ORIGIN AND CONCEPT OF MICROCREDIT

“Professor Mohammad Yunus, the Nobel Laureate for peace, who is considered the father of the micro-credit system, started a research project in Bangladesh in 1979 and came out with ideas of microcredit that resulted in the establishment of Grameen Bank in 1983. He designed the concept of microcredit to relieve the rural poor from the clutches of money lenders. His theory was that if given help and training, poor people-especially poor women could generate enough income to repay their loans”. in developing entrepreneurship among rural women and empowering them, micro-credit assumes crucial importance. In India the first efforts were taken by NABARD in 1986-87. In Tamilnadu, the savings-linked micro-credit scheme commenced operations on January 1, 1997.

Definitions differ, of course, from country to country. Some of the criteria used for the definitions include:-

• Size – Loans are micro, or very small in size.
• Target users – Micro entrepreneurs and low-income households
• Utilization – The use of funds not only for income generation and enterprise development but also for community use (health, education, and the like)
• Terms & conditions – the terms and conditions for micro-credit loans are flexible and easy to understand and are suitable to the local conditions of the community.

The word ‘micro’ itself suggests the small size of the loans made, the small size of savings made, the smaller frequency of loans, the shorter repayment periods, and the amounts of the micro or local level of activities and the community – based on immediacy of micro credit.

OBJECTIVES OF MICROCREDIT

Microcredit, as an effective credit delivery system, seeks to achieve the following broad range and multi-faceted objectives to meet the credit needs of the rural poor, including the non-bankable and landless¹.

Major objectives

• Offer financial services to the rural poor, particularly women who have not been able to secure the needed services from the formal financial system.
• Provide lendable and capacity-building funds in respect of SHGs and various types of other grass root level micro-financial institutions.
• Support all initiatives for upscaling the SHG-bank linking programme through thrift-related banking activity.
• To help build up mutual trust and confidence between bankers and the rural poor.
• To evolve a supplementary strategy for meeting the credit needs of the poor by combining the informal credit system with the formal credit institutions.

Principles of MicroCredit Scheme

The micro-credit scheme has the following principles.

• Self-employment/enterprise is a viable means for poverty alleviation.
• Lack of access to capital assets/credit is a constraint for existing and potential Micro enterprises.
• The poor can save despite their low level and sporadic incomes.

Features of the MicroCredit Scheme

Microcredit is distinctly different from other populist poverty alleviation Programmes. It must be understood that all small loans are not microcredit. It has the following special features:

1. Loans under micro–credit programmes are very small, on an average less than $100 by world standards and in hundreds of rupees by Indian standards.
2. Microcredit targets the rural and urban households, with emphasis on women borrowers, provision of finance for the creation of assets and their maintenance, and bringing in greater equality of services. The beneficiaries are identified by micro Credit providers themselves independently or through NonGovernmental Organizations.
3. Credit follows thrift. The first stage is the formation of groups by individuals themselves, followed by the mobilization of petty savings and recycling this by lending to group members.
4. The repayment period is generally very short. The amount increases based on the borrower’s repayment history. This is called the loan gradation process. The transactions are to be undertaken by mutual consent in a truly informal manner.
5. Loans are devoid of any concessional and bear a comparatively higher rate of interest. It is a significant departure from earlier exercises in providing credit to the poor through financial institutions at subsidized rates with high default rates.
6. RBI has not imposed any minimum or maximum ceiling on the loan amount, assuming that the banks will be in a position to understand the underlying idea.
7. The operational strategy under the new micro-credit involves several features such as simple procedures for reviewing and approving loan applications, delivery of credit and related services at commercial rates of interest in a convenient and user-friendly way; quick disbursement of small and short-term loans; clean recovery procedures and strategies; maintaining high repayment rates; incentives of access to larger loans immediately following successful repayment of first loan.
8. Microcredit focuses on the process of retaining most of the earlier characteristics, such as farm and non–farm credits, the poor as a target group, operating largely in rural and semi–urban areas, and small borrower accounts. The new paradigm emphasizes financial inter-mediations with the self-sustainability of institutions and quantitative or qualitative outreach to the poor.

For citing this article use:

• Mayilsamy, C. (2018). Impact of micro credit on developing entrepreneurship_study with special reference to micro enterprises in Sivaganga district.