04/08/23 1

Paper Presentation

On

“Microfinance in India”

Presented By

Deepak Tiwari Ravichandra.G

Sir M. Visvesvaraya Institute of Technology Bangalore

CONTENTSIntroductionFactsRegulatory Bodies and their activities. Status of Micro Finance.Self Help GroupsRole of Banks to MFI’sProblems in MFI’sSolutionsConclusion

INTRODUCTIONProvision of financial services such as credit, saving, and insurancePoor individuals which fall below the poverty lineImpact of improving livelihood opportunities through the provision of capitalFounded of the Grameen bank in Bangladesh by YusufGroup lending, individual lending , the provision of savings and insurance, capacity building, and agricultural business development servicesCreation of social value

Facts Due to its large size and population of around 1000 million, India's GDP ranks among the top 15 economies of the world

A group of micro-finance practitioners estimated the annualized credit usage of all poor families Sat over Rs 45,000 crores, of which some 80 percent is met by informal sources.

There are about 60 million households below or just above the austerely defined poverty line and with more than 80 percent unable to access credit at reasonable rate.

As on 31 March 2009, there are more than 61 lakh saving-linked SHGs and more than 42 lakh credit-linked SHGs and thus, about 8.6 crore poor households are covered under the programme and 4 out of 5 microfinance clients in India are women.

Regulatory Bodies And Their Activities

SHGs, NGOs,NABARD,1995

The National Microfinance Taskforce,1999

Working Groups on Financial Flows to the Informal Sector.2002

Microfinance Development and Equity Fund,NABARD,2005

Working group on Financing NBFC’s by Banks-RBI

Activities include Microcredit, Micro savings, Micro insurance and Remittances

Micro Finance In India

SELF HELP GROUPS(SHGs)Major role on poverty alleviation in rural India as they Actively engage in saving and credit

Create some control over capital-very small amounts

Gradually away form exploitation and isolation

10-25 members and collect savings from members typically once a week

Government of government and non-governmental agencies, they non-governmental agencies, they now make up 90 % of all SHG’s.

Start without any external financial capital

Small internal loans for micro finance enterprise

Self Help Groups

2005-06

2006-07

2007-08

2008-09

2009-10

Sources of capital and links between SHG’s and banks

Link up with financial institutions-loans for investments in rural enterprise

NGO’s and banks are giving loans –Matching loans

Repayment-Recommendations by group, facilitators collaterals provided

Note: Nabard to refinance banks at 6.5% pa Banks to SHG’s at 12% pa Banks to NGO’s at 10.5% pa

Banks assistance to MFIs

Comparative Analysis of Micro finance services offered to the poor:

Investment Credit - Refinance

The Problems of Mainstream MFIsBorrower Unfriendly Products and Procedures

Inflexibility and Delay

High Transaction Costs, both Legitimate and Illegal

Social Obligation and not a Business Opportunity

Financing to Alternative MFIs

Complexity in Legal and Regulatory Framework

 

Problems for Alternative Micro-Finance Institutions

The alternative finance institutions have not been fully successful in reaching the needy. There are many reasons for this:

1. Financial problems leading to setting up of inappropriate legal structures and Inappropriate Legal Forms 2. Lack of commercial orientation

3. Lack of proper governance and accountability

4. Isolated and scattered

Solutions Greater legitimacy, accountability and transparency in MFIs

There is a need to recognize a separate category of Microfinance

It should be specified that at least 80% of the assets of MF-NBFCs should be in the form of microcredit of upto Rs. 50,000 for agriculture, allied and non farm activities and in case of housing, loans upto Rs. 1,50,000, per individual borrower.

MF-NBFCs as Business Correspondents (BCs) for a local feel.

Relaxation in FIPB guidelines and Unifying regulatory oversight

Tax Concessions and Accounting and Disclosure Norms.

As micro-insurance agents

CONCLUSION

India’s achievement of the MDG of halving the population of poor by 2015 as well as achieving a broad based economic growth also hinges on a successful poverty alleviation strategy. In this backdrop, the impressive gains made by SHG-Bank linkage programme in coverage of rural population with financial services offers a ray of hope.

Underlying Belief of Self Help Groups..............“Give a man a fish and you feed him a day but teach him how to fish and you feed him a lifetime”

Many little things done in many little places, by many little people, will change the face of the world. - An old Chinese saying

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