MFS Ppt Final

8/8/2019 MFS Ppt Final

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Vijay Bharvad

Jay Nagevadiya

Punit JethvaMehul Pandav



Micro Finance is the supply of loans,savings, and other basic financialservice to the poor .

-> CGAP

To most, micro finance meansproviding very poor families with verysmall loans (micro credit) to help

them engage in productive activitiesor grow their tiny businesses.-> Financial Gateway



The modern micro finance movement dates back tothe 1970s when experimental programs in Bangladesh,Brazil, and a few other countries began to extend tinyloans to groups of poor women to invest in microenterprises

By lending to groups of women where every member of the group guaranteed the repayment of all members,these micro credit programs challenged the prevailingconventional wisdom and proved that poor peoplewithout collateral could be "credit worthy". Whenoffered the opportunity, they would repay loans with

interest, at extraordinary rates of repayment.



Micro finance refers to loans, savings,

insurance, transfer services and other financial

products targeted at low-income clients.

Micro credit refers to a small loan to a client

made by a bank or other institution. Micro creditcan be offered, often without collateral, to an

individual or through group lending.



Evolution of Micro finance in India Micro finance has been in practice for ages ( though

informally).

Legal framework for establishing the co-operativemovement set 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.



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 isestimated to be about Rs. 60,000 crores.

Cumulative disbursements under all micro financeprogrammes is only about Rs. 5000 crores.(Mar. 04)

Total outstanding of all micro finance initiatives in Indiaestimated to be Rs. 1600 crores. (March 04)

Only about 5 % of rural poor have access to micro finance



Considerable gap between demand and supply for all financialservicesMajority of poor are excluded from financial services. This is due to,inter-Alia, the following reasonsBankers feel that it is fraught with risks and uncertainties.

High transaction costsUnfavourable 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 unviableproposition there are issues that have constrained MFIs whilescaling up. These includeLack of an appropriate legal vehicleLimited access to equityDifficulty in accessing low cost on-lending funds (as of now theyare unable to offer savings services in a legitimate



Limited access to Capacity Buildingsupport which is an important variable interms of quality of the portfolio, MIS, andthe sustainability of operations.

About 56 % of the poor still borrow from

informal sources.70 % of the rural poor do not have adeposit account

87 % have no access to credit from formalsources.

Less than 15 % of the households haveany kind of insurance.

Negligible numbers have access to healthinsurance



About 60 % of the MFIs are registered associeties.

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 outreachof 1.25 crore poor households

NABARD¶s bank linkage program hascumulatively reached a total of 9.4 lakh SHGswith about 1.4 crore households.



Annual growth rate of about 20 % during thenext five years.

75 % of the total poor households of 80 million(i.e. about 60 million will be reached in the nextfive years.

The loan outstanding will consequently growfrom the present level of about 1600 crores toabout 42000 crores



Union Finance Minister in his budget speech for the year 2000-01, this Rs.100 crore Fund has been created in NABARD to support broadly thefollowing activities:a) giving training and exposure to self-help group (SHG) members, partner NGOs, banks and govt. agencies(b) providing start-up funds to micro finance institutions and meeting their

initial operational deficitsc) meeting the cost of formation and nurturing of SHGs; (d) designing newdelivery mechanismse) promoting research, action research, management information systemsand dissemination of best practices in micro finance.

This Fund is thus expected to address institutional and delivery issues like

institutional growth and transformation, governance, accessing new sourcesof funding, building institutional capacity and increasing volumes. RBI andNABARD have contributed Rs. 40 crore each to this Fund. The balance Rs.20 crore were contributed by 11 public sector banks.



RBI defines Micro Credit as :Micro Credit is defined as provision of thrift, credit and other financialservices and products of very small amount to the poor in rural, semi-urbanand urban areas for enabling them to raise their income levels and improveliving standards. Micro Credit Institutions are those which provide thesefacilities.

DO RBI ENFORCE INTERESR RATES ?No. The reform of the interest rate regime has constituted an integral part of the financial sector reforms initiated in our country in 1991. In consonancewith this reform process, interest rates applicable to loans given by banks tomicro credit organizations or by the micro credit organizations to Self-HelpGroups/member-beneficiaries has been left to their discretion. The interestrate ceiling applicable to direct small loans given by banks to individualborrowers, however, continues to remain in force.



DO RBI IMPOSE THE TERMS & CONDITIONS FOR ACCESSING MICRO CREDIT ?No . Banks have been given freedom to formulate their own lending norms keeping in viewground realities. They have been asked to devise appropriate loan and savings products

and the related terms and conditions including size of the loan, unit cost, unit size, maturityperiod, grace period, margins, etc

IS FOREIGN INVESTMENT ALLOWED IN MICRO CREDIT PROJECTS ?

Govt. of India with their notification dated August 29, 2000 have included µMicroCredit/Rural Credit¶ in the list of permitted non-banking financial company (NBFC) activitiesfor being considered for Foreign Direct Investment (FDI)/Overseas Corporate Bodies

(OCB)/Non-Resident Indians (NRI) investment to encourage foreign participation in microcredit projects. This covers credit facility at micro level for providing finance to smallproducers and small micro enterprises in rural and urban areas



An Intermediate Model that works on banking principles withfocus on both savings and credit activities and where bankingservices are provided to the clients either directly or throughSHGs; There is also a Wholesale banking Model where the clients

comprise NGOs, MFIs and SHG Federations. This Modelinvolves a unique package of providing both loans andcapacity building support to its partners; and Further, there is an Individual Banking-based Model thathas its clients as individuals or joint liability groups. Whileprogramme management and client appraisal in this Model

may be a challenge, it is best suited to lending to enterprises.



The bank led model was derived from the SHG-Bank

linkage program of NABARD. Through this program,

banks financed Self Help Groups (SHGs) which had

been promoted by NGOs and government agencies.

ICICI Bank drew up aggressive plans to penetrate

rural areas through its SHG program. However, rather

than spending time in developing rural infrastructure of

its own, in 2000, ICICI Bank announced merger of Bank

of Madura (BoM), which had significant presence in the

rural areas of South India, especially Tamil Nadu, with acustomer base of 1.2 million and 77 branches



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 accountsand operations.

Ability to innovate, adapt and grow.Bring out a compendium of small and micro enterprises for the MFclients.

Identify and prepare a panel of locally available trainers.

Ability to train trainers.

Capacity to provide backward linkages or create support structuresfor marketing



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