Role of Micro-Credit : Beyond Poverty Alleviation

Role of Micro-Credit : Beyond Poverty Alleviation


Dr. Narayan Hegde and Dr. Ashwini Ghorpade

BAIF, Pune

Problems of the Poor

A majority of the population in the developing countries suffer from the `Dependency Syndrome' and continue to live in acute poverty. This is a vicious cycle of population growth resource scarcity unemployment poverty charity dependency lack of confidence and initiative, which results in chronic poverty (Fig. 1). A large number of people, particularly the villagers have limited opportunities to work in the service sector and hence their livelihood is dependent on agriculture, using locally available resources. Over 50% of the rural families are living in poverty with their annual income below Rs.11,000. The primary cause of poverty can be attributed to population growth, which has led to overexploitation of natural resources, ecological imbalance, environmental pollution and poor quality of life. For most of the poor, the fight for survival is a life long mission. However over a period of time, they have learnt to combat the crisis of food security. But during this struggle, women have to suffer the most, as they have to cope up with daytoday domestic necessities such as fetching water, fodder, fuel, grinding foodgrains and nursing the sick apart from their routine duties, while men tend to migrate to cities in search of daily wages. These women who grow up under severe suppression have yet another major responsibility of shaping the future of their children and destiny of the nation.

Inspite of their significant role in supporting the family and building up the future generation, women in many regions have no status in the society. They are treated as idle or unemployed, inspite of their arduous work schedule stretching throughout the day. They are not expected to participate in decision making and even to express their opinion on matters concerning themselves. Most of them suffer from various ailments due to malnutrition, strain, pollution and neglect of common sicknesses. Many of them are deprived of their privileges such as basic education, health and nutrition. Women in the past were not expected to move out of their houses. Even among the well to do families, education of the girls was restricted due to the high cost and the fear of not finding an adequately educated boy for marriage. Moreover, educated boys also demand more dowry.

The important role of women in the welfare of the family is being realised gradually. As the socioeconomic progress of the community has a direct link with the empowerment of women, the development programmes for women are receiving greater attention. The task now is to ensure effective participation of women in sustainable development of their community.

Organisation of Group Activities: Initiative of BAIF

BAIF is a voluntary organisation involved in rural development through sustainable use of natural resources. BAIF advocates the involvement of rural women in economic development. While implementing a programme for tribal rehabilitation, BAIF learnt about the traditional custom of `Wavli', through which the women exercise control over their income. Under this custom, when the tribal women maintain poultry or grow vegetable crops in their backyards, the income earned from this activity is exclusively enjoyed by them. BAIF extended the scope of `Wavli' to many other activities undertaken by these women. The primary objective of this project was to develop degraded wastelands owned by the poor families through land shaping, contour bunding, soil and water conservation and establishment of fruit orchards and agroforestry systems. The fruit species were established in the main field and fodder and fuel species were planted on the bunds and boundaries. The interspace was used for growing cereals, pulses and vegetable crops. As the men were slow in their work, the women had to put in hard labour. Therefore, to sustain their interest, women were encouraged to grow vegetables as an intercrop in the orchards under the `Wavli' tradition. This was a good beginning to ensure the development of women. In many locations where individual women were not able to work, the neighbouring women came together to work in a group and share various information and responsibilities.

Some families came forward to lease their surplus land to the landless women groups to cultivate vegetable crops. In order to improve their income, training on various skills was organised. In this process, adult education was initiated to promote functional literacy. The training courses also covered elementary aspects of community health, child care and education apart from various technical skills. Gradually, the grassroot level organisations gained strength to organise various development activities such as group nurseries to supply fruit and fuelwood saplings to other farmers. Earlier farmers had to purchase mango grafts at a high price from the nurseries located at a distance of 50100 km. With the initiative taken by the women, better quality grafts were locally available at 30% of the original price. As the wastelands were heavily degraded, it was beneficial to promote organic farming. During the discussion, the women came forward to take up the production of vermicomposting as a group activity.

In village Chonda, near Vansda in Valsad district of Gujarat, there were about 300 trees of Mahua (Madhuca indica) grown naturally on the common lands. The seeds of Mahua contain 35% edible oil. Generally, the tribals used to collect the seeds fallen on the ground and sell them at the local market at Rs.23 per kg. Due to the low price, the seed collectors were not able to recover their basic wages. With motivation and finance from BAIF, the villagers decided to install a small oil mill. A few local persons were trained to operate the oil mill and seed crushing service was provided to the villagers by collecting a nominal service charge sufficient to meet the operating costs. Considering the output from oil and cake and their value, the annual collection of seeds went up from 1 ton to 8 tons and the value of the seed increased by three times.

By 198990, the mango saplings established by the tribals had started bearing fruits and the local traders approached them for contracting the crop at throwaway price. The villagers, realising their exploitation, approached BAIF. A tribal cooperative for processing and marketing of the produce was formed. The members initially supplied their products to supermarkets in Bombay. Gradually, they also started supplying to local shops. This helped the members to recover a better price and generate additional employment. With assured market for the produce, a large number of farmers wanted to participate in the programme. Women took an active part in processing the produce.

The women of Vansda, after undertaking several activities saved some money and provided loan to other members for crop production, small trades, house repairs, purchase of vehicles, education of children, health care and for completing many social responsibilities. Looking to the success of these Self Help Groups (SHGs) of women, the men also planned series of income generating activities, which included organising band troupes, utensil hiring services, tree seed collection and carpentry work. In the tribal regions of Valsad district alone, BAIF has established 57 groups of men and women in 37 villages.

Around Urulikanchan near Pune in Maharashtra, expectations of the local people were different. As many villagers had secured employment in industries, level of income was high and the idea of saving some money through the groups was well accepted by the women, but the men were not impressed by such small savings. BAIF mobilised the villagers from 12 villages in Pune district to establish their Self Help Groups. The women had to be motivated regularly to sustain their interest. Management of the money called for greater responsibility and integrity. Realising this need, BAIF decided to train the female teachers of the kindergartens in the management of SHG's. Thereafter the task of SHG formation was entrusted to these teachers.

The SHGs initially attracted the participation of single women, who had undergone social and economic problems. Moreover they did not have to seek permission from their husbands. They demanded loan for small business, health care and timely input for agriculture. Apart from the availability of credit, the members also realised the opportunity of communicating effectively among themselves about socioeconomic development issues and social problems. The villagers were convinced about the opportunities for employment generation through microcredit without depending on the outsiders.

Promotion of MicroEnterprises

Initially in 199293, when the SHGs started disbursing microcredit, over 60% loan was utilised for consumption purposes, such as food, clothing, house repairs, education and medical services. However, with greater awareness and success of other members who utilised the loan for production purposes, the trend changed significantly (Ghorpade, 1995). Presently BAIF is promoting microcredit through SHGs in the states of Gujarat and Maharashtra with over 50 groups covering 720 members. These groups have provided loan for water resource development, agricultural production, construction of houses and toilets, offfarm production and processing, marketing and trade.

These groups have a saving of Rs.300,000 and have disbursed Rs.1.7 million as credit to the members as well as non members within the community. Eight SHGs have drawn an additional loan of Rs.152,000 from bank and Seven SHGs availed Rs.175,000 from other government schemes.

Benefits of MicroEntreprises: The SHGs have excellent opportunities to work together to initiate small business or extend various essential services. These groups have the following advantages which are beyond income generation :

  • They are able to identify various needs of their communities and facilitate through group activities. Thus the SHGs are progressing towards sustainability.
  • While developing various income generation activities. SHG members are exposed to outside environment. They learn to cope up with their counterparts in the business, government and public sectors and improve their efficiency.
  • With economic empowerment they are able to demand better services deals from the local bodies and government sponsored service sectors such as rural transportation, drinking water supply, power supply, etc.
  • With access to money, market information and improvement in functional literacy, the members are able to improve productivity and profitability of their farming activities.
  • The members of SHGs develop awareness about community health and environmental pollution and make efforts to improve their life style. This may lead to better health and a clean environment.
  • Many of the SHG members with their popularity are occupying important positions in Gram Panchayats, Cooperatives and other social organisations. They are also dealing with socioeconomic problems such as prohibition of alcohol, child marriage and dowry in the community.


The initial observations indicate that the SHGs provide a solid foundation to a idealistic and prosperous society. This can ensure, progress, welfare, better quality of life and a clean environment for the future. However the task is to sustain the team spirit and explore other opportunities. The following support services will be useful to strengthen the microcredit programme.

Identification of New Opportunities and Training: In the past it was easy to promote various activities, using microcredit, as many basic needs of the communities remained unattended. The local families were willing to pay for such services. However, such opportunities to sell the goods and services in local markets will soon saturate. Hence there is an immediate need to identify new opportunities which should be based on the demand for the output both in local and outside markets. This calls for a network of SHGs, who can share information among themselves. They can also set up a common information service centre to learn about the demandsupply situations for their produce and modify their plans accordingly to optimise profits.

With new opportunities, there is need to train the members of SHGs regularly. The training should emphasize on managerial aspects of the business, in addition to technical skills. To cater to such needs, BAIF has set up `Dr. Manibhai Desai Management Training Centre' in Pune. The centre organises training for trainers and the members of SHGs in various sectors.

Supporting the microentrepreneurs through a mentor as practiced by the BYST (Bharatiya Yuva Shakti Trust another NGO) can also ensure success. The mentor is an experienced person having good knowledge about the technology and business and can help in upgrading the skills and assist the enterpreneurs to develop their business. Presently BYST has financed over 200 persons to set up welding and carpentry workshops, plastic moulding, garment manufacturing, computer servicing, photo studios, poultry farms, beauty parlours, electrical fitting and services, and laundry.

Monitoring and Evaluation: As the market situation changes very fast, regular monitoring and evaluation of the micro enterprises is essential. Basically, the entrepreneurs should be able to develop simple systems to control finance, inventory and costs. Regular accounting, input purchases and stock checking and control on marketing costs should be maintained and documented to ensure high profitability. As most of the microenterprises are working with a thin profit margin, lack of cost control may upset the business. Monitoring and evaluation should also include alternate opportunities to modify the process or the business. With such support, microcredit will have greater demand and effective utilisation.

Opportunities beyond Business

While promoting SHGs, local youth could initiate several development activities such as improvement in hygiene, sanitation, public utilities, kindergarten, primary school, adult education, child health care and immunisation, family planning, safe drinking water and management of local bodies and public institutions. Indeed, these indirect benefits highly empower the local people to monitor public services and utilities provided by the government. With the local people demanding punctual services, staff working in the Panchayat instutions will have to be accountable by assuming their responsibilities. The enlightened community can participate in Gram Sabha meetings and pressurise the Gram Panchayat to improve their services. This will ensure transparency in public affairs. This indeed is the sustainable development managed by the people themselves.

Microcredit has the potential to break the vicious cycle of poverty and ensure prosperity, leading to better quality of life.


  1. BAIF. 1997. Participatory Saving and Credit Activities for Rural Women Groups. Interim Report of the Project Sponsored by the Ford Foundation. BAIF, Pune : 12 pp.
  2. Ghorpade Ashwini, 1994. Self Help Groups A path of women's empowerment. BAIF, Pune : 50 pp.
  1. Ghorpade Ashwini, 1995. When women come together. Proc. of a International Seminar on Development of Rural Poor through selfhelp groups. NABARD, Bombay : 114122.
  1. Sohani Girish. 1992. The Mahua tree in a tribal village : a case study of village Chonda in Vansda, South Gujarat. Proc. of a National Workshop on Promotion of Nonwood. Forest Produce through Social Forestry. BAIF, Pune: 118124.