Microfinance Program In North-East India

A microfinance customer of Ujjivan Financial Services, a Bangalore-based Microfinance Institution. Image Credit: Microfinance Focus.

Microfinance program, such as the SHG-BLP, has been extending credit to poor households using innovative delivery approach like group lending. In spite of being successful, there are still disparities in the program in its level of progress across different parts of the country, including the Northeast. Though late entrant the northeastern states have shown mixed response to the program.


The failure of the banking institutions in delivering credit to the poor, particularly the rural poor, has resulted in the emergence of a new, innovative and viable institutional structure. This structure, commonly called microfinance, seeks to reach and address all types of financial needs of the poor, who hitherto were not able to access credit from banking institutions due to non-possession of collateral and high cost of transaction. The approach of microfinance is supposed to overcome these problems while at the same time improving recovery of loans, a problem that has plagued the rural banking institutions and affected their profitability.

An important feature of most of the microfinance programs is the use of group approach to deliver financial services particularly micro credit (small loans) to the poor. The popularity and acceptance of microfinance as a development tool in the fight against poverty is due to pioneering work of Muhammad Younus who established the Grameen model of group banking in the early 1980s. Following this, other variant models have sprung up – such as, the Solidarity Group model in Latin America, and the Self Help Groups (SHGs) adopted in India, Kenya and other developing countries. Satish (1) has categorized these different methodologies of financial intermediation for the poor- microfinance- into five groups: (i) Grameen model (ii) SHGs (iii) Community banking (iv) Credit union and co-operatives and (v) Individual credit.


In India, the Task Force on Supportive and Regulatory Framework for Microfinance defines microfinance as “provision of thrift, credit and other financial services and products of very small amounts to the poor in rural, semi-urban or urban areas enabling them to raise their income levels and improve living standards.”(2)

Government foray in informal group lending started in 1986–87 when the National Bank for Agriculture and Rural Development (NABARD) partly funded an action research project on “Savings and Credit Management of Self Help Groups” of an NGO called the Mysore Resettlement and Development Agency (MYRDA). This project and other studies brought out that self-help savings and credit groups have the potential to bring together the formal banking structure and the rural poor for mutual benefit(3). Subsequently, in 1991 NABARD launched a pilot project called SHG Bank-Linkage Program (hereafter SHG-BLP) to extend bank credit to five hundred SHGs, which later was extended to the whole country. Reddy(4) traced the evolution of the SHG Bank-Linkage Program and put it into three distinct phases, namely, (i) pilot testing during 1992 to 1995, (ii) mainstreaming during 1996 to 1998 and (iii) expansion from 1998 onwards.

According to Satish (5) and Namboodiri & Shivani (6), informal credit and savings groups such as Chit fund and Nidhis that have existed for a long time in the country have several distinguished features such as promotion of thrift, inter loaning among members, repayment discipline, etc., which are also important features of the SHGs (7) model that is currently being promoted in India.


One of the important microfinance programs in India is the SHG-BLP which today has emerged as the largest microfinance program in the world. As of March 2006, under the program a cumulative amount of Rupees 113.98 billion has been disbursed by banks to as many as 2238565 SHGs. Since the start of the program, the southern states of India, particularly Andhra Pradesh, have had a disproportionately large share of the total number of SHGs that have received credit from banks(8) (credit linked) and also the credit disbursed. However, the biasness of the program towards the southern states has lessened in recent years.

In the initial years, the SHG-BLP (9) did not register much headway in the states of the northeastern region (NER) (10). The program had a very slow start and till the end of March 1999, the cumulative number of SHGs credit linked in the entire region was only 93 in number, which was less than half a per cent of the cumulative number of SHG credit linked in the country under the program. During March 1999 to March 2001, the cumulative number of SHGs in NER increased from 93 to 477, i.e. a little more than four times while at the India level it was increased by seven times. (11)

Within the NER, Assam (12) and Meghalaya in 2001 accounted for majority share of the SHGs credit links (at about 58 and 34 per cent respectively), and also that of the cumulative credit disbursed in the region (about 45 and 46 per cent respectively) as against the very low share of states like Manipur (7 per cent), Sikkim (1 per cent) and Tripura (1 per cent) in the total cumulative number of SHG credit linked. The remaining states of Arunachal Pradesh, Nagaland and Mizoram did not have any SHGs credit linked under this program by 2001. Until 2001 more than 90 per cent of the SHGs credit linked in the NER was from the two states of Assam and Meghalaya (Table 1).

In order to reduce the regional imbalance in formation of SHGs under the SHG-BLP, in 2001-02 special focuses was given to NER and other backward areas in Orissa by encouraging collaboration with large number of small non-government organization partners and microfinance agencies for enhancing the coverage of the program.

The effort resulted in the improvement in the share of cumulative number of SHGs credit links in NER which increased from 0.2 percent in 2001 to 2.8 per cent 2006 along with an improvement in the cumulative loan disbursed from 0.2 to 1.5 per cent during the same period. The period also recorded the highest annual growth rate in the cumulative number of SHGs credit linked and cumulative loan disbursed in the region by 165 and 184 per cent respectively, which are much higher than the all India average. However, the high growth rate achieved by the program in NER during the period has to be considered against the very small number of SHGs credit linked in the region by 2001 (Table 1).

While there has also been a significant increase in the number of SHGs credit linked across all the NER states during 2001-06, the period is also marked by bias and unequal growth and coverage of the SHG-BLP in favor of Assam (Table 1). Among the worst performing states in NER in the period is Meghalaya. However, states like Mizoram and Nagaland, where the progress of the program was very slow till 2005, has recorded significant increase in SHGs credit linked during 2005-06.

Along with an increase in the bank loan disbursed to SHG, the amount of credit per SHG in NER and all other regions increased during the period 2001–06 suggesting that there has been a widening and deepening of the SHG-BLP in the country. In 2006, the highest credit per SHG is reported from the southern region at Rs 70549 compared to the all India average of Rs 50914. The eastern region reported the lowest credit per SHG at Rs 23721, while for NER it was Rs 26505 which is almost half of the all India average. However, for the states of Nagaland and Mizoram the credit per SHG (at Rs 81517 and 65811 respectively) is much higher than the all India level (Table 1).


In the period 2001 to 2006, there has been an expansion in the coverage of the program (new states have joined the program) accompanied with an increase in new SHGs credit linked as also with the amount of credit disbursed to SHGs during (Table 2). The NER recorded the highest annual growth rate of 179 per cent in new SHGs credit linked in the period 2002–06. Within NER, Assam recorded a steady and consistent increase in the number of new SHGs provided with bank loans. Tripura is another state which witnessed a steady increase in number of new SHGs credit linked during this period. Assam topped the performance in terms of the highest number of new SHGs that were credit linked followed by Tripura and Manipur. Accordingly, the distribution of the new SHGs that have been credit linked to banks during 2002–06 in NER indicates that about 91 per cent of these new SHGs that have been credit linked under the program during this period are from Assam, followed by Tripura (3.2 per cent) and Manipur (2.4 per cent).

In Mizoram, Nagaland and Meghalaya, the year 2005–06 saw a significant increase in the number of new SHGs credit linked under the program over the previous period. For example, in Meghalaya and Nagaland, 85 and 78 per cent of the total new SHGs credit linked during 2002–06 was in year 2005–06. Similarly in Mizoram, 97 per cent of the new SHGs credit linked during the period 2004–06 was in the year 2005–06. Therefore, in these three states, and to some extent in other states in NER, there is a marked improvement in the progress of the program since 2004–05.


The role of the banking partners is very crucial in the SHG-BLP as they directly or indirectly provide credit to the SHGs. In certain cases, the banks themselves are involved in forming and nurturing the SHGs. At the all India level, as of March 2006, about 53 per cent of the SHGs under the program were financed by

the commercial banks, with the share of the regional rural banks (RRBs) at 33 per cent and co-operative banks at 14 per cent respectively (Table 3 and Table 4).

On the contrary, in the NER, RRBs are most active and finances the maximum number of SHGs (56 per cent), followed by the commercial banks (38 per cent). The involvement of the co-operatives in the SHG-BLP has been very minimal in the region, with only four per cent of the SHGs financed by this source. The participation of the banks within NER however varied from states to states. In Meghalaya, Arunachal Pradesh and Nagaland, commercial banks are the major financier of the SHGs, while in the other states the majority of the SHGs are credit linked to RRBs. Sikkim is the only state in the NER where the majority of the SHGs (67 per cent) are credit linked to the co-operatives banks.

The annual growth of SHGs during 2002–06 shows that in Assam and Tripura all the three categories of banks recorded a significant growth in the number of SHGs financed by them (Table 3).

A review of the average loan per group as per the source of finance at the all India level shows that the amount of loan per group is the highest from commercial banks, followed by the RRBs and the co-operatives (Table 4). However, in the NER the amount of loan per group is the highest from commercial banks are followed by co-operative banks, and then by RRBs. Across the NER states, there is yet a vast difference in the average loan size per group financed by the commercial banks, RRBs and co-operatives banks (Table 4).


In the SHG-BLP, SHGs are formed under three different models – Model I, Model II, and Model III. In Model I, the SHGs are formed and financed by banks. In Model II the SHGs are formed by agencies other than banks such as non-government organizations (NGOs) and community based organizations (CBOs), but is financed by banks. Whereas, in Model III NGOs act as intermediaries and are financed by the banks to lend on to the SHGs.

In India, 74 per cent of SHGs have been formed under Model II, followed by 20 per cent under Model I and a small percentage of six per cent under Model III (Table 5). The situation in NER is contrary to the all India position, where majority of the SHG (76 per cent) have been formed and credit linked by banks under Model I and only 16 per cent of SHGs by NGOs under Model II (as in 2006).

Within the NER states, banks have emerged as an important self-help promoting agencies. In Assam, in 2006, 79 per cent of the SHGs were promoted and financed by the banks themselves; while in Tripura and Sikkim more than half of the SHGs credit linked (51 and 75 per cent respectively) have been promoted by banks under Model I. In the remaining states, such as Meghalaya (77 per cent), Manipur (68 per cent), Arunachal Pradesh (100 per cent) and Nagaland (93 per cent), majority of the SHGs credit linked have been formed by NGOs under Model II. Apart from Meghalaya where about 14 per cent of the SHGs have borrowed from NGOs (Model III), there are very few SHGs in other NER states that have been formed and financed by NGOs (Table 5).


The review of the progress of the SHG-BLP in NER in the period 2001–06 shows that despite a slow start in the program in the region, with some states like Mizoram joining as late as 2003–04, the program has recorded rapid growth particularly in Assam, Tripura and Manipur in terms of SHGs financed and loan disbursed. However, in Meghalaya, the progress of the program has been very slow in spite of the spurt in the implementation of the program in the late 1990s. There is a need to review the performance of Self Help Groups Bank Linkage program in the NER, identify factors that impede its progress and take corrective measures to improve its performance throughout the entire region.


1. P. Satish, “Mainstreaming of Microfinance,” Economic and Political Weekly, April 23, 2005, pp. 1731–39.

2. The task force was established by National Bank for Agriculture and Rural Development (NABARD) in November 1998. www.nabard.org/roles/microfinance/

3. R. Dasgupta, “An informal Journey through Self-Help Groups,” Indian Journal of Agricultural Economics, Vol. 56, No. 3, 2001, pp 370–86.

4. Y.V. Reddy, “Micro-Finance: Reserve Bank’s Approach,” Reserve Bank of India Monthly Bulletin, September 2005, pp. 841–46.

5. P. Satish, “Some Issues in the Formation of Self Help Groups,” Indian Journal of Agricultural Economics, Vol. 56, No 3, 2001, pp 410–18.

6. N.M. Namboodiri & R.L. Shiyani, “Potential Role of Self Help Groups in Rural Financial Deepening,” Indian Journal of Agricultural Economics, Vol. 56, No. 3, 2001, pp 401–09.

7. Describing the SHG approach, Sinha and Patole point out the core feature of an SHG is the voluntary savings by the members which is initially used to finance credit requirements of members. This fund of the group is later augmented by borrowing from external sources banking institutions. Thus in SHG, savings precedes borrowing by members. See, S. Sinha & M Patole, “Microfinance and the Poverty of Financial Services: How the Poor in India could be Better Served,” Finance and Development Research Program, Working Paper Series 56, Institute for Development Policy and Management, University of Manchester, 2002.

8. H. Bansal, “SHG-Bank Linkage Program in Indian: An Overview,” Journal of Microfinance, Vol. 5, No. 1, 2003, pp 21–49.

9. SHGs mentioned in this section are those that have borrowed from banks, i.e. credit linked. Figures given for group credit linked and also amount disbursed against any year are those for the end of March.

10. These states include Assam, Manipur, Meghalaya, Mizoram, Nagaland, Arunachal Pradesh, Tripura and Sikkim.

11. NABARD, “NABARD & Microfinance 2001–02, Ten Years of SHG Bank Linkage (1992–2002),” Mumbai: National Bank for Agriculture and Rural Development, 2002. 12. Assam accounts for almost 68 per cent of the population of NER states and occupies 30 per cent of the NER land mass.


*The paper is written by Sumarbin Umdor.

* The article was originally published at www.manipurresearchforum.org

* The article has been published with due permission from the Manipur Research Forum.

* You may visit www.manipurresearchforum.org for further readings.

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  1. J.B.Sarma says:

    Microfinance programme is the backbone of north-eastern rural economy.