Emergence of e-Microfinance: Involvement of SHG (Self Help Group)
Sandip Anand and Vinayak Parashar
Mudra Institute of Communications, Ahmedabad and Indian Institute of Management , Ahmedabad
Sandip Anand is a faculty member at MICA, Ahmedabad. He is masters in Psychology and Demography. He has six years of experience in the area of Marketing Research. He is also pursuing his Ph.D. from I.I.P.S.(International Institute of Population Sciences) Mumbai.
Vinayak Parashar is a Business Management student at IIM-A.
There lies a huge gap between the demand and supply of microfinance services in many countries. Successful microfinance operations in many countries have proved that lending at in the rural India can be remunerative to the commercial banks, developmental banks and other financial institutions. Two broad types of lending strategies can be useful in the Indian context, asset based lending and cash flow based lending. Examples of asset based lending include advances against inventory, accounts receivable, saving deposits or shares of stock. The size of an asset based loan is determined by the value of the asset pledged as collateral. Cash flow loans are not based on collateral, although they are often secured to prevent the borrower from pledging assets to other creditors and as a test of the borrower's commitment to repayment. The size of cash flow loans is determined by the projected cash flow generated by the loan usage. The repayment capacity of the farmers is quite low. This poses a major threat for financial interventions in the rural India . There are two distinct ways to deal with the problem of low repayment capacity: First, is to devise instruments for which the low repayment capacity is not prohibitively small and second more productive way is to enhance repayment capacity at the frontier. Grameen bank is an example of the first approach whereby it is providing credit to borrowers with very small capacity. Financial initiatives create debt capacity by lengthening term structures, by reducing transaction costs, by refining valuation process and by increasing the supply of loanable funds by mobilizing local resources. In the given scenario, when there is likelihood of ‘e' (Information Communication Technology) further penetrating in rural India . In this context, e-microfinance Business model can be considered as a strong business model, which a company like ITC can take forward and use for the development. Here, e hub can be used for interacting with farmers on SHG issues. At the e-hub SHG members as well as field worker can come and avail the information available on health, education, technical knows of the product/services of their interest. e-hub again can act as procurement centre of various products which can be further packaged and sold in various domestic retail chains. Saving which is the forgotten part of microfinance can be taken care of by this initiative. A Simputer (small size computer for less complex operations) can be provided to the field agents to carry out the operations. Everyday when the field agent meets the farmers/villagers, he can issue a receipt to the farmers then and there. That will help in trust building with the farmers. Maintenance of accounts will be much easier with the help of these simputers. Transaction costs make the micro financial operations less remunerative. These simputers will help in reducing the transaction costs to a great extent. Here, what is suggested is players like ITC can distribute small loan to SHG members and can get the interest on small loans as well as can buy the product which is resultant of their ethnic wisdom and technical consultancy provided by ITC on website. It can lend to the farmers for activities like making pickles, papad (a type of Indian snack) etc. Through e-hub and the field agents' information can be disseminated to the farmers regarding the quality standards, markets, demand etc. Helping the farmers in such a way would make them self sufficient. In certain ways, it is likely to create self sustaining business for them. For performing such operations efficient field agents are required.
Here, it as appropriate to mention that currently loan size is not very big for SHG members, on an average it comes out to be Rs. 2000 per SHG members. Here the main issues to be handled are financial viability of this business, ensuring quality of products/services by SHG members, training of e-users and interest in ethnic products mainly foods and apparels. Herbert Simon (1968) while making observations and opinions on the future of information processing technology has very well put the requirements of such business model of e- Microfinance and SHG. “The design of such systems must encompass far more than the computer hardware and software, it must handle with equal care the information-processing characteristics and capabilities of human members of organization who constitute the other half of the system” (Herbert A. Simon, 1968). Therefore, human resource capacity building becomes a critical issue, however once built it can really bring a digital revolution in fundamental sense. Emergence of e-Microfinance and its interaction with resource poor farmers through SHG or directly is likely to bring cognitive justice in the society. The justice is expected as it is going to change the terminology like unskilled labour or semi-skilled labour of industrial phase. The same very people who were referred as labourers earlier are likely to interact with ITC e-hub directly or through field workers are likely to bring their traditional knowledge, ideas and wisdom along with them. Their traditional knowledge is very important as it brings those ‘techniques' along with them from their local memory. It is likely to bring the cultural aspects of their memory. The cultural memory interacts with digital memory and that interaction is likely to strengthen the knowledge base of organizations. However, finally it becomes a policy decision to make this alternative choice which proves helpful for resource poor persons that is yet to be seen.
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