Micro-finance, often heralded as an anti-poverty vaccine, plays a pivotal role in fostering asset creation and ensuring income security among the rural poor in India. The essence of this financial model lies in its ability to empower marginalized communities, particularly through the establishment and support of Self-Help Groups (SHGs). These groups, predominantly comprising women, serve as catalysts for economic development at the grassroots level. By providing access to small loans, financial literacy, and entrepreneurial training, micro-finance and SHGs enable individuals to kick-start small-scale businesses, agricultural ventures, or other income-generating activities. The twin objectives of asset creation and income security are thus realized as beneficiaries accumulate resources and develop sustainable livelihoods. Importantly, the involvement of women in SHGs not only breaks the gender barriers prevalent in rural societies but also enhances the overall social fabric by fostering women’s economic independence, decision-making abilities, and community leadership. In this way, micro-finance, coupled with the collaborative efforts of Self-Help Groups, emerges as a potent force in alleviating poverty and promoting holistic empowerment in rural India.
UPSC Mains General Studies Paper – 2 Mains 2020
Development processes and the development industry —the role of NGOs, SHGs, various groups and associations, donors, charities, institutional and other stakeholders
UPSC Mains Civil Services IAS Exam Question Paper – 2020
Structure of the Question
- In Introduction,
- Try to discuss Microfinance in brief.
- In Body,
- Micro-Finance as an anti-poverty vaccine.
- Discuss SHG Twin Objectives – poverty alleviation and women empowerment.
- In Conclusion,
- Try to suggest how the goal of financial inclusion can be realized by Microfinance
Answer
Introduction
Micro-finance is the practice of providing the poor with credit, savings, and insurance facilities to set up or to expand Income Generating Activities relating to agriculture and its allied activities and non-farm sector, thereby reducing poverty and improving the standard of living. The basic feature of microfinance is that the loans are given without any security.
- Microloans: These loans are significant as they are provided to borrowers with no collateral.
- Microsavings: These accounts allow entrepreneurs to operate savings accounts with no minimum balance. These help the users to instill financial discipline and develop an interest in saving for the future.
- Microinsurance: It is a type of coverage provided to borrowers of microloans. These insurance plans have lower premiums than traditional insurance policies. It addresses all kinds of risks that people of low-income groups or poor people face globally.
Micro-Finance: An Anti-poverty Vaccine
- Economic growth: Microfinance services contribute to the improvement of resource allocation, promotion of markets, and adoption of better technology; thus, microfinance helps to promote economic growth and development.
- Income security: It assists the communities of the economically excluded to achieve a greater level of asset creation and income security at the household and community level.
- Small entrepreneurs: It aims to dispense access to capital to small entrepreneurs.
- Alleviating Women’s Status in Society: They provide a significant contribution to gender equality and women’s empowerment through their contribution to women’s ability to earn an income and in turn initiate a wave of change in economic empowerment, and wider social and political empowerment.
- Reach for Society Building: Aimed at pro-poor development and civil society strengthening, Microfinance programs not only give women and men access to savings and credit but reach millions of people worldwide bringing them together regularly in organized groups.
- Goal of Self-Reliance: Microfinance is a tool to overcome exploitation, and create confidence for economic self-reliance of the rural poor, particularly among rural women. Rapid progress in SHG formation has now turned into an empowerment movement among women across the country.
Self-Help Groups (SHGs) and Micro-Finance
SHGs are informal associations of people who choose to come together to find ways to improve their living conditions. In the last few decades, SHGs have emerged as the most effective mechanism for the delivery of microfinance services to the poor in general and women in particular. The Genesis of SHG in India can be traced to the formation of the Self-Employed Women’s Association (SEWA) in 1972.
These groups can act as microfinance institutions and help in alleviating the conditions of the rural poor for the following reasons:
- People will have faith in and among themselves.
- Rates of interest can be fixed by considering the State of the individual getting finance.
- Repayment of loans becomes comparatively easier.
- Skill development program taken up by SHGs improves the employability of members involved.
- SHGs work on reducing rural poverty by lifting people from below the poverty line and generating assets for them. There is a positive correlation between SHGs and poverty can be inferred from the fact that southern states with high numbers of SHGs (71%) have an average poverty rate of 9% as against the nation’s average of 21%.
Women Empowerment
SHGs provide for equality of opportunity for women in economic activities. It is evident that this has resulted in the social upliftment of women’s status. They are instrumental in building Social Capital among the poor, especially women. Some of the initiatives in this direction are as follows:
- Kudumbashree Mission in Kerala: Women under Kudumbashree, are organized into Neighborhood Groups (NHGs). Thrift and Credit Societies are set up at NHG level to encourage the poor to save and to avail easy credits.
- SHG-Bank Linkage Programme (SBLP) was launched in 1992 by NABARD. It envisaged an amalgamation of the formal financial sector and informal sector. Because of this, the formal financial institutions in India have entered microfinance in a massive way.
- SHG development through NABARD: Under the SHG-Bank linkage programme, NABARD provides refinance and promotional support to Banks for credit disbursement. A full-fledged project enabling SHGs to open bank accounts based on a simple inter-se agreement, was launched by NABARD in 1992 involving a partnership among SHGs, banks and NGOs.
- Rashtriya Mahila Kosh: It was set up with the intention to facilitate credit support to poor women for their socio-economic upliftment by providing loans in a quasi-formal credit delivery mechanism. The Kosh lends with a unique credit delivery model “RMK – NGO-SHG Beneficiaries”.
- SEWA: The Self Employed Women’s Association (SEWA) is a membership-based organization created in 1972 combining labour, women, and cooperative movements, aimed at organizing self-employed women in the informal economy and assisting their collective struggle for social justice, equality, and fair treatment.
- Myrada: MYRADA is a non-government organization started in 1968 working in backward and drought-prone areas. The organization was registered as “Mysore Resettlement and Development Agency” under the Mysore Societies Registration Act 1960 in the year 1968.
Conclusion
For equitable and sustainable development in rural India, financial inclusion supported by MFIs plays an important role. It strengthens India’s ability to post fast economic growth with a focus on reducing poverty and empowering women.
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Frequently Asked Questions (FAQs)
Q: What is the concept of Micro-Finance as an anti-poverty vaccine, and how does it contribute to asset creation and income security among the rural poor in India?
A: Micro-Finance refers to the provision of financial services, including small loans, savings, and insurance, to individuals in low-income communities. As an anti-poverty vaccine, it aims to empower the rural poor by providing them with the means to generate income and create assets. Micro-Finance institutions facilitate financial inclusion, enabling individuals to start or expand small businesses, ultimately leading to poverty alleviation and improved economic stability.
Q: How do Self-Help Groups (SHGs) play a crucial role in achieving the twin objectives of asset creation and income security in the context of Micro-Finance?
A: Self-Help Groups are community-based organizations where members pool their resources and skills to access financial services. In the realm of Micro-Finance, SHGs act as a catalyst for social and economic development. They provide a platform for mutual support, financial education, and collective decision-making. SHGs empower individuals, particularly women, by fostering a sense of ownership and responsibility, thereby promoting asset creation and income security within the group and the community.
Q: Can you elaborate on the impact of Micro-Finance and Self-Help Groups in addressing gender disparities and empowering women in rural India?
A: Micro-Finance, especially through the SHG model, has been instrumental in empowering women in rural India. By offering financial services directly to women, it not only enhances their economic status but also promotes gender equality. SHGs create a space for women to develop leadership skills, build self-confidence, and actively participate in decision-making processes. This empowerment translates into improved social standing, increased educational opportunities for women and their children, and a positive impact on overall community development.
Q: How do Micro-Finance initiatives ensure sustainability and long-term positive outcomes for the rural poor in India?
A: Micro-Finance institutions focus on building sustainable financial systems by combining financial services with social development goals. By providing access to credit, savings, and insurance, individuals in rural areas can invest in income-generating activities, breaking the cycle of poverty. Additionally, the group dynamics of SHGs foster a sense of collective responsibility, ensuring the repayment of loans and the continued success of the Micro-Finance model.
Q: What challenges do Micro-Finance initiatives, particularly those involving Self-Help Groups, face in rural India, and how can these challenges be addressed for maximum impact?
A: Challenges in rural Micro-Finance include issues like limited financial literacy, geographical isolation, and cultural barriers. To address these challenges, comprehensive financial education programs can be implemented. Additionally, enhancing infrastructure, leveraging technology for outreach, and promoting a supportive policy environment can play a crucial role in overcoming obstacles and maximizing the positive impact of Micro-Finance initiatives, especially through the empowerment of Self-Help Groups.
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