A STUDY ON FINANCIAL INCLUSION OF SELF HELP GROUP IN MADURAI CITY

INTRODUCTION

Self-Help Groups are informal associations of people who choose to come together to find
ways to improve their living conditions. They help to build Social Capital among the poor,
especially women.

Self-Help Group (SHG) is a small voluntary association of poor people, preferably from the
same socio-economic 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. SHG
is a group formed by the community, which has specific number of members like 15 or
20. Usually, the number of members in one SHG does not exceed twenty. In such a group the
poorest would come together for emergency, disaster, social reasons, economic support to each
other have ease of conversation, social interaction and economic interactions.

Formation of Self Help Groups is a path breaking initiative that can transform the lives of
millions of poor Indians.

SHGs have benefited its members by increasing their assets, incomes and employment
opportunities. Borrowers are able to reduce their dependence on informal sources of finance.
It has empowered women by enhancing their contribution to household income, increasing
the value of their assets and generally by giving them better control over decisions that affect
their lives.
In our country, still the SHG people in time of their emergency run to the door of the landlords
and money lenders to fulfill their credit needs and this comes usually at a very high interest. In
India, it is too difficult to find a financial institution to meet such requirements and tailor made
product aren’t available to them (like financial assistance for buying raw material, warehouse,
marketing their product etc).
Financial Exclusion:
Financial exclusion can be described as the inability of individuals, households or groups to
access necessary financial services in an appropriate form. It can stem from problems with
access, prices, marketing or financial literacy, or from self-exclusion in response to negative
experiences or perceptions. A person is considered financially excluded when they have no
access to some or all of the services offered by mainstream financial institutions in their country
of residence or do not make use of these services. Financial exclusion significantly increases the
risk of social exclusion and poverty.
Financial exclusion also results in less ability to face financial shocks and unexpected expenses.
People excluded from savings services are more vulnerable to theft, as they are forced to keep
their cash and savings at home. Moreover, people excluded from financial services such as
cheques and transfers by the mainstream financial sector are likely to turn to institutions that
offer these services at a much higher price. This is also true for access to credit, as people who
are refused credit from mainstream financial institutions are forced to turn to private
intermediaries or informal moneylenders, who charge more and offer less favorable conditions,
further exacerbating their vulnerability and exclusion, and putting them at risk of becoming over-
indebted.

Financial Inclusion:

Financial inclusion is the delivery of financial services at affordable costs to vast sections of
disadvantaged and low income groups (for example "no frill accounts").

Financial Inclusion is the process of ensuring access to appropriate financial products and
Services needed by all sections of the society in general and vulnerable groups such as weaker
Sections and low income groups in particular at an affordable cost in a fair and transparent
manner by mainstream institutional players.
Financial Inclusion can help the society and the economy. It also provides a platform for
inculcating the habit of saving money, especially amongst the lower income category that has
been living under the constant shadow of financial duress, mainly because of absence of
savings, which makes them a vulnerable lot.
Financial Inclusion has now been viewed as a remedy to plug gaps and leaks in distribution of
government benefits and subsidies through direct benefit transfers to beneficiaries’ bank
accounts rather than through subsidizing products and making cash payments.

Thus, on the whole, Financial Inclusion has the potential to bring in the unbanked masses into
the formal banking system, channelize their savings, stoke their entrepreneurial ambitions by
making available credit and thus give a fillip to the economy.

Financial Problems faced by SHG

Group Account:

The rigidly structured (10-15 members and lack of flexibility with changing its composition and
size) group account oriented micro-finance model does not have the required flexibility to
accommodate the differential savings habits of members within the group. Since there is only
one servicing account for the group, all the members generally save the same amount and equally
share any benefits.

Low rate of Interest:

SHG members mostly deposit their amount in savings account it offer low rate of interest it does
not attract more member to save instead of that they gave money to co-members it offer high
interest than savings account.

No need based fund:

Fund available for starting new business and expanding existing one but funds aren’t available
for buying capital goods and marketing the SHG products.

High transaction cost:

The core problem of rural finance is high transaction costs to the banks in financing a large
number of small borrowers who require credit frequently and in small quantities. The rural
savers and borrowers also face high transaction costs while dealing with banks due to distances,
small value of financial transactions etc.
No collateral security for loan:

Another problem to SHG borrowers who are unable to offer physical collateral, articulate their
case or submit proper loan proposals, the urban orientation and the lack of flexibility in their
operations are the other constraints which restrict the outreach of the formal banking system for
the SHG.

Time consumption:

Bank takes more time for lending. So they can’t get money for immediate or emergency need.
But Informal channels include money lenders who operate outside the legal and policy
framework of banks, market vendors, shopkeepers and others including friends and relatives.
Credit in the informal system is usually available immediately, when and where required and
often without collateral and lengthy documentation formalities, since the lender usually relies on
personal knowledge of borrowers and their circumstances.

In the absence of access to innovative and beneficial financial products, the SHG members may
not be able to make the most efficient use of the inculcated savings habits and financial
inclusion.

Review of literature:

V. Ganesh Kumar (2013) noted that branch density in a state measures the opportunity for
financial inclusion in India. Literacy is a prerequisite for creating investment awareness, and
hence intuitively it seems to be a key tool for financial inclusion. But the above observations
imply that literacy alone cannot guarantee high levelfinancial inclusion in a state. Branch density
has significant impact on financial inclusion. It is not possible toachieve financial inclusion only
by creating investment awareness, without significantly improving theinvestment opportunities
in an India.
Shabna Mol TP (2014) Financial inclusion primarily represents to a bank account backed by
deposit, access to affordable credit and the payment system. This work conclude that most of the
BPL household are included in the financial inclusion system in terms of access of bank account
.It is only for the enjoying the government benefits and schemes. It must be noted that access to a
bank account does not necessarily mean usage of the account. The level of awareness about the
features and benefits of bank account and banking services are comparatively low. Bank must
take step to increase the awareness among people about all sachems and services provided by
them.
“A STUDY ON FINANCIAL INCLUSION AND FINANCIAL LITERACY” Divya Joseph
(2014) A great change has happened in the last ten years to overcome financial exclusion. A
framework of policy has emerged from an inclusive process of discussion and debate. Initiatives
and experimental services have been launched to put the policies into effect. we cannot become
complacent and become victims of our own success. Not only should people have access to basic
financial services but should also actively use them. But there still a lot more to do: stimulating
use of financial services as well as access; ensuring long-term sustainability of current initiatives
and tackling new forms of exclusion and marginalization as they arise.

Dr. P. Raja Babu (2015) Financial literacy is a key factor to financial inclusion and a necessary
pre-condition for success in the financial inclusion drive. Both financial literacy and inclusion
are treated as twin pillars. Without increased financial literacy, people will be increasingly at risk
of making poor financial decisions which leave them to confront financial hardship, including an
insecure old age. Financial literacy is making people aware of what they can and should expect
from the banking sector, as their right. In this context, financial literacy and inclusion are a win-
win opportunity - for the poor, for the banks and for the nation.
Dr. P. C. Kavidayal1, Dr. Vinay Kandpal (2016) pointed out rural people are not aware about
various financial services and its benefits. Even the awareness about the customized services for
the particular sector or segment of people is very low among the rural households. The
government and the banks should collectively make efforts to organize more and more about the
financial awareness program. The financial literacy centers should be set up in rural areas to
educate the rural people about the financial products and services.

A STUDY ON FINANCIAL INCLUSION OF URBAN STREET VENDORSIN

PALAYAMKOTTAI Dr. M. N. Mohamed Abusali Sheik *1, M. Sareswathy 2 (April 2016)
mention in the report lack of saving habit is the root cause of problems and hence they should
be awareness among the street vendors to increase the savings and reduce expenditures
particularly the time of surplus. The banks should offer all the forms in the regional language of
the customers. Tamil is the regional language of Palayamkottai area customers. Hence, all the
forms should be in Tamil. The Government should raise the financial inclusion fund and a
financial inclusion technology fund, to reach banking services to the unbanked area.

Dr.S.Amutha Rani (June 2017) noted in research The majority of people living in rural areas
remain excluded from the purview of the financial institutions even after 64 years of
independence. Reaching out to the hither -to unreached segment of population and providing
basic financial services is the need of the hour. To bring a large segment of the society under the
umbrella of financial inclusion, banks have set up their branches in remote corners of the
country. The rules and regulations have been simplified.
“A Study on Financial Inclusion Level in the Indian Context” Nirmal Sabu Deepu Jose
Sebastain (June 2017) point out Overall financial inclusion of India is very low. But the South
Indian states are having good level of financial inclusion. In order to improve financial inclusion
level of India, states in the north, north east, east and west have to be brought to the level of the
southern states. For that a combined step of branch increase, deposit campaign and loan
disbursement along with general literacy campaign is to be strengthened.

Objective of the study:

 To know financial product available to SHG
 To know the awareness level of SHG about financial products and service
 To assess the level of financial inclusion among SHG
 To examine problems encountered by SHG while accessing banking services
 To know the strategies of banks to empower SHG
 To find best tailor made financial product for SHG

Statement of the problem:

Financial Inclusion required for financial uplift of poor especially Self Help Group. At present
50% Self Help Group folks are living under Below Poverty Line. Financial Inclusion confined
to open No Frills account only other financial products aren’t available to them. Government of
India and RBI are taking continuous efforts to promoting financial Inclusion But lack of
awareness, over documentation procedure, no tailor made product make Self Help Group
affected with financial problem. The present study aims to analyses financial literacy, financial
product availability and Self Help Group facing difficulties while accessing banking service and
suggest strategies to make them financially sound.

Scope of the Study

This study explores the intensity of Financial Inclusion and Financial Literacy among Self Help
Group in Madurai City. SHG financial literacy, financial product and service availability and
difficulties faced by SHG while accessing banking service are come under the purview of the
study. The target group SHG in Madurai City.

Research Methodology: