{"id":261133,"date":"2023-09-21T20:50:55","date_gmt":"2023-09-21T15:20:55","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=261133"},"modified":"2023-09-21T20:50:55","modified_gmt":"2023-09-21T15:20:55","slug":"lets-not-conflate-microfinance-with-self-help-group-financing","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/lets-not-conflate-microfinance-with-self-help-group-financing\/","title":{"rendered":"Let\u2019s not conflate microfinance with self-help group financing"},"content":{"rendered":"\n

Source<\/strong>– The post is based on the article \u201cLet\u2019s not conflate microfinance with self-help group financing\u201d <\/strong>published in the \u201cLive Mint\u201d <\/strong>on 21st September 2023<\/strong>.<\/p>\n

Syllabus: <\/strong>GS 3 \u2013 Indian Economy<\/p>\n

Relevance – <\/strong>Issue related to financial sector<\/p>\n

News <\/strong>– The Reserve Bank of India made regulatory changes to the microfinance sector\u00a0 in March 2022. IT issued\u00a0 warnings against excessive focus on business expansion in November 2022.<\/p>\n

What is the divergence in perspectives between RBI and MFI industry\u00a0 regarding MFI sector growth? <\/strong><\/h2>\n
    \n
  1. RBI is against prioritizing growth<\/strong> as a mission of microfinance<\/strong>. MFIs should serve as a tool for economic development, poverty alleviation, and women’s empowerment<\/strong>. Whereas, Sa-Dhan, a representative body for the microfinance sector, views growth as essential for achieving these aims.<\/li>\n
  2. RBI is not in favor of MFIs growth<\/strong> that would increase the debt burden<\/strong> on those who are already heavily indebted. On the other hand, MFI industry is advocating for broader geographical expansion <\/strong>and the extension of formal credit<\/strong> to areas where its impact is low.<\/li>\n<\/ol>\n

    What are Self Help Groups(SHGs)?<\/strong><\/h2>\n

    SHG model is a collective of economically disadvantaged <\/strong>rural women who are dedicated to assisting one another. They provide this support through pooling of small savings<\/strong>. The primary objective remains the moral commitment to aid<\/strong> one another.<\/p>\n

    The government has taken steps to support the SHGs through various structured resources, <\/strong>such as village-level organizations, cluster-level federations, state-level rural livelihoods missions, and the National Rural Livelihoods Mission.<\/strong><\/p>\n

    The concept of a joint liability loan<\/strong> was introduced later in 1993, nearly two decades after the inception of the first SHGs. This economic approach<\/strong> was superimposed onto the pre-existing social principle of mutual assistance.<\/strong><\/p>\n

    Government provides interest subsidies<\/strong> at a low interest rate of approximately 12% per annum. <\/strong><\/p>\n

    What are some facts about MFIs?<\/strong><\/h2>\n

    MFIs establish joint liability groups (JLGs)<\/strong> primarily for economic reasons<\/strong> related to lending as a business activity.<\/p>\n

    Factors like growth, scale, and efficiency<\/strong> have guided the natural evolution<\/strong> of this institutional structure. <\/strong><\/p>\n

    Over time, MFIs have invested in advanced technology systems<\/strong>, expanded their offices, hired staff, standardized processes<\/strong>, engaged in marketing, and conducted fundraising.<\/strong><\/p>\n

    JLGs have come to include economically disadvantaged women <\/strong>who may not have prior personal connections. <\/strong><\/p>\n

    Operational, compliance, management, and fundraising costs<\/strong> are currently financed through commercial bank debt. So, it is economically unviable<\/strong> for MFIs to conduct business at interest rates below 22% per annum.<\/p>\n

    MFIs do not facilitate group savings<\/strong>, and the state does not provide direct support.<\/strong><\/p>\n

    What are the differences between SHGs and MFIs?<\/strong><\/h2>\n
      \n
    1. SGGs begin with a moral commitment<\/strong> and incorporate economic considerations<\/strong>. MFIs begin with an economic rationale<\/strong> and integrate a moral commitment. <\/strong><\/li>\n
    2. SHGs offer their female members a practical model for decentralized and contextually-aware decision-making, and empowerment<\/strong>. The business-oriented approach<\/strong> of MFIs are unable to foster the same level of trust, capacity building, and personal development. <\/strong><\/li>\n<\/ol>\n

      Way forward-<\/strong><\/p>\n

      It is essential to recognize the critical distinctions<\/strong> between SHGs and JLGs.<\/p>\n

      Clarity regarding these differences will enable a reevaluation of the MFI growth model<\/strong>, and appropriate forms of regulatory and state support<\/strong> required to promote the sector’s expansion.<\/p>\n","protected":false},"excerpt":{"rendered":"

      Source– The post is based on the article \u201cLet\u2019s not conflate microfinance with self-help group financing\u201d published in the \u201cLive Mint\u201d on 21st September 2023. Syllabus: GS 3 \u2013 Indian Economy Relevance – Issue related to financial sector News – The Reserve Bank of India made regulatory changes to the microfinance sector\u00a0 in March 2022.… Continue reading Let\u2019s not conflate microfinance with self-help group financing<\/span><\/a><\/p>\n","protected":false},"author":10320,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[216,8184,10501],"class_list":["post-261133","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-gs-paper-3","tag-indian-economy","tag-live-mint","entry"],"jetpack_featured_media_url":"","views":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/261133","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10320"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=261133"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/261133\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=261133"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=261133"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=261133"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}