MICROFINANCE

INSTITUTIONS IN INDIA

Presented by,

Shivkumar Chaurasia, M. Sivaram, Susmita Layek,

Josephine Lotha, Vesuyi Tetseo, Vikrant Singh,

V. Quan

“Poor people

are like bonsai

trees. They

could have

grown into giant

trees if they had

been supported

by the right

environment for

growth”

-Muhammad Yunus

(Founder of Grameen Bank)

OUTLINE OF THE PRESENTATION

What is Microfinance? (vikrant)

Microfinance Institution: Overview (vexy)

The contribution to rural economy (siva)

Microfinance Institutions: Challenges

(chaurasia)

Potential solutions (susmita)

Conclusion (josephine)Please prepare the slides as per this division

MICROFINANCE“Microfinance is economic Development

approach that involves providing financial services through institutions to low income clients”

Microfinance is a tool against poverty by enabling the beneficiaries to:

Create sustainable activities to increase their income

Reduce external shocks Improve the living conditions of entrepreneurs

and of their families Empower people and mainly the women

PRESENT SCENARIO OF INDIA

India falls under low income class according to World

Bank

It is second populated country and 70% are in rural area

60% of population on depends on agriculture but low

contribution to GDP ( 8% ) while per capita income is

only $3262

Result absolute poverty

According to reserve Bank of India only 51% of the

people possess only 10% of the total asset of India

Rural People have very low access to institutionalized

credit in India (Commercial Bank)

MICROFINANCE INSTITUTIONS IN INDIAMicrofinance institutions (MFIs) are the organisations or

associations of individuals that provide financial services to the poor.

Institutional Arrangement for Microfinance Disbursement in India

Formal Institutions

Wholesale lenders like NABARD, SIDBI, RMK, HDFC,

FWWB, HUDCO Retail level Banks

-Commercial banks-Regional Rural banks-Cooperative Banks

SHGsIndividual

Informal Institutions

Lenders, Investors, Donors

MFIS-Non-Profit MFIs (NGOS)

-Co-operative MFIs-Profit Making MFIs (NBFC)

SHGs/JLGsIndividual

NON BANKING FINANCIAL COMPANY (NBFC)

A non-banking financial company (NBFC) is a company

registered under the Companies Act, 1956 and is

engaged in the business of loans and advances,

acquisition of shares/stock/bonds/debentures/securities

issued by government or local authority or other

securities of like marketable nature, leasing, hire-

purchase, insurance business, chit business, but does

not include any institution whose principal business is

that of agriculture activity, industrial activity,

sale/purchase/construction of immovable property.

DIFFERENCED BETWEEN NBFC & BANK

A NBFC cannot accept demand deposits

It is not a part of payment or settlement system

and thus cannot issue cheques to the customer

Deposit insurance facility of DICGC is not

available for NBFC depositors unlike in case of

banks

REGULATORY FRAMEWORK FOR MFIS

COMPARATIVE ANALYSIS OF MICRO

FINANCE SERVICES OFFERED TO THE

POOR:

THE PROBLEMS OF MAINSTREAM MFIS

Borrower Unfriendly Products and Procedures

Inflexibility and Delay

High Transaction Costs, both Legitimate and Illegal

Social Obligation and not a Business Opportunity

Financing to Alternative MFIs

Complexity in Legal and Regulatory Framework

TYPES OF RISKS FACED BY MICROFINANCE INSTITUTIONS

Credit Risk

Market Risk

Operational Risk

Strategic Risk

Financial Risk

Non – Financial Risk

POSSIBLE SOLUTIONS Greater legitimacy, accountability and transparency in MFIs There is a need to recognize a separate category of

Microfinance It should be specified that at least 80% of the assets of MF-

NBFCs should be in the form of microcredit of upto Rs. 50,000 for agriculture, allied and non farm activities and in case of housing, loans upto Rs. 1,50,000, per individual borrower.

MF-NBFCs as Business Correspondents (BCs) for a local feel.

Relaxation in FIPB guidelines and Unifying regulatory oversight

Tax Concessions and Accounting and Disclosure Norms. As micro-insurance agents

CONCLUSION India’s achievement of the MDG of having the population of

poor by 2015 as well as achieving a broad based economic

growth also hinges on a successful poverty alleviation strategy.

In this backdrop, the impressive gains made by SHG-Bank

linkage programme in coverage of rural population with

financial services offers a ray of hope.

Underlying Belief of Self Help Groups..............

“Give a man a fish and you feed him a day but teach him how

to fish and you feed him a lifetime”

Many little things done in many little places, by many little

people, will change the face of the world. - An old Chinese

saying