micro finance in economic development of coimbatore district

Article: Microfinance in Economic Development of Coimbatore District Venkadasubramanian.R

MICRO FINANCE IN ECONOMIC DEVELOPMENT OF COIMBATORE DISTRICT

AN OVERVIEW OF SELF HELP GROUPS IN MICROFINANCE

A self-help group (SHG) is a village-based financial intermediary usually composed of

between 10-20 local women. Most self-help groups are located in India, though SHGs can also

be found in other countries, especially in South Asia and Southeast Asia.

Members make small regular savings contributions over a few months until there is enough

capital in the group to begin lending. Funds may then be lent back to the members or to others in

the village for any purpose. In India, many SHGs are 'linked' to banks for the delivery of

microcredit.

A Self-Help Group (SHG) is a registered or unregistered group of micro entrepreneurs having

homogenous social and economic backgrounds; voluntarily coming together to save regular

small sums of money, mutually agreeing to contribute to a common fund and to meet their

emergency needs on the basis of mutual help. Also it is a group of people who pool in their

resources to become financially stable by taking loans from the money collected by that group

and by making everybody of that group self-employed. The group members use collective

wisdom and peer pressure to ensure proper end-use of credit and timely repayment. This system

eliminates the need for collateral and is closely related to that of solidarity lending, widely used

by microfinance institutions. To make the book-keeping simple enough to be handled by the

members, flat interest rates are used for most loan calculations.

1

Micro finance in economic development of Coimbatore district

SHGs are member-based microfinance intermediaries inspired by external technical support that

lie between informal financial market actors like moneylenders, collectors, and ROSCAs on the

one hand, and formal actors like microfinance institutions and banks on the other. Other

organizations in this transitional zone in financial market development include CVECAs and

ASCAs.

Microfinance is the provision of financial services, primarily savings and credit, to poor

households that do not have access to formal financial institutions and that, microfinance has

captured the imagination of opinion leaders, governments and donor agencies as key strategy for

poverty reduction. At the same time, however, significant differences of opinion have emerged

between the supporters of the microfinance movement and various critics, who have become

increasingly numerous and vocal. Self Help Groups (SHGs) is being used in India to refer to

unregistered groups of 10 to 20 members involved primarily in savings and credit activities. As

in the case of the typical Accumulating Savings and Credit Associations described by (1995),

noted that members save periodically in the group and the savings are lent out to members who

require loans at a fixed rate of interest. SHGs however differ from typical ASCAs in their small

size, their being promoted1 among the poor by external agencies, most importantly in their

obtaining loans from banks. Over 90 percent of these groups have only women members

as (2002) provide an overview of microfinance SHGs in India. Microfinance has captured the

imaginations of many people working to reduce poverty as the premise is simple rather than

giving handouts to poor households, microfinance programs offer small loans to foster small-

scale entrepreneurial activities. Such credit would otherwise not be available or would be only

available at the very high interest rates charged by moneylenders. Moneylenders operate with

2


little competition since potential entrants quickly find that costs and risks are high and borrowers

are usually unable to offer standard forms of collateral (1993). However, the emerging

microfinance movement demonstrates institutional innovations that appear to greatly reduce the

risk and cost of providing financial services to poor households. Innovations include contracts

that give borrowers incentives to exclude bad credit risks and monitor other borrowers’ activities,

schedules of loans that increase over time conditional on successful performance, weekly or

semi-weekly loan repayment requirements (1999).

MICROFINANCE IN COIMBATORE:

SHALOME MICROFINANCE:

Needless to say, Coimbatore is an industrialized city in Tamilnadu. In fact, it is fast

emerging one of the leading financial city in the state. At Coimbatore, 88% of the target group is

involved in income generation activity/micro enterprises development and are self-employed.

The rest is employed with industries. Since the city has a vast industrial base, employment

opportunities are high and people find it easy to get employed somewhere. Besides, there exists

good scope to set up small-scale industries in the city. In short, Coimbatore population is

depending on the industry for their bread and butter.

Considering the industrialized structure of the city combined with the ever growing population,

the city is rated high for all round growth. The fact is that 28% of the population in this region is

below the poverty line and they have no access to mainstream financial institutions. However,

financial policy changes have made far-reaching impacts in the region. Unemployment and

under employment are major issues faced by the local people and the labour class including

coolies and maidservants are grossly underpaid. Traditional craftsmen and the skilled workers

are struggling to improve their income level and enhance their productivity. Against this

3


background, for micro finance institutions it is the right time to step up their activities in

Coimbatore with adequate funds.

These poor segments of the society urgently need credit support to invest in development

programs, to expand their existing activities, which in turn, will generate more surplus income.

Unable to get required money from the institutionalised banks, the poor people cultivated the

habit of borrowing money from money lenders with exorbitant interest rate.

Apart from this, they also need credit to pay off their debt to the private money lenders who eat

away their hard-earned daily income. This section of the society is in search of credit worthy

micro finance institutions who will offer funds to them with nominal interest rate.

Success in activity or service comes from hard work and humility. The greater the hard work and

humility, the greater the achievements. Service is not simply a desire, a passion, an intense

feeling for one person or object, but a consciousness which is simultaneously selfless and self-

fulfilling. Shalom Micro Finance believes in activities which can be for one's country, for a

cherished aim, for truth, for justice, for people, for nature, for service, and for god.

ACTIVITIES:

Shalom Micro Finance activities are spread across the common people irrespective of

religion, cast, region and faith. The entire region benefits directly or indirectly from Shalom's

presence. Indeed, our strategy is to contribute its might to achieve the Millennium Development

Goals of having poverty by 2015.Shalom Micro Finance primarily serves women clients through

SHGs. The existing clients are primarily rural and urban women engaged in agriculture and they

source their income from this activity. In addition to this, a small portion of individual

businessmen in urban markets are also served by Shalom through its business loans.

4


SMFL encourages cost effective, secure and accessible micro savings services among the people

in the rural areas. Contrary to some beliefs, low income people also save their money. In fact,

their savings represent a higher portion of their net assets than those of their counterparts in

society's upper income segments. With access to well-designed savings products, low income

people can also accumulate wealth. When aggregated and invested properly, these small,

sometimes seemingly insignificant amounts can add fuel to country's economic growth.

Equally important are measures to support the informal sector, where most of the urban poor

work in low paid, low quality jobs. Shalom Micro Finance also provides assistance to small

enterprises to upgrade skills and increase access to productive resources and market

opportunities. In this process, through quality micro finance, SMFL brings informal enterprises

into the formal economy. Most of the urban population operates in the informal economy

without security of tenure and without formal employment.

SHGs FROM SHALOME:

A SHG has an average size of about 15 people from a homogeneous class. They come together

for addressing their common problems and are encouraged to make voluntary thrift on a regular

basis. The SHG uses the pooled resources to make small interest bearing loan to their members.

The process helps them imbibe the essentials of financial intermediation including prioritization

of needs, setting terms and conditions and accounts keeping. This gradually builds financial

discipline in all of them. They also learn to handle resources of size that is much beyond

individual capacities of any of them. SHG members begin to realize that resources are limited

and have a cost. Once the groups show the mature financial behavior, banks are encouraged to

make loans to the SHG in certain multiples of the accumulated savings of the SHG. The bank

5


loans are given without any collateral and at market interest rates. The groups continue to decide

the term of loans to their own members. Since the groups' accumulated savings are part and

parcel of the aggregated loans made by the groups to their members, peer pressure ensures timely

repayments

6

micro finance in economic development of coimbatore district

Documents