microfinance industry in india

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overview of nicrofinance industry in india


<p>2012-13</p> <p>An Overview of Microfinance Industry In India</p> <p>2012-13Presented by: Kumar Debvrat B.com (H)-III Year College Roll no: 68 S.G.N.D Khalsa college</p> <p>T h i s p r o j e c t i s s u b m i t t e d t o D E P A R T M E N T O F C O M M 1 |R C g e E PaE And is made under the guidance of Dr. G.S Sood</p> <p>CertificateThis is to certify that the project report titled Overview of Microfinance Industry in India has been carried out by Kumar Debvrat, Roll No. 68, and Batch 2012-13 for the partial fulfillment of the Bachelor of Commerce (Honours).</p> <p>Kumar Debvrat B. Com (H) III Year College Roll No.68 S.G.N.D Khalsa College</p> <p>Dr. G.S. Sood Mentor Department of Commerce S.G.N.D Khalsa College</p> <p>DeclarationI, Kumar Debvrat, hereby declare that the project report titled Overview of Microfinance Industry in India is my original piece of work and is based on my understanding of the subject. It has not been copied from any published source or website.</p> <p>Kumar Debvrat B. Com (H) III Year College Roll No.68 S.G.N.D Khalsa College</p> <p>AcknowledgementAs a student of commerce, I have gone through a vast amount of literature and material available on the topic Microfinance. I feel indebted to several authors and researchers who helped me a lot in understanding various issues relating to my topic. I owe many thanks and gratitude to Dr. G.S sood, my mentor and guide for the project. The guidelines laid down by her have been very instrumental in the successful completion of the project. I felt motivated and exceedingly encouraged under her supervision. He guided me to a wide range of resources that became a catalyst in the project development.</p> <p>In addition, I sincerely thank my family and friends who provided me their support.</p> <p>Kumar Debvrat B. Com (H) III Year College Roll No.68 S.G.N.D Khalsa College</p> <p>IndexTopic Page no.</p> <p>1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19.</p> <p>Introduction History of Modern Microfinance Overview Governments Role in Supporting Microfinance Microfinance Social Aspects Need in India Micro financing Regulation India Social Performance Measure Critical Analysis Capital requirement Development Fund NABARDs Support to Microfinance Institution Succees Factors of Microfinance in India Future Of Microfinance Top 50 Microfinance Institution in India Microfinance India Summit Acronym Conclusion References</p> <p>1 2 3-6 7 8 9 10-11 12 12-18 19-21 22-24 24 25 26-28 28-30 30 31 32 33</p> <p>1. IntroductionMicrofinance is a general term to describe financial services to low-income individuals or to those who do not have access to typical banking services. Microfinance is also the idea that low-income individuals are capable of lifting themselves out of poverty if given access to financial services. While some studies indicate that microfinance can play a role in the battle against poverty, it is also recognized that is not always the appropriate method, and that it should never be seen as the only tool for ending poverty. Microfinance is defined as 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. The creation of social value includes poverty alleviation and the broader impact of improving livelihood opportunities through the provision of capital for micro enterprise, and insurance and savings for risk mitigation and consumption smoothing. A large variety of actors provide microfinance in India, using a range of microfinance delivery methods. Since the ICICI Bank in India, various actors have endeavored to provide access to financial services to the poor in creative ways. Governments also have piloted national programs, NGOs have undertaken the activity of raising donor funds for onlending, and some banks have partnered with public organizations or made small inroads themselves in providing such services. This has resulted in a rather broad definition of microfinance as any activity that targets poor and low-income individuals for the provision of financial services. The range of activities undertaken in microfinance include group lending, individual lending, the provision of savings and insurance, capacity building, and agricultural business development services. Whatever the form of activity however, the overarching goal that unifies all actors in the provision of microfinance is the creation of social value. Microfinance refers to small scale financial services for both credits and deposits- that are provided to people who farm or fish or herd; operate small or micro enterprise 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; and to other individuals and local groups in developing countries in both rural and urban areas. Marguerite S. Robinson.</p> <p>1</p> <p>2. The History of Modern MicrofinanceA. Abstract: In the late 1970s the concept of microfinance had evolved. Although, microfinance have a long history from the beginning of the 20th century we will concentrate mainly on the period after 1960. Many credit groups have been operating in many countries for several years, for example, the "chit funds" (India), tontines" (West Africa), "susus" (Ghana), "pasanaku" (Bolivia) etc. Besides, many formal saving and credit institutions have been working for a long time throughout the world. During the early and mid 1990s various credit institutions had been formed in Europe by some organized poor people from both the rural and urban areas. These institutions were named Credit Unions, People's Bank etc. The main aim of these institutions was to provide easy access to credit to the poor people who were neglected by the big financial institutions and banks. In the early 1970s, few experimental programs had started in Bangladesh, Brazil and some other countries. The poor people had been given some small loans to invest in micro-business. This kind of micro credit was given on the basis of solidarity group lending, that is, each and every member of that group guaranteed the repayment of the loan of all the members. Many banks and financial institutions have been pioneering the microfinance program after 1970. These are listed below.B. ACCION International:</p> <p>This institution had been established by a law student of Latin America to help the poor people residing in the rural and urban areas of the Latin American countries. Today, in 2008, it is one of the most important microfinance institutions of the world. Its network of lending partner comprises not only Latin America but also US and Africa. C. SEWA Bank:In 1973, the Self Employed Women's Association (SEWA) of Gujarat (in India) formed a bank, named as Mahila SEWA Cooperative Bank, to access certain financial services easily. Almost 4 thousand women contributed their share capital to form the bank. Today the number of the SEWA Bank's active client is more than 30,000.D. GRAMEEN Bank: Credit unions and lending cooperatives have been around hundreds of</p> <p>years. However, the pioneering of modern microfinance is often credited to Dr. Mohammad Yunus, who began experimenting with lending to poor women in the village of Jobra, Bangladesh during his tenure as a professor of economics at Chittagong University in the 1970s. He would go on to found Grameen Bank in 1983 and win the Nobel Peace Prize in 2006.Since then, innovation in microfinance has continued and providers of financial services to the poor continue to evolve. Today, the World Bank estimates that about 160 million people in developing countries are served by microfinance. Grameen Bank (Bangladesh) was formed by the Nobel Peace Prize (2006) winner Dr Muhammad Younus in 1983. This bank is now serving almost 400, 0000 poor people of Bangladesh. Not only that, but also the success 2</p> <p>3. OverviewMicrofinance Definition:</p> <p>According to International Labor Organization (ILO), Microfinance is an economic development approach that involves providing financial services through institutions to low income clients. In India, Microfinance has been defined by The National Microfinance Taskforce, 1999 as provision of thrift, credit and other financial services and products of very small amounts to the poor in rural, semi-urban or urban areas for enabling them to raise their income levels and improve living standards. "The poor stay poor, not because they are lazy but because they have no access to capital. "Microfinance is the supply of loans, savings, and other basic financial services to the poor." As these financial services usually involve small amounts of money - small loans, small savings, etc. the term "microfinance" helps to differentiate these services from those which formal banks provide It's easy to imagine poor people don't need financial services, but when you think about it they are using these services already, although they might look a little different. "Poor people save all the time, although mostly in informal ways. They invest in assets such as gold, jewelry, domestic animals, building materials, and things that can be easily exchanged for cash. They may set aside corn from their harvest to sell at a later date. They bury cash in the garden or stash it under the mattress. They participate in informal savings groups where everyone contributes a small amount of cash each day, week, or month, and is successively awarded the pot on a rotating basis. Some of these groups allow members to borrow from the pot as well. The poor also give their money to neighbors to hold or pay local cash collectors to keep it safe. "However widely used, informal savings mechanisms have serious limitations. It is not possible, for example, to cut a leg off a goat when the family suddenly needs a small amount of cash. In-kind savings are subject to fluctuations in commodity prices, destruction by insects, fire, thieves, or illness (in the case of livestock). Informal rotating savings groups tend to be small and rotate limited amounts of money. Moreover, these groups often require rigid amounts of money at set intervals and do not react to changes in their members' ability to save. Perhaps most importantly, the poor are more likely to lose their money through fraud or mismanagement in informal savings arrangements than are depositors in formal financial institutions. Poor rarely access services through the formal financial sector. They address their need for financial services through a variety of financial relationships, mostly informal."3</p> <p>Role of Microfinance:</p> <p>The micro credit of microfinance prename was first initiated in the year 1976 in Bangladesh with promise of providing credit to the poor without collateral , alleviating poverty and unleashing human creativity and endeavor of the poor people. Microfinance impact studies have demonstrated that 1. Microfinance helps poor households meet basic needs and protects them against risks. 2. The use of financial services by low-income households leads to improvements in household economic welfare and enterprise stability and growth. 3. By supporting womens economic participation, microfinance empowers women, thereby promoting gender-equity and improving household well being. 4. The level of impact relates to the length of time clients have had access to financial services.Difference between micro credit and microfinance:</p> <p>Micro credit refers to very small loans for unsalaried borrowers with little or no collateral, provided by legally registered institutions. Currently, consumer credit provided to salaried workers based on automated credit scoring is usually not included in the definition of micro credit, although this may change. Microfinance typically refers to micro credit, savings, insurance, money transfers, and other financial products targeted at poor and low-income people.</p> <p>Borrowers:</p> <p>Most micro credit borrowers have micro enterprisesunsalaried, informal income-generating activities. However, micro loans may not predominantly be used to start or finance micro enterprises. Scattered research suggests that only half or less of loan proceeds are used for business purposes. The remainder supports a wide range of household cash management needs, including stabilizing consumption and spreading out large, lumpy cash needs like education fees, medical expenses, or lifecycle events such as weddings and funerals. Some MFIs provide non-financial products, such as business development or health services. Commercial and government-owned banks that offer microfinance services are frequently referred to as MFIs, even though only a portion of their assets may be committed to financial services to the poor.</p> <p>4</p> <p>Activities in Microfinance:</p> <p>Micro credit: It is a small amount of money loaned to a client by a bank or other institution. Micro credit can be offered, often without collateral, to an individual or through group lending. Micro savings: These are deposit services that allow one to save small amounts of money for future use. Often without minimum balance requirements, these savings accounts allow households to save in order to meet unexpected expenses and plan for future expenses Micro insurance: It is a system by which people, businesses and other organizations make a payment to share risk. Access to insurance enables entrepreneurs to concentrate more on developing their businesses while mitigating other risks affecting property, health or the ability to work. Remittances: These are transfer of funds from people in one place to people in another, usually across borders to family and friends. Compared with other sources of capital that can fluctuate depending on the political or economic climate, remittances are a relatively steady source of funds. Product Design: The starting point is: how do MFIs decide what product s to offer? The actual loan products need to be designed according to the demand of the target market. Besides the important question of what risks to cover, organizations also have to decide whether they want to bundle many different benefits into one basket policy, or whether it is more appropriate to keep the product simple. For marketing purposes, MFIs sometimes prefer the basket cover, since it can make the policies sound comprehensive, but is that the right approach for the low-income market? After picking products, one must also understand how they are priced. What assumptions do the organizations make with regard to operating costs, risk premiums, and reinsurance, and how did they come to those conclusions? Would their clients be willing to pay more for greater benefits? From price, the logical next set of questions involves efficiency. Indeed, given the relative high costs of delivering large volumes of small policies, maximizing efficiency is a c...</p>