The low income, predominantly rural communities are finally becoming a key driver of technology innovations in a large part because of their sheer scale and the huge size of the market which remains to be tapped
Network of credit linkages
Microfinance is generally understood as providing financial services to poor people. There are certain stereotyped beliefs that the poor are too poor to save and therefore do not need savings services, and the poor cannot repay loans and therefore there is a serious default risk. Last, but not the least, small loans have a high cost for dispensation with large numbers of micro borrowers and a relatively small volume. Therefore small loans are more expensive than large loans.
In India, the National Bank for Agriculture and Rural Development (NABARD) led self-help groups bank linkage programme has to a large extent, dispelled this widely believed myths about the credit and savings behaviour patterns of the poor. Self-help groups generally have an advantage in reaching out to the poor because of proximity, trust, commitment, flexibility, and the fact that they know each other. The concept acknowledges that establishing financial services to the poor on a commercially viable basis contributes to the sustainability of the financial service delivery. NABARD was able to build the Linkage Banking Programme upon an existing network of banks and NGOs.
SHG – a facilitator
A Self Help Group (SHG) is a small group of 10 to 20 members. It is formed and groomed by an NGO or a bank branch or a government agency called a Self Help
Promoting Institution (SHPI). The members are encouraged to collect regular thrift on a weekly or fortnightly basis and use the pooled thrift to give interest bearing small loans to needy members and in the process learning the nuances of financial discipline. This is followed by bank credit. The SHPI trains the members to maintain simple accounts of the collected thrift and loans given to members. The regular meetings also provide the platform to discuss and resolve many social and common issues, thus fortifying their togetherness. A savings bank account is opened with a bank branch and regular thrift collection and loaning to members build up the financial discipline among the members to encourage the bank to provide larger loans to the group.
