Micro-Finance and Rural Enterprises: An Analysis of Operational Performance and Constraints in the SHG-Bank Linkage Program in India

This paper investigates the interrelationship within community’s business environment and the operational characteristics of community-owned economic units. Drawing upon a field level survey conducted in 2006–07 in two districts each of Haryana and Orissa states of India, this paper examines the suitability of government-directed micro-finance strategy and the role of the community level Self-Help Groups (SHGs) in the flow of micro-finance to rural micro-enterprises. While determining the underlying factors impacting the governance of SHGs and their performance of economic ventures in a rural business environment, the paper outlines low financial base, non-provision of socio-economic incentives to members and the lack of group commitment to task accomplishment as the main problem areas of resource flow to the micro-enterprises. The results underline the need for an integrated approach to program governance and conclude with policy lessons for improving the implementation of micro-finance driven self-employment programs in rural areas. Copyright Eurasia Business and Economics Society 2011