The Role of Micro-finance for Developing Micro-enterprises (MEs)
With special reference to Nagaon District of Assam
*Prof. G. Singaiah, Dr.
Balin Hazarika & Dr. Manoj Kr. Hazarika
Abstract: Of all the problems faced by the micro-enterprise
in the district of Nagaon, non-availability of sufficient finance seems to be
one of the major hurdles. Wherever for the country as a whole, institutional
finance played a vital role in the process of industrial development. The
position of Assam
is far from satisfactory. The flow of institutional finance in the state is
still at very low ebb. The micro-credit facilities in the district which
consists of a series of schemes have not been able to create much spurt in the
growth of industries. In recent years there is a marked increase in the amount
of financial assistance flowing to the district from the bank and financial
institutions, but still all the areas in the district are not able to get full
support from the financial institutions. Generally, banks don’t take practical
and pragmatic view and they are more security conscious. Though the banks have
mobilized substantial amount of deposits from the region, the same are
transferred to the neighbouring region.
Therefore the credit-deposit ratio of the banks in the region is low.
Besides these financial problems, some other problems involved in
micro-enterprise in the district have been identified.
Key Words: Micro-finance, Micro-enterprises and SGSY
Introduction:
Micro
enterprises have been playing an important role in employment generation and
promotion of self-employment and create entrepreneurship culture among the
youth. In view of this, the government of India has stressed the development of
micro enterprises as a strategy for employment generation and promotion of
income generating among the below poverty people, and for promotion of
self-employment and entrepreneurship culture among the local youth. This has
been recognized both by government and others development agency. With the
evidence of the fact, many banks and financial institutions have evolved micro
finance schemes to address the financial needs of micro enterprises.
Since the word “micro” represents small, the
MSMED Act 2006 (Micro, Small and Medium Enterprise Development Act 2006, Ministry
of Small Scale Industries, notification, July 18, 2006) defines a micro
enterprise as where the total investment in plant and machinery in
manufacturing sector does not exceed Rs. 25 lakhs and in the case of the
enterprise providing or rendering services, where the investment of equipment
does not exceed Rs. 10 lakh.
Micro
finance include micro credit and savings
which is sometimes called ‘social loan’ and common objective is that its
improving living standard of the poor, by strengthening their ability to gain
food, medical, housing facilities and creating jobs. According to NABARD Task Force
on Supportive and Regulatory Framework for Micro Finance (1999) define, micro
finance as “ provision of thrift credit and other financial services and
products of very small amount to the poor in rural,, semi urban and urban areas
for enabling them to raise their income and improvement of the standard of
living.
*Prof. G. Singaiah , North Eastern Hill
University (NEHU), Tura Campus Tura,
Dr. Balin Hazarika, Associate Professor, Kaliabor College &
Manoj Kr. Hazarika, Assistant Professor, Darrang College,
Tezpur
Significance of MEs:
The MEs
sector is one of the fastest growing industrial sectors all over the world. It
has been showing outstanding performance over five decades as a highly vibrant
and dynamic sector of the Indian economy, is well indicated by its 95 percent
share in the total industrial units in the country, 40 percent of production in
the manufacturing sector, 80 percent of industrial employment, about 45 percent
of national export and an estimated employment to the order of 295 lakhs during
2005-06.
The main significances of MEs are:
·
The MEs
is capable of generating high degree of employment with low capital investment.
During the period from 1991 to 1998, it has created almost 42 lakhs of new jobs
whereas the entire organized industries and government was able to create 14.3
lakhs jobs only, i.e. a ratio of 3:1 in employment generation.
·
MEs are
labour intensive, it is evident of fact that average MEs unit require about
Rs.25,000 per unit of per employment, whereas large scale unit needs Rs. 3
lakhs for providing employment to one person.
·
MEs unit
particularly agro-based units eco-friendly and hence, capacity of experiencing
ecological and economic sustainability.
·
The MEs sector has special significance in
North Eastern region- which is one of the ‘A’ category backward regions in the
country. The huge storage of natural resources i. e., locally available
raw-materials can be utilized properly through the development of this sector.
Statement of problem:
In India financial institutions have
spread their network in every nook and corner of the country (nearly 1.25 lakhs
rural credit outlets). But still a vast
majority of the rural poor have little access to formal banking system.
Micro-credit Summit-World Report observed that 2 percent of micro enterprise of
developing countries has access today to any financial services. The all India Debt
and Investment Survey Reports 1991, that approximately 24 percent of rural
household debt either from formal or informal sources. Out of this, 36 percent
had to still depend on informal credit viz, moneylender, shopkeepers and
relatives and friends etc.
Need of the study:
Micro
enterprise plays an important role for alleviation of poverty and creating
employment especially among the poor. Though we have lots of financial
institution but the credit scenario is not satisfactory in Assam in general and
Nawgaon District is particular. In the district almost all branches of
financial institutions are situated but still in the district are 3.35 thousand
BPL families and about 1 lakh job seekers. So, the present study attempts to
observe the micro credit aspects of financial institutions for alleviation of
poverty and creating employment generation through promotion of micro
enterprises in the district.
Objective of the paper:
The
main objective of the paper is to analysis the economic development of Assam in terms
of growth and to analysis the lending pattern and performance of financial
institutions regarding micro credit for promotion of micro enterprises in the
Nagaon district of Assam.
Methodology:
The
universe of the study is Nagaon district of Assam. The study is based on the
secondary data collected from Directorate of Industries of Assam, DIC Nagaon
district, NABARD, research papers, government bulletins and periodical reports.
etc.
Paper Design:
For convenience, this
paper is divided into three sections. The first section represents
introduction, definition, significance of the study and give the conceptual
framework of the paper. The second section deals with analysis of growth of MEs
in Assam in terms of unit, investment, production and employment during 1999-2000
to 2008-09 and performance of financial institutions in Nagaon district of
Assam during 2001 to 2005, and third section represents findings and
conclusions.
District profile:
The Nagaon district is situated in the middle
part of the state of Assam .
The district consists of three sub-divisions, Nagaon, Kaliabor and Hojai. Total
population of the district is 23.15 lakhs and density of the population was 604
persons per sq. k.m. as per 2001 census. Agriculture sectors play a crucial
role in the economic pursuit of the people of the district. The total strength
of working population in the district was 3.92 lakhs, which is 17 percent of
the total population reveals the industrial backwardness of the district.
Present micro credit delivery
system: In India different
types of credit delivery systems are prevail which are followed by Nagaon
district of Assam. This can be classified in to five groups:-
(i)Individual credit delivery model: Credit given directly to the
individual by the financial institution is for starting the micro enterprise to
the unemployed, weaker section of society with collateral security or fixed
deposit. These systems are predominant mainly in priority sector banks, especially,
the regional rural banks and cooperative banks.
(ii) A small groups of five persons formed voluntarily to provide
mutual and moral binding of guarantees in lieu of the collateral required by
commercial banks. In this system only two members of a group are allowed to
take loan. Depending on their performance of repayment, the next two borrowers
can be applied, thereafter, and subsequently the fifth member as well. It has
been adopted in many countries with modification to suit local conditions and
culture.
(iii) The model is to an extent on expansion of the group approach
where the basic necessities of the poor especially the women are met through
the community banking system. The community or village banks organized with
30-50 members.
(iv) Cooperative credit society provides credit and other financial
services to their members from the deposits of members according to their
requirements.
(v) The SHG model is considered as the basic micro credit model in India . SHG is a
strategy, developed and promoted by NABARD. It has started SHGs programmed in
order to eliminate unemployment and create more number of self employed people
to alleviate poverty in the country. The SHGs to open a formal bank account in
the name of groups. The groups meet often and use the pooled thrift to pride
small loan to help the members to meet their small emergent needs.
Growth of MEs sector in Assam:
Table-1.1
Year
|
No. of Units
|
Nos. of employment
|
Production
(Rs. In Lakh)
|
Fixed Investment
(Rs. In Lakh)
|
1999-2000
|
38,286
(10.14)
|
158,064
(9.29)
|
147,021
(10.40)
|
91,335
(4.43)
|
2000-01
|
40,402
(8.20)
|
168,324
(8.08)
|
163,034
(14.57)
|
96,627
(3.34)
|
2001-02
|
42,930
(6.50)
|
179,863
(8.08)
|
179,411
(11.45)
|
101,693
(25.02)
|
2002-03
|
45,270
(6.90)
|
190,977
(6.58)
|
198,375
(9.19)
|
106,561
(16.46)
|
2003-04
|
47,624
(5.00)
|
202,746
(4.71)
|
218,072
(22.62)
|
113,753
(4.51)
|
2004-05
|
49,691
(4.99)
|
212,142
(6.49)
|
147,021
(34.31)
|
120,873
(5.80)
|
2005-06
|
51,773
(4.20)
|
222,922
(5.08)
|
269,961
(9.28)
|
127,993
(19.67)
|
2006-07
|
53,945
(4.02)
|
234,774
(4.83)
|
295,473
(7.76)
|
220,820
(42.03)
|
2007-08
|
55,709
(3.16)
|
245,278
(4.28)
|
344,084
(11.72)
|
262,797
(15.90)
|
2008-09
|
57,353
(2.86)
|
257,202
(4.63)
|
392,695
(12.37)
|
287,998
(8.80)
|
Note: Both SIDO and Non-SIDO units as on 31st March
of the respective year and figure in brackets refer percentage over previous
year.
Sources: Directorate of Industries, Assam .
Growth of MEs sector:
Micro-enterprises
contribute substantially to production and much so to employment generation.
After the introduction of the new Industrial Policy of 1996, there has been a
considerable decrease in the number of micro-enterprise units in Assam. The Table-1
shows that growth of MEs in terms of number of units, employment, production
and investment. Although, there is an overall growth, the peach of MEs growth
in terms of number of units, employment, production and investment shows a
decreasing trend. The growth of increase in number of units is decreased from
10.14 percent in 1999-2000 to 2.86 percent in 2008-09. In case of growth of
employment, the number of employment is in decreasing trend and it is not much
expectation. The number of employment in 1999-2000 was 9.29 percent in
comparison to 1998-1999 but in 2008-09, the growth is only 4.63percent. In case
of production and fixed investment, the growth rate is fluctuating.
Growth
of MEs in Nagaon District with Assam upto 31st March, 2005
Table No. 1.2
Year
|
No.
of Smalls Scale Industries
|
%
|
|||
Nagaon
|
Total
|
Total
|
|||
Upto – 2001
|
1817
|
1817
|
29537
|
29537
|
6.15
|
2001-2002
|
69
|
1886
|
2528
|
32065
|
2.72
|
2002-2003
|
138
|
2024
|
2246
|
34311
|
6.14
|
2003-2004
|
118
|
2142
|
2348
|
36659
|
5.02
|
2004-2005
|
157
|
2299
|
2067
|
38726
|
7.59
|
Total
|
2299
|
38726
|
5.9
|
||
Source: Directorate of Industries, Assam with 3rd
All India Census.
The table 1.2 shows
the growth of MEs units in Nagaon district during 2001 to 2004-05. The table
reveals that total no. units have been increasing from 1817 to 2299 during the
period from 2001 to 2004-05 which is 26.52 percent. It is a matter of concern
that although the No. of MEs unit has been increasing trend but the
contribution is less than 6 percent. Another peculiar trend that has been
revealed in the district that whatever limited number of unit has been
developed these are again highly inconsistency distributed.
Performance of Financial
Institution in Nagaon District: Growth of Banking
Table 1.3
Bank
Group
|
No.
of Branch
|
Deposits
(
Rs. in lakhs)
|
Advances
(
Rs. in lakhs)
|
CD
Ratio %
|
Commercial Bank
|
56
|
76,347.45
|
27,424.39
|
36%
|
Regional Rural Bank
|
31
|
10,227.19
|
4,010.00
|
33%
|
Cooperative Bank
|
4
|
3,742.93
|
1110.76
|
24%
|
Total
|
91
|
90317.57
|
32561.15
|
36%
|
Source: Lead Bank , UBI, Nagaon
The Table1.3 shows the
growth of the Commercial Banks in the district. The table revealed that the
total deposit of the operating commercial banks in the district was 90,317.57 lakhs
whereas the total credit was 32,561.15 lakhs as on 31-03-2005. The per capita
bank credit and deposit was 36 percent. Reserve Bank of India guidelines state
that 40% of the total lending should be given to the priority sector, but
overall credit deposit ratio in this district is not satisfactory or the below
the standard of RBI guideline.
Loan outstanding
Table 1.4
Agency
|
No.
of Branch
|
2001-02
( Lakhs)
|
2002-03
( Lakhs)
|
2003-04
( Lakhs)
|
%
share on 31.03.2004
|
Commercial Bank
|
56
|
13,858.00
|
14,603.00
|
17,858.00
|
82
|
Regional Rural Bank
|
31
|
1,666.00
|
2,033.00
|
2,919.00
|
13
|
State Cooperative Bank
|
4
|
920.00
|
972.00
|
1,005.00
|
5
|
Total
|
91
|
16,444.00
|
17,608.00
|
21,782.00
|
100
|
Source : Potential Link Credit Plan, NABARD
The table.1.4 reveals that the
loan outstanding of all banks has increased to Rs. 16.444 Lakh to 21,782 lakhs
during 2001-02 to 2003-04, the increasing growth rate is 32.46 percent. While
reviewing the agency wise growth rate under loan and advances it was observed
that RRB had done excellent growth rate with 75 percent followed by Commercial
Bank 29 percent. The State Co-operative Bank had growth only of 9 percent. Highest
loan outstanding is revealed by Commercial Banks i.e. 82 percent of the total
loan outstanding of the district.
Recovery Position ( 2003-04)
Table 1.5
Agency
|
Disbursed
|
Recovery
|
% of Recovery
|
CBs
|
2,233.60
|
769.40
|
34
|
RRBs
|
421.81
|
223.85
|
53
|
SCBs
|
395.37
|
38.07
|
10
|
Total
|
3,050.78
|
1,031.32
|
Source : Lead Bank , UBI, Nagaon, Assam
The overall recovery
position of the district was 34 percent in 2003-04. Agency wise analysis of the
data reveals that RRB has better recovery with 53 percent while the State
Cooperative Bank had very poor recovery position with only 10 percent. Efforts
should make for recovery of loan for better recycling of funds.
Performance of SGSY scheme in
the District:
For improving of
economic condition of the BPL families, the Govt of India had launched the
scheme of Integrated Rural Development programme (IRDP) from October 1976 and
then switches over to new scheme known as Swarnajayanti Gram Swarojgar Yojana
(SGSY) from April 1999. in Nagaon district there are 3.35 lakhs BPL families
according to the district rural development agency (DRDA) of the govt. of Assam . SGSY is
a holistic programme of micro enterprise development, it covers all aspects of
self employment viz. promotion of self help group among the rural poor. SGSY
scheme implemented by the DRDA through the Panchayt Samities and with the
active involvement of other Panchayati Raj institution. Banks. And the
NGOs. Under SGSY, more emphasis has been
given for active cluster and group finance. Some activities are identified/
approved by the block level/ district level SGSY committees’ viz. chira, muri
making, cane and bamboo product, poultry and chital patti.
Performance of SGSY Scheme in
Nagaon District
Table 1.6
Year
|
Target
|
Achievement
|
Percentage
|
|||
Phy
( No.)
|
FA
(Rs.)
|
Phy
(No. )
|
FA
(Rs.)
|
Phy
|
FA
|
|
2001-02
|
Group = 256
 Individual = 756
Total = 1,012
|
403.56
 50.00
453.56
|
Group = 138
Individual = 608
Total = 746
|
247.48
 133.89
381.37
|
74
|
84
|
2002-03
|
Group = 188
 Individual = 213
Total= 401
|
405.43
 53.25
458.68
|
Group = 138
Individual = 120
Total = 258
|
273.19
 26.08
299.27
|
64
|
65
|
2003-04
|
Group = 312
Individual = 92
Total = 404
|
650.73
23.00
673.73
|
Group = 359
Individual = 95
Total = 454
|
586.11
 19.00
605.11
|
112
|
90
|
Sources : DRDA, Nagaon District , Assam
The table 1.6 shows the performance of SGSY
programme in Nagaon district of Assam which is very satisfactory. Percentages
of achievement in physical units as well as in financial assistances were
increased. In terms of economic activities with the help of SHG, the
achievement was 112 percent in physical units, while in financial terms the
achievement was 90 percent in financial assistances of the target in 2003-04.
Conclusions and recommendations:
A number of
constraints have been responsible for the slow peace of industrial development
in the state. Of all the problems faced by the micro enterprise in the
district, non-availability of sufficient finance seems to be one of the major
hurdles. Wherever for the country as a whole, institutional finance played a
vital role in the process of industrial development. The position of Assam is far
from satisfactory. The flow of institutional finance in the state is still very
low ebb. The micro credit facilities in the district which consists of a series
of scheme have not been able to create much spurt in the growth of industries.
In recent years, there is a remarkable increase in the amount of financial
assistance flowing to the district from the banks and financial institutions,
but still all the area in the district are not able to get full support from
the financial institutions. Generally, banks don’t take practical or pragmatic
view and they are more security conscious.
Though the banks have been mobilize substantial amount of deposits from
the region but the same are transferred to the neighboring region. Therefore
the credit deposits ratio of the banks in the region is low. Besides these
financial problems, some other problems is involved of micro enterprise in the
district have been identified. These are location, skill labour, marketing,
power, raw materials, and infrastructural problems. In such a scenario the only
ray hope is the MEs sector for labour surplus economy like ours.
Within
the SSE sector the development of the MEs will hold the finest promise for talking
the unemployment problems. The credit dispensation in case of MEs will undergo
the following six steps.
(i)
Identification
of the project.
(ii)
Appraisal
of the project.
(iii)
Assessment
of the loan requirement.
(iv)
Disbursal
of loans.
(v)
Monitoring
the projects and
(vi)
Recovery
of loan.
With the help of above mentioned credit mechanism, the following
recommendations are forwarded for improvement of present micro finance scenario
in the district.
- The bank and
financial institutions should delivery credit either through the NGO or
through SHG.
- The linkage
between the NGO and the SHG with the commercial banking set up should be
established in order to smoothen the flow of credit.
- The bank
should be asked to open ME development wings in every district for proper
monitoring and guidance.
- A fixed
percentage of the priority sector credit should be earmarked for financing
the MEs and freed from all kinds of state and local taxes for enhancing
the cost competitiveness.
- The financial
institutions should play a role more of a development nature rather than
being merely credit institution.
- Mobile
banking facilities should be introduced so as that poor and remote people
can get finance.
References:
1. Prasad,C.S, Laghu Udyog Samachar, The third
census of SSI, Development Commissioners(SSI), Government of India, New
Delhi-2001,p-23.
2. Bannur B.C and Mulla, N.I, Industrial
Sickness in SSI. An empirical study, southern Economist, 2002, p-13.
3. Prasad,B.G, Growth of small scale industries
in Karnataka, Southern Economist, May, 2000, p-20.
4. Das.M, Is industrial development in NER
sustainable? Emerging trends of small and medium enterprises in generating
employment in NER. CKB Commerce College, Jorhat, Assam. National seminar. Sept.27-28,
2008. pp-45-46
5. Chetry.S and Dhar. Sominder.(2006). Money and
Micro Enterprises in Bhutan .
Sterling publishing.India,pp-45
6. Sara.S. (1991). Linkage of Micro Credit for Micro-
enterprise Development in Srilanka. SIRD, Guwahati.
7. Mali.D.D.(2001). Micro enterprise Development.
Policies and Programme. IIE. Guwahati.
8. SEDME, 2003.jan,VOL.43, pp-47
9. Kuruskhetra.2006, Feb. pp-39
10. Southern Economist 07.vol.43,pp-9
11. Potential link Credit plan.2005-06,
NABARD.PP-29. Nagaon District.
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