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Micro Finance, Self-help Groups (SHGs) and Poverty Eradication in India
By N. Mani

First Published : 2014
ISBN : 9788177083903
Pages : 294
Binding : Hardbound
Size : 7 x 9
Price : US$ 88

Micro finance is the provision of a diverse range of financial services and products including small loans (micro credit), saving accounts, insurance, pensions and money transfers. These are designed to assist people living in poverty who are not able to access financial services in the mainstream banking sector, because they have no collateral, formal identification or steady income.

Micro finance is a movement whose objective is a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers. Many of those who promote micro finance believe that such access will help poor people get out of poverty. For others, micro finance is a way to promote economic development, employment and growth through the support of micro entrepreneurs and small businesses.

The term micro credit, as a part of micro finance, did not exist before the 1970s. Now, it has become a buzzword among the development practitioners. In the process, the term has been imputed to mean everything to everybody. It includes agricultural/rural credit, co-operative credit, consumer credit, credit from credit unions, and from money lenders.

Micro finance sector has grown rapidly over the past few decades. Nobel Laureate Muhammad Yunus is credited with laying the foundations of modern micro finance institutions (MFIs) with the establishment of Grameen Bank, Bangladesh in 1976. Today, it has evolved into a vibrant industry exhibiting a variety of business models. In India, National Bank for Agriculture and Rural Development (NABARD) took up this idea and started micro finance operations in the early 1990s.

India has adopted a multi-agency approach for the development of its micro finance programme. All the major credit institutions, viz. commercial banks, co-operative banks, regional rural banks (RRBs) along with non-governmental organisations (NGOs) have been associated with the micro finance programme. The role of the delivering agents and their interface with the needy has led to alternative models of micro finance.

    Several factors have led to increased interest in micro credit in promoting growth with greater equity. There is increasing recognition of the importance of empowering all people by increasing their access to all the factors of production, including credit. Several micro finance institutions have succeeded in reaching the poorest of the poor by devising innovative strategies. These include the provision of small loans to poor people—especially in rural areas, at low interest rates, without collateral—that are repayable in frequent instalments. Above all, many micro credit programmes have targeted one of the most vulnerable groups in society, i.e. women who live in households that own little or no assets. By providing opportunities for self-employment, many studies have concluded that these programmes have significantly increased women’s security, autonomy, self-confidence and status within the household.

Part I: Micro Finance and Self-help Group (SHGs): Conceptual Framework
1. Micro Finance: Meaning, Role and Problems
1.1 Meaning of Micro Finance
1.1.1 Salient Features of Micro Finance
1.1.2 Micro Finance and Micro Credit Distinguished
1.2 Micro Finance and Allied Services
1.2.1 Savings Accounts
1.2.2 Micro Insurance
1.2.3 Micro Pensions
1.2.4 Fund Transfers and Remittance Products
1.3 Micro Finance Clients and Activities
1.4 Why are Banks Micro Lending Shy?
1.5 Principles of Micro Finance
1.6 Role of Micro Finance
1.6.1 Micro Finance and Individuals/Households
1.6.2 Micro Finance and Women
1.6.3 Micro Finance and Social Interventions
1.6.4 Micro Finance and the Economy
1.7 History of Micro Finance
1.8 Institutional versus Non-institutional Sources of Micro Finance
1.8.1 Institutional (or Formal) Sources
1.8.2 Non-institutional (Informal) Sources
1.9 Micro Finance Institutions (MFIs)
1.10 Legal Status
1.11 Problem Areas of Micro Finance
1.11.1 High Cost of Loans
1.11.2 Repayment Problems
1.11.3 Financial Illiteracy
1.11.4 Inability to Generate Sufficient Funds
1.11.5 Dropouts and Migration of Group Members
1.11.6 Non-transparent Pricing
1.11.7 Cluster Formation to Grab Established Market
1.11.8 Multiple Lending and Over-Indebtedness
1.11.9 Poor Regulation and Supervision
1.11.10 Incomplete Range of Products
1.11.11 Lack of Modern Technology
1.12 Micro Finance: A Critique
1.13 Summing Up
2. Self-help Groups (SHGs): Structure, Benefits and Constraints
2.1 What is a Self-help Group (SHG)?
2.1.1 What is a Joint Liability Group (JLG)
2.2 Structure of a SHG
2.2.1 Alternative Models of Micro Finance/SHGs
2.3 Benefits of SHGs
2.3.1 Benefits of SHG to the Members
2.3.2 Benefits of SHGs to Banks
2.4 SHG-Bank Linkage Programme
2.4.1 Graduation of Mature SHGs into Micro Enterprises
2.5 Problems of SHGs
2.5.1 Lack of Support from Family Members
2.5.2 Low Income Generating Activities
2.5.3 Political Interference
2.6 MFIs and SHG-Bank Linkage Programme: A Critique
2.7 Summing Up
Part II: Micro Finance and Socio-economic Development
3. Poverty and Financial Needs of the Poor
3.1 Problem of Poverty
3.2 Meaning and Estimates of Poverty
3.2.1 Planning Commission Estimates of Poverty Released in March 2012
3.3 Causes of Poverty
3.4 Poverty and Millennium Development Goals
3.5 Twelfth Five Year Plan (2012-17) on Poverty
3.6 Financial Needs of the Poor
3.7 Financial Needs of the Indian Farmers
3.8 Micro Finance and Poverty Reduction
3.9 Summing Up
4. Micro Finance and Financial Inclusion of the Disadvantaged Groups
4.1 Financial Exclusion and Financial Inclusion Defined
4.2 Advantages of Financial Inclusion
4.3 Strategy for Building an Inclusive Financial Sector
4.4 Recent Measures for Financial Inclusion
4.4.1 No Frills Account
4.4.2 General Credit Card (GCC)
4.4.3 Business Facilitator and Business Correspondent (BC) Models
4.4.4 Passbook Facility
4.4.5 Simplified KYC Procedure
4.4.6 Credit Counselling and Financial Education
4.5 Committee on Financial Inclusion
4.5.1 Financial Inclusion Fund (FIF)
4.5.2 Financial Inclusion Technology Fund (FITF)
4.6 Summing Up
5. Micro Finance and Inclusive Growth
5.1 Meaning of Inclusive Growth
5.2 Need for Inclusive Growth
5.3 Essential Components of Inclusive Growth
5.4 Strategy for Inclusive Growth
5.5 Hurdles to Inclusive Growth
5.6 Target Groups for Inclusive Growth
5.7 Summing Up
6. Micro Finance and Women Empowerment
6.1 Need for Economic Empowerment of Women
6.1.1 Gender Discrimination in Wages
6.2 Strategies for Economic Empowerment of Women
6.2.1 Information and Communication Technology (ICT)
6.2.2 Gender-sensitive Agricultural Policies
6.2.3 Skill Development
6.2.4 Gender Mainstreaming in the Corporate Sector
6.2.5 Gender-friendly Insurance Schemes
6.2.6 Right to Maintenance
6.3 Why Should Micro Finance Focus on Women?
6.4 Women Self-help Groups (SHGs)
6.4.1 Women SHGs: Problems and Challenges
6.5 Policies and Programmes for Empowerment of Women
6.5.1 Programmes/Schemes of the Ministry of Women and Child Development (MWCD)
6.5.2 Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), 2005
6.5.3 National Rural Livelihoods Mission (NRLM)
6.5.4 Indira Awaas Yojana (IAY)
6.5.5 Rajiv Gandhi Scheme for Empowerment of Adolescent Girls (RGSEAG), 2010
6.5.6 Gender-Sensitive Resettlement and Rehabilitation Policy
6.6 Gender Budgeting and Women’s Component Plan (WCP)
6.6.1 Gender Budgeting
6.6.2 Women’s Component Plan (WCP) in Five Year Plans
6.7 Summing Up
Part III: Micro Finance for Agriculture/Rural Development
7. Rural Co-operatives
7.1 Importance of Agricultural Credit
7.2 Needs and Sources of Credit for Indian Farmers
7.3 Co-operative Banks
7.3.1 Classification of Co-operative Banks
7.4 Rural Co-operatives
7.4.1 Short-term Rural Co-operatives
7.4.2 Long-term Rural Co-operatives
7.5 Rural Co-operatives in Historical Perspective
7.6 Primary Agricultural Credit Societies (PACS)
7.7 Problems of Rural Co-operatives
7.8 Task Force on Revival of Rural Co-operative Credit Institutions
7.9 Advisory Committee on the Flow of Credit to Agriculture and Related Activities from the Banking System (Chairman: V.S. Vyas), 2004
7.10 Expert Group on Investment Credit in Agriculture, 2005
7.11 Working Group on Warehouse Receipts and Commodity Futures, 2005
7.12 NABARD and the Co-operative Sector
7.12.1 Credit Extended by NABARD
7.13 Regulatory Framework and Supervision
7.13.1 Asset Classification for State Government Guaranteed Advances
7.13.2 Additional Provisioning Requirement for NPAs
7.13.3 Prudential Guidelines on Agricultural Advances
7.13.4 Inspections
7.14 Problem of Triangular Regulation of Rural Co-operatives
7.15 Agricultural Credit: Recent Policy Announcements
7.15.1 Agricultural Debt Waiver and Debt Relief Scheme, 2008
7.16 Summing Up
8. Regional Rural Banks (RRBs)
8.1 Importance of RRBs
8.2 RRBs as Vehicles of Financial Inclusion
8.3 Factors Influencing the Performance of RRBs
8.3.1 Area of Operation and Clientele Base
8.3.2 Capital Base and Organisational Structure
8.3.3 Loan Delinquencies
8.3.4 Cost Structure and Poor Financial Management Skills
8.3.5 Staff Structure
8.3.6 Dependence on Sponsor Banks
8.4 Restructuring of RRBs
8.4.1 Amalgamation of RRBS
8.4.2 Autonomy for RRBs
8.5 Manpower Challenges of RRBs
8.6 Computerisation in RRBs
8.6.1 Working Group on Technology Upgradation of Regional Rural Banks, August 2008
8.7 Summing Up
9. Kisan Credit Cards (KCCs)
9.1 Salient Features of the KCC Scheme
9.2 Advantages of the KCC Scheme
9.2.1 For the Farmers
9.2.2 For the Banks
9.3 Personal Accident Insurance Scheme
9.4 KCC Initiatives by the Government of India
9.5 Major Steps Taken by NABARD
9.6 Summing Up
Part IV: Micro Finance for Urban Poor and Small Industries
10. Urban Co-operative Banks (UCBs)
10.1 Role of UCBs
10.2 Regulation and Supervision of UCBs: Strengthening Measures
10.2.1 Memorandum of Understanding (MoU) with the State Governments
10.2.2 Licensing of New Banks/Branches
10.2.3 Income Recognition, Asset Classification and Provisioning Norms
10.2.4 Exposure Norms
10.2.5 Off-site Surveillance
10.2.6 Know Your Customer (KYC) Guidelines
10.2.7 Priority Sector Lending
10.2.8 Disclosure Norms
10.3 Mergers/Amalgamations of UCBs
10.4 Relaxation of Investment Portfolios of UCBs
10.5 Restructuring of Scheduled UCBs with Negative Net Worth
10.6 Problem of Dual Control in Co-operative Banking
10.6.1 Impairment in Governance and Management
10.7 Working Group on IT Support for Urban Co-operative Banks
10.7.1 Findings of the Working Group
10.7.2 Problem Analysis and Possible Solutions
10.7.3 Issues in Computerization and Support
10.8 Summing Up
11. Non-banking Financial Companies (NBFCs)
11.1 Classification of NBFCs
11.2 Importance of NBFCs
11.3 Regulation and Supervision of NBFCs
11.4 Reserve Bank of India (Amendment) Act, 1997
11.5 Task Force on Non-banking Finance Companies, 1998
11.6 Supervisory Framework for NBFCs
11.6.1 On-site Inspection
11.6.2 Off-site Surveillance System
11.6.3 External Auditing
11.7 Regulations over NBFCs Accepting Public Deposits
11.7.1 Regulations over NBFCs not Accepting Public Deposits
11.7.2 Regulations over Core Investment Companies
11.8 Residual Non-banking Companies (RNBCs)
11.9 Mutual Benefit Financial Companies
11.9.1 Expert Committee on Nidhis
11.10 Miscellaneous Non-banking Companies (MNBCs): Chit Fund Companies
11.11 Guidelines for Mergers/Amalgamations
11.12 NBFCs in Insurance Business
11.13 Know Your Customer (KYC) and Anti-money Laundering Standards
11.14 Summing Up
12. Credit Delivery to Micro, Small and Medium Enterprises (MSMEs)
12.1 Micro, Small and Medium Enterprises Development (MSMED) Act, 2006
12.1.1 Background
12.1.2 Classification and Definitions of MSMEs
12.1.3 Main Provisions of the MSMED Act, 2006
12.1.4 Implementation of MSMED Act, 2006
12.1.5 National Board for Micro, Small and Medium Enterprises (NBMSMEs)
12.2 Ministry of Micro, Small and Medium Enterprises (MoMSMEs)
12.3 Role of MSMEs
12.4 Factors Determining Performance of MSMEs
12.5 National Level Organisations for MSMEs
12.5.1 National Small Industries Corporation (NSIC)
12.5.2 National Entrepreneurship Development Institutes
12.5.3 Khadi and Village Industries Commission (KVIC)
12.5.4 Mahatma Gandhi Institute for Rural Industrialisation (MGIRI)
12.5.5 Coir Board
12.6 Prime Minister’s Task Force on Micro, Small and Medium Enterprises
12.6.1 Measures that Need Immediate Action
12.6.2 Medium-term Institutional Measures
12.6.3 Legal and Regulatory Structures
12.7 Credit Flow to Micro, Small, and Medium Enterprises (MSMEs)
12.7.1 Working Group on Flow of Credit to the Small and Medium Enterprises (SMEs), 2004
12.7.2 Group to Review Guidelines on Credit Flow to SME Sector, 2005
12.7.3 Policy Package for Credit to Small and Medium Enterprises
12.7.4 Working Group on Credit Delivery to the Micro and Small Enterprises Sector, 2008
12.8 Summing Up
Part V: Micro Finance and Government Agencies
13. Micro Finance and National Bank for Agriculture and Rural Development (NABARD)
13.1 About NABARD
13.1.1 Establishment of NABARD
13.1.2 Objectives
13.1.3 Major Activities
13.1.4 Role and Functions
13.1.5 Mission
13.1.6 Role of Training
13.1.7 NABARD Consultancy Services (Nabcons)
13.1.8 Bankers Institute of Rural Development (BIRD)
13.2 NABARD’s Strategy for Popularity of Micro Finance
13.3 Tracking the Progress of Micro Finance
13.4 Training and Capacity Building
13.4.1 Micro Enterprise Development Programme (MEDP) for Skill Development
13.5 Grant Support to Partner Agencies for Promotion and Nurture of SHGs
13.5.1 Support to Activity-based Groups
13.5.2 Support to Federations of SHGs
13.5.3 Special Initiative for Scaling-up SHGs/SHG Federations
13.6 Promotional Support to Micro Finance Institutions (MFIs)
13.6.1 Capital Support to MFIs
13.6.2 Revolving Fund Assistance to MFIs
13.6.3 Rating of MFIs
13.7 Quality and Sustainability of SHGs
13.7.1 Centre for Micro Finance Research
13.8 NABARD-German Technical Collaboration (GTZ) in Rural Finance
13.9 Joint Liability Groups (JLGs)
13.9.1 Objectives
13.9.2 General Features of JLG
13.9.3 Criteria for Selection of JLG Members
13.9.4 Formation of JLGs
13.9.5 Savings by JLG
13.9.6 JLG Models
13.9.7 Types of Loan
13.9.8 Margin and Security Norms
13.9.9 Documents
13.9.10 Financing to JLGs
13.9.11 Support Extended by NABARD
13.9.12 Capacity Building
13.10 Summing Up
14. Micro Finance, Central Government and Reserve Bank of India (RBI)
14.1 Micro Finance as a Public Policy Tool
14.2 UN Report on the Role of Micro Credit
14.3 Central Government and Micro Finance
14.3.1 Micro Finance Development and Equity Fund (MFDEF)
14.4 Reserve Bank of India (RBI) and Micro Finance
14.4.1 Priority-sector Status for Bank Loans to Micro Finance Institutions (MFIs)
14.4.2 Exemptions Granted to NBFCs Engaged in Micro Finance Activities
14.4.3 Group on Rural Credit and Micro Finance, 2005
14.5 Summing Up
Part VI: Micro Finance, Co-operatives and Globalization
15. Problems and Challenges Faced by the Co-operative Sector
15.1 Ensuring Active Membership
15.2 Lack of Recognition of Co-operatives as Economic Institutions
15.3 Structure of Co-operatives
15.4 Board and Management Interface and Accountability
15.5 Professionalization and Accountability
15.6 Lack of Capital
15.7 Linkages and Competitiveness
15.8 Accessibility to Finance/Credit by Members
15.9 Sickness in the Co-operative Sector
15.10 Politicization of Co-operatives and Interference by Government
15.11 Summing Up
16. Co-operatives in the Age of Globalization
16.1 Globalization and the Developing Countries
16.1.1 Dimensions and Features of Globalization
16.1.2 Developed versus Developing Countries
16.2 Role of Co-operatives in the Changed Scenario
16.2.1 Occupying New Spaces
16.2.2 Providing an Institutional Form for the Displaced
16.2.3 Constructive Competitors
16.2.4 Safeguarding the Interest of Agriculture and Rural Areas
16.2.5 Facilitating the Millennium Development Goals (MDGs)
16.2.6 Preserving the Cultural and Ethical Values of the Country
16.3 Measures to Strengthen Co-operatives
16.3.1 Improvement of Personnel
16.3.2 Co-operative Education and Training
16.3.3 Assistance to National Co-operative Development Corporation (NCDC) for Co-operative Development
16.3.4 Strengthening of National Level Co-operative Federations
16.4 Summing Up
Appendix: Financial Sector Reforms in India since 1991



Dr. N. Mani is presently Associate Professor, Post-graduate and Research Department of Economics, Erode Arts and Science College, Erode, Tamil Nadu. He holds M.A., M.Phil. and Ph.D. degrees from Bharathiar University, Coimbatore. Specializing in development economics, he has 22 years of teaching experience to post-graduate and undergraduate classes. He successfully completed a major research project sponsored by University Grants Commission (UGC), New Delhi. He is currently engaged in a research project sponsored by Indian Council of Social Science Research (ICSSR), New Delhi.

Dr. Mani has published four books and several papers in reputed journals on varied subjects. He is also the President of Tamil Nadu Science Forum and was organizing secretary of the National Children Science Congress, 2006. He has successfully guided and supervised the works of 6 Ph.D. and 14 M.Phil. scholars. He is a member of various academic bodies including Indian Society of Labour Economics and Indian Society of Agricultural Economics.

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