Indian Budget bang on financial inclusion; Microfinance tops rural agenda

IMG 4141 300x225 Indian Budget bang on financial inclusion; Microfinance tops rural agenda

In a country with significant sections of unbanked population, financial inclusion through microfinance institutions, self-help groups and a huge rural banking network has figured prominently in the 2009-2010 budget.

By Naagesh N.

MF Focus, July 6, 2009: The budget presented by Finance Minister Pranab Mukherjee on Monday reiterated the UPA government’s agenda to empower more rural women and announced its ambitious plans to enrol at least half of them into the network of self-help group (SHG) movement, besides increasing the corpus funding of the Rashtriya Mahila Kosh to Rs 500 crore.
Reiterating the government’s commitment to the Women’s Self Help Group movement which he said is bringing about a profound transformation in rural areas, the government wants to strengthen them by enrolling at least 50% of all rural women in India as members of SHGs over the next five years and link these SHGs to banks, he said, noting that there are over 22 lakh such groups linked with banks now.
Praising the role of microfinance as an instrument of socio-economic change and development, the minister announced in the budget that the Rashtriya Mahila Kosh, which has been working towards the facilitation of credit support or microfinance to poor women and has developed a number of innovative schemes for their benefit, will be rewarded with a corpus of Rs 500 crore from the present Rs 100 crore.
In a country with significant sections of unbanked population and regions, financial inclusion is vital for sustaining long term equitable development, the minister said and announced further relaxation of rules for opening small and rural banking facilities by Scheduled Commercial Banks. As part of the financial inclusion drive, scheduled commercial banks have been opening ‘no frills’ accounts either with ‘nil’ or very low minimum balances, he noted and said these banks have opened 3.3 crore such accounts so far. The RBI has announced a further relaxation in this direction by allowing the scheduled commercial banks to set up off-site ATMs without prior approval, subject to reporting, he said.


The budget, as expected, has underlined the need to strengthen the mechanisms for inclusive growth for creating about 12 million new work opportunities per year, reduce the proportion of people living below poverty line to less than half from current levels by 2014 and to ease the delivery mechanism for primary health care facilities with a view to improve the preventive and curative health care in the country.
Terming it as a challenge, the minister vowed ”to deepen and broaden the agenda for inclusive development; and to ensure that no individual, community or region is denied the opportunity to participate in and benefit from the development process.”
The budget’s rural focus has spelt out several relief measures for the farmers and rural women. While the Accelerated Irrigation Benefit Programme received an additional Rs.1,000 crore, marking an increase of 75 per cent over the allocation in 2008-09, even the Rashtriya Krishi Vikas Yojna (RKVY) is handed out an additional 30 per cent funds over the 2008-09 budget.
Coming to micro-credit and microfinance institutions, he acknowledged that they have been indirectly affected by the global crisis which has lowered the domestic demand.  To support this sector, he proposed easy credit flow at reasonable rates, by providing a special fund of Rs 4,000 crore out of Rural Infrastructure Development Fund (RIDF) to Small Industries Development Bank (SIDBI). This fund of Rs 4,000 crore will help banks and State Finance Corporations (SFCs) to lend to Micro and Small Enterprises (MSEs) by refinancing 50 per cent of incremental lending to MSEs in 009-2010.


Providing Rs 100 crore during the current year as one-time grant-in-aid to ensure provision of at least one centre/Point of Sales (POS) for banking services in each of the unbanked blocks in the country, the minister also said a sub-committee of State Level Bankers Committee (SLBC) will identify such areas and formulate an action plan for providing banking facilities to all these areas in the next 3 years.

Underlining the UPA government’s paradigm shift for making the development process more inclusive, Pranab Mukherjee has focused on ‘Aam Admi’ (Common Man) with a stream of funds, including an allocation of Rs.39,100 crore for the year 2009-10 for National Rural Employment Guarantee Act, (NREGA) which marks an increase of 144% over 2008-09 budget estimates. It involves creating entitlements backed by legal guarantee to provide basic amenities and opportunities for livelihood to vulnerable sections, the minister noted.

The National Rural Employment Guarantee Act, (NREGA) first implemented in February 2006, provided during 2008-09, employment opportunities for more than 4.47 crore households as against 3.39 crore households covered in 2007-08. It provides a real wage of Rs.100 a day as an entitlement under the NREGA. To increase the productivity of assets and resources under NREGA, the government has initiated convergence of the scheme with other plans relating to agriculture, forests, water resources, land resources and rural roads. In the first stage, a total of 115 pilot districts have been selected for such convergence, the details of which will be announced later by the Minister of Rural Development. An allocation of Rs.39,100 crore for the year 2009-10 for NREGA is another step in UPA government’s efforts to include the rural people in mainstream development plan.


Empowering weaker sections further by restructuring the Swarna Jayanti Gram Swarozgar Yojna (SGSY) as the National Rural Livelihood Mission to make it universal in application, focused in approach and time-bound for poverty eradication by 2014-15, is another significant announcement made by the minister in the budget.  Stressing on the formation of women Self Help Groups (SHGs), providing capital subsidy at an enhanced rate, the budget has also proposed to provide interest subsidy to poor households for loans up to Rs. 1 lakh from banks.


Since anonymous donations to charitable institutions are presently liable to tax, some organisations are facing genuine problems in complying with the procedural requirements, the minister said and announced relief to charitable organisations by not taxing anonymous donations received to the extent of 5 per cent of their total income or a sum of Rs.1 lakh, whichever is higher.


To address the unorganised or informal sector which accounts for 92% of the employment, the minister noted that the Unorganised Workers Social Security Bill, 2007 has now been passed by both Houses of Parliament and action has been initiated to ensure that social security schemes for occupations like weavers, fishermen and women, toddy tappers, leather and handicraft workers, plantation labour, construction labour, mine workers, bidi workers, and rikshaw pullers are implemented at the earliest. The budget, however, did not give details about the schemes meant for them.


On rural health front, the National Rural Health Mission’s allocation has been raised by Rs 2,057 crore over and above Rs 12,070 crore provided in the interim budget. On Rashtriya Swasthya Bima Yojana (RSBY) which was operationalised last year, the minister said more than 46 lakh BPL families in 18 States and Union Territories have been issued biometric smart cards.  This scheme empowers poor families by giving them freedom of choice for using health care services from an extensive list of hospitals including private hospitals. An amount of Rs 350 crore, marking 40% increase over the previous allocation, has been provided in 2009-10 budget in a move to bring all BPL families under the scheme.

© 2009, Microfinance News. All rights reserved. 2008-09

19 Comments on “Indian Budget bang on financial inclusion; Microfinance tops rural agenda”

  • K.Raj wrote on 6 July, 2009, 23:22

    Very brief, precise and helpful analysis of the budget.

  • Balasubramanya ML wrote on 7 July, 2009, 0:33

    Budget analyzing is really helpful to us.

  • Dr Veerashekharappa wrote on 7 July, 2009, 0:51

    The unfortunate, the budget do not speak on new bills to be introduced to regulate the micro finance sector. Off late the sector is being captured by market players rather than social engineering activities or empowering the poor.

  • souren ghosal wrote on 7 July, 2009, 1:39

    I think budget has paid very little attention to inclusive growth. The paltry provision is in fact much ado for nothing. It has failed both in budgetary provision and policy enunciation for inclusive growth. It has just tinkered on policy of delivery model and made allocation of very little fund as compared to estimated need.

  • nirmala buch wrote on 7 July, 2009, 2:08

    the analysis helped in focusing on imp items relevant to nonprofits.Happy to see RMK’s corpus addition proposed. RMK is focused on women’s SHGs and has required social,gender focus.

  • Yogesh Bhavsar wrote on 7 July, 2009, 7:20

    Good summary of MFI related budget highlights. Interest free education loan for poor children & 6% ROI for repeat farming loan can be added in the summary.

  • Prabhu T R wrote on 7 July, 2009, 12:41

    It would be worthwhile to explore how Rashtriya Mahila Kosh would be helpful to MFI’s which are aiming to achieve what the Government intends to do. Can you try to touch base with the Kosh to find out how they would be able to encourage the MFI’s. As we all agree the MFI’s have been playing a major role in poverty alleviation. SHG-Credit Linkage need not necessarily be the only way in trying to achieve the common goal. The direct lending by MFI’s to Groups formed by themselves also need encouragement and support.

  • Madhu wrote on 7 July, 2009, 12:44

    Many thanks for valuable info. Keep it up.

  • Subhash Mendhapurkar wrote on 8 July, 2009, 3:33

    Good analysis. Unfortunately what is happening with Women’s Empowermet – is the whole Empowerment to be related only to SHGs. The Budget speaks about Aam Adami, what about aam mahila?

  • Ramakrishna wrote on 8 July, 2009, 23:16

    Government intervention in microfinanace will only make the sector more corrupt. MFIs should not look for govermnment funds if they want their social agenda to succeed.

  • Prabhu TR wrote on 9 July, 2009, 13:40

    When you say “…make the sector more corrupt” do you mean to say the sector is corrupt already? What is the basis for such sweeping comment and tarnish the image of the entire sector. It is better that we are careful is using proper language to express our opinion. Having said that I am of the opinion that the Government has a major role to play in poverty alleviation and no one should have any doubt about that. If the sector could get constructive support from any quarter, even from the Government, it is so much better.

  • Vishal K wrote on 9 July, 2009, 13:49

    It is true that the unbanked population is high, however, this revolution of microfinance is now more than decade old, the financial inclusion is being stressed for more than 02 years now, with certain states claiming to achieve the same now.
    The outcome of it now being at the top of agenda needs to be seen in the current global crisis, the agenda will have challenges from various corners. It makes our jobs more challenging ?

  • Sejal Dand wrote on 9 July, 2009, 13:58

    The budget speech of the Finance minister clearly puts the weight behind SHG’s, extension of formal banking systems – improving outreach to un-served and underserved areas. There is a possible convergence between Female literacy mission, new SGRY (livelihood mission)and SHG’s too on the anvil. Hence, we must take this as a positive signal to put public money in public institutions rather than private financial initiatives. The role of the SHG’s / Nabard should completely be outside the MF bill.

  • Soma wrote on 9 July, 2009, 13:59

    Well said Sejal- and it is in the light of these developments that we need to review the renewed proposal for the introduction of the micro finance Bill. So still looking for ways to access the Bill
    I understand that some discussions are already on the anvil to strengthen the literacy component with SHGs through SDTT as well, so this should be exciting potential for SHGs to be strengthened towards a more rights based orientation and effective roles towards influencing and benefitting the poor from development initiatives. Another measure mentioned is the Rs 500 crore announced for the Rashtriya Mahila Kosh over the next few years- we should lobby there too to ensure that this is channelized increasingly towards women capacity building and towards an empowerment orientation.

  • Yatesh Yadav wrote on 12 July, 2009, 1:02

    Very well briefed and helpful. Keep it up. It will surely enhance SHG momentum and result in empowerment of million poor families (Especially women).

  • Rama Reddy wrote on 20 July, 2009, 12:23

    Is there any direct or indirect reference to Microfinance Bill in the budget speech of the Union Finance Minister? If the answer is “yes”, I will be grateful to the person who makes the effort to lead me to that reference. I was not able to locate any such reference in the budget speech. Many thanks in advance.

  • Subhash Jindal wrote on 23 April, 2010, 12:53

    Micro finance in India has so much bang but far from what it can be. The budget has carefully opted to defer the micro finance bill as such as credit through NBFC is anyway regulated through RBI norms. Budget clearly realizes the importance of financial inclusion and role of local institutions and MFI to scale it up.

  • J.Thanchipem wrote on 20 October, 2010, 17:16

    Urgency for Social security for unorganized sector, where 92% of the employed thrives, has rightly been pointed out. i want to see it materialize as soon as possible. If the Govt. has the will it can be implemented fast? In my opinion This would be the most powerful link for inclusive uplift. Why should the well placed employees have all the Empowering Choice always?

  • Dr.M.Prasadarao wrote on 12 December, 2010, 13:27

    The development and women empowerment achieved in Andhrapradesh state through DWACRA groups (women SHGs) which is a apex example of the group dynamics playing crucial role in women towards savings, mobilisation of resources and uplifting their personal family life and society at large.  Unfortunately majority of MFIs and NBFC don’t believe on working with groups  in Maharashtra rather they opting to loaning to individual against to their repaying capability.  Annapurna is a example for this.  Finally Government of India recognising the importance of microfinance and declaring Rs. 500cr towards rural development.  The financial inclusion is possible, when a proper coordination of governemnt agencies, NGOs, MFIs, NBFCs and groups or individuals finally those will get benefited. Periodical performance review, good banking practices along with entrepreneurial support to the groups is very important for the  sustainability of the microfinance activities.   

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