RESEARCH PROPOSAL

Submitted by
Pragya Jaiswal
1828836

DEPARTMENT OF MANAGEMENT STUDIES,

CHRIST (Deemed to be University),
BANGALORE - 560 029
2019

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TITLE
Role of Microfinance Institutions (MFI) on economic growth in BIMSTEC (Bay of Bengal
Initiative for Multi-Sectoral Technical and Economic Cooperation) nations

STATEMENT OF PROBLEM

The major problem faced by the BIMTEC nations is poverty. Majority are the low income
group people in BIMSTEC (South Asian and South East Asian). The lack of financial
literacy, income gap and inequality are major issues that have been overlooked. Due to lack
of financial literacy there is fall in the number of loan and savings account and those which
are opened also are not widely used. On the supply side, lack of appropriate financial
products is an important barrier. Often, the terms and conditions of banks are not suitable for
low income groups.

REVIEW OF LITERATURE
1. Md Aslam Mia (2017), ‘An overview of microfinance in Bangladesh’ states some key
characteristics of Bangladesh that includes socio-economic macroeconomic
indicators. However, since the poverty remains acute in Bangladesh. One of the
remarkable institutional developments in the microfinance industry is the
establishment of the MRA in 2006. The MRA now controls and supervises the
industry to ensure smooth flow of credit and sustainability of the sector. However,
this study pointed out the weak institutional and fiscal strength of the MRA, which is
insufficient to control such a vast sector. The government should expand the activities
of the MRA and allow it to exercise its fiscal strength to promote sustainability in the
industry. Nonetheless, the study also found that MFIs have a tendency to locate
themselves in well-established areas that are financially better off.
2. Dinesha P T (2008), in his article ‘Financial Inclusion and Microfinance in India: An
Overview’ examines the role of micro finance in the empowerment of people and the
realisation of financial inclusion in India. With increasing demand for rural finance,
and the inadequacies of formal sources, the MFIs have immense opportunities in the
new avatar of micro credit in India. NGOs have played a commendable role in
promoting Self Help Groups linking them with banks. There is, therefore, a need to
evolve an incentive package which should motivate these NGOs to diversify into
other backward areas.

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3. Sean Turnell (2018), in her article ‘A Survey of Microfinance Institutions in Burma’
states that Microfinance in Burma has reached a critical juncture. From this place they
could transform into the sustainable financial institutions Burma so desperately needs,
yet so apparently lacks. Alternatively, microfinance could fail to make this leap, and
continue in the dismal tradition of Burma’s financial sector – of just another idea,
good in theory and well-intentioned, gone wrong in application.
4. Krishanthi Mallika (2017), in her article ‘The Social Efficiency of Microfinance
Institutions in Sri Lanka’ sates that it was found that the majority of MFIs have
become a considerable efficiency scores in study year of 2013 and 2016. After the
year 2007 many new financial institutions entered the rural finance market in Sri
Lanka and many commercial banks diversified their activities to include microfinance
services. Finally the findings of this study states that many convince institutions
decisions makers to establish more comprehensive policy settings for promoting
microfinance institutions social activities relate with poverty alleviation and women
empowerment in Sri Lanka.
5. Santosh Kumar Karn (2018), in his article ‘Challenges and Opportunities of
Microfinance in Nepal’ states many microfinance programmes have increasingly
targeted women in response to experience of excellent repayment rates. Credit
programmes may not enable people to increase incomes but may accelerate a
downward spiral of indebtedness. Microfinance is comparatively a new branch of
finance and in Nepal, it is almost at the stage of take-off. Since 2000, this has
observed rapid growth and performed tremendously as a market player. However,
challenges are still there in the way ahead, which need to be faced with strategies
policies. Besides, there are opportunities too which can be availed if government is
keen to provide level playing field to the private sector market players in this area.
6. Maliha Hamid Hussein (2009), State of Microfinance in Bhutan’ states that Bhutan
does not appear on the Mix Market as there is no MFI which is registered with the
Mix Market and there is little information on it on web. This report is primarily based
on reports produced by the Asian Development Bank, World Bank,the International
Fund for Agriculture Development and the United Nations Development Programme.
7. Siddhartha Sultaniya, Mahiraj Shaikh Raghunandan HJ (2019), in his article
‘Comparative Study of Microfinance Institutions in India’ states that Micro-credit
aims to provide lifeline to borrowers by providing loans at lower interest rates thereby
reducing the need of moneylender and improving the standard of living. The MFI’s
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 industry has great potential and can bring about economic development in country by
focusing on rural class. The MFI’s sector has further growth and should thereby
ensuring regulatory framework for smooth functioning by the support of the
government. The MFIs are meeting vertical and horizontal axis for up liftment of
society.
8. Shirin Akter (2016), in his research article ‘Overview of Financial Inclusion in
Bangladesh’ states that the experience of Bangladesh shows that the government and
the central bank have continued efforts to create a conducive and enabling
environment for expanding financial services to marginal farmers, SMEs
unbanked/underserved people, women and lower income groups by banks and non-
bank financial institutions, co-operatives, MFIs and other financial institutions.
Despite a large number of initiatives, in Bangladesh around 25% of the country’s
adult population remains financially excluded. The overall state of financial inclusion
shows that, although households still have more access to microfinance market than
informal one, resort to informal finance is still high in Bangladesh (access to informal
finance is 21.1%, with 2.3% and 19.5% having access to savings and credit
respectively).
9. Dr. Firoja Akter Khanam (2018), in his article ‘Financial Inclusion in Bangladesh-
Status and Issues’ states that reveals that execution of financial inclusion will require
on approach in totally on the part of the banks in creating awareness about financial
products, educating and advice on money management, debt counseling, savings and
affordable credit. The bank would have to evolve specific strategies to expand the
outreach of their services in order to promote financial inclusion. One of the ways in
which this can be achieved in a cost effective manner is through forging linkages with
micro finance institutions and local communities. Banks should give wide publicity to
the facility of zero balance account.
10. Rathiranee Yogendrarajah (2014), in his article ‘Impacts of Microfinance
Institutions: Issues and Concepts-An Empirical Study on Sri Lankan Context’, Micro
Finance Institutions (MFIs) Provide financial and nonfinancial services to the poor
people in developing countries for their income generating activities as well as in Sri
Lanka. It can be divided into different legal categories depending on the country in
which the institution is based. An MFI could be a Non Government Organization
(NGO), a credit cooperative or a non-bank financial institution and Community Based
Organizations (CBOs). It has dual objectives which are both social and financial. The

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 social objectives mean that the MFI contributes to improvement and alleviating
poverty. The financial objectives focus that the MFI must keep enough profit for their
sustainability.MFIs providefinancial, social intermediation, entrepreneurship
development and social services to the clients for achieving the social objectives.
Microfinance in Sri Lanka has a long history and MFIs are established in all forms
and dimensions and it can differ in size, practice, legal act, strategy and budget. The
reliability is important to the microfinance system and it determines how smoothly an
MFI operates.

RESEARCH GAP

Micro finance is an important tool for financial inclusion and growth strategy. It helps in the
overall economic development of the country such as India by eradicating poverty. The
present research study is to find out the present scenario of microfinance on impacting the
GDP growth of BIMSTEC by the income and credit growth, hence eradicating poverty and
promoting financial inclusion.

NEED FOR THE STUDY

There is a serious need for the low income group people to have access to the financial
instruments and facilities to microfinance so as to enhance financial inclusion in India which
will ultimately help in the economic growth of the country. There is a need of financial
literacy campaigns and financial awareness required to eradicate the problem of financial
exclusiveness. To measure the impact of credit growth and income growth on GDP is the
major need.

OBJECTIVE OF THE STUDY

 To examine present scenario of microfinance in BIMSTEC nation.
 To study the impact of microfinance indicators like deposits, loan, number of MFIs in
each nation and clients outreached to these MFIs on GDP growth of the country.
 To examine how microfinance help in eradicating the poverty from the country.
 To examine how microfinance help in financial inclusion of the low income group
people by providing affordable and easy availability of financial services like loans.

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METHODOLOGY
The study is based on secondary data that will be collected from world bank, IMF, RBI
report, annual reports of MFIs of BIMSTEC nations, Microcredit regulatory authority
(MRA), Economic survey of India, E-journals, books and magazines. The period under
consideration for the study is for 5 years from 2013 to 2017. Data will be analysed by
applying multiple regressions as the main statistical tool. Multiple regression tools will be
used to establish relationship between microfinance and growth of the country. The sample
size will be 175 consisting of 5 MFIs from 7 BIMSTEC nations for 5 years. The dependent
variable is GDP at current price and independent variables are number of branches of each
MFI in each nation, number of clients in each MFI, amount of loan in each MFI,
amount of savings and amount of deposits.

Yt=b0+b1X1+b2X2+b3X3+b4X4+b5X5+et…………………………………..(1)
Yi=b0+b1X1+b2X2+b3X3+b4X4+b5X5+ei…………………………………..(2)
Yt,i=b0+b1X1+b2X2+b3X3+b4X4+b5X5+et,i…………………………………..(3)

Where,

Y= GDP (current market price)

X1= Number of branches of each MFI
X2= Number of clients
X3= Amount of outstanding loan in each MFI
X4=Amount of savings
X5=Amount of deposits in each MFI

HYPOTHESIS:

Ho1: There is no significant impact of MFIs on GDP of BIMSTEC nations

Ha1: There is a significant impact of MFIs on GDP of BIMSTEC nations

SUB-HYPOTHESES:

Ho1.1: There is no significant impact of number of clients of MFIs on GDP of BIMSTEC

nations

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Ha1.1: There is a significant impact of number of clients of MFIs on GDP of BIMSTEC
nations

Ho1.2: There is no significant impact of number of branches of MFIs on GDP of BIMSTEC

nations

Ha1.2: There is a significant impact of number of branches of MFIs on GDP of BIMSTEC

nations

Ho1.3: There is no significant impact of amount of outstanding loan of MFIs on GDP of

BIMSTEC nations

Ha1.3: There is a significant impact of amount of outstanding loan of MFIs on GDP of

BIMSTEC nations

Ho1.4: There is no significant impact of amount of savings of MFIs on GDP of BIMSTEC

nations

Ha1.4: There is a significant impact of amount of savings of MFIs on GDP of BIMSTEC

nations

Ho1.5: There is no significant impact of amount of deposits of MFIs on GDP of BIMSTEC

nations

Ha1.5: There is a significant impact of amount of deposits of MFIs on GDP of BIMSTEC

nations

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