The New Microfinance: An Essay on the Self-Help Group Movement in India

Drawing from the experience of the Self Help Group (SHG) movement in India, this paper differentiates between the emerging and traditional microfinance. The author states that traditional or "old" microfinance has been characterized by:

• Intricate, explicit rules dictated and directed by MFI;
• Reliance on paid animators (field workers) to engage community members to participate in scheme;
• Seeking self-sufficiency at institutional level - institution to cover all costs through internally generated income;
• Interest rates often ranging from 36% to 87%.

As against this, the SHG-bank linkage program, which according to the author represents new microfinance, is characterized by:

• Simple rules made by groups;
• Multiple actors providing organizing, savings, and credit services;
• Growth often resulting from "ripple effect" - groups forming new groups, local volunteers spreading information;
• Self-sufficiency sought at group level;
• Group level rates charged to individual members often range between 24%-60%, while bank charges 12%-13% to the groups.

The author concludes that the ‘new microfinance’ as demonstrated by the SHG movement has definite advantages.