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Wednesday, August 18, 2010

Microfinancing for Sustainable Development: The Gramin Bank Model

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Some decades ago some voluntary organizations in India searched out a tool to fight poverty, empower the rural poor and remove human deprivation in rural India. That tool was the MICROFINANCE. Most of the poor in rural areas lack access to banking and related services. Some NGOs offer provisions of financial services to poor farmers to support agriculture and to entrepreneur so as to encourage them start their own income generating activities. This process of helping the poor and entrepreneur by providing small financial help as credits in order to help them become self reliant is called as microfinance.

According to Adams and his co-workers (1984) – the objective of microfinance is to create a “ world in which as many poor and near poor households as possible have permanent access to an appropriate range of high quality financial services including not just credit but also savings, insurance, and fund transfers.” As per a report from the World Bank (2006) – the Consultative Group to Assist the Poor(CGAP) prepared some principles pertaining to microfinance to assist the poor  in 2004 and those were incorporated in G8 Summit on June 10, 2004 are –
1.     Poor people need not just loans but also savings, insurance and money transfer services.   Microfinance must be useful to poor households: helping them raise income, build up assets and/or cushion themselves against external shocks.
2.     "Microfinance can pay for itself."     Subsidies from donors and government are scarce and uncertain, and so to reach large numbers of poor people, microfinance must pay for itself.
3.     Microfinance means building permanent local institutions.
4.     Microfinance also means integrating the financial needs of poor people into a country's mainstream financial system.
5.     "The job of government is to enable financial services, not to provide them."
6.      "Donor funds should complement private capital, not compete with it.
7.     "The key bottleneck is the shortage of strong institutions and managers." Donors should focus on capacity building.
8.     Interest rate ceilings hurt poor people by preventing microfinance institutions from covering their costs, which chokes off the supply of credit.
9.     Microfinance institutions should measure and disclose their performance – both financially and socially.

It has been observed that, if committed for social development, non-government organizations can support societies in sustainable development by providing finance accessibility to the poor by organizing Self Help Groups (SHGs). A number of such organizations in India are on their ways of providing aids of microfinance to the poor. At present more than 1000 NGOs are implementing micro finance projects in the country. By learning from the example of Gramin Bank Bangla Desh many NGOs in this country have come forward to provide financial services to the rural poor. In all this NGOs get some financial support in terms of grants from apex financial institutions like NABARD (National Bank for Rural and Agricultural Development) and RMK (Rashtriya Mahila Kosh).

NABARD was set up on 12th July 1982 under an act of the Parliament, and owned by the Government of India and the Reserve Bank of India. It is an apex development bank for supporting and promoting agriculture and rural development. The examples of such NGOs following SHG promotion approach are: MYRADA in Karnataka, SHARE in Andhra Pradesh, RDO (Rural Development Organization) in Manipur, PREM (People’s Rights and Environment Movement) in Orissa and Andhra Pradesh, YCO (Youth Charitable Organization) in Andhra Pradesh, PRADAN (Professional Assistance for Development Action) and RUDSOVAT (Rural Development Society for Vocational Training) in Rajasthan and ADITHI in Bihar.

There are different models of Microfinance like Gramin Bank Model, Spandan, Gramin Koota, Swayam Krishi Sangam (SKS), Danda Credit Society and many morte.The Swayam Krishi Sangam of Hyderabad, Andhra Pradesh is an initiative in Rural India to empower the poorest of the poor to become self-reliant. This initiative started taking shape in June 1998, and soon began operating its main activity, microfinance which follows the Gramin Bank model by seeking to eradicate poverty by offering small loans for income generating activities through a process of collective peer lending. With 53 lakh members and 1627 branches spread across India it has its office in USA also. It established its Women’s Banking Sangam in the Narayankhed region. As of July 2005, SKS Microfinance has grown into 32 branches in six districts of Telangana and serves over 100,000 clients.

The SKS has also started its educational activities by implementing a Preschool Programme in February 2001 in one of the poorest parts of India- the Nayankhed region of Medak District in Andhra Pradesh.
References
Adams, Dale W., Douglas H. Graham & J. D. Von Pischke (eds.). Undermining Rural Development with Cheap Credit. Westview Press, Boulder & London, 1984
Helms, Brigit (2006). Access for All: Building Inclusive Financial Systems. Washngton D.C. The World Bank. ISBN 0821363603.
Muhammd Yunus and Karl Webber.Creating a World Without Poverty: Social Business and the Future of Capitalism. PublicAffairs, New York, 2007

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