Presentation on Micro Finance

Micro Finance, Macro Impact

Presented by: Sushil Chokhandre Sushil.chokhandre@yahoo.com

Updated on : Feb 2014
Sushil Chokhandre

Micro finance

Provision of financial services such as savings, credit & insurance to unemployed or low-income individuals or groups which fall below the poverty line

Sushil Chokhandre

Current Scenario Indian Market

India's GDP growth is expected to slow to an 11-year low of less than 5% in the fiscal year ending March. 35-37% population below poverty level. 450 million unbanked people in India who live in rural areas 87% of the rural households do not have access to credit. Estimated credit demand: USD 14 bn Demand met so far: USD 700mn Next 3-5 years, around 65% of the rural population will have access to MFIs.

Sushil Chokhandre

Current Micro-Finance industry

ICRA report:
The market potential:Rs.1.4-Rs 2.5 lakh crore. Current size of the microfinance market: Rs.60,000crore. The loan requirements are huge in rural areas but MFIs are extending only small-value loans. a typical loan size is Rs. 10,000 and many borrow from two MFIs which is lower than the Rs. 35,00045,000 loans that many households are demanding. Growth: at 30-35 per cent a year over the next three years.

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Current Scenario Micro-finance Industry

The delinquency rate of Microfinance Institutions (MFIs) has declined by 20% between April and October 2013. Microfinance institutions lending close to Rs.30,000 cr in current fiscal, 30% increase in qtr ended Oct13 & Growth is expected to increase by 40 per cent next fiscal. The aggregate gross loan portfolio of microfinance institutions (MFIs) grew by 54 per cent in the second quarter ended 30-09-13, compared with the same period last year. Over 90% of the MFIs (other than those restructuring) showed positive growth.
under corporate debt

MFIs received total debt funding of Rs. 3,780 crore, of which, 86% came from banks and rest from other financial institutions.

Sushil Chokhandre

Microfinance companies
Micro Finance Institutions (MFIs) are the key players in helping and supporting the cause of financial inclusion. Micro-finance companies in India usually borrow from mainstream banks and provide loans as small as $US200 to poor borrowers, mostly women, for starting small businesses such as buying livestock. The micro-loan companies operate in areas where there are no bank branches and people traditionally have relied on loan sharks who charge exorbitant rates. The MFIs are reaching to the 70% of the poorest districts of India Few Major MFIs SKS Microfinance. Grama Vidiyal Asmitha Microfinance Cashpro Microfinance Trident microfinance Samridhi Microfinance

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Types of MFIs MFIs include non-governmental organizations (NGOs), credit unions, non-bank financial intermediaries, and evena few commercial banks. Classification:
Not for Profit MFIs NGO-MFIs Non-Profit Companies Mutual Benefit MFIs Mutually Aided CooperativeSocieties (MACS) and set up institutions. For Profit MFIs Non-Banking Financial Companies ( NBFCs)

Sushil Chokhandre

Sushil Chokhandre

Micro finance models

Conventional Method community-based or in-house banking Bank Partnership Model The bank acts as the lender and the MFI acts as an agent which takes care of work related to supervision, recovery and credit monitoring. Banking Correspondents MFIs are allowed to collect the savings from the targeted population on behalf of the bank. Service Company Model Bank forms its own MFI perhaps as an NBFC, and then it works together with that particular MFI to provide loans and other services.

Sushil Chokhandre

Micro Finance - Streams

Demand Stream
Forum of clients primary poor SHGs and un-organised individual clients. Association/organisations of poor SHGs and its federations, cooperatives (community ownership and governance)

Enabling Stream
Promotional donors institutions: NGOs, philathropic institutions,

Regulatory institutions: RBI/ State and Central Goverments.

Supply Stream **Savings and credit

Commercial ,rural and Private Banks Cooperative banks Speacialised developemtn financial institutions ( housing banks, SIDBI) Insurance companies Post office

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SWOT Analysis - Strength

Reliable business model. Reduces poverty Attract investors looking to spread risks and diversify their portfolios. Focus on consumer protection, transparency, and governance. Strong support from banks & NGOs who are able to access bulk funds for on-lending. Huge networking available. SHG bank linkages- widely adopted approach involving bank, NGOs & poor

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SWOT Analysis: Weaknesses

Not properly regulated. High interest rate than the rates charged on normal bank loans. High transaction cost Large segment is still untouched due to access problem. Many poor still prefers informal providers (local Zamindars, Chit Funds) of finance which charge at a high interest rate. MFIs targets WOMEN. Many places in States such as Uttar Pradesh, Bihar and Madhya Pradesh are under-served. Loan fatigue- poor recovery, politicized

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Opportunities
Rate ceilings from Govt. Huge demand and supply gap Huge potential & heavy need for this market. Participation institutions. of private industries and

Inclusion of innovative models and initiatives. Employment Opportunity Opportunity for Pvt. Banks Government should encourage competition, capacity building, and innovation to lower interest rates, and costs in microfinance.

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Threats
Neophyte Industry Global financial storm Uncertain regulatory underlined concerns. High Competition policies and procedures of central banks which might pose hurdles to poor people. Risks to MFIs Credit risk, Operational risk, strategic risk, liquidity risk, market risk, fraud and legal risks, reputation risk, External business risk. Over involvement of Government future due to the

Sushil Chokhandre

This presentation has been made from my understanding of the concept through internet, through various sources.. This ppt is for reference only.

Sushil Chokhandre