CHAPTER-I
INTRODUCTION AND RESEARCH DESIGN
1.1 Introduction
1.2 Meaning of Entrepreneurs
1.3 Meaning of Microfinance Institutions
1.4 Channels of Microfinance
A. SHG – Bank Linkage Programme (SBLP)
B. Microfinance Institutions (MFIs)
1.5 Statement of the Problem
1.6 Objectives of the Study
1.7 Hypothesis of the Study
1.8 Research Methodology
1.8.1 Research Design
1.8.2 Sources of data and Methods of collection
1.8.3 Statistical Techniques and Tools
1.8.4 The Scope of the Study
1.9 Limitations of the Study
1.10 Chapter Scheme
1.1 Introduction
Microfinance is a source of financial services for entrepreneurs and small businesses
for those who don’t have easy access to banking and related services. The main objective of
microfinance is to help the poor to overcome the poverty and help in economic development.
Microfinance not only gives micro credit, but also provides a wide range of services like
insurance, savings, remittance and non-financial services such as training, counseling etc.
Micro-Enterprise sector has been recognized as an important pillar of the economic growth all
over the world. The sector is characterized by low investment requirement and operational
flexibility. Micro enterprise plays a very vital role in the development of country because of
its innovative entrepreneurial spirit. In various developing economies including India, Small
and Medium Enterprises (SMEs) plays a major role in employment creation and income
generation. The key factors influencing micro enterprise to become small to medium
enterprise. Microfinance is an important tool to promote business development. Several
Researches shows that more than 15 million families are benefited from small loans and other
financial products like micro-savings and micro-insurance in Bangladesh and specifically
there is a reduction in poverty by 40 per cent, the national bodies such as Small Industries
Development Bank of India (SIDBI) and National Bank for Agriculture and Rural
Development (NABARD) devote a significant time, energy and financial resources on
microfinance. It is a clear indication of economic growth. Micro Enterprises face a lot of
challenges and problems from microfinance institutions.
From the last five decades, Indian Micro, Small and Medium Enterprises (MSME) sector
have emerged as a very dynamic and vibrant sector. MSMEs not only help for
industrialization of rural and backward areas but also play a key role to provide employment
opportunities. Thus, MSMEs reduce the regional imbalances and pledge on equitable
distribution of national income and wealth. MSMEs correspond to large scale industries as
secondary units and it contributes massively to the socio-economic development of India. As
per the Micro, Small and Medium Enterprises Development Act, 2006, Micro-Enterprise is
defined as a enterprise where the investment in plant and machinery have not exceed twenty
five lakh rupees; A Small Enterprise, where the investment in plant and machinery is more
than twenty five lakh rupees but does not exceed five crore rupees; A Medium-Enterprise,
where the investment in plant and machinery is more than five crore rupees but does not
exceed ten crore rupees”. Accordingly, as per this definition micro, small and medium
enterprise is:
Enterprise Investment in plant and machinery/equipment (Excluding
s land and Building)
Manufacturing Service Enterprises
Enterprises
Micro Upto Rs. 25 lakhs Upto Rs. 10 lakhs
Small More than Rs. 25 lakh and More than Rs. 10 lakh and
upto Rs. 5 crores upto Rs. 2 crores
Medium More than Rs. 5 crore and More than Rs. 2 crore and
upto Rs. 10 crores upto Rs. 5 crores
Source: MSMEs Report 2019-20
1.2 Entrepreneurs:
The word entrepreneur is derived from the French word “entrepredre” means "to undertake".
In the early 16th century, the Frenchmen have organized and led military expeditions were
referred to as “entrepreneurs”. For Cantillon, an entrepreneur is a kind of person who is
engaged in the production activities and made certain payments to owners of production
factories in expectation of uncertain receipts and was bearing non-insurable risks (Aitken,
1965). According to Haggen (Desai, 1991), an entrepreneur is an economic man who tries to
maximize his profits by innovations. Innovations involve problem-solving and the
entrepreneur gets satisfaction using his capabilities to face the problems.
The New Encyclopedia Britannica demarcates an entrepreneur is "an individual who bears
the risk of operating a business in the face of uncertainty about future conditions". Walrus
(cited by Guha 1987) gives recognition to the entrepreneur as an organizer. In 1934,
Schumpeter contributes a new dimension to the entrepreneur. Thereafter he defines the
entrepreneur works in an advanced economy as "an individual who introduces something
new in the economy – a method of production not yet tested by experience in the branch of
manufacture concerned, a product with which consumers are not yet familiar, a new source
of raw material or new markets and the like". Schumpeter delineates an entrepreneur as a
leader who gets the satisfaction of using his capabilities in attacking problems. The
phenomenon of entrepreneurship is comparatively new.
According to Hartman (1959) "Entrepreneurship is the process whereby people, money
markets, production facilities, and knowledge are brought together to create a commercial
enterprise which are not existed before according to Schumpeter's system of
entrepreneurship it is essentially a creative activity. These definitions have been enforced in
many studies to study the characteristics of those who have started business ventures.
However, the contribution and the understanding of the concept of entrepreneurship is not
substantial because they have not tried to focus on the critical function of the entrepreneur
therefore the concept remains elusive.
1.3 Microfinance Institutions
The MFIs consider microfinance as their main operation. The main aim of MFIs is to offer
microfinance service. The proposed Microfinance Services Regulation Bill represents
Microfinance Institutions as an organization or association of individuals. Iit is established
for the purpose of carrying on the business of extending microfinance services:
1.4 In India Microfinance Operates through two Channels:
A. SHG – Bank Linkage Programme (SBLP)
B. Micro Finance Institutions (MFIs)
A. SHG – Bank Linkage Programme (SBLP)
SBLPs are the bank-led microfinance channel initiated by NABARD as an Action
Research Project in 1989. The self-help group (SHG) is a small group usually
composed of 10–20 local women or men. A mixed group is generally not preferred
and members make small saving contributions in the group periodically for few
months until there is enough capital in the group to begin lending. Once the SHGs are
settled, it gets linked to banks via NGOs for opening savings account and for other
credit requirements. Banks lend to SHGs after assessing their credit worthiness.
B. Micro Finance Institutions (MFIs)
Micro Finance Institutions (MFIs) play an important role in facilitating financial
inclusion and helping the poor with finance. A microfinance institution (MFI) is an
organization that provides microfinance services. It ranges from small non-profit
organizations to larger banks.
1.5 Statement of the Problem
The Indian MFIs have experienced major transformations over the past two decades,
growing from a fledgling concern dominated by a few donor and church based NGOs to a
vibrant institution increasingly driven by commercial viability and sustainability. Till today
microfinance has established itself as an integral part of the financial sector policies of
emerging developing countries.
Micro entrepreneurs find lot of challenges. In poor rural and urban area. Microenterprise
development has an immediate and lasting impact on the quality of life; it is ability to offer
food, shelter, education, and healthcare. As the business income increases, the business
expands, and spreads beyond the family to the local community in the form of employment.
The benefits of micro enterprise development influence not only businesses, but also impacts
on economy.
The Indian economy has witnessed the considerable growth acceleration in the post-
liberalization period. It grows at an annual rate of 5 percent during the last four years. Now,
the country has much potential to become the fastest-growing economy in the world. The
major drivers of the growth acceleration are demographic dividend, greater domestic and
international competition, a sharp increase in the total factor of productivity, the blossoming
of entrepreneurship, and India’s acceptance of globalization etc. This growth acceleration
has been accompanied by a reduction in the percentage of people who are in the below
poverty line.
The NABARD is proud to place that the Self Help Group - Bank Linkage Program is the
most extensive Microfinance program in the world, it touches 13.8 crore households through
more than 112 lakhs SHGs with deposit of about Rs. 37,477 crore and annual loan off taking
of Rs. 58,000 crore and loan is nearly Rs. 1.03 lakh crore (NABARD-2020-21).
Despite of the discussion there is a limited documented information available on the how
microfinance institutions have contributed to the Indian economy taking into consideration
micro finance institutions clients in Ballari. Thus, present study that focuses on “Impact of
Microfinance on Micro Entrepreneurs”. The secondary information suggests that
microfinance is considered as an effective tool for achieving the objective of micro
entrepreneurs. There is no systematic study that has been conducted so far regarding the
Impact of Microfinance on Micro entrepreneurs in back ward region of Karnataka i.e. Ballari
District. It is the culmination of such a long felt need and is the first kind of study in the field
of development of banking activities of rural mass. The present study highlights the
challenges, motivating factors of micro entrepreneurs and the growth of microfinance in
India. Ballari District is one of the backward areas of Kalyana Karnataka Region in
Karnataka state and people majorly depend on the agriculture livelihood.
1.6 Objectives of the Study
The success of any research depends on appropriate design of research objectives, giving due
consideration to the statement of the problem and research gap, the following objectives have
been constructed.
1. To examine the development of Microfinance in India.
2. To evaluate the impact of Microfinance on the development of Micro entrepreneurs in
Ballari.
3. To identify the challenges faced by micro entrepreneurs in Ballari.
4. To identify the key factors motivating Micro entrepreneurs to borrow Microfinance.
5. To suggest a few measures to enhance Microfinance to Micro entrepreneurs.
1.7 Hypotheses of the Study
1. Ho: There is no significant relationship between impacts of Microfinance on
development of Micro Entrepreneurs.
2. Ho: There is no statistical significance difference in the opinion of micro
entrepreneurs regarding key factors to barrow microfinance.
1.8 Research Methodology
All Hoblies have been selected from five talukas of Ballari in order to collect the sample for
the selection of the micro entrepreneur’s respondents from five talukas of Ballari District;
Simple random sampling method has been adopted. The numbers of total available registered
SHGs are 5824 in seven Talukas covering 91,419 active members, furthermore, the
researcher calculates highest and lowest members of Self-Help Groups among 7 talukas.
After the fair representation researcher chooses five talukas out of seven talukas out of which
there are 42,205 active members of SHGs and the researcher has selected 396 members as
samples for the study. In order to give fair representation of respondents among talukas 100
respondents from each talukas have been selected for the study. The total sample of 500
respondents has been selected from 5 talukas of Ballari. The sample selected from each
hoblies is shown in the below table.
The following formula (1) is used to finalize the sample size for the study
N
n= 2 …………………………….(1)
1+ Ne
42205/1+42205(0.05)2
42205/1+105.51
42205/106.51
=396
In the above formula ‘n’ indicates Sample Size, ‘N’ represents total population, ‘e’
explains about the Margin of error, 1 is constant number.
By using above formula of Solvins, we derived 396 as sample size of the study.
Table 1.1:The following table illustrated the details of sample size throughout 5 talukas of
Ballari District.
No of Active MFIs Total Sample size
S.No. Talukas
Members sample (Hoblies level)
1. Moka 25
1. Ballari 6279 2. Rupanagudi 25
100
3. Ballari 50
1. Sandur 50
2. Sandur 11479 2. Chorunuru 25
100
3. Toranagallu 25
1. Kampli 50
3. Kampli 5973 2. Metri 25
100
3. KanviThimmalapura 25
1. Koluru 50
4. Kurugodu
6310 100 2. Kurugodu 50
1. Siruguppa 50
5. Siruguppa 2. Tekkalakote 25
12164 100
3. Karuru 25
Total 42,205 500
1.8.1 Research Design
In the present study, the descriptive and analytical research methods have been used to get a
proper insight into the problems of the study. The direct physical interactions have been made
with the micro-entrepreneurs who are borrowing the loans and financial assistance from
microfinance institutions and having a piece of specialized knowledge in the field of
microfinance. To satisfy the above objective, the researcher is explored both primary and
secondary data.
1.8.2 Sources of Data and Method of collection
a) Primary Data
Primary data has been collected through a set of structured questionnaires from the individual
micro-entrepreneurs. The additional information of primary data is collected from the
observation method to gain first-hand insight into the various aspects of barrows of the loan
from microfinance institutions.
b) Sample Design
The researcher uses a simple random sampling technique to develop the objectives of the
study with a sample size of 500 loan borrowers from microfinance institutions to run the
micro-enterprises such as Juice Shops, Fruit shops, Tea stalls, Cutting Shops, flower shops,
and chat-chit bandies, etc.
c) Secondary Data
The secondary data has been collected with the help of books, magazines, articles, thesis,
dissertations, newspapers, websites, official publications by the Government of India,
Government of Karnataka, Microfinance Institutions (MFIs), publication reports,
Microfinance, and Micro entrepreneurs related websites, etc.
1.8.3 Statistical Tools Used to Analysis the Data
Keeping the overviews on objectives of the research, the data collection is classified and
tabulated to facilitate correct analysis and easy interpretations. The processed data is
interpreted with the help of the statistical tools i.e. Frequency, Percentage, Mean, Standard
Deviation, chi squire test, Regression using MS Excel and SPSS Software. Five points
Likert's scale measurement is used in the collection of satisfaction levels of micro-
entrepreneurs in the study area.
1.8.4 Scope of the study
This study confines the impact of microfinance on micro entrepreneurship development in
Ballari district of five talukas such as Kurugodu, Ballari, Sandur, Kampli, and Siruguppa.
1.9 Limitations of the Study
The present study is not free from certain limitations. As the following below;
The investigation is restricted to the Ballari district area only. Due to cost and time
constraints.
It became difficult to give very recent data. Due to the time lag between collection and
publications of official data.
There are two models of Microfinance, namely, the Micro Finance Institutions model
and the Self Help Group Bank Linkage Program model in India. Self Help Group - Bank
Linkage Program is the largest Microfinance program in the world (Status of
Microfinance in India, NABARD Report: 2019-20), Page No: 4). Hence, this study is
confined to only micro entrepreneurs who borrow the loans from microfinance
institutions.
The study mainly focuses on five talukas of Ballari district, such as Ballari, Sandur,
Kampli, Siruguppa and Kurugodu obviously; the findings of the study may not be
generalized.
The present topic deals with the Microfinance loan beneficiaries' financial situations
such as savings, income, and expenditure, etc. in the five talukas Kurugodu, Ballari,
Sandur, Kampli, and Siruguppa of Ballari district.
The secondary data is limited for the period of 2001-10 to 2011-20.
It is taken to collect accurate and reliable data. However, data is collected during the
survey, but it depends on the errors as respondents were not cooperative in many cases
and they also had no detailed records. Such limitations and difficulties are to be taken
care of.
1.10 Chapterization Scheme
The report of the proposed study intended to be presented in six chapters as given below:
Chapter Title of the Chapter
1 Introduction and Research Design
2 Review of Literature
3 Microfinance and MSMEs in Ballari District
4 Growth of Microfinance
5 An Analysis of
Part-A Impact of Microfinance and Micro entrepreneurs
Part-B Challenges of Micro entrepreneurs
Part-C Motivating Factors of Micro entrepreneurs
6 Findings and Suggestions
The brief description of contents of each chapter is given below:
Chapter I: Introduction: It deals with an overview of Microfinance, Micro entrepreneurs
and Statement of the Problem, Objectives of the study, Formulation of Hypothesis, Research
Methodology, Scope of the study, Limitations of the study and Chapterization.
Chapter II: Review of Literature: This chapter consists a literature survey as a process of
developing insight into both conceptual and research-based studies available at both the
national and international level on the topic chosen.
Chapter-III: Microfinance Institutions and MSMEs in Ballari District This chapter
envisage the profile of Ballari District of Karnataka in brief and its Performance.
Chapter IV: Growth of Microfinance in India: This chapter examines with the theoretical
concepts such as Microfinance.
Chapter V: Impact of Microfinance on Micro-Entrepreneurs, Challenges of Micro
entrepreneurs and Motivating Factors of Micro-Entrepreneurs an analysis: This
Chapter discuss the Challenges and Motivational Factors related to the micro-entrepreneurs,
Impact of Microfinance through Microfinance.
Chapter VI: Summary of Findings, Suggestions, and Conclusions: This chapter
represents the major findings of the research with suitable suggestions; moreover it identifies
the scope for further research, and conclusions.
