Micro Finance and Women Empowerment

Table of contents

At present one of the successful ways through which microfinance services are being provided to poor people is through Self-Help Groups. The performance of different states SHGs data presented by different authors in different states shows new direction where microfinance is helping poor women coping with vulnerable situations building of assets, new livelihoods and accumulated savings help the coping strategies of the poor.

Thus, present paper focus on the concept of SHGs and Micro Finance in India, Performance of SHGs and Microfinance scenario in different states of India, SHGs and Bank linkages in India and impact of microfinance on empowering women along with suggestions.

Keywords: SHGs, Micro Finance, Statewise performance of SHGs & Microfinance, SHGs and Bank linkage, suggestions

Micro Finance and Women Empowerment

By Ms. Varsha Parikh Empowerment is defined as the processes by which women take control and ownership of their lives through expansion of their choices. Thus, it is the rocess of acquiring the ability to make strategic life choices in a context where this ability has previously been denied. The core elements of empowerment have been defined as agency (the ability to define one’s goals and act upon them), awareness of gendered power structures, self-esteem and self-confidence. Empowerment can take place at a hierarchy of different levels – individual, household, community and societal – and is facilitated by providing encouraging factors (exposure to new activities, which can build capacities) and removing inhibiting factors ( lack of resources and skills). “The status of women is a barometer of the democratization of any state, an indicator of how human rights are respected in it” (Mikhail Gorbachev). The root cause of women’s oppression in India is patriarchy which has snatched off their legitimate powers leaving them completely defenseless and weak. Despite more than five decades of interventions to raise the status of women since independences, women in rural areas continue to be overwhelmed by social and economic bosses.

Rural women throughout India, irrespective of caste and religion, continue to have a subordinate status both within home and outside. Extent of awareness and access to credit, higher level of education and training are prime determinants of women’s status and role in the process of development. Thus for women, two vital processes have been identified as important for empowerment. The first is social mobilization and collective agency, as poor women often lack the basic capabilities and self-confidence to counter and challenge existing disparities and barriers against them.

Often, change agents are needed to catalyse social mobilization consciously. Second, the process of social mobilization needs to be accompanied and complemented by economic security. As long as the disadvantaged suffer from economic deprivation and livelihood insecurity, they will not be in a position to mobilize.

Concept of Self Help Groups (SHGs) in India

In India, Self – Help Group (SHG) is a small voluntary association of poor people, preferably from the same socioeconomic background. They come together for the purpose of solving their common problems through self-help and mutual help.

The SHG promotes small savings among its members. The savings are kept with a bank. This common fund is in the name of the SHG. The term Self Help Groups (SHGs) is generally used in India to refer to unregistered groups of 10 to 20 members involved primarily in savings and credit activities. Over 90 percent of these groups have only women members. The concept of SHG is based on the following principles:

  • Self-help supplemented with mutual help can be a powerful vehicle for the poor in their socioeconomic development;
  • Participative financial services management is more responsive and efficient;
  • Poor need not only credit support, but also savings and other services;
  • Poor can save and are bankable and SHGs as clients, result in wider out reach, lower transaction cost and much lower risk costs for the banks;
  • Creation of a common fund by contributing small savings on a regular basis;
  • Flexible democratic system of working;
  • Loaning is done mainly on trust with a bare documentation and without any security;
  • Amounts loaned are small, frequent and for short duration;
  • Defaults are rare mainly due to group pressure;
  • Periodic meetings non-traditional savings.

Concept of Micro-Credit

Micro credit refers to a programme that provides credit for self employment & other financial and business services (including savings and technological assistance micro). Credit refers to small amounts of Credit both for production and consumption to poor households who remain or choose to remain outside the reach of formal credit system and have demonstrated their credit worthiness

Why Micro Credit

Because it is a powerful tool for sustainable development of the poor and removal of poverty on a term basis.

Micro Credit

A Pathway to Empowering SHGs women The lack of access to credit for the poor particularly women is attributable to practical difficulties arising from the discrepancy between the mode of operation followed by financial institutions and the economic characteristics and financing needs of low-income households. For example, commercial lending institutions require that borrowers have a stable source of income out of which principal and interest can be paid back according to he agreed terms. However, the income of many self employed households is not stable, regardless of its size. A large number of small loans are needed to serve the poor, but lenders prefer dealing with large loans in small numbers to minimize administration costs. They also look for collateral with a clear title – which many low-income households do not have. In addition bankers tend to consider low income households a bad risk imposing exceedingly high information monitoring costs on operation.

Over the last ten years, however, successful experiences in providing finance to small entrepreneur and producers demonstrate that poor people, when given access to responsive and timely financial services at market rates, repay their loans and use the proceeds to increase their income and assets. This is not surprising since the only realistic alternative for them is to borrow from informal market at an interest much higher than market rates.

Community banks, NGOs and grassroot savings and credit groups around the world have shown that these microenterprise loans can be profitable for borrowers and for the lenders, making microfinance one of the most effective strategy of empowerment. Empowering women socio-economically through increased awareness of their right and duties as well as access to resources is a decisive step towards greater security for them. Women are in for a new deal today as they are the focus of economic development.

SHGs are considered as one of the significant tools to adopt participatory approach for the economic development of women. It is an important institution for improving the life of women on various social components. It plays an important role in differentiating between consumption credit and production credit. Self help group disburses of making them enterprising women and encouraging them to enter entrepreneurial activities. Credit needs of the rural women are fulfilled through the SHGs.

Thus SHG is considered as a variable organization of the rural poor particularly of the women for delivering micro credit in order to undertake entrepreneurial activities. Some of the studies on SHGs of the rural poor particularly those managed by women, successfully demonstrated how to mobilize and manage thrift activities, maintain credit linkages with banks and effectively undertake some income generating activities etc. Micro finance programmes are currently being promoted as a key strategy for simultaneously addressing both poverty alleviation and women’s empowerment.

Before 1990s, credit schemes for women were almost negligible. There were certain misconception about the poor people that they need loan at subsidized rates of interest on soft terms, they lack skills, capacity to save, credit worthiness and therefore are not bankable. Nevertheless, the experiences of several and SHGs reveal that rural poor are actually efficient managers of credit and finance. Availability of timely and adequate credit is essential for them in their enterprises rather than subsidies.

Earlier government efforts through various poverty alleviation schemes for self-employment by providing credit and subsidy received little success. Since most of them were target based involving various government agencies and banks. During the economic crisis, self-help microcredit groups served as important cushions and safety nets. A high proportion of the funds made available for self-help microcredit schemes were utilized by women, enabling them to meet the subsistence needs of their families during those difficult economic times.

Many self-help programmes have also incorporated elements of savings, which can be used for purposes such as health insurance and emergency loans, thereby serving as private safety nets. In all, one of the successful ways through which microfinance services are being provided to poor people in India is through Self-Help Groups. It all started with experiments of some non-government organizations (NGOs) working in south India during early 80s and has now come to be known as Self-Help Group approach to microfinance.

With intervention of Reserve Bank of India (RBI), National Bank for Agriculture and Rural Development (NABARD), Small Industries Development Bank of India (SIDBI), Rashtriya Mahila Kosh (RMK) and other organisations, So, in this manner in contrast to the Grameen model of Bangladesh, the SHG based microfinance in India encourages SHG members to manage group’s financial affairs like savings and loan recovery and funds are deposited in a local commercial bank in the name of the SHG.

Members’ savings are initially used to issue small loans to needy members. Self Help Group bank linkage has become a supplementary channel for providing financial services from formal financial institutions to poor people. Under this linkage arrangement, SHGs are assessed by bank for bank credit after about 6 months of their functioning. If SHGs are found functioning well, then, bank credit is sanctioned up to four times the savings of the SHG. After gaining some experience of credit handling, SHG is issued bigger amount of loan by a ommercial bank and members are free to decide the end use of this loan, its purpose, repayment instalment, etc. without any interference of the promoting NGO or the bank since SHG is responsible to the bank for repayment of the loan. Women managed self-help groups have shown remarkable growth during the last decade in India. SHGs have proved to be very versatile and their members have successfully taken up both economic and community related interventions.

SHGs provide poor women an opportunity to take decisions involving themselves, their groups and their lives. Savings and credit is normally used as an entry point for formation of SHGs since it gives the members a chance to participate in decision-making and satisfies their short-term credit needs. Realising that they can be a promising tool in capacity building of rural poor especially women, central and state governments have vigorously supported the SHG-centric models of development in India.

Sarojini Ganju Thakur and Anand Mohan Tiwari in their article reports ‘Whether SHG-based Micro-credit Programmes can Remove Poverty? A case study of SHG-based programmes in Patan District of Gujarat, reported that, besides Swa-Shakti Project of Department of Women & Child Development (DWCD) which was launched in 1998, many other agencies have taken up programmes for supporting women’s SHG movement. NABARD has launched a major initiative for accelerating credit linkage to SHGs and over 3,25,000 SHGs are now accessing bank credit.

Rashtriya Mahila Kosh (RMK, an autonomous organisation promoted by DWCD), Swarnjayanti Gram Swa-rozgar Yojana (SGSY) and Watershed Development Projects of Ministry of Rural Development, Mahila Samakhya of Department of Education, Women in Agriculture, Swayamsiddha of DWCD, Jeevika Project of Government of Gujarat, Stree Shakti, Mission Shakti, SHG Missions in some other states are supporting formation and strengthening of SHGs in a big way. After success of the initial pilot, this strategy was extended to every commercial and Regional Rural Bank.

Some second-tier micro-finance institutions (MFIs) like RMK, Friends of Women World Banking (FWWB), Basix, Sanghmitra Rural Financial Services and SIDBI Micro-credit Foundation, etc. have emerged in the last decade. It is estimated that around 2. 5 to 3 million borrowers, mostly women, are linked with this mechanism in India. Status of SHGs and Microfinance in different states of India The regional development of micro credit programmes under self help groups has wide variations in terms of growth and performance among the states in India.

Das, Nanda and Rath reported about the performance of southern region, especially Tamil Nadu, Andhra Pradesh and states that it has been the best in the promotion of Self Help groups in India. According to them these two states account for more than 66 percent of Self-help groups receiving loans through bank linkage. Andhra Pradesh has 53 percent of total SHFs due to more women enterprises, higher level of literacy and strong co-operative institutions. They also reveals that the southern region has the best performance where Rs. 5242. 42 million are distributed among the self help groups.

The eastern region has second best performance where cumulative number of SHGs bank loan up to 2005 is Rs. 123256 million and per capita credit per SHG is Rs. 20428. 5 million. Sarojini Ganju Thakur and Anand Mohan Tiwari in their article reports ‘Whether SHG-based Micro-credit Programmes can Remove Poverty? A case study of SHG-based programmes in Patan District of Gujarat, mentioned that the SHG-driven micro-finance movement has flourished in Gujarat. Besides the State Government which is promoting these institutions in a big way, many NGOs are actively involved in formation and nurturing of SHGs.

Although the overall focus of individual interventions vary, development of micro-finance and micro-enterprise appears to be a common theme in majority of these programmes. Besides the Government and other Public sector organizations like NABARD, a large number of NGOs, including few nationally recognized ones like Self Employed Women’s Association (SEWA), Agha Khan Rural Support Programme (AKRSP), Sadguru and many other NGOs have formed women’s SHGs with the support from various government programmes.

The recent earthquake in Kutch and neighbouring districts motivated many NGOs from outside to start work in these areas and they also formed some women’s SHGs. At a conservative estimate, more than 200,000 SHGs are functioning in the State, with Rural Development Department alone supporting over 100,000 SHGs. Of these, close to 60,000 SHGs have been linked with commercial banks that have extended credit of approximately Rs. 200 million. SGSY claims to have formed 23,000 in the State of Gujarat.

The role of Micro Finance Institutions on Socio-Economic Development

Rural Poor in Orissa was described by Das, Nanda, and Rath. They reported that:

  • Costly loans from informal sources have been significantly reduced as a proportion of a household’s debt portfolio.
  • The interest rates have come down drastically.
  • It has helped the poor to diversify livelihood options.
  • It has helped in generating incremental employment.
  • It also has helped in reducing poverty.

Debadutta Kumar Panda added that, through the microfinance revolution, rural villagers of Orissa, the most backward state of India, have undergone a remarkable social upliftment.

The value and acceptance of women has also increased substantially and is analyzed through a series of case study.  Such instances have shown that microfinance has proved very relevant and effective in India and offers the rural and urban poor the possibility of gradually breaking away from exploitation and isolation. Over the years, the provision of microfinance has brought significant increased productivity among the rural poor.

Self-reliance and sustainability of income generating and micro enterprise development programmes of self help groups have been successfully achieved with effective linkage and networking. The interplay between the two sub systems of socio-economic development, micro enterprise development and the micro credit and saving mechanism has been quite smooth and effective in the case of SHGs linkage to mainstream institutions.

On the other hand the progress of the SHG-bank linkage programme is also rapidly taking stride. Since inception as shown below the programme took off with a humble beginning of linking 255 groups in the first year i. e. 1992-93 with a loan disbursement of Rs 2. 9 million only. Average loan per SHG was about Rs 11. 37 thousand in 1992-93 whereas it has grown to Rs 61. 68 thousand in the year 2006-07.

There has been a tremendous growth in the number of groups over time. More than 29. 2 million SHGs with a membership of 40. 95 million households are linked to bank credit till March 2007 as shown below. The Table above shows that there has been a rapid growth of SHGs that are linked with banks i. e. Commercial banks, Regional Rural Banks and Cooperative banks for meeting credit requirements and other financial needs of SHG members in recent years. Particularly after 2000 the number of SHGs linked to banks has grown exponentially. In addition, there is other experience e. g. the Grameen Bank of Bangladesh model is being replicated in various parts of India.

SIDBI is also promoting microfinance through NGOs who are in the business of microfinance. Rashtriya Mahila Kosh (RMK) is also in the business of promoting microfinance in India through NGOs. It is estimated that the total outreach of Microfinance Institutions is about 7. 5 million (Sa-Dhan website). If 40 million of SHG-bank linkages are added to this, the total outreach of microfinance in India would become truly significant keeping in mind that there are about 60 million poor households in India.

Empowering SHG women through Micro Finance in India

The basic objective of SHG is that it acts as the forum for members to provide space and support to each other. SHGs comprise of very poor people who don’t have access to formal financial institutions. It enables its members to learn to cooperate and work in a group environment. The essential principle of SHG is strong saving programme, which helps it to reduce dependence on financial institutions and develop self-reliance. Saving help the group members to diversify their income generating activities and imbibe financial discipline in the group.

Self Help groups create confidence for the economic self-reliance of rural poor, particularly among women who are mostly invisible in the social structure. These groups enable them to come together for a common objective and gain strength from each other to deal with exploitation which they are facing in several forms. Further, micro financing i. e. provisioning of small financial services and products to poor people is contributing to the process of development by creating conditions that are conducive to human development.

It has a strong gender orientation. About 90% SHGs that are linked to banks are reported to be of women as mentioned earlier. Through these groups, women empowerment is taking place. Their participation in economic activities and decision making at household and at society level is increasing. It is making the process of development participatory, democratic, independent of subsidy and sustainable. Therefore, microfinance through SHGs is contributing to poverty reduction in a sustainable manner.

Studies have shown overall positive impact of SHG bank linkage programme on the socio-economic conditions of rural poor. It is reported that significant changes in the living standards of SHG members have taken place in terms of increase in income level, assets, savings, borrowing capacity and income generating activities. There are signs of empowerment taking place among women members of SHGs. An important aspect of the empowering impact of micro-credit is related to the process of organisation of women into groups.

For women who have been confined to households, their mobilisation into a collective, which could be of self help groups, smaller groups, cooperatives, etc. propels them into a more community-oriented entity, which gives them the basis for negotiating, sharing and bargaining at multiple levels – the house hold, community and government. Such groups give women the strength and self-confidence to resist the exploitation that they face within the household and community. There are innumerable examples of the nature of strength women have acquired after joining a group.

At the same time there are illustrations to show that organisation without changing the resource base is not a sufficient condition of empowerment. However, many practitioners have not fully understood the approach of SHGs. Women members of the SHG have shown increased levels of socio-political awareness and empowerment in the community, raised levels of negotiating power, and changes in community norms, particularly in terms of changing attitudes to gender expectations. As stated by Ghosh Rajshree in her article Women’s indicators of empowerment through icrofinance highlighted following major aspects of the empowerment.

  •  Ability to save and access loans
  •  Opportunity to undertake an economic activity
  •  Mobility-Opportunity to visit nearby towns
  •  Awareness- local issues, MFI procedures, banking transactions
  •  Skills for income generation
  •  Decision making within the household
  •  Group mobilization in support of individual clients- action on social issues
  •  Role in community development activities

Suggestions and Conclusion

There is no doubt that micro finance can provided micro solution to poor women but it will yield moderate economic benefits. The SHG-bank linkage yet to make substantial impact in poverty belts of India. Andhra Pradesh and Tamil Nadu have been successful in organizing self-help groups and other states should develop the self-help groups in our country. There is an urgent need for Government initiative into the self-help groups. And also more dedication and commitment of the NGO personnel is needed to make the group members understand the concept and essence of forming the group. Unless the group is fully aware and convinced regarding the concept of self help outside push will hardly work.

The dedication of the functionaries coupled with a little more professional input to the NGO would definitely lead to a self-sustainable self-help regime in the area. The members should be provided training in micro enterprises so that the credit availed by them can be used productively. The commercial banks must provide a greater linkage to self-help groups in providing them higher amount of bank loans. Further, for micro finance programme to be cost-effective in bringing about the empowerment of women, it would require,

  1.  providing business training,
  2.  investing in women’s general education and literacy,
  3.  roviding guidance in balancing family and work responsibilities
  4.  providing a forum for dialogue on social and political issues, such as, women’s rights and community problems,
  5.  giving women experience in decision – making promoting women’s ownership, control and participatory governance in their micro finance programmes.

Micro finance programmes, thus, has been very successful in reaching women. This gives micro finance institution an extra-ordinary opportunity to act intentionally to empower poor women and to minimize the potentially negative impacts some women experienced.


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  2. Karmakar K. G. , Micro Finance in India(Ed). Sage publications, New Delhi, 2008
  3. Debadutta Kumar Panda, ‘Self Help through Microfinance: A Paradigm Shift in Orissa, India’
  4. Ghosh Rajshree, Women’s indicators of empowerment through microfinance
  5. Sharma K. C, Microfinance through Self-Help Groups-Status and Emerging Challenges
  6. http://www. birdindia. org. in/admin/Literacy/413. doc.
  7. Thakur S. G. and Tiwari A., Whether SHG-based Micro-credit Programmes can Remove Poverty? A case study of SHG-based programmes in Patan District of Gujarat.
  8. http://www.wiego.org/ahmedabad/papers/Tiwari_Can_SHGs_remove_poverty. doc.
  9. http://www. edarural. com/impact/execsums. pdf.
  10. http://www. trcollege. net/articles/40-empowerment
  11. http://www. gdrc. org/icm/conceptpaper-india.
  12. html http://www. ivcs. org. uk/ijrs/April2008/Self%20Help%20through%20Microfinance%20in%20Orissa%20India. pdf.
  13. http://www. unescap. org/drpad/publication/bulletin%202002/ch6. pdf.
  14. http://unpan1. un. org/intradoc/groups/public/documents/APCITY/UNPAN024232. pdf.
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