Study the Impact of Micro Credit in Rural Area of Chittorgarh

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A

MAJOR PROJECT REPORT ON

STUDY THE IMPACT OF MICRO CREDIT IN RURAL AREA OF

CHITTORGARH

(SUBMITTED IN THE PARTIAL FULFILLMENT OF THE TWO YEAR

FULL TIME MBA PROGRAMME)

(2007-2009)

SUBMITTED TO: SUBMITTED BY:

Mrs. Pratibha Pagariya Trisha Das

Dr. Snehal Mangeshkar MBA-II

VISION SCHOOL OF MANAGEMENT

Udaipur Road, Chittorgarh

[email protected]

www.visionmanagement.org
mailto:[email protected]://www.visionmanagement.org/mailto:[email protected]://www.visionmanagement.org/


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PREFACE

The project report is on STUDY THE IMPACT OF MICRO CREDIT ON

RURAL AREA OF CHITTORGARH.

The objective of the study is to see the impact of Micro-Credit on farmers, on

self employment opportunities, improving the living standard of poor people &

removing poverty.

The contents of various chapters are as follows:

Chapter 1: Introduction- In this chapter I have mentioned about micro-credit &

its importance.

Chapter 2: Theoretical framework- In this there is about the growth &

challenges faced by the micro-finance & development through micro-finance.

Chapter 3: Review of Literature- In this I have mentioned different articles

about micro-credit given by different thinkers.Chapter 4: Research Methodology- In this I have given about different research

methods used.

Chapter 5: Data Analysis & Interpretation: In this I use pie-charts & made

interpretations.

Chapter 6: Findings & Suggestions

BibliographyAnnexure
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ACKNOWLEDGEMENT

It gives me immense pleasure and a sense of honor to express my feeling of

gratitude to all those who have helped me in the successful completion of the

present project.

I pay sincere gratitude to Dr. A.L. Jain (Director of Vision School of

Management), faculty members of the college, Mrs. Snehal Maheshkar,

Mrs. Pratibha Pagariya who always inspire and guided me in completion of

this task.

I also pay sincere gratitude to my parents and my friends who inspired and

guided me in completion of this task.

At the last, but not the least I am thankful to the farmers who helped me lot &

gave me opportunity to complete the project on time.

(TRISHA DAS)
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EXECUTIVE SUMMARY

Micro-Credit is defined as provision of thrift, credit & other financial services

& products of very small amount to the poor in rural, semi-urban & urban areas

for enabling them to raise their income levels & improve living standards.

Micro-Finance Organizations are those which provide Micro-Credit facilities.

Micro-finance is expected to play a significant role in poverty alleviation &

development. In India, a variety of micro-finance schemes exist & various

approaches have been practiced by both Gos & NGOs. In the developing

economy, credit has been viewed as one of the missing inputs & therefore, a

growing emphasis on re-strengthening & re-formulating micro credit program is

observed.

There are several micro-finance implementing organizations, which provide

small loans. In India some of them have successfully expanded their services to

thousands of borrowers. Most of these borrowers would not have no excess to

formal financial institutions & that these borrowers utilize the loans to enter & /

or expand their informal sector micro enterprises, and that this sector continues

to be an important source of livelihood for many poor people. The term MicroFinance Organization


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(MFOs) has been used for all types of implementing organizations facilitating

savings & credit as well as financial activities at individual or group level.

Some of these organizations have evolved from small NGOs to become

important provider for financial services. Realizing the potentially important

role that MFOs play in deepening the benefits of economic growth it is

necessary that these MFOs should be strengthened by providing them

experience sharing opportunities, materials & training.
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Micro-Credit is defined as provision of thrift, credit & other financial services

and products of very small amount to the poor in rural, semi-urban & urbanareas for enabling them to raise their income levels & improve living standards.

Micro-Credit institutions are those, which provide these facilities.

According to World Bank figures (2001), about three billion people in the

world, or half its population, live on less than two dollars a day. Poor people in

developing countries are more often than not trapped in poverty because on theone hand commercial banks will not lend them money as they are often neither

in a position to offer collaterals nor are they considered creditworthy enough;

while on the other, local money-lenders, who are often their only source of

credit, charge exorbitantly high interest rates, thereby depleting them of

whatever little possible savings they can manage. In such a scenario, micro-

credit comes as a blessing because micro-credit institutions lend small sums of

money at a reasonable interest rate without any collateral to people who need it

the most. This money is then used to set up or boost an independent

entrepreneurial activity that can provide a sufficient income for the borrower to

easily repay the loan & generate enough profit for a better standard of living.

The poor people, especially women in poor families, gain the most. Micro-

Credit facilitates greater wealth & asset creation, lifting poor people out of

poverty to a higher standard of living & access to better health & education

facilities.
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With the help of the study, we will be able to understand:

That how much people are aware of micro-credit system.

That how much benefit does farmers are getting from it.

That how many banks are providing this system.

Micro-Credit programs provide a two-tiered approach to poverty alleviation:

credit for the purchase of capital inputs in order to promote self-employment &

non-credit services & incentives. These non-credit aspects may be an important

component of the success of micro-credit programs. However, because they are

costly to deliver & their contribution to the success of the programs is difficult

to measure.
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Growth and Challenges Faced in Micro-Finance:

Trends and Future Outlook

Almost half of the worlds population- three billion people- live on less

than $2 per day. Poverty is a global problem & micro-finance is an

innovative solution. In the development paradigm micro-finance has evolved as

a need based policy & program to cater to for neglected target groups viz.

women, poor, rural, deprived etc. Its evolution is based on the concern of all

developing countries for empowerment of the poor & the alleviations of

poverty. Provision of credit to poor people has been one of the main concerns of

policy planners in India since independence.

During the past 30years micro-finance has been proved to be powerful

alleviations tool. It is one of the only development tools with the potential to be

financial self-sustaining. Furthermore, certain micro-finance programs have

gained prominence in the development field & beyond. The basic idea of micro-

finance is simple. If poor people are provided access to financial services

including credit, they may very well be able to start or expand a micro

enterprise that will allow them to breakout of poverty. However after more than

30years of Industry effort, 80% of the working poor (more than 400 million

families) are still without access to micro-finance services. At the current

growth rates the gap will not be closed for decades. For micro-finance to

achieve its potential as poverty alleviation tool, the micro-finance industry must

grow to scale.
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Understanding the Development Process to Micro-finance

Micro-finance is expected to play a significant role in poverty alleviation &

development. In India, a variety of micro-finance schemes exist & various

approaches have been practiced by both Gos & NGOs. In the developing

economy, credit has been viewed as one of the missing inputs & therefore, a

growing emphasis on re-strengthening & re-formulating micro credit program is

observed. The development process through a typical micro-finance

intervention can be understood with the help of the chart:

Micro-finance Implementing Organizations

There are several micro-finance implementing organizations, which provide

small loans. In India some of them have successfully expanded their services to

thousands of borrowers. Most of these borrowers would not have no excess to

formal financial institutions & that these borrowers utilize the loans to enter & /or expand their informal sector micro enterprises, and that this sector continues

to be an important source of livelihood for many poor people. The term Micro

Finance Organization (MFOs) has been used for all types of implementing

organizations facilitating savings & credit as well as financial activities at

individual or group level. Some of these organizations have evolved from small

NGOs to become important provider for financial services. Realizing the

potentially important role that MFOs play in deepening the benefits of

economic growth it is necessary that these MFOs should be strengthened by

providing them experience sharing opportunities, materials & training.


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Chart 1

Development Process Through Micro-Finance

Donors & Banks Government and BanksMicro-Finance

Implementing

Organizations

Awareness/

Promotional Work

Promotion &

Formation of SHG

Consolidation of

SHG

Savin s

Credit Delivery

Recover

Follow-up

Monitoring

Income Generation

Self-Sustainability

of SHG

Economic

Empowerment

through use of micro-

credit as an entry

point for overall

Empowerment

Individual

Micro-Enter rise

Consum tion Needs

Farm Related

Individual

Micro-Enter rise

Production Needs

Non-farm Related
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Furthermore, the relative success of many MFOs, refute the claims that of some

people that the poor are non-bankable or some say that MFOs are waste of

scarce development funds. In fact, it would be difficult to find any other

developmental initiative, which has been relatively effective & in India there

exist a variety of MFOs in government as well as non-government sectors.

Leading national financial institutions like the Small Industries Development

Bank of India (SIDBI), the National Bank for Agriculture & Rural

Development (NABARD), & the Rashtriya Mahila Kosh (RMK) have played a

significant role in making micro credit a real movement in India the size &

types of these organizations range from very small to moderately big

organizations involved in saving or credit activities either for individuals or

groups. They tend to operate within a geographical range. Many organizations

are involved with SHGs not only for credit but also for other purposes like

agriculture, watershed etc. Almost all national funding organization like

NABARD, RMK as well as other government schemes advocate forming of

Self-Help Groups & thus providing & linking with credit. There are many

organizations that provide individual finance directly (Chart 2).

The SHG Bank linkage program is the flagship micro-finance intervention of

NABARD. Starting with the NABARD lead pilot project in 1992 that aimed at

promoting & financing 500 SHGS across the country, the SHG- Bank Linkage

strategy has come a long way. Nearly 2.23million SHG were provided bank-

credit of over Rs.1, 13,975 million by March2006. Almost 90% of groups are

women groups. Over 35,290 bank branches at 48 commercial banks, 117RRBs

& 329 co-operatives were involved in financing these groups.


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Chart 2Micro-Finance Interventions through different organizations

National Functional

InstitutionsBanks

Donor/ Bilateral

Pro ects

Directly engaged in

Micro-Finance

Resource/ Support

Organizations

Government Funded

Programs

Implementing

Organization

SHG

Members

Individuals


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Challenges Faced by Micro-Finance Industry

MFIs are financially sustainable, so can they built assets for the

or:

Financial self-sustaining of MFIs needs to be examined. Even the best

cases took too long to there. (E.g. Grameen Bank of Bangladesh in its

first 20 years) or got there by shedding their NGO avatar which needed

early subsides (E.g. PRODEM before it became Bancosol) Indias SHG

program has grown big on the basis of external support to the one-time

costs of group formation & on going group support costs. With political

pressure to lower interest rates on loans to SHG, even the variable costs

are not being met in most places. CGAP says about a 100 of the 10,000

odd MFI round the world are financially self-sufficient.

Most MFI lack the capital to grow:

Even though the industry has demonstrated that MFI can be self-

sustaining businesses, most still rely on a limited pool of donor dollars.

Without access to capital, growth traditionally stops once initial grant

money is distributed as micro-credit loans. To scale rapidly, MFI must

access large amounts of capital to expand their operations & provide

loans & other financial products to dramatically more clients. These large

amounts of capital are accessible only through the formal capital markets,

& currently most MFI have neither the track record nor the clearly

articulated business plan to attract this funding.
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Most MFI lack large-scale internal operation capacity:

Without sufficient internal operating capacity, growth stops, once a

program reaches several thousand clients. Adequate internal operating

capacity includes improvements in areas such as information technology

infrastructure, internal controls, new product development, & human

resources. When MFI rely on donor dollars, there is rarely enough money

to make the necessary investments in these key areas to create an

operation that is well run & has the ability to grow on a sustainable basis.

Thus, most MFI are small & stay small.

Quality of SHG:

One of the major challenges is how to ensure the quality of SHG in a

scenario where the numbers are growing at a fast pace.

Promotion of micro-enterprise among SHG members:

There is a need to promote livelihood diversification among the members

of mature. SHG so that they can cross poverty line.

Regional Imbalances:

The spread of micro-finance sector is quite uneven. Even within a regionthere are large packets unaffected by the efforts of the sector. Millions of

poor families are unable to get the new initiatives of the sector for the

lack of workable institutions.
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Short Tenures and NGO Debt Trap:

The tenure of micro-credit products mostly restricted to one year.

Restrictive tenures & high interest rates have renewed the debt trap

conditions suffered by the poor when they were borrowing from

moneylenders. The question is if whatever they earn goes in loan

servicing, is micro-credit of any use to them?

Application of technology:

To increase the efficiency & to reduce the cost of services the state of the

art technology has to be introduced. How to develop their expertise when

each financial provider feels that he has a unique product requiring

unique technology.

Range of Services:

Although there is a greater flow of credit, providing a viable small savingsproduct has remained to be the major concern. Poor people have small amounts

to save & at frequent intervals. The costs of these transactions are too high. To

provide the saving services at a reasonable/affordable rate is still a major

concern. Micro insurance to protect the lives, assets, hospitalization expenses &

health for poor, effective pension for the aged are some urgently needed

products.

Micro-Finance sector in India has shown a phenomenal growth in the recent

years & led the emergence of two new delivery channel viz. SHG-Bank

Linkage Model and MFI-Bank Linkage Model has emerged as the largest

micro-finance program in the world. There is an immense scope of growth of

MFI particularly under the banked areas.


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Commercial Micro-Finance: The Emerging Paradigm

The involvement of the private sector (in micro finance) has been very

encouraging. Indeed, micro finance offers an excellent platform for private-

public partnerships in which everyone wins. Poor people gain new choices & a

chance to increase their wealth. Societies benefit in their efforts to defeat

hunger & achieve other development goals such as child education, better

nutrition & gender equity. And private businesses profit from access to new

markets &, not least, from the boon to their reputations that comes with offering

services that have a positive social impact.

-RetiredUN Secretary-

General Kofi Annan, Geneva

Private Capital Symposium

Micro finance, the idea rediscovered by Nobel Laureate Muhammad Yunus, has

traversed three decades of development. It has touched the lives of millions,

uplifted many poor families & has improved their living standards with respect

to nutrition, housing & education. It has reduced income inequalities by funding

the entrepreneurial spirit of low-income groups. The poor mans finance has

been successful in leading the real inclusive financial system by providing

micro credit, micro insurance & deposit services to the marginalized &

neglected sections of the society.


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Micro-Finance Institutions (MFI) has been successful in reaching funding

scarce pockets of economy through the conventional model. They have made

capital available to those sections of the society which commercial for-profit

set-ups of mainstream banking/non-banking financial sector considered

unworthy of finance.

The sector has witnessed considerable evolution in the past three decades; it has

undergone a transition from an informal sector to a regulated formal sector.

With the expansion of operations, networks & its presence, the sector achieved

a global outreach of nearly 100million clients in 2006.

The Status Quo & Emerging Paradigm

Outreach

Today, after 30years of its existence, the sector has attained a remarkable

global outreach of nearly 100million clients. But the conventional model

followed by the MFI has certain inherent limitations, which have

confined their outreach. The outreach is phenomenal in absolute terms &

can be considered to have had a positive impact on living standards of

millions. But in relative terms, as per the World Bank statistics, this

outreach caters to only 4% of the worlds demand for micro finance and

moreover, micro finance is not accessible to almost half a billion of the

worlds most poor. The region-specific penetration has not been

noteworthy; as per the Consultative Group to Assist the Poor (CGAP)

estimate, the service has achieved 2.5% penetration in the South-Asian

countries & only 0.5% penetration in Central Asia & Eastern Europe.


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Trends in Demand

As per Meta-analysis with Interactive Explanation (MIX) Market

analysis of the top 100 MFI, these MFI are witnessing a year-on-year

increase in the client base by 26%. From a larger perspective, the current

demand for micro credit is $50bn and it is also expected to grow by 15-

30% per annum. This demand comes from about 500million people,

largely micro entrepreneurs, seeking micro funds.

Source of Funds

So far, the micro finance sector has been mainly funded by donor money.

In some cases, voluntary deposits (i.e. savings deposits) also form

funding source. The donor money & voluntary deposits have proven to

be inadequate to meet not only the current but also the growing demand

for micro finance.

The emerging alternative sources of funding are private capital-local &

foreign, venture capital, debt & equity capital, & other exotic funding

sources like securitization.

Sustainability and Scalability

The micro-finance sector has not yet attained efficiency with factors like

high operating costs, inefficient branch networks & concentration of

services in smaller pockets plaguing the industry.


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The intermediaries charge high interest rates to cover their costs,

operating expenses, etc. but with the growing convergence of capital

markets with the micro-finance sector, alternative & cheaper funding

sources are gaining popularity & the same has started having a positive

impact on the net effective interest rate charged.

Dominance of Governments

As per the CGAP researchers Adrian Gonzalez & Richard Rosenberg,

governments dominate the micro credit industry as the major funding sources.

This phenomenon has allowed even the loss making programs to obtain funds.

In the recent past, the sector has witnessed dramatic increase in the share of

International Financial Institutions (IFIs) & Micro-finance Investment Vehicles

(MIVs) as new funding sources. IFIs are the private sector arm of public

finance institutions, while the MIVs are the private micro-finance funds.

Trend towards Commercialization: New Developments & Concerns

The micro-finance sector is witnessing commercialization in a fragmented

manner. Commercialization of the sector is altering all the equations of

sourcing & delivering models in micro-finance. The micro-finance sector has so

far been under-leveraged. But the commercialization transformation has made

the MFIs to increase their base of debt & borrowings & leverage their positions

further. Leading participants are involving themselves in innovative deals for

procuring funds at competitive rates & increasing their leverage.


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Banco Compartamos of Mexico, Developing World Markets (DWM) & Blue

Orchard, Pro-Credit Bank of Bulgaria, Building Resources Across

Communities (BRAC), Swayam Krushi Sangam (SKS) Micro-Finance &

SHARE Micro fin of India, are some prominent MFI, which have tapped capital

markets & private equity funding sources. Banco Compartamos has been the

first-ever MFI in Mexico & the third-ever in the world to make Initial Public

Offering (IPO). It made a secondary market offering of 30% of its equity stake,

& the IPO was oversubscribed by 13 times.

The innovative deals in the micro-finance sector, & more so, the success of

Banco Compartamos IPO, have drawn a lot of critism from the sector

participants. The major concern is that the commercialized MFI favor investors

at the cost of vulnerable borrowers. However, considering the growing demandfor micro-finance & insufficiency of grants or savings, the equity & debt capital

are the most economical & reliable sources of funds.

Sophistication: The Way Forward

Commercialization on larger scale may require MFI, other participants &

regulatory bodies to address new issues. Commercialized MFI may require

dedicated exchanges for listing & trading.

Commercialization will demand better support system with respect to

information exchange & tracking of performance. Introduction of new

participants like credit-bureaus will make the appraisal of clients & respective

portfolios more sophisticated. The performance tracking will require services of


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credit rating agencies. They will have a larger role to play, with introduction

of more complex offerings & higher risks associated with innovative methods

like securitization. The credit bureaus & the credit rating agencies will help

the commercialized sector attain sophistication by addressing concerns of

information irregularity & lack of credit history.

Micro Credit: The Poverty Business

Micro credit offers a profit-making tool, which ensures that poverty does not

interfere with our normal life burdening us with a crippling sense of guilt.

-Dr.Sudhirendar Sharma

Poverty, a big business

Small change, as micro credit is sometimes called, has become a big business.

With a sizeable number of the poor in the country, India is probably the largest

market for micro-finance services. Reports indicate that of the Rs.40,000crannual rural demand, barely Rs2,000cr is currently being met by the existing

system. In reality, the demand could be five times over if a minimum need of

Rs.25,000per household per year for 100million households is taken into

account. No wonder, major retail banks are entering the fray, as they smell the

fortune of opportunity amidst the countrys poor.


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Prime facie evidence indicates that micro credit is less about sustaining a

financial service industry that thrives on poverty. Development agencies &

practitioners are often uncomfortable with such paradoxes, as they are enslaved

by the ideology of micro credit that promises to remove cobwebs like global

capitalism & class exploitation. But with the society already celebrating growth,

poverty is being redefined as an opportunity in the world of plural democracy

that is deeply entrenched in global capitalism. The tragedy is that normal

politics, normal journalism & normal social sciences now consider the concern

with poverty somewhat pass. Social scientist Ashis Nandy considers this as

somewhat disturbing but nevertheless inevitable. It is becoming more obvious

that all large multi-ethnic societies, after attaining the beatific status of

development, lose interest in removing poverty, especially when poverty is

associated with groups that lack or lose political clout.

Indebtedness, the new culture

The idea of indebtedness has emerged as a new culture. With the definition of

poverty going through a significant shift, indebtedness has been presented as a

virtue to pull the poor out of the poverty trap. It is indeed dramatic, as not too

long ago, being indebted was considered a social curse.

Poverty is as much a state of mind. Once convinced, it is easy to trap theunsuspecting poor into the micro credit trap. Once into it, it is difficult for the

poor to escape. Micro credit is designed to keep the savings low, such that the

credit cycle can move uninterrupted & continue to keep the poor trapped.


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A Matrix of Issues

Issues Demand Supply

Output/Price/Income1. Yield risk because of

weather, water &

power unavailability,

pests & spurious

quality of inputs

among others.

2. Cultivation is not

profitable.

3. Income not sufficient.It is difficult to meethigher education needof wards, medicalrequirements offamily members &other socialobligations.

1. Increased volatility due to

global prices.2. Price distortion through

subsidies by developed

countries.

3. Low tariff in India.

4. Minimum support price not

always functional.

5. Futures market- a virtualplatform with price volatilitybeing the basis through whichhedger/ speculator can operate

Input 1. Supplier-induced-

demand is on the rise.

This is credit-

intensive & an

important reason for

putting the farmer in a

quagmire of

indebtedness

2. There is deskilling.

With new technology

1. No link between publicly funded

research & its extension.

2. Technological change is

substantial & there is an

increasing reliance on the

private suppliers.

3. Inadequate public investment inunregulated agriculture (spreadof irrigation in arid regions has

been a casualty)
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come new methods of

cultivation.

3. Greater investmentsin assets like bore

wells in AndhraPradesh not onlyincrease cost but alsoled to a tragedy whenthe investments failed.

Credit 1. Formal sources not

timely.

2. Repayment difficult

during crop loss &

price shocks.

3. Instead of getting

them out of credit, the

system draws them

into it.

4. Difficulties in

meeting consumption

requirements & other

social obligations.

5. An increase in market

induced consumerism

1. Formal sources: Decline in the

number of branches, decline in

agricultural credit/direct finance to

agriculture as a percentage of net

bank credit, & there is a shift to

value addition activities.

2. Increasing dependence on

informal sources-relatively more

among smaller farmers.

Other Issues 1. Political dominance

of moneylender &/or

input dealer & output

buyer.

2. Higher family size:

more daughters-

greater dowry

burden.

3. Lack of social support

1. Interlinked credit, input &

output markets.

2. Non-farm income opportunities

limited.

3. Public health response to

occupational health hazards of

farming is wanting.

4. Easy availability of pesticides

& other hazardous substances.
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According to A Hollis, A Sweet man (1998)

The regulatory concerns of micro finance sector lies in the special nature of

these institutions, which caters the needs of those who have been marginalized

from the formal financial sector. The paper underlines the importance of an

appropriate regulatory framework to support sustainable delivery of diversified

micro finance services such as savings & insurance. The paper explores the

rationale for regulation in the micro-finance sector, & followed by a review ofmajor regulatory approaches & its impact on the micro-finance sector. The

sector specific regulations along with prudential reforms may facilitate &

environment, which allows micro-finance institutions to mobilize savings &

reduce the problems in enforcing normal banking regulations. The paper also

emphasizes the need to encapsulate the specifications of macro-economic

environment & different stages of development.

According to Bhatt Nitin, (1998).

Micro enterprise development has received much attention as being a

participatory strategy that can potentially alleviate poverty by including the

excluded in the process of development. But recent controversies regarding the

purposes, processes & profitability of alternative micro enterprise development

techniques suggest that participation means different things to different people.

A review of three types of micro enterprise development institutions suggests

that while some programmed policies discourage participation; others

encourage inclusion only in token. Only a few programmers support genuine

participation of the entrepreneurial poor.


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According to Mayoux Linda, (2001).

There are three basic views on the link between micro-finance & womens

empowerment:

There are those who stress the positive evidence & are essentially optimistic

out the possibility of sustainable micro-finance programs worldwide empowering women.

Another school of thought recognizes the limitations to empowerment, but

plains those with poor program design.

Then there are those who see micro-finance programs as a waste of resources.
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According to Gary M. Waller, (2001)

The failure of top-down development policies in the Third World War has

given rise to a variety of grass roots, or bottom-up, development strategies to

combat the severe poverty that continues to plague developing countries.

Among these grass- roots approaches, micro-credit has grown rapidly in

popularity, scope, & impact over the last two decades. Micro-credit provides

financial capital for poor entrepreneurs who toil in the informal, poverty sectors

in developing country economies. In addition to the thousands of predominantly

non-governmental organizations that offer micro-credit programs, many

national governments in the Third World are now seeking to integrate micro-

credit strategies into their development policy & planning. Accordingly, this

article examines the micro-credit movement, including its rationale &

underlying premises, its impact on the poor, & its role in development policy.

According to CL Anderson, L Locker, (2002).

The paper presents a conceptual scheme for understanding the impact of micro-

credit small loans to poor borrowers- on common pool resources. Impacts on

common pool resources are posited to occur through changes in household

production & consumption, the focus on women, & the social capital created

from group training, decision-making, & risk bearing with the group lending

techniques characteristics of many micro-credit programs. Enhanced human &social capital can improve environmental outcomes. A non-random survey of

micro-finance organizations suggests increased environmental awareness &

potential CPR stewardship through micro-credit, but empirical research is

needed to demonstrate actual impacts.


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According to Mary McKiernan, (2002).

Micro-Credit programs provide a two-tiered approach to poverty alleviation:

credit for the purchase of capital inputs in order to promote self-employment &

non-credit services & incentives. These non-credit aspects may be an important

component of the success of micro-credit programs. However, because they are

costly to deliver & their contribution to the success of the programs is difficult

to measure, they may not be properly valued. This paper uses primary data on

household participants & non-participants in Grameen Bank & two similar

micro-credit programs to measure the total & non-credit effects of micro-credit

program participation on productivity. The total effect is measured by

estimating the profit equation conditional on productive capital. Productive

capital & program participation are treated as endogenous variables in the

analysis. I find large positive effects of participation & the non-credit aspects of

participation on self employment profits.

According to Frances Sinha, (2003)
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This paper presents the interim findings of a national level impact assessment of

Micro-Finance in India. The study aims to assess on a national scale the

outreach & development of MFI programs in relation to different product

designs & delivery systems in various parts of India.

In India there is a diversity of approaches to Micro-Finance, involving banks,

government agencies, NGO. The focus of this study-is the specialized MFI who

provide financial services whilst building their own financial sustainability.

Most MFI use groups as intermediaries for financial transactions, but there are

different ways of working with groups. These may be broadly classified as the

Self-Help Groups Model (SHG), the Grameen replicators & Co-operatives. In

each of the models, the group usually assumes joint liability for loan taken by

its members, but there are significant differences in the services offered & in

the extent of client responsibility in financial transactions. A small number of

MFI have an individual banking approach

According to Mahmud Simeen, (2003)..

The effect of micro-credit program participation on womens empowerment by

applying an analytical framework that recognizes the conceptual shift in the

definition of empowerment, from notions of greater well being of women to

notions of womens choice & active agency in the attainment of greater wellbeing. The author finds that micro-credit program participation has only a

limited direct effect in increasing womens access to choice-enhancing

resources, but has a much stronger effect in increasing womens ability to

exercise agency in intra-house hold processes.


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According to Littlefield Elizabeth,Murduch, (2003)

The UN MDG (Millennium Development Goals) has galvanized the

development community with an urgent challenge to improve the welfare of the

worlds neediest people. Micro-finance & the impact it produces go beyond just

business loans. The poor use financial services not only for business investment

in their micro enterprises but also to invest in health & education, to manage

household emergencies & to meet the wide variety of other cash needs that they

encounter. The range of services includes loans, savings facilities, insurance,

transfer payments & even micro-pensions.

According to M Chowdhury, P Mosley (2004)

Analysis of the poverty impacts of micro-finance is almost exclusively focused

on the direct impacts on micro-finance clients. The Imp-Act programmed

emphasizes the need to also consider the wider impacts achieved through non-

client beneficiaries of micro-finance aspires wider impacts need to be assessed

& programs designed to achieve these outcomes. This volume introducesmethodologies, in most cases developed by practitioners, which measure wider

or social impacts & use the results as a point of departure for understanding

what institutional & policy interventions are required to make them more pro-

poor. The principal wider impacts discussed are health, community governance,

postwar reconstruction, labor & finance markets & in relation to Bolivia &

Indonesia, the economy as a whole. We represent research into such widerimpacts as a public good which is beneficial for all micro-finance institutions in

particular for their public relations & for the poverty impact of the sector as a

whole, but which the individual institutions typically do not have the resources

to assess.
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According to James C. Brau, (2004)

Although the word finance is in the term micro-finance & the core elements of

micro-finance are those of the finance discipline, micro-finance has yet to break

into the mainstream or entrepreneurial finance literature. The purpose of this

article is to introduce the finance academic community to the discipline of

micro-finance & micro-finance institutions.

Through out the world, poor people are excluded from formal financial systems.

Exclusion ranges from partial exclusion in developed countries to full or nearly

full exclusion in lesser developed countries. Absent access to formal financial

services, the poor have developed a wide variety of informal, community based

financial needs. In addition, over the last two decades, an increasing number of

formal sector organizations have been created for the purpose of meeting those

some needs. Micro-Finance is the term that has come to refer generally to such

informal & formal arrangements offering financial services to the poor.

According to Mahajan Vijay, (2005)

Over 2000 people from nearly 100 countries around the world met in

Washington DC for three days in February, 1997 at what was called the Micro-

Credit Summit. The summit was organized to launch a global movement to

reach 100million of the worlds poorest families, especially the women or thosefamilies, will credit for self-employment & other financial & business services,

by the year 2005.


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According to T Arun, (2005)

The regulatory concerns of micro-finance sector lies in the special nature of

these institutions, which caters the needs of those who have been marginalized

from the formal financial sector. The paper underlines the importance of an

appropriate regulatory framework to support sustainable delivery of diversified

micro-finance services such as savings & insurance. The paper explores the

rationale for regulation in the micro-finance sector, & followed by a review of

major regulatory approaches & its impact on the micro-finance sector. The

sector-specific regulations along with prudential reforms may facilitate &

environment, which allows micro-finance institutions to mobilize savings & to

reduce the problems in enforcing normal banking regulations.

According to Sharon Shinn, (2007)

The microfinance revolution began when Bangladeshi economics professor

Muhammad Yunus first handed over a few dollars to an impoverished basketweaver in 1974. Since then, the movement toward microfinancethe granting

of very small loans to the poorest people in the world to enable them to run

small businesses that will lift them out of povertyhas won passionate

supporters across the globe. Last year, Yunus and the microfinance insti-

tution he founded, Grameen Bank, shared the Nobel Peace Prize.

As organizations ranging from the World Bank to privately funded enterprises

devote more resources to microfinance initiatives, business schools are

responding by offering electives and programs designed to teach students how

to function in this specialized area of business. According to Michael Chu,

senior lecturer at Harvard Business School in Cambridge, Massachusetts,
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Microfinance is a lead-ing example of why business schools have a huge role

to play in impacting global poverty. The bulk of global poverty is concentrated

in the developing world, which is where the state and the government have

many challenges in functioning well.

Some schools teach microfinance as a component of social enterprise, a way of

doing well through business. Others focus on its commercial applicationsthe

high rate of return on loans, the profit potential inherent in partnering with the

poor. No matter what the approach, those in the vanguard see the topic as one

that is critical to business, business schools, and the world.

According to Astha Arvind, (2007)

The paper examines why capital didnt flow from the rich to the poor. The

problems identified are categorized in three broad categories: lack ofcomplementary human capital, information asymmetries & transaction costs for

small loan sizes. It explains how moneylenders solve the information

asymmetry problems. It then shows that recently, micro-credit has taken the

world by storm. This development has considerably impacted economies at the

grass root levels. The paper therefore examines how Micro-Credit Institutions

have overcome the obstacles to mobility of capital, notably those relating toinformation asymmetry & transaction costs, but also, in some cases, those

related to complementary human capital.


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According to Dean S. Karlan, (2007)

Expanding credit access is a key ingredient of development strategies

worldwide. Micro-Finance practitioners, policymakers, & donors have

ambitious goals for expanding access & seek efficient methods for

implementing & evaluating expansion. There are fewer consensuses on the role

of consumer credit in expansion initiatives. Some micro-finance institutions are

moving beyond entrepreneurial credit & offering consumer loans. But many

practitioners & policymakers are skeptical about unproductive lending. These

concerns are fuelled by academic work highlighting behavioral biases that may

induce consumers to over borrow. We estimate the impacts of a consumer credit

supply expansion using a field experiment & follow-up data collection. We

estimate the resulting impacts using new survey data on applicant households &

administrative data on loan repayment, as well as public credit reports one &two years later. We find that the marginal loans produced significant benefits

for borrowers across a wide range economic & well-being outcomes. We also

find some evidence that the marginal loans were profitable for the lender. The

results suggest that consumer credit expansions can be welfare improving.

According to C Ahlin, N Jiang, (2008)


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We examine the long-run effects of micro-credit on development in an

occupational choice model similar to Banerjee & Newman (JPE, 1993). Micro-

credit is modeled as a pure improvement in the credit market that opens up self-

employment options to some agents who otherwise could only work for wages

or subsist. Micro-Credit can either raise or lower long-run GDP, since it can

lower use of both subsistence & full-scale industrial technologies. It typically

lowers long-run inequality & poverty, by making subsistence payoffs less

widespread. Thus, an equity-efficiency tradeoff may be involved in the

promotion of micro-credit. However, in a worst-case scenario, micro-credit has

purely negative long-run effects. The key to micro-credit long-run effects is

found to be the graduation rate, defined as the rate at which the self-employed

build up enough wealth to start full-scale firms. We distinguish between two

avenues for graduation: winner graduation (of those who earn above-average

returns in self-employment) & saver graduation (due to gradual accumulation

of average returns in self-employment). Long run development is not attainable

via micro-credit if winner graduation is the sole avenue for graduation.

In contrast, if the saving rate & self-employment returns of the average micro-

borrower are jointly high enough, then micro-credit can bring an economy from

stagnation to full development through saver graduation. Thus, the lasting

effects of micro-credit may partially depend on simultaneous facilitation of

micro saving. Eventual graduation of the average borrower, rather thanindefinite retention, should be the goal of micro-banks if micro-credit is to be a

stepping stone to broad-based development rather than at best an anti-poverty

tool.


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According to A.K.Singh, (2008).

Micro-credit in India hinges on four pillars i.e. micro saving, inter loaning,

micro-enterprise & micro-insurance. The whole micro-credit system has led to

empower women to a great extent & initiate small enterprises. On these lines a

study named Impact of Participatory Micro-Credit on Integrated Community

Development was planned with objectives to study different components of

participatory micro-credit. Two major systems of micro-credit were existing in

the study area. Though the SHG was central in both systems, NGO were self-

help group promoting institution.

According to Bruce Wydick, (2008)

Microfinance has become an increasingly widespread tool for fostering

economic growth among the poor in developing countries. This study tracks the

progress of 239 borrowers in a Guatemalan microfinance institution from 1994

to 1999. Results from the study show that rapid gains in employment within the

sample enterprises after initial credit access were followed by a protracted period of stagnation in employment growth. Other results highlight gender

differences in response to credit access, showing surprisingly that the

longrun growth in hired labor for female entrepreneurs was slightly greater

than that for male entrepreneurs.

According to Jaideep Roy, (2008).


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This paper examines publicprivate partnerships in micro-finance, whereby

NGOs can help in channelizing credit to the poor, both in borrower selection, as

well as in project implementation. We argue that a distortion may arise out of

the fact that the private partner, i.e. the NGO, is a motivated agent. We find that

whenever the project is neither too productive, nor too unproductive, reducing

such distortion requires unbundling borrower selection and project

implementation, with the NGO being involved in borrower selection only.

According to Ronny Manos, (2008)

Measuring the performance of providers of financial services to poor

individuals and to micro and small enterprises is a relatively new phenomenon,

and the paper discusses the reasons for this. It is argued that using traditional

financial ratios to assess performance of microfinance institutions (MFIs) is

inappropriate, owing to the high level of subsidies popular in the industry,

which these measures ignore. In contrast, two performance measures that are

becoming increasingly popular in the microfinance industry do attempt to adjustfor subsidies granted to MFIs. These two performance measures, financial self

sufficiency (FSS) and the subsidy dependence index (SDI), are compared and

contrasted. The paper points to the superiority of the SDI over the FSS, and

suggests the use of the outreach index alongside the SDI, to measure the degree

to which the MFI has achieved social objectives.


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According to P.Sharath Chandra Rao, (2009)

More than 72% of India's population resides in rural India and it also has a high

concentration of people living under abject poverty. Of the total rural

population 27.128.3% lives below the poverty line (BPL). A lack of energy-

finance options is hampering the quality of life of the BPL community. The

members of this disadvantaged household which forms 27.1% and 23.6% of the

India's rural and urban population has no ready access to mainstream finance or

knowhow of sustainable energy products nor do they have access to energy

service providing agency. This lack of energy-finance options has provided the

marginalized population little means to break the conventional energy paradigm

and the corresponding poverty cycle.

Considering the afore-mentioned problem we propose an energy-microfinance

intervention or a model that encompasses two independent entities. One has an

energy expertise and the other possesses finance management skills.

Alternately, we also propose a special purpose entity that comprises of thesetwo entities. This entity fosters different institutional, technical and financial

engineering approaches to the provision of energy, finance and infrastructure

services necessary for poverty alleviation.


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According to Roy Mersland, (2009).

We examine the relationship between firm performance and corporate

governance in microfinance institutions (MFI) using a self-constructed global

dataset on MFIs collected from third-party rating agencies. Using random

effects panel data estimations, we study the effects of board and CEO

characteristics, firm ownership type, customer-firm relationship, and

competition and regulation on an MFIs financial performance and outreach to

poor clients. We find that financial performance improves with local rather than

international directors, an internal board auditor, and a female CEO. The

number of credit clients increase with CEO/chairman duality. Outreach is

lower in the case of lending to individuals than in the case of group lending. We

find no difference between non-profit organisations and shareholder firms in

financial performance and outreach, and we find that bank regulation has no

effect. The results underline the need for an industry specific approach to MFI

governance.
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Q.1 Are you aware about Micro-Credit facility?

OPTIONS No. OF

RESPONDANTS

PERCENTAGE

YES 75 93.75

NO 5 6.25

TOTAL 80

From the above chart we can say that 94% of the people in rural areas are aware

of Micro-Credit facility. Only 6% are not aware of it.

94%

6%

yes

no
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Q.2 Do you have any account in the bank?

OPTIONS No. OF

RESPONDANTS

PERCENTAGE

SAVING a/c 49 61.25

CURRENT a/c 31 38.75

TOTAL 80

In the chart we see that 61% of the people are having saving account in the

banks & 39% are having current account.

Q.3 Does your bank provide Micro-Credit facility?

61%

39%

SAVING

CURRENT
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67%

33%

YES

NO

OPTIONS No. OF

RESPONDANTS

PERCENTAGE

YES 54 67.5

NO 26 32.5

TOTAL 80

The chart shows that 67% of the banks are providing Micro-Credit facility to

their customer & 33% of the banks are not providing & even dont know about

this facility.

Q.4 Do you ever-used Micro-Credit facility?
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OPTIONS No. OF

RESPONDANTS

PERCENTAGE

YES 39 48.75

NO 41 51.25

TOTAL 80

From the chart we can say that only 49% of the people were knowing about

Micro-Credit facility & were using it. But 51% of the people didnt know about

this & so they were not using it.

49%

51%

YES

NO
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Q.5 How much loan you have taken from bank?

OPTIONS No. OF

RESPONDANTS

PERCENTAGE

8000 0 0

8000-12000 37 46.25

12000-16000 33 41.25

16000-Above 10 12.5

TOTAL 80

The chart shows that 46% of the people get loan upto 8000-12000 from their

bank. 41% of the people can get 12000-16000 loan & 13% get above 16000.

0%

46%

41%

13%

8000

8000-12000

12000-16000

16000-Above
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Study the Impact of Micro Credit in Rural Area of Chittorgarh

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