1. microfinance - an overview 13 1.1

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1. MICROFINANCE - AN OVERVIEW 131.1 Microfinance - A Short Background 131.2 Global Developments in Microfinance 141.2.1 Penetration in South Asia 181.3 Micro-Finance in India 211.3.1 Models practiced in Indian Microfinance Industry 221.3.1.1 MFI Model 22

1.3.1.2 Self Help Group Bank Linkage Model 221.3.2 MFI and SHG Bank Linkage Credit Supply 231.3.3 Role of Central Banks 261.3.4 Role of Women 291.3.5 Microfinance & Poverty Alleviation 301.4 Urban Microfinance 341.5 Rating of Microfinance Institutions

ISSUES & CHALLENGES 82

4.1 Literacy & Skill Levels of Clientele 824.2 High Transaction and Service Cost 834.3 Credit Risk 854.4 Skewed Regional Distribution of Microfinance 864.5 Diversion of Funds to Unproductive Activities 86

4.6 Regulatory Issues 874.7 Irregular Flow of Income due to Seasonality 874.8 Uncertainty of Market Conditions 884.9 Lack of Tangible Proof for Assessment of Income 884.10 Need for Information Sharing & Better Technology

LIST OF FIGURESSavings by Region1.2 Savings by Region 953 MFIs Reporting, July 2007 61 Million Savers1.3 MFI's by region, Based on a sample of 2,207 MFIs in 20071.4 Direct Financing Model1.5 SHG Bank linkage Model1.6 Growth in borrowers under MFI channel (2003-2007)1.7 Growth in outstanding loan portfolio under MFI channel (2003-2007)

1.8 Estimated loan outstanding under SHG bank linkage channel ( 2003-2007)1.9 Share of bank linkage SHG and MFIs in microfinance disbursement (2003)1.10 Share of bank linkage SHG and MFIs in microfinance disbursement (2007)1.11 Growth in cumulative disbursements by SHGs and MFIs channels (2003-2007)1.12 Instituitional flow of microfinance2.1 Major market players in rural credit2.2 Growth in client outreach by MFIs2.3 Classification of activities Micro credit loan being takenLIST OF TABLES2.1 Growth of SHG Linked in 13 Priority sectors2.2 Growth of SHGs in Regions2.3 MFI Outreach State-wise2.4 Top 40 MFI Institutions and their Active Borrowers (2007)2.5 Top Microfinance Institution Performance in the year 2007

2.6 Top 20 Districts by MFI Penetration (2007)

Introduction

Microfinance - A Short Background

Achieving balanced and inclusive economic growth is a key challenge faced bypolicymakers in countries around the world. The gains of economic growth are accessibleto a greater extent by the relatively advantaged, who find it easier to participatein the growth process. Poorer people, who are separated by distance from the


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urban areas where economic activity is concentrated, have to wait much longer toreap the benefits of economic growth. Engaging these sections of society in the economicmainstream is essential to achieve balanced growth, which is critical for thelong-term sustainability of social development and economic prosperity.Access to financial services is a key element of the process of socio-economicempowerment. Only by delivering financial services to people in rural areas andlower income strata can they be brought within the ambit of economic activity.

Only then can the full potential of the countrys physical and human resources berealized. The rural economy represents a large latent demand for credit, savingsand risk mitigation products like insurance. Governments and regulators the worldover have articulated the expansion of financial service delivery to this segment ofthe population as a priority objective.

Indian Economy and MicrofinanceHome to about 1.1 billion people as of 2007, India constitutes approximately one sixthof the worlds total population. It is the worlds largest democracy and a key emergingmarket alongside China and Brazil. The picture of growing GDP and rising foreigninvestments shows an environment where wealth is increasing for the nation.Due to its large size and population of around 1000 million, India's GDP ranks

among the top 15 economies of the world. However, around 300 million people or about60 million households, are living below the poverty line. It is further estimated that ofthese households, only about 20 percent have access to credit from the formal sector.Additionally, the segment of the rural population above the poverty line but not richenough to be of interest to the formal financial institutions also does not have good accessto the formal financial intermediary services, including savings services.A group of micro-finance practitioners estimated the annualised credit usage of

all poor families (rural and urban) at over Rs 45,000 crores, of which some 80 percent ismet by informal sources. This figure has been extrapolated using the numbers of ruraland urban poor households and their average annual credit usage (Rs 6000 and Rs 9000pa respectively) assessed through various micro studies.

.Microfinance DefinedFor the purposes of this study microfinance can be defined as any activity thatincludes the provision of financial services such as credit, savings, and insurance to low incomeindividuals which fall just above the nationally defined poverty line, and poorindividuals which fall below that poverty line, with the goal of creating social value. Thecreation of social value includes poverty alleviation and the broader impact of improvinglivelihood opportunities through the provision of capital for micro enterprise, andinsurance and savings for risk mitigation and consumption smoothing.History of Microfinance in India

In India, institutional credit agencies (banks) made an entry in rural areas initially to

provide an alternative to the rural money lenders who provided credit support, but notwithout exploiting the rural poor. There are 3 main factors that count to the bringing upofMicrofinance as a Policy in India1. The first of these pivotal events was Indira Gandhis bank nationalization drivelaunched in 1969 which required commercial banks to open rural branches resulting[3] ina 15.2% increase in rural bank branches in India between 1973 and 1985. Today, Indiahas over 32,000 rural branches of commercial banks and regional rural banks, 14,000cooperative bank branches.2. The second national policy that has had a significant impact on the evolution of


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Indias banking and financial system is the Integrated Rural Development Program(IRDP) introduced in 1978 and designed to be a direct instrument for attacking Indiasrural poverty. This program is interesting to this study because it was a large programwhose main thrust was to alleviate poverty through the provision of loans and it wasconsidered a failure3. The last major event which impacted the financial and banking system inIndia was the liberalization of Indias financial system in the 1990s characterized by aseries of structural adjustments and financial policy reforms initiated by the ReserveBank of India (RBI).The systems and procedures of banking institutions was emphasizing oncomplicated qualifying requirements, tangible collateral, margin, etc., that resulted in alarge section of the rural poor shying away from the formal banking sector. The bankstoo experienced that the rapid expansion of branch network was not contributing to anincreasing volume of business to meet high transaction costs and risk provisioning, whicheven threatened the viability of banking institutions and sustainability of their operations.At the same time, it was not possible for them to allow a population of close to 300million - even if poor - to remain outside the fold of its business.

The search for an alternative mechanism for catering to the financial service needs of thepoor was thus becoming imperative.

Analysing the current Scene of Micro Finance Services

We are seeing a new type of loan methodology being evolved that is somewhat of ahybrid in nature. It considers itself in the business of improving livelihoods, in whichlivelihood financial services is one piece. It places equal emphasis on the provision ofagricultural business development services and technical services in addition to theprovision of financial services, which includes credit but is not limited to it. Credit is notsufficient alone to guarantee an improvement in the livelihoods of the rural poor. It isbelieved that other financial and technical services are necessary and can be provided ona revenue model in order to be sustainable.

Micro-Finance Institutional Structure in India

Microfinance in India started in the early 1980s withsmall efforts at forming informal self-help groups(SHG) to provide access to much-needed savings andcredit services. From this small beginning, the microfinance sectorhas grown significantly in the past decades. National bodies like

the Small Industries Development Bank of India (SIDBI) and theNational Bank for Agriculture and Rural Development(NABARD) are devoting significant time and financial resources to microfinance.This points to the growing importance of the sector.

The strength of the microfinance organizations (MFOs) in India isin the diversity of approaches and forms that have evolved overtime. In addition to the home-grown models of SHGs and mutuallyaided cooperative societies (MACS), the country has learnedfrom other microfinance experiments across the world, particularly


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those in Bangladesh, Indonesia, Thailand, and Bolivia, in terms ofdelivery of micro financial services. Indian organizations could alsolearn from the transformation experiences of these microfinanceinitiatives.

The different organisations in this field can be classified as "Mainstream" and

"Alternative" Micro Finance Institutions (MFI).Mainstream Micro Finance InstitutionsNABARD, Small Industries Development Bank of India (SIDBI), Housing DevelopmentFinance Corporation (HDFC), Commercial Banks, Regional Rural Banks (RRBs), thecredit co-operative societies etc are some of the mainstream financial institutionsinvolved in extending micro finance.Alternative Micro Finance InstitutionsThese are the institutions, which have come up to fill the gap between the demand andsupply for microfinance. MFIs were recently defined by the Task Force as "those whichprovide thrift, credit and other financial services and products of very small amounts,mainly to the poor, in rural, semi-urban or urban areas for enabling them to raise their

income level and improve living standards."The MFIs can broadly be classified as:NGOs, which are mainly engaged in promoting self-help groups (SHGs) and theirfederations at a cluster level, and linking SHGs with banks, under the NABARDscheme.NGOs directly lending to borrowers, who are either organised into SHGs or intoGrameen Bank style groups and centres. These NGOs borrow bulk funds fromRMK, SIDBI, FWWB and various donors.MFIs which are specifically organised as cooperatives, such as the SEWA Bankand various Mutually Aided Cooperative Thrift and Credit Societies (MACTS) inAP.MFIs, which are organised as non-banking finance companies, such as BASIX,

CFTS, Mirzapur and SHARE Microfin Ltd.

Indian Microfinance ContextIndian public policy for rural finance from 1950s to till date mirrors the patternsobserved worldwide. Increasing access to credit for the poor has always remainedat the core of Indian planning in fight against poverty. The assumption behindexpanding outreach of financial services, mainly credit was that the welfare costs ofexclusion from the banking sector, especially for rural poor are very high. Startinglate 1960s, India was home to one of largest state intervention in rural creditmarket and has been euphemistically referred to as Social banking phase. It sawnationalisation of existing private commercial banks, massive expansion of branchnetwork in rural areas, mandatory directed credit to priority sectors of the economy,subsidised rates of interest and creation of a new set of rural banks at district leveland an Apex bank for Agriculture and Rural Development (NABARD20) at nationallevel. These measures resulted in impressive gains in rural outreach and volume ofcredit. As a result, between 1961 and 2000 the average population per bank branchfell tenfold from about 140 thousand to 14000 (Burgess & Pande, 2005) and theshare of institutional agencies in rural credit increased from 7.3% 1951 to 66% in1991.


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These impressive gains were not without a cost. Government interventions throughdirected credit, state owned Rural Financial Institutions (RFI) and subsidised interestrates increased the tolerance for loan defaults, loan waivers and lax appraisal andmonitoring of loans. The problem at the start of 1990s


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looked twofold, the institutional structure was neither profitable in rural lending norserving the needs of the poorest. In short, it had created a structure, quantitativelyimpressive but qualitatively weak.Microcredit emergence in India has to be seen in this backdrop for a betterappreciation of current paradigm. Successful microfinance interventions across theworld especially in Asia and in parts of India by NGOs provided further impetus. In

this backdrop, NABARDs search for alternative models of reaching the rural poorbrought the existence of informal groups of poor to the fore. It was realized that thepoor tended to come together in a variety of informal ways for pooling their savingsand dispensing small and unsecured loans at varying costs to group members onthe basis of need. This concept of Self-help was discovered by social-developmentNGOs in 1980s. Realising that the only constraining factor in unleashing thepotential of these groups was meagerness of their financial resources, NABARDdesigned the concept of linking these groups with banks to overcome the financialconstraint. The programme has come a long way since 1992 passing through stagesof pilot (1992-1995), mainstreaming (1995-1998) and expansion phase (1998onwards) and emerged as the worlds biggest microfinance program in terms ofoutreach, covering 1.6 million groups as on March, 2005. It occupies a pre-eminent

position in the sector accounting for nearly 80% market share in India.Under the programme, popularly known as SHG-Bank Linkage programme there arebroadly three models of credit linkage of SHGs with banks. However, the underlyingdesign feature in all remains the same i.e. identification, formation and nurturing ofgroups either by NGOs/other development agencies or banks, handholding andinitial period of inculcating habit of thrift followed by collateral free credit from bankin proportion to the groups savings. In accordance with the flexible approach, thedecision to borrow, internal lending and rate of interest are left at the discretion ofgroup members. Its design is built on combining the collective wisdom of the poor,the organizational capabilities of the social intermediary and the financial strengthof the Banks.


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The success factors of the program lie in it being beneficial for both banks andclients another example of Win-Win proposition. The programme is an attractiveproposition for banks due to high recovery rates and lowering of transaction costsby outsourcing costs associated with monitoring and appraisal of loans. Recordsshow a recovery rate as high as 95% for loans extended by banks to SHGs and astudy sponsored by FDC26, Australia, it was observed that the reduction in costs for

the bankers is around 40 % as compared to earlier loans under Integrated RuralDevelopment Programme (IRDP). Similar findings in respect of commercial benefitof SHG lending to banks were reported by Siebel & Dave (2002)27. Theprogrammes exclusive focus on reaching those sections of population, who werehitherto out of reach of financial system has increased the coverage of poor. Nonreliance on physical collateral and total flexibility in loan purpose and amount hasalso resulted in increased coverage of the poor and the marginalised.

The programme has received strong public policy support from both Government ofIndia and Reserve Bank of India. The importance attached to it by Government isexemplified by mention of yearly targets by Finance Minister in his annual budgetspeech as well as introduction of similar group based lending approach ingovernments poverty alleviation programme. The success of the programme in

reaching financial services to the poor has won international admiration. World Bankpolicy paper28 hails the programme and states that it is particularly suited to Indiabecause the model capitalises on countrys vast network of rural bank branchesthat are otherwise unable to reach the rural poor.Financial System approach Shifting of Goalpost & its impact

The growth of microfinance in India has also to be seen in the light of financialsector reforms in India starting from 1991 and the global emphasis oncommercialization of the sector. The financial sector reforms in India have focusedon fostering a market based financial system by increasing competition andimproving the quality of financial services. The new approach has been deeplyinfluenced by the reorientation among international rural financial policyAlok Misra, PhD Candidate in Development Studies, Victoria University of Wellington, New Zealand 8

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makers centering around concepts such as self-help, self sustained growth andinstitutional viability. Under the new approach, institutional viability is of primeconcern and instruments of directed credit and interest rate directives have beentotally diluted or been done away with. As a consequence, banks are increasinglyshying away from rural lending as well as rationalizing their branch network in ruralareas. Burgess & Pande (ibid) have brought out this fact in their study by stating

that while between 1977 and 1990 (pre reform period) more bank branches wereopened in financially less developed states, the pattern was reversed in post reformperiod. Thus while, the access of the rural poor to credit through traditional banklending has reduced in post reform period, the policy recommendation is to fill thisgap through microfinance.Flowing out of negative experiences of the earlier state intervention, institutionalviability has become the focal point for evaluation of success of credit interventions.

The philosophy and design of SHG-Bank linkage programme reflects this newconcern vividly by emphasising on full cost recovery in order to become anattractive proposition for banks. Siebel & Dave (ibid, p 5) in their study oncommercial aspects of SHG programme succinctly state the new paradigm withfocus on institutional sustainability by saying that as against the long standing

tradition of government owned banks undermining rural finance with cheap creditNABARD belongs to the new world of rural finance: it is profit making; and itactively promotes the viability of rural banks under its supervision. The designfeatures of the programme emphasise that it does not envisage any subsidysupport from the government in the matter of credit and charges market relatedinterest rates based on the premise that sub-market interest rates could spelldoom; distort the use and direction of credit (Kropp & Suran, 200229). Highrecovery rates under the programme are used to justify the dictum that poor needtimely and adequate credit rather than cheap credit.With this shift to parameters of institutional success, the issue of impactassessment has been relegated to the background. Impact assessment is either leftfor inference through proxy measures like volume of credit, repayment ratesAlok Misra, PhD Candidate in Development Studies, Victoria University of Wellington, New Zealand 9

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and outreach or one-off sample impact assessment exercises. The field researchwas undertaken to understand the clients perspective and analyse the factorsbehind repayment rates as well as impact of credit on socio economic well being ofclients. The research covered 93 client households from 5 Self Help Groups fromthree different locations in Western and Central part of India. While statistically thenumber may look insignificant considering the size of the programme, use of

participatory methods of research add to its depth and value. Only groups whichhave been in the programme for at least two years were studied as groups of lessthan 2 years of formation may not be best suited to capture impact.As the size limitations of paper constrain a detailed enumeration of field researchfindings, only the key findings of the field research30 having a bearing on thecentral aspect of the paper are listed -

- All clients were saving regular amounts of money at monthly/bimonthly intervalbuilding up the group savings

- Internal loaning of group funds was very high resulting in significant waitingtime for members interested in borrowing

- Social awareness index of group members as measured on Likert Scale showeda definite positive trend after joining the group

- Reliance on moneylenders for credit eliminated or decreased in case of approx2/3rd of clients

- No specific benchmarks for group membership leading to inadequate povertytargeting

- Only 6% clients had taken up any economic activity post group formation- Marginal increase in real term income level after joining the group- Bank credit to group often a result of bankers zeal to achieve targets rather

than based on group demand- Bank credit as well as loans used overwhelmingly for consumption purpose- Group members not willing to borrow to take up economic activity on account

of credit risk and absence of skills

Alok Misra, PhD Candidate in Development Studies, Victoria University of Wellington, New Zealand 10

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- Prompt Repayment a factor of group pressure and sourced out of reducedconsumption, extra work and borrowing from other sources

- High rates of interest in internal lending among group members (2-3%) wasseen by members as prescribed by the group forming agency and acceptedas being better than even higher rates of informal sector.

Further summarizing the findings at the cost of over simplification, it can be saidthat while the programme had definite impact on building of social capital, it hadmarginal impact on income levels. At this point it is useful to clarify that positivecontribution on social sphere is by itself a significant achievement, however theproblem lies with extension of positive impact to economic activities. The findingssit uneasily with earlier evaluations of the programme in respect of economicimpact, while being in consonance with social impact. Puhazhendhi & Satyasai(2000)31 in their study commissioned by NABARD covered 223 SHGs spread over11 states across India. The study found that 58.6% of sample households registeredan increase in assets from pre to post SHG situation, an additional 200 economicactivities taken up by sample households and decrease in the percentage of sample

households with annual income levels of Rs.22500 from 73.9% to 57%. Anotherstudy32 commissioned by NABARD in 2002 with financial assistance from SDC33,GTZ34 and IFAD 35covered 60 SHGs in Eastern India. The findings of this study alsocorroborate the findings of earlier evaluation with 23% rise in annual income and30% increase in asset ownership among 52% of sample households. World Bankpolicy research paper (ibid) 2005 details the findings of Rural Finance AccessSurvey (RFAS) done by World Bank in association with NCAER36. The RFAS covered736 SHGs in the states of Andhra Pradesh and Uttar Pradesh and also points topositive economic impact. The findings indicate 72% average increase in real termsin household assets, shift in borrowing pattern from consumption loans toproductive activities and 33% increase in income levels.

The divergence of field research findings demands a situational analysis of the fieldstudy findings. The study sites exhibited certain common features, which can besaid to be true of most of Indian rural landscape. The major occupationAlok Misra, PhD Candidate in Development Studies, Victoria University of Wellington, New Zealand 11

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of group members was agriculture supplemented by other activities such as farmlabour, factory labour and poultry. Being rain fed areaa, lack of irrigation facilities,declining terms of trade in agriculture and fragmentation of land have accentuatedtheir vulnerabilities over a period of time. The group members lacked any specifichandicraft skills and had not received any skills training for undertaking any othernon farm activity. In this scenario, post SHG, the group members have been content

with using the group savings and bank loan as replacement/reduction of costlyborrowings from informal sources. The high rate of internal lending reflected in bankand group records was used by them for meeting their consumption and emergencyrequirements. Detailed interaction revealed that group members do not have theconfidence to use credit for productive purposes in view of lack of opportunities andpartly also ingrained through their past borrowing experience. Irrigation anddepressed commodity prices act as deterrent in farm sector investments, while lackof skills and invasion of rural markets by big consumer goods companies reduce thescope for rural micro enterprises. It is striking that while globalization is exertingpressure on national level companies, their penetration into rural markets isreducing the market sphere for rural enterprises.In this scenario, it seems rather nave to visualize flourishing of microenterprises

through provision of microcredit. Dichter (2006)37 in his paper drawing on Africanexperience rightly draws attention to both these aspects by pointing to the infertilecontext of rural settings and says if the large majority of us in the advancedeconomies are not entrepreneurs, and have had in our past little sophisticatedcontact with financial services, and if most of us use credit, when we do, forconsumption, why do we make the assumption that in the developing countries, thepoor are budding entrepreneurs..Besides acknowledging the positive social outcomes, the field study findings alsopoint to smoothing of consumption needs and marked reduction in dependence ofexploitative informal sources of credit. These aspects are in itself a significantwelfare gain, however the paper questions the extension of this to


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economic development which is altogether a different domain from short term crisismanagement.In the absence of any significant economic development, the findings logically pointto an unmistakable trend of repayments being made out of reduced consumption,increased working time as farm labour and borrowing from relatives, other groups invicinity or moneylenders in extreme cases. In such a scenario, while loan volume,

outreach and repayment may outwardly justify the intervention and make itattractive for bankers, its impact on economic gains for clients gets missed out. Thecommon underlying assumption behind reliance on such parameters is belief in thelinear cycle of credit, starting from credit offtake followed by economic activities,rise in income/assets and repayment out of additional income. The figure belowillustrates this :

Reliance on credit off take and recovery as a proxy for positive economicdevelopment ignores the critical issue of impact assessment at client level. Thisaspect of microfinance has received increasing attention. Dichter (ibid) feels thatthe use of proxies like repayment rate to justify impact is not tenable as it does notexamine the source of repayment. Money being fungible, repayment needs to be

traced to income from business activity to justify it as criteria. Deubel (2006)38citing (Buckley, 199739) states that loan repayment rate as anAlok Misra, PhD Candidate in Development Studies, Victoria University of Wellington, New Zealand 13

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indicator may show participants ability to repay but does not take into account theimpact of loan on enterprise. Weiss & Montgomery (2004)40 observe that highrecovery rates may be due to intense group pressure and do not reflect capacity torepay.

The focus on financial sustainability has meant that much of the evaluation criteria

for microfinance interventions is based on institutional performance. Weber(2006)41 says that while the virtuous impact of microfinance is used to justify itsexpansion, much of this assessment is based on institutional success and avoidanceof engaging with impacts. Very significantly he points out this focus by observingThus, as long as institutional sustainability obtains, it has been fairly commonpractice among the policy makers-and their commissioned researchers-to interpretfinancial viability as indicative of the social, political and economic success ofmicrofinance programmes (ibid, p 53). He also argues that such an approachconstitutes the ideology and practice of neoliberalism as it is based on theontological premise that competitive financial institutions provide the foundation forentrepreneurial success and are best suited to reduce poverty.Simanowitz & Walter (2002, p3)42 correctly observe that Microfinance is a

compromise between social and financial objectives. To date most emphasis hasbeen on financial and institutional performance. In order to bring the social aspectback into microfinance, Imp-Act43 based on three years of action research covering30 organisations in 20 countries has been advocating mainstreaming of SocialPerformance Management (SPM) to improve the effectiveness of microfinance inreducing financial exclusion and poverty.While microfinance may be a winning proposition for banks, the winning evidenceon clients side seems doubtful. The institutional approach flowing out of pastnegative experiences has shifted the goalpost to financial solvency but in theprocess missed the vital link of credit usage.In this scenario, it can be said with certainty that potential of microfinance tocontribute to achievement of MDGs in India, especially reduction of poverty

remains suspect. Greeley (2005)44 rightly notes that in absence of specific povertytargeting and mainstreaming of impact assessment, the claims about the impact ofmicrofinance on the achievement of MDG lacks credibility.

Microfinance in IndiaIn India, microfinance is done by organizations having diverseorientations, as shown in Figure 1.NGOs in India perform a range of developmental activities;microfinance usually is a sub-component. Some of these NGOsorganize groups and link them to an existing provider of financialservices. In some cases NGOs have a revolving fund that is usedfor lending. But in either of these cases, microfinance is not a core

activity for these NGOs. An example is the Aga Khan RuralSupport Programme India (AKRSP-I). For AKRSP-I, the microfinancecomponent is incidental to its work in natural resourcemanagement.Examples like MYRADA and the Self-Employed WomensAssociation (SEWA) fall in the same category. However, as their


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Figure 1. Defining the microfinance egg

microfinance portfolios grew, both organizations decided to formseparate entities for microfinance. MYRADA set up an MFOcalled Sanghamitra Rural Financial Services (SRFS), while SEWAset up the SEWA Cooperative Bank.At the next level, we find NGOs helping the poor in economicactivities. Their purpose is developmental. They see microfinance


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as an activity that feeds into economic activities. For instance, theSouth Indian Federation of Fishermens Societies (SIFFS) started asa support organization for fishermen, providing technical and marketingsupport. It then arranged for loans to its members through banks. When thearrangement was not effective, it started providingloans itself.

At the third level, we have organizations with microfinance atthe core. They have developmental roots, but are diverse in theiroperational details, orientation, and form of incorporation.

This paper focuses on organizations that have microfinance atthe core. It also examines NGOs that have created new MFOs todeal with the specialized function of microfinance. It deals withissues of transformation of these organizations, moving from adevelopmental root to a commercial sprout.

1. microfinance - an overview 13 1.1

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