South -Asian Journal of Multidisciplinary Studies (SAJMS) ISSN:2349-7858:SJIF:2.

246:Volume 3 Issue 5 130

Role of Microfinance and Entrepreneurship Development in India

Dr. Sushil K. singh*
Ram Pravesh**

Abstract

The entrepreneurship development in any country leads to the employment generation and
poverty eradication. That‟s why every country continuously tries to speed up the
entrepreneurship. In the scenario of India small entrepreneurs need small fund to boost up the
small business but government sector financial lending institutions are now failed to do it.
Therefore this creates the dependency of micro entrepreneur on microfinance lending institution.
It is seeing in structure of micro enterprise lending. Bangladesh is a pertinent example of, role of
microfinance in economic development after that Bangladesh became a model of economic
development through micro finance, now developing country applying this modal for economic
development. In the same line India is also applying and experimenting the flourish outcome of
microfinance. microfinance playing a vital role in economic development by entrepreneurship
development in India. The success of small business in India depends upon the accessibility of
working capital. It is only possible by microfinance lending. This paper is prepared by use of
secondary data. The researcher used internet as source of collection of secondary data. Tables
and simple percentage were use in data presentation. For analysis the two broad variables keep in
center in the study. First is entrepreneurship development as a dependent variable and second is
microfinance as an independent variable. The research paper is divided in three sections. First
section reveals the success of microfinance in different region across the country for
entrepreneurship development. The second section discloses the relationship between
microfinance and entrepreneurship development in the country. The third section concludes the
result of the research that is there is positive impact of microfinance institution lending on
entrepreneurship development in India.

Keywords- Entrepreneurship, Microfinance, Lending, Development, Financial Institution etc

*Assistant professor, Department of Business management IGNTU Amerkantak MP.

**Research Scholar, Department of Business management IGNTU Amerkantak MP.

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 South -Asian Journal of Multidisciplinary Studies (SAJMS) ISSN:2349-7858:SJIF:2.246:Volume 3 Issue 5 131

Introduction
The process of industrialization of India was start in second five year plan with the
objective of employment generation and to fulfill the hope demand of individuals. Although it
was centralized to only a group of industry that why a mass of Indian remain excluded by
entrepreneurial orientation because of they have not any idea to do something even does not have
finance to initiate. “About 90 percent of people in developing countries lack access of financial
services from institution either in form of credit or saving” ( Robinson et all 2002). Therefore so
many rural people migrate to big city for employment. After globalization so many multinational
companies spread their business in India at rural level but rural people remain unemployed. It is
sure that our success of development since independence is not satisfactory. Unemployment,
poverty, low living of standard, satisfaction level even our happiness level is very low in rural
region. Poverty and mass unemployment is very big challenge for us irrespective of immense
opportunity of entrepreneurship in agriculture and rural non- form sector. It is well known that
institutional financing system to poor in India is unable to fulfill their credit needs in response of
that micro finance is growing. Microfinance is playing a instrumental role in improving the
quality of life and eradication of poverty by meeting the needs of credit of rural poor. “
microfinance has already made a positive impact on quality of life of millions of poor people
by providing greater access to credit, saving, insurance, transfer remittances, and other financial
services which would otherwise be untouchable.” 1 Success of microfinance in Bangladesh to
provide livelihood opportunity to rural people have been became an instrument in several less
developed countries like Uganda, Bangladesh, Nigeria, and so on for sustainable
entrepreneurship development. In India rural people have low capacity to finance their
enterprise so productivity is limited, income is low, respectively domestic saving remain low and
again any increase in productivity is impossible. Skewed distribution of microfinance institution
in India is also breaking the rural people to engage in new entrepreneurial activity, hinder
economic growth, which inhibit the sustainability of entrepreneurial activity. Anyhow
microfinance acts as a tool to empower the rural people. Therefore now we have to focus on, to
what extent microfinance empowers the entrepreneurship in rural people? And what is its
contribution to economic development? The economic development is the “process of
improving the quality of all human lives” (Todaro 1994). So the economic development consider
three characteristic namely growth in income and consumption, speeding self-esteem by
institution that enhance human pride, and increasing freedom of people. So it considers the all
aspects of human development that is possible by only microfinance, if we talk about poor
people. “When the income of poor people rise then they improve their nutrition and send their
children to school” (Robinson 2002). Guy Vincent says „it is fundamental to economic
development, but also financial services help the poor to expand their economic activities and
increase their income and assets, their self-confidence grow simultaneously‟
i
International journal of college science, 3: 2 July 2009, Tiyas Biswas and P. P. Sengupta

*Assistant professor, Department of Business management IGNTU Amerkantak MP.

**Research Scholar, Department of Business management IGNTU Amerkantak MP.

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 South -Asian Journal of Multidisciplinary Studies (SAJMS) ISSN:2349-7858:SJIF:2.246:Volume 3 Issue 5 132

Objective

1. To analyze the development of micro financing in India.

2. To analyze the entrepreneurship development in the context of microfinance.

Context of micro finance in India

From past to present microfinance sector of India reveal the cash-cow growth pattern. It is
fact that 8 MFI have approval to open small finance bank by reserve bank of India and one MFI
has already worked as bank. The MFI in India generally covered those areas which are not now
covered by main stream financial institution and for those it playing a vital role for financial
inclusion. Now microfinance program have the take up the world wide campaign to provide
credit to poor by designing product and channels that fulfills the needs of the poor. The
economic situation and increasing earning of microfinance institution reveal that poor had great
repayment potential and also reveal by extension of its credit to women. at the end of March
2015 478 MFI were functioning in 33 state including Union Territory and 568 District in India
and has been reach to 33 million clients with 490 billion credit portfolio among them 40 percent
functioning in southern region and 25 percent in eastern region. The contribution of NBFC-MFI
is 85 percent of the total clients and 88 percent of the outstanding portfolio further remains
contributed by NGO-MFI. The 97 percent of the client of MFI is women and 67 percent is urban
at the end of 2015 March.

Region wise Selp-Help Group across the country

According to report of status of microfinance in India 2014-15 ( NABARD) there are every
region of India except southern region have good potential to open SHGs because huge range of
village are not covered by existing SHGs in that region. In the northern region of the country
360858 SHGs is currently functioning but several village was not covered by them and and
potential of the region to formation of new SHGs is around 680628. The north eastern region of
the India has also good potential of new SHGs formation around 162643. Present time 333981
SHGs is functioning in this region. The number of functioning SHGs in eastern region of the
country is 1524614. Here it is notable that it covering only half of total need of SHGs in the
region. The region has great potential to new SHGs formation around 1450466 that is second
biggest potential to open new SHGs. This region has major market for SHGs across all regions in
the country. The central region of the country has 817251 SHGs. That cap only small portion of
the potential of the region. The region has biggest potential of new SHGs formation across the
entire region of the country, which is number of 1793117. The western region of the country has
second greater number of SHGs. Now 941144 SHGs is working in this region. The potential of

*Assistant professor, Department of Business management IGNTU Amerkantak MP.

**Research Scholar, Department of Business management IGNTU Amerkantak MP.

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 South -Asian Journal of Multidisciplinary Studies (SAJMS) ISSN:2349-7858:SJIF:2.246:Volume 3 Issue 5 133

formation of new SHGs in the region is 246033. The region has second lowest potential for new
SHGs formation across entire the region of the country. The southern region of the country is
rich and enough by number SHGs. The region has 3719621 SHGs as on 31 March 2015. Number
of SHGs in the region is more greator than scenario of SHGs among all the region of the country.
It is only one region of the country which has enough number of SHGs by number of population.
The region has zero potential for new SHGs formation.
Table-1: Region wise context o f SHGs in India:

Sl. No. Region No. of SHGs Potential for SHGs formation

1 Northern region 360858 680628
2 North eastern region 333981 162643
3 Eastern region 1524614 1450466
4 Central region 817251 1793117
5 Western region 941144 246033
6 Southern region 3719621 0
7 Total 7697469 4332887
Source – NABARD (2014-15) status of microfinance in India

Potential of SHG Northern

No. of SHGs Northern
region
region
5% 4% 0% North
North eastern
eastern
region 6%
16% region
Eastern
Eastern 4%
region
region
20%
48% Central
Central 41% region
region
11% 33% Western
Western
region
12% region
Southern
Southern
region
region

Progress of Micro Finance Program

*Assistant professor, Department of Business management IGNTU Amerkantak MP.

**Research Scholar, Department of Business management IGNTU Amerkantak MP.

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 South -Asian Journal of Multidisciplinary Studies (SAJMS) ISSN:2349-7858:SJIF:2.246:Volume 3 Issue 5 134

The National Bank of agricultural and Rural Development (NABARD) still continues to
extend credit to NGOs, RRBs, district central Cooperative Bank and Individual Rural Volunteers
(IRV) for accelerating and fostering the SHGs. The NABARD sanctioned 88.36 crore to these
institutions during 2014-25 in the form of financial assistance. A 339.83 crore cumulative grant
sanctioned to various agencies to promote the 7.19 Lakh SHG until the end of March 2015. As
on 31 March At the end of March 2015 93.77 crore grant sanctioned to 4.85 newly formed
SHGs. The Non-Government Organization (NGO) worked as most dominant player to promote
SHGs. NABARD is helping them to train and enhance the capacity of the stakeholders by
various microfinance programs. It has conduct 4402 training programs to train around 1.61 Lakh
individuals, stakeholders during 2014-15. As on 31 March 2015 around 33.28 individuals was
trained that playing as a strong back up group for execution of the program. It is impressive that
around 1087 training program with 31073 participants were conducted by the assistance of
Women Selp-Help Group (WSHG) fund. Although, government and Reserve Bank of India is
continue to emphasizing to to promote SHGs-BLP for financial inclusion like Prime Minister‟s
Jan Dhan Yojana. Despite of that all, the government of India continue all poverty eradication
programs by means.

Table 2: Growth of Bank Linkage SHGs:

S Year No. of Selp- Help Group Linked to Growth rate

.No. bank
1 1998-99 18678 -----------
2 1999-00 81780 337.84
3 2000-01 149050 82.5
4 2001-02 197653 32.60
5 2002-03 255882 29.46
6 2003-04 361731 41.36
7 2004-05 539365 49.10
8 2005-06 620109 14.97
9 2006-07 1105749 78.31
10 2007-08 1227770 11.03
11 2008-09 1609586 31.09
12 2009-10 1586822 -1.41
13 2010-11 1196134 -24.62
14 2011-12 1147878 -4.03
15 2012-13 1219821 6.26
16 2013-14 1366421 12.01
17 2014-15 1141208 16.48
Average 1107443.35 44.55

*Assistant professor, Department of Business management IGNTU Amerkantak MP.

**Research Scholar, Department of Business management IGNTU Amerkantak MP.

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 South -Asian Journal of Multidisciplinary Studies (SAJMS) ISSN:2349-7858:SJIF:2.246:Volume 3 Issue 5 135

400 Growth rate of Bank Linkage SHGs

300
200
100
0
-100

growth rate

The table-2 reveals that the growth rate of Bank linkage SHGs is 337.84 in 1990 and 16.48 in
2015 with the average of 44.55. The progress of microfinance in the context of selp-help group
with Bank Linkage Program is the good indicator of progress of microfinance. Under the selp
help group bank linkage program 13839954 SHGs had linked at the end of 31 March 2015 and
they had loaned by Rs. 11575.98 billion during the year even they refinanced by Rs. 312.66
billion as on 31 March 2015. The huge amount of lending by microfinance institution to SHG
and again refinance them if they had need show that there is immense opportunity to expand the
field of microfinance market in the country. The Selp- Help Group Bank Linkage Program
(SHG-BLP) was first initiated on pilot scale in 1992 has expanded significantly. At the end of
March 2014 it reached to 74.30 Lakh saving linked SHG that cover over 9.7 crore poor
households with the saving of 9897.42 crore. 41.97 Lakh credit linked with SHG under the
program.

Table 3: Growth of Bank Loan to SHGS

(Amount in Billion)
S . No. Year Bank Loan to SHGs Growth rate
(in billions)
1 1998-99 .33 -------------
2 1999-00 1.36 312.12
3 2000-01 2.88 111.76
4 2001-02 5.45 89.23
5 2002-03 10.22 87.52
6 2003-04 18.56 81.60
7 2004-05 29.94 61.31
8 2005-06 44.99 50.26
9 2006-07 65.70 46.03
10 2007-08 88.49 34.68
11 2008-09 122.54 38.47
12 2009-10 144.53 17.94
13 2010-11 145.48 00.65

*Assistant professor, Department of Business management IGNTU Amerkantak MP.

**Research Scholar, Department of Business management IGNTU Amerkantak MP.

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 South -Asian Journal of Multidisciplinary Studies (SAJMS) ISSN:2349-7858:SJIF:2.246:Volume 3 Issue 5 136

14 2011-12 165.35 13.65

15 2012-13 205.85 24.49
16 2013-14 240.17 16.67
17 2014-15 203.84 -15.12
Average 87.98 60.70
Source – www.rbi.com( NABARD)

Growth Rate of Bank Loan to SHGS

350
300
250
200
150
100
50
0
-50

Bank Loan

The table-3 reveals that average growth of bank loan to SHGs is 60.70 during 1990 to 2015.
The trend of growth rate is follow decreasing order. Table depict that 32.12 percent growth rate
in 1990 and it is continuously going downward direction, reach at -15.12 in 2015. The average
amount of bank loan is 87.98 billion during 1999 to 2015. The amount of bank loan is follow
increasing trend but growth rate is follow decreasing trend because the number of SHGs is
increase and amount of loan is not increasing according to that.

Table -4: Growth of Refinance Assistance to SHGs

S. Year Refinance Assistance Growth rate

No. (in billions)
1 1998-99 .31
2 1999-00 .98 216.12
3 2000-01 2.51 156.12
4 2001-02 3.96 57.76
5 2002-03 6.22 57.70
6 2003-04 7.05 13.34
7 2004-05 9.68 37.30

*Assistant professor, Department of Business management IGNTU Amerkantak MP.

**Research Scholar, Department of Business management IGNTU Amerkantak MP.

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 South -Asian Journal of Multidisciplinary Studies (SAJMS) ISSN:2349-7858:SJIF:2.246:Volume 3 Issue 5 137

8 2005-06 10.68 10.33

9 2006-07 12.93 21.06
10 2007-08 16.16 24.98
11 2008-09 26.20 62.12
12 2009-10 31.74 21.14
13 2010-11 31.74 0
14 2011-12 30.73 -3.18
15 2012-13 39.17 27.46
16 2013-14 37.46 -4.36
17 2014-15 44.93 19.94
Average 18.37 44.86
Growth Rate of Refinanace Assistance to SHGS
250

200

150

100 Growth Rate of Refinanace

Assistance to SHGS

50

-50

Table-4 reveals that 216.12 percent growth rate in 1990 and 19.94 percent in 2015 with the
average of 44.86. From 1998 to 2015 around 312.45 billion had refinanced to various SHGs
across the country. The amount of refinance assistance during 1998 to 2011 was in increasing
order. The amount of refinance in the 2012 was decreased as compared to previous year, in this
year Rs. 30.73 billion was refinanced. The amount of refinance was same during the 2009 to
2011. Further it is continue to increase in all succeeding year up to March 2015. The growth rate
of refinance assistance to SHGs in 2010-11 is zero and it is respectively -3.18 and -4.36 during
2011-12 and 2013-14.
Table-5 Progress of micro finance program as on 31 March 2015
(In crore)
Sl.No. Particulars SHGs covered under SJGSY Assistance of SIDBI to MFI
2013 2014 2013 2014
Number Amount Number Amount Number Amount Number Amount
1 Loan
disbursed 1219821 20585.36 1366421 24017.36 426 7839.51 545 10282.49
during the
year
*Assistant professor, Department of Business management IGNTU Amerkantak MP.
**Research Scholar, Department of Business management IGNTU Amerkantak MP.

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 South -Asian Journal of Multidisciplinary Studies (SAJMS) ISSN:2349-7858:SJIF:2.246:Volume 3 Issue 5 138

2 Loans
outstanding 4451434 39375.3 4197338 42927.52 2042 14425.84 2422 16517.43

3 Savings
accounts 7317551 8217.25 7429500 9897.42
with banks

SGSY- Swarnajayanti Gram Swarozgar Yojana, SHG- Selp- Help Group.

SIDBI - Small Industries Development Bank of India.
Sources – NABARD Annual Report 2014-15

The progress of micro finance in the context of loan disbursed, loan outstanding and number of
saving accounts with bank during the year is express the progress of micro finance in the
country. The number of Selp-Help group and loan disbursed by them is in increasing trend over
the year. The number of micro finance institution and loan disbursed by them is also follow the
same trend in the respective year. It indicates the scope for extension of micro credit market and
also for expansion of micro finance institution in the country. The growth of loan outstanding
over the year by financial institution in the country is also indicating increasing trend. The same
trend is followed by the Selp-Help Group over the respective periods. That show how much
potential of micro credit exist in the rural poor people in the country. In this case one thing is
considerable that number of Selp Help group is decreasing during the year but amount of loan
outstanding is increasing in a good amount. It indicates the bright future of loan outstanding. The
saving account of Selp Help Group with bank is also in increasing trend. The rate of growth of
saving account with bank is more than rate of growth of increasing number of Selp Help Group.
The Swarnajayanti Gram Swarozgar Yojana (SGSY) is covered the number of SHGs and
provide financial help to them year by year. The small industries development bank (SIDBI) is
also provide financial assistance to microfinance institution for helping various selp-help group
across the country. The amount provided by Small industries Development Bank to micro
finance institution is follow increasing trend that depicts that financial assistance by
microfinance institution to SHGs is growing. The growing order of financial assistance to SHGs
by MFI and other means is strengthening the financial situation of member of SHGs and also
helpful in creation of new SHGs across the country. The number of SHGs covered by SGSY is
also follow increasing trend and the financial assistance under SGSY is also in growing trend.
This all contribute to SHGs development by its own way and provide financial assistance to

*Assistant professor, Department of Business management IGNTU Amerkantak MP.

**Research Scholar, Department of Business management IGNTU Amerkantak MP.

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 South -Asian Journal of Multidisciplinary Studies (SAJMS) ISSN:2349-7858:SJIF:2.246:Volume 3 Issue 5 139

SHGs by own planed limit. Now their contribution to upliftment of poor is better and surely it is
providing the means of life living to the poor across the country.
Figure-6

Grant assistance extended to Selp-Help Group promoting institutions, as on 3 March 2015.

( Rs. In Lakh)
Agency Cumulative sanction up to 31 March Disbursements up to 31 March 2015
2015
Amount No. of SHGs Amount No. of SHGs
NGOs 31276.72 565757 8601.44 374252
RRBs 772.46 44038 223.17 40590
Co-operatives
Banks 1394.91 74865 446.20 50870
IRVs 497.86 28910 84.86 12581
Formers clubs 41.18 5118 21.02 7322
Total 33983.13 718688 9376.69 485615
NGO- Non-Government Organization, RRB- Rural Bank, IRV- Individual Rural Volunteer.

Sources- NABARD annual report 2014-15

The grant assistance by the government to various Selp-Help Group promoting institutions is
also revealing the progress of micro finance in the country. The extension of grant to Non-
Government Organization (NGO), Regional Rural Bank (RRB), Cooperative Bank, Individual
Rural Volunteer (IRV) and former club is also witnessing the progress of micro finance in the
country. The amount of 33983.13 Lakh has sanctioned to this 718688 SHGs promoting
institution. And the disbursement figure is amount of 9376.69 Lakh to 485615 SHGs across the
country. The NGO is playing a vital role in the development of SHGs, granted to amount of
31276.72 Lakh and to promote 565757 SHGs in the country up to March 2015. They distributed
8601.44 Lakh to 374252 Lakh to various SHGs across the region of the country. Now NGOs has
became smart player to run for poverty alleviation across the world. The RRBs of the country is
also playing significant role in development of micro finance in the country. It is associated with
44038 SHGs across the country and granted by amount of 772.46 Lakh up to March 2015. It
distributed amount of 223.17 Lakh to 40590 SHGs in the country up to March 2015. It provides
various loan products to rural poor to fulfill their micro credit needs. The cooperative banks are
also contributing to SHGs development and assist rural poor people. Up to March 2015 74865
SHGs had associated with cooperative banks and it sanctioned to amount of 1394.91 Lakh across
the country. it disbursed an amount of 446.20 Lakh to 50870 SHGs up to March 2015.
Cooperative bank is now more helpful for rural poor, co-operative societies and former that
needs timely financial assistance. Currently Individual Rural Volunteer (IRV) is playing bridge
role between supporting institution and rural poor. Yet 28910 SHGs had associated to IRV and
sanctioned by amount of 497.86 Lakh up to March 2015 among them amount of 84.86 Lakh
disbursed to 12581 SHGs up to March 2015. The former clubs is also playing pivotal role for
rural poverty eradication. Although former clubs less contributing as compared to other
*Assistant professor, Department of Business management IGNTU Amerkantak MP.
**Research Scholar, Department of Business management IGNTU Amerkantak MP.

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 South -Asian Journal of Multidisciplinary Studies (SAJMS) ISSN:2349-7858:SJIF:2.246:Volume 3 Issue 5 140

promoting institution. Now 5118 SHGs associated with former clubs and amount of 41.18 is
sanctioned for that. The former clubs had disbursed amount of 21.02 Lakh to 7322 SHGs across
the country up to March 2015.

Relationship between micro finance and entrepreneurship

Promotion of entrepreneurship and business innovation by microfinance institutions credit to

firms is an essential driver of economic growth. The microfinance revolution in India reveals
that it is playing a vital role in the vision of poverty eradication with various effort of
government of India. The reserve bank of India also provide license of bank to two MFI that will
be a big step for development of MFI. It will highly spread the credit disbursement and increase
the productivity by credit supply. The role of microfinance now has been more tactical than in
the past. It promotes financial inclusion by adoption of individual lending to the poor and
targeting micro enterprises. It is not limited to only productive poor but also extend the
innovation oriented entrepreneur. It is also now remove the traditional hindrance to
entrepreneurship and micro business by being with various NGOs. The microfinance is a bigger
contributor of one factor of production namely capital to entrepreneur. The rural entrepreneur has
good amount of labor and land but they always facing the problem of capital during the
exploitation of production factors for economic activity to earn profit. Now days rural
entrepreneurship is totally dependent on microfinance because of it is very feasible for infant
entrepreneur across the world. Now in India micro finance enable poor to start new business and
expand existing business activities. It boosts up the entrepreneurship in India and creates a lot of
employment. It is the magic of micro finance that small businesses contribute around 40 percent
in Gross Domestic Product in India. During the absence of micro finance in the world poor
people was unable to seek entrepreneurial opportunity.

Conclusion
The micro finance playing a vital role in entrepreneurial development in rural area by
providing micro loan to several SHGs across the region. The number of SHG is increasing and
amount of disbursement of loan is also increasing year by year but the growth rate of SHGs bank
linkage, loan and refinance assistance to SHGs is decreasing. The amount of loan and refinance
assistance is not growing in respect of increasing number of SHGs across the region. The number
of SHGs is not sufficient in any region except southern region. The country has good potential
for formation of new SHGs across the region except southern region.

Reference

1- International journal of college science, 3: 2 July 2009, Tiyas Biswas and P. P. Sengupta.

*Assistant professor, Department of Business management IGNTU Amerkantak MP.

**Research Scholar, Department of Business management IGNTU Amerkantak MP.

Copyright © Universal Multidisciplinary Research Institute Pvt Ltd

 South -Asian Journal of Multidisciplinary Studies (SAJMS) ISSN:2349-7858:SJIF:2.246:Volume 3 Issue 5 141

2- www.rbi.com
3- www.nabard.com
4- Innovation /Vinter, 2006, Zoltan Acs
5- Microfinance in India and millennium development goals: maximizing impact on poverty,
Alok Mishra
6- Sustainable micro entrepreneurship, Guy Vincent
7- Indian economic survey.

*Assistant professor, Department of Business management IGNTU Amerkantak MP.

**Research Scholar, Department of Business management IGNTU Amerkantak MP.

Copyright © Universal Multidisciplinary Research Institute Pvt Ltd