TITLE OF PROJECT

MICROFINANCE INITIATIVES: A CASE STUDY OF STATE BANK OF INDIA

RATIONALE OF THE STUDY

“A lot of directed lending is indeed wastefully and hugely inefficient. But microfinance is a form of directed lending that greatly improves efficiency. This is hard-nosed economics, not the bleeding-heart variety."

"SBI in India, with 13,000 branches, is reaching down by acquiring the portfolios of dozens of microfinance institutions."

State Bank of India (SBI) is the largest commercial bank in India. The Sakoli agricultural development branch of SBI in Bhandara district, Maharashtra was in deep trouble in mid 1990s as the branch could not recover the loans disbursed to the farmers in 15 villages.

The farmers were unable to repay the loans due to the failure of crops. SBI decided to close the branch. The branch manager visited these villages and persuaded a few of the villagers to form Self Help Groups (SHGs) by explaining them the benefits of SHGs and the process of saving certain amount of money every month. After a lot of persuasion, the reluctant villagers formed an SHG. After the SHG was formed, the villagers, who in 1995 were finding it difficult to save even Rs 5 a month, were individually saving Rs. 500 per month by 2005. In a span of a decade, the 15 villages, with a predominant farming community, had changed for the better. The SHGs had borrowed Rs 500,000 to buy tractors. In 2007 more than 10,000 new families in three tiny blocks of Wardha district, SBI aims to replicate the pilot project first in three adjacent blocks of the district near Nagpur and then all over the country.

According to Chandan Jamdage, the manager from SBI who started the microfinance initiative in these villages, "When a SHG comes together, they save small sums on a regular basis.

According to Chandan Jamdage, the manager from SBI who started the microfinance initiative in these villages, "When a SHG comes together, they save small sums on a regular basis.

The process gradually builds financial discipline. They also learn to handle resources of a size beyond their individual capacities. The SHG members begin to appreciate that resources are limited and have a cost. Once the groups shows mature financial behavior, the bank feels confident about giving them loans." Linking banks and SHGs has become one of the largest and fastest growing microfinance programs in India. In March 2007, microfinance reached 1.43 million SHGs with 21 million members, making a difference to the lives of over 100 million poor people in the country. SBI was the largest player in the microfinance sector in India and financed more than 400,000 SHGs as of March 2007...

With more than 9000 branches, and more than 4,000 branches of its associated banks, SBI catered to the needs of agriculturists and landless laborers through 6,600 semi-urban and rural branches. SBI had setup 974 branches exclusively for development of agriculture through credit deployment. The Prime Minister of India, Manmohan Singh remarked that SBI needed to play a major role and guide all the other banks in increasing the market for rural credit. At the bicentennial celebrations of SBI, he said "You (SBI) have to leverage your strengths, develop new capabilities, and show initiative to venture into uncharted territories so that you continue to be in the vanguard of India's growth in this century..."

Background Note of SBI

The origin of SBI dates back to the early 19th century, when the Bank of Calcutta was established in Calcutta (present day Kolkata in the state of West Bengal) in June 1806 under the aegis of the British-run, Government of Bengal. Three years after its inception, the bank was renamed Bank of Bengal on receiving its charter. It was a unique banking institution as it was the first joint-stock bank in British India. Next came the Bank of Bombay in April 1840 followed by the Bank of Madras in July 1843. By 1876, the three presidency banks, together

with their branches, agencies and sub-agencies, covered major inland trade centers in India. Bank of Bengal had 18 branches while the other two had 15 branches each.

Initially, the business of these banks was restricted to discounting bills of exchange or other negotiable private securities, keeping cash accounts and receiving deposits and issuing and circulating cash notes.

The last quarter of the 19th century witnessed rapid commercialization in India owing to the expansion of the railway network to cover all the major geographic regions of the country. The three presidency banks were both beneficiaries and promoters of this commercialization process as they became involved in the financing of practically every trading, manufacturing and mining activity in the Indian subcontinent.

The three presidency banks were amalgamated in January 1921 to form the Imperial Bank of India. The new bank performed the triple role of a commercial bank, a banker's bank and a banker to the government...

Foray Into Microfinance

SBI has been actively involved in the microfinance sector as it serves both the social and commercial objectives of the bank. It was the largest player in the microfinance sector in India in terms of loans disbursed to SHGs.

According to Ashok Kini, managing director of SBI, "We see over 2 million people who have the will to better their lives, but have been suffering on account of finances, to benefit from the move."

SBI has been an active participant in the microfinance sector since 1992, when the National Bank for Agriculture and Rural Development (NABARD) launched the pilot phase of the SHG-Bank Linkages program. In that year, SBI started the SHG linkage program on an experimental basis in a few of its branches. After a couple of years, SBI decided to extend the program to its rural and semi-urban branches all across India...

The Road Ahead

According to a World Bank-NCAER Rural Finance Access Survey conducted in 2007, the reach of microfinance was limited to only 10.6% of the total demand in India. The average loan provided to each SHG member was about Rs. 1,766. In 2006-07, only 39% of the existing SHGs took loans from the banks.

The southern region of India accounted for 65% of the SHGs linked with banks and 75% of the amount being disbursed. The states in the North Eastern regions of India accounted for just 0.6% of the SHGs and 0.3% of the amount disbursed in the fiscal 2002-03. The Eastern region which was densely populated and poverty ridden accounted for 12.6% of the total number of SHGs and 5.9% of the amount disbursed. The top management of SBI visualized significant potential in SHG financing since only about 25% of the bank's branches had formed or provided loans to SHGs. Though the total SHGs financed by SBI stood at 343,691 as of 2007, the number of SHGs financed per branch was just 35...

OBJECTIVE OF THE STUDY

1. To analyze Role played by SBI in the microfinance sector in India.

2. To analyze the Process of formation and functions of self-help groups (SHGs) by State Bank of India.

3. To analyze the Rural banking and microfinance programs of SBI in India.

4. To discusses some of the unique programs undertaken by SBI to spread its microfinance activities.

RESEARCH METHODOLOGY

The project is divided into four phases.

1st phase: Information gathering.

2nd phase: Determining the objective, knowing the target audience

and drafting a questionnaire.

3rd phase: Analyzing the collected data.

4th phase: Concluding the analyzed data.

RESEARCH PLAN

The research conducted is exploratory in nature and the goals are to gather preliminary data to shed light on the real nature of problems and to suggest possible solutions or new ideas. It involves getting a feel of the situation and lays emphasis on the discovery of ideas and possible insights.

DATA SOURCES

The research can call for gathering secondary data, primary data or both. Secondary data is the data that will be collected from another

purpose and already exists somewhere. Primary data will be gathered for a specific purpose and is collected by the researcher himself. The data used in this project is primary data collected from the various respondents. Secondary data available in different books and product catalog will be also used in compiling the report.

DATA COLLECTION FORM

For the purpose of this project, a questionnaire will be designed to collect data. The questionnaire will be non-disguised because the objective and purpose will conveyed to the respondents before asking for their responses. The questions will structured open for general information and closed for collecting specific information.

SAMPLING PLAN

The sampling unit comprised of the people present in the various branches of the state bank of India. The sample size taken for the study can range from 70-100. The samples will be chosen on the basis of random sampling and these respondents belonged to middle and upper class salaried and self-employed people, students, professionals and housewives. The surveyed respondents belonged to the age of 18 years and above.

CONTRIBUTION OF STUDY

The study presents an overview of State Bank of India's (SBI) microfinance programs. SBI is the largest bank in India with over 9,000 branches and is also the largest player in the microfinance sector in India with a market share of around 20%. The bank has been an active participant in the microfinance programs initiated by NABARD since 1992.

SBI has taken several initiatives to expand its microfinance portfolio covering one million SHGs. The study discusses some of the unique programs undertaken by SBI to spread its microfinance activities.

LIMITATION OF STUDY

1. The limitation of the research can be the inability to collect the

data, because of lack of adequate data.

2. Time & small Sample size is another limitation of the study.