Group Based Microcredit and Self Help Group (SHG) functioning: An alternate or complementary form of credit rationing in Rural and Urban SHGs

The straddling of rural-urban divide continuous with a sharp distinction between rural and urban residents exists in their livelihood and can be mainly grouped as agriculture based in rural areas and manufacturing and service based in urban areas (Tacoli 1998), accordingly the people financial requirements also differs. Microcredit has emerged as a major innovation of credit and savings system for poor families in the rural financial market revolutions in developing countries (Pretty and Ward 2001), in particularly the concept has made first revolution in the Theory of credit and policy (Woller2002) in India. With appreciable outreach, savings mobilization, low rate of interest and high repayment rate, the importance of SHG banking is nebulous due to intricate participation formal and informal institutions- is addressed in this paper exploring the existing credit pattern and extent of credit substitution. Hyderabad the capital of Andhra Pradesh (AP) which is predominant in SHG bank linkage in India was selected for the study. The study reveal that rural SHGs members have taken more loans from SHG source than from other formal institution -namely banks to meet their all three types of production, consumption and emergency credit needs. In addition, it was found that both rural and urban member have considerably agreed that SHG has helped in reducing taking credit from banks, friends and relatives. The study ends with conclusion that group based microcredit has become a favorable alternate form of credit and also acts as a complementary source along with other forms of credit, substituting the financial needs over a varied range of purposes.