Microfinance is usually known as the provision of financial services (Savings, Credit, Insurance, Remittances, Financial literacy, Kisan Credit Card (KCC), General Credit Card (GCC), opening of no frill account) and products to those who are deprived in receiving affordable quality, diverse financial services at their doorsteps. Assistance may be received from NABARD and other financial institutions in bringing the targeted community under financial inclusion through a comprehensive package of opening of no frill A/c of all targeted families, provision of requisite Financial services i.e., Savings, Loan, Insurance, Remittances, Pension, Financial Literacy, Credit Counselling, General Credit Card—etc for leading the beneficiaries towards the path of Inclusive Growth.
Keeping in view the above, Arhaan Foundation encourages the marginalized targeted community to form Community Based Micro Finance structures/ institution in the form of Self Affinity/Help Groups, Joint liability Groups in the WADI & Watershed project areas to initiate livelihood activities from their own corpus before going for large scale business through Bank Credit. Requisite Financial Literacy is given to the CBMFI (SHG, JLGs) members to efficiently manage credit, thrift, savings activities along with the sound knowledge of remittance, KCC, GCC etc.
The internal lending process confirms their (SHGs) credit worthiness, peer pressure and mitigate their emergent production and consumption needs. The rate of interest for internal lending normally varies from 18% to 24% per annum, which is very much convenient to the SHG/SAG members compare to usurious rate of interest of the money lenders. Our intensive SHG based Micro Finance activity lead the targeted community towards the path of inclusive socio economic development. SHGs /JLGs have enhanced their livelihood activities in the shape of poultry rearing, goat rearing, vegetable vending, rope making, stick making etc.
Loans are generally disbursed to individuals within the group after they are approved by other members in the group. Repayment of the loan is a joint responsibility on all the group members. In other words they share the risk. If one defaults, the entire group suffers. The ensure repayment system may be at place, provided agile group dynamics and strong peer pressure are ensured.
Since the borrowers are not required to put up collateral, the creation of joint liability is relied on to induce sanctions that help to discipline borrowers. The sanctions may be fairly subtle, induced by peer pressure from fellow villagers rather than by the direct actions of the programs. The sanctions may involve, for example, the loss of an errant borrower’s reputation in the community, social isolation, house repairing, school enrollment of kids, restrictions on access to inputs necessary for business, vegetable cultivation, and support for doing food processing ventures etc. However efforts would be made to transform these needs, in to production needs otherwise they would not be in position to repay the payment (with interest rates) from their surplus amount generated through the production/trading activities. Hence, the model has to be a workable model.