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Summary about Microfinance in India



2. MICROFINANCE: THE PARADIGM In 1976, Dr Mohammed Yunus came up with the concept of lending to groupsof poor women. This group was loaned money without any collateral but with high interestrates of 20-24 percent. If any group member defaulted, the group was denied further credit. This joint liability produced a very high repayment rate of 98 percent. 3. MICROFINANCE: THE PARADIGM In Grameen Bank Model, members of the groups are also the owners of thebank. The loan is given based on trust and no agreement or document is required. This pioneering experiment cam eto be later known as Microfinance. The Grameen bank lends US$ 30 million a month to 1.8 million needyborrowers. Today, there are over 7000 microfinance institutions across the globe, serving16 million poor households. 4. INTRODUCTION Microfinance is provision of financial services to the poor. These financialservices may take form of micro-savings, micro-credit, micro-insurance. The Task Force on Supportive Policy and Regulatory Framework forMicrofinance (NABARD) 1999 defines microfinance as Provision of thrift,credit and other financial services and products of very small amounts to thepoor in rural, semi-urban or urban areas for enabling them to raise theirincome levels and improve living standards. The clients of microfinance, are landless labors, small marginal farmers, ruralartisans and weavers, self-employed, and women. 5. MICROFINANCE IN INDIA Shree Mahila SEWA Sahakari Bank in Ahmedabad and Working womensForum in Tamil Nadu were the pioneers in 1970s. The SEWA Bank was setup in 1974 as an Urban Cooperative Bank providingbanking services to the poor self-employed women. It has deposits overRs100 crore, mobilized from nearly 2,50,000 women. NABARD designed the SHG-Bank linkage concept wherein the SHGs are linkedwith banks for funds. 6. NGO AND SHG NGOs are the key players in the microfinance sector. It undertakes socialintermediation like organizing SHGs of micro-entrepreneurs and entrustingthem to banks for credit linkage or financial intermediation, like borrowing inbulk funds from banks for on-lending to SHGs. SHG is a group of 15-20 members who have voluntarily come together to savesmall amounts regularly to meet their emergency needs on mutual-help basis. 7. MICROFINANCE DELIVERY MECHANISMS Conventional Weaker-section Lending by Banks. MFIs SHG-bank linkage programmes. 8. CONVENTIONAL WEAKER-SECTION LENDING BYBANKS The cooperative banks and regional banks were set up specifically to cater tothe needs of rural as well as urban poor. The commercial banks got motivated by the success of many MFIs and SHG-Banklinkage programmes and now actively participate in Microfinance. ICICI Bank is a prominent player. It has doubled its rural microfinance andagricultural business loans. It has partnered with around 400 MFIs. 9. MICROFINANCE INSTITUTIONS NABARD defines MFIs as those which provide thrift, credit and other financialservices and products of very small amounts, mainly to the poor in rural, semi-urbanor urban areas, for enabling them to raise income level and improveliving standards. MFIs can be classified as: Not-for-profit MFIs Mutual-benefit MFIs For-Profit MFIs Cooperative MFIs 10. SHG-BANK LINKAGE PROGRAMME This model has attracted attention as a possible way of delivering micro-financeservices to poor populations that have been difficult to reach directlythrough banks or other institutions. By aggregating their individual savings into a single deposit, self-help groupsminimize the bank's transaction costs and generate an attractive volume ofdeposits. Through self-help groups the bank can serve small rural depositorswhile paying them a market rate of interest. NABARD estimates that there are 2.2 million SHGs in India, representing 33million members, that have taken loans from banks under its linkage programto date. 11. SHG-BANK LINKAGE PROGRAMME NABARD operates three models under this programme: Model I-SHGs are formed and financed by banks. No NGO intervention. Model II- NGOs will promote SHGs and link them with the banks. Model III- The SHGs are financed by NGOs. 12. RESOURCES FOR SUPPORTING MICROFINANCE Microfinance Development Fund: It was set up for promotion and development of microfinance sector with initialcontribution of Rs100 crores. This fund supports following activities: Training Providing start up funds. Meeting cost of formation and nurturing of SHGs. Designing new delivery mechanisms Promoting research 13. RESOURCES FOR SUPPORTING MICROFINANCE Collaboration with External agencies: NABARD has collaborated with external agencies such as SDC and GTZ. Objective was to improve efficiency of credit delivery and capacity building. SIDBI is one of the largest providers of microfinance through MFIs. 14. THE POSITIVE SIDE OF MICROFINANCE The success of SHG-bank linkage programme has proved that poor are creditworthy and bankable. It has reduced household vulnerability to risks, provide higher income andgreater security. Corporates such as HLL have successfully penetrated the rural marketsthrough SHGs. 15. THE DOWNSIDE OF MICROFINANCE High interest rates charged by MFIs. Unethical recovery methods. Lack of transparency and absence of governance structure. The growth of microfinance is skewed with large proportion in southern statesof India.


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