productivity by credit supply. The role of microfinance now has been more tactical than in the past. It promotes financial inclusion by adoption of individual lending to the poor and targeting micro enterprises. It is not limited to only productive poor but also extend the innovation oriented entrepreneur. It is also now remove the traditional hindrance to entrepreneurship and micro business by being with various NGOs. The microfinance is a bigger contributor of one factor of production namely capital to entrepreneur. The rural entrepreneur has good amount of labor and land but they always facing the problem of capital during the exploitation of production factors for economic activity to earn profit. Now days rural entrepreneurship is totally dependent on microfinance because of it is very feasible for infant entrepreneur across the world. Now in India micro finance enable poor to start new business and expand existing business activities. It boosts up the entrepreneurship in India and creates a lot of employment. It is the magic of micro finance that small businesses contribute around 40 percent in Gross Domestic Product in India. During the absence of micro finance in the world poor people was unable to seek entrepreneurial opportunity.

Conclusion The micro finance playing a vital role in entrepreneurial development in rural area by providing micro loan to several SHGs across the region. The number of SHG is increasing and amount of disbursement of loan is also increasing year by year but the growth rate of SHGs bank linkage, loan and refinance assistance to SHGs is decreasing. The amount of loan and refinance assistance is not growing in respect of increasing number of SHGs across the region. The number of SHGs is not sufficient in any region except southern region. The country has good potential for formation of new SHGs across the region except southern region. Reference 1- International journal of college science, 3: 2 July 2009, Tiyas Biswas and P. P. Sengupta. *Assistant professor, Department of Business management IGNTU Amerkantak MP. **Research Scholar, Department of Business management IGNTU Amerkantak MP. Copyright © Universal Multidisciplinary Research Institute Pvt Ltd

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www.rbi.com www.nabard.com Innovation /Vinter, 2006, Zoltan Acs Microfinance in India and millennium development goals: maximizing impact on poverty, Alok Mishra 6- Sustainable micro entrepreneurship, Guy Vincent 7- Indian economic survey.

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