Micro finance institutions in Karnataka

The origin of microfinance in Karnataka dates back to 1984 when Mysore Resettlement and Development Agency (MYRADA), a Non-Governmental Organisation (NGO) engaged in rural development and based in Karnataka, promoted several co-operative societies that extended loans to their members (Fernandez, 2004). Later in the mid-1980s, the National Bank for agriculture and Rural Development (NABARD) took the lead. After the launching of SHG-Bank Linkage Program (SBLP) in 1991-92 and under this, programme the first micro, credit by private Vysya Bank. NABARD up scaled the programme by way of initiating a series of measures that include training of NGOs and bank staff. The Cauvery Grameena Bank of Mysore district became the first RRB in state to promote and credit-link several SHGs. With state intervention, Streeshakthi and Swashakti programmes were launched as part of promoting micro finance.

The self-help movement is deep-rooted in southern States and Karnataka has been in forefront in terms of promotion and credit linkage. Specific strategies formulated by NABARD to meet the requirement for widening the Network and deepening the penetration of the programme in the State enabled to show the success. The fresh SHGs formed and credit linked (direct linkage by banks) during the year 2010-11 were 62,346 and 49,759 respectively taking the cumulative SHGs formed and credit linked in the State to 6, 56,463 and 5, 79,969 respectively as on 31^st March 2011. The Average loan per SHG has risen from 1.09 lakh during 2009-10 to 1.44 lakh during 2010-11. For the convenience, present chapter is divided into following sections. 4.1 Introduction, Section 4.2 presents analysis of SHG-Bank Linkage programme in Karnataka Section 4.3 discusses the role of stakeholders and Section 4.4 presents issues regarding SHG-Bank linkage. Analyses of promotion and linkage of joint liability groups, Stree Shakti and progress of microfinance in Karnataka are discussed in Section 4.5, 4.6 and 4.7 respectively. The last section describes the Bidar DCCB model.

Role of Stakeholders

Government of India (GoI)

Taking cognizance of the role of SHG-Bank linkage in ensuring Growth-3/”>Inclusive Growth, GoI has been attaching utmost importance to the programme, as has been evident through Union Budget announcement every year. As indicated by Union Government in its budget announcement for 2009-10, 50% of rural Women are to be covered under SHGs by the end of the XII Five Year Plan. Further, in the Union Budget for 2011-12, a “Women SHG Development Fund” with a corpus of 500 crore, has been created and the same is proposed to be maintained with NABARD. The fund will be used to refinance banks for lending to women SHGs.

Reserve Bank of India (RBI)

RBI through its policy announcements has made the Environment conducive for banks to participate in a larger way in the programme. Loans granted by banks to such SHGs engaged in agriculture and allied activities are classified as direct finance to agriculture, if banks maintain disaggregated data on SHG/micro credit portfolio. Further, small amounts not exceeding 50,000/- per borrower, either directly or indirectly through SHG/JLG mechanism or to NBFC/MFI for on lending up to 50,000/- per borrower will constitute microcredit.

Government of Karnataka (GoK)

In Karnataka, the State Government through its Women & Child Development Department (WCDD) continued its mission of empowering rural poor women in all the districts through its Stree Shakti Programme. WCDD has facilitated promotion of 1, 35,000 Stree Shakthi Groups as on 31 March 2011 of which 1, 22,000 Groups have been credit linked with financial assistance to the tune of 1231.96 crore. As a part of withdrawal strategy and to wean away Stree Shakthi Groups from Anganwadi Workers, WCDD has formed federations of the Stree Shakthi Groups to strengthen and empower these women. WCDD has formed federations of the Stree Shakthi Groups in all the 175 Talukas in the State and has registered them under the Societies Act with common byelaw devised by the department. Extensive training has been provided for capacity building of the members of Stree Shakthi federation through MYRADA and with financial support from NABARD.

Micro Enterprise Development Programme (MEDP)

Under the scheme, matured SHGs of more than 3 years are provided training for undertaking Income Generation Activities/livelihood activities. During the year 2010-11, NABARD sanctioned 159 MEDPs with a grant assistance of 51.25 lakh covering 4452 individual SHG members. The MEDPs covered wide range of activities like vermin composting, food products, Kasuti works, Beauty parlour, tailoring, integrated agri system, soft toys making, rubber tapping, agarbathi making, etc.

Support for SHG Federations

As a measure to ensure sustenance of SHGs, NABARD initiated a scheme for supporting SHG Federations during 2007-08. The scheme is presently on a model-neutral basis. The SHG Federations should not involve in financial intermediation. However, they can support SHGs with various non-financial Services like Skill development training, procurement of inputs, Marketing of products, legal counselling, etc. As on 31 March 2011, NABARD has sanctioned grant assistance of 25.67 lakh to 21 Community Managed Resource Centres (CMRCs) of MYRADA supporting 84 Federations covering 2262 SHGs.

Issues with MFIs

Many Micro Finance Institutions have emerged to tap the micro finance market in Karnataka. While MFIs claim to cater to the unmet needs of SHGs, banks feel the functioning of MFIs vitiates the self help movement. While banks need to improve their services, by being more responsive to the needs of SHGs, if necessary by application of technology, having exclusive SHG branches, use of business facilitators/correspondents and such other proactive measures. At the same time, MFIs need to adopt a Code Of Conduct for ensuring compliance with best practices, in the interest of the SHGs.

Database and its Integrity

The detailed data / information on the SHG activities help in reviewing the progress and planning. The system of data collection and report generation needs revamping both at District and State level, specifically Commercial Banks.

The Business Performance of the Micro-Finance Providers

The total number of SHG members served in the selected districts was found to be 1, 39,342 and the average for all the selected districts were 19,171. The highest number of members served was found in the district of Chitradurga (31850) and the highest average was found in Dharwad district, which was 4676.

The formation of the SHGs by the NGOs using the NABARD funds in the selected districts and the total funds that were spent in all the selected districts was 57,06,817. The average amount utilized from NABARD for all the selected districts was 7,13,352.16. The highest fund that was used was in Belgaum ( 33,01,985) with an average of 4,12,748. The lowest utilization of NABARD funds was found in Bijapur district ( 18,000) with an average of 2,000 per year.

Total lending to the SHGs by the NGOs using the assistance of the banks in the selected districts was 42,26,85,501 and the average for the selected districts was 5,28,35,688. The highest amount spent was found in Shimoga district which was about 11, 33, 16,000 and the average was 1,41,64,500 rupees. The lowest amount lent was in the district of Bijapur where in they had lent only an amount of about 15,00,000 with an average of almost 1,87,000.

Microfinance is the provision of financial services to low-income individuals and households who lack access to traditional Banking and financial institutions. Microfinance institutions (MFIs) offer a range of services, including loans, Savings accounts, and insurance, to help their clients improve their livelihoods.

Microfinance has a long history in Karnataka. The first MFI in the state was founded in 1979, and the sector has grown rapidly since then. Today, there are over 100 MFIs operating in Karnataka, serving over 2 million clients.

There are a variety of types of MFIs in Karnataka. Some MFIs are non-governmental organizations (NGOs), while others are for-profit companies. Some MFIs focus on lending to women, while others serve both men and women. Some MFIs operate in rural areas, while others operate in urban areas.

MFIs in Karnataka are regulated by the Reserve Bank of India (RBI). The RBI has issued a number of guidelines for MFIs, including guidelines on lending practices, customer protection, and financial reporting.

MFIs in Karnataka face a number of challenges. One challenge is the high cost of doing business in the state. Another challenge is the lack of collateral among many potential clients. MFIs also face competition from other financial institutions, such as banks and cooperatives.

The government of Karnataka has taken a number of initiatives to promote microfinance. The government has provided financial assistance to MFIs, and it has also set up a number of schemes to promote microfinance. The government has also enacted a number of laws to protect the interests of microfinance borrowers.

Microfinance has had a significant impact on the lives of low-income people in Karnataka. Microfinance has helped people to start businesses, improve their livelihoods, and build assets. Microfinance has also helped to reduce POVERTY and improve Equality/”>Gender Equality.

The future of microfinance in Karnataka is bright. The state has a large Population of low-income people who are potential clients for MFIs. The government is committed to promoting microfinance, and the RBI is working to improve the regulatory environment for MFIs. With continued support from the government and the RBI, microfinance can continue to make a positive impact on the lives of low-income people in Karnataka.

Here are some specific examples of the impact of microfinance in Karnataka:

A study by the Institute for Financial Management and Research found that microfinance borrowers in Karnataka were more likely to be employed than non-borrowers.
A study by the National Council of Applied Economic Research found that microfinance borrowers in Karnataka were more likely to have access to basic amenities, such as electricity and sanitation.
A study by the World Bank found that microfinance borrowers in Karnataka were more likely to send their children to school.

These studies provide evidence that microfinance is having a positive impact on the lives of low-income people in Karnataka. Microfinance is helping people to improve their livelihoods, build assets, and reduce poverty.

What is microfinance?

Microfinance is the provision of financial services to low-income individuals and businesses. These services can include loans, savings accounts, and insurance. Microfinance can help people to start or grow their businesses, improve their livelihoods, and build assets.

What are the benefits of microfinance?

Microfinance can have a number of benefits for low-income individuals and businesses. These benefits can include:

Increased income: Microfinance can help people to start or grow their businesses, which can lead to increased income.
Improved livelihoods: Microfinance can help people to improve their living standards by providing them with access to financial services.
Reduced poverty: Microfinance can help to reduce poverty by providing people with the opportunity to earn more income and improve their livelihoods.
Increased Financial Inclusion: Microfinance can help to increase financial inclusion by providing people with access to financial services.

What are the risks of microfinance?

Microfinance also has some risks. These risks can include:

Over-indebtedness: If people borrow too much Money, they may become over-indebted. This can lead to financial problems and even bankruptcy.
Loan defaults: If people are unable to repay their loans, this can lead to loan defaults. This can damage the reputation of microfinance institutions and make it more difficult for people to access microfinance in the future.
Corruption: There is a risk of corruption in microfinance institutions. This can occur when staff members take advantage of borrowers or when institutions use funds for purposes other than their intended use.

How can microfinance be regulated?

Microfinance can be regulated by governments or by private organizations. Government regulation can help to protect borrowers from over-indebtedness and loan defaults. Private regulation can help to ensure that microfinance institutions are run in a responsible and ethical manner.

What are the challenges of microfinance?

Microfinance faces a number of challenges. These challenges can include:

High interest rates: Microfinance institutions often charge high interest rates on loans. This can make it difficult for borrowers to repay their loans and can lead to over-indebtedness.
Lack of collateral: Many borrowers do not have collateral to offer as security for loans. This can make it difficult for them to obtain loans.
Lack of financial Literacy: Many borrowers lack financial literacy. This can make it difficult for them to understand the terms of loans and to manage their finances.
Social stigma: In some cultures, there is a social stigma associated with borrowing money. This can make it difficult for people to access microfinance.

What is the future of microfinance?

The future of microfinance is uncertain. There are a number of factors that could affect the future of microfinance, including:

The global economic Climate: The global economic climate can have a significant impact on microfinance. If the economy is doing well, people are more likely to have access to credit and microfinance institutions are more likely to be profitable. However, if the economy is doing poorly, people are less likely to have access to credit and microfinance institutions are more likely to be unprofitable.
The political climate: The political climate can also affect the future of microfinance. If governments are supportive of microfinance, they may provide subsidies or other forms of support to microfinance institutions. However, if governments are not supportive of microfinance, they may make it more difficult for microfinance institutions to operate.
Technological advances: Technological advances can also affect the future of microfinance. For example, mobile banking can make it easier for people to access financial services, including microfinance.

Overall, the future of microfinance is uncertain. However, microfinance has the potential to make a significant impact on the lives of low-income individuals and businesses.

Microfinance is a type of financial service that provides small loans to poor people who do not have access to traditional banking services.
Microfinance institutions (MFIs) are organizations that provide microfinance services.
MFIs typically offer loans, savings accounts, and other financial products to low-income individuals and households.
MFIs are often seen as a way to help people lift themselves out of poverty.
However, MFIs have also been criticized for their high interest rates and for the way they sometimes pressure borrowers to repay their loans.

Here are some MCQs on microfinance:

Which of the following is not a type of microfinance product?
(a) Loan
(b) Savings account
(c) Insurance
(d) Investment
Which of the following is not a goal of microfinance?
(a) To help people lift themselves out of poverty
(b) To provide financial services to the poor
(c) To make a profit
(d) To promote social development
Which of the following is a criticism of microfinance?
(a) MFIs charge high interest rates
(b) MFIs sometimes pressure borrowers to repay their loans
(c) MFIs have not been shown to be effective in reducing poverty
(d) All of the above
Which of the following is a benefit of microfinance?
(a) Microfinance can help people lift themselves out of poverty
(b) Microfinance can provide financial services to the poor
(c) Microfinance can promote social development
(d) All of the above
Which of the following is a challenge of microfinance?
(a) Microfinance can be expensive to operate
(b) Microfinance can be difficult to scale
(c) Microfinance can be risky
(d) All of the above