Rural Transformation Through Microfinance in Arunachal Pradesh

Khugang Moses Wangsa
Research Scholar, Department of Commerce, Nagaland University, Kohima Campus, Meriema, Nagaland. E-mail: khugangmoseswangsa1@gmail.com

Amrendra Kumar
Assistant Professor, Department of Commerce, Nagaland University, Kohima Campus, Meriema, Nagaland; and is the corresponding author. E-mail: amrendra@nagalanduniversity.ac.in

Microfinance is an effective mechanism through which the underprivileged households have access to diverse credit services so as to guard themselves against financial insecurity in the future. These financial services are not restricted to lending credits, rather it comprises other services such as micro insurance, micro leasing, provision for thrift savings, etc. In other words, microfinance is a matching set of formal financial instruments that are specifically designed to fulfil the needs of the poor individuals by taking into consideration their low level of education and knowledge related to financial activities. The introduction of microfinance program has led to the improvement of the credit lending options for the rural poor households, and it is believed to work as an effective weapon to lessen poverty and improve the living standards of the poor. Hence, it is considered as the most distinct instrument for uplifting the poor individuals and mitigating poverty.

Introduction
Like several contemporary facets, microfinance can also be traced back to history. The means for granting loans to the needy population has existed in various forms across the world for thousands of years, yet the modern microfinance has surfaced in one of the poorest countries, Bangladesh, wherein professor Muhammad Yunus came up with the finding that the open market of demand and supply has failed to keep his country protected from the devastating famine. It was observed that the technique of combating poverty through subsidies and aids was not adequate and the formal banking sector was unable to provide satisfactorily for the deprived poor population. In a village named Jobra, professor Yunus decided to grant a special loan to 42 women with the vision of supporting them to start their own businesses. This method of granting small loans to the poor individuals worked as an effective instrument and thus the act established the fundamental ethics of the modern microfinance. Further, professor Muhammad Yunus was determined to reproduce the first microcredit experience in different places, and later he decided to create his own organization known as the Grameen Bank. This organization offered loans of small amount to the deprived population without the need for any collateral guarantee and also introduced the policy of joint responsibility which created shared aims among the beneficiaries of the same group. Furthermore, the organization focused mainly on the women groups who were conventionally barred from the formal financial system, and in the year 1983, the organization was considered as a banking establishment known as the "bank for the poor". Since then, the idea of microfinance has been growing rapidly, and the early 21st century marked the rise of the international microcredit system. The United Nations named year 2005 as the "International Year of Microcredit", and professor Muhammad Yunus was awarded the Nobel Peace Prize in 2006 for his outstanding contribution (BNP Paribas, 2017).

Conceptual Framework
Microfinance
It is considered as the most distinct mechanism for uplifting the poor individuals and mitigating poverty. It has a unique structure that tries to reach the unemployed poor by providing job opportunities and by contributing towards the growth of their existing enterprise or other allied activities which would lead to enhancement of their income level. It is a process of providing minute credit, thrift savings and other short-term financial services of little amount to the deprived individuals in the rural, semi-urban and urban areas in order to assist them in lifting their level of income and living standards. In other words, microfinance refers to a progress where the underprivileged households have access to diverse credit services so as to guard themselves against financial insecurity in the future. However, these financial services are not restricted to lending credits but also comprise other services such as insurance, provision for thrift savings, etc. (Prathap et al., 2018). The introduction of microfinance program has led to the improvement of the credit lending options for the rural poor households, and it is believed to work as an effective weapon to lessen poverty and to save the deprived poor from the control of the money lenders who charge skyrocketing interest rates (Rao and Priyadarshini, 2013). In other words, microfinance is a matching set of formal financial instruments that consist of services such as microcredit, microsavings, microleasing, microinsurance and other payment systems. These financial instruments are specifically designed to fulfil the needs of the poor individuals by taking into consideration their low level of education and knowledge related to financial activities. However, among the mentioned financial services, microcredit has been most widely accepted all over the world, and so sometimes, the word microcredit is also being used as a synonym for microfinance by a layman. Furthermore, besides these financial services, microfinance institutions also provide access to other supportive non-financial instruments such as training in hygiene and sanitation and other market-related activities (Nayak, 2015).

Since microfinance has been established as an efficient instrument for mitigating poverty all around the world, the United Nations labeled the year 2005 as the "International year of microcredit". It is a provision of financial services to all those low-income individuals who do not have access to formal banking and other related services. Generally, the people who endorse microfinance believe that such opportunities and chances will aid the deprived poor to triumph over poverty (Bansal and Bansal, 2012). During the last five decades, microfinance has been one of the most noticeable innovations in the fight against poverty and it has been spreading over the years. One of the vital benefits of microfinance services in India has been that it has helped in the long-term financial independence as it has persistent impact on the recipients by encouraging them to build their own businesses and manage them effectively to generate income. It may be defined as a "provision for thrift, credit and other financial services and products of very small amounts to the poor in rural, semi-urban or urban areas, for enabling them to raise their income levels and institutional initiatives of rural credit and to improve living standards" (Dey, 2015). In other words, microfinance includes the complete variety of financial as well as non-financial services like improvement of skills or entrepreneurial enhancement which are provided to the poor households in order to enable them to prevail over chronic poverty. In the framework of designing an anti-poverty program, microfinance has been acknowledged and established as one of the innovative growth concepts for getting rid of poverty through economic and societal empowerment of the deprived individuals with special emphasis on women empowerment. Hence, the effective functioning of microfinance and its allied activities depends upon various premises: (1) creation of a self-employment venture is an alternative means of fighting against poverty; (2) lack of proper accessibility to adequate credit and capital assets that limits the efficient performance of the existing micro businesses; and (3) the poor individuals have the capabilities of thrift saving regardless of their low level of income. Therefore, microfinance may be defined as an organizational instrument which provides small credit support and other contemporary guidance such as training to usually small groups of individuals who do not have adequate skills and resources for undertaking various economic activities (Jha, 2012).

Rural Transformation
Rural transformation has been drawing great interest of the different governments all over the world. In the context of a developing country like India, the rural transformation assumes exceptional importance for two key reasons. Firstly, around two-thirds of the country's total population lives in rural villages and it is not possible for a nation to be considered as progressing country by neglecting the regional balanced growth of the rural population. Secondly, the deceleration in the growth of the rural segment would act as a key obstacle to the overall development of the country's economy, i.e., the industrialized sector cannot consider a satisfactory demand for its products or services as long as the earnings of the rural population are low (Jha, 2012). Rural transformation refers to the process of changes in rural societies whereby the economic activities of the people are diversified and their reliance on agriculture is reduced. In various underdeveloped and developing countries, the rural areas are experiencing deep courses of change that affect their economic structure as well as their political, cultural and social environment. Traditionally, the concept of rural transformation has often been compared with the economic changes from agricultural to industrial activities that took place in many parts of the world during the 19th and 20th centuries. However, this notion does not meet the requirements to explain the different interlinked dynamic factors that affect the rural space of developing countries and its fast changing and complex environment (Hegwood et al., 2020).

Regardless of the traditions and geographical setting of the society, there are three fundamental elements which represent the true meaning of a rural progress (Jha, 2012).

Basic Requirements of Life: There are certain needs which all individuals have in order to survive or live without much trouble. These basic needs comprises food, clothing, shelter, financial security, basic education, primary healthcare, etc. Likewise, a state of 'absolute underdevelopment' prevails if there is a short supply of any of the mentioned essential variables. Thus, it is legitimate to state that the overall economic growth of a country is dependent upon the per capita development of the individuals in the rural region and hence the accurate representation of a rural transformation can be formed only by providing sufficient basic necessities of life to the underprivileged poor individuals.

Self-Esteem: Self-respect or dignity is something that every nation or individual seeks to receive from their neighboring countries or the people around them. The denial or lack of such personality value indicates the lack of development in the society. Hence, to sum up, it can be viewed that self-esteem is one of the important elements that represents the true nature of rural transformation.

Freedom: In the context of rural development, freedom refers to the state of liberty from political, social and economic principles and ideologies. Servitude in any form is a sign of underdevelopment. In other words, it is not possible for a nation to achieve rural transformation as long as the society is bound by the oppression of ignorance, other rich institutions and various narrow beliefs that restrict or prevent people from performing incomegenerating activities.

Literature Review
Several publications in the form of articles and journals were reviewed while working on the paper in order to acquire a better view on the topic. Brief reviews of some of the publications follow.

Nayak (2015) highlighted the importance of innovative micro financial services and other complementary non-financial services which are implemented by microfinance institutions in order to improve the livelihood of the poor population. The book signifies that microfinance is a much broader concept as compared to microcredit as it covers both financial and nonfinancial activities which are crucial for rural development.

Rao and Priyadarshani (2013) studied the accomplishments of the microfinance as that answers the inconvenience of adverse selection. It discloses that credit desires of the deprived poor individuals are diverse as they need credit for different purposes, but the sources available are inadequate and coverage is very little. Further, group lending and joint liability features aid in making microfinance an advanced rural credit organization in comparison with the rest of the credit system.

Feroze and Chauhan (2011) described the notion of microfinance and its allied activities along with its progress. The book also examined the role played by the government in promoting microfinance services. It further highlighted the importance of microfinance services in empowering women and also as an effective mechanism for financial inclusion in the rural region.

Objective

• To study the status of microfinance in Arunachal Pradesh.
• To understand the impact of microfinance in transforming the lives of the rural population in the State.

Methodology
The present study is an attempt to assess the status of microfinance in the State of Arunachal Pradesh. The study is constructed on the basis of secondary data, where the available sources include various published and unpublished government and non-government agencies, websites and articles.

Microfinance in North-East India
While India is considered as one of the fast growing economies in the world, it is also an undeniable reality that poverty runs deeply across the country. Being a host to about onethird of the total rural population in the world, the need for microfinance in India cannot be overlooked (Verma and Sinha, 2012). Both the central and the local governments have the capacity to create a regulatory and legal environment that promotes the entry and competition in the microfinance industry. However, in order to do this, it is essential that the government bodies and the central bank identify and accept microfinance as a genuine financial activity rather than merely considering it as a subsidiary sector within the financial system (Duflos and Imboden, 2004).

The North-East India, comprising the eight states of Arunachal Pradesh, Assam, Mizoram, Manipur, Tripura, Nagaland, Meghalaya and Sikkim, is considered as the most economically backward area in the country, which lags in essential banking outreach with awfully low investment prospects. Likewise, its atypical geographical location and its sociopolitical scenario such as varying cultural differences, lack of proper infrastructure and the insurgency activities during the past years have been some of the major factors hampering the economic growth of the region (Nath and Nochi, 2014).

Table 1 shows the number of SHGs and its savings amount with banks along with the amount of loan disbursed within the north-eastern states during the period of 2019-2020. The table depicts the effective performance level of microfinance among the states in comparison to each other, and it can be seen that Assam has a better performance both in terms of savings and loan disbursed. Further, on the contrary, Arunachal Pradesh seems to have the least effective performance in microfinance activities.

Likewise, Table 2 shows the amount of outstanding loan and NPA against self-help groups in North-East India. Accordingly, it indicates that outstanding bank loans and Non-Performing Assets are soaring high in Assam, followed by Tripura, Meghalaya, Manipur, Mizoram,

Sikkim, Nagaland and Arunachal Pradesh correspondingly. Nonetheless, as a percentage of bank loan outstanding, the NPA indictor shows that Sikkim has only 1.81% of NPA over the total amount of loan outstanding, whereas, Arunachal Pradesh has 24.27% of Non-Performing Assets over the total loan outstanding with the banks.

Microfinance in Arunachal Pradesh
Blessed with rich natural resources and diverse sociocultural aspects, Arunachal Pradesh (Land of the Rising Sun) is the largest state in North-East India with nearly 84,000 sq. km in area. It is home to 25 major tribes and more than hundred sub-tribes. Most of the area in the state is covered with forest and has prospects for horticulture, tourism, organic agriculture promotion, etc. However, despite the availability of natural resources, the State has failed to grow on a par with the other states of the country in terms of infrastructure, education, financial services and schemes and overall development. As seen in Tables 1 and 2, where microfinance savings and loan outstanding among the eight North-Eastern states are depicted, it has been indicated that Arunachal Pradesh has the least number of self-help groups and comparatively the State has the highest percentage of Non-Performing Assets towards the outstanding loans among the North-Eastern states.

Results
In terms of microfinance activities, it can be seen in Table 1 that over the years, several banks and financial institutions have introduced ways to assist the deprived population to overcome poverty and its various factors in order to attain development by transforming the lives of the poor sections of the country. The table indicates that Assam has the highest number of self-help groups and also the savings amount with banks, as it constitutes more than 80% of the total self-help groups in the region. In the second position is Tripura with 8.25% of the total share, followed by Meghalaya (3.78%), Mizoram (2.17%), Manipur (2.17% of the share), Nagaland (1.38%), Sikkim (1.10%) and the lowest number of SHGs as per NABARD is Arunachal Pradesh, which constitute only 1.08% of the total self-help groups in the North- Eastern Region. Likewise, the amount of loans disbursed to the North-Eastern states is highest for Assam with 43,744.89 lakh and lowest amount disbursed is Arunachal Pradesh with just 202.92 lakh.

Further, it also specifies the number of self-help groups, amount of outstanding loans, amount of gross Non-Performing Assets and Non-Performing Assets as percentage to outstanding loan amount. It is evident that outstanding bank loans and Non-Performing Assets are high in the States of Assam and Tripura, followed by Meghalaya, Manipur, Mizoram, Sikkim, Nagaland and Arunachal Pradesh. However, in case of Non-Performing Assets as a percentage of banks outstanding loans, it shows that Sikkim has only 1.81%, which is followed by Meghalaya with 5.19% of NPA over the total amount of loan outstanding. Whereas, Arunachal Pradesh has 24.27% of Non-Performing Assets over the total loan outstanding with the banks.

Likewise, it exclusively signifies the progress in the status of microfinance in Arunachal Pradesh from the year 2015-16 to 2019-20, and over the past five years, there has been both negative and positive change in the number of self-help groups, savings amount, loan disbursed and also the amount of loans outstanding. However, regardless of the negative rise and fall in the status of microfinance, Table 3 shows that in comparison to the year 2015- 16, the number of self-help groups and its savings with the banks have increased from 4,617 to 6,062 and likewise the amount of loan disbursed and loan outstanding have improved by some margin during the period of half a decade.

Hence, the overall status of microfinance in Arunachal Pradesh is fairly positive, although in comparison to other parts of the country or region, it is relatively meager. Therefore, more focus and various financial initiatives ought to be introduced and implemented all over the State in order to attain balanced regional growth, where the deprived individuals have access to the basic financial schemes of self-help groups and similar other microfinance services.

Conclusion
Since its introduction in Bangladesh, Grameen Bank by professor Muhammad Yunus, microfinance has played a crucial role in improving the livelihood of the poor all over the world, as it has aided numerous deprived individuals to safeguard against several financial risks in the distant future. Hence, in recent years, microfinance has become a paradigm which has been well acknowledged as an effective weapon in the fight against chronic poverty. In Arunachal Pradesh, the concept of microfinance is relatively new as compared to other parts of the world, and likewise the status of microfinance activities is low and inadequate in order to conclude that it has helped the rural poor in transforming their livelihood. However, in spite of the negative rise and fall in the status of microfinance, over the period of years, the number of selfhelp groups and its savings with the banks have improved along with the amount of loan disbursed and loans outstanding. Hence, it can be said that various microfinance activities have acted as an effective alternative to the poor in the State to generate income instead of solely depending on agriculture. Therefore, with proper implementation of various microfinance projects by working effectively with suitable groups such as regional NGOs, the status of microfinance in the State of Arunachal Pradesh can be improved and thus the rural population can be transformed into a developed community with access to all the basic requirements of life.

Limitations: The present study is mainly based on the secondary data collected via various journals, articles and websites. Due to the Covid-19 pandemic, it was not feasible for the researcher to gather primary data through field visits and personal interviews. Therefore, the study might not fully depict the true status of microfinance in the state.

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