microfinance and self help group

7/30/2019 microfinance and self help group

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Microfinance

&Self help

Group


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Definition of Microfinance

Any activity that includes the provision of financial services such as credit, savings,

and insurance to low income individuals which fall just above the nationally

defined poverty line, and poor individuals which fall below that poverty line, with

the goal of creating social value.


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History of Microfinance in India

There are 3 main factors that count to the bringing up of Microfinance as a Policy

in India

i. Bank nationalization drive launched in 1969

ii. Integrated Rural Development Program (IRDP) introduced in 1978

iii. Liberalization of Indias financial system in the 1990s


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Microfinance Institutional Structure in India

Microfinance Institutions (MFIs)

Mainstream MFIs Alternate MFIs

* NABARD * NGOs which are mainly engaged in

* SIDBI promoting SHGs

* HDFC * NGOs directly lending to borrower

* RRBs E.g. RMK, FWWB

* Credit cooperative societies * MFIs which are specialised as

* Commercial banks cooperative. E.g. SEWA, MACTS

* MFIs which are organised as NBFCsE.g. BASIX, CFTS, SHARE

Microfinance ltd.


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Models of Microfinance

Bank partnership model: This model is an innovative way of financing MFIs. The

bank is the lender and the MFI acts as an agent for handling items of work relating

to credit monitoring, supervision and recovery.

Service company model: Under this model, the bank forms its own MFI, perhaps as

an NBFC, and then works hand in hand with that MFI to extend loans and other

services. On paper, the model is similar to the partnership model: the MFIoriginates the loans and the bank books them. But in fact, this model has two very

different and interesting operational features-

(a) The MFI uses the branch network of the bank as its outlets to reach clients

(b) The Service Company Model has the potential to take the burden of overseeingmicrofinance operations off the management of the bank and put it in the

hands of MFI managers who are focussed on microfinance to introduce

additional products


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A conceptual model: The figure below gives a view of the products and the

segments the NBFCs and NGOs are meant to target.

Small enterprise Individual loan with

and commercial farmers collateral security

Micro enterprises Individual loan with& small farmers joint liability group

Marginal Farmers, Loans to SHGs for

landless & women co-lending to their

producers members


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Role of Micro Finance in the Economic Development

Job Creation

Financial Stability

Removing Poverty

Role of commercial banks in Microfinance Direct Lending

Partnership with Microfinance Institution

Microfinance Subsidiary

Securitization


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Problems associated with micro financing

Borrower Unfriendly Products and Procedures

Inflexibility and Delay

High Transaction Costs, both Legitimate and Illegal

Social Obligation and not a Business Opportunity

Lack of commercial orientation

Lack of proper governance and accountability


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Self Help Groups(SHGs)

A SHG is a group of about 10 to 20 people, usually women, from a similar class

and region, who come together to form savings and credit organization. They

pooled financial resources to make small interest bearing loans to their members.

This process creates an ethic that focuses on savings first. The setting of terms and

conditions and accounting of the loan are done in the group by designated

members.


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SHG Federation

SHG Federation/

Apex/

Mandal Samakhya

Cluster/

Village

Organization

Cluster/

Village

Organization

Cluster/

Village

Organization

SHG SHG SHGSHG

SHG


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The spread of SHGs led also to the formation of SHG Federations which are a more

sophisticated form of organization that involve several SHGs forming into Village

Organizations (VO) / Cluster Federations and then ultimately into higher level

federations (called as Mandal Samakhya (MS) in AP or SHG Federation generally).

SHG Federations are formal institutions while the SHGs are informal. Many of

these SHG federations are registered as societies, mutual benefit trusts and mutually

aided cooperative societies. SHG Federations resulted in several key benefits

including:

* Stronger political and advocacy capabilities

* Sharing of knowledge and experiences

* Economies of scale

* Access to greater capital


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Impacts of SHGs

Political

Social Harmony

Social Justice

Community

Livelihoods

Microfinance is a powerful tool for social development."


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Thank you.

microfinance and self help group

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