Micro-finance needs strengthening

The minimum micro-credit requirement is approximately Rs 70,000 crore, while its supply is not more than Rs 11,000 crore...

The minimum micro-credit requirement is approximately Rs 70,000 crore, while its supply is not more than Rs 11,000 crore, reveals a report on Financing of enterprises in the unorganised sector by the National Commission for Enterprises in the Unorganised Sector. Even though micro-financing made significant progress after 2000 8212; mostly through various self help groups, whose number increased from 255 in 1992-93 to 2.24 million in March 2006, disbursing Rs 11,398 crore against Rs 29 lakh in 1992-93 as micro-credit 8212; this minimum gap between demand and supply reflects the dismal situation of a majority of unorganised micro enterprises, which contribute nearly 30 per cent to the GDP and provide employment to 104 million.

As a matter of fact, only four out of 100 unorganised non-farm units receive institutionalised banking credit. 8220;The RBI guidelines are flouted by the banks. The banking system is insensitive to the needs of the unorganised sector and entrepreneurs, are unable to access finance,8221; said NCEUS chairman Arjun Sengupta.

In its report, the commission has cited several gaps and weaknesses in the micro financing programme like lack of active participation by the state governments, barring southern states, small loan amounts between Rs 2,000-3,000 insufficient to setup or sustain a micro enterprises and high rates of interest from 20 -36 per cent creating a situation of perpetual indebtedness.

The commission recommended that increased involvement of commercial banks in micro financing is absolutely essential for a sustainable micro-financing programme in the country. It also suggested that support should be provided for building assets to run enterprises, increase in the product mix by adding insurance, money transfer, along with credit and thrift, provision of livelihood financed to take care of essential infrastructural requirements and capacity addition of SHGs, micro financing institutions and NGOs, so that entrepreneurs can make value additions in existing projects.

Soiling micro-finance

8226;Micro enterprises contribute 30 to GDP and provide employment to 104 million

8226;Out of 100 unorganised non-farm units, only 4 receive institutionalised banking credit

8226;Several gaps and weaknesses in the micro financing programme

8226;Increased involvement of commercial banks in micro financing essential