Page 1 of 16
Journal for Studies in Management and Planning
Available at http://edupediapublications.org/journals/index.php/JSMaP/
e-ISSN: 2395-0463
Volume 01 Issue 11
December 2015
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 552
Microfinance and Financial Inclusion in North-Eastern Region of
India: An Exploration to the Status, Problems and Prospects
*Nicodim Basumatary
*PhD Research Scholar, Department of Economics
North Eastern Hill University, Shillong-793022 (India)
Email id.: nico.basumatary@gmail.com
Abstract:
With more than 70% of rural population in
India, development is synonymous with
rural development. The North-Eastern
Region (NER) of India is predominantly
rural and underdeveloped, and it
comprises of eight states viz. Arunachal
Pradesh, Assam, Manipur, Mizoram,
Meghalaya, Nagaland, Sikkim and
Tripura. An important obstacle to rural
development is lack of financial
accessibility by the rural population.
Financial inclusion refers to universal
access to a wide range of financial
services at a reasonable cost. One effort
by the government of India that has made
strides in the recent years has been the
financial inclusion to the poor. Despite
this effort the credit per capita in states of
the NER is as low as Rs.6255 whereas the
national average stands at Rs.27642.
Microfinance has proved to be one of the
important tools to provide credit to the
vulnerable groups. Microfinance refers to
small savings, credit and insurance
services extended to socially and
economically disadvantaged groups of
society. This paper attempts to explore the
prevailing condition of the Microfinance in
North East India from 2007 to 2014. The
effort is made to highlight the status of
microfinance and its prospects and
problems of operation in the NER. The
paper also endeavours to highlight the
status of financial inclusion in NER.
An important finding in the study reveals
that Credit-Deposit Ratio in between the
periods 2010-13 shows a very erratic
characteristic in many states of NER. The
CDR has declined in the NER from 35
(2010) to 33.1 (2013). But it has risen
from 73(2010) to 78.1(2013) in the
national level. The study on the status of
microfinance shows the relative position of
NER in Indian terms of indicators - saving,
loan disbursement and loan outstanding
compare. The NER scores very low in all
the indicators as compared to other
regions of India in between 2007 to 2014.
Lack of access to markets, Inability to
mobilise funds, higher costs of operations,
Lack of representative body for
microfinance, etc. are some of the
identified constraints to the growth of
microfinance in NER. Thus, it is expected
that the study will give us an
understanding of the financial inclusion
scenario in the NER of India.
Key words: development, rural, financial
inclusion, microfinance, north eastern
region
JEL Classification: O1, O16, O20, O23
1. INTRODUCTION:
Indian economy in general and
banking services in particular have made
rapid strides in recent past. However a
sizeable section of people continue to
remain excluded from even the most basic
opportunities and services provided by the
financial sectors. It is accepted by all that
the North Eastern Region (NER) of India
lags behind the rest of the country in
development. The average per capita
income of NER with reference period
Page 2 of 16
Journal for Studies in Management and Planning
Available at http://edupediapublications.org/journals/index.php/JSMaP/
e-ISSN: 2395-0463
Volume 01 Issue 11
December 2015
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 553
2012-13 stands at Rs. 49,959which
compares poorly with the national average
of Rs. 68,747. Similarly, the credit per
capita in the NER is as low as Rs.6255,
whereas the national average stands at
Rs.27642. A common feature to all is their
remoteness and inaccessibility or limited
accessibility from the rest of the country.
Thus, the North-Eastern Region continues
to remain a classic case of financial
exclusion (Sharma, 2008).
The committee on financial
inclusion defines financial inclusion as
“the process of ensuring access to financial
services and timely and adequate credit
where needed by vulnerable groups such
as weaker sections and low income groups
at affordable cost.” One of the most
important tools to address the issues of
financial inclusion is through
microfinance. Microfinance refers to the
provision of various financial services like
savings, credit, money transfer, insurance,
etc. In small doses for the poor to enable
them to raise their income levels and
improve living standards (Roy, 2008). The
demonstrative success of micro-credit in
Bangladesh has made it a popular poverty
alleviating strategy in both underdeveloped
and developing countries.
‘Eradicate extreme poverty and
hunger’ is the first of the eight millennium
development goals enunciated by the
United Nations. For 1.2 billion populations
in India including NER, livelihood is
mainly about finding an opportunity to
work or to take up an activity which brings
in some income. Livelihood can be made
up of a range of on farm and off farm
activities. To avail livelihood
opportunities, microfinance has become a
very important tool in recent years.
Although the microfinance programme in
India started two decades back, in the
North- Eastern Region (NER) the
programme was launched in 1997-98.
Therefore, the programme is still in its
infantry stage.
In the following section- 2 outlines a brief
review of the existing literature, section-3
describes the characteristics features of the
study area, section-4 gives us the scenario
of banking facilities, section-5 deals with
the analysis of the status of microfinance,
problems and prospects of its operation
and section -6 gives the conclusion.
2. REVIEW OF
LITERATURE:
In this section we give a brief review of
literature on the microfinance and its
impact on the economic lives of the people
and also to access the prevailing research
in this area.
Saha (2015) describes the role of
microfinance in rural development of India
and also pointed out the challenges of its
operation. According to the study the SHG
movement creates a new economic
revolution in the lives of poor women by
way of increasing the income and also it
has become a ladder for the poor,
particularly the women to bring them up
not only economically but also socially,
mentally, politically, educationally and
attitudinally.
Chakma, (2014), explores the current
status of financial inclusion in India with
reference to its north-eastern region. The
paper also explains the scope and
challenges for financial inclusion being
faced by Northeast India. First, weak
market linkages, problems of
Psychological and cultural barriers, Lack
of legal identity, Lack of Customized
Products, Lack of Financial Literacy,
Language Barrier, Geographical
remoteness, Infrastructural Requirements,
etc.
Page 3 of 16
Journal for Studies in Management and Planning
Available at http://edupediapublications.org/journals/index.php/JSMaP/
e-ISSN: 2395-0463
Volume 01 Issue 11
December 2015
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 554
Nasir, (2013) discovers the prevailing gap
in functioning of MFIs such as practices in
credit delivery, lack of product
diversification, customer overlapping and
duplications, consumption and individual
loan demand with lack of mitigation
measures, less thrust on enterprise loans,
collection of savings/loans and highest
interest rate existing in micro finance
sector and on the other hand the paper
argues that in the problems of Low
Outreach, Loan Default, Low Education
Level, Language Barrier, Late Payments,
Geographic Factors, Fraud, etc. are the
pressing issues in the management of
microfinance in India.
Roy, (2013) highlights the microfinance
programme in North-East India and its
inter-state variation regarding various
aspects like volume of savings, loan
disbursement and loans outstanding. The
differences in the progress of scheme in
the North-eastern states are mainly due to
differences in communication facility,
literacy, geographical positions and
moreover the differences between the
activities and availability of the banking
agencies.
Roy, (2006) have tried to measure the
progress of microfinance sector in terms of
four criteria viz., (i) savings mobilisation,
(ii) loans disbursed, (iii) loans outstanding,
and (iv) nonperforming assets. The results
of the study reveal that the NER comprises
only 4% SHGs and 1.8 % savings
mobilisation of India. The bank loan
disbursement and total loans outstanding is
also very low in the NER which is just 2%
of all over India.
The review of the above literature
gives us an idea that microfinance is an
important tool to uplift the economic life
of the people especially in the rural areas.
Nevertheless, to make it an effective tool
of economic empowerment there needs to
be an efficient management of the system.
The issues identified in the literature such
as weak market linkages, problems of
Psychological and cultural barriers, Lack
of legal identity, Lack of Customized
Products, Lack of Financial Literacy,
Language Barrier, Geographical
remoteness, Low Outreach, Low
Education Level, Language Barrier, etc.
needs to be addressed economically and
socially.
3. NORTH EASTERN
REGION AT A
GLANCE:
The North Eastern Region (NER)
of India comprises of the eight states of
Indian Union viz. Arunachal Pradesh,
Assam, Manipur, Mizoram, Meghalaya,
Nagaland, Sikkim and Tripura. It covers a
total geographical area of 262179 sq.km
and it is situated between 22o57 ́N and
29o5 ́N latitudes and 89o5 ́E and 97o3 ́E
longitudes. The region accommodates a
little over 3 percentage of the national
population constituting about 7 percentage
of the total land of the country.
The region resembles diversity
endowed with rich cultures and
biodiversity. The majority of the
population belong to tribal social groups
but are much advanced than the perceived
tribal concept which is reflected in the
socio-economic profile of the region.
Agriculture is the main occupation of the
people and the region is suited to produce
a whole range of plantation crops, spices,
fruits and vegetables, flowers and herbs.
Although NER has reserves of natural
resources, it has not developed well in
terms of industrialisation and modern
infrastructure. The literacy rate of NER is
above the national level which indicates a
lot of scope for growth in terms of human
resource development. The
underdevelopment of the region can be
