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North-East: Low on banking, Average on microfinance

North-East: Low on banking, Average on microfinance

An article recently released by RBI, titled ‘Financial Inclusion through Microfinance – An Assessment of the North-Eastern Region of India’, authored by S. Chinngaihlian and Pallavi Chavan, documents the spread of microfinance in the North-East. Despite a smaller share in the total microfinance portfolio, the North-East scores reasonably well on most indicators of access and usage of microfinance.

N-E: Lowest Among All Regions

The microfinance portfolio is skewed with the Eastern and Southern regions together accounting for close to 60% of the total amount of microfinance disbursed and the number of active microfinance loans in 2021-22. Going by the striking ascent of microfinance in the Eastern region in recent years, it can be concluded that this region has emerged as another hub of microfinance. Despite its proximity to the Eastern region, the share of the North-East has been in single digits and the lowest among all regions; the region has, in fact, been seen losing its share in recent years.

Almost all districts from the eastern region were covered by microfinance from banks in 2020-21. Similarly, in the Southern region too, banks provided microfinance in about 84% of the districts. The coverage of women through SHGs linked to banks through credit was also the highest in the eastern and southern regions.

Reasonable Spread in N-E

Although only about 3/4th of the districts from the North-East were covered by microfinance in 2020- 21, on most indicators of access and usage, the North-East scored reasonably well. To illustrate, per 1000 women, there were 27 saving-linked SHGs as compared to the national average of 18. Furthermore, the region had 4 credit-linked SHGs per 1000 women, again closer to the national average. On average, every unique borrower reported 2 microfinance loans, which was also comparable with the national average.

The physical access to banking was the weakest in the North-East, with only 19 branches per 1000 square kilometers in 2020-21. The intensity of bank credit usage captured by credit to net state domestic product (NSDP) ratio was also the lowest for the North-East, at just 24%. The CD ratio was 43% in the North-East as compared to 70-90% range in Southern, Northern and Western regions. Juxtaposing the banking and microfinance indicators, it can be inferred that microfinance has been able to make forays into the relatively underbanked regions.

Banks Key In Intra-regional

The regional analysis while insightful, can conceal the intra-regional trends, which may be relevant for the policy on financial inclusion. In all the states of the North-East, banks are the most important source of microfinance except Arunachal Pradesh, where SFBs are the most dominant source. Within banks, it is the public sector banks that are almost entirely responsible for microfinance in all North-Eastern states.

The involvement of private sector banks in microfinance remains limited not only in the North-East but also at the all-India level. In 2021-22, private sector banks accounted for only about 13% of the total microfinance under SHG-Bank Linkage Program (SBLP) across India. Public sector and cooperative banks have been the key drivers behind SBLP. By contrast, private sector banks have preferred the MFI bank linkage model.

The penetration of microfinance has been more in rural than in urban areas. About 67% of the total SHGs were financed under the National Rural Livelihood Mission (NRLM) as compared to only about 5% under the National Urban Livelihood Mission (NULM) in 2021-22.


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