The Indian Microfinance Experience - Accomplishments & Challenges

Discussing the state of SHG-based microfinance in India

This paper presents an overview of microfinance in India, with a specific focus on the growth and contribution of self help groups (SHGs).

The SHG model with bank lending to groups of poor women without collateral has become an accepted part of rural finance. The paper states that:

  • Traditionally loss-making rural banks have shifted their portfolio away from the rural poor in the post-reform period;
  • SHG-based, NGO-aided microfinance has become an important alternative to traditional lending in terms of reaching the poor;
  • Government and the National Bank for Agriculture and Rural Development (NABARD) have emphasized the SHG approach in their initiatives;
  • Over half a million SHGs have been linked to banks over the years;
  • Over three-fourth of the total number of SHGs linked to banks are in a handful of states, mostly in South India.

Finally, despite impressive figures, microfinance in India is still too small to create a massive impact on poverty alleviation. It, however, promises to alter the socioeconomic face of India’s poor if pursued with skill and opportunity development of the poor.