PERFORMANCE OF MICRO-FINANCE PROVIDERS IN KARNATAKA

Transcription

1 PERFORMANCE OF MICRO-FINANCE PROVIDERS IN KARNATAKA Thesis submitted to the University of Agricultural Sciences, Dharwad In partial fulfillment of the requirements for the Degree of MASTER OF BUSINESS ADMINISTRATION In AGRIBUSINESS By BHUVAN I.B DEPARTMENT OF AGRICULTURAL MARKETING CO-OPERATIONS AND AGRIBUSINESS MANAGEMENT COLLEGE OF AGRICULTURE, DHARWAD UNIVERSITY OF AGRICULTURAL SCIENCES, DHARWAD OCTOBER, 2007

2 ADVISORY COMMITTEE DHARWAD OCTOBER, 2007 (N.N. KARNOOL) CHAIRMAN Approved by: Chairman: (N. KARNOOL) Members: 1. (BASAVARAJ BANAKAR) 2. (H. BASAVARAJ) 3. (S.B. MAHAJANSHETTY) 4. (ASHALATHA K.V)

3 CONTENTS Sl. No. Chapter Particulars CERTIFICATE ACKNOWLEDGEMENT LIST OF TABLES LIST OF FIGURES 1. INTRODUCTION 2. REVIEW OF LITERATURE 2.1 The overall picture of SHGs in India 2.2 Institutional linkages of SHGs 2.3 SHGs bank linkages in micro finance 2.4 Port-folio of lending by the micro finance providers 2.5 Performance of Self Help Groups 2.6 Economic impact on the SHGs 2.7 Problems faced by micro finance providers 3. METHODOLOGY 3.1 Description of the study area 3.2 Nature and Source of data 3.3 Analytical tools employed 3.4 Terms and concept used in the study 4. RESULTS 4.1 The Growth Pattern of Micro Finance in Karnataka 4.2 The Business Performance of the Micro-Finance Providers. 4.3 Impact of Micro-Financial Institutions on Member Enterprise. 4.4 Constraints Faced by Micro-Finance Providers 5. DISCUSSION 5.1 The Growth Pattern of Micro Finance in Karnataka 5.2 The Business Performance of the Micro- Finance Providers 5.3 Impact of Micro-Financial Institutions on Member Enterprise 5.4 To Identify the Constraints Faced by Micro-Finance Providers. 6. SUMMARY AND POLICY IMPLICATIONS REFERENCES

4 LIST OF TABLES Table No. Title 1.1 Performance of micro finance in India SHG-Bank Linkage ( to ) 4.1 Growth in Bank Linkage of SHGs ( to ) in Karnataka 4.2 District Wise SHGs formed ( to ) in Karnataka 4.3 District Wise Bank Loan disbursed to SGHs ( to ) in Karnataka 4.4 Number of SHGs formed by selected NGOs 4.5 Number of SHG members served by the selected NGOs 4.6 NABARD funds expended to selected NGOs 4.7 Loans provided by NGOs to SHGs through banks assistance 4.8 NGOs own funds lent to SHGs 4.9 Total Amount lent* NGOs to SHGs through different sources 4.10 Amount Recovered from the SHGs in the selected districts 4.11 Amount Overdue from the SHGs in the selected districts 4.12 Portfolio of Lending by NGOs to SHGs 4.13 Skill Development Activities Conducted by NGOs to the members of SHGs 4.14 Impact of Micro Finance on the income of the SHG members in the Selected Districts 4.15 Impact of Micro Finance on the asset position of the SHGs in the Selected Districts 4.16 Impact of Micro Finance on the generation of employment of the SHGs in the Selected Districts 4.17 Impact of Micro Finance on the Savings of the SHGs in the Selected Districts 4.18 Impact of Micro Finance on the investment pattern of the main occupation of the SHGs in the Selected Districts

5 Table No. Title 4.19 Impact of Micro Finance on the investment pattern of the secondary occupation of the SHGs in the Selected Districts 4.20 Impact of Micro Finance on the expenditure pattern of the SHG members in the Selected Districts 4.21 Proportion of Expenditure for Different Purposes 4.22 Constraints Faced by the Micro Finance Providers in the Selected Districts LIST OF FIGURES Figure No. Title 1. Karnataka state map showing the selected districts 2. Karnataka state SHGs credit linked, Bank loan and refinance provided

6 1. INTRODUCTION An estimated of about 300 millions in India and around 1.2 billion population world wide live in absolute poverty. They are unable to meet their most basic human needs for food, clothing, shelter and minimum health care. Since 1947, the absolute number of poor has doubled despite the significant growth in agriculture production and employment over the past five decades of development planning. Rural poverty continues to pose the greatest challenge in India. India today retains the dubious distinction of having the largest number of poor people on the planet. Poverty in India is closely associated with poor population, or an imbalance between population and land resources. In India landless or near landless people live close to the margin of existence experiencing seasonal unemployment and nutritional stress. The burden of such poverty falls heavily upon women and children. The low level of human development is both a cause and consequence of poverty. The Vision of Micro finance: "Five years hence, we are looking for a process change leading to empowerment of 75 lakhs poor households, and more particularly of the women from these households, through strong and viable people's structures like SHGs and mfis which draw strength and support from the banking system with the message that banking with the poor is a profitable business opportunity for both the poor and the banks." In the development paradigm, micro-finance has evolved as a need-based policy programme to cater to the so far neglected target groups (women, poor, rural, deprived, etc.). Its evolution is based on the concern of all developing countries for empowerment of the poor and the alleviation of poverty. Development organisations and policy makers have included access to credit for poor people as a major aspect of many poverty alleviation programmes. Micro-finance programmes in the recent past have become one of the more promising ways to use scarce development funds to achieve the objectives of poverty alleviation. Furthermore, certain micro-finance programmes have gained prominence in the development field and beyond. The basic idea of micro-finance is simple: if poor people are provided access to financial services, including credit, they may very well be able to start or expand a micro-enterprise that will allow them to break out of poverty. There are many features to this seemingly simple proposition, which are quite attractive to the potential target group members, government policy makers, and development practitioners. For the target group members, the most obvious benefit is that micro-finance programmes may actually succeed in enabling them to increase their income levels. Furthermore, the poor are able to access financial services, which previously were exclusively available to the upper and middle-income population. Finally, the access to credit and the opportunity to begin or to expand a micro-enterprise may be empowering to the poor, especially in comparison to other development initiatives, which often treat these specific target group members as recipients. For development practitioners, the success of microfinance programmes is encouraging. Too often in the past, costly large-scale development initiatives have failed to achieve any sustainable benefits, especially after funds have dried up. Thus, micro-finance has become one of the most effective interventions for economic empowerment of the poor. The term Micro Finance is of recent origin though we do not find this word in text books dealing with finance and financial management. But, now a days, it is freely used in the media, national/international forums, literature relating to development and prosperity of relatively disadvantaged sections of the society etc. Microfinance (mf) has become, in recent years, a fulcrum for development initiatives for the poor, particularly in the Third World countries. It has been practiced in varying forms in different countries and it has been regarded as an important tool for poverty alleviation. Although micro finance could possibly include a range of financial services targeted to the poor, in common parlance, however, micro-credit and MF are often used interchangeably with emphasis on provision of credit to the poor.

7 It has been approximately 25 years since the birth of Microfinance with the Founding of the Grameen Bank in Bangladesh by Professor Mohammad Yunus. The field has spread with the adaptation and evolution of Professor Yunus ideas to various countries and contexts. The UN Year of Micro credit in 2005 indicated a turning point of Microfinance as the private sector began to take a more serious interest in what has been considered the domain of NGOs. However, with all the excitement about the prospects of the field to contribute to poverty alleviation and the integration of the world s poor into the rapidly evolving global market system, the Consultative Group to Assist the Poorest (CGAP) estimated that microfinance probably reaches fewer than 5 per cent of its potential clients. Although this is a very rough estimate of those not reached by formal financial institutions, it might serve to provide a general idea of what share of the potential clients of microfinance have yet to be reached. India is home to growing and innovative sector of microfinance. With a large portion of the world s poor, India is likely to have a large potential demand for microfinance. Micro finance has already made a positive impact on the quality of life of millions of poor people by providing greater access to credit, savings, insurance, transfer, remittances and other financial services which would other wise are unreachable. Micro finance is a financial service of small quantity provided by financial institutions to the poor. These financial services may include savings, credit, insurance, leasing, money transfer, equity transaction, etc. that is, any type of financial service provided to customers for meeting their normal financial needs, life cycle, economic opportunity and emerging with only qualification that transaction value is small and customers are poor (SHG-bank linkage programme Karnataka , NABARD, page number 17.). Micro finance is generally associated with poverty alleviation interventions, income distribution amongst a wider section of population, Purchasing power redistribution where a large number of people do not have enough purchasing power to participate in a market economy. It is associated with savings in small amount and small loans, the affordability, availability, accessibility of small loans in a flexible, sensitive and responsive manner. The availability of timely, adequate uninterrupted finance that cannot provide collateral in a nonbureaucratic style. It is a spring board for creating micro entrepreneurs and gender development. On an average, there is at least one retail credit for about 5000 rural people or every 1000 households. Rural credit from non-institutional sources (informal credit) was more than 36 per cent, indicating the role of money lenders in the rural credit system. United Nations launched the year 2005 as the International year of Microfinance. And it is stated that microfinance is a integral part of collective effort to meet the Millennium Development Goals in the reduction of poverty in rural areas. The need for rural credit in India had been recognized even before independence by the erstwhile British Government as early as 1793 when it issued regulations for Taccavi loans to farmers and subordinate tenants for various purposes. The measures initiated to reduce indebtedness and regulating money lending activities for agricultural purposes failed to provide a long term solution. The Cooperative Societies Act which was passed in 1904 to provide necessary legislative support to the financing of agriculture and regulating credit in the interest of cultivators then signaled the entry of credit for agriculture from the institutional sector. Since then, and till the late Fifties, cooperatives have been the major institutional source for all agricultural loans. The syndicate bank which was started functioning in 1921 concentrated on raising micro-deposits in the form of daily, weekly, savings and micro loans for its constituents. And after bank nationalization in 1969 micro finance concept in the banking institutions once again come to the discussion. A number of special programmes aimed at meeting the credit needs of the disadvantaged sections of the society have been implemented in the past. Over the years, special poverty alleviation wage and self employment programmes like Jawahar Rozgar Yojana, Indira Awaz Yojana, Employment Assurance Scheme, Development of Women and Children in Rural Areas (DWCRA), Swarnjayanti Gram Swarojgar Yojana, Training of Rural Youth for Self Employment (TRYSEM), Integrated Rural Development Programme (IRDP), etc. have been implemented by the government of India and State governments for creation of wage and self employment opportunities. Today, there are about 60,000 retail credit outlets of the formal banking sector in the rural areas comprising 12,000 branches of district level

8 cooperative banks, over 14,000 branches of the Regional Rural Banks (RRBs) and over 30,000 rural and semi-urban branches of commercial banks besides almost 90,000 cooperatives credit societies at the village level. On an average, there is at least one retail credit outlet for about 5,000 rural people. This physical reaching out to the far-flung areas of the country to provide savings, credit and other banking services to the rural society is an unparalleled achievement of the Indian banking system. Despite having a wide network of rural bank branches in the country, a large number of the poor continue to remain outside the fold of formal banking system. In 1992 NABARD lunched IRDP programme which was perhaps the biggest microcredit programme of our country and in the world as well. Due to not meeting with desired success, In spite of all these noble efforts, the disadvantaged section of the society could not access financial services from the formal financial systems and they had to either depend on the informal system or on themselves for their credit needs and this created the birth of micro finance. The programme of linking SHGs to banks, which was started on pilot basis in , made rapid progress over the years. The SHG-bank linkage programme perhaps is the largest micro-finance programme of the world now in terms of its outreach. From a modest beginning in with 255 SHGs in 10 states, the number of SHGs increased substantially to 7.17 lakh in covering all states and Union Territories. Cumulatively, till 31 March 2003, 7.17 lakh SHGs were provided bank loan aggregating Rs crore and benefiting an estimated 78 lakh poor households. Total bank loans disbursed to SHGs during the year aggregated to Rs crore involving a refinance of Rs crore by the National Bank. More than 90 per cent of the SHGs linked to banks were exclusive women SHGs. Micro finance is a Provision of thrift, credit and other financial services and products of very small amounts to the poor in rural, semi urban or urban areas for enabling them to raise their income levels and improve living standards. The term micro literally means small, but the task force has not defined any amount. But RBIs micro credit special cell says borrowers accounts up to the limit of Rs. 25,000 could be leveled as micro credit products and this amount could be gradually increased up to Rs. 40,000 over a period of time which roughly equal to Rs. 81,500 a standard for South India as per international perceptions. Micro-finance is providing financial services, savings and credit to poor house holds that do not have access to formal financial institutions. It is considered as an important tool in poverty alleviation. Recovery experience has been quite satisfactory. The microfinance clients are low-income persons typically self-employed and often household-based entrepreneurs. In rural areas, they are usually small farmers and others who are engaged in small incomegenerating activities such as food processing and petty trade. In urban areas, microfinance activities are more diverse and include shopkeepers, service providers, artisans, street vendors, etc. Micro financial institutions are organizations that offer financial services to low income population. Almost all of these offer micro credit and only take back small amounts of savings from their own borrowers, not from the general public. Within the microfinance industry, the term micro financial institutions have come to refer to a wide range of organizations dedicated to providing these services. There is a wide variety of institutions in India catering, with various degrees of success, to the micro finance needs of poor families. As indicated above, they comprise of micro finance providers in the formal financial sector comprising of commercial banks, Regional Rural Banks and cooperative banks and micro financial institutions comprising Non- Government Organizations, Self-Help Groups federations and certain non-bank cooperative societies in the non-financial sector. 1.1 NATIONAL POLICY ON MICRO FINANCE The structure of rural financial market in India is dualistic both formal and informal financial intermediaries. Consensus is growing among researchers that the formal financial

9 sector is not effectively serving the rural population in the third world countries. This is mainly attributed to the failure of financial intermediaries in fulfilling their basic functions viz.. Production credit to finance income generating activities Consumption credit to maintain and expand human productive capacity Quality saving schemes for increasing risk-bearing capacity of the rural house holds. The performance of formal financial institutions particularly in their lending to the poor in India has been unsatisfactory. They face a number of constraints in broadening their services to the poor. A large number of rural house holds are with limited land resource and small economic activity accompanied with poor technology. But their demand for credit has been rising due to growing family size increased consumption requirement, social obligations and so on. But the institutional agencies not only lacked the required mechanism to assess their credit needs but also often overlooked their demand for credit on the ground that their needs are for non-productive purpose. Besides, pursued high risks transaction cost in small scale rural lending and absence of collateral securities kept the poor away from the fold of formal financial intermediaries. There is a strong case for a formal recognition of mf, just like institutional credit, as a strategic tool for poverty alleviation and rural development, both at the policy and implementation level. The Task Force therefore recommends that Government of India (GOI) may consider making a suitable Policy Statement recognizing the role of micro finance. On this direction, the Government of India (GOI) made announcements in the budget speeches of and regarding SHG-Bank Linkage Programme. This endeavor may have to be carried further by recognizing the other initiatives of the voluntary sector in providing mf services to the poor. Self Help Group (SHG) banking is the primary mode of microfinance in India today, reaching over six million families. In spite of its considerable outreach, successful savings mobilization and high repayment rates, as with most other microfinance models, the financial viability of SHG banking has not been clear. SHG federations attempt to provide financial viability and sustainability to SHG banking. The acceptance and recognition of mf as an essential tool for poverty alleviation envisages adoption of a National Policy on mf. The major components of the National Policy are, encouraging initiatives and participation of different types of institutions in mf, Bringing the microfinance activities, irrespective of the type of institutions within the regulation and supervision by competent authorities, creating policy environment for closer linkages of the mf sector with the formal banking channels and making available equity, start-up capital and capacity building funds for the existing and prospective institutions engaged in mf including banks and various mf structures from institutional sources in the country. The poor already save in ways that may not consider as "normal" savings--- investing in assets, for example, that can be easily exchanged to cash in the future (gold jewelry, domestic animals, building materials, etc.). After all, they face the same series of sudden demands for cash may be for health, school fees, need to expand the dwelling, burial, weddings. As according to the Progress of SHG- Bank Linkage in India a yearly issue released by the NABARD, the performance of banks in linking SHGs to the banking system scaled further new heights during the year in the country. The banks financed 6,20,109 new SHGs during The cumulative number of SHGs credit linked with banks increased to 22,38,565 as on 31 March 2006 as against 16,18,456 SHGs as on 31 march The cumulative progress in financing SHGs from 1992 onwards, in physical and financial terms is given in table 1.1 and as can be seen the bank loans aggregating to Rs. 1,13,97500 lakhs were disbursed to 22,38,565 SHGs from NABARD upto 31 March KARNATAKA INITIATIVE Of course, lack of capital is only one factor keeping poor rural households inactive from improving their welfare. In rural areas of Karnataka, illiteracy is high, basic social and

10 Table 1.1: Performance of micro finance in India SHG-Bank Linkage ( to ) Year No of SHGs credit linked (Physical Terms) Bank loan (Rs lakhs) (Financial Terms) , , , ,719 1, ,678 3, ,780 13, ,49,050 28, ,97,653 54, ,55,882 1,02, ,17,360 1,85, ,79,091 21,96,180 As on 31March ,18,476 68,98,000 As on 31March ,38,585 1,13,97,500 Source : NABARD Report, 2006 market infrastructure is lacking, and many people are in poor health. When seed or irrigation water for the farmer, market access for the rural producer, or elementary bookkeeping skills for the would-be entrepreneur are absent, the returns to financial services will be low or sometimes even wasted. Karnataka does not figure on the top of the tables published by financial institutions, it shows that the number of self-help groups are formed in each state. This is mainly because the tables capture data after when the National Bank for Agriculture and Rural Development (NABARD) launched a SHG-Bank Linkage Programme. However, between 1984 and 1985, MYRADA, a non-governmental organization engaged in rural development and based in Karnataka, promoted several co-operative societies that were enabled to give loans to their members. Subsequently, the large co-operatives broke up into small groups, which were the genesis of the first SHGs, referred to at that time as Credit Management Groups, with a focus on the management of credit. The concept of each member making a saving in the group soon followed, as also the establishment of a system of regular meetings, book keeping and records, and collective decision-making. A pilot study (Puhazhendi and Sai, 2000) gave NABARD the confidence to mainstream the SHG Bank Linkage Programme in 1996 as a normal lending activity. The programme then spread rapidly, if unevenly, across the country, making it by 2002, the largest microfinance programme in the world. Thus, the history of SHG promotion started with NGOs taking the lead in the mid-1980s and the lead

11 passing on to NABARD by the late 1980s. After the SHG-Bank Linkage Programme was launched in , the very first loans to SHGs in the country were given in Kolar district of Karnataka: by the Vysya Bank. Self Help Groups (SHGs) form the basic constituent unit of the microfinance movement in India. A SHG is a group of few individuals usually poor and often women who pool their savings into a fund from which they can borrow as and when necessary. Such a group is linked with a bank a rural, co-operative or commercial bank where they maintain a group account. Over time the bank begins to lend to the group funded out of the savings generated by the group members themselves, are called inter-loans. The Role of NGOs in Microfinance: Self Help Groups are almost always formed with outside assistance. Developmental NGOs, often with considerable history of working in a particular area for projects like literacy, sanitation etc., take to organizing SHGs, bringing together people, explaining the concept to them, attending and helping coordinate a few of the initial group meetings, helping them maintain accounts and linking them with the banks. Of late, some of the rural banks themselves are being designated as Self Help Promoting Institutions (SHPIs) and they help in the formation and nursing of SHGs. 1.3 OBJECTIVES: This is the right as well as crucial period to have a close look on the performance of micro finance providers and also to assess their impact on the SHGs and through it the assessment of the impact of the SHGs on the rural poor. Thus it was thought proper and most conducive to under take a research study entitled Performance of micro Finance Providersin KARNATAKA. The objectives of this study were 1. To study the growth and pattern of micro finance in Karnataka. 2. To evaluate the business performance of the micro- finance providers. 3. To study the impact of micro-financial institutions on member enterprise. 4. To identify the constraints faced by micro-finance providers. 1.4 PRESENTATION OF THE STUDY The study is presented in six chapters. The first chapter is developed to the introduction of the Micro finance and Micro financial institutions and the need for this study and the specification of the objectives. The second chapter presents a review of literature of the important existing studies on the micro financial situation world wide. The third chapter details the description of the study area, nature and source of data, the tools and techniques of analysis adopted for evaluating the objectives. Chapter IV gives us a brief insight into the results under appropriate heads in consistence with the objectives of the study. Chapter V seeks to interpret the results of the study and explains the causal relationships between certain variables and outcome, in micro financial activities. It also discusses a frame of inference for drawing policy measures. The chapter VI summarizes the results and suggests polices to improve the micro financial activities. 1.5 SCOPE OF THE STUDY: The interest rates are deregulated not only for private micro finance institutions but also for formal banking sector. In the context of softening of interest rates in the formal banking sector, the comparatively higher interest rate (12%-24% per annum) charged by the

12 micro-financial institutions has become a contentious issue. The high interest rate collected by the micro financial institutions from their poor clients is perceived as exploitative. It is argued that raising interest rates could undermine the social and economic impact on poor clients. Since, most of the micro financial institutions have lower business volumes, and their transaction costs are far higher than that of the formal banking channels. The cost structure of micro financial institutions would affect their sustainability in long run. Self Help Groups, as micro financial invitation emerged as an impetus for community action. An informal supplementary credit delivery mechanism by lending at group level, the SHGs are in existence the scope of study influenced by the chief objective to study the income generating activities and how it contribute to the empowerment of poor. 1.6 LIMITATIONS OF THE STUDY A student researcher, who was constrained with limited time, conducted the study and other resources at the disposal, poverty and poor education level of the respondents posed difficulties in getting accurate information. Study relied heavily on respondent s memory to gather information pertaining to certain variables under study. Though the student investigator had taken at most care while collecting data, possibility of some errors creeping in cannot be ruled out.

13 2. REVIEW OF LITERATURE In this chapter an attempt has been made to critically review the literature of the past research work in relevance to the present study. The studies available on the role of Non Governmental Organisations in provision of micro finance to the self help groups and their impact on the self help groups have been reviewed. The related literature has been gathered and presented under the following heads. 2.1 The overall picture of SHGs in India 2.2 Institutional linkages of SHGs 2.3 SHGs bank linkages in micro finance 2.4 Port-folio of lending by the micro finance providers 2.5 Performance of Self Help Groups 2.6 Economic impact on the SHGs 2.7 Problems faced by micro finance providers 2.1 THE OVERALL PICTURE OF SHG IN INDIA Pathak (1992) SHG being comprised of group of persons, gets empowered to solve most of their problems of non-financial nature like raw materials, inputs supply, marketing, better adoption of technology education and training for realizing the human potential for development. The SHG s of Kerala have become centers for initiating social action against dowry system, alcoholism, illiteracy and divorce (NABARD 1997). Dinakar Rao (1994) reported that networking of SHGs and Self-help promoting institution are elements of propagating self-help. And that SHGs linked with formal credit agencies had advantages of pooled enterprises, economic of scale and organisation to relish exploitation. Harper (1996) in his study Self-help groups some issues from India indicated that in India, as in other parts of the developing world, the banking community is extending its services to the poor by lending to self-help groups. By providing single larger loans, relying on the group, on NGOs, to monitor the on lending of micro-loans, the banks transaction charges are reduced, making the operation potential profitable. Kumaran (1997) examine self-help groups promoted by a voluntary agency in A.P and their role in promoting thrift and credit activities among the poor. Further he also examine in detail the process of development of self-help groups, structure and function, resource mobilization and socio-economic, activities. Various factors responsible for active functioning, passivity and disbandment of self-help groups are examined in detail. Ramalakshmi (1998) pointed out that, inadequate working capital, is the most serious problem restricting the performance of many DWCRA groups and also the group members need training for skill enhancement especially for items such as soft made garments, foot wear, woolen blankets etc. Puhazhendhi and Jayaraman (1999) reported that the SHG members taking up more than one activity increased from about 30% during pre group formation situation. They undertook supplementary activities such as animal husbandry, poultry etc, and non-farm activities like Petty shop, Kirana shop, Flower selling business etc. Hartwig (1999) noted that SHG of Africa have increased the family income there by ensuring food security and children education. Suriakanthi (2000) reported that bank transactions are essential activities of SHG s. Credit and subsidy under the (SGSY) Swarna Jayanthi Gram Swarozgar Yojana Scheme can be availed only through banks.

14 Dadhich (2001) stated that effective implementation of micro-finance can be a means not only to alleviate poverty and empower woman but also be a viable economic and financial proportion. Raghavendra (2003) reported that the average participation level of SHG members has been quite good. Officials of Commercial Banks and RRB s together account for 50 per cent of total participation followed by Co-operative banks at45 per cent and the balance 5 per cent by NGO s. Southern region accounts for over 2/3 rd of total participation. Satya Sundaram (2005) stated that micro-finance in India is making steady and satisfactory progress. NABARD has set a goal of covering 10 million poor, i.e. one third of the country s poor population through one million SHG s by Thorat (2005) stated that micro-financial services provided to the poor in sustainable manner is consistent with high repayment rates. Which meant that if the services to the poor were provided in a sustainable manner than the beneficiaries would go in for repayments that are quite high in consideration to a staggered manner of provision of services. 2.2 INSTITUTIONAL LINKAGES OF SHGs Nanda (1999) conducted impact studies of self help and found that the most outstanding impact of the linkage programme could be the socio-economic empowerment of the poor more particularly the women. Gurumoorthy (2000) reported that the SHGs are linked with banks for the internal credit under the projects of rural development. The appraisal consists of bank managers, rural development officers, NGOs, project implementation units visit the groups for providing financial assistance to the respective entrepreneurial activities. Barik and Vannan (2001) reported that the project of linking SHGs with banks has gained momentum in India from And he reported that three broad models have emerged, model-i: Bank-SHG, member formed 14 per cent, model-ii: bank (facilitating agency) SHG-members formed70 percent and model-iii: Bank-NGO-MFI-SHG-members formed 16 per cent of SHGS linked during the Namboodiri and Shiyani (2001) reported that the SHGs that are promoted by the NGOs had a better saving performance compared to that of SHPI. However, the repayment performance of the SHGs promoted by the SHPI was superior to that of NGOs. Pankaj (2001) reported that the SHG-bank linkage programme launched by NABARD in 1992 is a landmark in the field of micro financing in India. This programme aims to organize SHGs 10 to 20 persons from the economically homogeneous strata regularly save the amounts from their earnings. Satish (2001) reported that the NGOs due to the nearness to the people and flexibility of operations seem to be better equipped to undertake SHG formation. And linking SHGs to bank helps in overcoming the problem of high transaction costs to banks in providing credit to the poor. Kothal et al (2003) stated that there could be four different models of linkage between SHGs and banks. Acceptance of a particular model depends on the perception of the bank and the strength of the SHGs and the NGO. The programme of SHGs organized by various NGOs and banks in different part of the country is reported to be highly satisfactory. Kala (2004) reported that the linking of the self help groups (SHGs) with formal rural banking started after the launching of the pilot scheme by NABARD in February 1992 and that linkage of SHGs is possible only if the SHGs have successfully collected savings, made loans and recovered them for six months. Selvachandra (2004) stated that SHG and its linkage with banks is an important vehicle to promote micro finance in India. This programme helps to promote financial transactions between formal banking systems with the informal SHGs as clients.

15 Asokan (2005) reported that among the three models of linkages introduced, the second model i.e., SHG formed by NGOs and formal agencies but directly financed by bank is the best model. And he stated that the role of NGOs is very important to form SHGs Joseph. Bhagwati (2006) stated that the micro- credit advanced through the mechanism of self-help groups linked to bank credit is associated with higher level of loan recoveries and that tree linkage project has facilitated socio-economic empowerment of weaker sections including women folk. Joseph and Easwaran (2006) sated that in all parts of the country, self-help groups are organized by governmental and non-governmental organizations (NGOs). The government, banks and non-governmental organizations facilitate them by providing revolving fund, organizational and training, credit etc. Subbiah and Navaneetha (2006) reported that there are three models under the SHG-bank linkage programme, about 72% of the SHGs are formed by NGOs/government agencies and the like financed by banks. They stated that the programme has been advantageous not only to members of SHG but also to the banks. 2.3 SHGs BANK LINKAGES IN MICRO FINANCE Puhazhendhi and Jayaram (1999) found that the in formal groups of rural poor with active intervention of NGOs adequately supported by training significantly improved women s participation both from economic and social aspects. Nanda (1999) conducted impact studies of self-help groups and found that the most outstanding impact of the linkage programme could be the socio-economic empowerment of the poor more particularly the women. Gurumoorthy (2000) reported that the SHGs are being linked with banks for the internal credit under the projects of rural development. The appraisal consists of bank managers, rural development officers, NGOs; project implementation units visit the groups for providing financial assistance to the respective entrepreneurial activities. Barik andvannan (2001) reported that project of linking SHGs with banks has gained momentum in India from And he reported that three broad, models have emerged, model I: Bank-SHG- member, formed 14 per cent, model-ii: Bank (facilitating agency) SHGmembers, formed 70 per cent and model-iii: Bank-NGO-MFI-SHG-member formed 16 per cent of SHGs linked during the Namboodiri and Shiyani (2001) reported that the SHGs that are promoted by the NGOs had a better saving performance compared to that of SHIP. However, the repayment performance of the SHGs promoted by the SHIP was superior to that of NGOs. Pankaj (2001) reported that the SHG-bank linkage programme launched by NABARD in 1992 is activities land mark in the field of micro financing in India. This programme aims to organize SHGs 10 to 20 persons from the economically homogenous strata regularly same the amounts from their earnings. Satish (2001) reported that the NGOs due to the nearness to the people and flexibility of operations seem to be better equipped to undertake SHG formation. And linking SHGs to bank helps in over coming the problem of high transaction costs to banks in providing credit to the poor. Raghavendra (2003) revealed that the total number of SHGs, which were credit linked in the country, reached a phenomenal figure of 4.61 lakh by March Almost 90 per cent of them were linked to banks were exclusive women groups and periodic studied have revealed that repayment of loans by SHGs to banks has been consistently over 95 per cent. Kothal et al. (2003) stated that there could be four different models of linkage between SHGs and banks. Acceptance of a particular model depends on the perception of the bank and the strength of the SHGs and the NGO. The programme of SHGs organized by various NGOs and banks in different part of the country is reported to be highly satisfactory.

16 Kala (2004) reported that the linkage of the Self Help Groups (SHG's) with formal rural banking started after the launching of the pilot scheme by NABARD in February 1992 and linkage of SHGs is possible only if the SHGs have successfully collected savings, made loans and recovered them for six months. Subbiah and Navaneetha (2006) reported that there are three models under the SHG's-bank linkage programme. About 72% of the SHGs are formed by NGOs/ government agencies and the like financed by banks. They stated the programme has been advantageous not only to members of SHG's but also to the banks. SavitaShankar (2006) conducted Studies on efficient credit models in micro finance, in Tamil Nadu; the most popular model for the dispensation of micro credit in India is the group-lending model. As per Sa-dhan (Industry Association of Community Development Finance Institutions in India) data, group loans account for 93% of the microfinance in India. Shylendra etal.,(2007) report the overall performance of the self-help group (SHG) intervention of the Sadguru Water and Development Foundation (SWDF) in India and identifies possible ways to take it forward for promoting savings and credit activities. The study was stated that Self-help groups have become an important instrument in the delivery of microfinance services like savings and credit for the poor. 2.4 PORT-FOLIO OF LENDING BY THE MICRO FINANCE PROVIDERS A World Bank study (1995) revealed that 67 per cent of the credit needs of poor people in India is for consumption needs and of the consumption credit required, 75 per cent was for short periods for emergent needs such as illness and household expenses during the lean monsoon seasons. They also estimate that 75 per cent of production credit (only 33% of total credit) was met by banks while 100 per cent of consumption credit requirement was met by informal resources at interest rate ranging from 30 per cent to 90 per cent per annum. Roshan Singh et al. (1978) studied the pattern of flow of credit in Bichpuri development block of Agra district in Uttar Pradesh. They found that the pattern of financing agriculture was similar both at the national and district level. The proportion of bank finance to agricultural showed a steady but slow increase over a period of four years. The overall share of large farmers in total finance to agriculture was much higher as compared to the small and medium farmers in all the years (1972 to 1977). The share of small farmers showed an increasing trend mainly during the years 1976 and 1977 when deliberate efforts were made to direct the flow of bank credit in favour of small farmers. Desai (1988) assessed the institutional credit requirement for agriculture production in 2000 A.D. and observed the growth rate of total credit between and was 17 per cent in nominal terms. The commercial bank share has more than doubled from per cent in to per cent in He estimated short term credit requirement by taking the total value of crop output from the cost of cultivation scheme of government of India for the period from to and found that the growth rate in agriculture advance to be per cent. Ramdass (1989) measured the institutional credit flow in Pondicherry and observed that the short term credit advance by the institutions had grown enormously, while the long term credit lagged behind. He suggested the need for institution to come forward to provide long term credit and utilize the saving mobilized in rural areas exclusively for rural investment. Pradeep kumar (1993) used growth rate analysis to analyse the growth in physical and financial performance indicators of horticultural producer s cooperative marketing society limited, Bangalore. The indicators considered were membership share capital, owned funds, sales, inventories, fixed assets, current assets, total assets, current liabilities and total liabilities. Pahazhendhi and Jayaraman (1999) concerned about the growth of agriculture advance during , pointed out that despite the phenomenal growth in absolute terms, the proportion of amount outstanding advance to priority sector showed a declining trend from

17 16.9 per cent in June 1990 to 14.3 per cent in March The reversal trend was observed in March when the loans for agriculture constituted 16.3 per cent of net bank advances. The share of priority sector lending at all India level whose share had declined from the peak of 42.9 per cent in 1985 marginally improved to 41.7 per cent in March Nair (2000) reviewing recent trends in rural financial intermediaries and commercial banks in India indicated that the commercial banks credit to rural areas during the late 1980 s and early 1990 s has shown a deceleration in growth. The relative proportion of bank credit flowing to priority sector, especially agriculture was fallen below the target of 18 per cent at a national level since the mid 1980 s. Abate (2000) studied the loan and advances to agriculture from all of the financial institutions shown significant compound growth rate over the study period. Compared to the growth in term loan (13.0 per cent), the growth in crop loan (17.2 per cent), which is a major index of agriculture production finance has shown a higher growth rate in Karnataka state during the study period. Similarly, the growth in agricultural advances (12.5 per cent) has shown higher growth rate in direct agricultural advances (10.9 per cent). However the share of agriculture advance and weaker section had shown a declining trend during the study period. The recovery performance of agricultural advances in commercial banks, regional rural banks and co-operative banks has shown a positive trend. Only the recovery performance of primary cooperative agricultural and rural development bank had shown a declining trend. With respect to the problems encountered in Agriculture credit system misutilization of loan amount by borrower, willful and deliberate default by borrowers and diversion of income generated out of the investment have found prime importance in the order. Vishvanath (2002) conducted a study in the management appraisal of district central co-operative bank in Uttar Kannada District of Karnataka and found that growth in number of branches, employees and membership was positive and significant. Except borrowing (8.17 per cent) all other financial variables showed a positive and significant growth. The recovery percentage for the selected Karnataka District Central Co-operative bank branches was found to be more than 90 per cent. Gosh (2005) studied that the share of allied activities in agricultural output, namely dairying, fisheries and poultry has been increasing significantly, the share of livestock in the gross value of agriculture (crop and livestock production) increased from under 16 per cent in to 26 per cent in , that of fisheries went up over the same period from 1.7 per cent to 3.1 per cent. The share of non-food crop in the cropped area has increased from 25.7 per cent in the triennium ending to 35.1 per cent by Gosh (2005) studied that the short term credit remained nearly unchanged, significantly at about 14 per cent, the growth of long term credit slowed down from about 20 per cent in the 1970s to about 14 per cent in the 1990s which is too disturbing. Clearly, this trend is bound to have a crippling impact on the capacity of the agricultural sector to grow and prosper. Reddy and Gupta (2006) studied the credit management in Self Help Groups(SHG s) under South Asia Poverty Alleviation Programme (SAPAP) revealed that the data on purpose wise allocation of credit showed that sample groups allocated 34 per cent, 22 per cent and 22 per cent of the total credit to small businesses, animal husbandry and agriculture respectively. Under animal husbandry, members take loan to purchase milch animals, sheep and goats, under agriculture members take crop loan to purchase, plough and bullock carts. The other major purposes include domestic consumption (13 per cent) and clearing of old debts (7 per cent) and share of health and education is only three per cent. Thus the members in the sample groups have taken credit mainly (78 per cent) for productive/ income generating activities during the study period. Thanarathnam (2006) while studying the working of primary agriculture co-operative banks, analyzed the loan dispersed by the bank. He had used the annual average growth rate of different types of loans given by banks. It was found that the average annual growth rate for the period to with regard to short term loan was 2.07 per cent, for jewel loan it was 1.35 per cent deposit loan has 3.44 per cent of growth rate. It was really

18 appreciable and it really showed the performance of the bank. According to the amount of loan dispersed by the bank, a large percentage share was taken by the jewel loan in all the six years and the amount was small with regard to deposit loan. Ramappa and Sivasankaraiah (2007) studied that the share of agriculture loan in the total priority sector advances was considerably large and fluctuated from per cent in to per cent in It was also evident that of the total agriculture loan in , crop loan alone accounted for per cent. Among non-agriculture activities retail trade/business enterprise received large quantum of loan followed by Self Help Group s. The percentage share of non-priority sector in total outstanding advances showed increasing trend from in to 34.2 in It signifies the change in the lending pattern of the Rayalseema Grameena bank in Andhra Pradesh. Rangi et al. (2002) reported that about 59 per cent of the borrowings were for consumption purposes in the household. However, about 32 per cent of the respondents reported those consumption loans were exclusively for routine family expenditure because employment was not regularly available to the respondents households. About 18 per cent of them took credit for repair of their houses and about five per cent each used it for the study of their children and installation of hand pumps.it was found that about 71 per cent of these bank loans were for productive purposes. Among the productive purpose, dairy farming was the most dominant (about 32%) followed by tailor shop (about 19%), cloth shop (about 10%), grocery shop (about 6%) and electrical shop (about 3%). The loans for consumption purposes accounted for about 29 per cent of the cases. The routine family expenditure was dominant reason for taking loans, for this purpose. The other purposes were social functions, medical treatment and house repairs (Rangi et al., 2002). Vasudeva Rao (2003) in his study conducted at Andhra Pradesh pointed out that a majority of the people have taken loans for their own occupational development, where as, only a few have taken for health, education and marriage purposes. The amounts taken are also varying with the purpose. About per cent availed loan for dairy activities, while 4.00 and 3.60 per cent of the respondents availed loan from the group for daughter s marriage and poultry, respectively (Ritu Jain et al, 2003). 2.5 PERFORMANCE OF SELF HELP GROUPS Ramlingam et al 1987 in their study entitled socio economic impact of IRDP on weaker section:a comparative analysis showed that the social status of the respondents had increased considerably from low status to higher status. Mahabub Hussain (1988) while assessing the performance of the Garmeena Bank in Bangladesh laid the hypothesis that If the poor are supplied with the working capital, they can generate productive self employment with out additional external assistance, and the results showed that the Garmeena bank has reached 6 percent of villages and 4 percent target house holds (1987). Molly (1990) found that there is lion s share of NGOs programmes in the selected organizations related to the factory type employment such as readymade garments, Khadi and Village industry, candle making etc. The major productions schemes especially on house hold basis, which occupied 24 percent of total schemes, were animal husbandry, poultry, sericulture, fodder cultivation, kitchen garden and others. Pathak (1992) reported that SHG being comprised of group of persons, gets empowered to solve most of their problems of non- financial nature like raw materials, inputs supply, marketing, better adoption of technology, education and training for realizing the human potential for development. Nataraj (2004) in his study on Role and performance of SHGs in rural credit-an economic analysis reported that the average savings per group and average savings per member incase of RRBs sponsored SHGs was better compared to NGO promoted SHGs Girija (1995) stated that the group provides the women a base for self-employment and empowerment through group dynamics. The peer pressure on group members has

19 ensured proper utilization of credit and repayment of loans, savings provided, self-insurance and self-assurance to the group members. Harper (1996) in his study, self help groups-some issues from India indicated that in India, as in other parts of developing world, the banking community is extending its services to the poor by lending to self help groups. By providing single, larger loans, and relaying on the groups, on NGOs, to monitor the on-lending of micro loans, the bank transaction charges are reduced, making the whole operation potentially profitable. McGuire and Conroy (1997) described two studies on Bank NGO linkages and the transactions costs of lending to the poor through groups, one, in India and one in the Philippines. The India study compared the transaction costs incurred by banks while lending to the poor through various channels, and found that the transaction costs were much lower where banks used NGOs and self Help Groups as intermediaries. Transaction costs facing borrowers were also significantly lower. This suggests an important role for NGOs in the intermediation process. The Philippines study looked at the question from the prospective of NGOs. It found that NGOs could channel credit to the poor with lower transaction cost, as a proportion of loans granted, than most other institution. But the small loans and short maturities inherent in lending to the poor inevitably led to transaction costs being relatively high compared to the value of loans outstanding at any one point of time. The article also highlights the need for NGOs to minimize the costs as for as possible. Kumaran (1997) in his study on 21 SHGs found that 19 were active groups and one each was passive and dissolved group. According to him, the individual monthly contribution for savings varied from group to group (Rs.10-Rs.30) and the total savings for 18 groups in a year was Rs.33, 013/- while the total credit generated during the same period was Rs.2, 18,223/-, of which business took a large share of 29 per cent followed by others at 28 per cent, cumulative loan at 23 per cent, clearance of old debit at 12 per cent and health expense at 6 per cent. The interest rate on the loan varied from 5 percent to 3 percent between the groups on monthly basis. Sherin (1999) found that seventy six per cent of the respondents were highly self reliant in the functional SHGs where as only per cent of the respondents expressed high self-reliance in the non-functional SHGs. The male respondents were significantly greater in self-reliance in comparison with their female counterparts. Prasad (2000) reported that in many villages, community issues like drinking water, roads, electricity and health services were addressed by the women s groups. The women involved themselves in various activities like desilting of tanks and working towards child development in addition to income generating activities. Arun Kumar (2004) reported that (53.33%) of the groups studied belong to medium level of performance category followed by high level of performance category (33.30%) of groups and remaining per cent of groups belonged to low performance category. Selvi and Rathna Krishnan (2004) observed that the majority of the SHG leaders (88.30%) performed the specified leadership roles to the medium level followed by 11.7 percent of them in lowland. Asian productivity organization (2005) reiterated that on the way to improve the measurement of performance in productivity measurement, the total factor productivity should measure the synergy and efficiency of utilizing both labour and capital inputs. Further it stated that an appropriate productivity performance measurement system should cover financial, internal business process customers and learning and growing. Asian productivity organization (2005) reiterated that on the way to improve the measurement of performance in productivity measurement, the total factor productivity should measure the synergy and efficiency of utilizing both labour and capital inputs. Further it stated that an appropriate productivity performance measurement system should cover financial, internal business process customers and learning and growing.

20 2.6 ECONOMIC IMPACT ON SHGs Dwarakanath (2001) reported that the DWCRA programme helped the rural women to earn an additional monthly income ranging from Rs.250-Rs.2000 depending on entrepreneurial activities taken up by them. Savitha (2004) reported that economic empowerment was high for agricultural laborers (53.33%) followed by small farmers (26.67%) and landless farmers (6.67%). Sentil and Sekar (2004) reported that income generation through SHG members gained additional income and employment through SHGs. Asokan (2005) reported that National Institute of rural development (NIRD) conducted a study on micro enterprises, which are developed by SHGs in Kerala. The characteristics of micro entrepreneurs under SHGs revealed that a high proportion (90%) of them were unemployed prior to joining SHG and tailoring was found to be the most preferred activity (47%). The study also found that the average monthly turnover of micro project taken by members of SHGs members was around Rs and net profit worked out to be Rs. 700 per month. This indicates a high level of profit i.e. 60 per cent of individual units have investments less than Rs. 5,000. A study conducted in Trchirapalli rural area found that before starting micro- enterprises their annual income was increased to the tune of Rs. 50,879. Ganesh (2005) reported that in Akola district of Maharashtra an SHG formed under SGSY in record time of one and half years, all the families belonging to BPL status have uplifted to Owner of Brick Kiln status. Their net profit per 1000 bricks amount to Rs.550/- to Rs.650/- approximately. And their turnover has increased to more than Rs.3.5 lakhs. NABARD (2005) studied the impact of SHGs on economic empowerment of its members in Ballir district, Uttar Pradesh. And reported there was an increase of the monthly income of each of the families by at least Rs.700/month and this increase was solely due to the business that they were able to do by virtue of taking loan after the activities of SHG started. Rao (2005) reported that the highest average annual household income (Rs.45, 600) is from among respondents of papads and pickles and lowest (Rs.38, 600) from respondents of chalk making activity. And the micro enterprises roughly provided 117- mandays/respondent, which was a great contribution. Dasarathararamaiah et al. (2006) reported that 10.0 per cent of beneficiaries had income between Rs.7, 201 and above, per cent have income between Rs.4, 801 to 7,200 and per cent have income Rs.3, 601 to 4,800 and per cent have income below Rs.3, 600 per annum after implementation of DWCRA. And it was found that there are no persons without any income. And it was also found that 50 per cent of beneficiaries have less than 100 man-day of employment, per cent of the beneficiaries have employment between 101 to 180 man-day, per cent of the beneficiaries have employment between 181 to 240 man-day as against 8.33 per cent of the beneficiaries who have employment between 241 and above man-day of employment per annum. Gangaiah et al (2006) conducted study on impact of SHGs on income and employment generation. They reported that on an average the loans received generated 184 person days of employment per household. Non-farm activities generated higher number of person days of employment. Idly shop, cloth business and tailoring generated 300 each and 240 person days of employment. They also found that SHGs had favourable impact in generation of income in the village selected. The averag3e income generated was Rs.19, 578/-. Income generated in the selected activities shows that it b varies from Rs.5000 per annum in case of idly shop to Rs.26, 541 in the case of agriculture. Joseph and Easwaran (2006) conducted a study to identify the constraints in functioning of SHGs and its impact on the members. And it was found that per cent of respondents had income between Rs.25, 000 to Rs.50, 000. Majority of respondents had assets worth below Rs, 1 lakh and more than one-half of the respondents as whole (51.28%) had assets below Rs.1 lakh. They also studied the perceived impact of SHGs on tribal

21 development. When studied the relationship between the composition and impact of SHGs. The perceived impact of SHGs was found to be significantly associated with three variables duration of membership, member s participation and perceived group cohesion. 2.7 PROBLEMS FACED BY MICRO FINANCE PROVIDERS Kumaran (1997) concluded that passivity in self-help group is mainly on account of irregularity in payment of savings and employment of loans, non-adherence to norms set by the group and lack of mutual trust and confidence among members. Regular defaulting by some members resulted in dissolution of some SHGs. Prita (2001) studied the performance of Self Help Groups in Dharwad district found that the major constraints faced by the members were difficulties in diversification/ starting of activities (41.67%), misunderstanding among SHG's members (38.17%), lack of space for storage of materials (28.24%) and inadequate availability of raw material at the right time (16.03%). Sentil and Sekar (2004) stated that political interference in selection of beneficiaries under peoples plan, lack of timely credit facilities, lack of adequate credit, lack of adequate farm women oriented schemes and delay in operation of development programmes were the major constraints perceived by the SHG members. Darlingselvi (2005) reported that from the study conducted in kanyakumari district that the members came across certain difficulties in marketing their products in time. Rao (2005) reported that though problems varied across activities, social taboos as also lack of communication skills came out to be major factors. Lack of transportation, competition from established brands and lack of capital were voiced by women. Joseph and Easwaran (2006) identified the perceived constraints in the functioning of SHGs and found that lack of government attention was first and foremost problem i.e. 39 percent. High rate of interest was felt by percent of members, followed by insufficiency of loan for income generation, inability to repay the loan etc.

22 3. METHODOLOGY The description of the methods and procedures followed in conducting this research is furnished under the following heads. 3.1 Description of the study area 3.2 Nature and Source of data 3.3 Analytical tools employed 3.4 Terms and concepts used in the study 3.1 DESCRIPTION OF STUDY AREA The Indian State of Karnataka is located within 11.5 degree North and 18.5 degree North latitudes and 74 degree East and 78.5 degree east longitude. It is situated on a tableland where the Western and Eastern Ghats ranges converge into the Nilgiri hill complex, in the western part of the Deccan Peninsular region of India. Karnataka extends to about 750 km from north to south and about 400 km from east to west. Karnataka is situated in the Deccan Plateau and is bordered by the Arabian Sea to the west, Goa to the northwest, Maharashtra to the north, Andhra Pradesh to the east, Tamil Nadu to the east and southeast, and Kerala to the southwest. It is situated at the angle where the Western Ghats and Eastern Ghats of South India converge into the Nilgiri hills. The highest point in Karnataka is the Mullayanagiri hill in Chickmagalur district which has an altitude of 1,929 meters (6,329 ft) above sea level. Divided into 28 districts, the state is well connected by roads, railways, air and waterways. Motor able roads are 1,37,520 lakhs km in length while rail network is 3,192 km which includes broad gauge, meter gauge and narrow gauge. Bangalore, Belgaum, Mangalore and Hubli are the main airports. New Mangalore Port is the main all-weather seaport in Karnataka which mainly handles cargo vessels. It has a sea coast of nearly 400 km (300 with inundations). Karnataka is predominantly rural and agrarian and has a population of 4,49,77,201. About 76% of its population lives in rural areas while about 71% of its working force is engaged in agricultural and allied activities which generate 49% of the state income among the agriculture crops. Karnataka accounts for 59% of the country s coffee production and 47% of the country s ragi production. The state is fifth in oilseed production as per 2001 census. There were nine districts of Karnataka selected for the study in view of large number of micro finance providers in these districts Belgaum Bijapur Chickmagalur Chitradurga Davangere Dharwad Haveri Koppal Shimoga The demographic features of these districts are as follows,

23 Fig 1. Karnataka state map showing the selected districts