A Presentation on Micro Finance 1

7/28/2019 A Presentation on Micro Finance 1

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A Presentation

onMicrofinance in india


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Group Members Are:

Nitesh

Praveen

Priyanka Agarwal

Priyanka Modi

Rahul Arya

Rahul Ostwal

Rakesh Kumar Rashmi Bapna

Rashmi Dhall


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DEFINITION

Microfinance is the provision of a broad range

of financial services to poor and low-income

people who do not have access to formal

financial services such as:

- deposits

- loans

- payment services

- money transfers

- insurance


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HISTORY OF MICROFINANCE

MOVEMENT Microfinance has suddenly become a part of everyones

vocabulary. The credit for this, in large measure, should

go to 2006 Nobel Peace Prize Winners, Muhammad

Yunus and the Grameen Bank of Bangladesh.

The origin of the idea can be traced to the mid- 1800s.

But in 1970s the idea was put to implementation.

Organizations like Opportunity Internationaland ACCION International started extending

small loans to the poor in South America.


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HISTORY (Contd.)

Dr. Yunus founded the Grameen Bank in 1976. Today

the Grameen Bank is the public face of a

heterogeneous movement that spans the globe.

His first micro loan of $27 was to a group of women,who used it as capital to start business.

The idea has become has so popular so that it has

found currency even in UN where it has been mooted

as a method of reviving the New Orleans economy that

was devastated by Hurricane Katrina.


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SERVICES OF

MICROFINANACE Regulated financial institutions, such as banks, credit

unions, consumer finance companies, postal savings

banks and cooperatives

Nongovernmental organizations (NGOs) Informal sources such as money lenders,

shopkeepers, and traditional savings groups


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Characteristics of Successful MFI

Commitment from board and management.

Knowledge of MF best practices and how to

serve micro credit clientele.

Delivery channels located as per the

convenience of the clientele.

Innovative loan, deposit, remittance andinsurance products especially adapted for low

income groups.


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Systems and procedures adapted to themicrofinance operations.

Appropriate training and incentives for staff.

Transparent policies and procedures whichenables all the stakeholders to scan through.

Appropriate risk management techniques and

practices. Solid foundations for governance.


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The Impact of Microfinance

When capital is scarce, marginal productivity is veryhigh. Thus, an extra Rs 1000 in capital may not make

too much of difference to the productivity of a big

corporation, but can make a significant difference to

the productivity of a poor entrepreneur. This

phenomenon explains part of why microfinance has

made an impact.

Anecdotal evidence suggests that microfinance hasindeed played a role in pulling people out of poverty.

Microfinance has also had an impact on national

economies.


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Microfinance in India

Evolution of Microfinance in India

Microfinance has been in practice for ages ( thoughinformally).

Legal framework for establishing the co-operative movementset up in 1904.

Reserve Bank of India Act, 1934 provided for theestablishment of the Agricultural Credit Department.

Nationalisation of banks in 1969

Regional Rural Banks created in 1975. NABARD 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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The Profile of Microfinance in India

The scenario Estimated that 350 million people live Below Poverty Line

This translates to approximately 75 million households.

Annual credit demand by the poor in the country is

estimated to be about Rs. 78,000 crores. Cumulative disbursements under all microfinance

programmes is only about Rs. 8600 crores.(Mar. 07)

Total outstanding of all microfinance initiatives in Indiaestimated to be Rs. 2800 crores. (March 07)

Only about 7 % of rural poor have access to microfinance.


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The Profile of MF in India (Contd.)

Though a cumulative of about 20 million families haveaccessed microfinance to the extent of Rs. 5000crores, the total outstanding is estimated to be onlyabout Rs. 1600 crores. The active borrowers are

estimated to have a per capita outstanding of only Rs.2500.

While 10 % lending to weaker sections is required forcommercial banks, they neither have the network for

lending and supervision on a large scale nor theconfidence to offer term loans to big MFIs.

The non poor comprise of 29 % of the outreach.


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The Status of Microfinance in India Considerable gap between demand and supply for all financial services

Majority of poor are excluded from financial services. This is due to,inter-alia, the following reasons

1. Bankers feel that it is fraught with risks and uncertainties.

2. High transaction costs

3. Unfavourable policies like caps on interest rates which effectivelylimits 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 scalingup. These include

1. Lack of an appropriate legal vehicle

2. Limited access to equity

3. Difficulty in accessing low cost on-lending funds (as of now they areunable to offer savings services in a legitimate manner.


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The Status of MF in India (Contd.)

Limited access to Capacity Building support which is an

important variable in terms of quality of the portfolio, MIS,and the sustainability of operations.

About 56 % of the poor still borrow from informal sources.

70 % of the rural poor do not have a deposit account

87 % have no access to credit from formal sources.

Less than 15 % of the households have any kind of insurance.

Negligible numbers have access to health insurance (0.4 %)

and crop insurance (0.2 %).


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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 operatingmodel of SHGs.

Large concentration in South India

600 MFI initiatives have a cumulative outreach of1.25 crore poor hoseholds

NABARDs bank linkage program has cumulativelyreached a total of 9.4 lakh SHGs with about 1.4crore households.


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Projections for the future

Annual growth rate of about 20 % during the

next five years.

75 % of the total poor households of 80 million

(i.e. about 60 million will be reached in the next

five years.

The loan outstanding will consequently grow

from the present level of about 1600 crores to

about 42000 crores.


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Challenges ahead

Appropriate legal structures for the structured growth of

MF operations

Finding adequate levels of equity for the new entities to

leverage loan funds

Ability to access loan funds at reasonably low rates ofinterest.

Ability to attract and retain professional and committed

human resources. Design of apt MIS including user friendly software for

tracking accounts and operations.

Appropriate loan products for different segments.


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Challenges (Contd.)

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 availabletrainers.

Ability to train trainers.

Capacity to provide backward linkages or createsupport structures for marketing.


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Related Issues

Designing financially sustainable modelsAim for community participation & ownership

Increase outreach and scale up operations

Demonstrate that banking with the poor is viable Build professional systems and processes.

Ensure transparency and enhance credibility

through disclosures. Provide support for capacity building initiatives.


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Delivery Models

Grameen model

SHG model

Joint Liability Group Non Government Organization

Rotating Savings and Credit Associations

Village Banking


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The Entry of Investors

Private and Institutional investor

International Microcredit Fund

Microcredit Intermediary

The Village-Level Society

The Really Poor Guy


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CONCLUSION

It is clear that over the past three decades, the

microfinance movement has emerged from obscurity to

being considered as a tool that has the potential to

significantly reduce poverty around the globe. It is an idea that has truly arrived . The manner is which

this tool is employed by policy makers and

microfinance practitioners will determine the extent and

permanence of its impact.

A Presentation on Micro Finance 1

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