Dr. Arun Bhadauria/International Journal of Business, Management & Social Sciences ISSN:2249-7463; Vol.

I, Issue 10, June 2012

Role of MFIs through Financial Inclusion in the Agripreneurship Development By: Dr Arun Bhadauria

Microfinance institutions (MFIs), which distribute small loans to facilitate income generation, have the potential to reduce poverty directly, while simultaneously producing wider benefits including improvements in decision-making of the rural youth along with closure impact on the socio-economic profile of the rural inhabitants. Nevertheless, it can create multidimensional advantages in the form of health benefits particularly, at the most basic level, access to reliable ways to borrow and save can also make it easier to pay for medicines and clinic visits. A higher and steadier income level also makes it easier to feed ones family everyday. Better nutrition, in turn, leads to better health. However, experience of MFIs recently does not allow posing such a rosy picture. The reports from Andhra Pradesh about SKS Microfinance and some other MFIs about coercive recovery reveal the fact of politicoeconomic approach in rural India. Recently, issues related to Microfinance miserable failure in the hands of traditionally unviable mindset of the people has received much desirable coverage in media and academic discussions1. In the first five years of millennium term Agripreneurship was introduced with lot of emphasis on the participation of rural folk leading to the perfect solution of unemployment and shaky performance of agriculture. Agripreneurship is evolving in India as a result of a renewed emphasis on agriculture by central and state governments. It is noteworthy to mention that Government announced several schemes in order to motivate youth from villages, small towns and cities to come forward and establish their own enterprise. However, very sluggish progress has been observed so far. Before youth could have harness the opportunities of establishing an enterprise in the rural areas tapping rural demand, top entrepreneurs such as reliance, TATA, ITC entered into the field. Farmers markets developed by state governments in India represent a good opportunity for Agripreneurship through food retailing. Though, the developmental opportunities are not so meager to enter into market still very few small units are being established. This paper is a sincere effort to portray the most genuine reasons of the impediments in the smooth running of MFIs and their intricate relationship analysis with sluggish progress in the Agripreneurship development. This brings forth the brainstorming into the opportunities of

Assistant Professor, Amity University Uttar Pradesh, Lucknow Campus

Dr. Arun Bhadauria/International Journal of Business, Management & Social Sciences ISSN:2249-7463; Vol.I, Issue 10, June 2012
successful venture of MFIs with would be Agripreneurs. Paper includes background in the introduction part, while subsequent parts presents the performance of MFIs in UP & Bihar and raises academic discussions on the viability of linkages of Microfinance initiative with small Agripreneurship project.

1. Role of MFIs in establishing new Agribusiness Enterprise

Indian Rural Masses are victim of uneconomical, unlivable and unreasonable approaches towards life and livelihood. This is therefore; somewhere youth is succumbing to the mindset of handling the risk of organizing inputs and finance. In the past, several programmes have been unsuccessful just due to this mind set. This time again the microfinance initiative which may open plethora of opportunities for villagers in particular and for each one concerned with development in general, has miserably failed due to unknowingly approach to unknown (Unaware and ignorant rural people). For instance MFIs working in Indian States from last 20 years witnessed the trend of taking loan just to finance wedding and some rituals. Although trading and production are the most common activities in the initial loan cycles, clients diversify and tend to increase spending in animal husbandry, purchase (or lease) of agricultural land and even consumption. Over time, this may be due to the limited scalability of production and trading activities. Once these activities have reached maximum capacity, considering the availability of labor or physical capital, clients choose to allocate additional loans to other activities, rather than hire outside labor or rent more physical space. Such behavior can result either from a desire to diversify risk, a lack of know how, limited ambitions or lifestyle choices2 (see notes). 1.1 Each budding agripreneur has to face underlying issues: 1.1.1 1.1.2 1.1.3 1.1.4 1.1.5 1.1.6 1.1.7 High interest rates Repayment hassles No availability of funds as per the requirements of business. Lack of financial Inclusion Lack of awareness or Financial Illiteracy Restrictions on Horizontal and vertical integration Route through SHG is not clearly laid upon among the villagers

The abovementioned issues when encounters with real world situation, create a very negative picture and finally this emerges in withdrawal of the project. Nevertheless, several myths crept deeper in the society regarding role of MFIs and its utility to agribusiness enterprise are firstly, poor should be self-employed rather than work for

Dr. Arun Bhadauria/International Journal of Business, Management & Social Sciences ISSN:2249-7463; Vol.I, Issue 10, June 2012
wages. That is contrary to the whole history of successful economic development. Second is the idea that loans are the main financial services needed by the poor, whereas they really need savings and insurance. Third is the notion that credit is what builds enterprise, whereas the truth is that entrepreneurship and management are critical and indispensible. Fourth is the vague thought that the non-poor dont need credit, whereas the truth is revealed in market-based banking: higher incomes can handle higher debt. Fifth is the derived thought that micro credit institutions can become self-sustaining, whereas all experience shows that new enterprises in poor areas that are built on credit alone rarely emerge from dependency (Mahajan, Vijay, 2011). 1.2 Being the follower and dependent upon the peer group individual step back believing on the incapability to face challenges and finding solutions to the problems. While, Youth perhaps guided by several myths, would not be coming forward to start enterprise of their own, MFIs are declared failure again following some self-conceived social belief. It is evident from the experiences in other countries of similar socio-economic profile that MFIs are successful only when they are implemented for business purpose along with support of other logistics (see Notes).

2. Financial Inclusion & Agripreneurship

2.1 Role of Financial Inclusion in uplifting common individual to become agripreneur The role of MFIs in the development of rural areas is revealed through various studies however, it could not be materialize in the absence of proper application, implementation and execution of policies. DRISHTEE is doing considerably required act through establishment of a technologically enabled and integrated network of Financial Services Entrepreneurs to provide underserved populations access to customized financial products (Pasricha, 08). In fact this effort is not promising anybody any type of credit without product, rather this network provide each individual to be a part of business activity where aspirants are shown the way to get start enterprise initially and running smoothly in later stages. 2.1.1 The network seldom offers any fund, loan or any type of financial support. This ensures sacred, organized financial inclusion using the available resources and government led financial inclusion sops. It follows all the aspects of financial inclusion such as the first major aspect of financial inclusion i.e. accessibility of the Financially Excluded People such as Marginal farmers, Landless labourers, Oral lessees, Self employed and unorganised sector enterprises, Urban slum dwellers,

Dr. Arun Bhadauria/International Journal of Business, Management & Social Sciences ISSN:2249-7463; Vol.I, Issue 10, June 2012
Migrants, Ethnic minorities and socially excluded groups, Senior citizens, Women, to financial & credit markets, Savings facility, Credit and debit cards access, Electronic fund transfer, All kinds of commercial loans, Overdraft facility, Cheque facility, Payment and remittance services, Low cost financial services, Insurance (Medical insurance), Financial advice, Pension for old age and investment schemes, Micro credit during emergency, Entrepreneurial credit. 2.1.2 The accessibility is subjected to some factors such as Legal identity (voter id , driving license, birth certificates, employment identity card etc), Limited literacy (particularly financial literacy and lack of basic education prevent people to have access from financial services), Level of income (level of income decides to have financial access, Low income people generally have the attitude of thinking that banks are only for rich), Terms and conditions (while getting loans or at the time of opening accounts banks places many conditions, so the uneducated and poor people find it very difficult to access financial services), Complicated procedures (due to lack of financial literacy and basic education, it is very difficult for those people who lack both to read terms and conditions and account filling forms), Psychological and cultural barriers (many people voluntarily excluded themselves due to psychological barriers and they think that they are excluded from accessing financial services), Place of living (as the name suggests that commercial banks operate only in commercially profitable areas and they set up branches and main offices only in that areas. People who lived in under developed areas find it very difficult to go to areas in which banks are generally reside), Lack of awareness (finally, people who lack basic education do not know the importance of the financial products like Insurance, Finance, Bank Accounts, cheque facility, etc). 2.1.3 Second aspect is to increase the level of awareness about financial matters and removing all kind of fears pertaining to threats of financial exclusion such as losing opportunities to grow (in the absence of finance, people who are not connected with formal financial system lack opportunities to grow). The same goes for whole economy as due to vast unutilized resources that is in the form of money in the hands of people who lack financial inclusive services countrys growth will retard. Apart there will be business losses to banks (Banks will loss business if this condition persists for ever due to lack of opening of bank accounts), Exclusion from mainstream society (the people who lacks financial services, presumed that they are excluded

Dr. Arun Bhadauria/International Journal of Business, Management & Social Sciences ISSN:2249-7463; Vol.I, Issue 10, June 2012
from mainstream society), All transactions cannot be made in cash (some transactions can be made in cash), Loss of opportunities to thrift and borrow (financially excluded people, may lose chances to save their some part of livelihood earnings and also to borrow loans), Employment barriers (nowadays all salary and other financial benefits from various sources like Governments scholarships, any compensation, grants, reliefs, etc are paid through bank accounts), Loss due to theft (Banks provide various schemes of safety locker facility . It mitigates the risk due to thefts), Other allied financial services (people who do not have bank accounts may not go to bank as for as possible), So they lack basic financial auxiliary services like DD, Insurance cover and other emergency need loans Etc (see Notes). 2.1.4 Third aspect is to provide financial inclusion to do away with their constraints and restrictions such as Seasonal Inflow of Income from agricultural operations, Migration from one place to another, Seasonal and irregular work availability and income; the existing financial system needs to be designed to suit their requirements, Security and safety of deposits, Low transaction cost, Convenient operating time, Minimum paper work, Frequent deposits, Quick and easy access, Product suitable to income and consumption (see Notes). 2.2 Benefits Of Inclusive Financial Growth Financial Inclusion bring forth opportunities for deprived section of the economy causing first increase in consumption putting pressure on productive assets, inviting inflation, money illusion (as happening in present scenario in India) and many creeping economic consequences. However, it paves the way for growth with equity, which helps the economy in poverty eradication. 2.2.1 Consequences of Inclusive Growth At this juncture, economy may experience Inflating National Income - Boosting up business opportunities will definitely increase GDP and which will be reflected in our national income growth and entry of global market players in the economy that will result in increasing employment and business opportunities. 2.2.2 Relationship between Financial Inclusion and Development Indicators There is circular relation between financial inclusion and economic growth. If Economy grows on account of financial Inclusion, Growth turns inclusive paving the way for automatic financial inclusion. This is therefore can be said that Economic growth follows financial inclusion. In order to achieve the objective of growth with

Dr. Arun Bhadauria/International Journal of Business, Management & Social Sciences ISSN:2249-7463; Vol.I, Issue 10, June 2012
equity, it is imperative that infrastructure is developed with financial inclusion such as savings and credit accounts network and facilities should have to be increased, more economical and fast breeder electricity generation systems are to be launched etc.

3. Business Opportunities: An outcome of Financial Inclusion

Forward and backward linkages of Agriculture gives wonderful opportunity to industry to grow, manufacture and consume thereby boosting its export and import trade statistics, which in turn, required giving global economy a big push. However, this incidentally advocates the need to harness potential of diversification in agriculture which may provide missing link between the success of Agripreneurship on the one hand and microfinance on the other hand. 3.1 Trade dynamics reaches full circle as diversification needs support from other sectors of the economy reciprocating the same for them. Diversified agricultural practices give strength to all segments of the society and result into increase in savings, investment and consumption. This also creates dynamic equilibrium through free market type demand & supply forces to every other sector. 3.2 Diversification need not be taken only for cultivation. It is more concerned with Allied Agriculture which provides commercially suitable business opportunities to lay the foundation of the development of service sector as being practiced in China & Malaysia. IT Sector can grow on the cradle of development of Agriculture, hardly need outsourcing to survive. Following business and agribusiness opportunities can be cited for instance: 3.2.1 Agro Forestry 3.2.2 Agro Processing & Food Processing 3.2.3 Allied activities such as pisciculture, apiculture etc. 3.2.4 Commercial farming 3.2.5 Trading 3.2.6 Carrying & Forwarding agents 3.2.7 Agricultural marketing 3.2.8 Information Technology Enabled Services (ITES) for agriculture & allied activities. 3.3 The business opportunities though created through diversification definitely requires support for from integrated supply chain and financial inclusion. Pertaining to the prerequisite of human capital, banking infrastructure, financial literacy, urbanization and connectivity, financial inclusion and its correlation with all these parameters are desirable.

Dr. Arun Bhadauria/International Journal of Business, Management & Social Sciences ISSN:2249-7463; Vol.I, Issue 10, June 2012
3.3.1 Human development and financial inclusion are found positively correlated. Income measured through per capita National Income is also found to be an important factor in explaining the level of financial inclusion in a country. 3.3.2 Further, physical and electronic connectivity and information availability, indicated by road network, telephone and internet usage, also play positive role in enhancing financial inclusion. 3.3.3 Higher levels of income inequality, low rates of literacy, low urbanization and poor connectivity seem to be less financially inclusive. 3.3.4 From among the banking sector variables, we find that the proportion of nonperforming assets is inversely associated with financial inclusion, indicating that attempts by different countries towards greater financial inclusion have not contributed in any way to the non-performing assets of the banking system. The capital asset ratio (CAR) is seen to be negatively associated with financial inclusion. (Mandira, 11).

4. Financial Inclusion through MFIs may play a pivotal role in Agripreneurship

Development as it raise the confidence level of budding agripreneurs to take the plunge of being successful in their venture. Moreover, financial inclusion opens up the floodgates of information, connectivity, opportunities of vertical and horizontal integration for the growth of business. The fear of LDCs such as income inequality, low literacy rate, low urbanization and poor connectivity has very limited inclusion in financial activities. These fears can be overcome by activity and development. Notes: 1. ASA (MFI working in Tamilnadu) clients used consumption loans mainly to pay for childrens education or to repair their houses, while CASHPOR (MFI working in Uttar Pradesh since 1996) clients mostly used them for wedding purposes. Given the preponderance of using loans for consumption, perhaps a loan product targeted directly at weddings, education or medical emergencies could be a valuable asset to clients. CASHPOR used to offer a marriage loan of Rs. 7,000, but it was recently discontinued due to complicated payment terms and reported misuse leading to high default rates2. 2. The MasterCard Foundation and Equity Group Foundation recently launched a national program to promote financial inclusion and entrepreneurship in Kenya. The $10.9 million program will provide financial education to 6, 20,000 youth and women in Kenya over the next three years. The program aims at enabling youth and women

Dr. Arun Bhadauria/International Journal of Business, Management & Social Sciences ISSN:2249-7463; Vol.I, Issue 10, June 2012
micro-entrepreneurs to access financial services and create economic opportunities for themselves. 3. Equity Bank is making available up to $400 million in credit to participants who complete the program. Until now, the program has trained 57,000 people across the country and 26,000 have received credit for their business plans. References: 1. Paul M. Pronyk, James R. Hargreaves & Jonathan Morduch (2010): Microfinance Programmes and Better Health: Prospects for Sub-Saharan Africa; The Journal of the American Medical Association (JAMA); Volume 298, Number 16, 0ctober 2007; Excerpts from Microfinance Paper Wrap up: Friday, August 06, 2010http://jama.amaassn.org/cgi/reprint/298/16/1925.pdf 2. Adam Ross and Paula Savanti (2005): Profiling of Micro Enterprises in Tamil Nadu and Uttar Pradesh, India; Centre for Micro Finance Research Kennedy School of Government, Harvard University Working Paper Series August 3. MasterCard FDTN, Equity Group FDTN launch financial inclusion program in Kenya; Microfinance Focus April 29, 2011 4. Mahajan, Vijay (2011): Five Myths of Microfinance in India; Silver Lining Creation Ry, Finland, Global South Development Magazine Jan-2011-pdf-42pages-3.5MB; India
Micro Finance Business News , January 13, 2011

5. Pasricha, Nakul (2008): Financial Inclusion through Entrepreneurship; Sept 25,

http://www.changemakers.com/fr/node/9234

6. Joiya, Sushma (2011): Raising socio-economic status of Women through SHGs; Integrated Congress of Women Entrepreneurs, January 14, 2011 at 12:47 pm president.icwe@yahoo.com 7. Sarma, Mandira & Pais, Jesim (2011): Financial Inclusion and Development: A Cross Country Analysis; JEL Classification: G21, O16, O50, Indian Council for Research on International Economic Relations, New Delhi.