microfinance in india
TRANSCRIPT
Micro Finance is the supply of loans, savings, and other basic financial
service to the poor .
- CGAP
To most, micro finance means providing very poor families with very small
loans (micro credit) to help them engage in productive activities or grow their
tiny businesses.
- Financial Gateway
Microfinance refers to small-scale financial services including both credits
and deposits provided to people who farm or fish or herd; operate small or
microenterprises where goods are produced, recycled, repaired, or traded;
provide services; work for wages or commissions; gain income from renting
out small amounts of land, vehicles, draft animals, or machinery and tools; in
both rural and urban areas.
“Microfinance is an economic development tool whose
objective is to assist the poor to work their way out of
poverty. It covers a range of services which include, in
addition to the provision of credit, many other services
such as savings, insurance, money transfers,
counseling, etc.”
– Reserve Bank of
India
In simple words, Microfinance serves as a tool for
providing financial services to the low-income
population., which do not have access to the
mainstream financial services.
Beneficiaries are from low income group.
Loans are of small amount.
Short duration loans .
Loans are offered without collateral.
High frequency of payment.
Loans are generally taken for income
generation purposes.
Prefer women costumers over men.
Traditionally , Macro-financial institutes like banks have been
reluctant to provide financial services to clients with little or
no cash income, because of various reasons –
1. ‘Break Even Point‘ in providing loans.
2. Few assets to be secured as collateral.
3. Lack of loan and other financial services from banks and
other institutes forces them to rely heavily on relatives or local
money lenders at the time of need .
Usually interest rate of moneylenders are very high.
According to a 1995 World Bank estimate, in most
developing countries the formal financial system reaches
only the top 25% of the economically active population -
the bottom 75% have no access to financial services
apart from moneylenders .
Micro-Credit movement started in 1970’s countries like
Bangladesh ( Grameen Bank led by Muhammad Yunus)
, Pakistan , Vietnam etc.
2005 is Declared as International year of Microcredit by
The Economic and Social Council of the United Nations.
In Bangladesh microfinance has successfully enabled
extremely impoverished people to engage in self-
employment projects that allow them to generate an
income and, in many cases, begin to build wealth and
exit poverty.
1974 – Establishment of Self-Employed Women’s Association
(SEWA) in Gujarat.
Sep 26, 1975 – Rural bank Ordinance was passed.
Oct 02, 1975 – Prathama bank (first RRB) came into existence.
1976 – Ordinance was replaced by Regional Rural Bank Act.
July 12, 1982 – NABARD was established on the recommendations
of Shivaraman Committee, by an act of Parliament to implement the
National Bank for Agriculture and Rural Development Act 1981.
Apr 02, 1990 – SIDBI was established through Small Industries
Development Bank of India Act 1989.
1992 – NABARD launched SHGs-Bank Linkage program.
1999 – SIDBI created Microcredit (SFMC) to create a national
network of strong, viable and sustainable Microfinance
Institutions from the informal and formal financial sector to
provide microfinance services to the poor, especially women’’.
2006 – NABARD launched the ‘Micro-Enterprise Development
Programme’ (MEDP) for skill development.
It provides a long-term increase in income and
consumption of poor families.
Access to credit helps the poor to smooth cash flows
and avoid periods where access to food, clothing,
shelter, or education is lost.
Credit make it easier to manage shocks like sickness of
a wage earner, theft, or natural disasters.
It provides support to Micro Enterprises . Thus booster
support to Entrepreneurship among the jobless people .
Plays an important role in Women Empowerment ,
particularly in Developing countries like India
Associations , Ex : Self Help Groups, SHGs (India)
Bank Guarantees , Ex : Latin America Bridge Fund
Community Banking , Ex: Grameen Bank (Ban.)
Cooperatives , Ex: Co-operative Bank (England)
Credit Unions
Non-Governmental Organizations , Ex: KIVA ,US
For-profit Banks , Ex: Khushali Bank (Pakistan)
Rotating Savings and Credit Associations
(ROSCAs)
Microfinance institutions in India are registered as one of the following five
entities:
1. Non Government Organizations engaged in microfinance (NGO-MFIs), comprised
of Societies and Trusts .
2. Cooperatives registered under the conventional state-level cooperative acts, the
national level multi-state Cooperative Legislation Act (MSCA 2002), or under the
new state-level Mutually Aided Cooperative acts (MACS Act).
3.Section 25 Companies (not-for-profit).
4. For-profit Non-Banking Financial Companies (NBFCs)
5. NBFC-MFIs
Major Microfinance activities followed in India are –
1. Micro credits
2. Micro savings
3. Small scale Insurance
What are NGOs?
>NGOs are voluntary social work organization who renders
help to government and society for improvement of quality of
life people
>Help in the formation of SHGs
>To reduce the smaller transaction NGOs help banks
>Over the last quarter century, a few organizations, outside the
purview of the public sector, have succeeded in effective
poverty alleviation through micro-credit
>Main objective is to draw attention about microfinance by
conduction meetings in rural areas
Providing the minimum knowledge related to the finance
> Helping people to improve their skills in education
> Making contact between the SHGs and banks
> How banks are benefited by NGOs???
Government interested in SHGs
> Rashtriya Mahila Kosh , Indira Mahila Yojana,
Swarnajayanti Gram Swarojgar Yojana (SGSY) launched in 1999
> Swarnjayanti Gram Swarojgar Yojana (SGSY) has emerged as a
main
anti-poverty programme
Providing refinance to lending institutions in rural
areas
Bringing about or promoting institutional
development .
Evaluating, monitoring and inspecting the client
banks
Acts as a coordinator in the operations of rural credit
institutions.
Vision:
Empowerment of rural poor by improving their access to the formal
credit system through various MF innovations in a cost effective
and sustainable manner .
Mission:
Promoting sustainable and equitable agriculture and rural development
through effective credit support, related services, institution building
and other innovative initiatives.
SHGs is a small group of rural poor, who have voluntarily come forward to form a group for improvement of the social and economic status of the members.
Homogeneous group of about 15 to 20.
Every member to save small amounts regularly.
Every member learns prioritization and financial discipline.
Self Help Group (SHGs)
A SHG is a group of 15 to 20 members from very low
income families, usually women, which mobilises savings
from members and uses the pooled funds to give loans to
those members who need them, with the interest rates on
deposits and loans being determined entirely by members.
Joint Liability Group (JLGs)
JLG is an informal group of individuals coming together for
the purpose of availing of bank loan either singly or through
the group mechanism against mutual guarantee in order to
engage in similar type of economic activities.
SHGs (Self Help Groups) JLGs (Joint Liability Groups)
• Minimum 15 members and maximum 20. • Minimum 3 members and maximum 5.
• Meeting is compulsory. • No necessary of compulsory meeting.
• Bank loan is available. •They get loans only from MFIs.
• Gets the benefit of government scheme.
• Individual responsibility.
• There is no benefit.
• They share responsibility and stand as guarantee for
each other.
The players in the Microfinance sector can be classified as falling intothree main groups:
The SHG-Bank Linkage Model
Non-Banking Finance Companies
Others including trusts, societies, etc
58%34%
8%
Outstanding Loan Portfolio as on 31-Mar-2011
SHG-Bank Linkage Model
NBFC
Others
The SHG-Bank Linkage Model was pioneered by NABARD in 1992.
Under this model, women in a village are encouraged to form a Self help Group (SHG) andmembers of the Group regularly contribute small savings to the Group.
These savings which form an ever growing nucleus are lent by the group to members, andare later supplemented by loans provided by banks for income-generating activities andother purposes for sustainable livelihood promotion.
The Group has weekly/monthly meetings at which new savings come in, and recoveries aremade from members towards their loans from the SHGs, their federations, and banks.
NABARD provides grants, training and capacity building assistance to Self Help PromotingInstitutions (SHPI), which in turn act as facilitators/ intermediaries for the formation andcredit linkage of the SHGs.
70.16
145.48
312.21
65.51
165.35
363.4
82.17
205.85
393.75
0
50
100
150
200
250
300
350
400
450
2010-11 2011-12 2012-13
SHG saving with banks as on 31st March
Loans disbursed to SHGs during the year
Loans outstanding against SHGs as on 31st March
Amt in Rs. Hundred Crore
Under the NBFC model, NBFCs encourage villagers to form Joint Liability Groups (JLG) and give loans to the individual members of the JLG.
The individual loans are jointly and severally guaranteed by the other members of the Group.
Many of the NBFCs operating this model started off as non-profit entities providing micro-credit and other services to the poor.
However, as they found themselves unable to raise adequate resources for a rapid growth of the activity, they converted themselves into for-profit NBFCs.
Others entered the field directly as for-profit NBFCs seeing this as a viable business proposition.
Significant amounts of private equity funds have consequently been attracted to this sector.
Initiative taken by govt of A.P to enhance the profit of shg
members
Loans are at 2.5 % interest
Achieved great response from poor
Presently there are 1.15 lakh DWCRA groups and 2.19
lakh SHG groups in Andhra Pradesh with a membership
of 46 lakh women having a savings of Rs.300 crores.
It is the state that have only microfinance as tool
eliminate the poor.
In Orissa Mission shakti , a government driven
programme, formed in 2001 with a target to organize 2
lakhs WSHGs(women self help group) covering all
revenue villages of the State. The main aim is to provide
supports to different stakeholders working in the field of
women empowerment such as Banks, NGOs, MFIs and
other institutions.
There are around 35 MFIs registered in the state out of
which 8-10 are functional, with the recovery rate of these
institutions being around 95%..
Micro-Finance Institutions (MFIs) operating in Orissa
have advanced loans worth Rs 1500 crore in the past
three to four years, reaching out to more than two million
customers in the state
Annapurna Microfinance Pvt Ltd
BSS Microfinance Pvt Ltd
Cashpor Micro Credit
Disha Microfin Pvt Ltd
Equitas Microfinance Pvt Ltd
Fusion Microfinance Pvt Ltd
Grameen Financial Services Pvt Ltd
Janalakshmi Financial Services Pvt Ltd
SKS Microfinance Ltd
Sonata Finance Pvt Ltd
Suryoday Micro Finance Pvt Ltd
Ujjivan Financial Services Pvt Ltd
Estimated that in next five years, 65% of the poor people will have excess to MFIs.
Many Pvt. Banks and Foreign Banks would enter this business segment, because of very low NPAs.
Estimated that 5 % of the number of people below the poverty line
will get reduced in the next 5 years.(World Bank report)
In India micro-finance has succeeded with repayment rates upto
90% reported all across the country ( from the states like AP, Tamil
Nadu, Karnataka, Kerala ,West Bengal and Orissa etc. )
This tells us that micro finance has certainly has the capacity to
reduce poverty by a great margin