Microfinance in India

A minor research project

1. 1

Awareness and Perception of Rural People about
Microfinance Services: A Study of Block Israna
A
Minor Project
Submitted to Department of Commerce
Of
Bhagat Phool Singh Mahilla Vishawavidayala, Khanpur Kalan
(Sonipat)
For the partial fulfilment of the pre- PhD course work


Under the Supervision of: Submitted by:
Dr. Bhavna Sharma Sushila
Assistant Professor Pre-PhD

DEPARTMENT OF COMMERCE
B.P.S. MAHILLA VISHWAVIDYALAYA, KHANPUR KALAN
(April 2016)

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CERTIFICATE

It is certified that Sushila has worked under my guidance and supervision
in the accomplishment of her Pre-PhD Minor Project entitled “Awareness and
Perception of Rural People about Microfinance Services: A Study of
Block Israna” leading to Pre-PhD in commerce.
It is further certified that this work is the result of her own efforts and is
fit for submission and evaluation.


(Dr. Bhavna Sharma)
Assistant Professor
Department of Commerce
B.P.S.M.V Khanpur Kalan
(Sonipat)

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UNDERTAKING

I hereby undertake that the work which is being presented here entitled,
“Awareness and Perception of Rural People about Microfinance Services: A
Study of Block Israna” is an original piece of work and has not been submitted
by me elsewhere for the said purpose.


Sushila

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TABLE OF CONTENTS

Contents Page No.

List of Tables
List of Figures
Abbreviations Used
1. Introduction
1.1 Concept of Microfinance
1.2 Brief History of Microfinance
1.3 Microfinance in India
1.4 Channels of Microfinance
1.5 Need of the study
2. Review of Literature
3. Research Methodology
3.1 Objectives
3.2 Hypothesis
3.3 Sampling design
3.4 Sample size determination and sampling technique
3.5 Collection of data
3.6 Statistical techniques used
3.7 Limitations of the study
4. Analysis and Interpretation
4.1 Growth of Client Outreach of Microfinance Institutions.
4.2 Growth of SHGs Bank Linkage Program
4.3 Awareness about microfinance among rural people
4.4 Preferences between formal and informal sources of finance
4.5 Hypothesis testing
5. Findings and suggestions
6. References
7. Appendix


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LIST OF TABLES
Table 1.1 Access to finance: Major milestones
Table 1.2 Microfinance Providers
Table 1.3 Models of Self help group bank linkage program
Table 1.4 No. of microfinance institutions working in Indian states/UTs
Table 1.5 Number of borrowers of MFIs in different regions of India
Table 1.6 Present status of SHGs Bank Linkage Program state wise
Table 1.7 Region wise total number of self help groups
Table 4.1 Number of borrowers of MFIs over the years
Table 4.2 Growth of SHGs bank linkage program in numbers and bank loan
distributed
Table 4.3 Region wise growth of Self Help Groups over the years
Table 4.4 Overall Progress under SHG-Bank Linkage Program
Table 4.5 Demographic profile of respondents
Table 4.6 Awareness about microfinance

Table 4.7 Awareness level about micro finance products
Table 4.8 Source of awareness
Table 4.9 Bank account
Table 4.10 Knowledge about type of bank account
Table 4.11 Reasons of not having a bank account
Table 4.12 Loan taken
Table 4.13 Preference of sources of finance
Table 4.14 Preference to formal and informal sources

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Table 4.15 Reasons of taking loan from informal source of finance
Table 4.16 Reason of not taking any loan
Table 4.17 Awareness about microfinance * Gender Cross tabulation
Table 4.18 Chi-Square Tests
Table 4.19 Preference between sources of finance * Gender Cross tabulation
Table 4.20 Chi-Square Tests

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LIST OF FIGURES
Figure 1.1 Financial services that poor people need access.
Figure 1.2 No. of MFIs operating in the states/UTs of India
Figure 1.3 Region wise borrowers of MFIs
Figure 1.4 Numbers of SHGs Bank Linkage Program state wise
Figure 4.1 Number of borrowers of MFIs over the years
Figure 4.2 Total No. of SHGs over the years
Figure 4.3 Trends in SHGs linked during the year
Figure 4.4 Progress of bank loan disbursed during the year
Figure 4.5 Region wise growths of Self Help Groups
Figure 4.6 SHG-Bank Linkage Program (Saving and Credit)

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ABBREVIATIONS USED
 CAGR Compound Annual Growth Rate
 JLG Joint Liability Group
 MFI Micro Finance Institutions
 NABARB National Bank for Agricultural and Rural Development
 NBFC Non-Banking Financial Companies
 NGO Non-Government Organisation
 RBI Reserve Bank of India
 RRB Regional Rural Bank
 SBLP Self help group Bank Linkage Program
 SEWA Self Employed Women Association
 SHGs Self Help Groups
 SGSY Swarnjayanti Gram Swarazgar Yojana
 SIDBI Small Industries Development Bank of India
 UTs Union Territories

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1. Introduction
‘‘The Poor stay poor, not because they are lazy but because they have no access to
capital.”
Laureate Milton Friedman
“Microfinance recognizes that poor people are remarkable reservoirs of energy and
knowledge and while the lack of financial services is not just a sign of poverty.
Today it is looked as an untapped opportunity to create markets, bring people in
from the margins and give them the tools to help themselves.”

Kofi Annan (Sec.General of UN)

Poverty is one of the biggest problems in the world. In 2014, a report by the
Indian Government estimated that 363 million Indians, making up 29.5% of the total
population, were living below the poverty line in 2011-12. The report, by the planning
commission of India also estimates that the India poverty ratio fell from 38.2% to 29.5%
between 2009-10 and 2011-12, lifting 91.6 million individuals out of poverty A large
number of people are transmitting from rural area to urban areas in search of their living.
The failure of the stagnant industrial sector to absorb them has caused many workers to
remain unemployed or underemployed. Poor Families struggle to afford even their most
basic needs. They are unable to afford adequate meals, clean drinking water, education,
proper shelter and even medicine when they are sick. Poor people cannot improve their
lives themselves because they have little access to the financial products and services.
Without life and health insurance, diseases and illness go untreated and the death of an
income earner is a dramatic hardship for a family. Without the access to loan or credit,
shop-owners cannot buy products in bulk and famers cannot buy machinery or even seeds
after a natural disaster. Without access to saving accounts, money is hidden in walls or
floorboards where it can be stolen. Therefore, access to financial markets is important for
poor people. For this purpose the banking system should be stimulated at micro level so that
banking services can be insured easily accessible to the vast sections of disadvantaged and
low income groups at affordable cost in a fair and transparent manner. Indian Government
has done various efforts to provide the access to finance to needy people.

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Table 1.1 Access to finance: Major milestones
Year Efforts
1969  Nationalization of banks
1971  Establishment of Priority Sector lending norms
1975  Establishment of Regional Rural Banks
1982  Establishment of NABARD
1992  Launching of the SHG -Bank Linkage programme
1993  Establishment of Rashtriya Mahila Kosh
1998  NABARD sets a goal for linking one million SHGs by
2008
 Kisan credit card has been launched
2000  Establishment of SIDBI Foundation for Microcredit
2004  Launching of a pilot project on Joint Liability Programme
2005  Establishment of Centre For Microfinance Research in
Lucknow
 One million SHG linkage target achieved 3 years ahead
of date
 No frill accounts, poor people can open bank accounts
with very low balance i.e Rs 5 only.
2006  Committee on Financial Inclusion
 Micro Enterprise Development Programme for skill
development
2007  Proposed bill on microfinance regulation introduced in
Parliament
 Scheme called Capital/Equity Support to MFIs introduce
by NABARD
 Launching of a pilot project of SHG- Post Office linkage
2008  Setting of Financial Inclusion Fund and Financial
Inclusion Technology Fund
2011  Launching of „Swabhimaan‟ to ensure banking facilities
2014  Launching of Pradhan Mantri Jan Dhan Yojana
2015  Establishment of Micro Units Development and
Refinance Agency (MUDRA) Bank

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1.1 Concept of Microfinance
Microfinance refers to the provision of financial services, usually in form of small financial
transactions, to the poor people who usually fall outside the reach of formal finance.
Commercial banks usually ignore them to avoid high transaction costs incurred in servicing
small loans and saving deposits. Moreover, most of the poor do not possess assets normally
demanded as collateral by the banks. So they are perceived as being too risky to be granted
loans. The financial services that poor people need access are shown in Figure 1.1.
As per the definition given by Asian Development Bank (2008), micro financing is “a
provision of a broad range of financial services such as deposits, loans, payment services,
money transfer and insurance to the poor and low income households and their micro
enterprises.”
The Task force on Supportive Policy and Regulatory Framework for Micro Finance (1998)
has defined microfinance as the “Provision of thrift, credit and other financial services and
products of very small amounts to the poor in rural, semi-urban or urban areas for enabling
them to raise their income levels and improve living standards.

Figure 1.1 Financial services that poor people need access to
Source: Helms (2006) edited by researcher

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Microfinance refers to a variety of financial services such as savings accounts,
insurance funds and credit provided to poor and low income clients so as to help them
increase their income, thereby improving their standard of living. Since the clients of
microfinance institutions (MFIs) have lower incomes and often have limited access to
other financial services, microfinance products tend to be for smaller monetary
amounts than traditional financial services. Microloans are given for a variety of
purposes, frequently for microenterprise development. The diversity of products and
services offered reflects the fact that the financial needs of individuals, households, and
enterprises can change significantly over time, especially for those who live in poverty.
Because of these varied needs, and because of the industry's focus on the poor,
microfinance institutions often use non-traditional methodologies, such as group
lending or other forms of collateral not employed by the formal financial sector.
Microfinance services
Microfinance provides following financial services to the poor people.
1) Micro savings: Micro savings are deposit services that allow people to store small
amounts of money for future use, often without minimum balance requirements.
Savings accounts allow households to save small amounts of money to meet
unexpected expenses and plan for future investments such as education and old age.
2) Micro credit: Micro credit is a small amount of money loaned to a client by a bank
or other institution. Microcredit can be offered, often without collateral, to an
individual or through group lending.
3) Micro insurance – Gives the entrepreneurs the chance to focus more on their core
business which drastically reduces the risk affecting their property, health or working
possibilities. The is different types of insurance services like life insurance, property
insurance, health insurance and disability insurance.
4) Micro leasing – For entrepreneurs or small businesses who can´t afford buy at full
cost they can instead lease equipment, agricultural machinery or vehicles.
5) Money transfer – A service for transferring money, mainly overseas to family or
friends. Money transfers without opening current accounts are performed by a number
of commercial banks through international money transfer systems such as Western
Union and Money Gram.

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1.2 Brief History of Microfinance
Before the microfinance industry, people around the world have been borrowing and
saving using various sources outside of the formal financial sector. Informal financial
services ranging from loan sharks, community members and saving groups were once
the only source for low income individuals who were unbanked or under banked. The
history of micro financing can be traced back as long to the middle of the 1800s when
the theorist Lysander Spooner was writing over the benefits from small credits to
entrepreneurs and farmers as a way getting the people out of poverty. But it was at the
end of World War II with the Marshall plan the concept had a big impact. The today
use of the expression micro financing has it roots in the 1970s when organizations,
such as Grameen Bank of Bangladesh with the microfinance pioneer Mohammad
Yunus, where starting and shaping the modern industry of micro financing.
In 1974 the professor of economics at Chittagong, Dr. Muhammad Yunus, with the
intent of finding a practical solution to poverty, experienced the first microfinance
attempt himself. During visit to a rural village in Bangladesh, he lent 27$ to a
community of 42 people who were otherwise unable to make out a living. The result
was that those people were able to invest that amount in their small wood work
business, sell their products, buy food and other basic stuff and give to the money
back to the professor with interest.(Tripathi,2014) After proving that poor people can
be trusted to repay loans, and that it is possible to provide financial services to them,
Yunus started the Grameen Bank in 1983; a bank for the poor (grameen-info.org,
2015). The concept was successful, and Yunus received the Nobel Peace Prize in
2006 “for their efforts through microcredit to create economic and social development
from below” (nobelpeaceprize.org, 2015).
At that time in 70‟s a new wave of microfinance initiatives introduced many new
innovations into the sector. Many pioneering enterprises began experimenting with
loaning to the underserved people. Self Employed Women's Association (SEWA)
Bank (1973) in India, Shore bank (1974) in Chicago and ACCION institution in Latin
America were established in the field of microfinance. The 1990s saw growing
enthusiasm for promoting microfinance as a strategy for poverty alleviation. The
microfinance sector blossomed in many countries, leading to multiple financial
services firms serving the needs of micro entrepreneurs and poor households. These
gains, however, tended to concentrate in urban and densely populated rural areas.

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1.3 Microfinance in India
Micro finance in India is not new. In 1972 the Self Employed Women's Association
(SEWA) was registered as a trade union in Gujarat (India), with the main objective of
"strengthening its members' bargaining power to improve income, employment and
access to social security." In 1973, to address their lack of access to financial services,
the members of SEWA decided to found "a bank of their own". Four thousand women
contributed share capital to establish the Mahila SEWA Co-operative Bank. Since
then it has been providing banking services to poor, illiterate, self-employed women
and has become a viable financial venture with today around 30,000 active
clients. The microfinance sector went on to evolve in the1980s around the concept of
SHGs, informal bodies that would provide their clients with much-needed savings and
credit services.

Historically, credit to the poor in India was viewed as a government program that
required large amounts of subsidy. This has changed somewhat in that the trend has
been a move towards more commercial forms of financing. This trend has been the
product of a long evolution of the financial sector, which can be characterized by
three major events.
 The first of these pivotal events was Indira Gandhi‟s bank nationalization drive
launched in 1969 which required commercial banks to open rural branches resulting
in a 15.2% increase in rural bank branches in India between 1973 and 1985. Despite
these achievements, there still has been little progress in providing the rural poor
with access to formal finance.

 The second national policy that has had a significant impact on the evolution of
India‟s banking and financial system is the Integrated Rural Development Program
(IRDP) introduced in1978 to alleviate poverty. It provides loans to the rural poor
through the banking system at subsided rates. In addition, a cash subsidy was paid to
borrowers equal to 25% of total cost for projects financed for small farmers, 33%
for projects for agricultural labourers and 50% for lower caste persons. These
subsidies were distributed when the loans were disbursed. Loan made by
commercial banks were subject to a nominal interest rate ceiling of 12% per year

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and were made a maximum of 3 years. A government evaluation in 1989 revealed
that it had not achieved the expected results and the loan recovery had fallen to only
31% by 2000. It was finally discounted in 2000 and replaced by a self employment
program Swarnjayanti Gram Swarazgar Yojana (SGSY).

 The last major event which impacted the financial and banking system in India was
the liberalization of India‟s financial system in the 1990s characterized by a series of
structural adjustments and financial policy reforms initiated by the Reserve Bank of
India (RBI). The result was a partial deregulation of interest rates, increased
competition in the banking sector, and new microfinance approaches of which the
most notable was a movement to link informal local groups called self-help groups
(or SHGs) created by NGOs to commercial banks like the National Bank for
Agriculture and Rural Development (NABARD). These financial policy reforms in
the 1990s were very significant to microfinance because they involved scrapping the
interest rate controls for credit to the poor and other types of credit. These financial
liberalization measures then made it possible for NABARD to transform what was
then a small research project into a full blown microfinance program for the whole
country. This program was better known as the „SHG Bank Linkage‟ model which
has come to be one of the most well known and widespread microfinance models in
India. Since many consider the SHG Bank Linkage model of microfinance to be one
of the major successes of microfinance delivery in the country it will provide the
most important direct contrast to the delivery of microfinance services by individual
MFIs.


Microfinance providers in India
Earlier, the indigenous bankers also known as private moneylenders controlled the the
entire unorganised banking sector. Obviously, the borrowers were always exploited due to
excessive rate of interest and immoral practices. After nationalisation of banks, the
situation has changed for better. Now banks have some social responsibilities also. They
have to implement various government schemes like Twenty point program, subsidized
differentiated rate of interest, Pardhan Mantri Jan Dhan Yojana etc which aimed at
uplifting the poor section of society through micro credit. In India microfinance providers
are divided into three categories as shown in table 1.2.

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Table 1.2 Microfinance Providers
Formal Semi- Formal Informal
It includes
 Commercial banks
 Regional Rural
banks
 Development banks
 Cooperative banks
 Non Banking
Financial
Companies
(NBFCs)
 Finance companies
 Insurance
companies


It includes
 Non Governmental
Organisations(NGO
s)
 Micro financing
institutions (MFIs)
 Self help group bank
linkage program
 Saving and credit
societies

It includes

 Relatives / friends
 Private money
lender
 Employers
 Colleagues
 Landlords
 Pawnshops



1.4 Channels of Micro finance
In India microfinance operates through two channels:
 Micro Finance Institutions (MFIs)
 SHG – Bank Linkage Programme (SBLP)


Present status of Micro Finance Institutions (MFIs)
Those institutions which have microfinance as their main operation are known as micro
finance institutions. A number of organizations with varied size and legal forms offer
microfinance service. The MFIs in India may have following legal form.

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1. NGO MFIs – Registered under Societies Registration Act 1860 and / or Indian
Trust Act 1880
2. Co-operative MFIs – Registered under State Co-operative Societies Act or
Mutually Aided Co-operative Societies Act (MACS) or Multi-State Co-op.
Societies Act, 2002
3. NBFC MFIs under Section 25 of Companies Act, 1956 (Not for profit)
4. NBFC MFIs incorporated under Companies Act, 1956 & registered with RBI
 Geographical Spread of Microfinance institutions

MFIs currently operate in 28 States, 5 Union Territories and 568 districts in India. Data
on how many Microfinance institutions are working in India is not available. But still a
list on number of MFIs working in different states in India is provided by the report of
Sa-Dhan on microfinance. Table 1.3 shows the no. of MFIs working in Indian states
/UTs ,no. of districts with MFI operations and no. of branches of microfinance
institutions.
Table 1.3 No. of microfinance institutions working in Indian states/UTs

Name of the states/ UTs
No. of MFIs
operating in the state
(including those
having head quarters
outside)
No. of districts
of the state
where MFIs
operate
No. of
branches
Madhya Pradesh 37 48 870
Maharashtra 37 35 980
West Bengal 35 20 1740
Tamil Nadu 34 32 1377
Karnataka 29 30 1185
Bihar 28 38 915
Odisha 26 30 742
Uttar Pradesh 23 70 1063
Gujarat 22 23 386
Rajasthan 21 33 287

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Assam 19 24 552
Jharkhand 19 23 231
Chhattisgarh 17 16 248
Delhi 13 7 70
Haryana 13 19 129
Kerala 13 14 220
Uttarakhand 13 10 95
Pondicherry 11 3 17
Andhra Pradesh 10 23 776
Manipur 8 9 45
Meghalaya 7 6 26
Punjab 7 17 93
Tripura 6 6 99
Goa 4 2 7
Himachal Pradesh 4 4 6
Mizoram 4 8 34
Arunachal Pradesh 3 7 11
Sikkim 3 3 10
Nagaland 2 4 2
Andaman & Nicobar 1 1 1
Chandigarh 1 1 2
Dadra and Nagar Haveli 1 1 1
Jammu & Kashmir 1 1 1
Total

568 12221
Source: Bharat microfinance report 2015 of Sa-Dhan

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Figure 1.2 No. of MFIs operating in the states/UTs of India
37 37
35
34
29
28
26
23
22
21
19 19
17
13 13 13 13
11
10
8
7 7
6
4 4 4
3 3
2
1 1 1 1
No. of MFIs operating in the states (including those having
Head Quarters outside)
No. of MFIs operating in the state (including those having Head Quarters outside)

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 Client Outreach of MFIs
The total number of clients served by MFIs stood at 371 lakh as on 31 March, 2015.
Table 1.4 shows the number of borrowers of MFIs in different regions of India.

Table 1.4 Number of borrowers of MFIs in different regions of India
Region wise borrowers of MFIs
Region No. of borrowers(in lakh) Percentageage
Northern Region 14.84 4%
North Eastern Region 22.26 6%
Eastern Region 92.75 25%
Central Region 55.65 15%
Western Region 40.81 11%
Southern Region 144.69 39%
Grand Total 371 100%
Source: Bharat microfinance report 2015 of Sa-Dhan
Out of the total client base of 371 lakh, South alone contributes to 39% followed by 25%
in East. Central region and West have 15% and 11% of total outreach respectively.
Northeast and North have the least client outreach numbers with 6% and 4%
respectively. Share in outreach has expanded only in case of Central and North east
regions from 13 to 15 % and 5 to 6 % respectively. Figure 1.3 shows the same through
pie chart.
Figure 1.3 Region wise borrowers of MFI

4% 6%
25%
15% 11%
39%
No. of borrowers of MFIs (in lakh)
NORTHERN REGION NORTH EASTERN REGION
EASTERN REGION CENTRAL REGION
WESTERN REGION SOUTHERN REGION

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 Present Status of SHGs Bank Linkage Program

SHG – Bank Linkage Programme (SBLP) is the bank-led microfinance channel
which was initiated by NABARD in 1992. A SHG is a registered or unregistered
group of 10-20 persons having homogeneous social and economic background,
coming together to save small amount regularly, to mutually agree to contribute to
a common fund and to meet their emergency needs on mutual help basis. Once the
group start working properly, it is linked with banks to provide loans for
developmental purposes.
Characteristics of SHGs
 Create a common fund by contributing their small savings.
 Transparency in operations.
 Intimated knowledge of each other' intrinsic strengths, needs and problems.
 Have a common fund.
 Have simple and responsive rules.
 Collective decision making.
 Market driven rates of interest and as decided by the group.
 External interference kept to the least.
 Loan request are considered by groups.
 Loaning is mainly on the basis of mutual need to the rural poor without any
tangible security.

76.97 lakh SHGs are linked with banks as on 31 march 2015.Table 1.5 shows the
number of SHGs linked with banks in various states in India and Figure 1.4 explains
the same.

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Table 1.5 Present status of SHGs Bank Linkage Program state wise

Present status of SHGs Bank Linkage Program

Name of the State
Number of self help
groups
Sr. No. Northern Region
1 Chandigarh 90
2 Haryana 41653
3 Himachal Pradesh 37838
4 Jammu & Kashmir 6214
5 New Delhi 3290
6 Panjab 25870
7 Rajasthan 245903

TOTAL 360858

North Eastern Region
1 Assam 292071
2 Arunchal Pradesh 3351
3 Manipur 10702
4 Meghalaya 7910
5 Mizoram 7481
6 Nagaland 2880
7 Sikkim 1368
8 Tripura 8218

TOTAL 333981

Eastern Region
1 A&N lslands 4998
2 Bihar 224469
3 Jharkhand 82138
4 Odisha 452068
5 West Bengal 760941

TOTAL 1524614

CENTRAL REGION

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1 Chattisgarh 148293
2 Madhya Pradesh 225615
3 Uttar Pradesh 392276
4 Uttarakhand 51067

TOTAL 817251

Western Region
1 Goa 7445
2 Gujarat 215839
3 Maharashtra 717860

TOTAL 941144

Southern Region
1 Andhra Pradesh 884508
2 Karnataka 734304
3 Kerala 585471
4 Lakshadweep 231
5 Puducherry 16641
6 Tamil Nadu 987282
7 Telangana 511184

TOTAL 3719621

GRAND TOTAL 7697469
Source: NABARD report on status of microfinance in India 2014-15

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Figure 1.4 Numbers of SHGs Bank Linkage Program state wise

0
100000
200000
300000
400000
500000
600000
700000
800000
900000
1000000
Chandigarh
Haryana
Himachal Pradesh
Jammu & Kashmir
New Delhi
Panjab
Rajasthan
Assam
Arunchal Pradesh
Manipur
Meghalaya
Mizoram Nagaland
Sikkim
Tripura
A&N lslands
Bihar
Jharkhand
Odisha
West Bengal
Chattisgarh
Madhya Pradesh
Uttar Pradesh
Uttarakhand
Goa
Gujarat
Maharashtra
Andhra Pradesh
Karnataka
Kerala
Lakshadweep
Puducherry Tamil Nadu
Telangana
No. of Self Help Groups
No. of Self Help Groups

25. 25


It is clear from the above figure that Tamil Nadu has the highest number of SHGs and the
concentration of SHGs is in South. In North East Self help groups are less as compared to
other regions.
Table 1.6 Region wise total number of self help groups
Region Number of Self Help Groups % of total SHGs
Northern Region 360858 5%
North Eastern Region 333981 4%
Eastern Region 1524614 20%
Central Region 817251 11%
Western Region 941144 12%
Southern Region 3719621 48%
Grand Total 7697469 100%
Source: NABARD report on status of microfinance in India 2014-15
Out of total 7697469 Self Help Groups South alone contributes to 48% followed by 20%
in East. Central region and West have 11% and 12% of total SHGs respectively.
Northeast and North have the least number of SHGs with 4% and 5% respectively.
Figure 1.5 shows the same through pie chart.
Figure 1.5 Region wise Self Help Groups penetration


5% 4%
20%
11%
12%
48%
Number of Self Help Groups
NORTHERN REGION NORTH EASTERN REGION
EASTERN REGION CENTRAL REGION
WESTERN REGION SOUTHERN REGION

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1.5 Need of the study
Inclusiveness is the growth mantra for policy makers today not just in India, but the
world over. Today the goal of the Government is not only enhanced growth but inclusive
growth also. Financial inclusion may be defined providing banking services at affordable
cost to low income households or the unbanked segment who do not have any access to
the formal banking system which will ensuring inclusion of marginalised and
disadvantaged sections of society in the financial services. Microfinance is one of the key
factors of financial inclusion. But due to the lack of awareness about microfinance
informal sources of finance are still preferred by the rural poor, so a need arises to
identify that section of society which has deprived awareness about microfinance
interventions. The present study is an attempt to know the awareness level of rural people
about microfinance interventions and the preference of rural people about formal and
informal sources of finance.

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2. Review of literature
The main purpose of microfinance programme is to provide credit on easy terms to the
poor and needy people who otherwise cannot access to credit services due to high rates of
interest payments.

Puhazhendhi and Satyasai (2000) in their study commissioned by NABARD covered
560 sample households from 223 SHGs spread over 11 states across India. For
examining the impact of the microfinance programme, a comparison of pre- and post-
SHG situation was made. The findings of this study showed 33 per cent rise in average
annual income from pre- to post-SHG situation. Forty per cent of this incremental
income was generated by non-farm sector activities. The share of families living below
the poverty line was reduced by 20 per cent in post-SHG situation.

Mishra et al. (2001) examined the impact of rural SHGs on generation of income and
employment among the beneficiaries and suggest measures for overcoming the problems
faced by members in Faizabad district of eastern Uttar Pradesh. They surveyed five
SHGs in Amaniganj block of the district. It was observed that SHG members were
mainly from OBC community whose main occupations were agriculture, small
businesses, labour etc. Ninety three per cent of the SHG members were male and only 7
per cent were female. Majority of the members was below the poverty line. The average
monthly savings ranged from Rs. 15 to Rs. 50. Repayment performance was good. The
results showed that SHGs have helped to increase the income of the participants by 10 to
15 per cent. The major problems faced by members were lack of training, credit and
marketing facilities, entrepreneurship and high interest rate. It was suggested to involve
commercial banks, RRBs and primary agricultural co-operative societies to provide
liberal credit at cheaper interest rate to the poor through SHGs.

Nashi, S. K (2004) made an attempt to study the impact of microfinance on
empowerment of rural women making them financially and socially strong. The study is
based on the secondary data and it covers SHG bank linkage in Belgaum district of
Karnataka State. It derives the advantages of SBL to banks, SHGs and NGOs. The author
concluded that as women are becoming major economic contributors in society ,so
society should change the attitudes and involve them in decision making process.

28. 28

Narayanaswamy et al. (2005) examined the functioning of SHGs under the SGSY
scheme in one district in the state of Tamil Nadu. He used both quantitative and
qualitative methods with a sample of 235 groups. Prominent reasons among members to
join the group were credit requirements, freedom from moneylenders, initiating income
generation activities and to improve socio-economic conditions. The average saving of
each group was 28,000. There was a smooth credit disbursement with high loan
repayment. The majority of the loans were used in animal husbandry (24%), household
expenses (17%) medical expenses (16%) and microenterprises (13%). More than 70 %
members saw an increase in income of Rs. 2000 per month and remaining reported from
1000 to 1500 per month. Members were highly involved in income generation activities.

Basu and Srivastava (2005) highlighted the inadequacies in rural access to formal
finance and the exploitative terms of informal finance, which provided a strong need for
innovative microfinance approaches. The survey took a sample of 6000 rural households.
The sample area was two Indian states- Andhra Pradesh and Uttar Pradesh. The study
indicated that rural banks serve primarily the needs of the richer rural borrowers and the
rural poor faced severe difficulties in getting loan from the formal sector. The results
showed that 66 per cent of the large farmers had a deposit account and 44 per cent had
access to credit. While only 30 per cent of the marginal/landless farmers had a bank
account and 87 per cent had 28 no access to credit from a formal source. So, they had to
depend on informal sources of finance. Around 44 per cent of the households surveyed,
borrowed informally at least once in preceding 12 months and the interest charged on
informal loans averaged 48 per cent per annum. Through this survey, it was also found
that the largest uses of informal loans were for meeting family emergencies (29 per cent)
and social expenditures (19 per cent) arising from events such as births, marriages and
deaths. Only 13 per cent of borrowers reported using informal loans for investment
purposes.

Rajendran, K., & Raya, R. P. (2010) analysed the impact of microfinance on the
empowerment in psychological, economic and social aspects and managerial skills of
leaders of SHGs and their attitude in Vellore district in Tamil Nadu. 180 leaders and
animators of the SHGs were selected for the study. Simple statistical tools both average
and Percentageage analysis were used to draw conclusions in addition to ANOVA. The
study concluded that microfinance brought psychological and social empowerment than

29. 29

economic empowerment. The respondents of Natrampalli block are well empowered than
their counterparts in Nemili block even though both the blocks have same level of
socioeconomic conditions. There is a definite improvement of managerial skills,
psychological well being and social empowerment among rural women as a result of
participating in micro finance through SHG programme.

Chatterjee (2014) analyzed the role of Self-Help Groups towards the economic
empowerment of women in West Bengal. SHG encouraged women to form voluntary
association and emerge as a group of saver-cum-borrowers. In fact, any financial
assistance, if utilized properly generates gainful employment opportunities. Positive sign
of employment generation was found in rural economy of Khejuri. Income has a
favorable effect on consumption expenditure in general and on education, health, social
and familial status of members in particular.

Nirmala & Yepthomi (2014) examined the impact of SHGs micro-financing on poverty
alleviation and well-being of the rural poor women in Nagaland. The results revealed the
credit to have significantly improved their economic status and household wellbeing. It
also led to their empowerment, independence and social participation. The study
recommended training to them for better competitiveness and employment activities,
besides assisting with marketing facilities.

Koshy, C. J. (2014) analysed the women preference for formal and informal credit after
joining microfinance programs in the state of Kerala. For the purpose of the study a
sample of 220 microfinance beneficiaries was taken from leading MFIs operating in the
state of Kerala by convenience sampling method. The findings of the study concluded
that after joining microfinance program the dependence of women on informal source of
finance is reduced to a great extent. The preference of women has changed after joining
microfinance program.
Modi, A. G., Patel, J. K., & Patel, M. K. (2014) analysed the impact of microfinance
services in empowering the rural women in Gujarat. For this purpose 205 respondents out
of 248 questionnaires yielding a response rate of 82.66% residing in rural areas of North
Gujarat Region, Gujarat state are approached with structured questionnaire by following
a non-probabilistic convenience sampling technique The results indicate that four of the

30. 30

five factors (i.e. socio-economic status up gradation, autonomy for life choices, women
position in the family/society and positive approach towards child development) have
significant impact on rural women empowerment.

Aggarwal, P., & Shah, M. (2015) conducted a study on Impact evaluation of micro
finance on urban women in India. The objective of the research was to assess and
evaluate the contribution of microfinance institutions for the empowerment of urban poor
women and to explores impacts of microfinance on economic, social and overall
empowerment perspectives of women; using different frameworks. For the purpose of
the study the researcher collected data from 120 women through questionnaire along with
secondary data to assess the impact of MFIs in relation to Non-Government
Organizations (NGOs). Results found that most urban women in this association
experienced increased income and educational level, therefore improved their economic
status and social conditions after receiving the loans from NGOs.

Kapila, M., Singla, A., & Gupta, M. L. (2015) conducted a study to assess the impact
of microfinance on the generation of income and employment of the rural households‟ of
Punjab. The researcher used regression for analysis of data. The results obtained from
Logit model showed that the extent of the rural households earning income more than
`5000 per month is likely to be increased by 3 times with credit facility through SHGs.
Similarly, the number of rural households having employment more than 180 days was
likely to increase by 1.28 times with microfinance in the Punjab. Hence, it is concluded
that better access of microfinance through SHGs is helpful to generate the households‟
income and employment on sustainable basis in the rural area.

31. 31

3. Research Methodology
Research methodology is an approach to solve research problem in a systematic
manner. It explains the nature of research work, the type of research design used, how
to collect the data and which methods of statistical analysis will be used. The present
study is exploratory as well as descriptive in nature.

3.1 Objectives
1.To understand the concept of Micro Finance.
2.To know the growth of microfinance in India.
3.To know the awareness of rural people about microfinance interventions provided
by banks.
4. To know the preference about formal and informal source of finance among rural
people.

3.2 Hypothesis
Null hypothesis1: There is no any association between gender and awareness about
microfinance of rural people of Block Israna.
Null hypothesis2: There is no any association between gender and preference
between formal and informal sources of finance.

3.3 Sampling design
Population : Rural people of Israna block of district Painipat (Haryana)

 About study area
Israna is a Block placed in Panipat district in Haryana. Placed in rural area of
Haryana, it is one of the 6 blocks of Panipat district. According to the government
records, the block number of Israna is 36. The block has 32 villages and there are
total 23542 houses in this Block.

32. 32

 Population of study area
As per Census 2011, Israna's population is 126075. Out of this, 67453 are males
while the females count 58622 here. This block has 17337 kids in the age bracket
of 0-6 years. Out of this 9561 are boys and 7776 are girls.
 Literacy rate of Israna Block
Literacy rate in Israna block is 63%. 79549 out of total 126075 Population is
educated here. In males the literacy ratio is 71% as 48037 males out of total 67453
are educated whereas female literacy rate is 53% as 31512 out of total 58622
females are educated in this Block.

The dark part is that illiteracy ratio of Israna block is 36%. Here 46526 out of total
126075 people are illiterate. Male illiteracy rate here is 28% as 19416 males out of
total 67453 are illiterate. Among the females the illiteracy ratio is 46% and 27110
out of total 58622 females are illiterate in this block.
 Agricultural status of Israna Block
The count of employed people of Israna block is 43549 yet 82526 are un-
employed. And out of 43549 working person 13927 peoples are entirely reliant on
agriculture

3.4 Sample size determination and sampling technique
For the determination of sample size following formula is used given by Y


Where n - the sample size N - the population size e - the acceptable sampling error
Taking 10% sampling error (e=.01) and N=126075 in the above formula, we get
n = 126075/1+126075*(.01)
2

or
n =126075/1261.75 =99.92

33. 33

A sample of 100 was selected using snowball sampling method from the villages of
block Israna. Snowball sampling (or chain sampling, chain-referral sampling,
referral sampling) is a non-probability sampling technique where existing study
subjects recruit future subjects from among their acquaintances. In the present
researcher used this sampling technique because of non co-operation by the
respondents and to reach the lower income group among rural people.
3.5 Collection of data
The study was based on both primary as well as secondary data. The secondary data
has been collected through various sources like journal, books, manuals and reports
of RBI and NABARD on status of micro finance in India of various years. The
researcher used report of NABARD on status of microfinance in India and Bharat
microfinance report of Sa-Dhan for the collection of data. The secondary data
collected from secondary sources have been interpreted with the help of statistical
devices.
The primary data was collected using a questionnaire developed by the researcher.
The questionnaire was based on the questionnaire developed by Ms Meenu in her
thesis submitted under Dr. Sangeeta Arora in Guru Nanak Dev University Amritsar.

3.6 Statistical techniques used
The researcher used statistical tools like bar chart, pie chart, Percentageage, line chart
for the presentation of data. Secondary data has been analyzed using compound
annual growth rate (CAGR). For the calculation of CAGR following formula is used
in MS-EXCEL:

CAGR= ((Ending value/Beginning value)^(1/n)-1)



Primary data has been analysed with the help of SPSS version 21.Chi-square test was
used to test the hypothesis.

3.7 Limitations of the study
Due to time constraints, primary data is collected only from 100 respondents of Block
Israna. The study is based on a small sample therefore; the derived conclusions are
required to be examined further. The research study is based on perception of rural
poor about microfinance interventions. It is also possible that some respondents have
not disclosed facts fully and the researcher may not able to draw more appropriate
conclusion.

34. 34

4 Analysis and interpretation
Objective 2.To know the growth of microfinance in India.
4.1 Growth of client outreach of Microfinance Institutions: Table 4.1 and Figure 4.1
shows the number of borrowers of MFIs over the years.
Table 4.1 Number of borrowers of MFIs over the years
Year No. of Borrowers (in lakh)
2009-10 267
2010-11 317
2011-12 275
2012-13 275
2013-14 330
2014-15 371

Source: Bharat microfinance report 2015 of Sa-Dhah


Figure 4.1 Number of borrowers of MFIs over the years




2009-102010-112011-122012-132013-142014-15
267
317
275 275
330
371
No. of Borrowers (in lakh)
No. of Borrowers (in lakh)

35. 35

4.2 Growth of SHGs bank linkage program: SHG – Bank Linkage Programme
(SBLP) is the bank-led microfinance channel which was initiated by NABARD in
1992. NARBARD‟s mission is to “promote sustainable and equitable agriculture and
rural prosperity through effective credit support, related services, institution
development and other innovative initiatives” (Nabard.org, 2015). In 1992 only 255
SHGs were linked with banks and up to 31 march 2015, appro.7697000 SHGs are
linked with banks. Table 4.2 shows the growth of SHGs bank linkage program in
numbers and bank loan distributed. Figure 4.2 and 4.3 shows total no. Of SHGs over
the years and trends in SHGs linked during the year respectively.

Table 4.2 Growth of SHGs bank linkage program in numbers and bank loan
distributed

Progress of SHGs Bank Linkage Program ( All India)
Year No. of SHGs

Bank Loan
(End March) financed by banks

(Rs crore)

During the Cumulative During the Cumulative

Year

Year
1992-93 255 255 0.29 0.29
1993-94 365 620 0.36 0.65
1994-95 1502 2122 1.79 2.44
1995-96 2635 4757 3.62 6.06
1996-97 3841 8598 5.78 11.84
1997-98 5719 14317 11.92 23.76
1998-99 18678 32995 33.31 57.07
1999-00 81780 114775 135.91 192.98
2000-01 149050 263825 287.89 480.87
2001-02 197653 461478 545.47 1026.34
2002-03 255882 717360 1022.33 2048.67
2003-04 361731 1079091 1855.53 3904.2
2004-05 539365 1618456 2994.26 6898.26
2005-06 620109 2238565 4499 11397.46
2006-07 1105749 3344314 6570 17967.46
2007-08 1227770 4572084 8849.26 26816.72

36. 36

2008-09 1609586 6181670 12253.51 39070.23
2009-10 1586822 6953121 14453.3 53523.53
2010-11 1196134 7462147 14548.1 68071.63
2011-12 1147878 7960000 16535 84606.63
2012-13 1219821 7318000 20585.21 105191.84
2013-14 1366421 7430000 24017.12 129208.96
2014-15 1141208 7697000 20384 149592.96
CAGR 44.12%

62.45%
Notes : 1. Data relate to Commercial Banks, RRBs and Co-operative Banks.
2. From 2006-07 onwards, data on number of SHGs financed by banks and bank loans
are inclusive of 'Swarnajayanti Gram Swarozgar Yojna' (SGSY) SHGs and exisiting
groups receiving repeat loans. Owing to this change, NABARD discontinued the
publication of data on a cumulative basis from 2006-07.
Source : RBI publications

The growth of SBLP in India has been analysed through CAGR .The Compound Annual
Growth Rate shows that the SBLP is growing rapidly. It clear from the table 7.2 that
SHGs bank linkage program recorded CAGR 44.12 Percentage in physical and 62.45
Percentage in terms of bank loan up to the year 2015.



Figure 4.2 Total No. Of SHGs over the years










0
2000000
4000000
6000000
8000000
Total SHGs over the years
Total SHGs

37. 37


Figure 4.3 Trends in SHGs linked during the year




Figure 7.4 Progress of bank loan disbursed during the year




 Region wise growth of Self Help Groups: Table 4.3 and Figure 4.5 shows the
region wise growth of Self help groups in India from 2000-01 to 2014-15.


0
500000
1000000
1500000
2000000
1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15
No. of SHGs financed by banks During the
Year
No. of SHGs financed by banks During the Year
0
5000
10000
15000
20000
25000
30000
1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15
Bank loan During the year
Bank loan During the year

38. 38

Table 4.3 Region wise growth of Self Help Groups over the years
Years Northern
North
Eastern Central Eastern Western Southern
2000-01 9012 477 28851 22252 155543 187690
2001-02 19321 1490 48181 45892 29318 317276
2002-03 34923 4069 81583 90893 42180 463712
2003-04 52396 12278 127009 158237 54815 674356
2004-05 86018 34238 197365 265628 96266 938941
2005-06 133097 62517 267915 394351 166254 1214431
2006-07 170632 146281 456406 734197 319494 1810670
2007-08 208166 230045 644896 1074043 472734 2406910
2008-09 310998 240093 712915 1233635 796262 2827244
2009-10 315801 292188 765965 1374242 945620 3223434
2010-11 372272 324739 786436 1527618 960921 3489460
2011-12 409326 366718 812767 1625714 812767 3683737
2012-13 372837 323896 702198 1471099 906016 3541505
2013-14 365208 316299 685929 1468786 896954 3696324
2014-15 360858 333981 817251 1524614 941144 3719621
CAGR 27.88% 54.56% 24.97% 32.55% 31.46% 22.03%

Source : NABARD report of various years


The CAGR of Self help group bank linkage program of northern region is 27.88%, north
eastern region is 54.56%, central region is 24.97%, eastern region is 32.55%, western
region is 31.46% and southern region is 22.03%.This shows that the growth performance
of SBLP is remarkable in north eastern region although the penetration is low in that
region.

39. 39

Figure 4.5 Region wise growths of Self Help Groups


The above figure shows that growth of SHGs is higher in South region and lower in
North region. This shows that South region has accepted the concept of SHGs bank
linkage program of microfinance.

 Overall Progress under SHG-Bank Linkage Program: In this section we analyzed
the performance of SHGs-BLP by taking SHGs saving with banks, loan disbursed to
SHGs and loans outstanding against SHGs. Apart from that we presented a graphical
analysis of saving balance, loan disbursed and loan outstanding. Table 4.4 shows the
Overall Progress under SHG-Bank Linkage Program and Figure 4.6 represents the
same graphically.

Table 4.4 Overall Progress under SHG-Bank Linkage Program (Amount Rs in
crore)

Year
Saving with
banks as on 31
st

march
loan disbursed
during the year
loan
outstanding
as on 31
st

march
2006-07 3512.71 6570.39 12366.49
2007-08 3785.39 8849.26 16999.91
2008-09 5545.62 12253.51 22697.84
2009-10 6198.71 14453.3 28038.28
2010-11 7016.3 14547.73 31221.17
0
1000000
2000000
3000000
4000000
5000000
6000000
7000000
8000000
9000000
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15
Southern
Western
Eastern
Central
North Eastern
Northern

40. 40

2011-12 6551.41 16534.77 33634
2012-13 8217.25 20585.36 39375.3
2013-14 9897.42 24017.36 42927.52
2014-15 11059.84 27582.31 51545.46

Source : NABARD report of various years

The above table shows that saving amount of SHGs with banks is less than the loan
outstanding. As on 31
st
march 2015 the loan outstanding with SHGs is 51545.46 crore
while the amount of saving with banks is only 11059.84 crore.

Figure 4.6 SHG-Bank Linkage Program (Saving and Credit)














0
10000
20000
30000
40000
50000
60000
Overall growth of SBLP
Saving with banks as on
31 march
loan disbursed during the
year
loan outstanding as on 31
march

41. 41

4.3 Awareness about microfinance among rural people
Objective3.To know the awareness of rural people about microfinance interventions
provided by banks.
Table 4.5 Demographic profile of respondents
Gender Frequency Percentageage
Male 57 57.0
Female 43 43.0
Total 100 100
Age
20-24 13 13.0
25-29 22 22.0
30-34 32 32.0
35 and above 33 33.0
Total 100 100
Marital status
Single 16 16.0
Married 74 74.0
Widow 10 10.0
Total 100 100
Type of family
Joint 37 37.0
Nuclear 63 63.0
Total 100 100
Education
Illiterate 21 21.0
Matric 36 36.0
Senior secondary 19 19.0
Graduation 17 17.0
Post graduation 6 6.0
Vocational 1 1.0
Total 100 100

42. 42

Occupation
Agriculture/Poultry 36 36.0
Labour/Helper 9 9.0
Petty venture 27 27.0
Employed 14 14.0
Unemployed 14 14.0
Total 100 100
Monthly income
Less than 4000 18 18.0
4000-8000 29 29.0
8000-12000 31 31.0
12000-16000 22 22.0
Total 100 100

The table shows that 57% of sample was male respondents and 43% was female. 36% of
respondents are engaged in Agricultural activities, which is higher among all other
occupations. Table 4.6 shows the awareness of respondents about microfinance.
Table 4.6 Awareness about microfinance

Awareness about microfinance
Frequenc
y
Percenta
ge
Valid
Percentage
Cumulative
Percentage

yes 75 75.0 75.0 75.0
no 25 25.0 25.0 100.0
Total 100 100.0 100.0


75% are aware about microfinance services provided by banks of which 46% are male
and 26% are female.

43. 43

Table 4.7 Awareness level about micro finance products
Microfinance products Percentageage
1.) Micro credit
(i)Agricultural loan 73
(ii) Consumption loan 72
(iii) Education loan 63
(iv) Loan to take up small economic activities 50
(v) Loan to buy any Machinery/Equipments 70
(vi) Auto loans 65
(vii) Medical loan 60
(2.) Micro savings
(i) Fixed deposit 74
(ii) Current account 74
(iii) Saving account 75
(iv) Zero minimum balance saving bank account 75
(v) SHGs saving bank account 24
(3.) Micro insurance
(i) Life insurance 70
(ii) Health insurance 72
(iii) Crop insurance 54
(iv) Cattle insurance 66
(v) Asset insurance 56
(4.) Housing microfinance

(i) For construction/purchase of house 70
(ii) For repair and renewal of house 74
(5.) Finance to SHGs 23
(6.) Finance to NGOs 42
(7.) Finance to MFIs 21
(8.) Finance for MSME 18

44. 44

(9.) Finance for Women 45
(10.) Differential Interest Rate (DIR) scheme 14
(11.) Money transfer facility 10
(l2) Payment/collection services 17
(13) Debit/Credit cards 70
(14.) Advisory services to NGOs/SHGs to identify viable
projects 45
(15.) Training programs for NGOs/SHGs/entrepreneurs 32

Although 75% of rural people are aware about microfinance, but they are not aware
about all services of microfinance. Awareness about finance by MFIs, NGOs, SHGs and
Differential Interest Rate (DIR) scheme is very low among rural people of Block Israna
Table 4.8
Source of awareness
Frequenc
y
Percenta
ge
Valid
Percentage
Cumulative
Percentage

Advertisement in
TV/radio/newspaper
21 21.0 28.0 28.0
Friends/relatives/neighbours 14 14.0 18.7 46.7
Bank representatives 19 19.0 25.3 72.0
Awareness campaigns 21 21.0 28.0 100.0
Total 75 75.0 100.0
Not aware 25 25.0
Total 100 100.0

45. 45

Table 4.9
bank account
Frequenc
y
Percenta
ge
Valid
Percentage
Cumulative
Percentage

yes 85 85.0 85.0 85.0
no 15 15.0 15.0 100.0
Total 100 100.0 100.0



Table 4.10
Knowledge about type of bank account
Frequenc
y
Percenta
ge
Valid
Percentage
Cumulative
Percentage

Saving bank A/C 37 37.0 43.5 43.5
Fixed deposit A/C 7 7.0 8.2 51.8
Recurring deposit A/C 10 10.0 11.8 63.5
Current A/C 15 15.0 17.6 81.2
Don't know 16 16.0 18.8 100.0
Total 85 85.0 100.0
Don‟t have bank account 15 15.0
Total 100 100.0


Table 4.11 Reasons of not having a bank account
Frequenc
y
Percentage Cumulative
Percentage

Insufficient income for saving 3 20.0 20.0
No need 5 33.3 53.3
was never apporched to open the
account
2 13.3 66.7
lack of awareness 5 33.3 100.0
Total 15 100.0

46. 46

4.4 Preferences between formal and informal sources of finance
Objective4.To know the preference about formal and informal source of finance
among rural people of Block Israna.

Table 4.12 shows that 80% of respondents have taken loan from any of the source of
finance.

Table 4.12
Loan taken
Frequenc
y
Percenta
ge
Valid
Percentage
Cumulative
Percentage

Yes 80 80.0 80.0 80.0
No 20 20.0 20.0 100.0
Total 100 100.0 100.0

Table 4.13
Preference of sources of finance
Frequenc
y
Percentage Valid
Percentag
e
Cumulative
Percentage

Formal sources of finance 30 30.0 37.5 37.5
Informal sources of finance 50 50.0 62.5 100.0
Total 80 80.0 100.0
Have not taken any loan 20 20.0
Total 100 100.0
Out of 80% who have taken loan 62.5% avails loan from informal source of finance.
Only 37.5% avails formal sources of finance. This shows that majority of rural people are
availing informal sources of finance. Table 4.14 shows the various of finance both formal
and informal.

47. 47

Table 4.14
Preference to formal and informal sources
Frequenc
y
Percenta
ge
Valid
Percentage
Cumulative
Percentage

Relatives/friends 21 21.0 26.3 26.3
Private moneylenders 22 22.0 27.5 53.8
Employer 7 7.0 8.8 62.5
NGOs/MFIs/SHGs 8 8.0 10.0 72.5
Co-operative banks/RRBs 9 9.0 11.3 83.8
Commercial banks 13 13.0 16.3 100.0
Total 80 80.0 100.0
Have not taken any loan 20 20.0
Total 100 100.0

Table 4.15 Reasons of taking loan from informal source of finance
Frequenc
y
Percentage Cumulative
Percentage

Easily available 10 20.0 20.0
Less procedural formalities 15 30.0 50.0
Lack of awareness about formal
source of finance
5 10.0 60.0
It is collateral free 20 40.0 100.0
Total 50 100.0

Table 4.16 Reason of not taking any loan
Frequenc
y
Percentage Cumulative
Percentage

No need 14 70.0 70.0
Lack of awareness of financial
sources
1 5.0 75.0
Lack of collaterals 2 10.0 85.0
High interest rate 3 15.0 100.0
Total 20 100.0

48. 48

4.5 Hypothesis testing

Hypothesis1. There is no any association between gender and awareness about
microfinance of rural people.
To test the above hypothesis chi-square test for independence was used. Chi square test
for independence detects whether there is a significant association between two
categorical variables. However, it does not say anything about how strong that
association might be. Chi square test was applied using SPSS version 21.

Table 4.17 Cross Tabulation

Awareness about microfinance * Gender Cross tabulation
Gender Total
Male Female
Awareness
about
microfinance
yes
Count 46 29 75
Expected Count 42.8 32.3 75.0
% within Awareness
about microfinance
61.3% 38.7% 100.0%
% within Gender 80.7% 67.4% 75.0%
% of Total 46.0% 29.0% 75.0%
no
Count 11 14 25
Expected Count 14.3 10.8 25.0
% within Awareness
about microfinance
44.0% 56.0% 100.0%
% within Gender 19.3% 32.6% 25.0%
% of Total 11.0% 14.0% 25.0%
Total
Count 57 43 100
Expected Count 57.0 43.0 100.0
% within Awareness
about microfinance
57.0% 43.0% 100.0%
% within Gender 100.0% 100.0% 100.0%
% of Total 57.0% 43.0% 100.0%

49. 49

Table 4.18
Chi-Square Tests
Value Df Asymp. Sig.
(2-sided)
Exact Sig.
(2-sided)
Exact Sig.
(1-sided)
Pearson Chi-Square 2.298
a
1 .130
Continuity Correction
b
1.646 1 .200
Likelihood Ratio 2.281 1 .131
Fisher's Exact Test .163 .100
Linear-by-Linear
Association
2.275 1 .131
N of Valid Cases 100
a. 0 cells (0.0%) have expected count less than 5. The minimum expected count is 10.75.
b. Computed only for a 2x2 table


Since the P value (.130) is less than the significance level (.05) at 1 degree of freedom,
we cannot accept the null hypothesis. We can conclude that there is a significant
association between gender and awareness about microfinance.



Hypothesis2: There is no any association between gender and preference between formal
and informal sources of finance.
To test the above hypothesis chi-square test for independence was used. Chi square test
for independence detects whether there is a significant association between two
categorical variables. However, it does not say anything about how strong that
association might be. Chi square test was applied using SPSS version 21.

50. 50

Table 4.19 Cross tabulation

Preference between sources of finance * Gender Cross tabulation
Gender Total
Male Femal
e
Preference of
sources of
finance
Formal sources
of finance
Count 16 14 30
Expected Count 17.3 12.8 30.0
% within Preference of
sources of finance
53.3% 46.7% 100.0
%
% within Gender 34.8% 41.2% 37.5%
% of Total 20.0% 17.5% 37.5%
Informal
sources of
finance
Count 30 20 50
Expected Count 28.8 21.3 50.0
% within Preference of
sources of finance
60.0% 40.0% 100.0
%
% within Gender 65.2% 58.8% 62.5%
% of Total 37.5% 25.0% 62.5%
Total
Count 46 34 80
Expected Count 46.0 34.0 80.0
% within Preference of
sources of finance
57.5% 42.5% 100.0
%
% within Gender
100.0
%
100.0
%
100.0
%
% of Total
57.5% 42.5% 100.0
%

51. 51


Table 4.20
Chi-Square Tests
Value Df Asymp. Sig.
(2-sided)
Exact Sig.
(2-sided)
Exact Sig.
(1-sided)
Pearson Chi-Square .341
a
1 .559
Continuity Correction .123 1 .726
Likelihood Ratio .340 1 .560
Fisher's Exact Test .643 .362
Linear-by-Linear
Association
.337 1 .562
N of Valid Cases 80
a. 0 cells (0.0%) have expected count less than 5. The minimum expected count is 12.75.
b. Computed only for a 2x2 table



Since the P value (.559) is greater than the significance level (.05) at 1 degree of
freedom, we can accept the null hypothesis and conclude that there is no any significant
association between gender and preference between formal and informal sources of
finance.

52. 52

5. Major findings

Findings
 Growth of two channels of microfinance (MFIs and SHGs) shows regional
imbalances. It shows highest growth in south India and low in north India, due to
the lack of awareness about these sources in north.
 Although 75% of rural people are aware about microfinance, but they are not
aware about all services of microfinance. Awareness about finance by MFIs,
NGOs, SHGs and Differential Interest Rate (DIR) scheme is very low among
rural people of Block Israna.
 15% of the respondents do not have a bank account.
 Out of 85% having bank account 18.8% do not have knowledge what type of
bank account they have.
 62.5% of respondents are availing loans from informal sources of finance and
37.5% are availing loans from formal sources of finance.
 There is a association between level of awareness and gender. Awareness level of
Male is more than the Female.
 There is no any association between gender and preference between firmal and
informal sources of finance.

53. 53

6. References
 Aggarwal, P., & Shah, M. (2015). Real impact evaluation of micro finance on
urban women in India. PRAGATI: Journal of Indian Economy, 1(2).

 Arora, M., & Singh, S. (2015). An evaluation of the non performing assets of
public and private sector banks under the SHG bank linkage programme. Indian
Journal of Finance, 9(6), 41-50.

 Basu and Srivastava( 2005), Scaling-up Microfinance for India‟s Rural Poor,
World Bank Policy Research Working Paper, No. 3646, World Bank,
Washington, DC.

 Bhatia, A., Malik, D., & Sindhi, V. (2013). Micro finance in India and its impact
on poverty alleviation. Asian Journal of Research in Business Economics and
Management, 3(2), 57.

 Chatterjee (2014), Self-help groups and economic empowerment of rural women:
A case study, International Journal of Humanities & Social Studies, vol. 2 Issue
6, pp. 152-157

 Das, T. (2013). An analysis of non-performing assets and recovery performance
of self help group bank linkage programme-unique preference to north eastern
region of India. Journal of Economics and Finance,1(1) 05-14

 Kapila, M., Singla, A., & Gupta, M. L. (2015). Role of microfinance in
generating income and employment for rural households in Punjab-An
econometric approach. Indian Journal of Economics and Development,11(2),
481-488.

 Koshy, C. J. (2014). A study on women's preference for formal and informal
credit after joining microfinance programs. EXCEL International Journal of
Multidisciplinary Management Studies, 4(10), 29-36.

54. 54

 Mishra, J. P.; Verma, R. R.; and Singh, V. K. (2001), Socio-economic analysis of
rural self help groups schemes in block Amaniganj, district Faizabad (Uttar
Pradesh)”, Indian Journal of Agricultural Economics, Vol. 56, No. 3, pp. 473-74.

 Modi, A. G., Patel, J. K., & Patel, M. K. (2014). Impact of microfinance services
on rural women empowerment: An empirical study. Journal of Business
Management, 16(11), 68-75.

 Narayanswamy et al. (2005), Micro-credit driven rural enterprise – lessons from
SHGs assisted under SGSY scheme, Journal of Rural Development, 24(2).

 Nashi, S.K.(2004) Micro Finance: A study of stree shakti (SHG) programmes
Southern Economist 43(8): 9-12.

 National Bank for Agriculture and Rural Development (NABARD). (2007).
Status of microfinance in India (2006-2007). NABARD : Mumbai

 National Bank for Agriculture and Rural Development (NABARD). (2008).
Status of microfinance in India (2007-2008). NABARD : Mumbai.

 National Bank for Agriculture and Rural Development (NABARD). (2009).
Status of microfinance in India (2008-2009). NABARD : Mumbai.

 National Bank for Agriculture and Rural Development (NABARD). (2010).
Status of microfinance in India (2009-2010). NABARD : Mumbai.

 National Bank for Agriculture and Rural Development (NABARD). (2011).
Status of microfinance in India (2010-2011). NABARD : Mumbai.

 National Bank for Agriculture and Rural Development (NABARD). (2012).
Status of microfinance in India (2011-2012). NABARD : Mumbai.

 National Bank for Agriculture and Rural Development (NABARD). (2013).
Status of microfinance in India (2012-2013). NABARD : Mumbai.

55. 55

 National Bank for Agriculture and Rural Development (NABARD). (2014).
Status of microfinance in India (2013-2014). NABARD : Mumbai.

 National Bank for Agriculture and Rural Development (NABARD). (2015).
Status of microfinance in India (2014-2015). NABARD : Mumbai.

 Nirmala and Yepthomi (2014), Self-help groups: A strategy for poverty
alleviation in rural Nagaland, India, International Research Journal of Social
Sciences, Vol. 3(6), 23-32

 Puhazhendhi, V.; and Satyasai, K.J.S. (2000), Micro Finance for rural people: An
impact evaluation, Microcredit Innovations Department, National Bank for
Agriculture and Rural Development, Mumbai.

 Rajendran, K., & Raya, R. P. (2010). Impact of micro finance-An empirical study
on the attitude of SHG leaders in Vellore district (Tamil Nadu, India).Global
Journal of Finance and Management, 2(1), 59-68.

56. 56

Appendix

Questionnaire
Dear respondents,
This survey is being conducted to know your level of awareness about micro finance
services provided by banks and preference regarding formal and informal sources of
finance. The information provided by you will be kept confidential and will be used for
academic purpose only.

Section1. General information

1. Name 2. Gender
 Male
 Female
3. Age
 20-24
 25-29
 30-34
 35-above
4. Marital status
 Single
 Married
 Widowed
5. Types of Family
 Joint
 Nuclear
6. Education
 Illiterate
 Matric
 Senior secondary
 Graduation
 Post graduation
 Vocational
 Any other
7. Occupation
 Agriculture/Poultry
 Labour/Helpers
 Petty ventures
 Employed
 Unemployed
8. Monthly income
 Less then 4000
 4000-8000
 8000-12000
 12000-16000

Section2. Awareness
9. Do you that banks are providing microfinance services?
o YES
o No
10. Tick about which service you are aware of:

57. 57

I. Micro credit
A. Agricultural loan
B. Consumption loan
C. Education loan
D. Loan to take up small
economic activities
E. Loan to buy any
Machinery/Equipments
F. Auto loans
G. Medical loan



II. Micro savings
A. Fixed deposit
B. Current account
C. Saving account
D. Zero minimum
balance saving bank
account
E. SHGs saving bank
account

III. Micro insurance
A. Life insurance
B. Health insurance
C. Crop insurance
D. Cattle insurance
E. Asset insurance

IV. Housing microfinance

A. For
construction/purchase of
house
B. For repair and renewal
of house

V. Finance to SHGs


VI. Finance to NGOs
VII. Finance to MFIs VIII. Finance for MSME
IX. Finance for Women X. Differential Interest Rate
(DIR) scheme
XI. Money transfer facility XII. Payment/collection services
XIII. Debit/Credit cards XIV. Advisory services to
NGOs/SHGs to identify
viable projects
XV. Training programs for
NGOs/SHGs/entrepreneurs

11. Do you have a bank account
o Yes
o No

12. What is the source of
information and awareness of
such services?
I. Advertisement in
TV/radio/newspapers
II.
Friends/Relatives/Neighbou
rs
III. Bank representatives
IV. Awareness campaigns
organized by the institutions

58. 58

13. If yes, what type of bank account do you have?
o Saving bank A/C
o Fixed deposit A/C
o Recurring A/C
o Current bank A/C
o Don‟t know
14. Did someone help you to open the A/C?
o Yes
o No
15. Who helped you to open the account?

o Bank Officials
o Village Panchayat official
o Friends/relatives
o SHG member

16. If no, why didn‟t you open any bank account?
o Insufficient income for savings
o No need
o Was never approached to open the account
o Lack of awareness

Section 3 Preference of using formal and informal sources of finance
17. Have you ever taken loan from any type of source before?
o Yes
o No
18. If yes, from where you got the loan?
o Relatives/friends
o Private moneylenders
o Employer
o NGOs /MFIs/SHGs
o Cooperative banks/RRBs
o Commercial banks
19. Why did you prefer informal sources of finance for availing micro credit
o Easily available
o Less procedural formalities
o lack of awareness of formal sources of finance
o It is collateral free

59. 59

20. If no. why didn‟t you expose to any type of loan?
o No need
o Lack of awareness of financial sources
o Lack of collaterals
o High interest rate
o Any other ______________________________ (Please specify)