ANU RANJAN

MICROENTREPRENEURSHIP & MICROFINANCING

MICROFINANCE - INTRODUCTION

MICROFINANCE REFERS TO THE PROVISION OF FINANCIAL SERVICES TO POOR OR LOW-INCOME CLIENTS, INCLUDING CONSUMERS AND THE SELF-EMPLOYED.

MICROFINANCE REFERS TO THE PRACTICE OF SUSTAINABLY DELIVERING THOSE SERVICES.

MICROFINANCE PROMOTERS GENERALLY BELIEVE THAT ACCESS WILL HELP POOR PEOPLE OUT OF POVERTY.

MICROFINANCE MEANS BUILDING PERMANENT LOCAL INSTITUTIONS.

MICROFINANCE - INTRODUCTION MICROFINANCE ALSO MEANS INTEGRATING THE

FINANCIAL NEEDS OF POOR PEOPLE INTO A COUNTRY’S MAINSTREAM FINANCIAL SYSTEM.

MICROFINANCE INSTITUTIONS SHOULD MEASURE AND DISCLOSE THEIR PERFORMANCE – BOTH FINANCIALLY AND SOCIALLY.

IN 2006 NOBEL PEACE PRIZE WAS AWARDED TO MOHAMMED YUNUS, THE FATHER OF MICROFINANCE.

DEVELOPMENT PROCESS THROUGH MICROFINANCE

EVOLUTION OF MICROFINANCE IN INDIA

THE PROFILE OF MICROFINANCE IN INDIA

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. 60,000 CRORES.

CUMULATIVE DISBURSEMENTS UNDER ALL MICROFINANCE PROGRAMMES IS ONLY ABOUT RS. 5000 CRORES.(MAR. 04)

TOTAL OUTSTANDING OF ALL MICROFINANCE INITIATIVES IN INDIA ESTIMATED TO BE RS. 1600 CRORES. (MARCH 04)

ONLY ABOUT 5 % OF RURAL POOR HAVE ACCESS TO MICROFINANCE.

FEATURES OF INDIAN MICROFINANCE 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.

NABARD’S BANK LINKAGE PROGRAM HAS CUMULATIVELY REACHED A TOTAL OF 9.4 LAKH SHGS WITH ABOUT 1.4 CRORE HOUSEHOLDS.

THE STATUS OF MICROFINANCE IN INDIA

CONSIDERABLE GAP BETWEEN DEMAND AND SUPPLY FOR ALL FINANCIAL SERVICES.

MAJORITY OF POOR ARE EXCLUDED FROM FINANCIAL SERVICES.

WHILE MFIS HAVE SHOWN THAT SERVING THE POOR IS NOT AN UNVIABLE PROPOSITION THERE ARE ISSUES THAT HAVE CONSTRAINED MFIS WHILE SCALING UP.

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.

THE STATUS OF MICROFINANCE IN INDIA

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 %).

CHALLENGES TO INDIAN MICROFINANCE 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 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.

CHALLENGES TO INDIAN MICROFINANCE APPROPRIATE LOAN PRODUCTS FOR DIFFERENT

SEGMENTS.

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.

CAPACITY TO PROVIDE BACKWARD LINKAGES OR CREATE SUPPORT STRUCTURES FOR MARKETING.

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.

ICICI BANK METHODOLOGY

SHG OF 6 WOMEN.

EACH CONTRIBUTES RS. 50 EVERY MONTH.

IN 6 MONTHS, RS. 6000 AVAILABLE AS A FUND FOR EMERGENCY EXPENSES.

JOINT GUARANTEE FOR REPAYMENT.

AFTER 1 YEAR, SHG QUALIFIES FOR LARGER LOANS OF UP TO RS. 2 LAKHS.

ICICI BANK METHODOLOGY

HIERARCHICAL STRUCTURE SET UP FOR SCALABILITY.

“PROMOTERS” SELECTED FROM AMONG TOP SHG WOMEN TO SETUP UP TO 20 SHGS.

“COORDINATOR” SELECTED FOR UP TO 6 “PROMOTERS”.

ICICI BANK STAFF ONLY AT PROJECT MANAGER LEVEL TO SUPERVISE UP TO 6 “COORDINATORS”.

ICICI BANK SUCCESS

SOCIAL COLLATERAL ENSURES 99.99% REPAYMENT.

LOANS ARE USED FOR PURCHASE OF LIVESTOCK, LEASING LAND, SETTING UP TEASHOPS, COTTAGE INDUSTRIES.

GREW FROM 1000 SHGS IN 2001 TO 8000 SHGS IN 2003.

NOW EXPANDING INTO MUTUAL FUNDS, LIFE INSURANCE, AND REMITTANCES THROUGH MOBILE AND RURAL ATMS.

GRAMEEN BANK:FOUNDED BY DR. MOHAMMAD YUNUS

PH. D. IN ECONOMICS; CHAIRMAN OF DEPARTMENT OF ECONOMICS, CHITTAGONG UNIVERSITY.

A BANKER WHO BELIEVES THAT CREDIT IS A HUMAN RIGHT.

FATHER OF MICROCREDIT CONCEPT

AWARDED NOBEL PEACE PRIZE IN 2006.

GRAMEEN BANK

INITIALLY STARTED AS A PROJECT, RECOGNIZED AS INDEPENDENT BANK IN 1983 BY GOVERNMENT LEGISLATION.

NO COLLATERAL OR GUARANTEE REQUIRED.

OWNERSHIP: BORROWERS-94%; GOVERNMENT-6%

NO. OF MEMBERS (BORROWERS) – 7.6 MILLIONS LOAN DISBURSEMENT TILL SEP. 2008 – US $ 7.4 BILLION

LOAN RECOVERY RATE-98%.

GRAMEEN BANK

LENDS LOAN TO VILLAGE WOMEN TO BUY GRAMEEN PHONE; GENERATES REVENUE AND REACHES COMMUNICATION TOOL TO THE POOR.

5-STAR RATING SYSTEM FOR GOAL SETTING AND ENCOURAGING COMPETITION.

DECENTRALIZED DECISION MAKING STRUCTURE.

STRONG MANAGEMENT INFORMATION SYSTEM

GRAMEEN BANK

GRAMEEN BANK HAS INSPIRED MANY AND IS INSPIRING MANY TO CREATE SIMILAR MICROCREDIT STRUCTURE ALL AROUND THE WORLD INCLUDING U.S.A. AND EU.

MOHAMMAD YUNUS:

“ALL HUMAN BEINGS ARE POTENTIAL ENTREPRENEURS, SOME OF THEM GET CHANCE TO EXPRESS THEIR TALENT; OTHERS NEVER GET THE CHANCE BECAUSE WE ARE LED TO IMAGINE THAT ENTREPRENEURS ARE ENORMOUSLY SPECIAL PEOPLE.”

THANK YOU