A Study On Impact of Microfinance On Women Empowerment

A Study on Impact of Micro Finance on Women Empowerment
INTRODUCTION
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 sectors provide microfinance in India, using a range of microfinance delivery methods.
Since many banks 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 on-lending, 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.
The two main mechanisms for the delivery of financial services to such clients are: (1)
Relationship-based banking for individual entrepreneurs and small businesses and (2) Groupbased models, where several entrepreneurs come together to apply for loans and other services as
a group. Microfinance is a movement whose object is a world in which as many poor and near
poor households as possible have permanent access to an appropriate range of high quality
financial services, including not just credit but also savings, insurance and fund transfers. Many
of those who promote microfinance generally believe that such access will help poor people out
of poverty. Microfinance is a way to promote economic development, employment and growth
through the support of micro-entrepreneurs and small business.
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In India, the trickle down effects of macroeconomic policies have failed to resolve the
problem of gender inequality. Women have been the vulnerable section of society and constitute
a sizeable segment of the poverty-struck population. Women face gender specific barriers to
access education health, employment etc. Micro finance deals with women below the poverty
line. Micro loans are available solely and entirely to this target group of women. There are
several reason for this: Among the poor, the poor women are most disadvantaged- they are
characterized by lack of education and access of resources, both of which is required to help
them work their way out of poverty and for upward economic and social mobility. The problem
is more acute for women in countries like India, despite the fact that womens labor makes a
critical contribution to the economy. This is due to the low social status and lack of access to key
resources. Evidence shows that groups of women are better customers than men, the better
managers of resources. If loans are routed through women benefits of loans are spread wider
among the household.
By extending small loans to poor individuals, microcredit enables its borrowers to take up
income-earning activities that lead to a series of improvements in their economic situation. In
addition to the improved income-earning ability, microcredit has increasingly promoted for its
positive impact on empowerment, especially for womens empowerment by enabling poor
women to earn an independent income and contribute financially to their household. This is
supposed to give women greater power within the household. Also, microcredit is seen as a tool
in enabling women to free themselves from household confines and get exposure to the outside
community. The exposure to the outside community, together with the formation of networks
with other women, is expected to lead to greater self-confidence and courage. However, there is
no real consensus among academics on womens empowerment. Microcredit has a role in
increasing female borrowers income-earning ability, leading to stronger decision-making power
and ability to overcome gender-related constraints.
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NEED FOR THE STUDY

Since independence, various governments in India have experimented with a large
number of grant and subsidy based poverty alleviation programmes. These programmes were
based on grant/subsidy and the credit linkage was through commercial banks only. Hence was
adopted the concept of micro-credit in India. In olden days women were restricted to take part in
any social activities and not given roles in decision making in her family. The situation was even
more worsening in rural and remote areas. Now the situation has been changed. She is given
freedom to do what she wishes. In todays scenario are women are engaged in income generating
activities. This is because of NGO and other financial institution came forward to provide
microfinance to poor women. They believe that a woman is the small credit risk and often
benefits the whole family. The main aim of microfinance is to empower women and poverty
alleviation.
India has adopted the model of extending credit to the poorest sector and took a number
of steps to promote micro-financing in the country. So this study is necessary to know more
about microfinance concept. To know how SBM banks are providing microfinance services to
poor people and how it helps to promote poor people to improve their standard of living. To
know how SBM banks are improve and develop the savings habit from poor people through
microfinance concept. If anyone wants to get microfinance facility what are all the procedure is
there.
SCOPE OF THE STUDY

Microfinance initiatives to finance the projects and bring economic development may get
benefitted by implementing innovative approaches and reinforcing their objectives. Most of the
microfinance critics claim that it is over-hyped. However, several success stories have treated it
as the most effective and successful form of poverty mitigation, when implemented under the
proper conditions. Microfinance industry is at the important stage of evolvement. The industry
has already moved away from the traditional loan system to individual loans. When an individual
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grows his businesses to certain point, he will be paired it with another person, so that they can
become counter guarantee for each other.
OBJECTIVES OF THE STUDY

1) To analyze the institutional financial assistance given by the bank for the SHG group
members.
2) To know the risk is face by the employees in the bank.
3) To know the bank action if any microfinance loan holder fails to repay the loan amount.
4) To clarify the limitation of microfinance programmes as the tool for womens empowerment
and the type of support service necessary to maximize the contribution of microfinance
service.
5) To offer suggestions for the betterment of microfinance service to poor women for their
women empowerment and poverty alleviation.
RESEARCH METHODOLOGY
Methodology is a way to systematically solve the problem and it is a game plan for
conducting research. And also it is a framework for the study and is used as a guide in collecting
and analyzing the data.
This is a Secondary data based study conducted at State Bank of Mysore, Pandavapura
branch. Pandavapura.
Method of Data Collection
Here only Secondary datas are used for collect the data.
(i)
(ii)
(iii)
The information is collected through interviewing the Bank Manager.

The information is collected through the Web site/ Internet
The information is collected through Books, Magazines and Journals.
Statistical Techniques
Pie charts and Bar charts are used to analyze the data and to arrive at conclusions.
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LIMITATIONS OF THE STUDY

1) The study is confined with the rural area. Hence the results may not be applicable to
urban area.
2) All the information available was from secondary sources and data was very vast to
analyze properly and accurately.
3) Study being conducted was very wide and analysis requires expertise knowledge and
skills which was lacking.
4) The information is collected from indirect sources so in some information data is not
available.
REVIEW OF LITERATURE
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INTRODUCTION
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.
The dictionary meaning of Finance is management of money. The management of
money denotes acquiring and using money. Microfinance is buzzing word, used when financing
for micro entrepreneurs. Concept of microfinance s emerged in need of meeting special goal to
empower under-privileged class of society, women and poor, downtrodden by natural reasons or
men made: caste, creed, religion or otherwise. The principles of microfinance are founded on the
philosophy of cooperation and its central values of equality, equity and mutual self-help. At the
heart of these principles are the concept of human development and the brotherhood of man
expressed through people working together to achieve a better life for themselves and their
children.
FEATURES OF MICRO-FINANCE
The term micro finance is of recent origin and is commonly used in addressing issues
related to poverty alleviation, financial support to micro entrepreneurs, gender development etc.
There is, however, no statutory definition of micro finance. The taskforce on supportitative
policy and Regulatory Framework for Microfinance has defined microfinance 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 term Micro literally means small. But the task force has not defined any
amount. However as per Micro Credit Special Cell of the Reserve Bank Of
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India , the

borrowable amounts up to the limit of Rs.25000/- could be considered as micro credit products
and this amount could be gradually increased up to Rs.40000/- over a period of time which
roughly equals to $500 a standard for South Asia as per international perceptions.
The term micro finance sometimes is used interchangeably with the term micro credit.
However while micro credit refers to purveyance of loans in small quantities, the term
microfinance has a broader meaning covering in its ambit other financial services like saving,
insurance etc. as well.
The mantra Microfinance is banking through groups. The essential features of the
approach are to provide financial services through the groups of individuals, formed either in
joint liability or co-obligation mode. The other dimensions of the microfinance approach are:
1. It is a tool for empowerment of the poorest.
2. Delivery is normally through Self Help Groups (SHGs).
3. It is essentially for promoting self-employment, generally used for:
(a) Direct income generation
(b) Rearrangement of assets and liabilities for the household to participate in future
opportunities and
(c) Consumption smoothing.
4. It is not just a financing system, but a tool for social change, especially for women.
5. Because micro credit is aimed at the poorest, micro-finance lending technology needs to
mimic the informal lenders rather than the formal sector lending. It has to:
(a) Provide for seasonality
(b) Allow repayment flexibility
(c) Fix a ceiling on loan sizes.
THE ORIGIN OF MICROFINANCE
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Although neither of the terms microcredit or microfinance were used in the academic
literature nor by development aid practitioners before the 1980s or 1990s, respectively, the
concept of providing financial services to low income people is much older.
While the emergence of informal financial institutions in Nigeria dates back to the 15th
century, they were first established in Europe during the 18th century as a response to the
enormous increase in poverty since the end of the extended European wars (1618 1648). In
1720 the first loan fund targeting poor people was founded in Ireland by the author Jonathan
Swift. After a special law was passed in 1823, which allowed charity institutions to become
formal financial intermediaries a loan fund board was established in 1836 and a big boom was
initiated. Their outreach peaked just before the government introduced a cap on interest rates in
1843. At this time, they provided financial services to almost 20% of Irish households. The credit
cooperatives created in Germany in 1847 by Friedrich Wilhelm Raiffeisen served 1.4 million
people by 1910. He stated that the main objectives of these cooperatives should be to control
the use made of money for economic improvements, and to improve the moral and physical
values of people and also, their will to act by themselves.
In the 1880s the British controlled government of Madras in South India, tried to use the
German experience to address poverty which resulted in more than nine million poor Indians
belonging to credit cooperatives by 1946. During this same time the Dutch colonial
administrators constructed a cooperative rural banking system in Indonesia based on the
Raiffeisen model which eventually became Bank Rakyat Indonesia (BRI), now known as the
largest MFI in the world.
EVOLUTION OF MICROFINANCE IN INDIA (1960 TO 2012)
Microfinance in India emerged as an effort to reach out to the un-banked, lower income
segments of the population
1960 to 1980
1990
2012
Phase 1: Social Banking
Phase 2: Financial Systems
Phase 3: Financial Inclusion
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Approach
1.Nationalization of private 1.Peer-pressure
1.NGO-MFIs
commercial banks
2.Establishment of MFIs,
gaining more legitimacy

2.MFIs emerging as strategic
typically of non-profit origins
partners to diverse entities
2.Expansion of rural branch

network
and
SHGs
interested in the low-income

segments
3.Consumer finance emerged
3.Extension
of
subsidized
as high growth area
credit
4.Establishment of Rural
4.Increased policy regulation
Regional Banks
5.Establishment of apex
5.Increasing
institutions such as National
commercialization
Bank for Agriculture and

Rural Development and Small
Industries Development Bank
of India
Phase 1: In the 1960s, the credit delivery system in rural India was largely dominated by the
cooperative segment. The period between 1960 and 1990, referred to as the social banking
phase. This phase includes nationalization of private commercial banks, expansion of rural
branch networks, extension of subsidized credit, establishment of Regional Rural Banks (RRBs)
and the establishment of apex institutions such as the National Bank for Agriculture and Rural
Development (NABARD) and the Small scale Industries Development Board of India (SIDBI).
Phase 2: After 1990, India witnessed the second phase financial system approach of credit
delivery. In this phase NABARD initiated the Self Help Group (SHG) - Bank Linkage Bank
Linkage program, which links informal women's groups to formal banks. This concept held great
appeal for non-government organizations (NGOs) working with the poor, prompting many of
them to collaborate with NABARD in the program. This period also witnessed the entry of
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Microfinance Institutions (MFIs), largely of non-profit origins, with existing development
programs.
Phase 3: In 2012, the third phase in the development of Indian microfinance began, marked by
further changes in policies, operating formats, and stakeholder orientations in the financial
services space. This phase emphasizes on inclusive growth and financial inclusion. This
period also saw many NGO-MFIs transform into regulated legal formats such as Non-Banking
Finance Companies (NBFCs). Commercial banks adopted innovative ways of partnering with
NGO-MFIs and other rural organizations to extend their reach into rural markets. MFIs have
emerged as strategic partners to individuals and entities interested in reaching out to India's low
income client segments.
POLICY ATTENTION TO MICROFINANCE
1999 --- Official definition of microfinance by RBI
August 2000 --- 'Micro Credit/Rural Credit' included in the list of permitted non-banking
financial company (NBFC) activities considered for Foreign Direct Investment (FDI)
2005 --- MFIs acknowledged for the first time in the Budget Speech by the Finance Minister
Government intends to promote MFIs in a big way. The way forward, I believe, is to identify
MFIs, classify and rate such institutions, and empower them to intermediate between the lending
banks and the beneficiaries.
January 2006 --- Announcement of the business correspondent model
February 2006 --- Budget Speech by the Finance Minister promises a formal statutory
framework for the promotion, development and regulation of the microfinance sector
March 2006 --- Comprehensive guidelines by RBI on loan securitization
July 2006 --- RBI master circular allows NGOs involved in microfinance to access External
Commercial Borrowings (ECB) up to USD 5 million (INR 20.25 crores) during a year.
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March 2007 --- Finance Minister introduces the Micro Finance Sector Development and
Regulation Bill 2007 in LokSabha
MICROFINANCE HISTORICAL BACKGROUND

We can trace the origin of the concept of Microfinance in Bangladesh.
(1)Micro-Finance Institutes of Bangladesh
Bangladesh has been acknowledged as a pioneer in the field of microfinance.
Dr.Muhammad Yunus, Professor of Economics in Chitgaon University of Bangladesh, was an
initiator of an action research project Grameen Bank".
The project started in 1976 and it was formally recognized as a bank through an
ordinance, issued by the government in 1993. Even then it does not have a scheduled status from
the Central bank of the country, the Bangladesh Bank. The Grameen Bank provides loans to the
landless poor, particularly women, to promote self-employment. At the end of December 2001, it
had membership of 23.78 lakh and cumulative micro-credit disbursements of TK 14.653 crore.
Bangladesh
Rural Advancement
Committee
(BRAC), Association
for
Social
Advancement (ASA) and PROSHIKA are the other principal Micro-Credit Finance Institutions
(MFIs) operating for over two decades and their activities are spread in all the districts of that
country. Initially set up in 1972 as a relief organization, it now addresses the issues of poverty
alleviation and empowerment of poor, especially women, in the rural areas of the country. This
institute also works in the field of literacy, legal education and human rights. BRAC has worker
significantly in the fields of education, health, nutrition and other support services. PROSHIKA
is also active in the areas of literacy, environment, health and organization building, while ASA
and Grameen Bank are pure MFIs.
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(2) Indian Scenario
India has adopted the Bangladeshs model in a modified form. To alleviate the poverty
and to empower the women, the micro-finance has emerged as a powerful instrument in the new
economy. With availability of microfinance, self-help groups (SHGs) and credit management
groups have also started in India. And thus the movement of SHG has spread out in India.
In India, banks are the predominant agency for delivery of micro-credit. In 1970, Iiaben
Bhat, founder member of SEWA (self employed womens association) in Ahmadabad, had
developed a concept of women and microfinance. The Annapurna Mahila Mandal in
Maharashtra and Working Womens Forum in Tamilnadu and many National Banks for
Agriculture and Rural Development (NABARD) sponsored groups have followed the path laid
down by SEWA. SEWA is a trade union of poor, self-employed women workers.
Since 1987 Mysore Resettlement and Development Agency (MYRADA) has promoted
Credit Management Groups (CMGs). CMGs are similar to self-help groups. The basic features of
this concept promoted by MYRADA are: 1) Affinity 2) Voluntarism 3) Homogeneity and 4)
Membership should be limited to 15-20 persons. Aim of the CMG is to bestow social
empowerment to women.
In 1991-92 NABARD started promoting self-help groups on a large scale. And it was the
real take-off point for the SHG Movement. In 1993, the Reserve Bank of India also allowed
SHGs to open savings account in banks. Facility to availing bank services was a major boost to
the movement.
Now banks like NABARD, Bank of Maharashtra, and State Bank of India. Co-operative
Banks, Regional Rural Banks, The Government Institutions like Maharashtra Arthik Vikas
Mahamandal (MAVIM), District Rural Development Agency (DRDA), Municipal Corporations
and more are collectively and actively involved in the promotion of SHG movement.
MICROFINANCE PRESENT STATUS IN INDIA

Microfinance sector has traversed a long journey from micro savings to microcredit and
then to micro enterprises and now entered the field of micro insurance, micro pension. Financial
institutions in the country continue to play a leading role in the microfinance program for nearly
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two decades now. They have joined hands proactively with informal delivery channels to give
microfinance sector the necessary momentum. The data for year 2010-11 have been presented
and reviewed under two models of microfinance:
(1) SHG-Bank Linkage Model
The SHGs-Bank Linkage Programme has received wide acceptance among multiplicity
of Stake holders, civil society organizations, bankers and the international communities.
Around 1.2 million new SHGs had credit link with banks and 7.46 million SHGs maintained
savings account with bank in the financial year 2010-11.
(2)MFI-Bank Linkage Programme
The growth is also higher than corresponding growth under the SHGs-Bank Linkage
Programme in 2010-11. This is due to proactive role of the MFIs in microcredit and
professional management of funds from Banks.
ROLE OF MICROFINANCE:
The micro credit of microfinance progamme 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.
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1.1
Strategic Policy Initiatives

Some of the most recent strategic policy initiatives in the area of Microfinance taken by the
government and regulatory bodies in India are:
Working group on credit to the poor through SHGs, NGOs, NABARD, 1995
The National Microfinance Taskforce, 1999

Working Group on Financial Flows to the Informal Sector (set up by PMO), 2002
Microfinance Development and Equity Fund, NABARD, 2005
Working group on Financing NBFCs by Banks- RBI
1.2
Activities in Microfinance
Microcredit: It is a small amount of money loaned to a client by a bank or other
institution. Microcredit 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.
1.3
Legal Regulations
Banks in India are regulated and supervised by the Reserve Bank of India (RBI) under
the RBI Act of 1934, Banking Regulation Act, Regional Rural Banks Act, and the Cooperative
Societies Acts of the respective state governments for cooperative banks.
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NBFCs are registered under the Companies Act, 1956 and are governed under the RBI
Act. There is no specific law catering to NGOs although they can be registered under the
Societies Registration Act, 1860, the Indian Trust Act, 1882, or the relevant state acts. There has
been a strong reliance on self-regulation for NGO MFIs and as this applies to NGO MFIs
mobilizing deposits from clients who also borrow. This tendency is a concern due to enforcement
problems that tend to arise with self-regulatory organizations. In January 2000, the RBI
essentially created a new legal form for providing microfinance services for NBFCs registered
under the Companies Act so that they are not subject to any capital or liquidity requirements if
they do not go into the deposit taking business. Absence of liquidity requirements is concern to
the safety of the sector.
WOMENS EMPOWERMENT AND MICRO FINANCE: DIFFERENT

PARADIGMS
Concern with womens access to credit and assumptions about contributions to womens
empowerment are not new. From the early 1970s womens movements in a number of countries
became increasingly interested in the degree to which women were able to access povertyfocused credit programmes and credit cooperatives. In India organizations like Self- Employed
Womens Association (SEWA) among others with origins and affiliations in the Indian labour
and womens movements identified credit as a major constraint in their work with informal
sector women workers.
The problem of womens access to credit was given particular emphasis at the first
International Womens Conference in Mexico in 1975 as part of the emerging awareness of the
importance of womens productive role both for national economies, and for womens rights.
This led to the setting up of the Womens World Banking network and production of manuals for
women's credit provision. Other womens organizations world-wide set up credit and savings
components both as a way of increasing womens incomes and bringing women together to
address wider gender issues. From the mid-1980s there was a mushrooming of donor,
government and NGO-sponsored credit programmes in the wake of the 1985 Nairobi womens
conference (Mayoux, 1995a).
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The 1980s and 1990s also saw development and rapid expansion of large minimalist
poverty-targeted micro-finance institutions and networks like Grameen Bank, ACCION and
Finca among others. In these organizations and others evidence of significantly higher female
repayment rates led to increasing emphasis on targeting women as an efficiency strategy to
increase credit recovery. A number of donors also saw female-targeted financially-sustainable
micro-finance as a means of marrying internal demands for increased efficiency because of
declining budgets with demands of the increasingly vocal gender lobbies.
The trend was further reinforced by the Micro Credit Summit Campaign starting in 1997
which had reaching and empowering women as its second key goal after poverty reduction
(RESULTS 1997). Micro-finance for women has recently been seen as a key strategy in meeting
not only Millennium Goal 3 on gender equality, but also poverty Reduction, Health, HIV/AIDS
and other goals.
FEMINIST EMPOWERMENT PARADIGM

The feminist empowerment paradigm did not originate as a Northern imposition, but is
firmly rooted in the development of some of the earliest micro-finance programmes in the South,
including SEWA in India. It currently underlies the gender policies of many NGOs and the
perspectives of some of the consultants and researchers looking at gender impact of microfinance programmes (e.g. Chen 1996, Johnson, 1997).
Here the underlying concerns are gender equality6 and womens human rights. Womens
empowerment is seen as an integral and inseparable part of a wider process of social
transformation. The main target group is poor women and women capable of providing
alternative female role models for change. Increasing attention has also been paid to men's role in
challenging gender inequality.
Micro-finance is promoted as an entry point in the context of a wider strategy for
womens economic and socio-political empowerment which focuses on gender awareness and
feminist organization. As developed by Chen in her proposals for a sub sector approach to micro
credit, based partly on SEWA's strategy and promoted by UNIFEM, microfinance must be:
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Part of a sectoral strategy for change which identifies opportunities, constraints and
bottlenecks within industries which if addressed can raise returns and prospects for large
numbers of women. Possible strategies include linking women to existing services and
infrastructure, developing new technology such as labour-saving food processing, building
information networks, shifting to new markets, policy level changes to overcome legislative
barriers and unionization.
Based on participatory principles to build up incremental knowledge of industries and
enable women to develop their strategies for change (Chen, 1996). Economic empowerment is
however defined in more than individualist terms to include issues such as property rights,
changes intra-household relations and transformation of the macro-economic context. Many
organizations go further than interventions at the industry level to include gender-specific
strategies for social and political empowerment. Some programmes have developed very
effective means for integrating gender awareness into programmes and for organizing women
and men to challenge and change gender discrimination. Some also have legal rights support for
women and engage in gender advocacy. These interventions to increase social and political
empowerment are seen as essential prerequisites for economic empowerment.
POVERTY REDUCTION PARADIGM

The poverty alleviation paradigm underlies many NGO integrated poverty-targeted
community development programmes. Poverty alleviation here is defined in broader terms than
market incomes to encompass increasing capacities and choices and decreasing the vulnerability
of poor people.
The main focus of programmes as a whole is on developing sustainable livelihoods,
community development and social service provision like literacy, healthcare and infrastructure
development. There is not only a concern with reaching the poor, but also the poorest.
Policy debates have focused particularly on the importance of small savings and loan
provision for consumption as well as production, group formation and the possible justification
for some level of subsidy for programmes working with particular client groups or in particular
contexts7. Some programmes have developed effective methodologies for poverty targeting
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and/or operating in remote areas. Such strategies have recently become a focus of interest from
some donors and also the Microcredit Summit Campaign.
Here gender lobbies have argued for targeting women because of higher levels of female
poverty and womens responsibility for household well-being. However although gender
inequality is recognized as an issue, the focus is on assistance to households and there is a
tendency to see gender issues as cultural and hence not subject to outside intervention.
Although term 'empowerment' is frequently used in general terms, often synonymous
with a multi-dimensional definition of poverty alleviation, the term ' women's empowerment ' is
often considered best avoided as being too controversial and political. The assumption is that
increasing womens access to micro-finance will enable women to make a greater contribution to
household income and this, together with other interventions to increase household well-being,
will translate into improved well-being for women and enable women to bring about wider
changes in gender inequality.
FINANCIAL SUSTAINABILITY PARADIGM

The financial self-sustainability paradigm (also referred to as the financial systems
approach or sustainability approach) underlies the models of microfinance promoted since the
mid-1990s by most donor agencies and the Best Practice guidelines promoted in publications by
USAID, World Bank, UNDP and CGAP.
The ultimate aim is large programmes which are profitable and fully self-supporting in
competition with other private sector banking institutions and able to raise funds from
international financial markets rather than relying on funds from development agencies. The
main target group, despite claims to reach the poorest, is the bankable poor': small entrepreneurs
and farmers. This emphasis on financial sustainability is seen as necessary to create institutions
which reach significant numbers of poor people in the context of declining aid budgets and
opposition to welfare and redistribution in macro-economic policy.
Policy discussions have focused particularly on setting of interest rates to cover costs,
separation of micro-finance from other interventions to enable separate accounting and
programme expansion to increase outreach and economies of scale, reduction of transaction costs
and ways of using groups to decrease costs of delivery. Recent guidelines for CGAP funding and
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best practice focus on production of a financial sustainability index which charts progress of
programmes in covering costs from incomes.
Within this paradigm gender lobbies have been able to argue for targeting women on the
grounds of high female repayment rates and the need to stimulate womens economic activity as
a hitherto underutilized resource for economic growth. They have had some success in ensuring
that considerations of female targeting are integrated into conditions of micro-finance delivery
and programme evaluation.
Alongside this focus on female targeting, the term empowerment' is frequently used in
promotional literature. Definitions of empowerment are in individualist terms with the ultimate
aim being the expansion of individual choice or capacity for Self-reliance. It is assumed that
increasing womens access to micro-finance services will in itself lead to individual economic
empowerment through enabling women's decisions about savings and credit use, enabling
women to set up micro-enterprise, increasing incomes under their control. It is then assumed that
this increased economic empowerment will lead to increased well-being of women and also to
social and political empowerment.
These paradigms do not correspond systematically to any one organisational model of
micro-finance. Micro-finance providers with the same organisational form e.g. village bank,
Grameen model or cooperative model may have very different gender policies and/or emphases
and strategies for poverty alleviation. The three paradigms represent different discourses each
with its own relatively consistent internal logic in relating aims to policies, based on different
underlying understandings of development. They are not only different, but often seen as
incompatible discourses in uneasy tension and with continually contested degrees of
dominance. In many programmes and donor agencies there is considerable disagreement, lack of
communication and/or personal animosity and promoted by different stakeholders within
organisations between staff involved in micro-finance (generally firm followers of financial selfsustainability), staff concerned with human development (generally with more sympathy for the
poverty alleviation paradigm and emphasizing participation and integrated development) gender
lobbies (generally incorporating at least some elements of the feminist empowerment paradigm).
What is of concern in current debates is the way in which the use of apparently similar
terminology of empowerment, participation and sustainability conceals radical differences in
Page 20

policy priorities. Although womens empowerment may be a stated aim in the rhetoric of official
gender policy and program promotion, in practice it becomes subsumed in and marginalized by
concerns of financial sustainability and/or poverty alleviation.
ROLE OF MICROFINANCE IN WOMEN EMPOWERMENT

Microfinance is a powerful tool to assist the stumbling economies to recover and
strengthen, thereby making the lives of millions of poor people more self-respecting and
dignified. Microcredit has made women more productive by providing them opportunity to be
self dependent in terms of their finance, helping them earn, making them aware of their rights
and making them independent which in turn has empowered them. Women are now included
into socio-economic activities of the country, they are contributing to family income and are a
part of decision-making process in the family and they are able to exercise more control over
their reproductive rights.
Microfinance helps in integrating the financial needs of poor people into a countrys
mainstream financial system. It has been acknowledged that the development of a healthy
national financial system is an important goal and catalyst for the broader goal of national
economic development, which microfinance serves very well. Microfinance helps the poor,
including women in not just obtaining loans but also inculcating in them habits of savings,
investing in insurance policies and money transfer services. It helps them to raise income, be
self-dependent, build up assets and have a better life and better standard of living.
A majority of microfinance programmes target women with a goal to empower them.
Keeping up with the objective of financial viability, an increasing number of micro finance
institutions prefer women members as they believe that they are better and more reliable
borrowers. Shri Mahila Griha Udyog Lijjat Papad or Lijjat is an organization that has acted
as a catalyst in empowering poor urban women across India during the last four decades. Starting
as a small group of seven women in 1959, today Lijjat has more than 40,000 members in 62
branches across 17 Indian states. Only women can become members of Lijjat.
Page 21

Rural India represents a vast opportunity with its largely unmet demand for financial
services. SBM Bank seeks to tap the significant rural commercial opportunity as well as create a
social impact on the rural poor. The primary function of RMAG is to provide financial solutions
to the vast rural hinterland. The group is thus responsible for all of SBM Banks rural, microbanking and agri-business initiatives.
Micro Banking:
The Business focuses on establishing a healthy and profitable lending exchange through
relationships with select MFIs (Microfinance institutions), and invests in building deeper and
concurrent monitoring and control mechanisms to enable healthy growth of the industry. The
Group is responsible for managing Commercial Banking opportunities with MFIs. The group
also manages the Business Correspondent Network to enable SBM Banks resolve towards
financial inclusion.
Probably the most potential solution to ending poverty and enabling people to work their way
into a sustainable, improved situation is called microcredit Microfinance. It has proved to be
immensely valuable. It has become clear that poor need access to money to send their children to
school, to buy medicines; they need financial services to reduce their vulnerability. As a result,
worldwide, MFIs have started developing and delivering a range of financial products. This
reflects Millennium Development Goals (MDGs) poverty reduction, education, health and
empowerment.
Gender inequality is a major factor affecting progress towards Millennium Development
Goals. In our country also, micro finance can be a tool for making women self-reliant. These
women can provide their children, including girls, with education which in turn can empower
them, thereby setting a new trend of independent women, enjoying their full potential. One of the
powerful approaches to woman empowerment is the movement of SHGs, which can transform
woman from being alive to live with dignity. The empowerment of women and improvement of
their status and economic role needs to be integrated into economic development programmes, as
the development of any country is inseparably linked with the status and development of women.
Page 22
MICRO FINANCE INSTRUMENT FOR WOMENS EMPOWERMENT

Micro Finance is emerging as a powerful instrument for poverty alleviation in the new
economy. In India, micro finance scene is dominated by Self Help Groups (SHGs) Bank
Linkage Programme, aimed at providing a cost effective mechanism for providing financial
services to the unreached poor. Based on the philosophy of peer pressure and group savings as
collateral substitute , the SHG programme has been successful in not only in meeting peculiar
needs of the rural poor, but also in strengthening collective self-help capacities of the poor at the
local level, leading to their empowerment.
Micro Finance for the poor and women has received extensive recognition as a strategy
for poverty reduction and for economic empowerment. Increasingly in the last five years , there
is questioning of whether micro credit is most effective approach to economic empowerment of
poorest and, among them, women in particular. Development practitioners in India and
developing countries often argue that the exaggerated focus on micro finance as a solution for the
poor has led to neglect by the state and public institutions in addressing employment and
livelihood needs of the poor.
Credit for empowerment is about organizing people, particularly around credit and
building capacities to manage money. The focus is on getting the poor to mobilize their own
funds, building their capacities and empowering them to leverage external credit. Perception
women is that learning to manage money and rotate funds builds womens capacities and
confidence to intervene in local governance beyond the limited goals of ensuring access to credit.
Further, it combines the goals of financial sustainability with that of creating community owned
institutions.
Before 1990s, credit schemes for rural women were almost negligible. The concept of
womens credit was born on the insistence by women oriented studies that highlighted the
discrimination and struggle of women in having the access of credit. However, there is a
perceptible gap in financing genuine credit needs of the poor especially women in the rural
sector.
There are certain misconception about the poor people that they need loan at subsidized
rate of interest on soft terms, they lack education, skill, capacity to save, credit worthiness and
Page 23

therefore are not bankable. Nevertheless, the experiences of several SHGs reveal that rural poor
are actually efficient managers of credit and finance. Availability of timely and adequate credit is
essential for them to undertake any economic activity rather than credit subsidy.
The Government measures have attempted to help the poor by implementing different
poverty alleviation programmes but with little success. Since most of them are target based
involving lengthy procedures for loan disbursement, high transaction costs, and lack of
supervision and monitoring. Since the credit requirements of the rural poor cannot be adopted on
project lending app roach as it is in the case of organized sector, there emerged the need for an
informal credit supply through SHGs. The rural poor with the assistance from NGOs have
demonstrated their potential for self help to secure economic and financial strength. Various case
studies show that there is a positive correlation between credit availability and womens
empowerment.
PROBLEM AND CHALLENGES

Surveys have shown that many elements contribute to make it more Difficult for women
empowerment through micro businesses. These elements are:
Lack of knowledge of the market and potential profitability, thus Making the choice of
business difficult.
Inadequate book-keeping.
Employment of too many relatives which increases social pressure to share benefits.
Setting prices arbitrarily.
Lack of capital.
High interest rates.
Inventory and inflation accounting is never undertaken.
Credit policies that can gradually ruin their business (many customers cannot pay cash;
on the other hand, suppliers are very harsh towards women).
Other shortcomings includes,
Page 24

1. Burden of meeting: Time consuming meetings, in particular in programmes based on
group lending, and time consuming income generating activities without reduction of
traditional responsibilities increase womens work and time burden.
2. New Pressures: By using social capital, in-group lending/group collateral programmes,
additional stresses and pressures are introduced, which might increase vulnerability and
reflect disempowerment.
3. Reinforcement of traditional gender roles : lack of economic empowerment: Micro
finance assists women to perform traditional roles better and women thus remain trapped in
low productivity sectors, not moving from the group of survival enterprises to microenterprises. There are evidence of men withdrawing their contributions to certain types of
household expenditures.
CHALLENGING ECONOMIC EMPOWERMENT

However impact on incomes is widely variable. Studies which consider income levels
find that for the majority of borrowers income increases are small, and in some cases negative.
All the evidence suggests that most women invest in existing activities which are low profit and
insecure and/or in their husbands activities. In many programmes and contexts it is only in a
minority of cases that women can develop lucrative activities of their own through credit and
savings alone.
It is clear that womens choices about activity and their ability to increase incomes are
seriously constrained by gender inequalities in access to other resources for investment,
responsibility for household subsistence expenditure, lack of time because of unpaid domestic
work and low levels of mobility, constraints on sexuality and sexual violence which limit access
to markets in many cultures.
These gender constraints are in addition to market constraints on expansion of the
informal sector and resource and skill constraints on the ability of poor men as well as women to
move up from survival activities to expanding businesses. There are signs, particularly in some
urban markets like Harare and Lusaka that the rapid expansion of micro-finance programmes
may be contributing to market saturation in female activities and hence declining profits.
Page 25
CHALLENGING WELL BEING AND INTRA HOUSEHOLD RELATION

There have undoubtedly been women whose status in the household has improved,
particularly where they have become successful entrepreneurs. Even where income impacts have
been small, or men have used the loan, the fact that micro-finance programmes have thought
women worth targeting and women bring an asset into the household may give some women
more negotiating power.
Savings provide women with a means of building up an asset base. Women themselves
also often value the opportunity to be seen to be making a greater contribution to household wellbeing giving them greater confidence and sense of self-worth.
However womens contribution to increased income going into households does not
ensure that women necessarily benefit or that there is any challenge to gender inequalities within
the household. Womens expenditure patterns may replicate rather than counter gender
inequalities and continue to disadvantage girls. Without substitute care for small children, the
elderly and disabled, and provision of services to reduce domestic work many programmes
reported adverse effects of womens outside work on children and the elderly. Daughters in
particular may be withdrawn from school to assist their mothers.
Although in some contexts women may be seeking to increase their influence within joint
decision-making processes rather than independent control over income (Kabeer 1998), neither
of these outcomes can be assumed. Womens perceptions of value and self-worth are not
necessarily translated into actual well-being benefits or change in gender relations in the
household (Sen 1990, Kandiyoti 1999). Worryingly, in response to womens increased (but still
low) incomes evidence indicates that men may be withdrawing more of their own contribution
for their own luxury expenditure. Men are often very enthusiastic about womens credit
programmes, and other income generation out programmes, for this reason because their wives
no longer nag them for money (Mayoux 1999).
Small increases in access to income and influence may therefore be at the cost of heavier
workloads, increased stress and womens health. Although in many cases womens increased
contribution to household well-being has improved domestic relations, in other cases it
intensifies tensions.
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CHALLENGING SOCIAL AND POLITICAL EMPOWERMENT

There have been positive changes in household and community perceptions of womens
productive role, as well as changes at the individual level. In societies like Sudan and
Bangladesh where womens role has been very circumscribed and women previously had little
opportunity to meet women outside their immediate family there have sometimes been
significant changes. It is likely that changes at the individual, household and community levels
are interlinked and that individual women who gain respect in their households then act as role
models for others leading to a wider process of change in community perceptions and male
willingness to accept change (Lakshman, 1996).
Micro-finance has also been strategically used by some NGOs as an entry point for wider
social and political mobilization of women around gender issues. For example SEWA in India,
CODEC in Bangladesh and CIPCRE in Cameroon, indicate the potential of micro-finance to
form a basis for organization against other issues like domestic violence, male alcohol abuse and
dowry.
However there is no necessary link between womens individual economic empowerment
and/or participation in micro-finance groups and social and political empowerment. These
changes are not an automatic consequence of microfinance per se. As noted above, womens
increased productive role has also often had it costs.
There is no necessary link between womens individual economic empowerment and/or
participation in micro-finance groups and social and political empowerment. These changes are
not an automatic consequence of microfinance per se. As noted above, womens increased
productive role has also often had it costs21.
In most programmes there is little attempt to link micro-finance with wider social and
political activity. In the absence of specific measures to encourage this there is little evidence of
any significant contribution of micro-finance. Micro-finance groups may put severe strains on
women's existing networks if repayment becomes a problem (Noponen 1990; Rahman 1999).
There is evidence to the contrary that micro-finance and income-earning may take women away
from other social and political activities.
Page 27

The evidence therefore indicates that contributions of micro-finance per se to womens
empowerment cannot be assumed and current complacency in this regard is misplaced. In many
cases contextual constraints at all levels have prevented women from accessing programmes,
increasing or controlling incomes or challenging subordination. Where women are not able to
significantly increase incomes under their control or negotiate changes in intra-household and
community gender inequalities, women may become dependent on loans to continue in very lowpaid occupations with heavier workloads and enjoying little benefit.
For some women micro-finance has been positively disempowering, as indicated by some of
the cases shown above which are far from isolated examples:
Credit (i.e. debt) may lead to severe impoverishment, abandonment and put serious
strains on networks with other women.
Pressure to save may mean women forgoing their own necessary consumption.
The contribution of micro-finance alone appears to be most limited for the poorest and
most disadvantaged women.
All the evidence suggests the poorest women are the most likely to be explicitly excluded by
programmes and also peer groups where repayment is the prime consideration and/or where the
main emphasis of programmes is on existing micro-entrepreneurs. It also suggests that even
where they get access to credit they are particularly vulnerable to falling further into debt.
MICROFINANCE CHANGING THE FACE OF POOR INDIA
Micro-Finance is emerging as a powerful instrument for poverty alleviation in the new
economy. In India, micro-Finance scene is dominated by Self Help Groups (SHGs) - Banks
linkage Programme, aimed at providing a cost effective mechanism for providing financial
services to the 'unreached poor'. In the Indian context terms like "small and marginal farmers", "
rural artisans" and "economically weaker sections" have been used to broadly define microfinance customers. Research across the globe has shown that, over time, microfinance clients
increase their income and assets, increase the number of years of schooling their children
receive, and improve the health and nutrition of their families.
A more refined model of micro-credit delivery has evolved lately, which emphasizes the
combined delivery of financial services along with technical assistance, and agricultural business
Page 28

development services. When compared to the wider SHG bank linkage movement in India,
private MFIs have had limited outreach. However, we have seen a recent trend of larger
microfinance institutions transforming into Non-Bank Financial Institutions (NBFCs). This
changing face of microfinance in India appears to be positive in terms of the ability of
microfinance to attract more funds and therefore increase outreach.
In terms of demand for micro-credit or micro-finance, there are three segments, which
demand funds. They are:
At the very bottom in terms of income and assets, are those who are landless and engaged
in agricultural work on a seasonal basis, and manual laborers in forestry, mining,
household industries, construction and transport. This segment requires, first and
foremost, consumption credit during those months when they do not get labor work, and
for contingencies such as illness. They also need credit for acquiring small productive
assets, such as livestock, using which they can generate additional income.
The next market segment is small and marginal farmers and rural artisans, weavers and
those self-employed in the urban informal sector as hawkers, vendors, and workers in
household micro-enterprises. This segment mainly needs credit for working capital, a
small part of which also serves consumption needs. This segment also needs term credit
for acquiring additional productive assets, such as irrigation pump sets, bore wells and
livestock in case of farmers, and equipment (looms, machinery) and work sheds in case
of non-farm workers.
The third market segment is of small and medium farmers who have gone in for
commercial crops such as surplus paddy and wheat, cotton, groundnut, and others
engaged in dairying, poultry, fishery, etc. Among non-farm activities, this segment
includes those in villages and slums, engaged in processing or manufacturing activity,
running provision stores, repair workshops, tea shops, and various service enterprises.
These persons are not always poor, though they live barely above the poverty line and
also suffer from inadequate access to formal credit.
Page 29

Well these are the people who require money and with Microfinance it is possible. Right now
the problem is that, it is SHGs' which are doing this and efforts should be made so that the big
financial institutions also turn up and start supplying funds to these people. This will lead to a
better India and will definitely fulfill the dream of our late Prime Minister, Mrs. Indira Gandhi,
i.e. Poverty.
One of the statements is really appropriate here, which is as:
Money, says the proverb makes money. When you have got a little, it is often easy to get
more. The great difficulty is to get that little.Adams Smith.
Today India is facing major problem in reducing poverty. About 25 million people in
India are under below poverty line. With low per capita income, heavy population pressure,
prevalence of massive unemployment and underemployment, low rate of capital formation,
misdistribution of wealth and assets, prevalence of low technology and poor economics
organization and instability of output of agriculture production and related sectors have made
India one of the poor countries of the world.
WHO ARE THE CLIENTS OF MICRO FINANCE?

The typical micro finance clients are low-income persons that do not have access to
formal financial institutions. Micro finance clients are typically self-employed, often householdbased entrepreneurs. In rural areas, they are usually small farmers and others who are engaged in
small income-generating activities such as food processing and petty trade. In urban areas, micro
finance activities are more diverse and include shopkeepers, service providers, artisans, street
vendors, etc. Micro finance clients are poor and vulnerable non-poor who have a relatively
unstable source of income.
Access to conventional formal financial institutions, for many reasons, is inversely
related to income: the poorer you are the less likely that you have access. On the other hand, the
chances are that, the poorer you are, the more expensive or onerous informal financial
arrangements. Moreover, informal arrangements may not suitably meet certain financial service
Page 30

needs or may exclude you anyway. Individuals in this excluded and under-served market
segment are the clients of micro finance.
As we broaden the notion of the types of services micro finance encompasses, the
potential market of micro finance clients also expands. It depends on local conditions and
political climate, activeness of cooperatives, SHG & NGOs and support mechanism. For
instance, micro credit might have a far more limited market scope than say a more diversified
range of financial services, which includes various types of savings products, payment and
remittance services, and various insurance products. For example, many very poor farmers may
not really wish to borrow, but rather, would like a safer place to save the proceeds from their
harvest as these are consumed over several months by the requirements of daily living. Central
government in India has established a strong & extensive link between NABARD (National
Bank for Agriculture & Rural Development), State Cooperative Bank, District Cooperative
Banks, Primary Agriculture & Marketing Societies at national, state, district and village level.
SELF HELP GROUPS (SHGS)

Self-help groups (SHGs) play today a major role in poverty alleviation in rural India. A
growing number of poor people (mostly women) in various parts of India are members of SHGs
and actively engage in savings and credit (S/C), as well as in other activities (income generation,
natural resources management, literacy, child care and nutrition, etc.). The S/C focus in SHG is
the most prominent element and offers a chance to create some control over capital, albeit in very
small amounts. The SHG system has proven to be very relevant and effective in offering women
the possibility to break gradually away from exploitation and isolation.
Basically groups can be of two types:
Self Help Groups (SHGs): The group in this case does financial intermediation on
behalf of the formal institution. This is the predominant model followed in India.
Grameen Groups: In this model, financial assistance is provided to the individual in a
group by the formal institution on the strength of groups assurance. In other words, individual
loans are provided on the strength of joint liability/co obligation. This microfinance model was
initiated by Bangladesh Grameen Bank and is being used by some of the Micro Finance
Institutions (MFIs) in our country.
Page 31
Microfinance approach is based on certain proven truths which are not always recognized.
These are:
1. That the poor are bankable; successful initiatives in micro finance demonstrate that there
need not be a tradeoff between reaching the poor and profitability - micro finance
constitutes a statement that the borrowers are not weaker sections in need of charity, but
can be treated as responsible people on business terms for mutual profit .
2. That almost all poor households need to save, have the inherent capacity to save small
amounts regularly and are willing to save provided they are motivated and facilitated to
do so.
3. That easy access to credit is more important than cheap subsidized credit which involves
lengthy bureaucratic procedures - (some institutions in India are already lending to
groups or SHGs at higher rates - this may prevent the groups from enjoying a sufficient
margin and rapidly accumulating their own funds, but members continue to borrow at
these high rates, even those who can borrow individually from banks).
4. 'Peer pressure' in groups helps in improving recoveries.
HOW SELF-HELP GROUPS WORK

Page 32

NABARD (1997) defines SHGs as "small, economically homogenous affinity groups of
rural poor, voluntarily formed to save and mutually contribute to a common fund to be lent to its
members as per the group members' decision".
Most SHGs in India have 10 to 25 members, who can be either only men, or only women,
or only youth, or a mix of these. As women's SHGs or sangha have been promoted by a wide
range of government and non- governmental agencies, they now make up 90% of all SHGs.
The rules and regulations of SHGs vary according to the preferences of the members and
those facilitating their formation. A common characteristic of the groups is that they meet
regularly (typically once per week or once per fortnight) to collect the savings from members,
decide to which member to give a loan, discuss joint activities (such as training, running of a
communal business, etc.), and to mitigate any conflicts that might arise. Most SHGs have an
elected chairperson, a deputy, a treasurer, and sometimes other office holders.
Most SHGs start without any external financial capital by saving regular contributions by
the members. These contributions can be very small (e.g. Rs.10 per week). After a period of
consistent savings (e.g. 6 months to one year) the SHGs start to give loans from savings in the
form of small internal loans for micro enterprise activities and consumption. Only those SHGs
that have utilized their own funds well are assisted with external funds through linkages with
banks and other financial intermediaries.
TYPES OF ORGANIZATION
These organizations are classified in the following categories to indicate the functional
aspects covered by them within the micro finance framework. The aim, however, is not to
"typecast" an organization, as these have many other activities within their scope:
Microfinance providers in India can be classified under three broad categories: formal,
semiformal, and informal.
Formal Sector
The formal sector comprises of the banks such as NABARD, SIDBI and other regional
rural banks (RRBs). They primarily provide credit for assistance in agriculture and microenterprise development and primarily target the poor. Their deposit at around Rs.350
billion and of that, around Rs.250 billion has been given as advances. They charge an
Page 33

interest of 12-13.5% but if we include the transaction costs (number of visits to banks,
compulsory savings and costs incurred for payments to animators/staff/local leaders etc.)
they come out to be as high as 21-24%.
Semi - formal Sector

The majority of institutional microfinance providers in India are semi-formal
organizations broadly referred to as MFIs. Registered under a variety of legal acts, these
organizations greatly differ in philosophy, size, and capacity. There are over 500 nongovernment organizations (NGOs) registered as societies, public trusts, or non-profit
companies. Organizations implementing micro-finance activities can be categorized into
three basic groups.
I.
Organizations which directly lend to specific target groups and are carrying out all
related activities like recovery, monitoring, follow-up etc.
II.
Organizations that only promote and provide linkages to SHGs and are not
III.
directly involved in micro lending operations.

Organizations which are dealing with SHGs and plan to start micro-finance
related activities.
Informal Sector
In addition to friends and family, moneylenders, landlords, and traders constitute the
informal sector. While estimates of their importance vary significantly, it is undeniable
that they continue to play a significant role in the financial lives of the poor. These are the
organizations that provide support to implementing organizations. The support may be in
terms of resources or training for capacity building, counseling, networking, etc. They
operate at state/regional or national level. They may or may not be directly involved in
micro-finance activities adopted by the associations/collectives to support implementing
Organizations.
DEVELOPMENT PROCESS THROUGH MICRO FINANCE

Page 34
Donors and Banks
Micro-Finance
Government and Banks
Implementing Organizations
Individual
Awareness/Promotional Work
Individual
Promotion and Formation of SHGs
Micro Enterprise
Consolidation of SHGs
Micro Enterprise
Savings
Consumption Needs
Credit Delivery
Production Needs
Recovery
Follow-up Monitoring
Non-Farm Related
Farm Related
Income Generation (Sustainable & Growth Oriented)
Self-Sustainability of SHGs
Economic Empowerment through use of Micro-Credit as an entry point for overall Empowerment
Figure No. 1
Page 35
MICRO-FINANCE INTERVENTIONS THROUGH DIFFERENT

ORGANISATIONS
National Financial Institutions
Banks
Government Funded Programmes

Donors/Bilateral Projects
Implementing Organizations
Resource/Support Organizations
Indirectly engaged in Micro-Finance

Directly engaged in Micro-Finance
Individuals
SHGs
Members
Page 36
THE NEED IN INDIA:
India is said to be the home of one third of the worlds poor; official estimates range from
26 to 50 percent of the more than one billion population.

About 87 percent of the poorest households do not have access to credit.
The demand for microcredit has been estimated at up to $30 billion; the supply is less
than $2.2 billion combined by all involved in the sector.
Due to the sheer size of the population living in poverty, India is strategically significant in
the global efforts to alleviate poverty and to achieve the Millennium Development Goal of
halving the worlds poverty by 2015. Microfinance has been present in India in one form or
another since the 1970s and is now widely accepted as an effective poverty alleviation strategy.
Over the last five years, the microfinance industry has achieved significant growth in part due to
the participation of commercial banks. Despite this growth, the poverty situation in India
continues to be challenging.
Some principles that summarize a century and a half of development practice were
encapsulated in 2004 by Consultative Group to Assist the Poor (CGAP) and endorsed by the
Group of Eight leaders at the G8 Summit on June 10, 2004:
Poor people need not just loans but also savings, insurance and money transfer services.
Microfinance must be useful to poor households: helping them raise income, build up
assets and/or cushion themselves against external shocks.

Microfinance can pay for itself.Subsidies from donors and government are scarce and
uncertain, and so to reach large numbers of poor people, microfinance must pay for itself.
Microfinance means building permanent local institutions.
Microfinance also means integrating the financial needs of poor people into a countrys
mainstream financial system.

The job of government is to enable financial services, not to provide them.
Donor funds should complement private capital, not compete with it.
The key bottleneck is the shortage of strong institutions and managers. Donors should
focus on capacity building.

Interest rate ceilings hurt poor people by preventing microfinance institutions from
covering their costs, which chokes off the supply of credit.
Page 37
Microfinance institutions should measure and disclose their performance both

financially and socially.
Microfinance can also be distinguished from charity. It is better to provide grants to families
who are destitute, or so poor they are unlikely to be able to generate the cash flow required to
repay a loan. This situation can occur for example, in a war zone or after a natural disaster.
MICRO FINANCE MODELS
1. Micro Finance Institutions (MFIs):
MFIs are an extremely heterogeneous group comprising NBFCs, societies, trusts and
cooperatives. They are provided financial support from external donors and apex institutions
including the RashtriyaMahilaKosh (RMK), SIDBI Foundation for micro-credit and NABARD
and employ a variety of ways for credit delivery.
Since 2000, commercial banks including Regional Rural Banks have been providing funds to
MFIs for on lending to poor clients. Though initially, only a handful of NGOs were into
financial intermediation using a variety of delivery methods, their numbers have increased
considerably today. While there is no published data on private MFIs operating in the country,
the number of MFIs is estimated to be around 800.
Legal Forms of MFIs in India
Types of MFIs
Estimate
Legal Acts under which Registered
d
Number*
1. Not for Profit MFIs
400 to 500 Societies Registration Act, 1860 or

similar
a.) NGO - MFIs
Provincial
Acts
Indian Trust Act, 1882
b.) Non-profit Companies
10
Section 25 of the Companies Act,

1956
2. Mutual
Benefit
MFIs 200 to 250 Mutually Aided Cooperative Societies

Page 38
a.)
Mutually
Aided
Act enacted by State Government
Cooperative Societies (MACS)

and similarly set up institutions
3. For Profit MFIs
a.)
Non-Banking
Indian Companies Act, 1956
Financial
Reserve Bank of India Act, 1934
Companies (NBFCs)
Total
700 800
2. Bank Partnership Model

This model is an innovative way of financing MFIs. The bank is the lender and the MFI acts
as an agent for handling items of work relating to credit monitoring, supervision and recovery. In
other words, the MFI acts as an agent and takes care of all relationships with the client, from first
contact to final repayment. The model has the potential to significantly increase the amount of
funding that MFIs can leverage on a relatively small equity base.
A sub - variation of this model is where the MFI, as an NBFC, holds the individual loans on
its books for a while before securitizing them and selling them to the bank. Such refinancing
through securitization enables the MFI enlarged funding access. If the MFI fulfills the true sale
criteria, the exposure of the bank is treated as being to the individual borrower and the prudential
exposure norms do not then inhibit such funding of MFIs by commercial banks through the
securitization structure.
3. Banking Correspondents
The proposal of banking correspondents could take this model a step further extending it to
savings. It would allow MFIs to collect savings deposits from the poor on behalf of the bank. It
would use the ability of the MFI to get close to poor clients while relying on the financial
strength of the bank to safeguard the deposits. This regulation evolved at a time when there were
genuine fears that fly-by-night agents purporting to act on behalf of banks in which the people
have confidence could mobilize savings of gullible public and then vanish with them. It remains
to be seen whether the mechanics of such relationships can be worked out in a way that
minimizes the risk of misuse.
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4. Service Company Model
Under this model, the bank forms its own MFI, perhaps as an NBFC, and then works hand
in hand with that MFI to extend loans and other services. On paper, the model is similar to the
partnership model: the MFI originates the loans and the bank books them. But in fact, this model
has two very different and interesting operational features:
The MFI uses the branch network of the bank as its outlets to reach clients. This allows
the client to be reached at lower cost than in the case of a standalone MFI. In case of
banks which have large branch networks, it also allows rapid scale up. In the
partnership model, MFIs may contract with many banks in an arms length relationship.
In the service company model, the MFI works specifically for the bank and develops an
intensive operational cooperation between them to their mutual advantage.

The Partnership model uses both the financial and infrastructure strength of the bank to
create lower cost and faster growth. The Service Company Model has the potential to
take the burden of overseeing microfinance operations off the management of the bank
and put it in the hands of MFI managers who are focused on microfinance to introduce
additional products, such as individual loans for SHG graduates, remittances and so on
without disrupting bank operations and provide a more advantageous cost structure for
microfinance.
Bank Led Model

The bank led model was derived from the SHG-Bank linkage program of NABARD.
Through this program, banks financed Self Help Groups (SHGs) which had been promoted by
NGOs and government agencies.
Partnership Models
A model of microfinance has emerged in recent years in which a microfinance institution
(MFI) borrows from banks and on-lends to clients; few MFIs have been able to grow beyond a
certain point. Under this model, MFIs are unable to provide risk capital in large quantities, which
limits the advances from banks. In addition, the risk is being entirely borne by the MFI, which
limits its risk-taking.
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MAJOR RISKS TO MICROFINANCE INSTITUTIONS

Risk is an integral part of financial services. When financial institutions issue loans, there
is a risk of borrower default. When banks collect deposits and on-lend them to other clients (i.e.
conduct financial intermediation), they put clients savings at risk. Any institution that conducts
cash transactions or makes investments risks the loss of those funds. Development finance
institutions should neither avoid risk (thus limiting their scope and impact) nor ignore risk (at
their folly). Like all financial institutions, microfinance institutions (MFIs) face risks that they
must manage efficiently and effectively to be successful. If the MFI does not manage its risks
well, it will likely fail to meet its social and financial objectives.
Many risks are common to all financial institutions. From banks to unregulated MFIs,
these include credit risk, liquidity risk, market or pricing risk, operational risk, compliance and
legal risk, and strategic risk. Most risks can be grouped into three general categories: financial
risks, operational risks and strategic risks,
Major Risk Categories

Financial Risks
Operational Risks
Strategic Risks
Governance Risk
Credit Risk
Transaction Risk
Ineffective oversight
Transaction risk
Human resources Risk
Poor governance structure
Portfolio risk
Information & technology
Reputation Risk
Liquidity Risk
risk
External Business
Market Risk
Fraud (Integrity) Risk
Risks
Interest rate risk
Legal & Compliance
Event risk
Foreign exchange Risk
Risk
Investment
portfolio
risk
Financial Risks
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The business of a financial institution is to manage financial risks, which include credit
risks, liquidity risks, interest rate risks, foreign exchange risks and investment portfolio risks.
Most microfinance institutions have put most of their resources into developing a methodology
that reduces individual credit risks and maintaining quality portfolios. Microfinance institutions
that use savings deposits as a source of loan funds must have sufficient cash to fund loans and
withdrawals from savings.
Those MFIs that rely on depositors and other borrowed sources of funds are also
vulnerable to changes in interest rates. Financial risk management requires a sophisticated
treasury function, usually centralized at the head office, which manages liquidity risk, interest
rate risk, and investment portfolio risk. As MFIs face more choices in funding sources and more
product differentiation among loan assets, it becomes increasingly important to manage these
risks well.
Credit risk
Credit risk, the most frequently addressed risk for MFIs, is the risk to earnings or capital
due to borrowers late and non-payment of loan obligations. Credit risk encompasses both the
loss of income resulting from the MFIs inability to collect anticipated interest earnings as well
as the loss of principle resulting from loan defaults. Credit risk includes both transaction risk and
portfolio risk.
Transaction risk
Transaction risk refers to the risk within individual loans. MFIs mitigate transaction risk
through borrower screening techniques, underwriting criteria, and quality procedures for loan
disbursement, monitoring, and collection.
Portfolio risk
Portfolio risk refers to the risk inherent in the composition of the overall loan portfolio.
Policies on diversification (avoiding concentration in a particular sector or area), maximum loan
size, types of loans, and loan structures lessen portfolio risk.
Liquidity risk
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Liquidity risk is the possibility of negative effects on the interests of owners, customers
and other stakeholders of the financial institution resulting from the inability to meet current cash
obligations in a timely and cost-efficient manner.
Liquidity risk usually arises from managements inability to adequately anticipate and
plan for changes in funding sources and cash needs. Efficient liquidity management requires
maintaining sufficient cash reserves on hand (to meet client withdrawals, disburse loans and fund
unexpected cash shortages) while also investing as many funds as possible to maximize earnings
(putting cash to work in loans or market investments).
A lender must be able to honor all cash payment commitments as they fall due and meet
customer requests for new loans and savings withdrawals. These commitments can be met by
drawing on cash holdings, by using current cash flows, by borrowing cash, or by converting
liquid assets into cash.
Some principles of liquidity management that MFIs use include:
Maintaining detailed estimates of projected cash inflows and outflows for the next few
weeks or months so that net cash requirements can be identified.

Using branch procedures to limit unexpected increases in cash needs. For example, some
MFIs, such as ASA, have put limits on the amount of withdrawals that customers can
make from savings in an effort to increase the MFIs ability to better manage its liquidity.
Maintaining investment accounts that can be easily liquidated into cash, or lines of credit
with local banks to meet unexpected needs.

Anticipating the potential cash requirements of new product introductions or seasonal
variations in deposits or withdrawals.
Liquidity management has a short-term focus (the section on investment portfolio risk below
discusses longer-term cash management issues). Often, liquidity projections are extended up to a
year with diminishing detail on the far end of the timeline.
Operational Risks
Operational risk arises from human or computer error within daily product delivery and
services. It transcends all divisions and products of a financial institution. This risk includes the
potential that inadequate technology and information systems, operational problems, insufficient
human resources, or breaches of integrity (i.e. fraud) will result in unexpected losses.
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This risk is a function of internal controls, information systems, employee integrity, and
operating processes. For simplicity, this section focuses on just two types of operational risk:
transaction risk and fraud risk.
Transaction risk
Transaction risk exists in all products and services. It is a risk that arises on a daily basis
in the MFI as transactions are processed.12 Transaction risk is particularly high for MFIs that
handle a high volume of small transactions daily. When traditional banks make loans, the staff
person responsible is usually a highly trained professional and there is a very high level of crosschecking. Since MFIs make many small, short-term loans, this same degree of cross-checking is
not cost-effective, so there are more opportunities for error and fraud.
Fraud risk
Until recently, fraud risk has been one of the least addressed risks in microfinance. Also
referred to as integrity risk, fraud risk is the risk of loss of earnings or capital as a result of
intentional deception by an employee or client. The most common type of fraud in an MFI is the
direct theft of funds by loan officers or other branch staff. Other forms of fraudulent activities
include the creation of misleading financial statements, bribes, kickbacks, and phantom loans.
Strategic Risks
Strategic risks include internal risks like those from adverse business decisions or improper
implementation of those decisions, poor leadership, or ineffective governance and oversight, as
well as external risks, such as changes in the business or competitive environment. This section
focuses on three critical strategic risks: Governance Risk, Business Environment Risk, and
Regulatory and Legal Compliance Risk.
Governance risk
One of the most understated and underestimated risks within any organization is the risk
associated with inadequate governance or a poor governance structure. The dangers of poor
governance that nearly resulted in the failure of that institution. Direction and accountability
come from the board of directors, who increasingly include representatives of various
stakeholders in the MFI (investors, borrowers, and institutional partners). The social mission of
MFIs attracts many high profile bankers and business people to serve on their boards.
Unfortunately, these directors are often reluctant to apply the same commercial tools that led to
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their success when dealing with MFIs. As MFIs face the challenges of management succession
and the need to recruit managers that can balance social and commercial objectives, the role of
directors becomes more important to ensure the institutions continuity and focus.
To protect against the risks associated with poor governance structure, MFIs should
ensure that their boards comprise the right mix of individuals who collectively represent the
technical and personal skills and backgrounds needed by the institution. Most MFIs name
executive officers and some create special committees to fulfill specific roles on the board. In
addition, the institutional by-laws should be clear and well written, and accessible to all board
members.
Microfinance institutions are particularly vulnerable to governance risks resulting from
their institutional structure and ownership. One of the strongest links to effective governance is
ownership. Board members with a financial stake in the institution tend to have stronger
incentives to closely oversee operations. However, many MFIs operate as non-governmental
organizations whose board members have no financial stake in the institution. Even many
transformed commercial MFIs are primarily owned by the former non-governmental
organization (NGO) and therefore the majority of their board members are not real owners. In
addition, many board members of commercial institutions represent public development agencies
and tend to think more like donors than traditional investors. Microfinance institutions that
operate as credit unions face a different type of governance issue their boards comprise client
members, most of which are net borrowers whose focus could be more on reducing lending rates
than on the institutions wellbeing.
Effective governance requires clear lines of authority for the board and management. The
board should have a clear understanding of its mandate, including its duties of care, loyalty and
obedience. MFIs can demonstrate short-term financial success without effective governance, but
effective governance is needed to see the institution through difficulties that are bound to arise
over the long-term. It is the boards responsibility to oversee senior management and hold them
accountable for strategic decisions. If board members fail to fulfill their duties effectively, the
MFI risks financial loss as a result of poor decision making or inadequate strategic planning.
Reputation Risk
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Reputation risk refers to the risk to earnings or capital arising from negative public
opinion, which may affect an MFIs ability to sell products and services or its access to capital or
cash funds. Reputations are much easier to lose than to rebuild, and should be valued as an
intangible asset for any organization.
Most successful MFIs cultivate their reputations carefully with specific audiences, such
as with customers (their market), their funders and investors (sources of capital), and regulators
or officials. A comprehensive risk management approach and good management information
reporting helps an MFI speak the language of financial institutions and can strengthen an
MFIs reputation with regulators or sources of funding.
External business environment risk
Business environment risk refers to the inherent risks of the MFIs business activity and
the external business environment. To minimize business risk, the microfinance institution must
react to changes in the external business environment to take advantage of opportunities, to
respond to competition, and to maintain a good public reputation. In Bolivia, for example, many
microfinance institutions have lost clients and reported lower profit margins as a result of
increased competition in the past couple of years. As in most businesses, it is often easier to
focus on internal risks than to recognize shifts in the external marketplace that can potentially
affect the MFI.
MFIs need to check the validity of their assumptions against reality on a periodic basis,
and respond accordingly. A risk management framework establishes a discipline in which those
questions are encouraged and asked frequently (e.g., compare actual results to budget and assess
the reasons for variances). While external business risks are out of an MFIs direct control, the
MFI can still anticipate them and prepare for their impact.
Anticipating and preparing for possible events or risks is the MFIs responsibility. In
Bangladesh, microfinance institutions face the risk of floods, which can increase their credit and
liquidity risk when borrowers businesses are slowed or destroyed or their homes are damaged
and in need of immediate repairs. Some MFIs maintain higher cash reserves during the flood
season. As MFIs become formal financial institutions and more linked to the financial and
political economy, they become more vulnerable to external risk exposures. While microfinance
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institutions can rarely prevent external risks from occurring, they can often take preventative
actions to minimize their impact on the institution.
In general, the best way for an MFI to reduce external risks is to integrate an effective
system of risk management into its culture and operations. An effective risk management system
should encourage directors and senior managers to ask whether they are prepared for certain
possible internal and external situations and whether they have built in sufficient cushion for
unexpected events.
RISK MANAGEMENT PROCESS FOLLOWED BY MFI

1. Identify, assess, and prioritize risks
The first step in risk assessment is to identify risks. To identify risks, the MFI reviews its
activities, function by function, and asks several questions. For example, the MFI examines the
credit and lending operations, and reviews funding sources, loan transactions and portfolio
management processes. While this can create a laundry list of minor risks (many of which should
be managed by branch, regional, or product managers), it should also highlight the major risks
that are most significant to the MFI and require managements close attention. Since product
differentiation is becoming more prevalent in MFIs, the MFI should assess each products
specific risk profile. For example, housing loans are likely to have higher delinquency and loss
rates than the loans for income-generating activities.
In this case, the relative size and severity of risk in that housing portfolio requires
managements special attention. In addition, the MFI should evaluate risks in individual lending
separately from peer group lending. Because individual loans tend to be larger and are often
made without co-guarantees, individual loan portfolios can be riskier and represent a different
type of risk exposure than group lending portfolios. By categorizing and evaluating activities
according to their risk profiles, MFIs can better understand risks and can take action to reduce
large exposures and avoid losses.
2. Develop strategies to measure risk
After the board and management define priorities, they can develop strategies that guide
the organizations management of those risks. The board typically develops policies and sets the
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outer parameters for the business activities of an organization. Within those broad policies,
management then develops guidelines and procedures for day-to-day operations.
The board of directors is responsible for reviewing and approving policies that minimize
risk to the MFI (within its business strategy), protect the fiduciary interests of investors and
depositors, and ensure that the MFI fulfills its mission. The Board usually reviews these polices
on an annual basis (unless an event prompts a more frequent review) to ask whether any
adjustments are needed or if management recommends any changes. These policies set the
tolerable range of risk, within which management should operate. Management develops the
detailed guidelines and operational policies and procedures that fit within those broad policies.
Management should recommend any changes in policies to the board, along with a rationale for
each proposed change.
The goal is to make conscious, informed decisions about which risks to take, what is an
acceptable level of risk, and what cost-benefit tradeoff is reasonable. It is the boards
responsibility to ensure that the MFI is making informed decisions about how much risk is
tolerable and that there is sufficient capital and liquidity for the MFI to absorb any financial loss,
should it occur. MFIs can make several choices on how to mitigate a risk. They can: accept the
risk as part of doing business (e.g. a cost of credit risk is annual loan losses); mitigate the risk to
bring it to reasonable levels through carefully-designed policies and procedures (e.g. centralized
disbursement, group lending, etc); eliminate the risk entirely (e.g. security to prevent physical
property loss or computer back-up for the management information systems); or transfer the risk
to someone else (e.g. buy insurance against certain losses).
In each case, management and the board must evaluate the cost/benefit tradeoffs. Each of
these strategies entails some cost, either in staff time, expenses, or opportunity costs. For
example, trying to eliminate credit risk would not be a good use of an MFIs resources. It would
require changes in the target customer, and additional personnel to monitor borrowers closely
and pursue delinquent loans to avoid loss. The costs to the MFI in terms of increased personnel,
lower productivity, fewer loans to new customers (opportunity cost), and significant management
time, would exceed the potential benefit of protected revenues. Alternatively, the MFI should set
a range of acceptable loan loss and delinquency rates, and monitor its portfolio carefully,
watching for trends that suggest that those ranges might be exceeded.
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It is important to distinguish reasonable risk from risk avoidance or elimination. Too
much emphasis on risk avoidance can translate into incentives for staff to avoid poorer borrowers
and weaken the mission of the MFI. Many MFIs design a set of controls and indicators that
allows them to monitor the outcomes of their policies on borrower composition and target
customer base.
3. Design operational policies and procedures to mitigate risk
In most cases, an MFI lives with certain risks and designs a lending methodology and
system of controls and monitoring tools to ensure that a) risk does not exceed acceptable levels,
and b) there is sufficient capital or liquidity to absorb the loss if it occurs. These controls might
include:
Policies and procedures at the branch level to minimize the frequency and scale of the
risk (e.g. dual signatures required on loans or disbursements of savings).

Technology to reduce human error, speed data analysis and processing.
Management information systems that provide accurate, timely and relevant data so
managers can track outputs and detect minor changes easily.

Separate lines of information flow and reconciliation of portfolio management
information and cash accounting in the field to identify discrepancies quickly.
These are all examples of the internal controls MFIs use to maintain reasonable levels of risk
in their activities ex-ante, before operations. They are built into program design, procedures and
daily operations.
For example, an MFI that offers individual loans in addition to group loans, must adapt the
operational guidelines and procedures to mitigate the risks of individual lending. The borrower
screening and business assessment process will be different since the MFI is relying on the cash
flow from the business to repay the loan rather than group co-guarantees. While loan
disbursement procedures may remain the same as in traditional lending, loan monitoring may
require more frequent client visits, due to the lack of co-guarantors. Good management
information systems are critical to monitoring and mitigating risk. As Charles Waterfield noted in
his article on MIS systems, As microfinance institutions scale up their operations the needs for
timely and accurate information increases indeed the reliability of the management information
systems is often the difference between the success and failure of the institution.
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Managers cannot monitor or manage risk without timely and relevant information. For
example, MFIs that operate through a decentralized branch or unit office network have
encouraged branch-level cash reconciliation and management reporting to detect problems early
and act quickly, reducing the risk that small problems grow into larger ones. Branch managers
can review delinquent borrowers and reconciliation of cash and program numbers on a daily or
weekly basis, allowing prompt corrective action. Many MFIs hold branches accountable for
being a profit center, giving branch managers responsibility for cash and program reconciliation,
choosing whether to fund loans with savings or borrow from head office, and tracking expenses
relative to interest and fee income.
Decentralized branch networks have other risk management advantages. Fraud or personnel
problems tend to be localized to a branch or region, limiting the scale of potential financial loss
compared to that within a highly centralized MFI. However, such decentralized MFIs need a
strong organizational culture and good information system to ensure that policies and procedures
are standardized and consistently followed. Without a high level of discipline, operational and
transaction risks increase.
4. Implement into operations and assign responsibility
The next step is for management to integrate those policies, procedures and controls into
operations and assign managers to oversee them. In the implementation process, management
should seek input from operational staff on the appropriateness of the selected policies,
procedures and controls. Operational staff can offer insight into the potential implications of the
controls in their specific areas of operation. If it is possible that the control measure will have an
impact on clients, then management should speak with line staff to understand the potential
repercussions.
In addition, MFIs can use client surveys or interviews to understand clients reactions to a
new operational procedure or internal control measure. Some might believe that since the MFI
integrates all employees into the risk management system, it is unnecessary to assign
responsibility. However, there is an old adage that says, If something is everyones
responsibility, it is no ones. To effect change, the risk management system must assign clear
responsibility to someone to implement the risk controls and ensure that they are respected.
Ideally, the person should be a senior manager with operations experience and authority.
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The MFI must determine who is responsible for monitoring and ensuring that the right
senior managers (or board of directors) receive relevant and useful infor mation, and that specific
personnel will be held accountable for implementing changes. The designated person must be
accountable to the board and senior management and must have the authority to implement
changes as needed. By assigning this level of responsibility to the position, the MFI reinforces
the importance of risk management throughout the organization. Clearly identifying a risk
manager and making his or her responsibilities very clear, increases the likelihood that the steps
will be implemented successfully.
5. Test effectiveness and evaluate results
Management must regularly check the operating results to ensure that risk management
strategies are indeed minimizing the risks as desired. The MFI evaluates whether the operational
systems are working appropriately and having the intended outcomes. The MFI assesses whether
it is managing risks in the most efficient and cost-effective manner. By linking the internal audit
function to risk management, the MFI can systematically address these questions. To fully verify
the accuracy of the MFIs accounts and reduce uncontrolled fraud and credit risks, the MFI
should incorporate client visits into the audit processes. Good management reporting is essential
to understanding whether these controls are effective, i.e. yielding the intended results. For
example, South Shore Bank in Chicago has monthly board meetings to review a series of reports
with key ratios expressed as monthly trends. These include monthly loan asset quality reports
(delinquency by aging category is expressed as a percentage of total loans, loan losses as a
percentage of total loans and total loan disbursements) and funds management reports (liquidity
measured by loans to deposits and cash available to lend, investment portfolio mix, interest rate
risk, and any funding risk for grantfunded activities).
Trend and ratio reporting is the most efficient way for directors or senior managers to
absorb large amounts of information quickly. Following trends allows the institution to manage
by exception. Managers can scan the trends in key ratios and focus on those areas where the
trends are not positive or where there has been a change, thereby focusing their limited time on
the most important issues. Ratio analysis is one of the most useful tools in managing financial
institutions, since the relationships between different numbers are often more important than the
absolute numbers. This is especially true for large scale or quickly growing MFIs. Management
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reporting should provide information on actual results compared to budget, showing the
variance, and tracks key ratios and numbers relevant to the MFIs operations.
6. Revise policies and procedures as necessary
Based on the summary reporting and internal audit findings, the board reviews risk
policies for necessary adjustments. To be most effective, the internal audit should report directly
to the MFIs board of directors. While only significant internal audit findings are reported to the
board, the directors should ensure that necessary revisions are quickly made to the systems,
policies and procedures, as well as the operational workflow to minimize the potential for loss.
The internal audit report may make specific recommendations on how to strengthen risk
management areas depending on the audit scope. Management is responsible for designing the
specific changes, and in doing so should seek input from the internal audit team as well as branch
staff to ensure that operational changes are appropriate and will not result in unforeseen, negative
consequences to the MFI or its clients. MFIs are increasingly adapting and adding new products
to offer customers more choices and to differentiate their products from the competition. With
new products and product changes come new credit risks, operational risks, and liquidity risks,
which require new risk management strategies.
Ten Guidelines for Risk Management

Guidelines for Implementing a Risk Management Framework:
1. Lead the risk management process from the top
2. Incorporate risk management into process and systems design
3. Keep it simple and easy to understand
4. Involve all levels of staff
5. Align risk management goals with the goals of individuals
6. Address the most important risks first
7. Assign responsibilities and set monitoring schedule
8. Design informative management reporting to board
9. Develop effective mechanisms to evaluate internal controls
10. Manage risk continuously using a risk management
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MICROFINANCE AND WOMEN EMPOWERMENT
Women as micro and small entrepreneurs have increasingly become the key target group
for micro finance programs. Consequently, providing access to micro finance facilities is not
only considered a pre-condition for poverty alleviation, but also considered as a strategy for
empowering women. In developing countries like INDIA micro finance is playing an important
role, promoting gender equality and is helping in empowering women so that they can live
quality life with dignity.
The study conducted by FINCA Client Poverty Assessment conducted in 2003 revealed
that of the interviewed clients 81 percent were women, and it was found that food security was
15 percent higher among their village banking clients than non-clients. The report also showed
clients to have 11 percent more of their children enrolled in school with an 18 percent increase in
healthcare benefits. Clients housing security was reported as 18 percent higher than non-clients.
The assessment concluded that microfinance improved the wellbeing of women clients and their
families.
Microfinance has a positive effect on the empowerment of women by creating an
empowerment indicator.
These indicators can be based on the following factors:
Mobility.
Economic security- enables poor women in making them economic agents of change by
increasing their income and productivity.

Ability to make small purchases.
Ability to make larger purchases.
Involvement in major household decisions.
Relative freedom from domination within the family.
Political and legal awareness.
Involvement in political campaigning and protests.
To access to markets and information.
They become more confident.
They get a better control of the resources.
They can confront systemic gender inequalities
MICRO CREDIT AND WOMEN'S EMPOWERMENT

Before 1990's, credit schemes for rural women were almost negligible. The concept of
women's credit was born on the insistence by women oriented studies that highlighted the
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discrimination and struggle of women in having access to credit. However, there is a perceptible
gap in financing genuine credit needs of the poor especially women in the rural sector.
There are certain misconceptions about the poor people that they need loan at subsidized
rates of interest on soft terms, they lack education, skills, capacity to save, credit-worthiness and
therefore are not bankable. Nevertheless, the experiences of several SHGs (self-help groups)
reveal that rural poor are actually efficient managers of credit and finance. Availability of timely
and adequate credit is essential for them to undertake any economic activity rather than credit
subsidy.
The Government measures have attempted to help the poor by implementing different
poverty alleviation programmes but with little success. Since most of them are target-based
involving lengthy procedures for loan disbursements, high transaction costs, and lack of
supervision and monitoring. Banks often suffer from poor repayment leading to a high level of
non-performing assets NPAs (non-performing assets).
Since the credit requirements of the rural poor cannot be adopted on project lending
approach as it is in the case of organized sector, there emerged the need for an informal credit
supply through SHGS. The rural poor with the assistance from NGOs have demonstrated their
potential for self-help to secure economic and financial strength. Various case studies show that
there is a positive correlation between credit availability and women's empowerment.
Microfinance refers to the provision of financial services to low-income clients, including
consumers and the self-employed. Microfinance programmes are currently being promoted as a
key strategy for simultaneously addressing both poverty alleviation and women's empowerment.
Where financial service provision leads to the setting up or expansion of microenterprises there
are a range of potential impacts including:
Increasing women's income levels and control over income leading to greater levels of
economic independence
Access to networks and markets giving wider experience of the world outside the home,
access to information and possibilities for development of other social and political roles.
Enhancing perceptions of women's contribution to household income and family welfare,
increasing women's participation in household decisions about expenditure and other
issues and leading to greater expenditure on women's welfare.
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The term micro finance is of recent origin and is commonly used in addressing issues related
to poverty alleviation, financial support to micro entrepreneurs, gender development etc. There
is, however, no statutory definition of micro finance. The taskforce on supportative policy and
Regulatory Framework for Microfinance has defined microfinance 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
term Micro literally means small. But the task force has not defined any amount. However
as per Micro Credit Special Cell of the Reserve Bank Of India , the borrowable amounts up to
the limit of Rs.25000/- could be considered as micro credit products and this amount could be
gradually increased up to Rs.40000/- over a period of time which roughly equals to $500 a
standard for South Asia as per international perceptions. The term micro finance sometimes is
used interchangeably with the term micro credit. However while micro credit refers to
purveyance of loans in small quantities, the term microfinance has a broader meaning covering
in its ambit other financial services like saving, insurance etc. as well. The mantra
Microfinance is banking through groups. The essential features of the approach are to provide
financial services through the groups of individuals, formed either in joint liability or coobligation mode.
The other dimensions of the microfinance approach are:
Savings/Thrift precedes credit

Credit is linked with savings/thrift
Absence of subsidies
Group plays an important role in credit appraisal, monitoring and recovery.
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BEIJING CONFERENCE 1995 HAD IDENTIFIED CERTAIN INDICATORS OF

WOMEN EMPOWERMENT
Important among them are as follows:
Increase in self-esteem, individual and collective confidence

Increase in articulation, knowledge and awareness on health, nutrition reproductive
rights, law and literacy

Increase an decrease in personal leisure time and time for child care;
Increase on decrease of workloads in new programmes
Change in roles and responsibility in family & community.
Visible increase on decrease in violence on women and girls;
Responses to, changes in social customs like child marriage, dowry, discrimination
against widows
Visible changes in women's participation level attending meeting, participating and
demanding participation
Increase in bargaining and negotiating power at home, in community and the collective
Increase access to and ability to gather information
Formation of women collectives
Positive changes in social attitudes
Awareness and recognition of women's economic contribution within and outside the
household;
Womens decision-making over her work and income
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The following are the related studies have been reviewed

Chintamani Prasad Patnaik (March 2012)
Has examined that microfinance seems to have generated a view that microfinance
development could provide an answer to the problems of rural financial market development.
While the development of microfinance is undoubtedly critical in improving access to finance
for the unserved and underserved poor and low-income households and their enterprises, it is
inadequate to address issues of rural financial market development.
R.Prabhavathy (2012)
Has examined that collective strategies beyond micro-credit to increase the endowments
of the poor/women enhance their exchange outcomes the family, markets, state and community,
and socio-cultural and political spaces are required for both poverty reduction and women
empowerment. Even though there were many benefits due to micro-finance towards women
empowerment and poverty alleviation, there are some concerns. First, these are dependent on the
programmatic and institutional strategies adopted by the intermediaries, second, there are limits
to how far micro-credit interventions can alone reach the ultra-poor, third the extent of positive
results varies across household headship, caste and religion and fourth the regulation of both
public and private infrastructure in the context of LPG to sustain the benefits of social service
providers.
Ranjula Bali Swaina and Fan Yang Wallentin (2009)

Has examined that microfinance service lenders are empowered by participating in
microfinance program in the sense that they have a greater propensity to resist existing gender
norms and culture, which restrict their ability to develop and make choices.
Crabb, P. (2008)
Page 57

Has examined that the relationship between the success of microfinance institutions and
the degree of economic freedom in their host countries. Many microfinance institutions are
currently not self-sustaining and research suggests that the economic environment in which the
institution operates is an important factor in the ability of the institution to reach this goal,
furthering its mission of outreach to the poor. The sustainability of the micro lending institutions
is analyzed here using a large cross-section of institutions and countries. The results show that
microfinance institutions operate primarily in countries with a relatively low degree of overall
economic freedom and that various economic policy factors are important to sustainability.
Akula (2008)
Has examined Government tries to help poor people in rural area by providing subsidies
and other help but these initiatives hardly reduce their poverty levels and are not a long term
solution. But with the help of microfinance can easily reduce poverty level through providing
proper guidance, power of capital and productive assets services.
Srinivasan, Sunderasan (2007)

Has examined that micro banking facilities have helped large numbers of developing
country nationals by supporting the establishment and growth of microenterprises. And yet, the
microfinance movement has grown on the back of passive replication and needs to be revitalized
with new product offerings and innovative service delivery. Renewable Energy systems viz.,
solar home systems, biogas digesters, etc., serve to improve indoor air quality, provide superior
light and extend working and study hours. Such applications are not inherently income
generating and returns on such investments accrue from cost avoidance, but should qualify for
micro funding, as such 'quality of life' investments, reflect borrower maturity and simultaneously
contribute to MFI sustainability.
Mohammed AnisurRahaman (2007)

Has examined that about microfinance and to investigate the impact of microfinance on
the poor people of the society. Microfinance has the positive impact on the standard of living of
Page 58

the poor people and on their life style. It has not only helped the poor people to come over the
poverty line, but has also helped them to empower themselves.
Reginald Indon (2007)

Has examined that informal businesses represent a very large cross-section of economic
enterprises operating in the country. Informal businesses may be classified as the livelihood/
survival type or the entrepreneurial/ growth-oriented type. Livelihood enterprises are those which
show very limited potential for growth in both income and employment generation. There are
existing policies, program and services that directly/ indirectly cover informal. Variety of support
programs, services and information are currently being offered by different institutions. These
programs and support services fail to reach or remain inaccessible to informal business operators
and owners. This is borne out of and perpetuated by lopsided economic policies and poor
governance that inadvertently encumber informal businesses from accessing mainstream
resources and services.
Linda Mayoux (Feb 2006)

Has examined that Micro-finance programmes not only give women and men access to
savings and credit, but reach millions of people worldwide bringing them together regularly in
organized groups. Through their contribution to womens ability to earn an income, microfinance programmes can potentially initiate a series of virtuous spirals of economic
empowerment, increased well-being for women and their families and wider social and political
empowerment Banks generally use individual rather than group-based lending and may not have
scope for introducing non-financial services.
Dr. JyotishPrakashBasu (2006)

Has examined that the two basic research questions. First, the paper tries to attempt to
study how a womans tendency to invest in safer investment projects can be linked to her desire
to raise her bargaining position in the households. Second, in addition to the project choice,
women empowerment is examined with respect to control of savings, control of income, control
over loans, control over purchasing capacity and family planning in some sample household in
Page 59

Hooghly district of West Bengal. The empowerment depends on the choice of investment of
project. The choice of safe project leads to more empower of women than the choice of uncertain
projects. The Commercial Banks and Regional Rural banks played a crucial role in the formation
of groups in the SHGs -Bank Linkage Program in Andhra Pradesh whiles the Cooperative Banks
in West Bengal.
Mallory A. Owen (2006)

Has examined that microfinance has signaled a paradigm shift in development ideology.
Using my experiences with microfinance in a fishing village in Senegal, this study will address
the claims driving the microfinance movement, debate its pros and cons and pose further
questions about its validity and widespread implementation. Instead of lifting people out of
poverty and empowering women, microfinance may have regressive long term potential for
borrowers. How loans get used is a central theme of this essay. How microfinance and the notion
of the entrepreneur fit into the rural, Senegalese cultural context is also addressed.
Microfinance programs should be implemented with complementary measures that challenge the
systematic causes of inequality examined in this article. The microfinance model (group lending
based on joint liability) uses the social capital generated by group membership to ensure that
loans get re-financed. If one woman fails to pay back her loan, she puts her entire loan group at
jeopardy. As a result, Womens participation in microenterprise does not show any signs of
creating the new forms of solidarity among women that the advocates of empowerment desire.
Instead, women are placed under enormous pressure to maintain existing modes of social
relationships, on which depends not only the high rates of loan repayments but also the survival
of families.
Fehr, D. and G. Hishigsuren. (2006)

Has examined that microfinance institutions (MFIs) provide financial services to the
poorest households. To date, funding of MFI activities has come primarily from outright donor
grants, government subsidies, and often debt capital, including debt with non-market terms
favorable to the MFI. These traditional sources of MFI financing may not be sufficient to allow
MFIs to provide maximum services. There is a subset of the pool of mainstream equity investors
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who would consider investing in MFI opportunities, even knowing that they would not expect to
earn the full economic rate of return that such investments would otherwise require. However, as
part of their investment evaluation process, these investors would ask: What would the market
determine required expected rate of return for my MFI investment be? What return on
investment (ROI) do I expect to earn on my MFI investment? Is the difference in the above two
returns acceptable given my level of social motivation? How will I "monetize" my investment
and when? The purpose of this article is to employ modern corporate finance techniques to
address these questions.
John A. Brett. (2006)

Has examined that having borrowed money from a microfinance organization to start a
small business, many women in El Alto, Bolivia are unable to generate sufficient income to
repay their loans and so must draw upon household resources. Working from the women's
experience and words, this article explores the range of factors that condition and constrain their
success as entrepreneurs. The central theme is that while providing the poor access to credit is
currently very popular in development circles, the social and structural context within which
some women operate so strongly constrains their productive activity that they realize a net
income loss at the household level instead of the promised benefits of entrepreneurship. This
paper explores the social and structural realities in which women seek out and accept debt
beyond their capacity to repay from the proceeds of their business enterprise. By examining
some of the "hidden costs" of microfinance participation, this paper argues for a shift from
evaluation on outcomes at the institutional level to outcomes at the household level to identify
the forces and factors that condition women's success as micro-entrepreneurs.
NidhiyaMenon (2006)
Has examined that this paper studies the benefits of participation in micro-finance
programs, where benefits are measured in terms of the ability to smooth the effect of seasonal
shocks that cause consumption fluctuations. It is shown that although membership in these
programs is an effective instrument in combating inter-seasonal consumption differences, there is
a threshold levels of length of participation beyond which benefits begin to diminish.
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Shannon Doocy, Dan Norell, ShimelesTeffera, and Gilbert Burnham (2005)

Has examined that Management decision making in MFIs is becoming increasingly tied
to collecting information about social performance. This paper examines the impact of
participation in an Ethiopian microfinance program on indicators of socioeconomic status
including wealth, income, and home or land ownership. A survey assessing these outcomes was
conducted in May 2003 in two predominantly rural sites in Southern Ethiopia and included 819
households. The article discusses management decisions made as the result of survey findings
about socioeconomic status and food security to increase retention rates and to facilitate client
savings. Additionally, the management was prompted to increase the number of female clients
and raise the proportion of female loan officers. This paper illustrates how data from routine
monitoring and evaluation can be linked to MFI management decision making, which ultimately
results in providing better microfinance services. Household asset data indicates that
participation in the WISDOM microfinance program did not result in increased household
wealth.
Basu, P., Srivastava (2005)

Has examined that the current level and pattern of access to finance for India's rural poor
and examines some of the key microfinance approaches in India, taking a close look at the most
dominant among these, the Self Help Group (SHG) Bank Linkage initiative. It empirically
analyzes the success with which SHG Bank Linkage has been able to reach the poor, examines
the reasons behind this, and the lessons learned. The analysis in the paper draws heavily on a
recent rural access to finance survey of 6,000 households in India, undertaken by the authors.
The main findings and implications of the paper are as follows: India's rural poor currently have
very little access to finance from formal sources. Microfinance approaches have tried to fill the
gap. Among these, the growth of SHG Bank Linkage has been particularly remarkable, but
outreach remains modest in terms of the proportion of poor households served. The paper
recommends that, if SHG Bank Linkage is to be scaled-up to offer mass access to finance for the
rural poor, then much more attention will need to be paid towards: the promotion of high quality
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SHGs that are sustainable, clear targeting of clients, and ensuring that banks linked to SHGs
price loans at cost-covering levels. At the same time, the paper argues that, in an economy as vast
and varied as India's, there is scope for diverse microfinance approaches to coexist. Private sector
micro financiers need to acquire greater professionalism, and the government, too, can help by
creating a flexible architecture for microfinance innovations, including through a more enabling
policy, legal and regulatory framework. Finally, the paper argues that, while microfinance can, at
minimum, serve as a quick way to deliver finance to the poor, the medium-term strategy to scaleup access to finance for the poor should be to 'graduate' microfinance clients to formal financial
institutions. The paper offers some suggestions on what it would take to reform these institutions
with an eye to improving access for the poor.
Ernest Aryeetey (2005)

Has examined that informal finance and microfinance suitable for financing growing
small to medium size enterprises (SMEs) in Sub-Saharan Africa? First, I present the
characteristics of informal finance, focusing on size, structure, and scope of activities. Informal
finance has not been very attractive for the private sector. Indeed, the informal sector has
considerable experience and knowledge about dealing with small borrowers, but there are
significant limitations to what it can lend to growing micro businesses. Second, I discuss some
recent trends in microfinance. While externally driven microfinance projects have surfaced in
Africa, their performance relative to small business finance has not been as positive as in Asia
and Latin America. Third, I introduce some possible steps toward a new reform agenda that will
make informal and microfinance relevant to private sector development, including focusing on
links among formal, semi-formal and informal finance and how these links can be developed.
EoinWrenn (2005)
Has examined that microfinance creates access to productive capital for the poor, which
together with human capital, addressed through education and training, and social capital,
achieved through local organization building, enables people to move out of poverty (1999). By
providing material capital to a poor person, their sense of dignity is strengthened and this can
help to empower the person to participate in the economy and society. The impact of
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microfinance on poverty alleviation is a keenly debated issue as we have seen and it is generally
accepted that it is not a silver bullet, it has not lived up in general to its expectation (Hulmeand
Mosley, 1996). However, when implemented and managed carefully, and when services are
designed to meet the needs of clients, microfinance has had positive impacts, not just on clients,
but on their families and on the wider community.
Cheston & Kuhn (2004)

Has examined that in their study concluded that micro-finance programmes have been
very successful in reaching women. This gives micro-finance institutions an extraordinary
opportunity to act intentionally to empower poor women and to minimize the potentially
negative impacts some women experiences. We also found increased respect from and better
relationships with extended family and in-laws. While there have been some reports of increased
domestic violence, Hashemi and Schuler found a reduced incidence of violence among women
who were members of credit organizations than among the general population.
Jennifer Meehan (2004)

Has examined that it will need to do three things simultaneously. First, it will need to
rapidly scale up, in key markets, like India, home to high numbers of the worlds poor. Second,
in this process, clear priority is needed for philanthropic, quasi-commercial and commercial
financing for the business plans of MFIs targeting the poorest segments of the population,
especially women. Third, microfinance will need to realize its possibility as a broad platform and
movement, more than simply an intervention and industry. The pioneering financings completed
by leading, poverty-focused MFIs have shown the industry what is possible large amounts of
financing that allows for rapid expansion of financial services to new poor customers. The MFIs
offer a model to others that are interested in tapping the financial markets. If leading MFIs
continue on their present course and adopt some or all of the suggestions offered, financial
market interest or more specifically, debt capital market interest in leading, poverty-focused
MFIs is expected to grow.
Page 64
Yunus (2003)
Has examined that count 130 McMaster School for Advancing Humanity on women to
spread the word to their neighbors and friends about the success of these loans. The testimony is
expected to convince others to seek out Grameen for help. Yunus also encourages members to
save some of their money in case they fall on hard times, such as natural disasters, or to use this
money for other opportunities. In 1977, Yunus founded Grameen Bank after working for six
months to get a loan from the Janata Bank. Yunus realized that having groups of people take out
a loan was a better plan for success than giving loans to individuals. He describes the process by
which Grameen Bank lends money. Loan repayments are to be made in very small amounts, and
in the first project, Yunus chose a villager to be in charge of collecting the repayments.
SusyCheston (2002)
Has examined that Microfinance has the potential to have a powerful impact on womens
empowerment. Although microfinance is not always empowering for all women, most women do
experience some degree of empowerment as a result. Empowerment is a complex process of
change that is experienced by all individuals somewhat differently. Women need, want, and
profit from credit and other financial services. Strengthening womens financial base and
economic contribution to their families and communities plays a role in empowering them.
Product design and program planning should take womens needs and assets into account. By
building an awareness of the potential impacts of their programs, MFIs can design products,
services, and service delivery mechanisms that mitigate negative impacts and enhance positive
ones.
Hunt, J & Kasynathan (2002)

Has examined that poor women and men in the developing world need access to
microfinance and donors should continue to facilitate this. Research suggests that equity and
efficiency arguments for targeting credit to women remain powerful: the whole family is more
likely to benefit from credit targeted to women, where they control income, than when it is
targeted to men. Microfinance must also be re-assessed in the light of evidence that the poorest
Page 65

families and the poorest women are not able to access credit. A range of microfinance packages
is required to meet the needs of the poorest, both women and men. Donors need to revisit
arguments about the sustainability of microfinance programmes. Financial sustainability must be
balanced against the need to ensure that some credit packages are accessible to the poorest.
Cheston and Kuhn (2002)

Has examined that microfinance impacts on various dimensions for empowerment of
poor people i.e., impact on decision making, on self confidence, on their status at home, on
family relationships and on their involvement in the community.
Page 66
COMPANY PROFILE
INTRODUCTION
Business is a part of society. In these days of complex system of production, variety of needs
and ever changing tastes, proper organization of business activities assume great significance or
importance. Business includes both individual and group activities aimed at creation of utility in
the form of goods and services. Thus, business is the combination of gainful human activities.
The principal purpose of business is to create exchange & process wealth to provide it in the
form of goods & useful services. Business in the literary sense means the state of being busy. An
economic activity with which a mean keeps him busy can be regarded as business.
TYPE OF INDUSTRY
Bank is a service industry, which provides financial services to customers.
Finance is the life blood of trade, commerce and industry. Now-a-days, banking sector
acts as the backbone of modern business. Development of any country mainly depends upon the
banking system.
A bank is a financial institution and a financial intermediary that accepts deposits and
channels those deposits into lending activities, either directly by loaning or indirectly through
capital markets. A bank links together customers that have capital deficits and customers with
capital surpluses.
DEFINITION OF BANK
Oxford Dictionary defines a bank as "an establishment for custody of money, which it
pays out on customer's order.
Page 67
MEANING OF BANK
A bank is a financial institution which deals with deposits and advances and other related
services. It receives money from those who want to save in the form of deposits and it lends
money to those who need it.
NATIONALISED BANKS / PUBLIC-SECTOR BANKS

1. Allahabad Bank
2. Andhra Bank
3. Bank of Baroda
4. Bank of India
5. Bank of Maharashtra
6. Bhartiya Mahila Bank
7. Canara Bank
8. Central Bank of India
9.Corporation Bank
10. Dena Bank
11. IDBI Bank
12. Indian Bank
13. Indian Overseas Bank
14. Oriental Bank of Commerce 15. Punjab National Bank
16. Punjab & Sind Bank
17. Syndicate Bank
18. UCO Bank
19. Union Bank of India
20. United Bank of India
21.Vijaya Bank
SBI AND ASSOCIATE BANKS

1. State Bank of India
2. State Bank of Bikaner & Jaipur
3. State Bank of Hyderabad
4. State Bank of Mysore
5. State Bank of Patiala
6. State Bank of Travancore
7. State Bank of Saurashtra (merged into SBI in 2008)
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8. State bank of Indore (merged into SBI in 2010)
STATE BANK OF MYSORE

State Bank of Mysore, Pandavapura Branch
State Bank of Mysore, Pandavapura Branch was established in Jan 23 rd 1970. The current
Bank Manager is Mr. H.V. Srinivas
Address: PB NO 1,
35 Bus Stand Road,
I Cross,
Pandavapura 571434, Mandya Dist
Email: Pandavapura@sbm.co.in
Tel Ph: 08236 255162
HISTORICAL BACKGROUND
Page 69

State Bank of Mysore was established in the year 1913 as Bank of Mysore Ltd. under the
patronage of the erstwhile Govt. of Mysore, at the instance of the banking committee headed by
the great Engineer-Statesman, Dr. Sir M.Visvesvaraya. Subsequently, in March 1960, the Bank
became an Associate of State Bank of India. State Bank of India holds 90% of shares. The Bank's
shares are listed in Bangalore, Chennai and Mumbai stock exchanges. Head office of State Bank
of Mysore located in Bangalore.
Head office Address,

State Bank of Mysore,
H .O: K.G.Road,
Bangalore - 560254, INDIA.
Phone: 91 80 22353901 to 22353909; 22353473.
Fax: 91 80 22283684
Branch Network
The Bank has widespread network of 902 Branches (as on 05.10.2013) and 14 Extension
Counters spread all over India including 6 Small and Medium Enterprise Branches, 4 Industrial
Finance Branches, 3 Corporate Accounts Branches, 7 Specialized Personal & Services Banking
Branches, 9 Agricultural Development Branches, 3 Government Business Branches, 1 Asset
Recovery Branch besides 5 Service Branches, offering wide range of services to the customers.
Human Resources
The Bank has a dedicated workforce of 10,479 employees consisting of 3,738
supervisory staff and 6,741 non-supervisory staff (as on 30.06.2013). The skill and competence
of the employees have been kept updated to meet the requirement of our customers keeping in
view the changes in the business environment.
Page 70
ORGANIZATIONAL SETUP
While the Chairman of State Bank of India is also the Chairman of the Bank, The
Managing Director is assisted by two Chief General Manager and 13 General Managers.
Designation
Name
Managing Director
Chief General Manager (Retail Banking)
Chief General Manager(Commercial Banking)
General Manager (Human Resource & General
Mr Sharad Sharma
Mr Kalyan Mukherjee
Mr Saswata Chaudhuri
Mr Bibhupada Nanda
Administration)
General Manager (SAMG)
General Manager (Priority Sector, Rural
Mr J Ramakrishnan
Mr K Lakshmisha
Banking & Financial Inclusion)

General Manager (Corporate Banking - Head
Mr Rajiv Mathur
Office)
General Manager (Risk Management and
Mr Parthasarathy N
Credit Policy and Procedures,IT)

General Manager (Treasury) & Chief Financial
Sri Viswanathan V
Officer
General Manager (Retail NW Bangalore)
General Manager(Vigilance)
General Manager(New Business,Govt
Mr Nageswara Rao
Mr Vijay Dube
Mr A Karunanithi
Business & BPR)

General Manager (NW - Delhi)
General Manager (Retail Network Mysore)
General Manager (Inspection & Audit)
General Manager (Personal Banking)
Mr Ravinder Kumar Madaan

Mr S Bangara Raju
Mr Subhabrata Ray
Mr Ashok K Pradhan
VISION AND MISSION OF STATE BANK OF MYSORE

Mission
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A premier Commercial Bank in Karnataka, with all India presence, committed to provide
consistently superior and personalized customer service backed by employee pride and will to
excel, earn progressively high returns for its shareholders and be a responsible corporate citizen
contributing to the well being of the society.
Vision
To be amongst most trusted power utility company of the country by providing
environment friendly power on most cost effective basis, ensuring prosperity for its stakeholders
and growth with human face.
OBJECTIVES OF STATE BANK OF MYSORE

1. Accepts deposit
2. Gives loans and advances
3. Invests and Borrows
4. Deals in bill of exchange
5. Deals in gold and silver
6. Deals in foreign currencies
7. Underwrite issues
8. Form subsidiary
9. Housing schemes
10. Acts and agent
ACHIEVEMENTS AND AWARDS OF STATE BANK OF MYSORE

a) Achievements
1992 - The State Government has also taken up vigorously 'ASHRAYA', a new
housing scheme for the weaker sections and 'VISHWA', a new rural and cottage
industry schemes new programme called 'AKSHAYA' has also been launched to help
the children in primary education.
The Konkan Railway Project and the New
Mangalore Port Project are also progressing satisfactorily.

2001 - State Bank of Mysore has opened a foreign exchange cell at its Hirehally
Industrial estate
branch in Tumkur district to enable small-scale industrialists to
manage their foreign exchange transactions.

2003-Ties up with HMT Ltd and launches SBM-HMT Agri Farm Scheme, to
promote agricultural mechanization in south India.

2005-SBM unveils new single window system
Page 72
b) Awards
Best Rural Banking Initiative and Best IT Architecture.
National Awards for Excellence in MSE Lending.
National Awards for excellence in lending to Micro Enterprises.
Best Online Banking Award, Best Customer Initiative Award & Best Risk Management
Award (Runner Up) by IBA Banking Technology Awards the Bank of the year 2009.
India (won the second year in a row) by 2010 Best Bank Large and Most Socially
Responsible Bank
Page 73
DATA ANALYSIS AND INTERPRETATION
Analysis of data is a process of inspecting, cleaning, transforming & modeling data with
the goal of discovering useful information, suggesting conclusions, and supporting decision
making. Data analysis has multiple facets and approaches, encompassing diverse techniques
under a variety of names, in different business, science, and social science domains.
Page 74

Analysis and Interpretation are prepared according to the data collected from bank.
Datas are classified with the help of tables and charts and the Datas are analyzed with the
classified data.
Objective No.1 To analyze the institutional financial assistance given by the

bank for the SHG group members.
Table No. 4.1
No. of SHGs in the bank
Year
No. of SHGs in the

bank
2010-11
40
2011-12
65
2012-13
80
2013-14
95
2014-15
110
Source: Bank record
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GRAPHICAL REPRESENTATION
No. of SHGs in the bank

100
90
80
70
60
Axis Title
50
40
30
20
10
0
2010-11
2011-12
2012-13
2013-14
INTERPRETATION
Table number 4.1 represents number of SHGs in the bank. The number of SHGs have
been increased from 40 to 110 from 2010-11 to 2014-15. In the year 2014-15 number of SHGs
was recorded to be 110. This was followed by 2013-14 and 2012-13 numbering 95 and 80
respectively. In the year 2010-11, number of SHGs was only 40. To conclude the number of
SHGs is increasing which indicates a good progress in the bank.
Table No. 4.2:

Page 76
SHGs savings with bank

Year
2010-11
2011-12
2012-13
2013-14
2014-15
Source: Bank record
Total Savings (Amt in Lakh)

4
8
12
18
25
total savings(amnt in lakh)

2010-11
2011-12
2012-13
6%
2013-14
2014-15
12%
37%
18%
27%
INTERPRETATION
Table number 4.2 represents total amount of savings of SHGs in the bank. The total
savings of SHGs have been increased from Rs. 4 lakhs to Rs. 25 lakhs from 2010-11 to 2014-15.
In the year 2014-15 total savings of SHGs was recorded to be Rs. 25 lakhs. This was followed by
2013-14 and 2012-13 numbering Rs. 18 lakhs and Rs. 12 lakhs respectively. In the year 2010-11
total savings of SHGs was only Rs. 4 lakhs. To conclude the total savings of SHGs is increasing
which indicates a good progress in the bank.
Page 77
Table No. 4.3

Loan disbursed to SHGs
Year
Total Loan disbursed (Amt in Lakh)
2010-11
60
2011-12
2012-13
2013-14
2014-15
Source: Bank record
120
180
280
350
Total loan distrubuted
2010-11; 6%
2011-12; 12%
2014-15; 35%
2012-13; 18%
2013-14; 28%
INTERPRETATION
Table number 4.3 represents total amount of loan disbursed to SHGs from the bank. The
total loan disbursed to SHGs have been increased from Rs. 60 lakhs to Rs. 350 lakhs from 201011 to 2014-15. In the year 2014-15 total loan disbursed to SHGs from the bank was recorded to
be Rs.350 lakhs. This was followed by 2013-14 and 2012-13 numbering Rs. 280 lakhs and Rs.
Page 78

180 lakhs respectively. In the year 2010-11 total loan disbursed to SHGs was only Rs. 60 lakhs.
To conclude the total loan disbursed to SHGs is increasing which indicates a good progress in the
bank.
Objective No.2 To know the risk is faced by the employees in the bank.
Table No.4.4
Major Risk Categories
Financial Risks
Operational Risks
Strategic Risks
Governance Risk
Credit Risk
Transaction Risk
Ineffective oversight
Transaction risk
Human resources Risk
Poor
Portfolio risk
Information
Liquidity Risk
technology
Reputation Risk
Market Risk
risk
External Business
Interest rate risk
Fraud
Foreign
governance
& structure
(Integrity) Risks
exchange Risk
Event risk
Risk
Legal & Compliance
Investment
Risk
portfolio risk
Table No. 4.5

Proportion of Financial, Operational & Strategic Risks faced by the
employees in the bank
Page 79
Risks
Financial Risk
Operational Risk
Strategic Risk
TOTAL
1.
2.
3.
Proportion (%)
49
28
23
100
Source: Bank record

Proportion of risk
b) Reputation; 3% C) EBR; 3%
1) Financial; 25%
a) Govt; 5%
3) Strategic ; 12%
c) L & C; 4%
b) Fraud; 3%
a) credit; 11%
a) Transaction; 7%
2) Operatonal; 14%
b) liquidity; 7%
c) Market; 6%
INTERPRETATION
Table number 4.4 and 4.5 represents some of the major risks and proportion of risk faced
by the employees in the bank. In the above table we can see 3 types of major risk i.e., financial
risk, operational risk and strategic risk and also every 3 risk are sub-divided into 3 types. That is
Page 80

financial risk are sub-divided as credit risk, liquidity risk and market risk. Operational risk are
sub-divided as transaction risk, fraud risk and legal & compliance risk. Finally, strategic risk are
sub-divided as government risk, reputation risk and external business risk.
The proportion of risk faced by the employees in the bank is as follows. The total
proportion of financial risk was 49% and it includes 22.05% of credit risk, 14.70% of liquidity
risk and 12.25% of market risk. The total proportion of operational risk was 28% and it includes
14% of transaction risk, 5.6% of fraud risk and 8.4% of legal & compliance risk. The total
proportion of strategic risk was 23% and it includes 9.2% of government risk, 6.9% of reputation
risk and 6.9% of external business risk. So the total proportion of financial, operational and
strategic risks are 49%, 28% and 23% respectively. To conclude by facing this much risk also
bank employees are giving better services to the customer regarding microfinance concept.
Page 81
Table No. 4.6

Proportion of Financial Risk
Financial Risk
1. Credit Risk
2. Liquidity Risk
3. Market Risk
Source: Bank record
Proportion (%)
45
30
25
Proportion of financial risk

Market risk; 25%
Credit risk; 45%
Liquidity risk; 30%
INTERPRETATION
Table number 4.6 represents the proportion of financial risks faced by the bank
employees. Financial risk includes credit risk, liquidity risk and market risk. Financial risk
includes 45% of credit risk, 30% of liquidity risk and 25% of market risk. These risk lead loss of
principle and management fails to maintain sufficient cash reserves on hand. To conclude bank
should take effective steps to reduce the above risk faced by the bank employees.
Table No. 4.7

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Proportion of Operational Risk

Operational Risk
1. Transaction Risk
2. Fraud Risk
3. Legal & Compliance Risk
Source: Bank record
Proportion (%)
50
20
30
Proportion of operational risk
Legal & compliance risk; 30%

Transaction risk; 50%
Fruad risk; 20%
INTERPRETATION
Table number 4.7 represents the proportion of operational risks faced by the bank
employees. Operational risk includes transaction risk, fraud risk and legal & compliance risk.
The operational risk includes 50% of transaction risk, 20% of fraud risk and 30% of legal &
compliance risk. To conclude bank should take effective steps to reduce the above risk faced by
the bank employees.
Table No. 4.8

Proportion of Strategic Risk
Page 83
Strategic Risk
1. Governance Risk
2. Reputation Risk
3. External Business Risk
Source: Bank record
Proportion (%)
40
30
30
Proportion of strategic risk
Governance risk
30%
40%
Reputation risk
External business risk
30%
INTERPRETATION
Table number 4.8 represents the proportion of strategic risks faced by the bank
employees. Strategic risk includes governance risk, reputation risk and external business risk. It
includes 40% of governance risk, 30% of reputation risk and 30% of external business risk. To
conclude bank should build good reputation among the customers and in society and it should
aware about the government structure, rules and regulation.
Objective No.3 To understand the risk management process followed by the

bank.
Page 84
Figure No. 4.1

1. Identify, assess & prioritize risks
2. Develop strategies to measure risk
3. Design operational policies and procedures to mitigate risk
4. Implement into operations and assign responsibility
5. Test effectiveness & evaluate results
6. Revise policies & procedures as necessary

INTERPRETATION
Figure number 4.1 represents the risk management process followed by MFI. The above
6 steps are allowed by the bank to reduce the risk such as financial risk, operational risk and
strategic risk.
Table No. 4.6

Perceptions of areas of difficulties in business as a woman
Page 85
CHALLENGES FACED BY THE WOMEN ENTREPRENEURS

Challenges are faced by the women entrepreneurs due to many reasons. Some of the challenges
faced by the women entrepreneurs include
Intense competition from similar products, limited knowledge, production and quality
standards as well as low confidence and morale.

Many women started their own business due to the adverse circumstances, such as loss of
spouses, divorce or financial hardship.

Lack of follow up and holding support (i.e. Capital, market linkages, technical
information and marketing techniques) after receiving Entrepreneurship development
training.
A risk adverse mindset.
Inadequate capital.
Networking problem (i.e. with raw supplier to buyer of products)
Insufficient management and marketing skills.
Low level of motivation and courage.
Lack of support from male members (of the families) as well as banks
Large magnitude of the target group of poor people.
Attitudinal rigidities.
Difficulty in creating awareness among people.
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Limited resources with the NGOs.

Large requirements of training and sensitization of issues.
Limited number of experienced intervention agencies.
Diversities of situations due to wide coverage.
OVERCOMING THE CHALLENGES

The challenges faced by the women entrepreneurs can be overcome with the help of the
following measures
Creating the Importance of Entrepreneurship program and skills training, and MF and
support under single roof.

Training programme operating in several states helped NGOS-MFIs provide their
microfinance clients different set of skills for successfully running enterprises.

Provide micro credit for livelihood support and to micro enterprises development.
Encouraging women entrepreneur to utilize the loans for productive purposes and have
the potential to become entrepreneur.

Establishing a network of SHG to serve as a self-help community for micro enterprises
development activities.
Social recognition of women leading an enterprise.
Developing female mentors, trainers and advisors.
Establishing sources of credit.
INTERPRETATION
Table number 4.6 represents perceptions of areas of difficulties in business as a woman.
As a woman if she wants to become entrepreneur she will face many challenges, problems and
difficulties to run a enterprises. But now a days she was overcoming those challenges, problems
and difficulties just because of microfinance concept. To conclude microfinance concept helps
woman to overcome from many problems which indicates a good progress in women
empowerment as well as microfinance concept.
Page 87
FINDINGS, SUGGESTIONS AND CONCLUSIONS
FINDINGS
With the help of relationship data we can see that there is more percentage of women
SHGs out of total SHGs. So that is good indicator for women entrepreneur.
The loan distributed data show increase the % of loan amount to women as compare to
last year. This show the economic development of women entrepreneur.
Page 88
The savings of SHGs also increasing year by year. This shows that financially womens
are becoming stronger.

From the current situation we can understand that today the main focus of micro finance
industry is to empower the woman thats why more loans are provided to woman and on
easy terms.
There are many challenges face by women to doing the business as entrepreneur like lack
of capital, networking problems etc. But these challenges can be overcoming with the
help of Provide micro credit for livelihood support and to micro enterprises development,
establishing sources of credit.

Under microfinance concept the bank has facing many risk such as financial risk,
operational risk and strategic risk.

In total risk we can see, 49% of financial risk it includes 22.05% of credit risk, 14.70%
liquidity risk and 12.25% of market risk. 28% of operational risk it includes 14% of
transaction risk, 5.60% of fraud risk and 8.40% of legal & compliance risk. 23% strategic
risk it includes 9.20% of governance risk, 6.90% reputation risk and 6.90% external
business risk.
We can find the micofinance risk management process taken by the bank. By applying
those steps bank is try to reduce the risk.
SUGGESTIONS
Continue and time to time consultation and education programs should be conducted by
the bank for the beneficiaries in order to teach them on how to manage and utilize the
loan provided by bank.

The bank has to conduct monthly meeting for all SHG members not only for one or two
members of SHGs. By conducting the meeting bank manager should take each member
opinion about group representative such as relationship with each group member, is she
take her responsibility seriously etc.

Table No. 4.6 represents the proportion of financial risk faced by the bank. Under this
credit risk leads to loss of principle and interest. So the bank has to follow the strict loan
Page 89

repayment process. It should give the strict direction to the SHGs to repay the loan
amount at correct time without any capital due.

Bank should maintain sufficient cash reserves on hand to reduce the liquidity risk under
operational risk.
Bank employees should maintain good relationship with customers to build good
reputation.
Making a proper follow up to the beneficiaries regarding the loan provided by the bank
so as the bank can recover their dues on time.

Initiating and rewarding of innovative work performing by the individual. This will
motivate the beneficiaries to perform better and repaying their loan on time.
CONCLUSION
Traditionally women have been marginalized. A high percentage of women are among the
poorest of the poor. Microfinance activities can give them a means to climb out of poverty.
Microfinance could be a solution to help them to extend their horizon and offer them social
recognition and empowerment. Numerous traditional and informal system of credit that was
already in existence before micro finance came into vogue. Viability of micro finance needs to be
understood from a dimension that is far broader- in looking at its long-term aspects too.
A conclusion that emerges from this account is that micro finance can contribute to
solving the problems of inadequate housing and urban services as an integral part of poverty
alleviation programmes. The challenge lies in finding the level of flexibility in the credit
Page 90

instrument that could make it match the multiple credit requirements of the low income borrower
without imposing unbearably high cost of monitoring its end use upon the lenders. A promising
solution is to provide multipurpose lone or composite credit for income generation, housing
improvement and consumption support. Consumption loan is found to be especially important
during the gestation period between commencing a new economic activity and deriving positive
income.
India is the country where a collaborative model between banks, NGOs, MFIs and
Womens organizations is furthest advanced. It therefore serves as a good starting point to look at
what we know so far about Best Practice in relation to micro-finance for womens
empowerment and how different institutions can work together.
It is clear that gender strategies in micro finance need to look beyond just increasing
womens access to savings and credit and organizing self-help groups to look strategically at how
programmes can actively promote gender equality and womens empowerment. On the other
hand, thank to women's capabilities to combine productive and reproductive roles in
microfinance activities and society has enabled them to produce a greater impact as they will
increase at the same time the quality of life of the women micro-entrepreneur and also of her
family.
BIBLIOGRAPHY
Articles
S.Sarumathi and Dr.K.Mohan, Role of Microfinance in womens Empowerment,
Journal of Management and Science, Vol.1, No.1, Sep 2011.

Economic and Social Affairs, Microfinance as a poverty Reduction Tool-A critical
Assessment, DESA Working paper No.89, Dec 2009.

Susanna Khaval, Microfinance: creating opportunities for the poor?, Academy of
Management Perspectives (2010).

Padmalochan Mahanta, Gitanjali Pandu and Sreekumar, International Journal of
Marketing, Financial Services and Management Research, Vol.1, Issue 11, Nov 2012.
Page 91
Dr. Dirk Steinwand, A Risk Management Framework for Microfinance Institutions,
July 2000.
Dan Norell, How To Reduce Arrears In Microfinance Institutions, Journal of
Microfinance, Vol.3
Prof. V. Narasimha Rao and Dr. M. Venkateshwara, Financial Inclusion: A study on
Opportunities and Challenges of Microfinance, Vol, Issue 7, July 2013.

Jayati Ghosh, Microfinance and the Challenges of financial inclusion for development
Cambridge Journal of Economics, 2013.
Websites
www.google.com
www.sbm.co.in
Bank records
Annual report
SHGs records
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A Study On Impact of Microfinance On Women Empowerment

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