1 Creating Sustainable Entrepreneurship through Self-help Group based Microfinance Initiatives – A Case of Jharkhand, India Dr. Bhaskar Bhowani Assistant Professor, Department of Financial Management, Xavier Institute of Social Service (XISS), Ranchi, Jharkhand, India. Email: [email protected]Abstract Poverty and unemployment is an important issue in developing economies. India accounted for the largest number of people living below international poverty line in 2013, with 30 percent of its population living under $1.90 a day. According to the fifth annual employment- unemployment survey at all-India level, about 77 per cent of the households were reported to be having no regular wage or salaried person. It said the unemployment rate was estimated to be 5 per cent at all-India level under the UPS (Usual Principal Status) approach. Unemployment rate was 4.9 per cent in 2013-14 and 4.7 per cent (2012-13). Large scale employment generation is one solution but the geometric progression in population growth always outpaces such attempts. Nearly 70 percent of the India’s population live in rural areas which is plagued by the ever increasing problem of unemployment. Decades of poverty alleviation and employment generation efforts, from the Government has not yielded results therefor there is an increased realization amongst development planners that rather than employment creation, emphasis should be on self-employment and entrepreneurial development. As stated, the need is more pronounced at the bottom of the pyramid where millions require a helping hand. Bringing the much required, funding, savings and other essential financial services within the reach of these millions is what we call as microfinance. There are various models of microfinance deliverance, but, the current study focuses on the Self-help Group (SHG) model as it has been considered to be one of the most successful credit delivery model in developing nations. In India, the SHG aided Microfinancing model is facilitated and promoted by various government and non-government Organisations (NGOs).
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Creating Sustainable Entrepreneurship through Self-help Group based
Microfinance Initiatives – A Case of Jharkhand, India
Dr. Bhaskar Bhowani
Assistant Professor, Department of Financial Management, Xavier Institute of Social Service (XISS), Ranchi,
Hand-holding, Grameen Bank, Income Generating Activities.
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1. Introduction
The issue of sustainable economic development in India has been of concern since its
independence. The government has been investing huge amounts of money over the years in
search of a permanent remedy but has not been able to reap any meaningful outcome. India as
a nation has her own peculiar developmental challenges like that of population outburst,
unemployment, illiteracy and languishing infrastructure in rural areas. It has been realized in
recent years that there are limits to which government can singly promote development. In
order to bring sustainability in the development process, both the public and the private sectors
of the economy and every segment of the society needs to come together. One of the responses
to the challenges of development is the encouragement of entrepreneurial capabilities among
the marginalized and the poor living in rural India.
Entrepreneurship is the bedrock for any nation’s development, poverty eradication and
employment generation. But entrepreneurship cannot start all by itself, there has to be an
element of financing. Financing, however, through formal channels likes banks etc. has never
been easy for the poor and the illiterate so a simplified format of micro scale lending emerged
by the name of microfinance and today it has become one of the most effective vehicles for
building entrepreneurial capabilities and a tool for addressing poverty alleviation programs
through financial inclusion, socioeconomic empowerment, and self-sufficiency.
The concept of micro finance originated some four decades back when Professor Mohammad
Yunus, from Bangladesh introduced the concept of “Grameen Bank” in 1976 in Chittagong
University Campus on an experimental basis to study the framework of banking services for
the rural poor.1 The term ‘Grameen’ means ‘rural or village’ and these Grameen banks provide
loans to the poor who do not have access to formal financing and do not have anything to put
1 Mecha, Nyarondia Samson . “The Role of Microfinance on Youth Empowerment: An Examination of Theoretical
Literature. International Journal of Scientific and Research Publications, Volume 7, Issue No 2, February 2017.
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up as guarantee or collateral securities. Now, the question is how to provide financial services
to such class of people? The answer lies in the concept of Microfinance. So microfinance is
the business of giving tiny loans to people who do not have access to formal banking services.
According to the Task Force on Supportive Policy and Regulatory Framework for Micro
Finance set up by National Bank For Agriculture & Rural Development (NABARD), India in
November, 1998: Microfinance involves the provisioning of thrift, credit and other financial
services and products, with the aim to raise income levels and improve living standards of the
people below the poverty line by creating income generating activities (IGA). The Asian
Development Bank (2000) defines microfinance as the “provision of broad range of services
such as savings, deposits, loans, payment services, money transfers and insurance to poor and
low income households and their micro-enterprises”.2 The Micro Financial Sector
(Development and Regulation) Bill, India (2007) defines microfinance as the provision of
financial assistance and insurance services to an individual or an eligible client either directly
or through a group mechanism for an amount, not exceeding rupees fifty thousand in aggregate
per individual for small and tiny enterprise, agriculture, allied activities or an amount not
exceeding rupees one lakh fifty thousand in aggregate per individual for housing or other
prescribed purposes. The beneficiaries under this scheme may be landless labourers and
migrant labourers; artisans and micro entrepreneurs; disadvantaged cultivators of agricultural
land including oral lessees, tenants, and share croppers; and farmers owning not more than
two hectares of agricultural land.
According to the Indian Government there are about 363 million people living below the
poverty line in 2011-123 as the BPL level stands revised for an amount of earning lower than
INR.32 ($ 0.49) a day for those living in the rural areas and INR. 47 ($ 0.73) in towns and
2 Asian Development Bank (ADB). Rural Asia Study: Beyond the Green Revolution. Manila: ADB, 2000. 3 Planning Commission. Govt. of India. “Report of the Expert Group To Review the Methodology for
Measurement of Poverty”, Compiled by the Rangarajan Committee. Planning Commission, GOI, June, 2014
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cities.4 The World Bank, however, has a different statistics for the same period and according
to its latest report titled ‘Taking on inequality’ – Poverty and Shared Prosperity, there are over
224 million people living below the international poverty line of $1.90 a day.5 This figure is
revised to 179.6 million in 2015 which is equivalent to17.5% of the total world’s population.
India is not the leader when it comes to the percentage of its citizens living in poverty, it
leads in sheer volume just because of the size of its population. According to the report,6
one in every five Indians are poor. 30% of the world’s poorest children live here. 62% of
India’s poor live in the 7 low income states, of which Jharkhand is one of the state
contributing about 13%. 80% of India’s poor live in rural areas. 43% of the poor are
Scheduled Tribes and 29% are Scheduled Castes. The non-poor spend 47% of their income
on food whereas the poor spend 56%. 26% of the non-poor are illiterate whereas 45% of
the poor are illiterate. 37% of the non-poor have secondary education and above in contrast
to just 15% for the poor. Naturally the statistics with regard to ownership of assets and land
for the poor is strikingly less than that of the non-poor.
In light of the above statistics it is but imperative that microfinance initiatives are most
suited intervention for bringing about socio-economic transformation in the Indian sub-
continent and towards alleviating poverty in the rural areas. By virtue of a large and poor
population, India is one of the largest microfinance markets in the world.
In India, micro-finance has evolved considerably since the 80s, today it is mainly delivered
through two models, namely the SHG-Bank Linkage (SBL) model, which was championed by
4 Singh, Mahendra Kumar. "New poverty line: Rs 32 in villages, Rs 47 in cities." The Times of India, July 07,
2014. 5 PTI. "India has highest number of people living below poverty line: World Bank." Business News - Latest Stock
Market and Economy News India. October 03, 2016. Accessed May 28, 2017. http://www.businesstoday.in/
the NABARD in the late 90‟s and the Micro-Finance Institution (MFI) model which resembles
the Bangladesh Grameen Bank model.
1. SHG-Bank Linkage (SBL) Model: The SBL model is an indigenous model of
microfinance in India which was conceptualized and initiated by NABARD in
1992, with a two year pilot project to link 500 SHGs. Its root though dates back to
1986 when in response to a proposal submitted by an NGO called MYRADA,
NABARD started putting in funds to the SAGs (Self Affinity Groups) under
MYRADA. In 1990 Reserve bank of India (RBI) accepted the SHG strategy as an
alternative credit model and it authorized the opening of bank accounts in the name
of groups. Today, opening accounts in the name of SHGs is part of the regular
operations in most banks. In 2015 there were about 103 million families covered
under the SHG-Bank Linkage Programe (SBLP) program with a total number of
79.03 lakh SHGs with a saving amount of INR. 13,691 crores. The average loan
disbursed per SHG for 2015-16 was reported at INR. 203,526, and an average loan
outstanding of INR 2,258 per SHG.7
2. Micro-Finance Institutions, the (MFI) Model: Micro-finance institutions are
organizations that are involved in the delivery of financial services to the unserved
segment of population that is otherwise considered as ‘un-bankable’. They may
range from social service focused value driven NGOs to profit-oriented NBFCs.
There has been an exponential growth in MFI activity in India over the past decade
as a plethora of NGOs and private organizations have converged into this field,
some having the genuine intention of socioeconomic advancement, while others
cashing in on the “fortune at the bottom of the pyramid”.8 The Indian Microfinance
Industry is dominated by NBFC MFIs with an 88% market share. There were 12
7 Sa-Dhan. The Bharat Microfinance Report 2016. New Delhi: Sa-Dhan, 2016. 8 Prahalad, C.K., and Stuart L. Hart. "Fortune at the Bottom of the Pyramid." Strategy+Business, No. 26 (2002).
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small MFIs (loan book less than INR 1b) another 22 medium sized MFIs (loan
book between INR 1b to 5b) and 22 large MFIs (loan book above INR 5b). Large
MFIs comprise 90% of the industries’ Gross Loan Portfolio (GLP). The GLP for
FY 2016 was INR 532.35 b. (53235 Cr.) 9 Due to the level of outreach the MFIs
need, there is a high operational cost associated with them and this is transferred to
the client in the form of higher interest rates, making the borrowing of money from
MFIs relatively costlier.
Self Help Groups (SHGs)
The term ‘self-help group’ or SHG can be used to describe a wide range of financial and non-
financial associations, but in India it has come to refer to a form of Accumulating Saving and
Credit Association (ASCA) promoted by government agencies, NGOs or banks. These groups
manage and lend their accumulated savings and externally leveraged funds to their members.10
More simply stated, The Self Help Group has been defined by NABARD as a group of about
20 people from a homogeneous class who come together for addressing their common
problems. They are encouraged to make voluntary thrift on a regular basis. They use their pool
resources to make small interest bearing loans to their members. The process helps them
imbibe the 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 a
size that is much beyond individual capacities of any of them. The bank loans are given
without any collateral and at market interest rates. The groups continue to decide the terms of
loans to their own members. Since the groups own accumulated savings are part and parcel of
9 ASSOCHAM in association with E&Y. “Evolving Landscape of Microfinance Institutions in India, July 2016”
- A Knowledge Report for the National Summit on Microfinance. New Delhi: ASSOCHAM, 2016. 10 Tankha, Ajay. “Self-help Groups as Financial Intermediaries in India: Cost of Promotion, Sustainability and
Impact.” A study undertaken for ICCO and Cordaid, The Netherlands. New Delhi: Sa-Dhan, August, 2002.
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the aggregate loans made by the groups to their members, peer pressure ensures timely
repayments.11
Mechanism of SHGs in India:
The idea is to organize the rural poor into small solidarity groups of 10-20 members (mostly
women) through a process of social mobilization, training and capacity building along with
the provisioning of income-generating assets through a mix of bank credit and government
subsidy. The main objective of the SHG concept is to improve the economic development of
the target groups and create facilitating environment for their social transformation. The SHGs
are formed either by private NGOs or through the intervention of the state administration. If it
is done through the administration, then the formation is under certain schemes facilitated by
the line departments on the recommendation of the Gram Sabha of the respective Village
Panchayat (lowest level of administrative unit under the local self-governance). The other
possibility is through the intervention of private NGOs & CBOs where the groups are formed
on similar principles with one member from one family. The groups so formed are regulated
by a mutually determined code of conduct and a minimal saving is initiated on a regular basis
to be deposited into a savings bank account. A pool of fund, thereby, accumulates which could
then be utilized for internal lending with an interest clause. This saving and lending practices,
over time helps the members learn the nuances of financial discipline. The SHPIs promotes
such SHGs that have demonstrated skills of credit handling of at least six months for bank
linkages. The banks, for augmenting the capital of the SHGs, provide loans (called as
revolving funds), in certain multiples of their accumulated savings with a minimum interest
clause. The group in turn lends to its own members at higher rates. If group is found to be
regular in its internal lending and successfully utilizes this revolving fund the SHG becomes
11 NABARD. "Ten years of SHG-Bank Linkage (1992-2002)." NABARD & MicroFinance 2001-2002,
Mumbai: 2002.
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eligible to receive further bank financing for income generating activities (IGAs). The group
members use collective wisdom and peer pressure to ensure appropriate use of fund and its
timely repayment. The SHG movement has gathered pace in countryside in building economic
self-reliance among the rural poor and empowering the vulnerable.
Research Methodology
The present study is descriptive in nature and is based on:
Review of secondary literature comprising of National Rural Livelihood Mission
(NRLM), Prime Minister Awas Yojana (PMAY) & Mahatma Gandhi National
Rural Employment Guarantee Act (MGNREGA) data released by the Government,
the annual reports of the partner NGOs and progress report of the project.
A qualitative assessment of the state of affairs through periodic field visits;
personal interviews and focus group discussion.
Review of select cases.
Objective of the Study:
As the paper focuses on “Sustainability” the aim is to highlight the fact that entrepreneurship
building is an ongoing process. And to bring about an enduring improvement in the socio
economic profile of the tribal community it is not sufficient to just facilitate financial
interventions but also to Suggest ways of “Capacity Building” & inculcating confidence
amongst the target group for the long run.
Based on the aforesaid understanding the primary objective therefore is to:
1. Verify whether the project was able to achieve its set objective or not.
2. To assess the opportunities and scope of scaling up of the project in other
districts of Jharkhand or similarly placed areas.
3. Suggest ways of strengthening of the SHGs and the Self-help Promoting
Institutions (SHPIs)
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Sampling:
In order to substantiate the above stated objective a random sampling from the Project’s target
population was made. The study area of the Project was limited to the two Tribal dominated
Divisions of South Chotanagpur and Kolhan (In all, the State of Jharkhand has 24 Districts
divided into 5 Divisions.)
The Project covers 8 Districts in the two said Divisions, but for convenience, only 5 Districts
have been picked up for further sampling. The Partner NGOs & CBOs operational in the said
5 districts are 12 in number and an average of 20 SHGs were picked randomly per Partner
NGO & (except for Sarwada & Mukunda where a normalization was done to compensate for
size). Since the number of villages and the number of members in the SHGs are different the
total number of families thus getting covered by the sample are not similar. A detailed outline
of the sample is provided in Table 1 below:
TABLE No. 1: Districts under the Study along with a list of Partner Organizations
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FIGURE No 1. Pictorial depiction of the study area
Profile of the Study Area:
Jharkhand (shown in Figure 1 above) is distinct from the rest of India due to its unique cultural,
geographical and ethnographical environment. Jharkhand is the 28th state of the Indian Union
and is majorly known for its rich mineral resources. The state occupies first position in the
production of Coal, Mica, Kainite and Copper in country. It has 40 percent of the nation's
mineral reserves. The major industries located in the state are that of Iron and Steel,
Nonferrous Industries, Fertilizers, Chemicals, Cement and Automobile.
Around 76% of the total population in the state live in rural areas. 26.3% of the population are
tribal of which 91.7% reside in villages. Agriculture is the main source of livelihood for the
people in the state but it suffers from several lacunas. The topography is roughly undulating
with terraced slopes. 29.47 per cent of the total land area is under agriculture, which is mono-
cropped with rice occupying the major area. Agriculture is mainly rain fed and the annual
rainfall of the region is about 1200 mm. Area under irrigation is only 14 per cent. Cultivation
is carried out in low land, which occupies 43 per cent of the total agriculture area. During
summer season the water table goes down and there is scarcity of water. This traditional, rain
fed and mono-cropping agriculture hardly makes surplus production possible and as a result
farmers have not been able to support their family’s food requirements and fodder for their
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cattle. Hence rural household are forced to migrate as alternative means of livelihood options
are not available. Various factors like low productivity, declining crop prices, declining labour
forces, migration and increasing urbanization are threats to the rural farmers which forces them
to quit farming and move to cities as cheap labourers (this is more pronounced during off farm
season). Hence a development strategy is needed which can facilitate small landholders,
landless and women to benefit from agriculture and small scale allied activities. The farming
community requires training and capacity building in agriculture and its allied activities so as
to sustain themselves and lead a quality life. The limited livelihood option in the tribal districts
of Jharkhand is a major concern for development organizations. Dependency on low yield
agriculture, single cropping pattern and lack of alternative income generating opportunities
during lean seasons have left the hapless population in a state of distress and deprivation.
Background of the Intervention:
Xavier Institute of Social Service, (XISS), Ranchi implemented this project “Enhancement of
Livelihood Opportunities” in the remote and rural pockets of Southern Chotanagpur,
Jharkhand, from April 2012 to address the issues of poverty in the area through an intervention
based on participatory planning, development of human resource and people’s collective
action. XISS partnered with 12 NGOs and CBOs (Community Based Organizations) for the
implementation of the said project. The intervention was designed to address issues like
identifying and nurturing the leadership potential of the community to lead their organizations,
promoting and strengthening community based organizations at village/ cluster level,
organizing and empowering them through SHGs for improving their socio-economic
conditions. Technical skill and training was provided to the SHGs in their opted livelihood
options. The training and hand holding support provided an opportunity to diversify their
livelihood activities and thus it improved their quality of living. The women SHGs were linked
to Government line departments and through the respective welfare programs they further
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availed the bank linkages (mostly Bank of India and State Bank of India) for micro credit
schemes and loans at the cheapest rate. SHGs were also motivated to further re-invest the
funds generated out of livelihood activities as revolving funds. The uniqueness of the project
is that it maintains the link of the indigenous people with their natural surroundings for their
livelihood. The project gave special emphasis to the sustainable management of natural
resources like water, land and the flora fauna. The Project supported the SHGs through
funding, capacity building, and continuous hand holding at the field level through the partner
NGOs. The project has been able to target the poor and the marginalized and local Self-help
Groups Promoting Institutions (SHPIs) which were instrumental in empowering the
vulnerable groups especially women in the villages.
The Income Generating Activities (IGAs) identified during the project tenure or Enhancement
of livelihood Opportunities were as follows: Lac cultivation on Flemengia Semialata , Kusum
(Schleichera oleosa) and Ber (Indian Jujube) (Ziziphus Mauritiana) trees, Vegetable
cultivation, Broiler Poultry Farming and duck rearing, Piggery, Goatry, Fishery and Fish seed
growing activities, Opening of Grocery shops, Eating joints and Hoteling for weekly markets,
Snacks marketing, Orchard with Red lady variety of Papaya etc. Other activities involved