Union Finance Minister P Chidambaram, in his inaugural address at the Microfinance India conference, has announced the setting up of a Financial Inclusion Fund and Financial Inclusion Technology Fund with a corpus of Rs 500 crore each on the basis of the recommendations made by the Rangarajan committee.

Over decades, Self Help Groups(SHG) have been found to be the most effective tool to make financial inclusion a reality. In rural area, the sole objective of the SHG is to channel the village idle energy into sustainable economic activities. It happens in a group of 15 to 20 members who sit together to decide what to do for themselves in a village temple or in a community hall.

The beginning

The beginning is made with each member depositing a uniform amount (Rs 5 to 50) regularly as per their capacity. The group later opens a bank account to deposit the amount, against which it can avail a loan, four times the deposit, after a certain period. The loan is utilised to meet the entrepreneurship of the members.

Some body buys a pair of bullock, some repair their looms and some buys a plough or a tailoring machine. The group members take the responsibility of recovering the loan and deposit it in the bank. In the process, the members learn to save from their income and develop the credit utilisation skill. Gradually the money in the SHG account in the bank swells and the bankers provide more credits for bigger enterprises.

Thus, SHG becomes an invisible agent of socio economic change, which takes shape with people’s participation. SHG movement is more a spontaneous revolution of mind, which takes time to shape up in the backdrop of village life infested with caste divide, political polarisation, backwardness and illiteracy.

It not only brings financial inclusion but nurses the village psyche and gives villagers a common objective. When a matured SHG channels entrepreneurship in an idle village, it’s socio cultural life gets integrated with micro economic activities. It’s the patience, single willed devotion and the strategy of the bankers, development agencies and enterprising villagers, which  helps plant SHG philosophy in the villages.

As on 31 March 2007, 25.50 lakh SHGs have taken bank credit of Rs 14320 crore across the country bringing four crore families under the banking umbrella. Recently RBI has instructed all banks to bring every body under the banking umbrella. World Bank has also decided to fund SHGs in seven Indian states. More than financial help, the SHGs need critical policy back up at micro and macro level for its sustenance. Regulating SHG is the need of the hour as many unskilled players mess up this silent process of financial inclusion.

Political economists and planners feel all these developments in the micro finance sector will step up the process of financial inclusion. But one thing the policy makers have to keep in mind that micro economic activities in villages by SHG members are part of the natural sector economy.

Any natural imbalance will always disturb the SHG cycle. India has to do something seriously to check the intensity of natural calamities. Look the problem of silting in rivers. It starts with the inundation of hills, which leads to severe flood and water shortage in rivers as the swallow rivers no longer hold water. Today out of country’s geographical area of 329 m.ha more than 40 m. ha of area is prone to flood, which severely affects the entrepreneurship cycle.

Key to sustenance

Biodegradable handicraft and handloom products manufactured by SHG members have market demand in global bazaars. But the middlemen involved in marketing SHG products, like handicrafts and handloom, do not allow the profit to percolate down. In this context, India must think seriously about the dumping of spurious plastic and synthetic items by China. Those items quickly replace our precious handicrafts and handloom products.

Only providing funds, policy back up and devising social sector schemes will not help in financial inclusion. There is an urgent need to understand the key to sustenance of micro finance sector.