Indian micro finance sector is poised to enter a new phase of growth and refinement. The sector has taken greater strides in the areas of enabling environment, policy, growth and investments.

Liberalisation has been a blessing for several sectors of the Indian economy. There is an urgent need to involve a major population of India in the race of development and sustenance of the same over the years.

The post liberalisation era has seen the consolidation of the financial organizations in India. There is marked change in their functioning from the pre-liberalised era of protection to now in the post liberalised era, which is oriented to the dictates of the market needs. Small financial enterprises are reorienting themselves to cater to the needs of the larger sections of India's population that is poor or is not well informed to utilize the available facility. These small financial enterprises with their dynamism, flexibility and innovation spirit will have to adopt themselves to the fast changing needs of the market-driven economy. In this direction SHGs are playing a very important role in providing financial facility to the poor who live in the interior parts of India.

World over, micro finance is gaining recognition as an effective tool for poverty reduction. It is recognized as a catalyst towards meeting the millennium development goal of reducing the global poverty by half by the year 2015.

According to Dr. Maxine Olson, UN Resident Coordinator & UNDP Resident Representative, “ The power of micro finance lies in the fact that it is more than just an income generation tool. It gives the people choices in terms of what they can do to earn a living.”

The sector has achieved growth in terms of depth and outreach. There is a great diversity in terms of institutions that have evolved - both home growth and adapted from other countries. The attention and involvement of the Indian formal financial institutions towards micro finance has been in a manner and scale that is unmatched across the world. According to Brijmohan, former Executive Director, SIDBI, “We are in a sector which is growing not only in terms of whom we reach but also in terms of whom we have not reached”. Indian micro finance is unique because it has made poor women “ agents” of change rather than objects of change. The success of the bottom-up process in micro finance has led to key policy changes, such as recognition of micro finance as a tool for poverty reduction in the national budget.

With its ever growing needs, the industry is entering new phase. It is gaining greater exposure to formal markets. Today the sector has grown both in terms of outreach and diversity. Multiple models and approach co-exist and contribute to sector's success. With active support from the banking community, the SHG Bank Linkage Programme has already achieved its initial mandate of linking one million SHGs by the year 2007.

Even as the sector tries to deliberate on the ways and means of building up access and achieving sustainable growth, its challenges are enormous. It is estimated that local financial services are still inaccessible, of which 200 million people live in India. Bridging the demand-supply gap and reaching out to the above clientele with adequate, and affordable financial services would call for rapid growth of the sector.

In this regard micro finance through SHGs that lend a hand of financial help to the poor in the country is definitely to be encouraged. SHGs need to be nurtured and grown in all parts of the country. Financial capabilities of the poor and extremely poorer sections of the country's population will only encourage the economic performance. As the SHGs provide scope for one to one contact with the members, it can be used as the platform for other social development activities.

SHGs are the major delivery channels or the last touch points in the process of reaching micro finance to the rural poor. SHGs in India , considered the world's largest micro finance programme , is all set to take a momentous jump.

NABARD's initiation of SHG-bank linked programme in 1992 began the process of SHG movement in India with the motive to uplift the rural poor, especially women. Poverty eradication and empowering rural poor were the two-fold objectives of this movement. Moreover, the Central government and the state governments have supported the growth of SHGs. Today , SHG-bank linkage programme is an integral business for the entire 27 public sector banks and 21 private sector banks. The State Bank of India has the largest SHGs followed by Andhra Bank, Indian Bank and Canara Bank. Commercial banks are in the forefront of credit linkage programme with 8,09,238 SHGs. The tremendous growth and success role of SHGs across India has resulted in the number of SHGs touching one million. Though the goal was set to be achieved in 2007, it was accomplished in 2004. To achieve these goals the basic promises of SHG groups – of being accessible and credible – need to be kept intact. There is a great need to strengthen the SHG while its area of functioning is to be widened.

For every micro finance programme to succeed, the SHGs have played a pivotal role. They are the opinion leaders for the micro finance programme to succeed among the rural poor. SHGs success can be attributed to certain characteristics of the programme such as promise to reach the poor. SHG activities can support income generation for enterprise operation by low income households.

SHG activities can help to build financially self–sufficient subsidy free, often locally managed institutions. SHG activities sometimes mimic traditional systems. They provide the same services in similar ways, but with greater flexibility, at a more affordable price to micro enterprises and on more sustainable basis. This can make micro finance services very attractive to a larger number of low income clients

SHGs can strengthen the existing formal financial institutions such as savings and loan cooperatives, credit, union networks, commercial banks and even state-run financial institutions, by expanding their markets for savings and credit and potentially their profitability. The success of many of these micro finance groups is all due to innovations, thereby solving the problem of need for collateral.

Micro finance institutions can be non-governmental organizations, savings and loan cooperatives, credit unions, government banks, commercial banks or non-bank financial institutions. Micro finance institutions are typically for self-employed, low income entrepreneurs for both urban and rural population. Many regional NGOs began initiation process to help the poor looking at larger community development. Around the world even in the formal financial markets too changes were witnessed. The new approach has considered micro finance as an integral part of the overall financial system. Emphasis shifted from the rapid disbursement of subsidized loan to target population towards the building up of local, sustainable institutions to serve the poor.

As a growing sector, a key requirement is a policy structure that informs and guides the growth and development of the sector. The poor need a composite set of services and not just fragmented products. Any policy or structure designed for the sector should have the above as its core philosophy. It should support the key objectives of inclusion, impact and innovation. The micro finance community, with its persistent efforts, has made the government sit up and take notice of the fact that majority of the country's population is still outside the formal financial system.

The growing needs of the sector require multiple financial investments at various levels. There is a need to identify and put into effect those elements of change that could refine operating models, increase outreach and enhanced quality of the services offered. Also required is core institutional funding to invest in staff skills and growth strategies. Investments in the areas of banking infrastructure, and MFIs can accelerate sectoral growth. Analysis of regional and institutional disparities in cost structures needs to be undertaken and an optimum resources utilization plan should be developed. Considering the huge existing need waiting to be converted into a demand and the mammoth efforts needed on the supply side, it is a long journey ahead for the micro finance community.

Published in “Deepam”, inhouse magazine of Shalom Trust