Micro-Finance Management & Critical Analysis in India

“MICRO-FINANCE MANAGEMENT & CRITICAL ANALYSIS IN INDIA”
APPROVED BY JOINT COMMITTEE OF UGC-DEC- AICTE, MINISTRY OF HRD, GOVT: OF INDIA.
RESEARCH PROJECT
STUDENT NAME:
SABUJ GHOSH
MBA Specialization: FINANCE
Registration / Roll No -911170101
Email Id : sabuj1ghosh@gmail.com
MOB- 9433241627.
A PROJECT REPORT ON:-

“MICRO-FINANCE MANAGEMENT & CRITICAL ANALYSIS IN INDIA”
With Organization References:-
KDS MFI
FACULTY GUIDE:
NAME: BARNASREE CHANDRA
(FACULTY OF FINANCE)
BRAINWARE BUSINESS SCHOOL
DECLARATION
I am Sabuj Ghosh, hereby declare that the Project entitled Micro-finance Critic
al Analysis & Operation Management submitted to the Punjab Technical University
in partial fulfillment for the award of the Degree of MASTER IN BUSINESS ADMINIS
TRATION and that the Project has not previously formed the basis for the award o
f any other degree, Diploma, Associate ship, Fellowship or other title.
Place:
Date: Signatu
re of the Candidates.
ACKNOWLEDGEMENT
The satisfaction and euphoria that accompanied the successful completion of any
task would be incomplete without the mention of the people who made it possible,
whose constant guidance and encouragement crowned out effort with success. I ta
ke this opportunity to express our deep sense of gratitude and respect to our Su
pervisor BARNASREE CHANDRA Faculty Member of FINANCE for the valuable guidance,
BRAINWARE BUSINESS SCHOOL (Plot Y 8,Block EP, Sector – V, Salt Lake, Kolkata -7000
91) India and Kotalipara Development Society (KDS MFI), Arabida pally, Noapara,
Kolkata-124 , for providing us with essential facilities for completing and pre
senting this project. I am greatly indebted to their help, which has been of imm
ense value and has played a major role in bringing this to a successful completi
on. I would like to thank our family and friends for their constant support and
encouragement throughout our project.
-----------
ABSTRACT OF THE PROJECT
Learning from the project
* The History of Modern Microfinance. I learnt in detail the process of Micro Fi
nance, from its need at the grass root level.
*Functioning of various Govt:, Semi Govt: & various other delivery channels.
*Practical learning of how SHGs are formed.
*Practical learning of how the MFIs work.
*Most important learning, how it can change the life of the Economic disadvantag
ed people.
Learning from the Company
* Microfinance Regulation in India.

*Micro Finance Model.
*Microfinance Management, Critical Analysis.
*Practical learning of Equity, Future & Options market by terminal trading
.
*Various strategies of Market.
*Apart from Micro Finance, Nine mine projects, which helped to relate to t
he
Present Market conditions.
*Business Model.
TABLE OF CONTENTS
PAGE
*DECLARATION
4
*ACKNOWLEDGEMENT
5
*ABSTRACT OF THE PROJECT
6
Chapter 1- Introduction
8 2- The His
tory of Modern Microfinance
8
3- Overview Chapter
9
4- Government’s role supporting microfinance
12
5- Microfinance Social Aspects
13 6- The Need in India
14
7- Micro-Financing Regulation in India
14
8- Micro Finance Models
16
9- Coordinating Microfinance Efforts in India
18
10- Microfinance Strategic
19
11- Microfinance Management
22
12- Critical Analysis
27
13- Micro-Finance Accounting and Management Information Systems 34
14- Capital Requirements
41
15- Development Fund
43
16- NABARD s Support to microfinance Institutions (MFIs)
45
17- Business Model of KDS MFI
46
19- Success Factors of Micro-Finance in India
56
20- Future of Micro Finance
57
21- Top 50 Microfinance Institutions in India
59
22- Microfinance India Summit 2010
61
• Recommendations and suggestions
62
• ACRONOMY
62
• Conclusion
63
• References
64
1. Introduction
A. About Microfinance: Microfinance is a general term to describe financial
services to low-income individuals or to those who do not have access to typica
l banking services.
Microfinance is also the idea that low-income individuals are capable of lifting
themselves out of poverty if given access to financial services. While some stu
dies indicate that microfinance can play a role in the battle against poverty, i
t is also recognized that is not always the appropriate method, and that it shou
ld never be seen as the only tool for ending poverty.
Microfinance is defined as any activity that includes the provision of financial
services such as credit, savings, and insurance to low income individuals which
fall just above the nationally defined poverty line, and poor individuals which
fall below that poverty line, with the goal of creating social value. The creat
ion of social value includes poverty alleviation and the broader impact of impro
ving livelihood opportunities through the provision of capital for micro enterpr
ise, and insurance and savings for risk mitigation and consumption smoothing. A
large variety of actors provide microfinance in India, using a range of microfin
ance delivery methods. Since the ICICI Bank in India, various actors have endeav
ored to provide access to financial services to the poor in creative ways. Gover
nments also have piloted national programs, NGOs have undertaken the activity of
raising donor funds for on-lending, and some banks have partnered with public o
rganizations or made small inroads themselves in providing such services. This h
as resulted in a rather broad definition of microfinance as any activity that ta
rgets poor and low-income individuals for the provision of financial services. T
he range of activities undertaken in microfinance include group lending, individ
ual lending, the provision of savings and insurance, capacity building, and agri
cultural business development services. Whatever the form of activity however, t
he overarching goal that unifies all actors in the provision of microfinance is
the creation of social value.
‘Microfinance refers to small scale financial services for both credits and deposi
ts- that are provided to people who farm or fish or herd; operate small or micro
enterprise where goods are produced, recycled, repaired, or traded; provide ser
vices; work for wages or commissions; gain income from renting out small amounts
of land, vehicles, draft animals, or machinery and tools; and to other individu
als and local groups in developing countries in both rural and urban areas’.
Marguerite S. Robinson.
2. The History of Modern Microfinance
A. ABSTRACT:
In the late 1970s the concept of microfinance had evolved. Although, microfinanc
e have a long history from the beginning of the 20th century we will concentrate
mainly on the period after 1960.
Many credit groups have been operating in many countries for several years, for
example, the "chit funds" (India), tontines" (West Africa), "susus" (Ghana), "pa
sanaku" (Bolivia) etc. Besides, many formal saving and credit institutions have
been working for a long time throughout the world.
During the early and mid 1990s various credit institutions had been formed in Eu
rope by some organized poor people from both the rural and urban areas. These in
stitutions were named Credit Unions, People s Bank etc. The main aim of these in
stitutions was to provide easy access to credit to the poor people who were negl
ected by the big financial institutions and banks.
In the early 1970s, few experimental programs had started in Bangladesh, Brazil
and some other countries. The poor people had been given some small loans to inv
est in micro-business. This kind of micro credit was given on the basis of solid
arity group lending, that is, each and every member of that group guaranteed the
repayment of the loan of all the members.
Many banks and financial institutions have been pioneering the microfinance prog
ram after 1970. These are listed below.
B. ACCION International:
This institution had been established by a law student of Latin America to help
the poor people residing in the rural and urban areas of the Latin American coun
tries. Today, in 2008, it is one of the most important microfinance institutions
of the world. Its network of lending partner comprises not only Latin America b
ut also US and Africa.
C. SEWA Bank:
In 1973, the Self Employed Women s Association (SEWA) of Gujarat (in India) for
med a bank, named as Mahila SEWA Cooperative Bank, to access certain financial s
ervices easily. Almost 4 thousand women contributed their share capital to form
the bank. Today the number of the SEWA Bank s active client is more than 30,000.
D. GRAMEEN Bank:
Credit unions and lending cooperatives have been around hundreds of years. Howev
er, the pioneering of modern microfinance is often credited to Dr. Mohammad Yunu
s, who began experimenting with lending to poor women in the village of Jobra, B
angladesh during his tenure as a professor of economics at Chittagong University
in the 1970s. He would go on to found Grameen Bank in 1983 and win the Nobel Pe
ace Price in 2006.
Since then, innovation in microfinance has continued and providers of financial
services to the poor continue to evolve. Today, the World Bank estimates that ab
out 160 million people in developing countries are served by microfinance. Grame
en Bank (Bangladesh) was formed by the Nobel Peace Prize (2006) winner Dr Muhamm
ad Younus in 1983. This bank is now serving almost 400, 0000 poor people of Bang
ladesh. Not only that, but also the success of Grameen Bank has stimulated the f
ormation of other several microfinance institutions like, ASA, BRAC and PROSHIKA
.
3. Overview
A. Microfinance Definition:
According to International Labor Organization (ILO), “Microfinance is an economic
development approach that involves providing financial services through institut
ions to low income clients”.
In India, Microfinance has been defined by “The National Microfinance Taskforce, 1
999” as “provision of thrift, credit and other financial services and products of ve
ry small amounts to the poor in rural, semi-urban or urban areas for enabling th
em to raise their income levels and improve living standards”.
"The poor stay poor, not because they are lazy but because they have no access t
o capital.
"Microfinance is the supply of loans, savings, and other basic financial service
s to the poor."
As these financial services usually involve small amounts of money - small loans
, small savings, etc. - the term "microfinance" helps to differentiate these ser
vices from those which formal banks provide
It s easy to imagine poor people don t need financial services, but when you thi
nk about it they are using these services already, although they might look a li
ttle different.
"Poor people save all the time, although mostly in informal ways. They invest in
assets such as gold, jewelry, domestic animals, building materials, and things
that can be easily exchanged for cash. They may set aside corn from their harves
t to sell at a later date. They bury cash in the garden or stash it under the ma
ttress. They participate in informal savings groups where everyone contributes a
small amount of cash each day, week, or month, and is successively awarded the
pot on a rotating basis. Some of these groups allow members to borrow from the p
ot as well. The poor also give their money to neighbors to hold or pay local cas
h collectors to keep it safe.
"However widely used, informal savings mechanisms have serious limitations. It i
s not possible, for example, to cut a leg off a goat when the family suddenly ne
eds a small amount of cash. In-kind savings are subject to fluctuations in commo
dity prices, destruction by insects, fire, thieves, or illness (in the case of l
ivestock). Informal rotating savings groups tend to be small and rotate limited
amounts of money. Moreover, these groups often require rigid amounts of money at
set intervals and do not react to changes in their members ability to save. Pe
rhaps most importantly, the poor are more likely to lose their money through fra
ud or mismanagement in informal savings arrangements than are depositors in form
al financial institutions.
“Poor rarely access services through the formal financial sector. They address the
ir need for financial services through a variety of financial relationships, mos
tly informal."
B. Role of Microfinance:
The micro credit of microfinance prename was first initiated in the year 1976 in
Bangladesh with promise of providing credit to the poor without collateral , al
leviating poverty and unleashing human creativity and endeavor of the poor peopl
e. Microfinance impact studies have demonstrated that
1. Microfinance helps poor households meet basic needs and protects them against
risks.
2. The use of financial services by low-income households leads to improvements
in household economic welfare and enterprise stability and growth.
3. By supporting women’s economic participation, microfinance empowers women, ther
eby promoting gender-equity and improving household well being.
4. The level of impact relates to the length of time clients have had access to
financial services.
C. Difference between micro credit and microfinance:
Micro credit refers to very small loans for unsalaried borrowers with little or
no collateral, provided by legally registered institutions. Currently, consumer
credit provided to salaried workers based on automated credit scoring is usually
not included in the definition of micro credit, although this may change.
Microfinance typically refers to micro credit, savings, insurance, money transfe
rs, and other financial products targeted at poor and low-income people.
D. Borrowers:
Most micro credit borrowers have micro enterprises—unsalaried, informal income-gen
erating activities. However, micro loans may not predominantly be used to start
or finance micro enterprises. Scattered research suggests that only half or less
of loan proceeds are used for business purposes. The remainder supports a wide
range of household cash management needs, including stabilizing consumption and
spreading out large, lumpy cash needs like education fees, medical expenses, or
lifecycle events such as weddings and funerals.
Some MFIs provide non-financial products, such as business development or health
services. Commercial and government-owned banks that offer microfinance service
s are frequently referred to as MFIs, even though only a portion of their assets
may be committed to financial services to the poor.
E. Activities in Microfinance:
Micro credit: It is a small amount of money loaned to a client by a bank or othe
r institution. Micro credit can be offered, often without collateral, to an indi
vidual or through group lending.
Micro savings: These are deposit services that allow one to save small amounts o
f money for future use. Often without minimum balance requirements, these saving
s accounts allow households to save in order to meet unexpected expenses and pla
n for future expenses Micro insurance: It is a system by which people, businesse
s and other organizations make a payment to share risk. Access to insurance enab
les entrepreneurs to concentrate more on developing their businesses while mitig
ating other risks affecting property, health or the ability to work.
Remittances: These are transfer of funds from people in one place to people in a
nother, usually across borders to family and friends. Compared with other source
s of capital that can fluctuate depending on the political or economic climate,
remittances are a relatively steady source of funds.
Product Design: The starting point is: how do MFIs decide what product s to offe
r? The actual loan products need to be designed according to the demand of the t
arget market. Besides the important question of what risks to cover, organizatio
ns also have to decide whether they want to bundle many different benefits into
one basket policy, or whether it is more appropriate to keep the product simple.
For marketing purposes, MFI‘s sometimes prefer the basket cover, since it can mak
e the policies sound comprehensive, but is that the right approach for the low-i
ncome market? After picking products, one must also understand how they are pric
ed. What assumptions do the organizations make with regard to operating costs, r
isk premiums, and reinsurance, and how did they come to those conclusions? Would
their clients be willing to pay more for greater benefits? From price, the logi
cal next set of questions involves efficiency. Indeed, given the relative high c
osts of delivering large volumes of small policies, maximizing efficiency is a c
ritical strategy to ensuring that the products are affordable to the low-income
market. One way is to make the products mandatory, which increases volumes, redu
ces transaction costs and minimizes adverse selection. What does an organization
lose by offering mandatory insurance, and how does it overcome the disadvantage
s? MFI‘s can combine a mandatory product with some voluntary features to make the
service more us to mar-oriented while.
Techniques of Product Design: To design a loan product to meet borrower needs it
is important to understand the cash pattern of the borrowers. Cash pattern is i
mportant so far as they affect the debt capacity of the borrowers. Lenders must
ensure that borrowers have sufficient cash inflow to cover loan payments when th
ey are due efficiency depends less on the delivery model than on the simplicity
of the product or product menu. Simple products work best because they are easie
r to administer and easier for clients to understand. Another efficiency strateg
y is to use technology to reduce paperwork, manual processing and errors.
MFIs need to conduct a costing analysis to determine how much they need to earn
in commission to cover their administrative expenses.
F. MFI’s Products and its Management:
Product & services of Microfinance
Financial Services Other Financial Services Non Financial Services
1. Credit Services-i Small Credit, Small Business Credit.
2. Deposit Services - Voluntari Savings Services, Manda tory Savings. Micro-in
surance, Life Insurance , Health Insurance , Loan for Housing, Education, Health
.
Family Health and Sanitation Education, Financial Education, Micro-entre
preneur Training.
G. The micro-credits model:

*The model is fairly straightforward and simple.
*Focus on jump-starting self-employment, providing the capital for poor women to
use their innate "survival skills" to pull themselves out of poverty.
*Lend to women in small groups (credit circles), say of five or seven.
* Make loans of small amounts to two out of five.
* The three who have not received loans will be eligible only when this first ro
und of loans has been repaid.
* Draw up a weekly or bi-weekly repayment schedule.
* In case any member defaults the entire circle is denied access to credit.
* Banks have been given freedom to formulate their own lending norms keeping in
view ground realities. They have been asked to devise appropriate loan and savin
gs products and the related terms and conditions including size of the loan, uni
t cost, unit size, maturity period, grace period, margins, etc.
4. Government’s role supporting microfinance
Government’s most important role is not provision of retail credit services, for r
easons mentioned in Government can contribute most effectively by:
*Setting sound macroeconomic policy that provides stability and low inflation.
*Avoiding interest rate ceilings - when governments set interest rate limits, po
litical factors usually result in limits that are too low to permit sustainable
delivery of credit that involves high administrative costs—such as tiny loans for
poor people. Such ceilings often have the announced intention of protecting the
poor, but are more likely to choke off the supply of credit.
*Adjusting bank regulation to facilitate deposit taking by solid MFIs, once the
country has experience with sustainable microfinance delivery.
*Creating government wholesale funds to support retail MFIs if funds can be insu
lated from politics, and they can hire and protect strong technical management a
nd avoid disbursement pressure that force fund to support unpromising MFIs.
*Promote microfinance as a key vehicle in tackling poverty, and as vital part o
f the financial system.
*Create policies, regulations and legal structures that *encourage responsive, s
ustainable microfinance.
*Encourage a range of regulated and unregulated institutions that meet performan
ce standards.
*Encourage competition, capacity building and innovation to lower costs and inte
rest rates in microfinance.
*Support autonomous, wholesale structures.
RBI data shows that informal sources provide a significant part of the total cr
edit needs of the rural population. The magnitude of the dependence of the rural
poor on informal sources of credit can be observed from the findings of the All
India Debt and Investment Survey, 1992, which shows that the share of the Non-i
nstitutional agencies (informal sector) in the outstanding cash dues of the rura
l households were 36 percent. However, the dependence of rural households on suc
h informal sources had reduced of their total outstanding dues steadily from 83.
7 percent in 1961 to 36 percent in 1991.
5. Microfinance Social Aspects
Micro financing institutions significantly contributed to gender equality and wo
men’s empowerment as well as poor development and civil society strengthening. Con
tribution to women’s ability to earn an income led to their economic empowerment,
increased well being of women and their families and wider social and political
empowerment.
Microfinance programs targeting women became a major plank of poverty alleviatio
n and gender strategies in the 1990s. Increasing evidence of the centrality of g
ender equality to poverty reduction and women’s higher credit repayment rates led
to a general consensus on the desirability of targeting women.
Self Help Groups (SHGs): Self- help groups (SHGs) play today a major role in pov
erty alleviation in rural India. A growing number of poor people (mostly women)
in various parts of India are members of SHGs and actively engage in savings and
credit (S/C), as well as in other activities (income generation, natural resour
ces management, literacy, child care and nutrition, etc.). The S/C focus in the
SHG is the most prominent element and offers a chance to create some control ove
r capital, albeit in very small amounts.
The SHG system has proven to be very relevant and effective in offering women th
e possibility to break gradually away from exploitation and isolation.
Savings services help poor people: Savings has been called the “forgotten half of
microfinance.” Most poor people now use informal mechanisms to save because they l
ack access to good formal deposit services,. They may tuck cash under the mattre
ss; buy animals or jewelry that can be sold off later, or stockpile inventory or
building materials.
These savings methods tend to be risky—cash can be stolen, animals can get sick, a
nd neighbors can run off. Often they are illiquid as well – one cannot sell just t
he cow’s leg when one needs a small amount of cash. Poor people want secure, conve
nient deposit services that allow for small balances and easy access to funds. M
FIs that offer good savings services usually attract far more savers than borrow
ers.
Women’s indicators of empowerment through microfinance:
*Ability to save and access loans
*Opportunity to undertake an economic activity
*Mobility-Opportunity to visit nearby towns
*Awareness- local issues, MFI procedures, banking transactions
*Skills for income generation
*Decision making within the household
* Group mobilization in support of individual clients- action on.
6. The Need in India
India is said to be the home of one third of the world’s poor; official estimates
range from 26 to 50 percent of the more than one billion population.
• About 87 percent of the poorest households do not have access to credit.
• The demand for micro credit has been estimated at up to $30 billion; the supply
is less than $2.2 billion combined by all involved in the sector. Due to the she
er size of the population living in poverty, India is strategically significant
in the global efforts to alleviate poverty and to achieve the Millennium Develop
ment Goal of halving the world’s poverty by 2015.
Microfinance can also be distinguished from charity. It is better to provide gra
nts to families who are destitute, or so poor they are unlikely to be able to ge
nerate the cash flow required to repay a loan. This situation can occur for exam
ple, in a war zone or after a natural disaster.
While India is one of the fastest growing economies in the world, poverty runs d
eep throughout country. About two thirds of India’s more than 1billion people live
in rural areas and almost 170 million of them are poor.
For more than 21 percent of them, poverty is a chronic condition. Three out of f
our of India’s poor live in rural areas of the country. Poverty is deepest among s
cheduled castes and tribes in the country’s rural areas.
The micro-finance scene in India is dominated by Self Help Groups (SHGs) - Banks
linkage program for over a decade now. As the formal banking system already has
a vast branch network in rural areas, it was perhaps wise to find ways and mean
s to improve the access of rural poor to the existing banking network. This was
tried by routing financial.
Indian microfinance is poised for continued growth and high valuation but faces
pressing challenges and opportunities that—left unaddressed—could negatively impact
the long-term future of the industry.
The industry needs to move past a single-minded focus on scale, expand the depth
and breadth of products and services offered, and focus on the double bottom li
ne and over indebtedness to effectively address the risks facing the industry.
7. Micro-Financing Regulation in India
Advantage of Regulation:
Following are the advantages and benefits of regulation and supervision of /MFIs
:
i. Protects the interest of the depositors;
ii. Put in place prudential norms, standards and practices;
iii. Provides sufficient information about the true risks faced by the banks/MFI
s;
iv. Promoters systemic stability and thereby sustains public confidence in the b
anks/MFIs;
v. Prevents a bank’s/MFI’s failure/potential dangers through timely interventions;
vi. Penalizes the violations, misconducts, non-compliance to the norms of behavi
or;
vii. Provides invaluable advisory inputs for problem-solving and overall improve
ment of the banks/MFIs;
viii. Promoters safe, strong and sound banking/MF system and effective banking/M
F policy and
ix. Promotes and enhances orderly economic growth and development.
A. Unified Regulation System: 8.18 at present, all the regulatory aspects of mic
rofinance are not centralized. For example, while the Rural Planning and Credit
Department (RPCD) in RBI looks after Rural lending, MF-NBFCs are under the contr
ol of the Department of Non-Banking Supervision (DNBS) and External Commercial B
orrowings are looked after by the Foreign Exchange Department. The Committee fee
ls that RBI may consider bringing all regulatory aspects of microfinance under a
single, mechanism. Further, supervision Of MF-NBFCs could be delegated to NABAR
D by RBI.
B. Legal forms of MFIs in India:
MFIs and Legal Forms: With the current phase of expansion of the SHG – Bank linkag
e programmed and other MF initiatives in the country, the informal micro finance
sector in India is now beginning to evolve. The MFIs in India can be broadly su
b-divided into three categories of organizational forms as given in Table 1. Whi
le there is no published data on private MFIs operating in the country, the numb
er of MFIs is estimated to be around 800. However, not more than 10 MFIs are rep
orted to have an outreach of 100,000 micro finance clients. An overwhelming majo
rity of MFIs are operating on a smaller scale with clients ranging Between 500 t
o 1500 per MFI. The geographical distribution of MFIs is very much lopsided with
concentration in the southern India where the rural branch network of formal ba
nks is excellent. It is estimated that the share of MFIs in the total micro cred
it portfolio of formal & informal institutions is about 8 per cent.
*Not for profit MFIs governed by societies registration act, 1860 or Indian trus
ts act 1882
*Non profit companies governed by section 25 of the companies act, 1956
*For profit MFIs regulated by Indian companies act, 1956
*NBFC governed by RBI act, 1934.
*Cooperative societies by cooperative societies act enacted by state government.
Legal Forms of MFIs in India:
Types of MFIs Estimated Number* Legal Acts under which Registered
1. Not for Profit MFIs
a.) NGO - MFIs 400 to 500 Societies Registration Act, 1860 or similar Prov
incial Acts
Indian Trust Act, 1882
b.) Non-profit Companies 10 Section 25 of the Companies Act, 1956
2. Mutual Benefit MFIs
a.) Mutually Aided Cooperative Societies (MACS) and similarly set up institution
s 200 to 250 Mutually Aided Cooperative Societies Act enacted by Stat
e Government
3. For Profit MFIs
a.) Non-Banking Financial Companies (NBFCs) 6 Indian Companies Act, 19
56
Reserve Bank of India Act, 1934
Total 700 - 800
* The estimated number includes only those MFIs, which are actually undertaking
lending activity.
C. Recommendation by RBI Micro Credit Institutions:
• Company Law Board to allow SHGs to be members of Section 25 of the companies act
.
• There will be no ceiling in respect of loan amount extended by Section 25 compan
ies to SHGs; however SHGs, to provide credit not exceeding Rs. 50000/- per membe
r of the SHG. RBI may consider issuing revised instructions.
• As regards capital, to encourage more flow of donations/ contributions, donors t
o be exempted from income tax under Section 11C of the IT Act.
• As regards capital adequacy, since there is no mandatory capital requirement, mi
nimum standards need not be considered.
• Savings of SHGs promoted by Section 25 companies be maintained with permitted or
ganizations.
• Complete income tax exemption for Section 25 companies purveying micro credit (t
o the donor and to the receiver).
Government to consider complete exemption from IT for income earned, as the main
purpose of the organization is to empower the poor.
8. Micro Finance Models
A. Microfinance Providers:
a. Microfinance Institutions: A microfinance institution (MFI) is an organi
zation that provides microfinance services.
MFIs range from small non-profit organizations to large commercial banks. Most
MFIs started as not-for-profit organizations like NGOs (non-governmental organiz
ations), credit unions and other financial cooperatives, and state-owned develop
ment and postal savings banks. An increasing number of MFIs are now organized as
for-profit entities, often because it is a requirement to obtaining a license f
rom banking authorities to offer savings services. For-profit MFIs may be organi
zed as Non-Banking Financial Companies (NBFCs), commercial banks that specialize
in microfinance, or microfinance departments of full-service banks.
The micro finance service providers include apex institutions like National Bank
for Agriculture and Rural Development (NABARD), Small Industries Development Ba
nk of India (SIDBI), and, Rashtriya Mahila Kosh (RMK). At the retail level, Comm
ercial Banks, Regional Rural Banks, and, Cooperative banks provide micro finance
services. Today, there are about 60,000 retail credit outlets of the formal ban
king sector in the rural areas comprising 12,000 branches of district level coop
erative banks, over 14,000 branches of the Regional Rural Banks (RRBs) and over
30,000 rural and semi-urban branches of commercial banks besides almost 90,000 c
ooperatives credit societies at the village level. On an average, there is at le
ast one retail credit outlet for about 5,000 rural people. This physical reachin
g out to the far-flung areas of the country to provide savings, credit and other
banking services to the rural society is an unparalleled achievement of the Ind
ian banking system. In the this paper an attempt is made to deal with various as
pects relating to emergence of private micro finance industry in the context of
prevailing legal and regulatory environment for private sector rural and micro f
inance operators.
MFIs are an extremely heterogeneous group comprising NBFCs, societies, trusts an
d cooperatives. They are provided financial support from external donors and ape
x institutions including the Rashtriya Mahila Kosh (RMK), SIDBI Foundation for m
icro-credit and NABARD and employ a variety of ways for credit delivery.
Since 2000, commercial banks including Regional Rural Banks have been providing
funds to MFIs for on lending to poor clients. Though initially, only a handful o
f NGOs were “into” financial intermediation using a variety of delivery methods, the
ir numbers have increased considerably today. While there is no published data o
n private MFIs operating in the country, the number of MFIs is estimated to be a
round 800.
round 800.
b. For NGOs:1. The field of development itself expands and shifts emphasis with
the pull of ideas, and NGOs perhaps more readily adopt new ideas, especially if
the resources required are small, entry and exit are easy, tasks are (perceived
to be) simple and people’s acceptance is high – all characteristics (real or presume
d) of microfinance.
2. Canvassing by various actors, including the National Bank for Agriculture and
Rural Development (NABARD), Small Industries Development Bank of India (SIDBI),
Friends of Women’s World Banking (FWWB), Rashtriya Mahila Kosh (RMK), Council for
Advancement of People’s Action and Rural Technologies (CAPART), Rashtriya Gramin
Vikas Nidhi (RGVN), various donor funded programmes especially by the Internatio
nal Fund for Agricultural Development (IFAD), United Nations Development Program
me (UNDP), World Bank and Department for International Development, UK (DFID)],
and lately commercial banks, has greatly added to the idea pull. Induced by the
worldwide focus on microfinance, donor NGOs too have been funding microfinance p
rojects. One might call it the supply push.
3. All kinds of things from khadi spinning to Nadep compost to balwadis do not p
roduce such concrete results and sustained interest among beneficiaries as micro
finance. Most NGO-led microfinance is with poor women, for whom access to small
loans to meet dire emergencies is a valued outcome. Thus, quick and high ‘customer
satisfaction’ is the USP that has attracted NGOs to this trade.
4. The idea appears simple to implement. The most common route followed by NGOs
is promotion of SHGs. It is implicitly assumed that no ‘technical skill’ is involved
. Besides, external resources are not needed as SHGs begin with their own saving
s. Those NGOs that have access to revolving funds from donors do not have to wor
ry about financial performance any way. The chickens will eventually come home t
o roost but in the first flush, it seems all so easy.
5. For many NGOs the idea of ‘organizing’ – forming a samuha – has inherent appeal. Grou
ps connote empowerment and organizing women is a double bonus.
6. Finally, to many NGOs, microfinance is a way to financial sustainability. Esp
ecially for the medium-to-large NGOs that are able to access bulk funds for on-l
ending, for example from SIDBI, the interest rate spread could be an attractive
source of revenue than an uncertain, highly competitive and increasingly difficu
lt-to-raise donor funding.
C. Service Company Model: In this context, the Service Company Model developed b
y ACCION and used in some of the Latin American Countries is interesting. The mo
del may hold significant interest for state owned banks and private banks with l
arge branch networks. Under this model, the bank forms its own MFI, perhaps as a
n NBFC, and then works hand in hand with that MFI to extend loans and other serv
ices. On paper, the model is similar to the partnership model: the MFI originate
s.
9. Coordinating Microfinance Efforts in India
NABARD coordinates the microfinance activities in India at international/ natio
nal/ state / district levels. These include organizing international/national Wo
rkshops, Seminars, etc for experience sharing, Organizing National and State lev
el Meets of Bankers and NGOs etc .Dissemination of best practices in SHG / micro
finance.
A. Other Initiatives: Micro enterprise Development Programmer (MEDP) for Ma
tured SHGs
The progression of SHG members to take up micro enterprise involves intensive tr
aining and hand holding on various aspects including understanding market, poten
tial mapping and ultimately fine tuning skills and entrepreneurship to manage th
e enterprise. Hence, a separate, specific and focused skill-building programme ‘Mi
cro Enterprise Development Programmed (MEDP)’ has been formulated.
This involves organizing short duration, location specific programmers on skill
up gradation / development for setting up sustainable micro-enterprises by matur
ed SHG members. The duration of training programme can vary between 3 to 13 days
, depending upon the objective and nature of training. The training may be condu
cted by agencies that have background and professional competency in the field o
f micro enterprise Development with an expertise in skill development.
B. Scheme for Capital/ Equity Support to Micro-Finance Institutions (MFIs)
from MFDEF: The scheme attempts to provide capital/equity support to Micro Finan
ce Institutions (MFIs) so as to enable them to leverage capital/equity for acces
sing commercial and other funds from banks, for providing financial services at
an affordable cost to the poor, and to enable MFIs to achieve sustainability in
their credit operations over a period of 3-5 years.
C. Scheme for financial assistance to banks/ MFIs for rating of Micro Finan
ce Institutions (MFIs): In order to identify MFIs, classify and rate such instit
utions and empower them to intermediate between the lending banks and the client
s, NABARD has decided to extend financial assistance to Commercial Banks and Reg
ional Rural Banks by way of grant. The banks can avail the services of credit ra
ting agencies, M-CRIL, ICRA, CARE and Planet Finance in addition to CRISIL for r
ating of MFIs. The financial assistance by way of grant for meeting the cost of
rating of MFIs would be met by NABARD to the extent of 100% of the total profess
ional fees subject to a maximum of Rs.3,00,000/-/-. The remaining cost would be
borne by the concerned MFI.
The cost of local hospitality (including boarding and lodging) towards field vis
it of the team from the credit rating Agency, as a part of the rating exercise,
would also be borne by the MFI. Those MFIs which have a minimum loan outstanding
of more than Rs. 50.00 lakh (Rupees fifty lakh only) and maximum of Rs 10 crore
(Rupees Ten crore only) would be considered for rating and support under the sc
heme. Financial assistance by way of grant would be available only for the first
rating of the MFI.
MFIs availing Capital Support and/or Revolving Fund Assistance from NABARD are a
lso eligible for re-imbursement of 50% of the cost of professional fee charged b
y Credit Rating Agency for second rating subject to a maximum of Rs.1.50 lakh (i
.e 50% of Rs.3 lakh). This will be in addition to the re-imbursement of professi
onal fee for first rating of the MFI.
D. Refinance support to banks for financing MFIs: The scheme is to provide
100% refinance to banks for financing MFIs. Interest rate on refinance to Commer
cial Banks and Regional Rural Banks on their loans to MFIs for on lending to cli
ents will be at 3% less than that charged by banks subject to minimum interest r
ate of 7.5% for all regions and all eligible purposes. The revised rate of inte
rest is applicable to refinance disbursed on or after 01 March 2010.
Source: NABARD website
10. Microfinance Strategic
Strategic Management: Strategic management is a field that deals with the major
intended and emergent initiatives taken by general manager on behalf of owners,
involving utilization of resources, to enhance the performance of rams in their
external environments. It entails.
Understanding microfinance strategies: This report explores strategic issues sha
ping the future of the MFI sector in India.
The study approached CEOs of select MFIs with a set of issues ranging from conce
rns to competition and sought their opinions about future strategies. The report
draws from their responses, and states that:
• Future strategy is about being strong on processes and being overtly client-cent
ric;
• Success is a prudential combination of three factors, namely, culture, beliefs a
nd aspirations;
• Culture is about the degree of trust rather than the rate of interest;
• Risk management systems of economically weaker families are built on their belie
fs about dependability and access;
• Micro credit stories have revealed ingenious ways that clients have used their l
oans for purposes that satisfied their aspirations.
Finally, the sector, at about Rs. 14,000 crore (approximately US$3 bn) looks lar
ge, but is small by any business scale. Competition and unhealthy practices are
overshadowing the good work and reputation earned over many years. MFIs in India
need to overcome these challenges in the future.
Strategic Policy Initiatives:
Some of the most recent strategic policy initiatives in the area of Microfinance
taken by the government and regulatory bodies in India are: Working group on cr
edit to the poor through SHGs, NGOs, NABARD, 1995.
The National Microfinance Taskforce, 1999.Working Group on Financial Flows to th
e Informal Sector (set up by PMO), 2002.Microfinance Development and Equity Fund
, NABARD, 2005.Working group on Financing NBFCs by Banks- RBI.
A. Product-market matrix:
A market penetration strategy is a business-as-usual strategy, where the MFI foc
uses on achieving growth by selling existing products in existing markets. This
can be done through more competitive pricing strategies, increased promotional a
ctivities, and more liberal terms and conditions.
For example, the MFI may develop strategic alliances to begin

*Adapted from Ansoff 1957.
B. The BCG Growth-Share Matrix:
The BCG Growth-Share Matrix is a portfolio planning model developed by Bruce Hen
derson of the Boston Consulting Group in the early 1970 s. It is based on the ob
servation that a company s business units can be classified into four categories
based on combinations of market growth and market share relative to the largest
competitor, hence the name "growth-share". Market growth serves as a proxy for
industry attractiveness, and relative market share serves as a proxy for competi
tive advantage. The growth-share matrix thus maps the business unit positions wi
thin these two important determinants of profitability.
BCG Growth-Share Matrix
This framework assumes that an increase in relative market share will result in
an increase in the generation of cash. This assumption often is true because of
the experience curve; increased relative market share implies that the firm is m
oving forward on the experience curve relative to its competitors, thus developi
ng a cost advantage. A second assumption is that a growing market requires inves
tment in assets to increase capacity and therefore results in the consumption of
cash. Thus the position of a business on the growth-share matrix provides an in
dication of its cash generation and its cash consumption.
Henderson reasoned that the cash required by rapidly growing business units coul
d be obtained from the firm s other business units that were at a more mature st
age and generating significant cash. By investing to become the market share lea
der in a rapidly growing market, the business unit could move along the experien
ce curve and develop a cost advantage.
From this reasoning, the BCG Growth-Share Matrix was born.
The four categories are:
Dogs - Dogs have low market share and a low growth rate and thus neither generat
e nor consume a large amount of cash. However, dogs are cash traps because of th
e money tied up in a business that has little potential. Such businesses are can
didates for divestiture.
Question marks - Question marks are growing rapidly and thus consume large amoun
ts of cash, but because they have low market shares they do not generate much ca
sh. The result is large net cash consumption. A question mark (also known as a "
problem child") has the potential to gain market share and become a star, and ev
entually a cash cow when the market growth slows. If the question mark does not
succeed in becoming the market leader, then after perhaps years of cash consumpt
ion it will degenerate into a dog when the market growth declines. Question mark
s must be analyzed carefully in order to determine whether they are worth the in
vestment required to grow market share.
Stars - Stars generate large amounts of cash because of their strong relative ma
rket share, but also consume large amounts of cash because of their high growth
rate; therefore the cash in each direction approximately nets out.
If a star can maintain its large market share, it will become a cash cow when th
e market growth rate declines. The portfolio of a diversified company always sho
uld have stars that will become the next cash cows and ensure future cash genera
tion.
Cash cows - As leaders in a mature market, cash cows exhibit a return on assets
that is greater than the market growth rate, and thus generate more cash than th
ey consume. Such business units should be "milked", extracting the profits and i
nvesting as little cash as possible. Cash cows provide the cash required to turn
question marks into market leaders, to cover the administrative costs of the co
mpany, to fund research and development, to service the corporate debt, and to p
ay dividends to shareholders. Because the cash cow generates a relatively stable
cash flow, its value can be determined with reasonable accuracy by calculating
the present value of its cash stream using a discounted cash flow analysis.
Under the growth-share matrix model, as an industry matures and its growth rate
declines, a business unit will become either a cash cow or a dog, determined sol
ely by whether it had become the market leader during the period of high growth.
While originally developed as a model for resource allocation among the microfin
ance business units in a corporation, the growth-share matrix also can be used f
or resource allocation among products within a single business unit. Its simplic
ity is its strength - the relative positions of the firm s entire business portf
olio can be displayed in a single diagram.
Limitations
The growth-share matrix once was used widely, but has since faded from popularit
y as more comprehensive models have been developed. Some of its weaknesses are:
Market growth rate is only one factor in industry attractiveness, and relative m
arket share is only one factor in competitive advantage. The growth-share matrix
overlooks many other factors in these two important determinants of profitabili
ty. The framework assumes that each business unit is independent of the others.
In some cases, Microfinance business unit that is a "dog" may be helping other b
usiness units gain a competitive advantage.
The matrix depends heavily upon the breadth of the definition of the market. A b
usiness unit may dominate its small niche, but have very low market share in the
overall industry. In such a case, the definition of the market can make the dif
ference between a dog and a cash cow.
While its importance has diminished, the BCG matrix still can serve as a simple
tool or viewing a corporation s business portfolio at a glance, and may serve as
a starting point for discussing resource allocation among strategic business un
its.
C. Overall Strategy:
*Forming and nurturing small, homogeneous and participatory self-help groups (SH
Gs) of the poor has today emerged as a potent tool for human development.
This process enables the poor, especially the women from the poor households, to
collectively identify and analyses the problems they face in the perspective of
their social and economic environment. It helps them to pool their meager resou
rces, human and financial, and priorities their use for solving their own proble
ms.
*The emphasis on regular thrift collection and its use to solve immediate proble
ms of consumption and production not only helps to meet their most urgent needs,
but also trains them to handle larger financial resources more skillfully, prud
ently and with a more lasting impact.
*Encourage SHGs to become a forum for many social sector interventions.
D. SHG-Bank Linkage Programmer:
A Facilitating SHGs to access credit from formal banking channels. SHG-Bank Link
age Programmer has proved to be the major supplementary credit delivery system w
ith wide acceptance by banks, NGOs and various government departments.
E. Capacity Building:
Capacity building must be tailored to meet the differing needs of the nascent/e
merging MFIs and of the expanding/mature MFIs. There is a pressing need to devel
op comprehensive, relevant and integrated training modules on a wide range of to
pics to professionalize Indian microfinance – thus building the much sought-after
second tier management in MFIs. The industry continues to grow, and so does the
demand for competent middle management. Currently, these are typically sourced b
y MFIs from the rural institutes of management. But these rural institutes are u
sing curricula largely based on the one developed by SIDBI nearly a decade ago – a
nd it is high time to revisit this curriculum, to update it both in terms of con
tent (to reflect the new realities in India microfinance) and in terms of its de
livery (to use multi-media/practical examples, and thus bring the courses to lif
e with video clips, case studies and field-based exercises that take the student
s out into the field).
11. Microfinance Management:
A. Objectives: The programmer aims at enabling the participants to gain a c
lear understanding of various policies, conceptual, and operational issues invol
ved in developing effective and successful microfinance interventions.
B. Innovative Methodologies: Tiny amount of loan to large number of borrowe
rs at their doorstep is a costly operation compared to revenue income. Cost redu
ction is also an essential element in microfinance operation. Reducing cost can
be possible either offering larger loan size or by innovating no conventional Ma
nagement which is less costly.
The essences of innovative management are as follows:
1. Specialized operation.
2. Documentation of essential information only.
3. Simple product, simple loan application and verification process.
4. Absence of grant guarantee.
5. Staff recruitment in no conventional manner.
6. On the job training (each one teaches one).
7. Simple standard loan register along with ledger and cash book abandoning the
bookkeeper/cashier.
8. Standard furniture, fixture and collective use of facilities in the office.
9. Decentralized branch structure.
10. Branch level financial planning.
11. Strong monitoring from mid and head office.
12. Written Manual.
C. Microfinance Working Environment: How can microfinance institutions (MFIs)
help improve working conditions? How can they contribute to job creation? And ho
w can MFIs help reduce child labor? Should MFIs have an interest in addressing t
hese and other decent work issues? These are some of the questions that the ILO
intends to address through an experimental global action research programmer (20
08-2011) in partnership with microfinance Institutions interested in promoting d
ecent work. Access to micro credit or other financial services can help improve
the decent work status. Conditional loans, credit with education, incentives lik
e interest rate rebates, linkages with social partners and NGOs as well as the p
rovision of micro insurance, conditional cash transfers or health care can be ef
fective ways to reduce child labor, decrease vulnerabilities, raise awareness an
d create incentives to improve working conditions.
Enabling Environment:
Favorable environment for microfinance in different manners are prevailing in mo
st developing countries. Favorable environment is not only among Government but
also among general public, civil society, media and various institutions within
the country needed for favorable growth of microfinance for poverty reduction. T
hough Government is favorable in general to microfinance in many countries but s
pecific modalities of NGOs/ MFIs determine the nature of favorable.
D. Current Challenging Issues:
1. Capacity Building: The long-term future of the micro-finance sector depends o
n MFIs being able to achieve operational, financial and institutional sustainabi
lity.
2. Innovation: Tiny amount of loan to large number of borrowers at their doorste
p is a costly operation compared to revenue income. Cost reduction is also an es
sential element in microfinance operation.
Reducing cost can be possible either offering larger loan size or by innovating
no conventional Management which is less costly.
3. Funding: A substantial outreach is a guarantee of efficiency that can play a
large part in leveraging funds.
4. Outreach: A substantial outreach is a guarantee of efficiency that can play a
large part in leveraging funds.
E. HR Issues: Recruitment and retention is the major challenge faced by MFIs as
they strive to reach more clients and expand their geographical scope. Attractin
g the right talent proves difficult because candidates must have, as a prerequis
ite, a mindset that fits with the organization’s mission.
Many mainstream commercial banks are now entering microfinance, who are poaching
staff from MFIs and MFIs are unable to retain them for other job opportunities.
85% of the poorest clients served by microfinance are women. However, women mak
e up less than half of all microfinance staff members, and fill even fewer of th
e senior management roles. The challenge in most countries stems from cultural n
otions of women’s roles, for example, while women are single there might be a grea
ter willingness on the part of women’s families to let them work as front line sta
ff, but as soon as they marry and certainly once they start having children, it
becomes unacceptable. Long distances and long hours away from the family are dif
ficult for women to accommodate and for their families to understand.
F. Microfinance Training & Capacity Building Methods:
1. Microfinance Training Methodology and How to Build Efficient Workforce?
2. Staff Motivation & Built in Cost effective Training Component.
3. Human Resource Planning and Development.
4. Good Governance.
G. SWOT MATRIX for Microfinance Management:
STRENGTHS
1. Experienced senior management Team.
2. Robust IT system.
3. Clear and well defined HR policy.
4. Infusion of own equity - commitment from promoters.
5. Process innovation.
6. Clarity and good understanding of vision.
7. Transparency at all levels.
8. Plans for value added and livelihood support services (LDS).
9. Shared ownership.
WEAKNESSES
1. Limited resources.
2. Micro managing.
3. Start up organisation; therefore, yet to institutionalise the standard p
rocesses.
4. Attracting/Holding on to the staff till the time we become established p
layers.
5. Refine the processes for growth.
OPPORTUNITIES
1. Huge Potential Market.
2. Scope of introducing livelihood related services.
3. Financial crunch is helping organisation to be cost conscious and effect
ive.
4. IT systems.
THREATS
1. Financial crisis.
2. Increasing competition.
3. Increasing competition.
4. Poor banking infrastructure.
5. Political instability.
H. Microfinance Operation management:
1. Capacity Building: The long-term future of the micro-finance sector depends
on MFIs being able to achieve operational, financial and institutional sustainab
ility. The constraints and challenges vary with the different types and developm
ent stage of MFIs. Most MFIs are currently operating below operational viability
and use grant funds from donors for financing up-front costs of establishing ne
w groups and covering initial losses incurred until the lending volume builds up
to a break-even level. The MFIs are generally constrained in reaching a break-e
ven level and finally achieving sustainability, primarily due to a narrow client
and product base, high operational and administrative costs for delivering cred
it to the poor, and their inability to mobilize requisite resources. Moreover, l
ack of technical manpower, operational systems, infrastructure and MIS are preva
lent. In view of the above, to scale up micro-finance initiatives at a faster pa
ce, a special effort is required for capacity building of the Micro Finance Inst
itutions. In this background, SFMC has in the past under the DFID collaboration
(which has since come to an end on March 31,2009) provided need based capacity b
uilding support to the partner MFIs, in the initial years, to enable them to exp
and their operations, cover their managerial, administrative and operational cos
ts besides helping them achieve self-sufficiency in due course.
2. Liquidity Management: In view of the fact that liquidity is a major concern o
f many of the middle level MFIs and a small working capital support can go a lon
g way in their better liquidity management and thus pave way for faster growth,
SFMC has introduced a special short term loan scheme, Liquidity Management Suppo
rt (LMS) for the long term partners.
3. Equity: Provision of equity capital to the NBFC-MFIs is perceived as an emerg
ing requirement of the micro finance sector in India. SIDBI provides equity capi
tal to eligible institutions not only to enable them to meet the capital adequac
y requirements but also to help them leverage debt funds. Keeping in tune with t
he sect oral requirements, the bank has also introduced quasi-equity products vi
z., optionally convertible Preference share capital; optionally convertible debt
and optionally convertible Subordinate debt for new generation MFIs which are g
enerally in the pre-breakeven stage requiring special dispensation for capital s
upport by way of a mix of Tier I and Tier II capital.
4. Transformation Loan:The Transformation Loan (TL) product is envisaged as a qu
asi-equity type support to partner MFIs that are in the process of transforming
themselves / their existing structure into a more formal and regulated set-up fo
r exclusively handling micro finance operations in a focused manner.
Being quasi-equity in nature, TL helps the MFIs not only in enhancing their equi
ty base but also in leveraging loan funds and expanding their micro credit opera
tions on a sustainable basis. The product has the feature of conversion into equ
ity after a specified period of time subject to the MFI attaining certain struct
ural, operational and financial benchmarks. This non-interest bearing support fa
cilitates the young but well performing MFIs to make long term institutional inv
estments and acts as a constant incentive to transform themselves into formal an
d regulated entities.
5. Micro Enterprise Loans: In order to build and strengthen new set of intermedi
aries for Micro Enterprise Loans, the Bank has formulated new scheme for Micro E
nterprise Loans. Institutions/ MFIs with minimum fund requirement of Rs. 25 lakh
p.a. and having considerable experience in financial intermediation/ facilitati
ng or setting up of enterprises/ providing escort services to SSI/ tiny units/ n
etworking or active interface with SSIs etc. and having professional expertise a
nd capability to handle on-lending transactions shall be eligible under the disp
ensation. The institutions would be selected based on their relevant experience,
potential to expand, professional management, transparency in operations and we
ll laid-out systems besides qualified/ trained manpower.
Lending to be based strictly on an intensive in-house appraisal supplemented wit
h the credit rating by an independent professional agency. Relaxed security norm
s more or less on line with micro credit dispensation to be adopted to reduce pr
ocedural bottlenecks as well as to facilitate easy disbursements.
6. Loan Syndication: Keeping in view the increased fund requirement of major par
tner MFIs, the Bank has also undertaken fee based syndication arrangement where
loan requirement is comparatively higher.
7. Microfinance Operations:
a. Marketing Strategy and Microfinance Clients Targeting Methodology.
b. Microfinance Products, Services and Lending Procedures.
c. Microfinance Lending Methodology: Individual and Group Lending.
d. Micro finance Indian Lending Methodology.
e. Institutional Business Planning for Microfinance Program6. Financial Planning
& Analysais.
f. Savings and Credit Management.
g. Program Operational Policies and Procedures.
h. Accounting and Record Keeping.
i. Auditing for Microfinance Operation.
j. Management Information System.
k. Branch Manager Leadership Training: Managing, Controlling, and Reporting Tool
s.
l. Detection of Fraud and Internal Control.
m. Monitoring and Supervision System.
n. Delinquencies and its Management.
I. Clients of micro finance:
The typical micro finance clients are low-income persons that do not have acces
s to formal financial institutions. Micro finance clients are typically self-emp
loyed, often household-based entrepreneurs. In rural areas, they are usually sma
ll farmers and others who are engaged in small income-generating activities such
as food processing and petty trade. In urban areas, micro finance activities ar
e more diverse and include shopkeepers, service providers, artisans, street vend
ors, etc. Micro finance clients are poor and vulnerable non-poor who have a rela
tively unstable source of income.
a. The six principles of client protection are:
1. Avoidance of Over-Indebtedness: Providers will take reasonable steps to
ensure that credit will be extended only if borrowers have demonstrated an adequ
ate ability to repay and loans will not put the borrowers at significant risk of
over-indebtedness. Similarly, providers will take adequate care that non-credit
, financial products, such as insurance, provided to low-income clients are appr
opriate.
2. Transparent and Reasonable Pricing: The pricing, terms and conditions of fina
ncial products (including interest charges, insurance premiums, all fees, etc.)
are transparent and will be adequately disclosed in a form understandable to cli
ents.
3. Appropriate Collections Practices: Debt collection practices of providers wil
l not be abusive or coercive.
4. Ethical Staff Behavior: Staff of financial service providers will comply with
high ethical standards in their interaction with microfinance clients and such
providers will ensure that adequate safeguards are in place to detect and correc
t corruption or mistreatment of clients.
5. Mechanisms for Redress of Grievances: Providers will have in place timely an
d responsive mechanisms for complaints and problem resolution for their clients.
6. Privacy of Client Data: The privacy of individual client data will be respect
ed, and such data cannot be used for other purposes without the express permissi
on of the client (while recognizing that providers of financial services can pla
y an important role in helping clients achieve the benefits of establishing cred
it histories).
J. Social performance measurement:
The Social Performance Task Force defines social performance as: "The effective
translation of an institution s social mission into practice in line with accept
ed social values that relate to serving larger numbers of poor and excluded peop
le; improving the quality and appropriateness of financial services; creating be
nefits for clients; and improving social responsibility of an MFI.”Most MFIs have
a social mission that they see as more basic than their financial objective, or
at least co-equal with it. There is a great deal of truth in the adage that inst
itutions manage what they measure.
Social performance measurement helps MFIs and their stakeholders focus on their
social goals and judge how well they are meeting them. Social indicators are oft
en less straightforward to measure, and less commonly used than financial indica
tors that have been developed over centuries. Today’s increasing use of social mea
sures reflects an awareness that good financial performance by an MFI does not a
utomatically guarantee client interests are being appropriately advanced.
12. Critical Analysis
A. MFIs Critical Issues: MFIs can play a vital role in bridging the gap bet
ween demand & supply of financial services if the critical challenges confrontin
g them are addressed.
Sustainability: The first challenge relates to sustainability. It has been repor
ted in literature that the MFI model is comparatively costlier in terms of deliv
ery of financial services. An analysis of 36 leading MFIs2 by Jindal & Sharma sh
ows that 89% MFIs sample were subsidy dependent and only 9 were able to cover mo
re than 80% of their costs. This is partly explained by the fact that while the
cost of supervision of credit is high, the loan volumes and loan size is low. It
has also been commented that MFIs pass on the higher cost of credit to their cl
ients who are ‘interest insensitive’ for small loans but may not be so as loan sizes
increase. It is, therefore, necessary for MFIs to develop strategies for increa
sing the range and volume of their financial services.
Lack of Capital: The second area of concern for MFIs, which are on the growth pa
th, is that they face a paucity of owned funds. This is a critical constraint in
their being able to scale up. Many of the MFIs are socially oriented institutio
ns and do not have adequate access to financial capital. As a result they have h
igh debt equity ratios. Presently, there is no reliable mechanism in the country
for meeting the equity requirements of MFIs. As you know, the Micro Finance Dev
elopment Fund (MFDF), set up with NABARD, has been augmented and re-designated a
s the Micro Finance Development Equity Fund (MFDEF). This fund is expected to pl
ay a vital role in meeting the equity needs of MFIs.
Borrowings: In comparison with earlier years, MFIs are now finding it relatively
easier to raise loan funds from banks. This change came after the year 2000, wh
en RBI allowed banks to lend to MFIs and treat such lending as part of their pri
ority sector-funding obligations. Private sector banks have since designed innov
ative products such as the Bank Partnership Model to fund.
Source: Issues in Sustainability of MFIs, Jindal & Sharm
a.
Top 14 Microfinance Institutions in India by Growth of Number of active Borrower
s.
B. Problems for Alternative Micro-Finance Institutions: The main aim with w

hich the alternative MFIs have come up is to bridge the increasing gap between t
he demand and supply. A vast majority of them set up as NGOs for getting access
to funds as, the existing practices of mainstream financing institutions such as
SIDBI and NABARD and even of the institutions specially funding alternatives, s
uch RMK and FWWB, is to fund only NGOs, or NGO promoted SHGs. As a result, the l
argest incentive to enter such services remains through the nonprofit route. The
alternative finance institutions also have not been fully successful in reachin
g the needy.
There are many reasons for this:
1. Financial problems leading to setting up of inappropriate legal structures.
2. Lack of commercial orientation.
3. Lack of proper governance and accountability.
4. Isolated and scattered.
C. Risk: This looks at the quality of their loan portfolio measure
d as the percent of the portfolio at risk greater than 30 days. And return, whic
h is measured as a combination of return on equity and return on assets.
From this above table we can notice that the Risk of companies is measured as th
e percentage of
Portfolio at Risk (PAR) which means and returns is measured as a combination of
ROA and ROE.
Return on Assets (ROA): A Return on Assets is an indication of how well an MFI
is managing its asset base to maximize its profits. The ratio does not evaluate
the source of the asset base – whether through debt or equity, but simply the retu
rn of the portfolio and other revenue generated from investments and operations.
A return on assets should be positive. There is a positive relationship between
Return on Assets and the Portfolio to Assets ratio discussed in the next sectio
n. MFIs that maintain most of their assets in the loan portfolio tend to break e
ven sooner, and generate higher returns on their assets; provided the loan portf
olio performs well and other costs are also controlled.
Return on Assets = Net Operating Income – Taxes____
Average Assets
Trend: An increasing Return on Assets is positive.
Return on Assets (ROA) indicates how well an MFI is managing its assets to opti
mize its
profitability. The ratio includes not only the return on the portfolio, but also
all other revenue
generated from investments and other operating activities.
From the above list we can notice that, there are seven companies of India in to
p 50 companies
in the world. There is a huge potential for India to grow in this sector, becaus
e out of total 500
million poor people from all over the world, who is getting beneficial from the
micro finance
institutions, 80 to 90 million are from India only. So there is still a huge mar
ket and
opportunities in this segment.
The total loan that the MFI‘s had provided to the poor people in India crosses Rs
24 billion till
October 08. And this is only 40% of the total poor. If this turns into 100%, the
n we will see the new face of India.
Return on Equity: A Return on Equity is probably one of the most important profi
tability indicators for commercial banks and MFIs, particularly in comparison wi
th other institutions. The return is measured only in relation to what the MFI h
as built from operating surpluses, or what it has generated through donations or
other contributed sources. The shareholders of a for-profit MFI or bank, is ver
y interested in this ratio, as it is a measure of their investment choice, and i
ts ability to pay dividends. Increasing equity also strengthens the MFI’s capital
structure and its ability to leverage debt financing. As markets mature and comp
etition increases, Return on Equity may level off and maintain a positive positi
on without increasing dramatically or at all.
Return on Equity = Net Operating Income – Taxes____

Average Equity
Average Equity
Trend: An increasing Return on Equity is positive.
H. Risk Management: Risk management is a discipline for dealing with the po
ssibility that some future event will cause harm. It provides strategies, techni
ques, and an approach to recognizing and confronting any threat faced by an orga
nization in fulfilling its mission. Risk management may be as uncomplicated as a
sking and answering three basic questions:
Major Risks to Microfinance Institutions:
Financial Risks
Operational Risks
Strategic Risk
Credit Risk
Transaction risk
Portfolio risk
Liquidity Risk
Market Risk
Interest rate risk
Foreign exchange risk
Investment portfolio risk
Transaction Risk
Human resources Risk
Information & technology
Risk
Fraud (Integrity) Risk
Legal & Compliance
Risk
Governance Risk
Ineffective oversight
Poor governance
structure
Reputation Risk
External Business
Risks
Event risk
Sources: - www. Scribd.com
This are the most significant risks (with the most potentially damaging conseque
nces for the
MFI), how they interact, and current challenges faced by MFIs.
a. Financial Risks: Most MFIs focus on financial risks, including credit, l
iquidity, Interest rate, and investment risks. Mentioned under are the risks whi
ch are very critical for the MFI‘s.
1. Credit risk: Credit risk, the most frequently addressed risk for MFIs, i
s the risk to earnings or capital due to borrowers’ late and non-payment of loan o
bligations. Credit risk encompasses both the loss of income resulting from the M
FI‘s inability to collect anticipated interest earnings as well as the loss of pri
nciple resulting from loan defaults. Credit risk includes both transaction risk
and portfolio risk.
2. Transaction risk: Transaction risk refers to the risk within individual
loans. MFIs mitigate transaction risk through borrower screening techniques, und
erwriting criteria, and quality procedure for loan disbursement, monitoring, and
collection.
3. Portfolio risk: Portfolio risk refers to the risk inherent in the compos
ition of the overall loan portfolio. Policies on diversification, maximum loan s
ize, types of loans, and loan structures lessen the portfolio risk.
4. Liquidity risk: Liquidity risk is the ―risk that an MFI cannot meet its o
bligations on a timely basis Liquidity risk usually arises from management‘s inabi
lity to adequately anticipate and plan for changes in funding sources and cash n
eeds.
Efficient Liquidity Management requires maintaining sufficient cash reserves on
hand (to meet client withdrawals, disburse loans and fund unexpected cash shorta
ges) while also investing as many funds as possible to maximize
earnings. Liquidity management is an ongoing effort to strike a balance between
having too much cash and too little cash.
5. Interest rate risk: Interest rate risk is the risk of financial loss fro
m changes in market interest rates. The greatest interest rate risk occurs when
the cost of funds goes up faster than the financial institution can or is willin
g to adjust its lending rates.
Manage interest rate risk: To reduce the mismatch between short-term variable r
ate liabilities and long-term fixed rate loans, managers may refinance some of t
he short-term borrowings with long-term fixed rate borrowings. This might includ
e offering one and two-year term deposits as a product and borrowing five to 10
year funds from other sources. Such a step reduces interest rate risk and liquid
ity risk, even if the MFI pays a slightly higher rate on those funding sources.
To boost profitability, MFIs may purposely ―mismatch assets and liabilities in ant
icipation of changes in interest rates. If the asset liability managers think in
terest rates will fall in the near future, they may decide to make more long-ter
m loans at existing fixed rates, and shorten the term of the MFI‘s liabilities. By
lending long and borrowing short, the MFI can take advantage of the cheaper fun
ding in the future, while locking in the higher interest rates on the asset side
. In this case, the MFI has increased the interest rate risk in the hope of impr
oving the profitability of the bank.
b. Operational Risks: Operational risk arises from human or computer error
within daily service or product delivery. This risk includes the potential that
inadequate technology and information systems, operational problems, insufficien
t human resources, or breaches of integrity (i.e. fraud) will result in unexpect
ed losses.
Two types of operational risk: transaction risk and fraud risk:
1. Transaction risk: Transaction risk is particularly high for MFIs that ha
ndle a high volume of small transactions daily. Since MFIs make many small, shor
t-term loans, this same degree of cross-checking is not cost-effective, so there
are more opportunities for error and fraud. As more MFIs offer additional finan
cial products, including savings and insurance, the risks multiply and should be
carefully analyzed as MFIs expand those activities
2. Fraud risk: Fraud risk is the risk of loss of earnings or capital as a r
esult of intentional deception by an employee or client. The most common type of
fraud in an MFI is the direct theft of funds by loan officers or other branch s
taff. Other forms of fraudulent activities include the creation of misleading fi
nancial statements, bribes etc.
Minimize fraud risk: To introduced an education campaign to encourage clients to
speak out against corrupt staff and group leaders. This standardized all loan p
olicies and procedures so that the staff cannot make any decision outside the re
gulations. To Established an inspection unit that performs random operational ch
ecks.
c. Strategic Risks: Strategic risks include internal risks like those from
adverse business decisions or improper implementation of those decisions, poor l
eadership, or ineffective governance and oversight, as well as external risks, s
uch as changes in the business or competitive environment.
This section focuses on two critical strategic risks: Governance Risk, Business
Environment Risk.
1. Governance risk: Governance risk is the risk of having an inadequate st
ructure or body to make effective decisions. The Financial crisis, described abo
ve illustrates the dangers of poor governance that nearly resulted in the failur
e of that institution.
2. External business environment risk: Business environment risk refers to
the inherent risks of the MFI‘s business activity and the external business enviro
nment. To minimize business risk, the microfinance institution must react to cha
nges in the external business environment to take advantage of opportunities, to
respond to competition, and to maintain a good public reputation.
MFI manage their repayment and risk management: Risk is an integral part of fina
ncial services. When financial institutions issue loans, there is a risk of borr
ower default. When banks collect deposits and on-lend them to other clients (i.e
. conduct financial intermediation), they put clients’ savings at risk. Most MFIS‘s
provides the loans without or with smaller portion of deposit or, so for them re
payment of interest or principal is very risky. All MFI‘s face risks that they mus
t manage efficiently and effectively to be successful. When poorly managed risks
begin to result in financial losses, donors, investors, lenders, borrowers and
savers tend to lose confidence in the organization and funds begin to dry up. Wh
en funds dry up, an MFI is not able to meet its social objective of providing se
rvices to the poor and quickly goes out of business.
d. Benefit of Risk Management: Early warning system for potential problems:
A systematic process for evaluating and measuring risk identifies problems earl
y on, before they become larger problems or
drain management time and resources. Less time fixing problems means more time f
or
production and growth. Better information on potential consequences, both positi
ve and negative. A proactive and forward-thinking organizational culture will he
lp managers identify and assess new market opportunities, foster continuous impr
ovement of existing operations, and more effectively performance incentives with
the organization‘s strategic goals. Encourages cost-effective decision-making and
more efficient use of resources.
e. Interest Rates: Most MFI’s financially sustainable by charging interest ra
tes that are high enough to cover all their costs.
Four key factors determine these rates:
•The cost of funds.
•The MFI s operating expenses.
•Loan losses.
•And profits needed to expand their capital base and fund expected future growth.
There are three kinds of costs the MFI has to cover when it makes micro loans:
•The cost of the money that it lends.
•The cost of loan defaults.
•Transaction and Operating cost.
For instance, MFI lends is 10 percent, and it experiences defaults of 1 percent
of the amount lent, then total Rs 11 for a loan of Rs 100, and Rs 55 for a loan
of Rs 500. And the third cost i.e. transaction cost.
The interest rates are deregulated not only for private MFIs but also for formal
baking sector. In the context of softening of interest rates in the formal bank
ing sector, the comparatively higher interest rate (12 to 24 per cent per annum)
charged by the MFIs has become a contentious issue. The high interest rate coll
ected by the MFIs from their poor clients is perceived as exploitative. It is ar
gued that raising interest rates too high could undermine the social and economi
c impact on poor clients. Since most MFIs have lower business volumes, their tra
nsaction costs are far higher than that of the formal banking channels. The high
cost structure of MFIs would affect their sustainability in the long run.
MFI being criticized because of high interest rate:Most MFI‘s financially sustaina
ble by charging interest rates that are high enough to cover all their costs. Th
e problem is that the administrative costs are inevitably higher for tiny micro
lending than for normal bank lending. As a result, interest rates in sustainable
microfinance institutions (MFIs) are substantially higher than the rates charge
d on normal bank loans.
Four key factors determine these rates:
1. The cost of funds,
2. the MFI s operating expenses,
3. Loan losses,
4. And profits needed to expand their capital base and fund expected future grow
th.
Formula to decide the interest rate is:
R = AE + LL + CF + K - II
1– LL
Where AE is administrative expenses, LL is loan losses, CF is the cost of funds,
K is the desired Capitalization rate and II is investment income.
Example:
Suppose that the transaction cost is Rs 15 per loan and that the loans are for o
ne year. To break even on the Rs 500 loan, the MFI would need to collect interes
t of Rs 50 + Rs 5 + Rs 15 = Rs 70, which represents an annual interest rate of 1
3 percent. To break even on the Rs 100 loan, the MFI would need to collect inter
est of Rs 10 +Rs 1 + Rs 15 = Rs 26, which is an interest rate of 26 percent.
f. SWOT Analysis:
SWOT stands for Strength, Weakness, Opportunity, and Threat.
Strength
• Helped in reducing the poverty: The main aim of Micro Finance is to provide the
loan to the individuals who are below the poverty line and cannot able to access
from the commercial banks. As we know that Indian, more than 350 million people
in India are below the poverty and for them the Micro Finance is more than the
life. By providing
small loans to this people Micro finance helps in reducing the poverty.
• Huge networking available: For MFIs and for borrower, both the huge network is t
here. In India there are many more than 350 million who are below the poverty li
ne, so for MFIs there is a huge demand and network of people. And for borrower t
here are many small and medium size MFIs are available in even remote areas.
Weakness
• Not properly regulated: In India the Rules and Regulation of Micro Finance Insti
tutions are not regulated properly. In the absent of the rules and regulation th
ere would be high case of credit risk and defaults. In the shed of the proper ru
les and regulation the Micro finance can function properly and efficiently.
• High number of people access to informal sources: According to the World Bank re
port 80% of the Indian poor can‘t access to formal source and therefore they depen
d on the informal sources for their borrowing and that informal charges 40 to 12
0% p.a.
• Concentrating on few people only: India is considered as the second fastest deve
loping country after China, with GDP over 8.5% from the past 5 years. But this a
ll interesting figures are just because of few people. India‘s 70% of the populati
on lives in rural area, and that portion is not fully touched.
Opportunity
• Huge demand and supply gap: There is a huge demand and supply gap among the borr
owers and issuers. In India around 350 million of the people are poor and only f
ew MFIs there to serving them.
There is huge opportunity for the MFIs to serve the poor people and increase the
ir living standard. The annual demand of Micro loans is nearly Rs 60,000 crore a
nd only 5456 crore are disbursed to the borrower.( April 09) Employment Opportun
ity:
Micro Finance helps the poor people by not only providing them with loan but als
o helps them in their business; educate them and their children etc.
So in this Micro Finance helping in increase the employment opportunity for them
and for the society.
• Huge Untapped Market: India‘s total population is more than 1000 million and out o
f 350 million is living below poverty line. So there is a huge opportunity for t
he MFIs to meet the demand of that unsaved customers and Micro Finance should no
t leave any stones unturned to grab the untapped market.
• Opportunity for Pvt. Banks: Many Pvt. Banks are shying away from to serve the pe
ople are unable to access big loans, because of the high intervention of the Gov
t. but the door open for the Pvt. Players to get entry and with flexible rules P
vt. Banks are attracting towards this segment.
Threat
• High Competition: This is a serious threat for the Micro Finance industry, becau
se as the more players will come in the market, their competition will rise , an
d we know that the MFIs has the high transaction cost and after entrant of the n
ew players there transaction cost will rise further, so this would be serious th
reat.
• Neophyte Industry: Basically Micro Finance is not a new concept in India, but th
at was all by informal sources. But the formal source of finance through Micro F
inance is novice, and the rules are also not properly placed for it.
• Over involvement of Govt.: This is the biggest that threat that many MFIs are fa
cing. Because the excess of anything is injurious, so in the same way the excess
involvement of Govt. is a serious threat for the MFIs. Excess involvement defin
ition is like waive of loans, make new rules for their personal benefit etc.
13. Micro-Finance Accounting and Management Information Systems

The basic components of an accounting system are fairly universal and applicable
to all org Source documents form the basis of all transactions. A Chart of Acco
unts is a numbered system that is structured to Classify and organize transactio
ns by account. The journals cash journals, general journals, or bank journals re
cord each and every transactions or adjustment. They are summarized monthly, cro
ss-totaled and posted to the general ledger. The general ledger holds a record f
or each account in the Chart of Accounts. It accumulates the totals posted from
the journals to provide monthly and annual revenue and expenses for reporting pe
riods. It accumulates all the accounts of the Balance Sheet.
These accounting records and processes form the basis of all accounting systems.
Most MFIs choose computerized. The following diagram illustrates a “generic” financ
ial management information system in a microfinance institution, whether its cli
ents are individuals, Self Help Groups, Solidarity Groups, or Joint Liability Gr
oups, and regardless of its legal structure or registration. The accounting syst
em follows the usual flow from transaction to the parathion of financial stateme
nts. One of the most distinctive aspects of the accounting system for microfinan
ce institutions is that financial and operational activity must be tracked by Br
anch. Loan information should also be tracked by Credit Officer, by product and
by area if needed. This is critical for internal management & monitoring.
Another distinctive aspect of accounting for MFIs is that the loan tracking syst
em for client transactions acts as a subsidiary ledger. Client transactions must
be entered into both systems, but can be summarized in the accounting general l
edger. Some loan tracking systems are manual, but it is a huge challenge to hand
le a large number of clients, produce reports &age loans with great efficiency i
n a manual system. Most MFIs prefer automated systems, particularly loan trackin
g systems that are integrated with, and linked to a general ledger. The followin
g diagram shows the connection between the two systems.
Accounting System and Client Portfolio System (MIS) Microfinance
The MFI financial management systems illustrated dose not operates in a vacuum.
There are four distinct areas that guide & govern a well-managed & effective fin
ancial system.
A. Portfolio Report:
Is it a number reflecting a period of time (e.g. the Income Statement, and some
numbers from the Portfolio Report)? Is the number reflective of information from
a point in time – as from the Balance Sheet? When Income Statement numbers or any
number reflecting a period of activity is used to calculate a ratio, the second
component of the ratio must also reflect a period of activity. Therefore, some
of the ratio components take the average of Balance Sheet numbers. Remember to n
ote these distinctions in the ratio calculations.
*14 MFI in India Growth of Gross Loan Portfolio

B. Asset and Liability Management
Yield = Cash Received from Interest, Fees and Commissions on Loan Portfolio__
_
Average Gross Loan Portfolio
Trend: An increasing yield is positive although it will level off as it nears th
e effective interest rate.
a. Basic Financial Management and Ratio Analysis for MFIs:
MFI stakeholders expect MFI senior managers to ensure that strong and adequate f
inancial systems are in place in the MFI. Therefore, it is essential that MFI ma
nagers have a solid understanding and appreciation of the financial and accounti
ng systems.
The Basic Financial Management and Ratio Analysis for MFIs offer a practical tra
ining in basic financial management and ratio analysis for MFIs. It provides an
overview of the key aspects of accounting in microfinance institutions describes
the primary financial statements and portfolio reports of MFIs and describes th
e commonly accepted financial ratios used for monitoring, reporting and measurin
g MFI performance. Performance ratios cover four general areas of MFI operations
: sustainability or profitability, asset and liability management, portfolio qua
lity and productivity and efficiency.
Its helps develop clarity on the need of the different financial statements, the
relation between them. The training helps develop skills to analyze these state
ments and calculate different ratios which will give the correct picture on the
financial health of the organization. This is done through supporting documents,
diagrammatic representations, and exercises.
Financial ratios are useful indicators of a firm s performance and financial sit
uation. Financial ratios can be used to analyze trends and to compare the firm s
financials to those of other firms.
b. List of MFI’s and their key Ratios:
Liquidity Ratios
These ratios actually show the relationship of a firm‘s cash and other current ass
ets to its current liabilities. Two ratios are discussed under Liquidity ratios.
They are:
1. Current ratio
2. Quick/ Acid Test ratio.
1. Current ratio: This ratio indicates the extent to which current liabilities a
re covered by
those assets expected to be converted to cash in the near future. Current assets
normally include
cash, marketable securities, accounts receivables, and inventories. Current liab
ilities consist of
accounts payable, short-term notes payable, current maturities of long-term debt
, accrued taxes,
and other accrued expenses (principally wages).
Current Ratio=Current Assets/Current Liabilities.
Cost of Funds Ratio

Cost of Funds = Financial Expense on Funding Liabilities
(Average Deposits + Average Borrowings)
Trend: The Cost of Funds may indicate a level of maturity of the MFI. A decreasi
ng Cost of Funds ratio is generally positive. When Financial Expenses are adjust
ed to include free or subsidized funding, the ratio will show the actual financi
al cost of funds needed to fund or capitalize the MFI.
Debt to Equity
Debt/Equity = Liabilities____
Equity
Trend: An increasing debt/equity ratio indicates the MFI’s capacity to attract deb
t funding based on its capital strength of its own equity. Too low a ratio might
indicate that the MFI is not maximizing its equity base. Too high a factor may
be risky for investors, and may spell cash flow challenges during difficult time
s
Liquid Ratio
Liquid Ratio = Cash + Trade Investments_____
(Demand Deposits + short-term Time Deposits + Short-term
Borrowings + Interest Payable on Funding Liabilities + Accounts
Payable
And other Short-term Liabilities)
Trend: No single ratio or trend provides the “correct” or “adequate” means to monitor ca
sh levels. Managers must have clear policies in place to ensure that cash is ava
ilable when needed for all MFI operations and activities Banking requirements an
d risk tolerance will affect the ratio...
Risk Coverage Ratio
Risk Coverage Ratio = ______Allowance for Loan Losses______
Portfolio at Risk over 30 days
Trend: A fairly constant, stable ratio is desired. Sudden changes usually indica
te a deterioration or improvement in portfolio quality or an excess or shortage
in the Allowance for Loan Losses account.
c. Capacity of MFIs:
It is now recognized that widening and deepening the outreach of the poor throug
h MFIs has both social and commercial dimensions. Since the sustainability of MF
Is and their clients complement each other, it follows that building up the capa
cities of the MFIs and their primary stakeholders are pre-conditions for the suc
cessful delivery of flexible, client responsive and innovative microfinance serv
ices to the poor. Here, innovations are important both of social intermediation,
strategic linkages and new approaches centered on the livelihood issues surroun
ding the poor, and the re-engineering of the financial products offered by them
as in the case of the Bank Partnership model.
1. Bank Partnership Model:
This model is an innovative way of financing MFIs. The bank is the lender and th
e MFI acts as an agent for handling items of work relating to credit monitoring,
supervision and recovery. In other words, the MFI acts as an agent and takes ca
re of all relationships with the client, from first contact to final repayment.
The model has the potential to significantly increase the amount of funding that
MFIs can leverage on a relatively small equity base.
A sub - variation of this model is where the MFI, as an NBFC, holds the individu
al loans on its books for a while before securitizing them and selling them to t
he bank. Such refinancing through securitization enables the MFI enlarged fundin
g access. If the MFI fulfils the “true sale” criteria, the exposure of the bank is t
reated as being to the individual borrower and the prudential exposure norms do
not then inhibit such funding of MFIs by commercial banks through the securitiza
tion structure.
2. Banking Correspondents:
The proposal of “banking correspondents” could take this model a step further exten
ding it to savings. It would allow MFIs to collect savings deposits from the poo
r on behalf of the bank. It would use the ability of the MFI to get close to poo
r clients while relying on the financial strength of the bank to safeguard the d
eposits. Currently, RBI regulations do not allow banks to employ agents for liab
ility - i.e. deposit - products. This regulation evolved at a time when there we
re genuine fears that fly-by-night agents purporting to act on behalf of banks i
n which the people have confidence could mobilize savings of gullible public and
then vanish with them. It remains to be seen whether the mechanics of such rela
tionships can be worked out in a way that minimizes the risk of misuse.
3. Service Company Model:
In this context, the Service Company Model developed by ACCION and used in some
of the Latin American Countries is interesting. The model may hold significant i
nterest for state owned banks and private banks with large branch networks. Unde
r this model, the bank forms its own MFI, perhaps as an NBFC, and then works han
d in hand with that MFI to extend loans and other services. On paper, the model
is similar to the partnership model: the MFI originates.
4. MFI Model:
Under this model, the bank forms its own MFI, perhaps as an NBFC, and then work
s hand in hand with that MFI to extend loans and other services. On paper, the m
odel is similar to the partnership model: the MFI originates the loans and the b
ank books them. But in fact, this model has two very different and interesting o
perational features:
(a) The MFI uses the branch network of the bank as its outlets to reach clients
. This allows the client to be reached at lower cost than in the case of a stand–a
lone MFI. In case of banks which have large branch networks, it also allows rapi
d scale up. In the partnership model, MFIs may contract with many banks in an ar
ms length relationship. In the service company model, the MFI works specifically
for the bank and develops an intensive operational cooperation between them to
their mutual advantage.
(b) The Partnership model uses both the financial and infrastructure strength of
the bank to create lower cost and faster growth. The Service Company Model has
the potential to take the burden of overseeing microfinance operations off the m
anagement of the bank and put it in the hands of MFI managers who are focused on
microfinance to introduce additional products, such as individual loans for SHG
graduates, remittances and so on without disrupting bank operations and provide
a more advantageous cost structure for microfinance.
round 800.
5. For NGOs Model:
There are a large number of NGOs that have undertaken the task of financial inte
rmediation. Majority of these NGOs are registered as Trust or Society. Many NGOs
have also helped SHGs to organize themselves into federations and these federat
ions are registered as Trusts or Societies. Many of these federations are perfor
ming non-financial and financial functions like social and capacity building act
ivities, facilitate training of SHGs, undertake internal audit, promote new grou
ps, and some of these federations are engaged in financial intermediation. The N
GO MFI varies significantly in their size, philosophy and approach. Therefore th
ese NGOs are structurally not the right type of institutions for undertaking fin
ancial intermediation activities, as the byelaws of these institutions are gener
ally restrictive in allowing any commercial operations. These organizations by t
heir charter are non-profit organizations and as a result face several problems
in borrowing funds from higher financial institutions. The NGO MFIs, which are l
arge in number, are still outside the purview of any financial regulation. These
are the institutions for which policy and regulatory framework would need to be
established.
Along with developing saving and credit facilities, the NGOs engage in:
(1) Providing Basic Education.
(2) Developing a sense of Health and Hygiene.
(3) Encourage family planning.
(4) Creating Awareness about environment protection.
(5)Most important, nurturing an environment of gender equality. These activities
are the rudiments of sustained economic development.
Basically, the MFIs in India are of three categories:
(i) Not for profit MFI, which include the NGOs?
(ii) Mutual Benefit MFIs, which include mutually-aided co-operative credit.
(iii) For Profit MFIs, which include the Non-Banking Financial Companies (NBFC)?
6. Non-Profit Companies as MFIs:
Many NGOs felt that combining financial intermediation with their core competenc
y activity of social intermediation is not the right path. It was felt that a fi
nancial institution including a company set up for this purpose better does bank
ing function. Further, if MFIs are to demonstrate that banking with the poor is
indeed profitable and sustainable, it has to function as a distinct institution
so that cross subsidization can be avoided. On account of these factors, NGO MFI
s are of late setting up a separate Non-Profit Companies for their micro finance
operations. The MFI is prohibited from paying any dividend to its members. In t
erms of Reserve Bank of India’s Notification dated 13 January 2000, relevant provi
sions of RBI Act, 1934 as applicable to NBFCs will not apply for NBFCs .
(i) licensed under Section 25 of Companies Act, 1956,
(ii) providing credit not exceeding Rs. 50,000 ($1112) for a business enterpr
ise and Rs. 1, 25,000 ($2778) for meeting the cost of a dwelling unit to any poo
r person, and,
(iii) not accepting public deposits
7. Mutual Benefit MFIs: The State Cooperative Acts did not provide for an e
nabling framework for emergence of business enterprises owned, managed and contr
olled by the members for their own development. Several State Governments theref
ore enacted the Mutually Aided Co-operative Societies (MACS) Act for enabling pr
omotion of self-reliant and vibrant co-operative Societies based on thrift and s
elf-help. MACS enjoy the advantages of operational freedom and virtually no inte
rference from government because of the provision in the Act that societies unde
r the Act cannot accept share capital or loan from the State Government. Many of
the SHG federations, promoted by NGOs and development agencies of the State Gov
ernment, have been registered as MACS. Reserve Bank of India, even though they m
ay be providing financial service to its members, does not regulate MACS.
8. For Profit MFIs:Non Banking Financial Companies (NBFC) are companies reg
istered under Companies Act, 1956 and regulated by Reserve Bank of India. Earlie
r, NBFCs were not regulated by RBI but in 1997 it was made obligatory for NBFCs
to apply to RBI for a certificate of registration and for this certificate NBFCs
were to have minimum Net Owned funds of Rs 25 lakhs and this amount has been gr
adually increased. RBI introduced a new regulatory framework for those NBFCs who
want to accept public deposits. All the NBFCs accepting public deposits are sub
jected to capital adequacy requirements and prudential norms. There are only a f
ew MFIs in the country that are registered as NBFCs. Many MFIs view NBFCs more p
referred legal form and are aspiring to be NBFCs but they are finding it difficu
lt to meet the requirements stipulated by RBI. The number of NBFCs having exclus
ive focus on MF is negligible.
14. Capital Requirements
NGO-MFIs, non-profit companies’ MFIs, and mutual benefit MFIs are regulated by the
specific act in which they are registered and not by the Reserve Bank of India.
These are therefore not subjected to minimum capital requirements, prudential n
orms etc. NGO MFIs to become NBFCs are required to have a minimum entry capital
requirement of Rs. 20 million ($ 0.5 million). As regards prudential norms, NBFC
s are required to achieve capital adequacy of 12% and to maintain liquid assets
of 15% on public deposits.
A. Foreign Investment:
Foreign investment by way of equity is permitted in NBFC MFIs subject to a minim
um investment of $500,000. In view of the minimum level of investment, only two
NBFCs are reported to have been able to raise the foreign investment. However, a
large number of NGOs in the development - empowerment are receiving foreign fun
d by way of grants.
At present, over Rs.40, 000 million ($ 889 million) every year flows into India
to NGOs for a whole range of activities including microfinance. In a way, forei
gn donors have facilitated the entry of NGOs into micro finance operations throu
gh their grant assistance.
B. Deposit Mobilization:
Not for profit MFIs are barred, by the Reserve Bank of India, from mobilizing an
y type of savings. Mutual benefit MFIs can accept savings from their members. On
ly rated NBFC MFIs rated by approved credit rating agencies are permitted to acc
ept deposits. The quantum of deposits that could be raised is linked to their ne
t owned funds.
C. Borrowings:
Initially, bulk of the funds required by MFIs for on lending to their clients wa
s met by apex institutions like National Bank for Agriculture and Rural Developm
ent, Small Industries Development Bank Of India, and, Rashtiya Mahila Kosh. In o
rder to widen the range of lending institutions to MFIs, the Reserve Bank of Ind
ia has roped in Commercial Banks and Regional Rural Banks to extend credit facil
ities to MFIs since February 2000. Both public and private banks in the commerci
al sector have extended sizeable loans to MFIs at interest rate ranging from 8 t
o 11 per cent per annum. Banks have been given operational freedom to prescribe
their own lending norms keeping in view the ground realities. The intention is t
o augment flow of micro credit through the conduit of MFIs. In regard to externa
l commercial borrowings (ECB) by MFIs, not-for-profit MFIs are not permitted to
raise ECB. The current policy effective from 31 January 2004, allows only corpor
ate registered under the Companies Act to access ECB for permitted end use in or
der to enable them to become globally competitive players.
D. Interest Rates:
The interest rates are deregulated not only for private MFIs but also for formal
baking sector. In the context of softening of interest rates in the formal bank
ing sector, the comparatively higher interest rate (12 to 24 per cent per annum)
charged by the MFIs has become a contentious issue. The high interest rate coll
ected by the MFIs from their poor clients is perceived as exploitative. It is ar
gued that raising interest rates too high could undermine the social and economi
c impact on poor clients. Since most MFIs have lower business volumes, their tra
nsaction costs are far higher than that of the formal banking channels. The high
cost structure of MFIs would affect their sustainability in the long run.
E. Collateral requirements:
All the legal forms of MFIs have the freedom to waive physical collateral requir
ements from their clients. The credit policy guidelines of the RBI allow even th
e formal banks not to insist on any type of collateral and margin requirement fo
r loans up to Rs 50,000 ($1100).
Regulation & Supervision: India has a large number of MFIs varying significantly
in size, outreach and credit delivery methodologies. Presently, there is no reg
ulatory mechanism in place for MFIs except for those that are registered as NBFC
s. As a result, MFIs are not required to follow standard rule and it has allowed
many MFIs to be innovative in its approach particularly in designing new produc
ts and processes. But the flip side is that the management and governance of MFI
s generally remains weak, as there is no compulsion to adopt widely accepted sys
tems, procedures and standards. Because the sector is unregulated, not much is k
nown about their internal health.
Following Committees have examined the road map for regulation and supervision o
f MFIs:
Task Force (appointed by NABARD) Report on Regulatory and Supervision Framework
for MFIs, 1999. (Kindly see publications Section for a complete report Working G
roup (constituted by Government of India) on Legal & Regulation of MFIs, 2002 In
formal Groups (appointed by RBI) on Micro Finance which studied issues relating
to
(i) Structure &Sustainability,
(ii) Funding
(iii) Regulations and
(iv) Capacity Building, 2003
Advisory Committee (appointed by RBI) on flow of credit to agriculture and relat
ed activities from the Banking System, 2004.
The Committee observed that while a few of the MFIs have reached significant sca
les of outreach, the MFI sector as a whole is still in evolving phase as is refl
ected in wide debates ranging around (i) desirability of NGOs taking up financia
l intermediation, (ii) unproven financial and organizational sustainability of t
he model, (iii) high transaction costs leading to higher rates of interest being
charged to the poor clients, (iv) absence of commonly agreed performance, accou
nting and governance standards, (v) heavy expectations of low cost funds, includ
ing equity and the start up costs, etc.
The current debate on development of a regulatory system for the MFIs focuses on
three stages. Stage one - to make the MFIs appreciate the need for certain comm
on performance standards, stage two - making it mandatory for the MFIs to get re
gistered with identified or designated institutions and stage three - to encoura
ge development of network of MFIs which could function as quasi Self-Regulatory
Organizations (SROs) at a later date or identifying a suitable organization to h
andle the regulatory arrangements.
The Committee recommended that while the MFIs may continue to work as wholesaler
s of microcredit by entering into tie-ups with banks and apex development instit
utions, more experimentation have to be done to satisfy about the sustainability
of the MFI model. Such experimentation needs to be encouraged in areas where ba
nks are still not meeting adequate credit demand of the rural poor.
In regard to offering thrift products, the Committee felt that, while the NGO-MF
Is can continue to extend micro credit services to their clients, they could pla
y an important role in facilitating access of their clients to savings services
from the regulated banks. As regards allowing NGO-MFIs to access deposits from p
ublic / clients, the Committee considers that in view of the need to protect the
interests of depositors, they may not be permitted to accept public deposits un
less they comply with the extant regulatory framework of the Reserve Bank of Ind
ia. As no depositors interest is involved where they do not accept public depos
its, the Reserve Bank of India need not regulate MFIs.
As regards the high interest rates being charged by the MFIs, the Committee felt
that the lenders to MFIs may ensure that these institutions adopt a ‘cost-plus- r
easonable-margin’ approach in determining the rates of interest on loans to client
s.
15. Development Fund
A. Micro Finance Development and Equity Fund (MFDEF) – Structure and Guidelin
es:
During 2005-06, Government of India has decided to redesign ate the existing MFD
F as microfinance Development and Equity Fund (MFDEF). It has also been decided
to enhance the fund size from the existing Rs100 crore to Rs 200 crore. The addi
tional amount of Rs 100 crore will be contributed by Reserve Bank of India, NABA
RD and the commercial banks in the same proportion as earlier (40:40:20).
B. Objectives:
The objective of the redesignated Fund is to facilitate and support the orderly
growth of the microfinance sector through diverse modalities for enlarging the f
low of financial services to the poor particularly for women and vulnerable sect
ions of society consistent with sustainability.
C. Activities to be supported from out of the MFDEF:
The Fund will be utilized to support interventions to eligible institutions and
stakeholders. The components of assistance will include, inter alia, the follow
ing purposes:
a. Capacity Building:
i) Training of SHGs and other groups for livelihood, skill up gradation and
micro enterprise development.
ii) Capacity building of staff of institutions involved in microfinance prom
otion such as Banks, NGOs, government departments, NABARD, etc.
iii) Capacity building of MFIs.
b. Funding Support:
1. Contributing equity/other forms of capital support to MFIs, service providers
, etc.
2. Providing financial support for start-up and on-lending for microfinance act
ivities.
3. Supporting Self Help Promotion initiatives of banks and other SHPIs.
4. Meeting on a selective basis the operational deficit of financial intermedia
ry NGOs/MFIs at the start up stage.
5. Rating of MFIs and self regulation.
c. MIS:
1. Supporting systems management in regard to MIS, accounting, internal con
trols, audits and impact assessment.
2. Building an appropriate data base and supporting development thereof. R
egulatory & Supervisory Framework.
3. 3. Recommending regulatory and supervisory framework based on an on-goin
g review.
d. Studies & Publications:
1. Commissioning studies, consultancies, action research, evaluation studie
s, etc, relating to the sector.
2. Promoting seminars, conferences and other mechanisms for discussion and
dissemination.
3. Granting support for research.
4. Documentation, Publication and dissemination of MF literature.
5. Any other activities recommended by the Advisory Board to Fund.
e. Eligible Institutions:
Following types of structures, community based organizations and institutions, w
ould be eligible for support from the Fund:
1. Training: SHGs, CBOs, NGOs/VAs, Banks, MFIs, NABARD, Training Establishm
ents, networks, service providers.
2. Funding support: NGOs/VAs, CBOs, MFIs, and Banks.
3. MIS: SHGs, NGOs/VAs, Banks, MFIs, NABARD.
4. Regulatory and Supervisory Framework: Banks, MFIs, SROs, NGOs /VAs / MFI
Networks, NABARD.
5. Studies and Publications: Banks, MFIs, NABARD, Training and Research Org
anizations, Academic institutions and Universities.
6. Any other organization as may be decided by the Advisory Board from time
to time.
f. Mode of Assistance:
Mode of assistance from the Fund will include the following:
* Promotional support for training and other promotional measures.
* Loans and advances including soft loans.
* Revolving Fund Assistance (RFA) to NGOs/ MFIs.
* Equity and quasi equity support to MFIs.
* Administrative subsidies and grants.
* Administering Charges.
g. Advisory Body to MFDEF:
The Advisory Board shall guide and render advice on the various aspects relating
to the micro finance sector. The Board may determine its own procedures for da
y-to-day working including constitution of committees, task forces etc, for exam
ination of various issues. The advisory board will meet at such intervals as de
emed necessary but in any case once in a quarter to review the status and progre
ss of outflow and to render policy advice in respect of orderly growth and devel
opment of the sector.
16. NABARD s Support to microfinance Institutions (MFIs)
Realizing the importance of MFIs in the delivery of financial services to the po
or and their potential for expansion of services in remote and lesser-banked are
as, NABARD has been extending technical and fund support to this sector. Some o
f the concerns that necessitated NABARD to commence this support in 1993 were: 1
) the need to provide timely credit to the poor in under banked regions and ii)
to further improve the outreach of rural credit delivery system through alternat
e credit delivery mechanisms.
NABARD s support is being provided to various forms of microfinance institutions
covering MFIs, second tier MF lending institutions, Grameen bank replicators, N
GO-MFIs, SHG Federations etc. NABARD provides loan funds in the form of Revolvin
g Fund Assistance (RFA) to NGO-MFIs on a very selective basis. The RFA is genera
lly provided for a period of 5 to 6 years and is necessarily to be used for on l
ending to mF clients (SHGs or individuals). In addition, the agencies are also s
anctioned, on a case-to-case basis, grant assistance for partly meeting the sala
ry of field level staff, infrastructure development and operational deficits dur
ing the initial years.
Cumulatively, as at the end of June 2004, Rs 26.98 crore (Rs 269.80 million) has
been sanctioned as RFA to 31 NGO-MFIs and Rs. 0.58 crore (Rs 5.8 million) has b
een sanctioned as grant to various NGOs. The amount excludes Rs 3.4 million san
ctioned under SHG Post Office linkage programme in Tamilnadu.
During the year 2003-04, loan support of Rs. 84 million was sanctioned to two a
gencies viz.
1) Friends of World Women Banking, India (Rs. 74 million) for on-lending to sma
ll NGOs &
2) Kalanjiam Development Financial Services-a section 25 company promoted by DH
AN Foundation (Rs 10 million) for on lending to SHGs.
NABARD also provides technical support in the form of capacity building of staff
of MFIs and also bankers in appraisal of MFIs for providing wholesale resource
support. Since 2002, training programmes on "Appraisal of MFIs" are being condu
cted through Bankers Institute of Rural Development (BIRD), Lucknow. These train
ing programmes are intended to equip the stakeholders to appreciate the nuances
in financing NGO-MFIs and also enhance the flow of loan able funds from mainstre
am financial Institutions like banks. Specially designed capacity building progr
ammes are also being organized for Chief Executives & other staff of NGOs on pro
motion as well as managing of self help groups on a regular basis through our re
gional offices, in association with reputed resource NGOs & training establishme
nts.
22. Business Model of KDS MFI
A) Introduction: Kotalipara Development Society (KDS) is basically a NBFC (Non
Banking Financial Company). They provide minimum loan of 1000 and maximum 40,000
. MAS Finance is one of the blooming private MFI in the current era. They are ha
ving a sufficient amount of capital with them for their future growth. Kotalipar
a Development Society registered as a Society (NGO) under West Bengal Society Re
gistration Act 1961 came into being in 1989 and was in 1991, K.D.S. is a Non-gov
t. Social Service Organization working in the field of Rural Development for the
poor people. Community development and also poverty alleviation is the main foc
us of this Organization.
K.D.S. is a multi service NGO having under taken interventions in the field of p
rimary health care, education, Child right, mother & child health care, Control
of Blindness, Vocational training, water harvesting environment conservation and
Micro- credit. Although K.D.S. is basically based on the main principle of caus
ing social-economic empowerment of the poor.
B) KDS Vision: KDS vision is to poverty alleviation, women empowerment & egali
tarian Society free from exploitation and every body in this global life with hu
manity and prosperity.
C) KDS Mission: KDS envision itself as a financially self sustainable Micro-fina
nce Institution with a wide base of ownership. It is committed to strengthening
the Socio-Economic status of the poor women in rural and urban areas by providin
g technical and financial services on continued basis for establishing their ide
ntity and self-image. It constantly endeavors by cost-effective Methods creating
a culture of competence and excellence.
D) Legal Status: Registered under Society Registration Act, of 1961.
E) Objective:
1. Women Empowerment: KDS Believes that ―Women participation is the most effective
instrument in bringing about change in their way of life both economic well-bei
ng and adoption of new practices in changing the socio-economic environment. In
order to bring about women participation and their decision making and negotiati
ng power about their rights in all walks in life.
2. Women Health: Health leads to prosperity. Low endowments, production possibil
ities, and exchange option for women from disadvantage section in rural marginal
ized the women; this marginalization often results in neglecting the health issu
es of women and children.
3. Women Economic Development: Our objective is to strengthen women‘s economic cap
acity as entrepreneurs/producers, off farm economy and traditional activities. K
DS is committed to address factors leading to feminization of poverty and gender
inequality.
4. Women and natural resources: Our observation is that women are most effective
by degradation of natural resources. We are promoting environment awareness and
natural resources conservation activities through women‘s participation at villag
e level.
F) Role and Function:
*Helping in eradication of poverty.
*Providing finance for the enlistment of the individuals.
*Helps the borrower in establishing their business.
G) ADDRESS:
1) Head Office
Santa Nir,
Noapara, Arabinda Pally
Barasat, Kolkata—124
Dist-North 24 Parganas
West Bengal, India
Mobile : +91 033 32965569
Email Id : info@kdsmfi.org
2) Reg. Office: Pioneer Park (Mat) Barasat
Dist-North 24 Parganas, Kolkata--124
West Bengal, India
3) Japan Office: P.O-355-0076
SHIMOKARAKO 1906,
HIGASHI MATSUYAMA-SHI,
SAITAMA-KEN,
JAPAN
TEL + FAX: (0081)493-252557
Tel: (0081)8035220930 5037728489, 7066789740
E-mail: baidyan@solid.ocn.ne.jp
H) Micro-Finance Program:
1. KDS has been established in the year 1991.
2. Directly started implementing Micro-finance since 1997.
3. KDS provides financial Sustainable Development Approach for “Poverty Alleviatio
n & Women Empowerment”.
4. Financial Services to the poor women, landless, Asset less.
5. Monthly family income not more than INR Rs.2500/- in rural INR Rs.3500 in urb
an.
6. 100% women and possesses not more than 50 decimal of land.
7. SHG Model is largely based on ASA, Bangladesh.
8. KDS provide small capital to medium entrepreneurs for expansion their busine
ss. Security Deposit KDS received 10% Security against Loan.
b) KDS Field Operation:
Operations: -The organization has a three tier system at the field- Branch, Regi
ons, Division; personnel associated with each tier are based at the Field.
Branch: A Branch in the field is the centre of all actions. The branch serves as
a residence for field staff (FO/BM) and an office unit from where activities of
branch originate and are managed. The Branch Managers supervise the activities
of the FOs and also administer branch operation. BMs hold regular meetings with
their FOs for efficient branch operation. As a part of their regular monitoring.
Branch Manager visits the borrower’s house regularly.
Region: All the branches are distributed under 13 regions. Each region consists
of 6-7 branches.Thirteen Regional Manager looks after all regions. The Regional
Manager does not have any separate office and staff to conduct his/her work. The
Regional Office is situated at the centre branch at a region. The Regional Mana
ger regularly monitors the activities of a branch at least twice in a month.
Division: There are 3 divisions. Each division consists of 4-5 regions. The Divi
sional Manager (DM) looks after a division. As a part of his monitoring process,
he visits 12 branches in a month. His monitoring contains varied facts viz. sup
ervision of Regional Manager work, study of Branch growth, fund plan and utiliza
tion and the like. Besides these there is one Operation Manager at the head for
the smooth functioning of the field. Although Operation Manager is located at th
e head office, he plays a vital role in field operations. In fact, it is Mandato
ry for the Operation Manager to spend 2 weeks a month in the field. He is endowe
d with specific power and is capable of taking decision independently.
Internal Audit: KDS has a team of 8 people (inclusive of the Manager Internal Au
dit) working under the internal audit section. Out of these 8 people, 2 of them
are based at the head office and the rest 6 are based in the field each branch i
s audited every five six months.
The Manager Internal Audit coordinates and supervised the activates of the Inter
nal Auditors (I.A.). The I.A. submit their report to the Manager Internal Audit
who is turn compiles/ consolidates the some and finally places it before the Ch
ief Executive Directors. The Manager Internal Audit is directly accountable to t
he Chief Executive Director (CED). Once the CED goes through the report, the ins
tructs the Implement Officer and the Operation Manager to take necessary steps i
t required.
Around 15-20 branches are audited each month is KDS in certain cases, the audito
rs may be given instructions to conduct follow up audits. Audit is also conducte
d in the Logistics Department at the head office once a year.
a) Microfinance Operation Structure:

c) MFI Port-Folio Status Report:
For the month ended 30th July- 2010
No of branches 88
No of village covered 2,383
No of active groups 6,349
No of members 97,111
No of active borrower 72,742
Amount of lone outstanding (in Rs.) 247,372,293
Cumulative no of lone disburse 299,512
Cumulative amount of lone disburse (in Rs.) 1,585,585,529
d) Methodology:
Credit Delivery Methodology:
Client/Borrower:
*1% women, mostly land less & asset less.
* SH. KDS follows ASA Modify Model.
* 100G – 10-20 Members in a group.
KDS developed and tested a sustainable credit model in West Bengal. The model is
largely based on ASA, Bangladesh approach organizing the people of focused into
groups, under the territory of particular branch of KDS. There are generally 10
-20 members in a group, based in village. With an average number of 20 in each g
roup. Each SHG members meets once in a week, at a fixed day, place and time. All
the members are required to attend the weekly meeting and repay their installme
nts. They are required to deposit their security and repay their loan installmen
t.
The SHG members take all decision regarding the number of the loaner and amount
of loan to be given to any borrower in that SHG meeting. KDS provides collateral
free loans to its members, Group liability is absent from KDS s credit program.
It is not the group but the individual who is held responsible for delinquency.
The Micro-credit services of KDS assist the group members to become economically
self-sufficient Loan proposal are screened and approved by the SHG during their
weekly meeting participation and group responsibility are the essential element
s of the loan process.
After approval the loan proposal is submitted to the branch office through field
staff. The loan disburses to the borrower in cash in the branch office.
The Micro-credit services of KDS assist the group members to become economically
self-sufficient, Loan proposal are screened and approved by the SHG during thei
r weekly meeting participation and group responsibility are the essential elemen
ts of the loan process.
After approval the loan proposal is submitted to the branch office through field
staff. The loan disburses to the borrower in cash in the branch office. Members
have to wait only 8 weeks after their registration to get the 1st loan. The ins
tallment process is followed for repayment and the first installment is deposite
d with service charge is calculated flat on the principal of the loan. There is
different size of small loan. It may be generally from Rs. 2000 to 15000/-.
The duration of this loan is one year and 46 equal installments cover its repaym
ent.
e) KDS Microfinance Rules:
1) Rules of Loan:
*Loans disburse 8 weeks after formation of the SHG.
*90 % attendance in weekly meeting.
* 1st installment after 7 days in equal weekly installment.
* Last 3 installments can be repaid at a time.
* Loan sanction by the BM.
2) Group Formation Rule: KDS start with formation of SHG through identifying o
f target poor women eligible for membership through informal village survey, 10-
25 poor women are formed a self-half Group and their age 18-55 years.
1. Each of the group has three group leader President, Secretary & Cashier are r
esponsible for collection, security deposit and loan repayments during the group
meeting.
2. The SHG model is largely based on ASA Bangladesh.
3. Each of the group organizes weekly meeting in a fixed day, place and time.
4. Every member is required to attend the meeting.
5. SHG member take all the decision in the meeting.
3) Credit Rule:
(i) Loan disburses 8 weeks after formation of the SHG.
(ii) 90% attendance in weekly meeting.
(iii) 1st installment after 7 days in equal weekly installment.
(iv) Last 3 installment can be repaid at a time.
(v) Loan sanction by the BM.
4) Products:1) KDS has 4 loan Products
Loan term –IGA (SHG) 46 weeks
Education loan 45 weeks
Festival loan(Term) 12 weeks
Repayment Charge Weekly
Processing fees 1.00 %
Insurance fees 1.50 %
Interest Rate 15 %
Education loan(Interest) 12.50 %
2) Insurance Product
1. KDS tie up with Life Insurance Company for Borrower insurance.
2. In case of untimely demise of Clients the successor of the expired Borrower w
ill get the benefit of the Borrower insurance and the loan is exempted from repa
yment.
3. Health Insurance
4.Other Activities
5. Risk Fund
6.KDS receives 1%processing fees before loan disbursement. In case the Client’s hu
sband expired in that case the client will get the benefit from the risk fund an
d the out standing loan is exempted from repayment.
Loan Classified-purpose wise%
Non farm enterprises loan - 52%
Transport ----------------------- 26%
Cottage Industry-------------- 10%
Animal Husbandry-------------- 6%
Agriculture -----------------------6%
e) Business Process:
Loan Portfolio
Security Deposit Rs. 6, 2731415
Cumulative no of loan Disbursed 143505
Amount of Loan Disbursed Rs. 52,0000000
No. of Active Borrowers 84458
Amount of Loan Outstanding Rs. 24,0000000
Average Loan Size 2837
Borrower per Loan Officer 140
Loan Amount Per Loan Officer Rs. 457065
Repayment Rate Rs. 457065
f) KDS Area Operation:
SL No. Name of the Districts Number Of Block Number Of Branches Number O
f Members
1. NADIA 9 30 17313
2. HOOGLY 16 12 5577
3. NORTH 24 PARGANAS 19 33 36055
4. SOUTH 24 PARGANAS 12 6 4146
5. BURDWAN 4 6 3187
6. HOWRAH 3 1 346
7. MURSHIDABAD 8 1 1902
8. KOLKATA 4 1 540
9. MALDA 1 1 424
West Bengal
g) Operation Highlight
Past 5 Years Activities:
Sl. No 2004 – 05 2005 – 06 2006 – 07 2007 – 08 2008 – 09 2009
No of Branch 6 42 90 88 90 89
District Covered 3 4 9 9 9 9
No of Block Covered 14 33 162 162 192 162
No of Staff 38 200 432 370 390 453
No of Group Formed 800 2600 7074 5661 5782 6227
No of Members 12300 35700 114740 89797 90978 95135
Security Balance 0.19 Crore (1.9 Million INR) 1.36 Crore (13.6 Million
INR) 5.20 Crore (52 Million INR) 3.37 Crore (33.7 Million INR) 4.30 Cro
re (43 Million INR) 5.9E+07
No of Loan Disbursed 2.0 Crore (20 MIllion INR) 11.0 Crore (110 Million
INR) 52 Crore (520 Million INR) 73.42 Crore (734.2 Million INR) 94.51 Cr
ores (945.1 Million INR) 278390
No of Active Borrower 3990 2300 84084 50677 65650 70021
Amount of Loan Outstanding 1.10 Crore (11 Million INR) 7.0 Crore (70 Mi
llion INR) 23.0 Crore (230 Million INR) 13.32 Crore (133.2 Million INR)
14.02 Crore (140.2 Million INR) 230527723
On time Repayment Rate 99.93% 98.62% 99.70% 98.72% 98.83% 98.84
h) KDS Lenders:
1. Axis Bank
2. United Bank of India
3. Friends of Women’s World Banking India (F.W.W.B.)
4. Small Industries Development Bank of India
5. West Bengal Backward Class Development Finance Corporation
6. West Bengal Minority Development Finance Corporation.
7. Rashtriya Mahila Kosh, (Department of Women and Child Development, govt.
of India).
8. ICICI Bank.
i) “Success Story”
Geeta Paul
Geeta Paul is a landless woman belonging to O.B.C. community who lives in the ha
mlet of 24 pgs (N) in West Bengal with her husband, Mr. Haripada Paul is also la
ndless labour working in his self profession Pottery. Geeta and her husband live
d on very heard life with their three children out of which two are school going
.
Geeta Paul herself found out the S.H.G. and Duttapukur Branch office of K.D.S. i
n her won village. There she was inspired by field organizer of K.D.S. to enlarg
e her Pottery business. She became please and interested to provide more fund fr
om K.D.S. to her business. So she got a loan of Rs. 7000/- (seven thousand) to d
evelop her tools for the same. Both her husband and she herself did the same in
order to enlarge their business and got the best profit. After 40 weeks, they go
t another loan of Rs. 8000 (Eight thousand) while they got more profit. As a res
ult they are passing the life in a peace with their children and keep up the soc
ial culture properly. She admires the K.D.S. for her development of business and
her conjugal life.
Loan Cycle Loan Amount Monthly Income
1st 7000 1800
2nd 8000 3000 – 4000
3rd 9000 4000 – 4500
4th 12000 4500 - 75000
j) DIRECTOR’S Report
To the members of KDS Micro credit Services private limited your Directors have
pleasure in presenting Second Annual Report of your Company together with the Au
dited Statement of Accounts for the financial year ended 31st March 2009.
1) Financial Activities
Sl. No. Particulars Year ended 31.03.08 Year ended 31.03.09
1. Total Income 617137.00 204681.00
2. Total Expenditure 540150.00 197296.00
3. Profit before Interest Depreciation & Tax 76987.00 7385.00
5. Depreciation 48567.00 3364.00
6. Profit Before Tax 76987.00 7385.00
8. Profit after Tax 34654.00 2660.00-
2) Business Activities
Presently your company operates in one district in Kolkata in the state of West
Bengal. The main activities of the company during the year were Micro Loans. The
other relevant business parameters were as follows.
Sl. No. Particulars Year ended 31.03.08 Year ended 31.03.07
1. Total No. of Member 547 599
2. Total No. Borrowers 450 324
3. Total amount of loan disbursed 5088000.00 2130000.00
4. Total No. amount of loan outstanding 1645526.00 1750435.00
23. Success Factors of Micro-Finance in India:

Over the last ten years, successful experiences in providing finance to small e
ntrepreneur and producers demonstrate that poor people, when given access to res
ponsive and timely financial services at market rates, repay their loans and use
the proceeds to increase their income and assets. This is not surprising since
the only realistic alternative for them is to borrow from informal market at an
interest much higher than market rates.
Community banks, NGOs and grass root savings and credit groups around the world
have shown that these microenterprise loans can be profitable for borrowers and
for the lenders, making microfinance one of the most effective poverty reducing
strategies.
a. Problems for Alternative Micro-Finance Institutions
The main aim with which the alternative MFIs have come up is to bridge the incre
asing gap between the demand and supply. A vast majority of them set up as NGOs
for getting access to funds as, the existing practices of mainstream financing i
nstitutions such as SIDBI and NABARD and even of the institutions specially fund
ing alternatives, such RMK and FWWB, is to fund only NGOs, or NGO promoted SHGs.
As a result, the largest incentive to enter such services remains through the n
onprofit route. The alternative finance institutions also have not been fully su
ccessful in reaching the needy.
There are many reasons for this:
*Financial problems leading to setting up of inappropriate legal structures.
*Lack of commercial orientation.
*Lack of proper governance and accountability.
*Isolated and scattered.
24. Future of Micro Finance :
Microfinance in India is in crisis because of the backlash against lenders in th
e southern state of Andhra Pradesh, the heart of the industry, where politicians
have ordered borrowers not to repay their debts. The industry also faces an unc
ertain regulatory future with the state introducing new restrictions on lenders
and Finance Minister Pranab Mukherjee saying last week he would formulate new ru
les to govern the industry once he receives a report from a committee of the Res
erve Bank of India.
Estimated that in next five years, 65% of the poor people will have excess to MF
Is. Many Pvt. Banks and Foreign Banks would enter this business segment, because
of very low NPAs.
Estimated that 5 % of the number of people below the poverty line will get redu
ced in the next 5 years.(World Bank report).
These agents contact several borrowers, thus expanding the reach of ICICI Bank a
t a low cost. Taking the FSC initiative further, ICICI Bank plans to provide far
mers credit from sugar companies, seed companies, dairy companies, NGOs, micro-c
redit institutions and food processing industries.
SIG has been involved in a project in the southern state of Tamil Nadu to find o
ut how wireless technology can be applied in the development of low cost models
of banking. Another plan to increase the reach in rural areas is to launch mobil
e ATM services. ICICI Bank branded trucks have started carrying ATMs through a n
umber of villages.
While these deaths are tragic, and the way that lenders are going about collecti
ng payments is wrong, the root of the problem is not microfinance and not the in
terest rates. The problem lies in the way that MFI’s are going about their busines
s. The system itself is sound, and but what must occur is a restricting of the e
mployee base.
If such abuse continues to persist, there will not be a future for microfinance.
In order for a peaceful, progressive future, MFI’s must strictly enforce their le
nder policies, making sure to eliminate agent threats as mentioned in the WSJ.
Thus, restrictions are not necessary, but a restructuring of the microfinance in
dustry is in strong demand. It will only be until microfinance policy is solidif
ied and agreed upon by the local and national legislatures that MFI’s regain the t
rust and reputation they once held as an institution of progress, not abuse.
A) The Future: Microfinance expansion over the next decade can be expected to be
an extension of what has been achieved so far while overcoming the hurdles that
have been posing difficulty in effective microfinance operation and its expansi
on.
There may be several participants in this process and their participation may be
seen in the following forms.
Existing microfinance institutions can expand their operations to areas where th
ere are no microfinance programs.
More NGOs can incorporate microfinance as one of their programs. In places where
there are less micro finance institutions, the government channels at the grass
roots level may be used to serve the poor with microfinance.
Postal savings banks may participate more not only in mobilizing deposits but al
so in providing loans to the poor and on lending funds to the MFIs.
More commercial banks may participate both in microfinance wholesale and retaili
ng. They many have separate staff and windows to serve the poor without collater
al.
International NGOs and agencies may develop or may help develop microfinance pro
grams in areas or countries where micro financing is not a very familiar concept
in reducing poverty.
Considering that the majority of the 360 million poor households (urban and rura
l) lack access to formal financial services, the numbers of customers to be reac
hed, and the variety and quantum of services to be rovided are really large. It
is estimated that 90 million farm holdings, 30 million non-agricultural enterpr
ises and 50 million landless households in India collectively need approx US$30
billion credit annually. This is about 5% of India s GDP and does not seem an un
reasonable estimate.
However, 80% of the financial sector is still controlled by public sector instit
utions. Competition, consolidation and convergence are all being discussed to im
prove efficiency and outreach but significant opposition remains.
Many private and foreign banks have unveiled their plans to enter the Indian mic
rofinance sector because of its very low NPAs and high repayment rate of more th
an 95% in spite of offering loans without any collateral security.
Microfinance is not yet at the centre stage of the Indian financial sector. The
knowledge, capital and technology to address these challenges however now exist
in India, although they are not yet fully aligned. With a more enabling environm
ent and surge in economic growth, the next few years promise to be exciting for
the delivery of financial services to poor people in India
Development of Small-Scale Enterprises through microfinance will not only increa
se the outreach but will also help the generation of more employment and income
for the poor. It is expected that in the following years there will be considera
ble deepening of microfinance in this direction along with simultaneous drives t
o reach and serve the poorest of the poor.
But the crux of the discussion is that, if the over excess involvement of the go
vernment would be there in the Micro Finance sector, than the growth of the Micr
o Finance won‘t much possible. The Govt. involvement should limited to the importa
nt decisions only, but not to interfere in each and every matter of the manageme
nt.
25. Top 50 Microfinance Institutions in India:
The above report includes detailed profiles and ratings of India’s top Microfinanc
e Institutions: CRISIL List: Top 50 Microfinance Institutions in India by Loan A
mount Outstanding for 2010.
1. SKS Microfinance Ltd (SKSMPL).
2. Spandana Sphoorty Financial Ltd (SSFL).
3. Share Micro fin Limited (SML)4. Asmitha Micro fin Ltd (AML).
5. Shri Kshetra Dharmasthala Rural Development Project (SKDRDP).
6. Bhartiya Samruddhi Finance Limited (BSFL).
7. Bandhan Society.
8. Cashpor Micro Credit (CMC).
9. Grama Vidiyal Micro Finance Pvt Ltd (GVMFL).
10. Grameen FinancialServices Pvt Ltd (GFSPL).
11. Madura Micro Finance Ltd (MMFL).
12. BSS Microfinance Bangalore Pvt Ltd (BMPL).
13. Equitas Micro Finance India P Ltd (Equitas).
14. Bandhan Financial Services Pvt Ltd (BFSPL).
15. Sarvodaya Nano Finance Ltd (SNFL).
16. BWDA Finance Limited (BFL).
17. Ujjivan FinancialServices Pvt Ltd (UFSPL).
18. Future Financial Services Chittoor Ltd (FFSL).
19. ESAF Microfinance & Investments Pvt. Ltd (EMFIL).
20. S.M.I.L.E Microfinance Limited.
21. SWAWS Credit Corporation India Pvt Ltd (SCCI).
22. Sanghamithra Rural Financial Services (SRFS).
23. Saadhana Micro fin.
24. Gram Utthan Kendrapara.
25. Rashtriya Seva Samithi (RASS).
26. Sahara Utsarga Welfare Society (SUWS).
27. Sonata Finance Pvt Ltd (Sonata).
28. Rashtriya Gramin Vikas Nidhi.
29. Arohan Financial Services Ltd (AFSL).
30. Janalakshmi Financial Services Pvt Ltd (JFSPL).
31. Annapurna Financial Services Pvt Ltd.
32. Hand in Hand (HiH).
33 Payakaraopeta Women’s Mutually Aided Co-operative Thrift and Credit Society (P
WMACTS)
34 Aadarsha Welfare Society(AWS)
35 Adhikar
36 Village Financial Services Pvt Ltd (VFSPL)
37 Sahara Uttarayan
38 RORES Micro Entrepreneur Development Trust(RMEDT)
39 Centre for Rural Social Action (CReSA)
40 Indur Intideepam Federation Ltd (IIMF).
41 Welfare Organization for MultipurposeMass Awareness Network (WOMAN)
42 Pragathi Mutually Aided Cooperative Credit and Marketing Federation Ltd(PMAC
S)
43 Indian Association for Savings and Credit(IASC)
44 Sewa Mutually Aided Cooperative Thrift Societies Federation Ltd (Sewa)
45 Initiatives for Development Bangalore, Foundation (IDF)
46 Gandhi Smaraka Grama Seva Kendram (GSGSK)
47 Swayamshree Micro Credit Services (SMCS)
48 ASOMI
49 Janodaya Trust
50 Community Development Centre (CDC)
26. Microfinance India Summit 2010:
Over the last six years, the Microfinance India Summit, organized by ACCESS Deve
lopment Services, has established itself as an international conference dedicate
d to Indian microfinance. It has become the single most important platform for s
haring the Indian experience, unique as it is, with a global audience. At the sa
me time, it also provides an avenue to learn about international trends and best
practices for adaptation by the Indian community of practitioners. Policy maker
s, practitioners, promoters, academics, researchers and thought leaders share th
eir experiences on various panels, and about 1000 delegates from both within and
outside the country participate in the Summit. It bridges the unnecessary hiatu
s between models and methodologies and helps to build consensus on the critical
challenges and issues. In the past, the Summit themes have helped in focusing on
key issues including "Inclusion, Innovation and Impact" (2005), "Urban Microfin
ance" (2006), "Formal Financial Institutions - the challenges of depth and bread
th" (2007), "The Poor First" (2008) and "Doing good and doing well- The need for
balance" (2009).
The microfinance India Summit 2010 will be held on November 15-16, 2010 at Hotel
Ashok, New Delhi. The over-arching theme for this year s Summit is "Mission of
Microfinance - Need to Reflect and Reaffirm". The Summit sessions will focus on
current trends and issues relating to sustainability, transparency, social perfo
rmance, commercialization of the sector, client protection, among others.
*Recommendations and suggestions:
Under mention are the few recommendations and suggestions, which I felt during m
y project on
Micro Finance is:-
1. The concept of Micro Finance is still new in India. Not many people are aware
the Micro Finance Industry. So apart from Government programmers, we the people
should stand and create the awareness about the Micro Finance.
2. There are many people who are still below the poverty line, so there is a hug
e demand for MFIs in India with proper rules and regulations.
3. There is huge demand and supply gap, in money demand by the poor and supply b
y the MFIs. So there need to be an activate participation by the Pvt. Sector in
this Industry.
4. One strict recommendation is that there should not over involvement of the G
overnment in MFIs, because it will stymie the growth and prevent the others MFIs
to enter.
5. According to me the Micro Loan should be given to the women only, Because by
this only, MFIs can maintain their repayment ratio high, without any collaterals
.
6. Many people say that the interest rate charge by the MFIs is very high and th
ere should be compelled cap on it. But what I felt during my personal survey, th
at the high rates are justifiable. Now by this example we will get agree.
Suppose a big commercial bank gives Rs 1 million to an individual and in the sam
e way a MFI gives Rs 100 to 10.000 customers. So it’s obvious that man power cost
and operating cost are higher for the MFIs. So according to me rates are justifi
able, But with limitations.
ACRONOMY:
KDS MSPL - KDS Micro credit services Private Limited.
OM - Operation Manager
CED - Chief Executive Director
H/O - Head Office
HRD - Human Resource Development
MF - Micro finance
MFI - Micro finance Institute
MIS - Management Information System
NBFC - Non Banking Financial Company
NGO - Non Government Organization
Conclusion:
Microfinance has a long way despite doubts expressed and criticism launched abou
t its viability, impact, and poverty fighting capacity. There should, however, b
e no room for complacency. The task of building a poverty-free world is yet to b
e finished. There are still over 1.2 billion people living in extreme poverty on
this planet. They are not living in one country or region but spread all over t
he world. The last decade has witnessed an impressive growth of microfinance; la
ck of funding is still considered a major obstacle in the way of its growth. How
ever, it is encouraging that the situation is changing. Given the experiences of
large and fast growing the last decade has witnessed an impressive growth of mi
crofinance; lack of funding is still considered a major obstacle in the way of i
ts growth. However, it is encouraging that the situation is changing. Given the
experiences of large and fast growing Microfinance, there are lessons for others
who want to increase their outreach and operate on a sustainable basis.
Fortunately, there is an increasing awareness about the power of microfinance, a
nd the need to support its growth. Many players have committed themselves to its
promotion. Governments are taking an increasing interest in it. More banks, bot
h national and international are coming forward with different support packages.
NGO-MFI partnerships are on the increase. New instruments are being used to sol
ve the problem of funding. It is expected that in the coming years more ideas, i
nnovations, cost saving devices, and players will continue to reinforce the micr
ofinance movement and increase its expansion.
At the end I would conclude that, Micro Finance Industry has the huge potential
to grow in future, if this industry grows then one day we‘ll all see the new face
of India, both in term of high living standard and happiness.
One solution by which we all can help the poor people, i.e. in a whole year a me
dium and a rich class people spends more than Rs 10,000 on them without any good
reason. Instead of that, by keeping just mere Rs, 3000 aside and donate that am
ount to the MFIs, then at the end of the year the total amount in the hands of p
oor would be ( average 500 million people *Rs 3000)=Rs 1,500,000,000,000 . Just
imagine where would be India in next 10 years.
Private MFIs in India, barring a few exceptions, are still fledgling efforts and
are therefore unregulated. Their outreach is uneven in terms of geographical sp
read. They serve micro finance clients with varying quality and using different
operating models. Regulatory framework should be considered only after the susta
inability of MFI model as a banking enterprise for the poor is clearly establish
ed. Experimentation of MFI model needs to be encouraged especially in areas wher
e formal banks are still not meeting adequate credit demand of the rural poor.
*References:
Dr. Raj Gopal Sen. Professor & Internal Audit Of & Faculty Member of (MBM & COM
MERCE DEPARTMENT)Calcutta University.(Guest Faculty from BRAINWARE BUSINESS SCHO
OL).
Faculty Guide: Barnasree Chandra, (Faculty of Finance) BRAINWARE BUSINESS SCHOOL
.
PTU: Approved by Joint Committee of UGC-DEC- AICTE, Ministry Of HRD, Govt: Of In
dia.
de Aghion, Beatriz Armendáriz & Jonathan Morduch. The Economics of Microfinance,
The MIT Press, Cambridge, Massachusetts, 2010.
Dichter, Thomas and Malcolm Harper (eds). What’s Wrong with Microfinance? Practica
l Action, 2007.
Ledgerwood, Joanna and Victoria White. Transforming Microfinance Institutions:
Providing Full Financial Services to the Poor. World Bank, 2010.
Yunus, Muhammad. Creating a World Without Poverty: Social Business and the Futur
e of Capitalism. Public Affairs, New York, 2008.
The Future of microfinance in India: By Sukhwinder Singh Arora, Financial Sector
Team, Policy Division, DFID.
Strategies for poverty alleviation through dovetailing the potential of microfin
ance Practices with non-timber forest products from dipterocarps: Lessons from I
ndia by B.P.Pethiya.
India microfinance Investment Environment Profile by Slavea Chankova, NathanaelG
oldberg, Genevieve Melford, Hind Tazi and Shane Tomlonson.
Anil K Khandelwal, “Microfinance Development Strategy for India”, Economic and
Political Weekly, March 31, 2007.
• Raven Smith, “The Changing Face of Microfinance in India-The costs and benefits
of transforming from an NGO to a NBFC”, 2010.
• R Srinivasan and M S Sriram, “Microfinance in India- Discussion”
• Piyush Tiwari and S M Fahad, HDFC, “Concept paper-Microfinance Institutions in Ind
ia”.
• Shri Y S P Thorat, Managing Director, NABARD, “Innovation in Product Design, Credi
t Delivery and Technology to reach small farmers”, November, 2010.
• Shri Y S P Thorat, Managing Director, NABARD, “Microfinance in India: Sect oral Is
sues and Challenges”, May, 2005
• Dr. C Rangarajan, Chairman, Economic Advisory Council to the Prime Minister, “Micr
ofinance and its Future Directions”, May, 2005.
• Report, “Status of Microfinance in India 2009-2010”, NABARD.
• Bindu Ananth and Soju Annie George, Micro financial Services Team of Social Init
iatives Group, ICICI Bank, “Scaling up Micro financial Services: An overview of ch
allenges and Opportunities”, August, 2009.
• Annie Duflo, Research Co-coordinator, Centre for Micro Finance Research, “ICICI Ba
nks the poor in India”, Page 13, Microfinance Matters.
• Microfinance in India: A critique by Rajarshi ghosh.
• 23. Research paper by Prabhu Ghate.
• 24. Research paper by Vishal Sehgal, Presentation by N. Srinivasan.
*Websites:
www.google.com, www.scribd.com, www.microfinanceindia.org, www.ifmr.ac.in,www.go
ogle.com
www.microfinanceinsight.com, www.investopedia.com, www.books.google.com
www.seepnetwork.org, www.forbes.com,www.nationmaster.com
www.thaindian.com,www.authorstream.com,www.knowledge.allianz.com
www.familiesinbusiness.net, www.indiamicrofinance.com,www.gdrc.org
www.accion.org, www.elyserowe.com, www.kdsmfi.org
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“MICRO-FINANCE MANAGEMENT & CRITICAL ANALYSIS IN INDIA”

APPROVED BY JOINT COMMITTEE OF UGC-DEC- AICTE, MINISTRY OF HRD, GOVT: OF INDIA.

A PROJECT REPORT ON:-

Learning from the Company

* Microfinance Regulation in India.

G. The micro-credits model:

For example, the MFI may develop strategic alliances to begin

B. Problems for Alternative Micro-Finance Institutions: The main aim with w

Return on Equity = Net Operating Income – Taxes____

13. Micro-Finance Accounting and Management Information Systems

*14 MFI in India Growth of Gross Loan Portfolio

Cost of Funds Ratio

a) Microfinance Operation Structure:

23. Success Factors of Micro-Finance in India:

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