Article: Microfinance in Economic Development of Coimbatore District Venkadasubramanian.R
MICRO FINANCE IN ECONOMIC DEVELOPMENT OF COIMBATORE DISTRICT
AN OVERVIEW OF SELF HELP GROUPS IN MICROFINANCE
A self-help group (SHG) is a village-based financial intermediary usually composed of
between 10-20 local women. Most self-help groups are located in India, though SHGs can also
be found in other countries, especially in South Asia and Southeast Asia.
Members make small regular savings contributions over a few months until there is enough
capital in the group to begin lending. Funds may then be lent back to the members or to others in
the village for any purpose. In India, many SHGs are 'linked' to banks for the delivery of
microcredit.
A Self-Help Group (SHG) is a registered or unregistered group of micro entrepreneurs having
homogenous social and economic backgrounds; voluntarily coming together to save regular
small sums of money, mutually agreeing to contribute to a common fund and to meet their
emergency needs on the basis of mutual help. Also it is a group of people who pool in their
resources to become financially stable by taking loans from the money collected by that group
and by making everybody of that group self-employed. The group members use collective
wisdom and peer pressure to ensure proper end-use of credit and timely repayment. This system
eliminates the need for collateral and is closely related to that of solidarity lending, widely used
by microfinance institutions. To make the book-keeping simple enough to be handled by the
members, flat interest rates are used for most loan calculations.
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Micro finance in economic development of Coimbatore district
SHGs are member-based microfinance intermediaries inspired by external technical support that
lie between informal financial market actors like moneylenders, collectors, and ROSCAs on the
one hand, and formal actors like microfinance institutions and banks on the other. Other
organizations in this transitional zone in financial market development include CVECAs and
ASCAs.
Microfinance is the provision of financial services, primarily savings and credit, to poor
households that do not have access to formal financial institutions and that, microfinance has
captured the imagination of opinion leaders, governments and donor agencies as key strategy for
poverty reduction. At the same time, however, significant differences of opinion have emerged
between the supporters of the microfinance movement and various critics, who have become
increasingly numerous and vocal. Self Help Groups (SHGs) is being used in India to refer to
unregistered groups of 10 to 20 members involved primarily in savings and credit activities. As
in the case of the typical Accumulating Savings and Credit Associations described by (1995),
noted that members save periodically in the group and the savings are lent out to members who
require loans at a fixed rate of interest. SHGs however differ from typical ASCAs in their small
size, their being promoted1 among the poor by external agencies, most importantly in their
obtaining loans from banks. Over 90 percent of these groups have only women members
as (2002) provide an overview of microfinance SHGs in India. Microfinance has captured the
imaginations of many people working to reduce poverty as the premise is simple rather than
giving handouts to poor households, microfinance programs offer small loans to foster small-
scale entrepreneurial activities. Such credit would otherwise not be available or would be only
available at the very high interest rates charged by moneylenders. Moneylenders operate with
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Micro finance in economic development of Coimbatore district
little competition since potential entrants quickly find that costs and risks are high and borrowers
are usually unable to offer standard forms of collateral (1993). However, the emerging
microfinance movement demonstrates institutional innovations that appear to greatly reduce the
risk and cost of providing financial services to poor households. Innovations include contracts
that give borrowers incentives to exclude bad credit risks and monitor other borrowers’ activities,
schedules of loans that increase over time conditional on successful performance, weekly or
semi-weekly loan repayment requirements (1999).
MICROFINANCE IN COIMBATORE:
SHALOME MICROFINANCE:
Needless to say, Coimbatore is an industrialized city in Tamilnadu. In fact, it is fast
emerging one of the leading financial city in the state. At Coimbatore, 88% of the target group is
involved in income generation activity/micro enterprises development and are self-employed.
The rest is employed with industries. Since the city has a vast industrial base, employment
opportunities are high and people find it easy to get employed somewhere. Besides, there exists
good scope to set up small-scale industries in the city. In short, Coimbatore population is
depending on the industry for their bread and butter.
Considering the industrialized structure of the city combined with the ever growing population,
the city is rated high for all round growth. The fact is that 28% of the population in this region is
below the poverty line and they have no access to mainstream financial institutions. However,
financial policy changes have made far-reaching impacts in the region. Unemployment and
under employment are major issues faced by the local people and the labour class including
coolies and maidservants are grossly underpaid. Traditional craftsmen and the skilled workers
are struggling to improve their income level and enhance their productivity. Against this
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Micro finance in economic development of Coimbatore district
background, for micro finance institutions it is the right time to step up their activities in
Coimbatore with adequate funds.
These poor segments of the society urgently need credit support to invest in development
programs, to expand their existing activities, which in turn, will generate more surplus income.
Unable to get required money from the institutionalised banks, the poor people cultivated the
habit of borrowing money from money lenders with exorbitant interest rate.
Apart from this, they also need credit to pay off their debt to the private money lenders who eat
away their hard-earned daily income. This section of the society is in search of credit worthy
micro finance institutions who will offer funds to them with nominal interest rate.
Success in activity or service comes from hard work and humility. The greater the hard work and
humility, the greater the achievements. Service is not simply a desire, a passion, an intense
feeling for one person or object, but a consciousness which is simultaneously selfless and self-
fulfilling. Shalom Micro Finance believes in activities which can be for one's country, for a
cherished aim, for truth, for justice, for people, for nature, for service, and for god.
ACTIVITIES:
Shalom Micro Finance activities are spread across the common people irrespective of
religion, cast, region and faith. The entire region benefits directly or indirectly from Shalom's
presence. Indeed, our strategy is to contribute its might to achieve the Millennium Development
Goals of having poverty by 2015.Shalom Micro Finance primarily serves women clients through
SHGs. The existing clients are primarily rural and urban women engaged in agriculture and they
source their income from this activity. In addition to this, a small portion of individual
businessmen in urban markets are also served by Shalom through its business loans.
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Micro finance in economic development of Coimbatore district
SMFL encourages cost effective, secure and accessible micro savings services among the people
in the rural areas. Contrary to some beliefs, low income people also save their money. In fact,
their savings represent a higher portion of their net assets than those of their counterparts in
society's upper income segments. With access to well-designed savings products, low income
people can also accumulate wealth. When aggregated and invested properly, these small,
sometimes seemingly insignificant amounts can add fuel to country's economic growth.
Equally important are measures to support the informal sector, where most of the urban poor
work in low paid, low quality jobs. Shalom Micro Finance also provides assistance to small
enterprises to upgrade skills and increase access to productive resources and market
opportunities. In this process, through quality micro finance, SMFL brings informal enterprises
into the formal economy. Most of the urban population operates in the informal economy
without security of tenure and without formal employment.
SHGs FROM SHALOME:
A SHG has an average size of about 15 people from a homogeneous class. They come together
for addressing their common problems and are encouraged to make voluntary thrift on a regular
basis. The SHG uses the pooled resources to make small interest bearing loan to their members.
The process helps them imbibe the essentials of financial intermediation including prioritization
of needs, setting terms and conditions and accounts keeping. This gradually builds financial
discipline in all of them. They also learn to handle resources of size that is much beyond
individual capacities of any of them. SHG members begin to realize that resources are limited
and have a cost. Once the groups show the mature financial behavior, banks are encouraged to
make loans to the SHG in certain multiples of the accumulated savings of the SHG. The bank
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Micro finance in economic development of Coimbatore district
loans are given without any collateral and at market interest rates. The groups continue to decide
the term of loans to their own members. Since the groups' accumulated savings are part and
parcel of the aggregated loans made by the groups to their members, peer pressure ensures timely
repayments
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