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MICROFINANCE BENEFITING THE INDIAN ECONOMY -A CASE STUDY WITH

SPECIAL REFERENCE TO SATNA DISTRICT OF VINDHYA REGION

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www.ijcrt.org © 2023 IJCRT | Volume 11, Issue 4 April 2023 | ISSN: 2320-2882

MICROFINANCE BENEFITING THE INDIAN

ECONOMY - A CASE STUDY WITH SPECIAL
REFERENCE TO SATNA DISTRICT OF
VINDHYA REGION
*
Satwik Sahay Bisarya1, Anjali Shukla2 and Yogendra Kumar Singh3
1
Associate Professor, Faculty of Agriculture Science and Technology, Madhyanchal Professional University,
Bhopal
2
Assistant Professor, Institute of Agriculture Science, SAGE, Indore
3
Associate Professor, Faculty of Agriculture Science and Technology, Mahatma Gandhi Chitrakoot Gramoday
University, Satna

ABSTRACT

India is a developing country. India's performance in booming sectors is mediocre, even after six decades of
independence. Undoubtedly, almost twenty-five percent of its population lives in poverty and there is also the
problem of unemployment. Weight loss is not only critical but also a permanent affliction in India. At the same
time, there are untapped natural resources. Major problems are unemployment and poverty especially in rural
areas due to unorganized sources of credit and fewer facilities provided to poor people. Finance plays a
paramount role in unlike the economic activities run by the rural masses, due to the attribute that most of the
rural people are very poor. The study was conducted to find out the factors that pave the way for microfinance
for poor people in Vindhya Region. 300 respondents were interviewed informally through a structured
questionnaire. The study revealed that most of the SHG members performed well and found participation in the
SHG program beneficial. The performance of SHGs can be improved through training and awareness programs
organized by NGOs and the government at the country level. Furthermore, in this paper, an effort is devoted to
study the relationship between performance and personal and socioeconomic characteristics.

Keywords: Microfinance, Poverty, Unemployment, Financial Inclusion.

INTRODUCTION

Self-Help Groups (SHGs) are micro-credit institutions that have emerged at the village level on the basis of
self-help, collective perception, decision-making and implementation of joint programmes. SHGs now occupy a
predominant position in the rural credit system. SHGs play a vital role in achieving the objectives of economic
planning i.e. economic and social development of women and thereby bring about empowerment of women. A
self-help group consists of 12 to 20 women from a homogeneous class who come together to solve common

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problems. Groups are encouraged to inculcate the habit of thrift and thrift. Members' regular savings are pooled
and the expanded fund available to them is rotated among members at an agreed interest rate. Banks are
interestingly involved in providing credit to SHGs in certain multiples of the savings collected by the group.
Linking bank credit to SHGs is an innovative program to promote banking habits among the non-bankers. The
concept of self-help groups was started in 1976 by the initiation of prof. Mohammed Yunus of Bangladesh, a
noble laureate of the Peace Prize. Microfinance has achieved a revolutionary victory in Bangladesh, helping the
rural population out of poverty. This concept dilutes the issue of securing collateral and helps people get easy
access to financial credit

Finance is a powerful tool for alleviating poverty and enhancing the economic development of society as a
whole. Access to finance, especially for the poor, is empowering as financial illiteracy typically leads to wider
financial and social exclusion. However, formal finance does not capture all segments of our society, even if we
try to. Gaps in access to formal finance have led to the advancement of microfinance in India. In India,
microfinance works through the SHG-Bank Linkage Program and Microfinance Institutions (MFIs).
Microfinance institutions in India have emerged as a major enabler for the country's poor, filling the gap in the
availability of banking services for the underserved rural population. In the persistent plight of poverty,
disadvantaged rural villagers are unable to pursue capital formation as the income from their operations is not
even sufficient to meet their living needs. Then the poor villagers need finance to carry out income generating
economic activities.

The Indian economy is hampered by the existence of low per capita income. The individual income of an Indian
in 2009 was $1180. Microfinance has become very successful in reducing poverty and increasing employment
in developing countries. Microfinance was first started in Bangladesh in 1976 with the promise of providing
unsecured credit to the poor and alleviating poverty and unleashing the human creativity and efforts of poor
people.

Social sector and therefore turned to the legal form of trusts or companies. However, these institutions were
operating without profit and this became a limitation for their sustainability. However, due to the specific
characteristics of their business work, these institutions were then registered as NBFC-MFIs created by the RBI
on the recommendation of the Malegam Committee. In recent years, MFIs have gradually developed into a
dynamic segment of the financial sector with different business models. However, since 2012, the sector has
recovered its momentum and has shown consistent growth. Many policies have been reformulated for MFIs to
strengthen the MF sector, including the RBI guidelines on NBFC-MFIs under the priority sector, and have
worked wonders.

As a result, MFI lending has shown strong growth with a 50% jump in loans disbursed over the last three
successive years from 23682 crores during 2013-14 to 37599 crores and further to 61860 crores during 2015-16
(as per MFIN data). The success and scope of MFIs, especially the large ones, in both credit and financial
penetration, has enabled them to gain permission to operate as mainstream banks/small finance banks,
facilitating the reduction of cost of funds as well as passing on benefits to their clients. Further progress in this
process is being made by the Reserve Bank through the establishment of payment banks and small finance
banks. The Jana Dhana Yojana policy announced by the government marks a landmark in the quest for
universal financial access. Many cash benefits are provided by the government directly into these accounts. This
will ensure that a large number of accounts are opened under various schemes and those dormant accounts are
revived at the earliest.

A Self Help Group (SHG) is defined as “a voluntary group of persons who come together to help each other in
solving their financial problems. These groups help the rural population in general and support them in their
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economic development. The number of members in an SHG normally ranges from 10-20. The group ensures
that there is a democratic culture in which all members must actively participate in discussions and the decision-
making process. Group cohesion increases when there is homogeneity of members in the group in terms of
education, income distribution, work, but in the long run the stability and survival of SHGs depends on their
members' loyalty, hard work and consistency with group activities.

Models of Microfinance Services

India is home to the largest microfinance system in the world. There are several models of providing
microfinance services. Some of the important and largely practiced delivery models are

 The Association model

 The Community banking model
 The Cooperative model
 The credit union model
 Individual banking model
 The SHG model
 The KCC Model

Literature Review

Priya (2020): In India, the study reveals that most of the literature on microfinance revolves around the four
southern states where governments and NGOs take the lead in spreading microfinance. Studies conducted in
India, as evident from the above literature review, have shown that microfinance and self-help groups have
largely contributed to the development of the poor population. It is an integrated effort to lift the poor out of
poverty and make them financially strong and economically stronger.

Nasir S (2018): The author seeks to outline the current state of microfinance in India and aims to provide a
cost-effective and financially feasible mechanism for providing financial services to the poor. The research
identifies gaps in the functioning of MFIs such as gaps in credit delivery, lack of product diversification,
inconsistent policies to meet customer needs and practical suggestions to overcome challenges and issues
associated with microfinance in India.

Barinaga E (2016): The author describes the first year of efforts to introduce microfinance as a tool for work
with vulnerable groups in Sweden and discusses whether microfinance can be considered a tool for analysis The
author describes the first year of efforts to introduce microfinance as a tool for work with vulnerable groups in
Sweden and discusses , whether microfinance can be considered a tool to analyze social change in advanced
welfare states such as Sweden. The analysis shows the mobilization and generation of social capital and the
process of alignment of frameworks set in motion by microfinance.

Moses E. (2014): The findings show that microfinance is perceived as one of the most effective tools for
improving the economic conditions of the poor without assets through a group approach that ensures active
participation and involvement of beneficiaries in effective program implementation.

A.S. Shiralahetti (2012): The author focuses on empowering women through self-help groups. The author
highlighted the reasons for joining SHGs. Purpose and repayment of loan, monthly income, expenditure and
savings scheme before and after joining SHGs. He also emphasized the opinion of the members of SHGs on
increasing the power of family decision-making. He concluded that there has been tremendous progress in the
social and cultural environment in India. Women are now involved in all productive activities and are at par
with men, SHG movement in India is working in the right direction but it is necessary for the empowerment of
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more and more women, which are social, cultural, economic, political and legal matters. The interest of the
family in particular and the nation in general.

Research Objectives

1) The impact of microfinance on people's living standards.

2) The Impact of Microfinance on Poverty Alleviation.

RESEARCH METHODOLOGY

Data Collection: Survey method along with personal interview technique was adopted for primary data
collection. Two well-structured and pre-tested interview schedules were assigned to collect information from
respondents. Secondary data will be collected from various sources at international and national level.
Internationally, data is obtained from websites and institutions such as the World Bank, DFID and the ILO. At
the national level, relevant data have been obtained from organizations such as RBI, NABARD, reports of
various committees, National Sample Survey Organization (NSSO), National Accounts Statistics Central
Statistical Organization (CSO) and other apex level organizations. The required analysis was done using easy to
understand tables and graphs to point out the facts of the analysis.

Sample Size: 300 Responded

Location: Satna district is one of the representative districts of Vindhya region of Madhya Pradesh. It is named after the
capital Satna. The city derives its name from the Satna River, which flows through the area and flows into the Ton River.
The district is culturally and agriculturally rich. Satna district is famous for pilgrimage stations namely Sharda Temple (at
Maihar), Chitrakoot and Ramvan. Agriculture is the main source of income in the district. The district is also of industrial
and mining importance. There are three main cement plants located at Satna, Mankahri (in Rampur-baghelan block) and
SarlaNagar (near Maihar town). The district is also a large producer of limestone.

Satna district is located in the northern part of Madhya Pradesh and has a geographical area of 7,424 km2. It is bounded
by Chitrakoot district (U.P.) on the north, Katni and Umariya districts on the south and Panna and Rewa districts form the
western and eastern boundaries of Satna district. The district lies between 23º05' and 25º12' north latitudes and 80º21' and
81º23' east longitudes. Belongs to Survey of India Topsheets Nos. 63 C/ 12, &16, 63 D/ 5,6,7,8,9.10,11,12, 13 and
63D/14, &15 (complete), 16 (part ) and also in sections 63H/1,2,3,7 & 8. It extends for a length of about 132 km from
north to south and 102 km from east to west. The district is well connected by road with the state capital Bhopal and the
adjoining district headquarters. Kanyakumari-Varanasi National Highway No. 7 passes through the southern part of the
district. The West-Central Katni-Allahabad broad gauge line passes through the central part of the district.

Satna District is a part of Rewa Commissionerate. The district was divided into 10 tehsils and 8 blocks. There are 1816
villages and 11 towns in the district. The total population of the district is 365,000. The selected blocks are shown in the
table 01.

S. No. Block Population

Population Male Female Households
1 Majhgawan 150,362 79,158 71,204 31,879
2 Birsinghpur 132,460 69,058 63,402 27,972
3 Unchahara 190,961 98,748 92,213 39,817
4 Rampur Baghelan 168,127 87,038 81,089 36,564
5 Raghurajnagar 504,183 264,916 239,267 103,343
Table No. 01

Age Group of People Surveyed - Above 20 Years

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Tool for Analysis

Various statistical tools were used to analyze the obtained data. Percentage and chi-square test were used to
draw meaningful conclusions from the study and frequency distribution is used to analyze the data.

Data Analysis and Interpretation

Age of Respondent

Sl.
Age Group of Respondent No. of Respondents Percentage
No.
1 20-30 83 27.67
2 31-40 139 46.33
3 41-50 51 17
4 Above 50 27 9
Total 300 100
Table No. 02

Age of Respondent

31-40 Age
Group
46% 41-50 Age Group
17%
Other
26%
Above 50 Age
Group
20-30 Age Group 9%
28%

Fig No.: 01 Age of Respondent

Table 2 shows that the majority of respondents are in their 30s-40s. Their percentage is a maximum of 46%.
This shows that most of the SHG respondents use the microfinance tool and engage as SHG members to
improve their living conditions. There were 28.00% of respondents in the age group of 20-30 years, 17.00% in
the age group of 40-50 years, and 09.00% of respondents in the age group of over 50 years.

Have a bank account and frequency of bank transactions

In this section, we describe the respondents who have bank accounts and the frequency of transactions. In the
case study, we asked respondents if they had a bank account. They had to answer Yes or No. Then we asked
about the frequency of the transaction. They answered the transaction as weekly, monthly, quarterly, half yearly
and yearly. In the study, we found that banks play a very effective role in the development of microfinance and
related activities, because by opening a bank account they can increase their savings. After they had some
savings, they could get a loan plus grants and start a business. Thanks to their savings, they were able to borrow

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on very favorable terms and meet their basic financial needs. Banks thus play a very important role in saving,
collecting, and providing loans and grants, supporting self-employment and microcredit facilities for poor
people.

Sl. No. Respondents having Bank Account No. of Respondents Percentage

1 Yes 288 96.00
2 No 12 4.00
Total 300 100
Table No. 03

Respondents Frequency of Bank No. of

Sl. No. Percentage
Transactions Respondents
1 Weekly 23 7.67
2 Monthly 196 65.33
3 Quarterly 61 20.33
4 Half yearly 20 6.67
Total 300 100
Table 4
Table 4 shows the growth of financial inclusion in India as more and more people interact with banks and
financial institutions. So we can say that in Meerut district rural areas have maximum microfinance
beneficiaries who have bank account and do bank transactions on monthly basis.

Amount Borrowed as Loan

Sl. No. Amount Borrowed Frequency Percentage Cumulative Frequency

1 Less than Rs. 5,000 43 14.33 14.33

2 Rs. 5,001- 10000 101 33.67 48.00
3 More than Rs. 10,000 156 52.00 100.00
Total 300 100
Table 5

Table 5 shows that 33.67 percent of the respondents took a loan of Rs. 5,001-10,000 and only 14.33 percent of
the respondents took a loan of less than Rs. 5000. So the maximum 52.00 borrowers borrowed more than Rs.
10,000 through Direct Microfinance. Using this amount, they started self-employment and their profession.

Monthly Saving

Sl. No. Amount Borrowed Frequency Percentage Cumulative Frequency

1 Up to 50 84 28.00 28.00
2 51-100 111 37.00 65.00
3 More than 100 105 35.00 100.00
Total 300 100
Table 6

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Table 6 shows that 27.33 percent of the respondents have monthly savings of less than Rs.50. 28.00 percent of
respondents have monthly savings between Rs. 51-100 and 35.00 percent of respondents have monthly savings
of more than Rs. 100. This shows that 37.00 most people save between Rs. 51-100 and they inculcate the habit
of saving and are more inclined to save more money and repay the loan from the savings as soon as possible.

Association between Amount of Loan and Savings

Factor Calculated Chi Square value Degree of Freedom p value Remarks

Amount Highly
11.92 4 00.05
of loan significant
Table 7

It can be seen from the above table that the p-value is less than 0.05, therefore the null hypothesis is rejected
and there is a very significant relationship between loan amount and savings. The analysis shows that there is a
very significant relationship between the amount of credit extended to members from their savings at the
meeting and the interval time for the credit availed by the members.

Experience with the Group

Sl.
Experience with the Group No. of Respondents Percentage
No.
1 Up to 1 year 144 48.00
2 1 -2 years 107 35.67
3 2-3 years 49 16.33
Total 300 100
Table 8

The level of perceived satisfaction of the respondents on a scale of 1-5, where 1 is the lowest and 5 is the
highest

Sl.
Activities 1 2 3 4 5
No.
1 Standard of living 10 80 61 49 100
2 Employment Creation 6 77 52 61 104
3 Poverty Alleviation 8 67 63 53 109
4 Empowerment of women - - 62 111 127
5 Training program 26 41 73 79 81
6 Confidence level 83 73 65 43 36

Association between Poverty Alleviation and Standard of Living

Calculated Degree of
Factor Chi Square value Freedom p value Remarks
Poverty 32.31 16 00.05 Highly
alleviation significant

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It can be seen from the above table that the p-value is less than 0.05, therefore the null hypothesis is rejected
and there is a highly significant relationship between poverty alleviation and living standards of self-help group
members. These statistics show that after joining SHGs, poverty is alleviated and people's living standards are
raised.

Conclusion

This paper has attempted to understand the role of microfinance in socio-economic empowerment of poor
people in Meerut district. It is quite evident that microfinance effectively contributes to poverty alleviation and
significantly affects the development of their families in terms of obtaining credit for housing repairs, education
and marriage of their children as well as for consumption purposes. The study found a good saving habit among
women as the maximum number respondents had savings accounts. The study also shows that after joining the
group, the standard of living of the members has increased and they are getting out of their destitute conditions.
Some attitudinal changes are required on the part of finance providers also to break the old stigma of gender
discrimination. Women should be encouraged to do business by providing them with proper guidance and
developing their business skills. Poverty alleviation largely depends on economic empowerment and
microfinance can prove to be a very powerful tool in the future.

Reference

1) Ajay Kumar Verma, “Role of Microfinance in Poverty Alleviation and Employment Generation: A Case
Study of Bahraich District of Uttar Pradesh” Lucknow University, 2015.
2) Priya, “Microfinance – A Literature Review, International Journal of Research in Engineering, IT &
Social Sciences, Volume 5, Issue 2, February 2015.
3) Barinaga E, " Announce Micro-finance in Sweden", Journal of the International Academy for Case
Studies, Jordan Whitney Enterprises, Jordan Whitney Enterprises, Volume 19, Issue 3, PP 33-43, 2013.
4) Nasir S, (2013) "Microfinance of India: Contemporary Issues and Challenges", Middle East Journal of
Scientific Research, IDOSI Publications, Volume 15, Issue 2, PP 191-199, 2013.
5) Oses E, "An Overview of Microfinance in India", International Research Journal, Volume 3, Number
27, PP 1-4, 2011.
6) S Shiralahetti, "Empowerment of women through self-help groups", The IUP Journal of
Entrepreneurship Development, Volume 7, Number 1, 2, 2010.
7) NABARD website.
8) RBI website

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