Presentation - Microfinance in India
Post on 28-Oct-2014
- 1. MICROFINANCE Sharad Srivastava MBA 2nd Year (2012-2014) - 12810076
2. Table of Content Definition, Features and Need of the Microfinance Evolution of Microfinance in India Difference between Microcredit vs. Microfinance Microfinance Institutions (MFIs) Self Help Group (SHG) and Joint Liability Group (JLG) Channels for Microfinance Regulatory Framework Priority Sector Lending, Committee Recommendations, Regulators Andhra Pradesh Microfinance Crisis of 2010 Data about Microfinance IndiaMalegam 3. Microfinance: Definition 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, counselling, etc. Reserve Bank of India In other 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. 4. Microfinance: Definition The proposed Microfinance Services Regulation Bill defines microfinance services as providing financial assistance to an individual or an eligible client, either directly or through a group mechanism for : i. Rs. 50000 or lesser amount, for an individual for small and tiny enterprise, agriculture, allied activities (including for consumption purposes of such individual) or ii. Rs. 150000 or lesser amount for an individual for housing purposes, or iii. any other purpose nor exceeding Rs. 150000 5. Salient features of Microfinance Beneficiaries are from low income group.Loans are of small amount.Short duration loansLoans are offered without collateral.High frequency of paymentLoans are generally taken for income generation purposes. 6. Financial Needs Disasters: Such as flood, fire, cyclone and man-made events like warInvestment Opportunities: Such as expanding a business, buying land or equipments, improving housing, securing a job (may require giving a large amount of money)Lifestyle Needs: Such as wedding, funerals, childbirth, education of children, widowhood, homebuilding or old agePersonal Emergencies: Such as sickness, injury, death, sudden unemployment, theft or harassment 7. Need for Microfinance - Demand Indias poverty estimates range from 26% to 50%. Out of these, 87% do not have access to credit.Demand for microfinance is $30 Bn. whereas supply is only $2.2 Bn.Only 5% people in rural India has access to microfinance. Even deposit account facility is out of reach by 70% of rural poor.Less than 15% of people have access to insurance. Healthcare access is negligible. 8. Need for Microfinance - Supply Total user base as on 31st March 2012 was 22.56 million.Source: Microscape Nov 2012, Microfinance Institutions Network 9. Need for Microfinance - Supply Total Villages in India as per 2011 census: More than 6 Lakh Number of Bank Branches as on 31-March-2013 Bank GroupRuralSemiUrbanUrbanMetropolita Total nPublic 23286 Sector Bank18854146491363270421Private 1937 Sector Bank51283722379714584Foreign Bank8965249331Regional Rural Bank12722322889116617007Total 37953 27219 19327 17844 Source: Department of Financial Services, Ministry of Finance, GoI102343 10. Evolution of Microfinance in India 1974 Establishment of Self-Employed Womens 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. 11. Evolution of Microfinance in India 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. 12. Microcredit vs. Microfinance Microcredit 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 microcredit, savings, insurance, money transfers, and other financial products targeted at poor and low-income people. 13. Microfinance Institutions (MFIs) The proposed Microfinance Services Regulations Bill defines MFI as an organization of association of individuals including the following if it is established for the purpose of carrying on the business of extending microfinance services: A society registered under Societies Registration Act 1860 A trust created under Indian Trust Act 1880 or public trust registered under any state enactment governing trust or public, religious or charitable purposes. A cooperative society/mutual benefit society/mutually aided society registered under any state enactment relating to such societies or any multistate cooperative society registered under Multi State Cooperative Society Act 2002 but not including: A cooperative bank as defined in clause (cci) of section 5 of Banking Regulation Act 1949 or A cooperative society engaged in agricultural operations or industrial activity or purchase or sale of any goods or services. 14. Microfinance Institutions (MFIs) Microfinance institutions in India are registered as one of the following five entities: Non Government Organizations engaged in microfinance (NGO-MFIs), comprised of Societies and TrustsCooperatives 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)Section 25 Companies (not-for-profit)For-profit Non-Banking Financial Companies (NBFCs)NBFC-MFIs 15. NGO-MFIs, Cooperatives and Section 25 Companies Microfinance institutions operating as a non-profit company operate as either an NGO-MFI, Cooperative, or Section 25. Each is structured slightly differently in terms of ability to accept equity investments and dividends. There exists little regulation that applies to these structures, aside from registration requirements. 16. NBFCs The NBFC encompasses many different types of financial companies, which are all subject to the same regulatory requirements. Many microfinance institutions have recently registered as NBFCs to take advantage of access to capital markets. Microfinance institutions operating as NBFCs account for the great majority of the microfinance market in India. 17. NBFC-MFIs For-profit institutions that qualify for priority sector lending funds are registered as NBFC-MFIs. This NBFC subcategory was created by RBI in May 2011 as a way to classify NBFCs operating as microfinance institutions which meet certain requirements. Currently, it is unclear how many NBFCs will elect to register as NBFCMFIs, and how many will continue to operate as NBFCs. 18. 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. - Reserve Bank of India 19. 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. - Reserve Bank of India 20. Difference between SHG and JLG The SHG would normally consist of 10 to 20 members whereas a JLG would normally have between 4 and 10 members.The maximum amount of loan to SHGs should not exceed four times of the savings of the group. The limit may be exceeded in case of well managed SHGs subject to a ceiling of ten times of savings of the group. JLGs are not obliged to keep deposits with the bank and hence the amount of loan granted to JLGs would be based on the credit needs of the JLG and the bank's assessment of the credit requirement.In case of a SHG the individual carries the responsibilities whereas in case of JLG all members share responsibility and stand as guarantee for each other. 21. Channels for Microfinance The players in the Microfinance sector can be classified as falling into three main groups: The SHG-Bank Linkage Model Non-Banking Finance Companies Others including trusts, societies, etc 8%SHG-Bank Linkage Model NBFC34% 58% Source: RBIOthersOutstanding Loan Portfolio as on 31-Mar2011 22. SHG-Bank Linkage Model 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) and members 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, and are later supplemented by loans provided by banks for income-generating activities and other purposes for sustainable livelihood promotion. The Group has weekly/monthly meetings at which new savings come in, and recoveries are made from members towards their loans from the SHGs, their federations, and banks. NABARD provides grants, training and capacity building assistance to Self Help Promoting Institutions (SHPI), which in turn act as facilitators/ intermediaries for the formation and credit linkage of the SHGs. 23. SHG-Bank Linkage Model Model 1: In this model, the bank itself acts as a Self Help Group Promoting institution (SHPI). It takes initiatives in forming the groups, nurtures them over a period of time and then provides credit to them after satisfying itself about their maturity to absorb credit. 24. SHG-Bank Linkage Model Model 2: In this model, groups are formed by NGOs (in most of the cases) or by government agencies. The groups are nurtured and trained by these agencies. The bank then provides credit directly to the SHGs, after observing their operations and maturity to absorb credit. While the bank provides loans to the groups directly, the facilitating agencies continue their interactions with the SHGs. Most linkage experiences begin with this model with NGOs playing a major role. This model has also been popular and more acceptable to banks, as some of the difficult functions of social dynamics are externalized. 25. SHG-Bank Linkage Model Model 3: Due to various reasons, banks in some areas are not in a position to even finance SHGs promoted and nurtured by other agencies. In such cases, the NGOs act as both facilitators and micro- finance intermediaries. First, they promote the groups, nurture and train them and then approach banks for bulk loans for on-lending to the SHGs. 26. Progress of SHG-Bank Linkage Model 450393.75 363.4400 350Amt in Rs. Hundred Crore312.21300 250205.85 165.35 145.48200 150 10070.1665.5182.17500 2010-11 Source: NABARD2011-122012-13SHG saving with banks as on 31st March Loans disbursed to SHGs during the year Loans outstanding against SHGs as on 31st March 27. Non-Banking Financial Companies (NBFCs) 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. 28. Priority Sector Lending Priority sector refers to those sectors of the economy which may not get timely and adequate credit in the absence of this special dispensation. Typically, these are small value loans to farmers for agriculture and allied activities, micro and small enterprises, poor people for housing, students for education and other low income groups and weaker sections. - RBIPriority Sector includes the following categories: Agriculture Micro and Small Enterprises Education Housing Export Credit Others 29. Priority Sector Lending CategoriesDomestic Commercial Banks/Foreign Banks with 20 or more branches (as % of ANBC or credit equivalent)Foreign Banks with less than 20 branches (as % of ANBC or credit equivalent)Total Priority Sector4032Total Agricultural18No specific targetAdvances to weaker 10 sections Reserve bank of India Source:No specific targetAdjusted Net Bank Credit (ANBC) or credit equivalent of Off-Balance Sheet Exposures denotes the outstanding as on March 31 of the previous year. 30. Malegam Committee Recommendations The RBI appointed Mr. Y. H. Malegam Committee (the SubCommittee of the Central Board of Directors of Reserve Bank of India to study issues and concerns in the MFI Sector related to the entities regulated by the Bank) has submitted its report to the RBI in January 2011. The composition of the committee was: Sh. Y. H. Malegam Chairman Sh. Kumar Manglam Birla Dr. K. C. Chakrabarty Smt. Shahsi Rajagopalan Prof. U. R. Rao Sh. V. K. Sharma (Executive Director) Member Secretary 31. Malegam Committee Recommendations The subcommittee recommended creation of a separate category of NBFCs operating in the microfinance sector to be designated as NBFC-MFIs. To qualify as an NBFC-MFI, the NBFC should be a company which provides financial services pre-dominantly to lowincome borrowers, with loans of small amounts, for short-terms, on an unsecured basis, mainly for income-generating activities, with repayment schedules which are more frequent than those normally stipulated by commercial banks and which further satisfies the regulations specified in that behalf. The subcommittee has also recommended some additional qualifications which are: The NBFC-MFI will hold not less than 85% of its total assets (other than cash and bank balances and money market instruments) in the form of qualifying assets.There are limits of an annual family income of Rs. 50,000 and an individual ceiling on loans to a single borrower of Rs. 25, 000.Not less than 75% of the loans given by the MFI should be for incomegenerating purposes. 32. Malegam Committee Recommendations The Sub-Committee has recommended that bank lending to NBFCs which qualify as NBFC-MFIs will be entitled to priority lending status. With rega...