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ACCENT JOURNAL OF ECONOMICS ECOLOGY & ENGINEERING Peer Reviewed and Refereed Journal, ISSN NO. 2456-1037

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Vol. 06, Issue 11,November 2021 IMPACT FACTOR: 7.98 (INTERNATIONAL JOURNAL)

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MICRO FINANCE A WAY AHEAD FOR MASS UPLIFTMENT

Manohar Singh

Asstt. General Manager, Union Bank of India, Staff Training Centre, Powai Micro finance, the finance frame for

meagre net worth individuals and tiny business concerns is crucial part of Indian economy. Whether it is hinterland, remote villages, ultra rural areas, tribal belt, town, sub urban, city or metro, the vibrant micro finance market has roots across the country.

Though it is a different story how micro finance is pumped in market. By a organized structured finance market or the poor neglected (say micro) finance being a puppet play of sahukars, mahajans. The money lenders enjoys liberty of charging interest as per their greed and terms with strong iron hand for collection of interest and the finance. The defaulter has to left to the mercy of money lender and his vicious debt trap.

Besides this, their are semi-formal micro lenders providing short term credit to needy poor masses every now and then.

I will also say the Arhtiyas a type of micro finance lender, associated with farmers. A system/practise inherited and tested through ages. A instant source of cash finance to farmers at any time, 24 by 365 with Nil or meagre document. No banking hours, no counter approach, a complete hassle free hard cash lending. The practise is challenged by the much hyped Farmer Amendment Law, which is a different story.

Their are Blade Companies (Mafias) of Kerala , the firms which charge exorbitant rates from gullible poor needy masses, speaks loudly how it is prime necessity of any elected Government (Centre/State), to address the challenges of Micro Finance and how a organized finance market is to be shaped. Certainly to dream five trillion economy, this grey area to be given due thought and action.

The need, thirst and demand of micro finance by below poverty line or marginally above poverty line segment of population is very high and is an on going affair. The pie chunk of this walk of society is very deep size of Indian household units. That’s why the influx of new lenders are always their, which comes with a notion of strong possibility

of growth in their loan book as well as lending.

1 PRESENT MICRO FINANCE SCENARIO

India is highly populated country and wide income disparity is their between have and have-nots. The micro finance needs through generations are fuelled by money lenders. And today also it is quite unorganized. The micro finance bank and structure are at nascent stage. The readily availability of finance by money lenders though with tough conditions and very high rate, is in many ways challenging the growth of organized sector.

The Self Help Group approach initiated by NABARD have done some wonders for this Bank enabled linkage micro finance in India. The channel was conceptualized in the year 1992. The SHG model promotes creation of financial intermediary groups of financially challenged women. The credit requirements of the SHG are taken by Banks. SHG concept in recent times have opened new sources to meet social needs.

Besides SHG Financing, the Financial Inclusion and other various government initiatives in recent years like PMJDY (Pradhan Mantri Jan Dhan Yojana) Over Draft facility up to Rs 10000, Mudra, NRLM (National Rural Livelihood Mission), NULM (National Urban Livelihoods Mission), PMEGP (Prime Minister’s Employment Generation Programme), various State Supported Welfare Schemes, have created a conducive environment to address the chronic challenges of micro finance.

The Financial Inclusion feature of financial literacy is sowing the right seeds of safe banking and financial awareness to neglected masses like to rural poor adults, marginal farmers, women, migrant labourers. Definitely a pioneering approach to establish the robust micro finance structure in country. Certainly a much required nudge to create the desired environment.

In recent time some penetration in Micro Finance is being done by Micro Finance Bank. The Bandhan Bank

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controls around one-fourth of organized

micro finance business. Other players and Financial Institutes are also trying to expand their presence. The Small Finance Bank and FIs are rolling out many products which are new to the world of micro finance like Micro Recurring Deposits to rural masses, clean energy loans, micro credit pioneering limits to migrant labourers.

2 CHALLENGES OF MICRO FINANCE To dream a systematic organized Micro Finance Market is a pleasant feeling to any financial reformer (Govt./Semi Govt./Private). How to establish in realistic term is a hard nut to crack.

This much talked sector is very scattered and constitutes various people groups which are financially exposed in varied ways, with varied needs. In hinterland their are poor farmers, marginal farmers and landless farmers need lending to support their livelihood or to their daughter marriage or to arrange a bhoj to villagers on the death of some family member. Their is poor widow struggling to meet her family financial needs.

In cities, migrants, labourers and slum dwellers have no belonging identity like their poor village fellow. Their challenges are different .But the need for financial help is same.

The borrowers financial indicators are very bleak. They carry the burden of poor low cash flow to meet repayment obligation and that too is very irregular and zigzag pattern. The collateral support is hardly available say visible. Labourers lack job regularity and farmers faces drought disasters, crop failure. In such hazy projections, the financers hesitates to lend at competitive Rate Of Interest (ROI).

Lack of financial literacy makes the borrowers unaware about the bleeding effects of acute high rates and penal rates. The financial burden and heavy interest obligation shadows the family and social life of the ill fated beneficiary. The extreme steps taken by some to finish their life is repeated happening. And embarrassing news line to the Print/Media. Who is to blame for such drastic action is to the hunger for high ROI income, vulture approach or the inherent high risk with such lending?

A major flow of micro finance is to unproductive purposes, for consumption or to meet some family urgent financial requirement like medical cost, marriage, to arrange some ritual activity etc. How the cash flows/repayment to be justified.

The market is full of formal lenders, semi formal lenders and the so called powerful desi money lenders. The practices, norms and pattern of lending are different and the different is the loan collection approaches.

There is no uniform regulation for this category of finance. NBFCs and MFIs are directly regulated by RBI. The U/s 8 of company act, the finance companies operate with the special dispensation of not to register with RBI. Being Credit Institution, gets shield against getting borrower lending and repayment track data, upload on Credit Information Bureau. The lenders having constitution of Society, Trust, Cooperative Society are regulated by different act as per their constitution. The regulation is complex and difficult to monitor.

The exemption to many micro finance lenders from reporting of lending data track record of borrowers to Credit Information Bureau , makes very easy for multiple financing (over- indebtedness) lending to single borrower. Thus accelerates many mini micro finance bubble to bust in due course.

3 THE WAY AHEAD

The regulation of Micro Finance to be brought into one umbrella. New system to be laid down in line with healthy global practises. If any change in acts is required, that is to be executed . The controlling, compliance and reporting systems are to be streamlined.

The governance and rule &

regulations have to be relooked. Common definition and pricing cap to be laid down.

The guidelines and norms are to be uniform, which is a tedious task. At least the initiation to kick off now.

The Microfinance Institutions Newtwork (MFIN), the self regular for the sector to expand its reach and bring the maximum lenders under one Umbrella.

The Code of Responsible Lending in microcredit, a very relevant development initiated by MFIN should pace up. The Government, Regulators, Institutions,

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Think Tanks should support the same

with valuable inputs and support.

Digital mapping of micro finance is the necessity now. The lending and repayment collections to be digitized. By expanding the use of technology the operating cost can be squeezed, the benefit to be passed on to the borrowers.

Through digitisation the Know Your Customer (KYC) activity and lending can be improved.

The exemption to many lenders for non reporting the borrowers credit payment history to Credit Information Companies (CIC) has created a lot of clutter in system and need to be addressed immediately. By doing so, the collection mechanism can also be made more robust and transparent.

Why not a unique universal account mapped with aadhaar to be developed, through which all micro credit needs and micro deposits initiation of masses be brought in single ledger.

Public Sector Banks have done a commendable job in delivering the micro

finance services to masses. Why not dedicated separate vertical for Micro Finance like financial Inclusion. Ample opportunities are their, why not be a part of it?

Increasing financial awareness and literacy program to masses is the key initiative to envisage a develop micro finance market. To educate the borrowers, we can highlight the importance of safe banking transactions and borrowings. The customer will be more equipped to judge the load of the interest and other cost of borrowing and probabilities of trapping in debt trap will be checked.

The processing of developing a organised Credit Finance market is a on going process. Various innovative efforts and changes to be done on regular basis with active participation of all players of market .Lets develop such a robust Micro Finance System which addresses the financial hardships of masses rather then creating more hardships to them.