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PRESENTORS
poor families with very small loans (micro credit) to help them engage in productive activities or grow their tiny businesses. -> Financial Gateway
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Overview
Microfinance is the supply of loans, savings, and other basic
financial services to the poor In India it generally provided by SHG-Bank linkage, and by MFIs itself SHG-Bank 54 million members MFI 22.6 million members MFIs added 8.5 million new members in 2008-09 3732.33 crs. was disbursed to 581 Micro Finance Institutions (MFIs) during 2008-09
3 Source: http://www.microsave.org/briefing_notes/india-focus-note-40-state-of-microfinance-in-india-2010
Origin of Microfinance
The concept of micro finance originated in the mid-1970s in Bangladesh through a pioneering experiment by Dr Muhammad Yunus then a Professor of Economics.
Origin of Microfinance
Dr. Mohammad Yunus Established Bangladesh Grameen Bank to:-
entrepreneurship opportunities
It was an end to mistreatment by
money lenders
Grameen Bank
Established in 1976 in Jobra village in Bangladesh by Professor
Muhammad Yunus
Provides credit to the poorest of the poor in rural Bangladesh
without any collateral By June 2010: 2,564 branches in 81,362 villages 8.28 million borrowers (90% are women) Total equity: 90% - Borrowers 10% - Government
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Source- http://www.grameen-info.org
Contd..
Owned by the Poor
joint liability
Over Tk 546 billion Disbursed in 2009-10 Loan recovery rate is 97.20 percent
Source- http://www.grameen-info.org
Objectives
Extend banking facilities to poor people Eliminate the exploitation of the poor people by money
lenders Create opportunities for self-employment for unemployed people in rural Bangladesh Reverse vicious circle of "low income, low saving & low investment", into virtuous circle of "low income, injection of credit, investment, more income, more savings, more investment, more income"
insurance, transfer services and other financial products targeted at lowincome clients.
Micro credit refers to a small loan to a
client made by a bank or other institution. Micro credit can be offered, often without collateral, to an individual or through group lending.
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A micro credit program gives small loans to the poor so that they can procure whatever they need to start a small local business of their choice
In the absence of collateral, the loans are made to groups of five, mostly women, who guarantee each others' loans. Called Joint liability Group (JLG)
All persons who have paid back a first loan, are automatically eligible for a second loan and eventually a third so their businesses can grow.
At the same time from the interest, the loan fund is growing, though slowly, and loans are available to more persons.
If one does not pay back one's loan, no one in the group will receive a second loan
To guard against emergencies, such as one's cow dying and not being able to repay the loan, an emergency fund is set up at the time of the first loan. This simply means that a few coins, perhaps an additional
Scope of Microfinance
In India, Micro finance is growing faster than banking and, if the experience in other developing countries is mirrored here, microfinance will reach more individuals than the banking sector,
Scope of Microfinance
Nos. of Clients in Millions
35 30 25 20 15 10 5 0 2008 2010 2015 Banking Microfinance
Key Players
SKS Microfinance Ltd.
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Number of clients
SKS
Spandana
SHARE
Bandhan
Company
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Up to 2010
14000
3540.5
2234
1589
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Commercialisation of Microfinance
Down-scaling of commercial banks to serve the poor, and the
Contd.
Transformation of four large Indian MFIs into commercial entities:SKS Microfinance Spandana Spoorthy Financials Limited Share Microfin Limited Asmitha Microfin Limited
SKS Microfinance, Indias largest MFI, which serves about 5.5 million clients intends to raise $347 million in an initial public offering.
Source:- http://www.microfinancegateway.org/p/site/m/template.rc/1.9.43770/ 28
Commercialisation is Essential
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Concerns
An opportunity to make money for commercial banks
poverty
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Limitations
Micro Loans should never lends to individuals without first providing them with the expertise and training to build a business plan that is likely to succeed.
Limitations
Micro finance is mainly intended for social investment with the focus on poverty reduction. The utilization of funds depends on the capacity of the poor clients productively use it, at bottom level towards creating a sustainable social impact
Limitations
Another point in this regard is that mere flow of funds alone in MF sector cannot bring desired level of social impact unless other infrastructure is enough in the given area/region to absorb the funds
up in 1904. Reserve Bank of India Act, 1934 provided for the establishment of the Agricultural Credit Department. Nationalization of banks in 1969 Regional Rural Banks created in 1975. established as an apex agency for rural finance in 1982. Passing of Mutually Aided Co-op. Act in AP in 1995.
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about Rs. 60,000 crores. Cumulative disbursements under all micro finance programmes is only about Rs. 5000 crores.(Mar. 04) Total outstanding of all micro finance initiatives in India estimated to be Rs. 1600 crores. (March 04) Only about 5 % of rural poor have access to micro finance
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following reasons Bankers feel that it is fraught with risks and uncertainties. High transaction costs Unfavourable policies like caps on interest rates which effectively limits the viability of serving the poor. While MFIs have shown that serving the poor is not an unviable proposition there are issues that have constrained MFIs while scaling up. These include Lack of an appropriate legal vehicle Limited access to equity Difficulty in accessing low cost on-lending funds (as of now they are unable to offer savings services in a legitimate
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FEATURES OF INDIAN MF
About 60 % of the MFIs are registered as societies. About 20 % are Trusts About 65 % of the MFIs follow the operating model of SHGs. Large concentration in South India 600 MFI initiatives have a cumulative outreach of 1.25 crore
poor households NABARDs bank linkage program has cumulatively reached a total of 9.4 lakh SHGs with about 1.4 crore households.
CHECK LATEST FIGURES ITS 2004 DATA
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level of about 1600 crores to about 42000 crores CHECK LATEST FIGURES ITS 2004 DATA
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CHALLENGES AHEAD
Appropriate legal structures for the structured growth of MF operations Ability to access loan funds at reasonably low rates of interest. Ability to attract and retain professional and committed human resources. Design of apt MIS including user friendly software for tracking accounts and operations. Ability to innovate, adapt and grow. Bring out a compendium of small and micro enterprises for the MF clients. Identify and prepare a panel of locally available trainers. Ability to train trainers. Capacity to provide backward linkages or create support structures for marketing
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DATA SOURCE
www.rbi.org.in/ www.microfinanceindia.org/ March 2007 CGAP
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