Amitkrshukla 4th Semester MICRO FINANCE Presentation
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Transcript of Amitkrshukla 4th Semester MICRO FINANCE Presentation
7/30/2019 Amitkrshukla 4th Semester MICRO FINANCE Presentation
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Presentation on the topic
“MICRO FINANCE IN INDIA” (PROBLEMS, CHALLENGES &
OPPORTUNITIES)By- amit kumar shukla
m.b.a. 4th semester
Roll no -5
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MICRO FINANCE: INTRODUCTION “This is an area where you can do good while doing
well”. -Brigit Helms
“To give away money is an easy matter and in anyman‟s power. But to decide to whom to give it, and how
large, and when, and for what purpose and how, is
neither in every man‟s power nor an easy matter.” –
Aristotle
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MICROFINANCE DEFINITION: According to International Labor Organization (ILO),
“Microfinance is an economic developmentapproach that involves providing financial services
through institutions to low income clients”. In India, Microfinance has been defined by “The
National Microfinance Taskforce, 1999” as “provisionof thrift, credit and other financial services and
products of very small amounts to the poor inrural, semi-urban or urban areas for enabling them toraise their income levels and improve livingstandards”.
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"The poor stay poor, not because they are lazy but because they have
no access to capital.
"Microfinance is the supply of loans, savings, and other basic
financial services to the poor.” Micro financing is not a new concept. Small microcredit operations
have existed since the mid 1700s. Although most modern
microfinance institutions operate in developing countries, the rate of
payment default for loans is surprisingly low - more than 90% of loans are repaid. It is not just a financing system, but a tool for social
change, specially for women - it does not spring from market forces
alone - it is potentially welfare enhancing - there is a public interest
in promoting the growth of micro finance - this is what makes it
acceptable as a valid goal for public policy.Micro-Finance refers to small savings, credit and insurance services
extended to socially and economically disadvantaged segments of
society, for enabling them to raise their income levels and improve
living standards.
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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
transfers, and other financial products targeted at poor and low-income people.
WHY MICROFINANCE?
Subsidies are not the solution to eliminate poverty. More than subsidies
poor people need access to credit and opportunity to exploit their talent.Absence of any recognized employment and hence absence of collateral
make them non bankable, thus reducing the opportunities to access
credit. In developing countries like India, lack of loans from any bank
leaves them with no other option but to borrow money from local
moneylenders, who charge them huge interest rates.
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To counter this and many such problems, various financial institutions
have come in to existence in the recent years. The main idea behind
microfinance is that poor people, who can provide no collateral, should
have access to some sort of financial services. Microfinance is oftenconsidered one of the most effective and flexible strategies in the fight
against global poverty.
According to the United Nations, microfinance institutions can bebroadly defined as provider of small-scale financial services such assavings, credit and other basic financial services to poor and low-income people. The term ―microfinance institution‖ now refers to a
wide range of organizations dedicated to providing these servicesand includes nongovernmental organizations, credit unions, co-
operatives, private commercial banks, nonbank financialinstitutions and parts of State-owned banks. Microfinance is adynamic field and there is clearly no best way to deliver services tothe poor and hence many delivery models have been developed over
a period of time. Each delivery model has its share of problem andsuccess.
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In India, various delivery models have been adopted by microfinance
institutions.
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 , alleviating poverty and unleashing humancreativity and endeavor of the poor people. Credit unions andlending cooperatives have been around hundreds of years. However,the pioneering of modern microfinance is often credited to Dr.Mohammad Yunus, who began experimenting with lending to poor
women in the village of Jobra, Bangladesh during his tenure as aprofessor of economics at Chittagong University in the 1970s. He
would go on to found Grameen Bank in 1983 and win the NobelPeace Price in 2006.Since then, innovation in microfinance has continued and providersof financial services to the poor continue to evolve. Today, the World
Bank estimates that about 160 million people in developingcountries are served by microfinance. Grameen Bank (Bangladesh)
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was formed by the Nobel Peace Prize (2006) winner Dr Muhammad
Younus in 1983. This bank is now serving almost 400, 0000 poor
people of Bangladesh. Not only that, but also the success of Grameen
Bank has stimulated the formation of other several microfinanceinstitutions like, ASA, BRAC and PROSHIKA .
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, thereby 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.
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Methods Of Micro Finance
SHGS /JLGS / Farmer Clubs
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Micro finance
SHG Approach Individual Approach
SHG Bank Linkage Model MFI Bank Linkage Model
SHGs promoted &Financed by bank
SHGs promoted by NGOand Financed by banks
SHGs promoted by MFI
Bulk loan from Bank for
on-lending to SHGs
By Banks On-lending by
MFIs
Micro-enterprises
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SWOT ANALYSIS OF MICRO FINANCE
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 thehuge network is there. In India there are many more than 350 million
who are below the poverty line, so for MFIs there is a huge demand and
network of people. And for borrower there 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 Institutions are not regulated properly. In the absent of the rules
and regulation there would be high case of credit risk and defaults. In the
shed of the proper rules and regulation the Micro finance can function
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properly and efficiently.
• High number of people access to informal sources: According to the
World Bank report 80% of the Indian poor can‘t access to formal source
and therefore they depend on the informal sources for their borrowing
and that informal charges 40 to 120% p.a.• Concentrating on few people only: India is considered as the second
fastest developing country after China, with GDP over 8.5% from the
past 5 years. But this all interesting figures are just because of few
people. India‘s 70% of the population lives in rural area, and that portionis not fully touched.
Opportunity
• Huge demand and supply gap: There is a huge demand and supply
gap among the borrowers and issuers. In India around 350 million of the
people are poor and only few MFIs there to serving them. There is huge
opportunity for the MFIs to serve the poor people and increase their
living standard. The annual demand of Micro loans is nearly Rs 60,000
crore and only 5456 crore are disbursed to the borrower.( April 09)
Employment Opportunity: Micro Finance helps the poor people by not
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only providing them with loan but also 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 of 350 million is living below poverty line. So there is ahuge opportunity for the MFIs to meet the demand of that unserved
customers and Micro Finance should not leave any stones unturned to
grab the untapped market.
• Opportunity for Pvt. Banks: Many Pvt. Banks are shying away fromto serve the people are unable to access big loans, because of the high
intervention of the Govt. but the door open for the Pvt. Players to get
entry and with flexible rules Pvt. Banks are attracting towards this
segment.
Threat
• High Competition: This is a serious threat for the Micro Finance
industry, because as the more players will come in the market, their
competition will rise , and we know that the MFIs has the high
transaction cost and after entrant of the new players there transaction cost
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will rise further, so this would be serious threat.
• Neophyte Industry: Basically Micro Finance is not a new concept inIndia, but that was all by informal sources. But the formal source of
finance through Micro Finance is novice, and the rules are also not
properly placed for it.
• Over involvement of Govt.: This is the biggest that threat that manyMFIs are facing. 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 definition is like waive of loans, make new
rules for their personal benefit etc.
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BUILDING SUSTAINABLE MICROFINANCE INSTITUTIONS
IN INDIA
India is perhaps the largest emerging market for microfinance. Over the
past decade, the microfinance sector has been growing in India at a fairly
steady pace. Though no microfinance institution (MFI) in India has yetreached anywhere near the scale of the well-known Bangladeshi MFIs,
the sector in India is characterised by a wide diversity of methodologies
and legal forms. However, very few Indian MFIs have achieved
sustainability yet.
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Upper class Poor (earning less than $4-5) who can during emergency spend
money on health care and formal education
Poor (earning less than $2 a day) who cannot afford to spend money on health
care and formal education
Ultra poor (earning less than $1 a day) who don't mind not living.
Thus from the above graph we can see that microfinance has been working but not
for the purpose for which it was intended. Only 5% of the ultra poor people have
been helped with microfinance. This is the crowd which is into committing suicide.
This mostly includes farmers who take loan under microfinance but are unaware
of the consequences of the non repayment, which leads to the fact that there land is
being hypothecated and leaving them only with the option of committing suicide.
LOOPHOLES 1. Technology related hurdles such as high costs involved in small loan
transactions for microfinance providers.
Most of the times the rural population in not in the light of the technology being
used for various transaction so either the technology which could be easy
understood by the rural crowd is to be used or they need to be trained as to how
the new technology id to be used. Moreover the transactions which are undertaken
under the micro finance are very small that spending for each transaction becomes
very costly for the bank .
2. Lack of customized solution/ microfinance models for the poor.
G f i i f i i i fi
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Government of India has centralizes plans for the entire nations microfinance
which is then customized by the state government but then each village has a
different mentality & financial capability which needs to be catered to.
There is huge chunk of crowd which does not avail the facility of micro credit just
because the scheme is not proper or suitable to them. In normal banking there are
many alternatives available to the general public but in micro finance very few
alternatives are available only from those the people need to choose the credit
schemes.
3. Difficulty in measuring the social performance of MFIs.
There are no special instruments for measuring the progress or output of
microfinance. Various banks and institutions have their own models and criterionon which they measure the performance of their microfinance. But there is no
specific fixed on which the effectiveness or the outcome can be measured. No
proper rating is done for MFIs.
4. High interest rate of loan made to the poor.
Microfinance institutions walk a thin line as they offer financial services to thepoor at high costs. While high interest rates have been justified in many ways,
there are now accusations about microfinance providers using aggressive loan
recovery tactics that pushes clients to commit suicides (crisis in India).
Furthermore, the recent wave of commercialization of microfinance has led many
to question the real motive of practitioners.
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5. Political Risk:
The recent microfinance crisis in India is said to be politically motivated as the
governments owns a rival microfinance institution in the same province where
suicides have soared amongst microfinance clients. More over if the state
government is not active as to the development and functioning of MFIs; the state
loses a lot of opportunities for the rural development. Political support is very
much important for upliftment and successful implementation of micro finance
schemes.
6. Lack of understanding consequences of non repayment
Most of the farmers who take microcredit are not aware of the entire structures of
credit or banks do not clarify clearly what would be the consequences of nonrepayment. It is for this reason that there is huge non repayment and in the end
leading to suicides in India. This has lead to bad name of micro credit.
7. Purpose
Banks have to give certain part of their finance in the microfinance sector. It is for
this reason they give loans very easily on a frequent basis. When people get loansso easily they are not using it for the very purpose for which they borrow instead
they use for non productive purpose. E.g. they borrow loan for the purpose of
irrigation but instead they use it for the marriage of their children or for the
renovation of their house. Thus the objective of fulfillment of micro finance is not
achieved.
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INTENT
Providing micro credit to Poor as well as
Ultra Poor
Engaging poor in the growth of the country
While microfinance works well for the
upper poor and poor sections of society, the
ultra poor sections of society need much
more than finances.
Ideally, Microfinance's goal should be to
produce social capital.
REALITY
Due to MFI regulation, government rules
and other factors such as access to
commercial banks, ultra poor (who probably need microfinance the most) are
getting ignored
Sure did poor and middle class get
benefited through microfinance, but
question still remains - when will the ultra poor and unreached section will receive
the glorified microcredit
Even though the realization about under-
served ultra poor is there, but very few
NBFC (Non Banking FinancialCorporations) MFI works with such
section of the society. This behavior is
attributed to the focus of MFIs towards
sustainability and profit.
In reality, Microfinance is beingcommercialized in India.
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RECOMMENDATIONS AND SUGGESTIONS
1. The concept of Micro Finance is still new in India. Not many people are aware
the Micro Finance Industry. So apart from Government programmes, 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 huge
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 by 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
Government in MFIs. Because it will stymie the growth and prevent the othersMFIs to enter.
5. 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 there
should be compelled cap on it. But what I felt that the high rates are justifiable.Suppose a big commercial bank gives Rs 1 million to an individual and in the same
way a MFI gives Rs 100 to 10.000 customers. So its obvious that man power cost
and operating cost are higher for the MFIs. So according to me rates are
justifiable. But with limitations.
O C O A C
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FUTURE OF MICRO FINANCE
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 expansion. 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 there 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 grassroots level
may be used to serve the poor with microfinance. Postal savings banks may participate
more not only in mobilizing deposits but also in providing loans to the poor and onlending funds to the MFIs.
More commercial banks may participate both in microfinance wholesale and retailing.
They many have separate staff and windows to serve the poor without collateral.
International NGOs and agencies may develop or may help develop microfinance
programs in areas or countries where micro financing is not a very familiar concept inreducing poverty.
Considering that the majority of the 360 million poor households (urban and rural)
lack access to formal financial services, the numbers of customers to be reached, and
the variety and quantum of services to be provided are really large. It is estimated that
90 million farm holdings, 30 million non-agricultural enterprises and 50 millionlandless households in India collectively need approx US$30 billion credit annually.
b t 5% f I di ' GDP d d t bl ti t H
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about 5% of India's GDP and does not seem an unreasonable estimate. However,
80% of the financial sector is still controlled by public sector institutions.
Competition, consolidation and convergence are all being discussed to improve
efficiency and outreach but significant opposition remains. Many private and
foreign banks have unveiled their plans to enter the Indian microfinance sector
because of its very low NPAs and high repayment rate of more than 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
environment and surge in economic growth, the next few years promise to beexciting for the delivery of financial services to poor people in India Development
of Small-Scale Enterprises through microfinance will not only increase 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 considerable deepening of
microfinance in this direction along with simultaneous drives to reach and serve
the poorest of the poor. But the crux of the discussion is that, if the over excess
involvement of the government would be there in the Micro Finance sector, than
the growth of the Micro Finance won„t much possible. The Govt. involvement
should limited to the important decisions only, but not to interfere in each and
every matter of the management.
CONCLUSION
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CONCLUSION
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. ina whole year a medium 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 amount to the MFIs, then at the end
of the year the total amount in the hands of poor would be ( average 500million people *Rs 3000)=Rs 1,500,000,000,000 . Just imagine where
would be India in next 10 years. At last I am concluding by presentation
with a very famous saying:
“Don‟t wait; the time will never be just right. Start where you stand
and work with whatever tolls you may have at your commands and
the better tolls will be found as you go a long”
-William Surds
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THANK
YOU