Effectiveness of microfinance services for agri- enterprise development by the self help groups (SHGs) in kerala

Abstract

The present study entitled “Effectiveness of microfinance services for agro- enterprise development by the Self Help Groups (SHGs) in Kerala” was conducted with the objective to measure the effectiveness of microfinance services and to identify the sustaining as well as the impeding factors of microfinance services for agro- enterprise development by the Self Help Groups (SHGs) in Kerala. The study also measures the impact of microfinance services on the SHGs in terms of buying power, standard of living and propensity to save. The study was conducted in ex-post facto design, in the three purposively selected districts of the three zones of Kerala, namely, Thiruvananthapuram, Thrissur and Malappuram. Two blocks, from each of the selected districts, were identified through purposive sampling. Seven SHGs were selected from the selected two blocks of each district, through proportionate random sampling, forming 21 SHGs and ten members were randomly selected from each of these selected SHGs, constituting a sample size of 210 agripreneurs. Officials of Micro Finance Institutions (MFIs) supporting agro-enterprise development by SHGs of the three selected districts were also selected by random sampling forming a sample size of 30. Thus a total of 240 respondents from the three districts of Kerala constituted the sample size of the study. The data was collected through pretested interview schedules, focus group discussion, and delphi technique. The statistical tools used were frequency, percentage analysis, mean, standard deviation, factor analysis, correlation ,coefficient, principal component analysis, paired t test, independent samples t test, Garret ranking and Kendall’s coefficient of concordance. The effectiveness of microfinance services was the dependent variable and was measured using a scale developed for the purpose. The scale had five dimensions namely; microcredit, micro savings, delivery mechanism, repayment and training & advisory, which were delineated through factor analysis. The impact of microfinance services was measured by agripreneurs’ buying power, standard of living and propensity to save, the procedure developed for the purpose was used. Nineteen independent variables and nine intervening variables were selected after judges rating and relevancy scoring. The results revealed that the microfina nce services were found to be moderately effective for 52.38 per cent of the selected SHGs (11 SHGs) whereas it was found to be highly effective and least effective for 23.81 percent of the SHGs (five SHGs each) under study. An ‘independent samples t test’ conducted, to compare the entrepreneurial characteristics of the respondents of these two extreme categories, revealed that there was a significant difference in their entrepreneurial characteristics. This result indicated that the entrepreneurial abilities of the respondents largely influenced the effectiveness of microfinance services for agro enterprise development than other factors like the nature of agroenterprises which was usually selected through micro screening techniques. The Principal Component Analysis (PCA) of the five sub-dimensions of microfinance services indicated that, the first principal component accounted for the largest percentage variance in the microfinance services effectiveness scores of the SHG agripreneurs was contributed by the sub-dimension viz. ‘microcredit’ followed by ‘micro savings’ and ‘delivery mechanism’. Thus it was deduced that the ‘microcredit’ largely determine the effectiveness of microfinance services followed by the ‘micro savings’ and ‘delivery mechanism’. Impact of microfinance services on the members of SHGs, was measured in terms of buying power, standard of living and propensity to save. The average buying power of the respondents, before and after availing the microfinance services were Rs. 40872 (Forty thousand eight hundred and seventy two) and Rs.79879 (Seventy nine thousand eight hundred and seventy nine) respectively. The standard of living was measured in terms of nine dimensions like ‘employment days’, ‘food consumption pattern’, ‘housing type’, ‘clothing’, ‘health care’, ‘education of children’, ‘assets creation’, ‘hygiene and sanitation’ and ‘recreation’ using the procedure developed for the study. Before the commencement of microfinance services, 34.28 per cent, 41.90 per cent and 23.81per cent of the members of SHGs belonged to low, medium and high standard of living classes respectively, whereas it was 24.28 per cent, 46.19 per cent and 29.52 per cent respectively after availing the microfinance services. The propensity to save was measured in terms of number of ‘savings accounts’, ‘fixed deposit accounts’, ‘recurring deposit accounts’, ‘postal savings accounts’ and ‘chit fund accounts’ of the respondents before and after availing the microfinance services. The result also indicated that out of the different accounts, there was a sharp increase of 28.10 per cent in the ‘chit fund’ accounts of the SHG members after availing the microfinance services. The correlation analysis indicated that among the personal socio psychological characteristics, ‘age’ of the SHG members was negatively and significantly correlated with the effectiveness of microfinance services at five per cent level of significance. The variables such as ‘training received’, ‘deferred gratification’, ‘social capital’ and ‘assertiveness’ were positively and significantly correlated with the effectiveness of microfinance services at one per cent level of significance whereas ‘annual income’, ‘experience with microfinance services’ and ‘information seeking behaviour’ were positively and significantly correlated with the effectiveness of microfinance services at five per cent level of significance. The correlation analysis of the entrepreneurial characteristics of the SHG members and the effectiveness of microfinance services revealed that ‘achievement motivation’, ‘innovativeness’, ‘thrift tendency’, ‘strategic visioning’ and ‘internal locus of control’ were positively and significantly correlated with the effectiveness of microfinance services at one per cent level of significance, whereas ‘economic opportunism’ was positively and significantly correlated with the effectiveness of microfinance services at five per cent level of significance. It was also revealed that more than half of the SHG members (59.05%) were middle aged (35-50), three fourth were women (76.19%) and almost half were falling under high school level of education (47.14%). Majority of the respondents had medium ‘annual income’, ‘training received’, experience with microfinance services’, ‘indebtedness’, ‘deferred gratification’, ‘problem solving ability’, ‘social capital’, ‘assertiveness’, ‘information seeking behaviour’, ‘sense of empowerment’, ‘economic opportunism’, ‘achievement motivation’, ‘innovativeness’, ‘thrift tendency’, ‘strategic visioning’ and ‘internal locus of control’. The intervening variable group dynamics was measured using group characteristics namely, ‘group cohesion’, ‘adherence to group norms’, ‘group leadership’, ‘group interaction’, ‘team work’, ‘transparency’, ‘group achievement’, ‘decision making procedure’ and ‘need satisfaction’. Based on the group dynamics index, majority of the SHGs (66.67%) maintain medium ‘group dynamics’ followed by less (19.05%) and high (14.29%). There was a positive and significant correlation between the group dynamics and the effectiveness of microfinance services at one per cent level of significance. The inventorisation of Micro Finance Institutions in the three districts was done from the microfinance officials selected for the study and from the lead banks of the respective districts. It was observed in the study that the finance for SHGs were prominently provided by nationalized banks and Regional Rural Banks, even though there exist other options like small finance banks, private banks etc. The sustaining and impeding factors of microfinance services as perceived by the agripreneurs were identified through Delphi technique and its ranking was done through garette ranking. The sustaining factors identified were lower interest rate compared to other sources of finance (65.79), lack of collateral security (62.23), timely finance assistance for enterprise development (58.22), opportunity to self-employment (55.90), attainment of additional skills (41.27), easily available services (39.81) and less paper work on availing loans (39.10) and these were ranked from first to seventh positions respectively by agripreneurs. Inadequacy of loan amount (76.86) was the major impeding factor identified. Insensitivity of MFIs to the type of enterprises, business cycle and clients’ social economical and personal circumstances (65.90) was the next major impeding factor. The other factors viz., difficulty in maintaining group cohesion (53.66), unfair attitude of the officials involved in microfinance (51.38), failure to treat clients as individuals in repayment (47.58) and pressure of weekly repayments and savings (47.00) were ranked third, fourth, fifth and sixth respectively. The least ranked impeding factors were high transactions cost of microfinance services (32.06) and savings could be spent in repaying of loans of defaulters (24.49). The sustaining factors of microfinance services as perceived by officials were economic empowerment (68.30), creation of employment opportunities (67.70), women empowerment (66.50), rural upliftment (51.57), increased household income (44.63), better standard of living (42.63), creation of assets (32.30) and less number of borrowers falling in debt traps (26.37) and were ranked from first to eighth rank respectively. The study exposed that the major impeding factors as perceived by micro finance officials were defaults in repayments (67.40), over borrowing (66.60) and multiple lending (66.17), diversion of loan money to unproductive activities (65.37), poor adherence to rules and regulations (46.57), poor sustainability of SHGs (43.57), anticipation of SHGs in the writing off the loan amount by the MFIs (40.80), lack of product diversification (39.87), Lack of financial literacy (34.73) and lack of research and development (31.00) and these were ranked from first to tenth rank respectively. The suggestions for improving the microfinance services were collected from the agripreneurs and were ranked by Kendal’s coefficient of concordance. Restructure of loan repayment including fixation of payback period and provision of grace period for certain entrepreneurial activities (1.31), fixation of EMIs based on business cycle/season (2.31), release of loan as per client demand (4.05), lower interest rate for loans (4.26), more skill oriented trainings for SHGs (4.48), timely and quick disbursement of loans (4.90), providing trainings on management and marketing skills (7.00), high interest rate for deposits of SHGs (7.69), mutual support of SHGs in product marketing (9.42), MFIs should ensure the clients’ ‘rights’ to know regarding all the procedures and acts in microfinance services (9.58) and for innovative products, the risks of entrepreneurs should be taken into account by the officials (11.00) were ranked from first to eleventh positions respectively. The suggestions for improving the microfinance services were collected from the officials of MFIs and were ranked by Kendal’s coefficient of concordance. Proper utilisation of loan amount (1.97), eliminating the practice of multiple borrowing (2.00), ensuring better performance of SHGs by the utilization of advanced technologies (2.03), availing benefits of all the available Government schemes (4.97), federation of SHGs (5.00), capacity building (5.03), awareness creation on financial planning (7.97), enhancement of the social capital (8.34), digitisation of records (8.72) and market survey before commencement of the enterprise (8.97) were the suggestions ranked from first to tenth positions respectively. The study revealed that the microfinance services were found to be more effective for SHG members having good entrepreneurial characteristics and group dynamics. The nature of enterprise was crucial only for certain enterprises, as most of the enterprises were selected by micro screening techniques. The microfinance services had a positive impact on buying power, standard of living in terms of health, hygiene and sanitation, education, recreational facilities and the propensity to save. The major impeding factor was inadequate loan amount and insensitivity of microfinance services to nature of enterprises and business cycle. Interestingly, study revealed that the rate of the possession of assets like smart phone, television, refrigerator and vehicle was more compared to washing machine and grinder which revealed that though microfinance services play a pivotal role in the women empowerment and gender equity, the drudgery of women is still to be addressed. The study recommends financial literacy programmes and establishment of business schools for youth to develop their entrepreneurial traits. The commercial banks need to train members of SHGs on proper financial management. Strong Governmental intervention in private chit funds is required to protect the members of SHGs from exploitation as they preferred chit funds than any other saving methods after availing microfinance services.