Catalytic role of micro finance in economic development: A regional perspective

* A.P.Pati 1.0. Prologue Poverty being the harbinger of all the social maladies, its eradication has been persistently figuring in all the planning priorities. All over the world several efforts have been made to reduce its menace. Success stories though found in many economies are not pervasive. In many cases they are regional/location specific. Though paradigm shift has occurred in the basic philosophy of developmental process, in state driven to market driven economies across the world poverty remains in several forms and is constantly posing challenges to all concerned. The decline in the poverty ratio in the last few decades is not found to be very satisfactory. Rather the recent revelation of World Bank on poverty is more disturbing. The percentage of population living below poverty line ($1.25 per day per person as the threshold limit) is alarming. Particularly, in India more than 46 percent of the total population is living below poverty line. This is despite the fact of achieving an impressive growth rate of more than 8 percent in last five years. This simply reveals a much skewed developmental process on the backdrop of the ongoing liberalisation, globalization and privatization (LPG) policy. Even after the implementation of reform measures in many economies the rural areas are still languishing under several malnourishment syndromes. More particularly in developing economies, rural development is increasingly challenging and massive along with the growing number of people and its associated problems of poverty. Many policies and programmes have been launched in different countries to address these problems but failed to deliver the desired results. This is the problem of interlock of good plans and programmes with effective implementation to effect the rural development. Development of income generating activities in the rural areas along with effort to alleviate problems of poverty is still remains as challenges for various programmers and policy makers especially in the developing countries. And most of the planners agree that sustainable development is only possible when the entire society is free from the syndrome of paucity of finance. Availability of adequate and timely finance is thus a hindrance for economic development. * Reader, Department of Commerce, North Eastern Hill University, Shillong.793022

Poor people need small credit and very often the formal channels of supplying such finance have denied. Further, in many economies efficacy and outreach of formal intermediaries are less than desirable. Sometimes the mode of financing is so cumbersome that poor and illiterate feel safe by keeping them aside. Faulty planning and implementation also adds to these handicaps. All these warrant provisioning of very convenient and reliable source of small finance for the poor people which will help in rural upliftment, poverty alleviation and employment generation etc. So, out of the many interventions the model of microfinance (mf) movement is a new strategy in this direction and a positive outcome has been witnessed in many countries since its inception. The microcredit movement as a part of overall all mf movement is pioneered by the Grameen Bank of Bangladesh during the seventies under the leadership of Dr. Mohammad Yunus and their successful models have been replicated in many countries like Indonesia, Bolivia, Sri Lanka, Nepal, India, Pakistan and many other developed and developing countries. The microfinance paradigm received an increased impetus in the mid 1990s after the World Summit for Social Development, which was held in Copenhagen in March 1995. The summit underscored the importance of improving access to credit for small producers, landless farmers and other lowincome individuals, particularly women and disadvantaged vulnerable groups (Nair, 2001). The World Microcredit Summit held in Washington DC, in February 1997, announced a global target of supporting 100 million of the worlds poorest families, especially women, for selfemployment and other financial and business services by the year 2005 (Kaladhar, 1997). The policy of microcredit has brought the option for formal credit threshold for poor people and it is also claimed that it can improvise the income and employment generation on the one hand and economic development and poverty alleviation on the other. Keeping these things in mind, the ultimate objective of microfinance has come to provide standard of livelihoods and sustainable job opportunities to poor people, so that they can become self-dependent. This would be achievable provided the growth and development of microenterprises take a constructive shape to play a vital role in employment generation and overall economic development. With this above background in this article the mf movement is studied in the Indian context with an emphasis of North East Region (NER). A case of Meghalaya is presented through an empirical data set. Apart from this introduction the next section presents the micro credit and its impact on development through poverty reduction, enterprise creation and women

empowerment. The second section discusses the mf movement in NER. Meghalaya case is being presented in the third section which is followed by the last section with overall observations. SECTION-I 1.1. Micro Credit: A synoptic view Besides the cost associated with the provision of finance to the poor (due to the poor recovery and large incidence of bad assets in financial system), question is often raised on their loan utilization ability. This is however, aptly rejected by the pioneer of micro finance that they have an inherent skill: survival skill (Yunus, 1999). It is the presence of this skill that keeps them alive even when they are poor. Thus the crucial element in the policy of attacking poverty is the provision of adequate finance. Despite of several measures, the twin objectives of fulfilling the aspirations of the masses and being viable in the long run have not been achieved. Keeping these two requirements in mind an alternate mode of financing, i.e. Micro Financing was envisaged. As per the study of Asian Development Bank about 95 percent of some 180 million poor households in the Asian and Pacific Region still have little access to institutional financial services. The study observed that rural financial markets in Asia are ill-prepared for the twentyfirst century (ADB, 2000). Planners, policy makers, and lenders, however, recognize that providing efficient microfinance services for this huge segment of the population is important. Microfinance basically, refers to small-scale financial services for both credit and deposits that are provided to people who farm, operate small or microenterprises where goods are produced, repair or recycle or trade; provide services; work for wages or commissions; gain income from renting out small amounts of land, vehicles, draft animals, or machinery and tools; and to other individuals and local groups in developing countries, in both urban and rural areas (Robinson, 1998). The range of services is expanded by the Asian Development Bank, which defines microfinance as the provision of a broad range of services such as deposits, loans, payment services, money transfers, and insurance to poor and low-income households and their microenterprises (ADB, 2000). Microfinance can be interpreted in a broader context to include both microcredit and micro savings and has been defined by National Bank for Agriculture and Rural Development (NABARD) as the provision of thrift, credit and other financial services

and products of very small amount to the poor in rural, semi-urban and urban areas for enabling them to raise their income levels and have improved living standards. Microfinance services are provided by three types of sources: formal institutions such as rural banks and cooperatives; semi-formal institutions such as NGOs and cooperatives; and informal sources such as moneylenders, shopkeepers etc. Institutional microfinance is defined to include microfinance services provided by both formal and semi-formal institutions. Microcredit is defined as that programmes that provide credit for self-employment and other financial and business services (savings and technical assistance) to very poor persons (NABARD, 2000). More narrowly, microcredit emphasises the provision of credit services to low-income clients, usually in the form of small loans for microenterprises and income generating activities. In many of the cases microcredit and microfinance are used in interchangeable terms. The early micro lenders emerged in the late 1970s, and their efforts gained momentum during the 1980s. By the mid- 1980s, researchers began to evaluate these experiences systematically and, by the early 1990s, suggestions for best practices emerged (ADB, 2000). The pioneer microfinance organisations such as the Grameen Bank of Bangladesh and Banco Solidario of Bolivia have exemplified with their remarkable success in the field of microfinance and the better performance of disbursement of micro loans and recovery rate which have attracted the attentions of many in the world. The lesson of successful microfinance model in Bangladesh is the example for any country and can accept the lesson to learn and efforts to tackle the twin problems of massive poverty and unemployment (Jha, 2002). Considering the emergence of microcredit programme as a preferred strategy for poverty alleviation world wide, the microfinance institution (MFI) has been evolved as a result of the efforts of committed individuals and assistance agencies to reduce poverty by promoting self-employment and entrepreneurship. The different countries experiences and contribution of policy makers have given the different types of approaches for microfinance such as: (i) Grameen and Solidarity Model (ii) The Group Approach (iii) Individual Credit approach (iv) Community-Banking approach and (v) Credit Unions and Cooperatives (Das, et al., 2000).The models of microcredit programmes have brought a different route in the rural credit markets and banks are happier and feel more convenient to generate credit relationship with poor. The main target is to alleviate poverty, to

generate employment and to make them self-dependent having their own small business (microenterprise). Banks have got more convenient in giving loan to a group rather than an individual as the experiences of Bangladesh Grameen Bank says that in case of group, loan recovery is easier, because of peer pressure than from an individual poor customer. These models indicate a chain relationship between banks and other ancillary intermediaries like NonGovernment Organisations (NGOs), Microfinance Institutions, Self-help groups (SHGs), MFI Federation etc. are inter-dependent on each other for canalising credit in a proper direction (Mishra, et al., 2004). In the Indian context, microfinance movement was formally launched by the NABARD in 199192 by linking SHGs with banks. The scheme has been extended to Commercial Banks, Regional Rural Banks (RRBs) and Co-operative Banks for its ground level implementation. The new scenario of microfinance in India has been started with diversity approaches and collaborative efforts made by banks, Government agencies and NGOs (Premchander, 2003). In most of these approaches, groups are used as intermediaries for financial transactions. Although, there are different old approaches for microfinance delivery in the country such as mutually aided cooperatives societies at different levels. However, there are also MFIs operating in the country following a variety of saving and credit technologies. An overwhelming majority of the MFIs are operating on a smaller scale with clients ranging between 100 and 1,500 per MFI. The geographical distribution of MFIs is lopsided with concentration in the Southern states. It is estimated that the share of MFIs in the total microfinance business in the country is about 8 percent (Satish, 2005). Dasgupta (2001) and Namboodiri and Shivani (2001) traced the development of the microfinance programme in India through SHGs model. According to their study, the SHGs system was initiated in India by the NGOs. From then the new group approaches such as SHG has been buzzword in the country. At the national level, while the SHG movement has had a longer history through NGOs work at the community level, the linking of SHGs to microfinance is of more recent origin. Though there is no official record but NGOs such as MYRADA, SEWA, APRACA, and PRADAN etc. were the pioneer in the programme of SHGs promotion and group lending. In contrast to this idea the NABARD had officially initiated certain research project on SHGs as a channel for delivery of microfinance in the late 1980s. This SHG-bank linkage programme (SBLP) programme has proved to be a successful model wherein the

outreach has expanded substantially within a small time frame. By the end of the year 31st March, 2007, the cumulative number of SHGs credit linked was 2924973 with loan disbursement and refinance support aggregating Rs.18040.74 crore and Rs.5446.49 crore, respectively. The programme has enabled around 409.5 lakh poor households in the country gain access to microfinance from the formal banking system. More than 90 percent of the SHGs linked to banks are women SHGs. (www.nabard.org.). 1.2. Micro finance Impact on poverty, entrepreneurship and empowerment Cross country experiences are plentyly available in literature. Among the different impact studies the study conducted by Hulme and Mosley (1996) was one of the early and most widely cited of the poverty impact study. The major conclusion of the study according to them was that there is a positive correlation of gains in income from microfinance. Impact assessment conducted with Grameen Bank of Bangladesh and found evidence of a significant increase in the income of Grameen clients than the Non-Grameen clients (Hossain, 1988). Hiatt and Woodworth (2006) in their study on Central America found that microfinance clients socioeconomic and economic levels had increased due to their continued participation. Micro credit appears to improve the lives of those who are poor by increasing their buying and investing capability, thus lifting them onto a higher economic plane. A study on Indonesia (Panjaitan-Drioadisuryo and Cloud, 1999) suggests that when agencies, government and non-government, in a developing country make credit available to low income women, they can reduce the costs of delivery, greatly increase repayment rates, and substantially improve the well-being of poor families. Amin et.all. (2003) evaluate whether micro credit programs such as the popular Grameen Bank reach the relatively poor and vulnerable in two Bangladeshi villages. They found that while micro credit is successful at reaching the poor, it is less successful at reaching the vulnerable. In a Srilankan Study (Shaw 2004), of micro finance and micro enterprise finds that poorer clients face geographic, financial and socio-cultural barriers to entry to the most promising microenterprise occupations, leading them to select low-value activities with poor growth prospects. Analyzing household survey data from three microfinance program sites in China, which have grown rapidly since 1994 and based on the Grameen model and which are supported by an unprecedented large-scale government initiative; authors found that non-governmental programs perform well in all three areas, but that governmental programs perform poorly (Park and Ren,

2001). In a paper that evaluates the outreach and impact of two microfinance programs in Thailand, it is found that the wealthier villagers are significantly more likely to participate than the poor. The programs positively affect household welfare for committee members, but impact is insignificant for rank-and-file members (Coleman, 2006). Strong evidence of microfinance intervention contribution to womens empowerment through increased self-confidence and increase self-esteem and increased participation in decisionmaking is found in the context of Ghana (Cheston and Kuhn, 2002).Womens Empowerment Project in Nepal, for example, showed 68% of women experienced an increase in their decision making role in the areas of family planning, childrens marriage, buying and selling property, and sending their daughters to school (Ashe and Parrot, 2001). In Bangladesh, women showed a good deal of empowerment in their capacity to articulate their needs and in their receptivity to new ideas. More impressive was the emergence of womens groups as a dynamic, articulate constituency (Krishnaraj and Kay 2002). For the majority of women borrowers, credit is much more than access to money: it is about women lifting themselves out of poverty, and achieving economic and political empowerment within their homes, their villages, and their countries. For example; 40 per cent of poverty reduction in rural Bangladesh has been attributed to the role of microcredit (Khandker and Shahidur, 2005). The impact studies in India could not give much contribution in the field of microfinance programmes and very few studies have been undertaken in the country. The main and pervasive microfinance programme in India is the SBLP whether adopted by government or private institutes such as NGOs, donors etc. is found to be a robust financial product. Microfinance movements have revealed a good and positive impact in income generation and assets creations of the beneficiaries in the country. Also, there is a diversification in the sources of livelihood for the poor who have increased their household income (Hulme and Mosley, 1996). A study conducted for Microfinance Support Project (MFSP) by Sinha, (2003) and the impact assessment team of EDA Rural System Pvt. Ltd. Supported by Department of International Development, UK (DFID) have revealed the positive impact in terms of income and assets of the members, their consumption expenditure, improved savings habits, better access to credit and increased use of loans for income generating activities as well as contributing to the empowerment of women in the households and decision making.

An impact study, which has been undertaken by Puhazhendi and Satyasai (2000) under the guidance of NABARD in 11 states in the country, have revealed that 59 percent of the households reporting increase in assets, with the average value of assets per household increasing by 72 percent. Another impact study has been commissioned by NABARD and conducted by Puhazhendi and Badatya (2002) in three different states indicating the economic and social impact of the SBLP and revealed that 45 percent of the sampled households reported of an increase in the value of the assets. The study also report of a positive impact of the programme on employment and poverty status of the members that out of those below poverty line in the pre-SHG situation have been moved above poverty line by 15 percent. Under the guidance of NABARD three socio economic impact studies on SBLP have been conducted and out of these the last one was undertaken by MYRDA (2002) to assess the grass roots impact of the programme. This study revealed that majority number of members in the SHGs is women members and their involvement in the groups has increased the family income and prepared positions in decision making in the households. Moreover, SHGs has brought confidence to them in interacting with people and institutions and at the same time they could learn professional and technical skills and hygienic knowledge for themselves and also for their children. The main and most direct sources of poverty impact of mf efforts have been the production and income-oriented activities of on-farm livelihoods and crop diversification, irrigation and terracing, non-farm livelihoods and income generation. The key evidence of impact is that of assured food security and higher cash income for the great majority of participating households. The benefits are manifested mainly in ownership of physical assets, resilience of family financial predicament and improved nutrition and health status, in particular for children and women. SECTION-II 2.1. Micro finance movement in NER vis--vis India India has ventured into microfinance in a massive way by adopting the SBLP model initiated by the Reserve bank of India (RBI) and NABARD in 1992. Particularly during the last five years, growth of this programme is tremendous with its manifold outreach (Table-1). This has made this programme as the largest microfinance initiative by any organisation in the world. In this programme, more than 32 million families have been linked until date. The region-wise

distribution of SBLP continues to be southern states centric. During the financial year 2005-06 share of southern region was more than half of the whole country. Table-1: SHGs Credit linked to Banks under SBLP in India: A Regional Distribution Region-wise Share of SHGs Credit Linked 2002 (%) 2006 (%) Source: NABARD Table-2: SHG-Bank Linkage Programme in) as on 31st March, 2007. Cumulative No. No. of new SHGs Cumulative Bank Loan of SHGs provided provided with Bank Loan during with Bank Loan Bank Loan 2006-07 (Rs. during 2006-07 Cr) (Rs. Cr) Assam 81,454 25,005 2,21.84 79.44 Meghalaya 1,211 476 3.36 1.74 Tripura 2,906 910 4.95 1.84 Sikkim 160 33 .30 .11 Manipur 2,683 1,215 11.27 4.08 Arunachal Pradesh 447 101 1.92 .57 Nagaland 998 576 6.79 3.35 Mizoram 1,895 921 13.47 7.06 Total 91,754 29,237 263.9 98.19 Growth Rate (%) 96.03* 111.8* Source: NABARD Annual Report, 2006-07 * for a period of 2001-2006 The North Eastern Region of the country lags behind in the field of micro-finance from all aspects. As an intervention measure for overall economic development it has gained momentum only after the year 2000. Micro finance can be considered to be ending pioneer and entering take-off stage in NER (Porteous, 2006). The SBLP in the NER as on 31st March, 2007 (Table 2) reveals a much skewed picture. Apart from Assam none of the other state has made any significant stride. A study in Assam (Purkaystha, 2004) found that the high recovery rate has encouraged many banks to provide microcredit through SHGs which has helped the microcredit movement in the state. Other six states of this region share the rest 10 percent of the total SHGs and 14 percent of total credit. Although a change in the composition is observed over the last five State South 68.7 54 North 4.2 6 East West 10.0 18 6.4 7 Central 10.4 12 NER 0.3 3 Total Nos. 461478 2238565

years still it is found that despite the efforts of the NABARD the linkage programme is not very popular in these states. In NER RRBs have been playing a dominant role in providing credit to SHGs followed by other commercial banks. Besides the NABARD programme Indian Government officially launched a single cell selfemployment programme for the rural poor is Swarnjayanti Gram Swarozgar Yojana (SGSY) on April 1, 1999. The scheme aims at establishing a large number of microenterprises in the rural areas through the intervention of Gram Panchayats. The significant aspect of the scheme is that it aims to bring every assisted family above the poverty line in three years, by creating a monthly income from the activity undertaken of not less than Rs. 2,000 net of repayment of the bank loan. Since the initiation of this programme more than 25 lakh of SHGs are formed in the country and an amount of more than Rs. 6000 crore has been distributed to these groups (Table-3).

Table-3: No. of SHGs and Bank Credit Disbursed under SGSY Schemes: India vs. NER India SHGs (Cuml) Credit SHGs (Cuml) (Cuml) (Rs. Cr) 762.28 25693 North Eastern Region Credit % Share to All India (Cuml) Number Credit (Rs. Cr) 10.00 3.88

Years

2001950078 76.20 2.70 02 20062530040 6035.59 161815 234.15 6.40 07 LGR *29.81 *47.75 **36.19 **70.00 Source: Ministry of Rural Development, GoI. Note: * 8 Years LGR ** 6 Year LGR

In comparison to the SLBP which was launched in 1992, SGSY programme shows a better growth rate in a lesser time frame. This indicates the demand of such microcredit in India and the scope of such intervention. NER has also benefited from this programme with a share of more than 6 percent in number and nearly 4 percent in terms of amount, which is better than the share in the SLBP. This shows the popularity of this programme, although for the obvious reason of subsidy. However, the regional distribution is much skewed in favour of Assam i.e. with more than 80 percent share under both the parameters. Among the other states in the NER, Meghalaya is having third position in terms of credit linkages of groups as well as amount disbursed to them

and in the state the number of credit linked SHGs was increased more than five times during the period from 2001-02 to 2006-07 (Table-4).

Table-4: Number of SHGs Formed and Bank Credit Disbursed under SGSY Schemes in NER Cuml. Number and Bank Credit (Rs. Lakhs) 2001-02 2006-07 SHGs Credit SHGs Credit No. Rs. No. Rs. Arunachal 154 26.44 376 413.17 Assam 21508 647.86 132180 19430.8 Manipur --705 -Meghalaya 1042 2.32 5413 451.05 Mizoram 511 35.43 1455 168.92 Nagaland 847 43.68 2813 156.53 Tripura 1631 6.27 18873 2581.53 Total NER 25693 762.0 161815 23415.0 Source: Ministry of Rural Development, GoI. States State-wise Shares of Number and Credit 2000-02 2006-07 SHGs Credit SHGs Credit No. % Rs. % No. % Rs. % 0.60 0.23 3.47 1.76 83.71 81.69 85.02 82.98 -0.44 --4.06 3.35 0.30 1.93 1.99 0.90 4.65 0.72 3.30 1.74 5.73 0.67 6.35 11.66 0.82 11.03 100 100 100 100

SECTION-III 3.1. Micro Credit in Meghalaya: Outreach and Impact The state of Meghalaya is a hilly state with different natural as well as cultural habitations. The topography of the state is made up of three hills namely Khasi Hills, Garo Hills and Jaintia Hills. As per the 2001 census, the state has an area of 22,429 sq. km., sharing only 0.7 percent land of the country. The state is predominantly inhabited by tribal population which is 86 percent of the total population according to 2001 census. The main tribal population of the state comprises of the Khasis, the Jaintias and the Garos form the major ethnic groups of original inhabitants of the state. The state shares only 0.2 percent of population of the country and majority of the population of the state is rural, about 80 percent of population are living in rural areas. According to 2001 census, the density of population is 103 persons per sq. km. and this is about one third of the national figure. Meghalaya houses 1.32% of the total SHGs in the region with 1.27% of the total amount loan. In addition, the average lending per group is in the state is Rs. 27,746/- which is far less than that

of Manipur, Arunachal Pradesh, Nagaland and Mizoram. However, NABARD documents that the SBLP Model has also served the banks well with 0% non-performing loans under SBLP, 1.4-7.5% returns on average assets of SHG banking, 110-165% operational self-sufficiency of SHG banking, average repayment rates of over 90% and many intangible social benefits to SHG members arising from contact with banks and management of credit transactions (Fernandez, 2007). There are around 10,000 SHGs in the state of Meghalaya under various programmes as on September, 2008 Most of the micro credit initiatives in the State have taken place with the involvement of NGOs, Self Help Promoting Institutions (SHPIs) and MFIs. Of these, the Bosco Reach Out has been more successful in the formation and linking of SHGs with the banks. Table-5: District-wise Distribution of SHGs in Meghalaya as on September, 2007. Sl. Women Men and Mixed Women SHGs District SHGs no SHGs SHGs (%) 1 Jaintia Hills 644 168 476 4.29 2 East Khasi Hills 825 370 455 9.45 3 Ri Bhoi 559 106 453 2.71 4 West Khasi Hills 903 221 682 5.65 5 West Garo Hills 3461 2226 1235 56.90 6 East Garo Hills 1102 560 542 14.31 7 South Garo Hills 292 261 31 6.67 8 Grand Total 7786 3912 3874 100 (Source: Govt. of Meghalaya, Office of the State Coordinator for SHGs in Meghalaya) As on September, 2007 7,786 SHGs were in existence under SGSY scheme (Table-5) with a total membership of around 85,000.The total savings in such SHGs is around Rs. 3.18 crore (www.megselfhelp.gov.in). 50 percent of the SHGs are women groups and the rest are men and mixed groups and each SHG houses around 10 to 15 members. Women make up a sizeable number in total membership (60%) with the male folk making up the rest (40%). Most of the women SHGs (56.90%) are concentrated in West Garo Hills District and they have a minimal presence in other parts of the state. Mixed SHGs are very popular particularly in East Khasi Hills, West Khasi Hills and Jaintia Hills and Ri-Bhoi District. Poor participation of women in SHGs as compared to the national average (90% being women SHGs) can be attributed towards a matrilineal-oriented society prevalent in the state.

The classification SHGs as per the State Level Bankers Committee (SLBC) report indicates two groups of SHGs have been formed in the state. The SGSY-SHGs are those SHGs, which are linked with the help of Community and Rural Development Blocks in the state. The non-SGSY SHGs are those SHGs, which are promoted and nurtured by other institutes or organisations such as International Fund for Agricultural Development (IFAD), NGOs, North Eastern Development Finance Corporation (NEDFI), and Meghalaya Rural Development Society (MRDS) etc. and later on these were formally linked with banks. It is assumed that all these credit linked SHGs have started some economic activities either in farming or non-farming sectors. However, the SHGs after receiving loan are also doing lending businesses with members or non-members. Table-6: Number of economic activities undertaken by different SHGs in Meghalaya 2003-04 2004-05 No. No. SGSY SHGs 1147 1369 Non-SGSY SHGs 48 629 Total 1195 1998 Source: State Level Bankers Committee, SBI, Shillong. SHGs 2005-06 No. 1470 1895 3365

This linking position of SHGs gives a proxy understanding about the number of SHGs engaged in various economic activities which could be construed as micro enterprises. The overall picture of economic activities undertaken through microcredit supplied through SGSY schemes and through others is depicted in Table-6. It is found there is an increase in the number of economic activities among the SHGs. This is a good sign of their economic progress which augments the general prosperity of the state. 4.1. Observations: In the new paradigm of microfinance, the SBLP initiated by NABARD is acting as an important catalyst in social change. Moreover, the programme has received extensive recognition as a strategy for poverty alleviation, employment generation and economic empowerment. It is in this context that the institutions involved in microfinance are also playing a significant role to reduce economic disparities, inequitable growth and development of rural economy. Although, the annual growth rate of this programme has been slowed down in the recent years to less than 40 percent, if half of this growth rate continues in next 10 years the programme would perhaps link

all the households those who need such type of small finance in rural areas. Apart from this programme several others including the SGSY scheme have been playing a crucial role. Considering the profile of NER it has the appropriate conditions for the growth and development of microfinance. The dominance of rural profile across all the states of this region provides a perfect case for implementing all the types of micro finance interventions. But the cost of promotion of SHGs in most parts of the hills is prohibitive, and the grants available to promote the SHGs are usually much lower than the cost. This reduces the incentives/ability to promote effective SHGs - hence the slow growth in the region. Due to this fact the govt. sponsored scheme is gaining popularity. SGSY scheme has been more popular due to the subsidy component. More and more groups are seeking subsidized loan under this scheme. The reasons of slow progress so far can be attributed to two main findings. One of them is because the bank branches with 2 or 3 employees are not equipped to handle large number of SHG accounts. Further, due to the dependence on banks the SHG movement is primarily restricted to places that have a higher concentration of branches. The second that despite the hype associated with high repayment of SHGs, the repayment rates in the NER is not impressive. This also discourages bankers to provide loan to groups at a faster pace. Despite these problems the SHG movement has had positive impact on the lives of the clients, particularly women. For the whole region the last five year growth rate is very impressive and if it continues for next few years would bring wider financial inclusion of the rural poor. Meghalaya being a poor state as per the national and international parameters does need some kind of interventions to boost its economy to the level of self-sufficiency. Although more than 8000 SHGs are credit linked to commercial and cooperative banking network of the state, many of them are linked very recently. It will take some more time for the group to stabilize their functioning. At this stage the role of promoters are very important. Groups need to be properly guided at the formation, formal linkage, and subsequent stage of getting the project loan from banks. The promotion of micro enterprises through the micro finance intervention could be a long term strategy for bringing all round development. Considering the growing number of economic activities undertaken by these SHGs the role of promoting and finance providing agencies is very crucial in this regard. Formation of groups in lure of subsidies is another phenomenon need to be curbed at the initial stage. As many of the groups are not been able to

upgrade themselves in requisite time frame preventive action at the formation stage by selecting right leader and members for the group is very essential. Govt. agencies, NGOs and bankers need to be worked in a cohesive manner to see that the finance provided has not gone astray.
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