Microfinance in India: SHG System Vs Grameen System

Abstract

India, post independence, was plagued with different issues: religious divide, communal riots, poor infrastructure, a relatively low literate population etc. The Indian economy is was in a bad shape too (though better than the neighboring economies like China in terms of foreign exchange reserves, industrial base, etc). The first Indian government that had just taken charge was entrusted with job of recovery and had to kick start economy (without much help of private players). It adopted a broadly socialist approach to economy growth. India launched itself into the growth path by making huge investments in different sectors including education. More than 62 years after independence, the Indian economy is well and truly in the path of recovery. The Indian economy is the twelfth largest economy by market exchange rates and the fourth largest economy on Purchasing Power Parity (PPP) basis. Indian Information Technology industry has created a mark for it in the global market is expected to grow further. The domestic market is growing at a very fast pace, attracting foreign investment in various industrial sectors. The future outlook for the economy is also very good with the economy expected to grow at a faster pace in the coming few years. These impressive numbers and data suggest that the India is actually shining. But the picture is not so rosy. Poverty in India is widespread with estimated 27% of the population below the poverty line. The infrastructure in rural India is still not so well developed. Some villages do not even have electricity. Most villages have very low literacy levels. The primary income generation activity of rural India is agriculture. But agriculture in these parts of the world is very much dependent on the amount of rainfall received during the monsoon (which is not very predictable). These problems have resulted in a divide between the urban Indian and the rural Bharat. This divide only has increased over the years. Thus the development over the past few years were at the expense of the poor. The Indian government has taken steps to tackle the situation of poverty. Many policies had been put in place by past governments but poor implementation of the different policies ensured that the benefits did not reach the actual beneficiaries. The most recent of these policies is the NREGA scheme implemented by the current government. This scheme ensures at least 100 days employment for the people in villages. The primary objective of this scheme is to increase disposable income for the poor people in India and to create permanent assets in villages. The scheme has not been able to deliver much in both these fronts. Thus the problem of poverty cannot be tackled with just the efforts from the government. This is where microfinance comes in.