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MICROFINANCE Definition

Introduction to topic

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. Microfinance is the provision of financial services to low-income clients or solidarity lending groups including consumers and the self-employed, who traditionally lack access to banking and related services. More broadly, it is a movement whose object is "a world in which as many poor and nearpoor 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. Those who promote microfinance generally believe that such access will help poor people out of poverty. Microfinance is a broad category of services, which includes microcredit. Microcredit is provision of credit services to poor clients. Although microcredit is one of the aspects of microfinance, conflation of the two terms is epidemic in public discourse. Critics often attack microcredit while referring to it indiscriminately as either 'microcredit' or 'microfinance'. Due to the broad range of microfinance services, it is difficult to assess impact, and very few studies have tried to assess its full impact.

Origin of Microfinance 30 years ago Muhammad Yunus set up the Grameen Bank, not to provide lending opportunities to the poor (they already had the opportunity to borrow from usurious money lenders), but to provide fair financial services to the unbanked and break the poverty traps faced by so many poor people whose only option was to borrow under exploitative

conditions. Among pioneers like Yunus there was a belief in the social ideal that all people deserved fair access to financial services, and that the ability of individuals to capitalize their businesses would ultimately help in the fight against poverty. Microfinance was presented as a revolution in development because of its potential to be a sustainable intervention. That is to say that it was hoped that (after initial start-up costs) microfinance would break even with the manageable interest rates providing enough to cover the expenses of the organization, and would therefore not need ongoing injections of cash from outside donors. The industry has indeed grown massively with the Microfinance Summit Campaign reporting that as of 31 December 2009 3,589 microcredit institutions were reaching 190,135,080 clients. Bangladesh, where an estimated 25% of rural households are direct beneficiaries of microfinance programmes (Khandker, 2003), is the plainest example of the ability of microfinance to expand. For some this shows microfinance to be a resounding success; for others it is indicative of an industry that has been allowed to grow too fast and without proper oversight. Since the 1970s, the concept of microfinance has developed considerably and the mission statements adopted by microfinance institutions (MFIs) now show significant diversity. Some common objectives are: Reducing individual poverty through allowing people to invest in businesses. Ensuring that poor people are less vulnerable to income fluctuation. Improving local and national economies by encouraging enterprise and increasing employment and production. The democratization of financial services, also termed financial inclusion.

Micro-Savings:Despite the focus on credit a large number of submission received by this inquiry stressed the importance of savings and, in particular, the importance of ensuring that all individuals have access to micro-savings. While there is increasing recognition of this issue and use of savings-led approaches to microfinance, many organizations continue to offer just credit. Savings products would benefit from the concerted attention of all elements of the microfinance sector.
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Many banks and financial institutions have been pioneering the microfinance program after 1970. These are listed below:a) ACCION International: This institution had been established by a law student of Latin America to help the poor people residing in the rural and urban areas of the Latin American countries. Today, in 2008, it is one of the most important microfinance institutions of the world. Its network of lending partner comprises not only Latin America but also US and Africa.

b) SEWA Bank: In 1973, the Self Employed Women's Association (SEWA) of Gujarat (in India) formed a bank, named as Mahila SEWA Cooperative Bank, to access certain financial services easily. Almost 4 thousand women contributed their share capital to form the bank. Today the number of the SEWA Bank's active client is more than 30,000.

c) GRAMEEN Bank: Credit unions and lending cooperatives have been around hundreds of years. However, the pioneering of modern microfinance is often credited to Dr. Mohammad Yunus, who began Experimenting with lending to poor women in the village of Jobra, Bangladesh during his tenure as a professor of economics at Chittagong University in the 1970s. He would go on to found Grameen Bank in 1983 and win the Nobel Peace Price in 2006.Since then, innovation in microfinance has continued and providers of financial services to the poor continue to evolve. Today, the World Bank estimates that about 160 million people in developing countries are served by microfinance. Grameen Bank (Bangladesh) was formed by the Nobel Peace Prize (2006) winner Dr Muhammad Yunus in 1983. This bank is now serving almost 400, 0000 poor people of Bangladesh. Not only that, but also the success of Grameen Bank has stimulated the formation of other several microfinace institutions like, ASA, BRAC and PROSHIKA

Key principles of microfinance:1. The poor need a variety of financial services, not just loans:Just like everyone else, poor people need a wide range of financial services that are convenient, flexible and reasonably priced. Depending on their circumstances, poor people need not only credit, but also savings, cash transfer, and insurance.

2. Microfinance is a powerful instrument against poverty:Access to sustainable financial services enables the poor to increase incomes, build assets, and reduce their vulnerability to external shocks. Microfinance allows poor household to move from everyday survival to planning for future investing in better nutrition improved living conditions and childrens health and education.

3. Microfinance means building financial systems that serve the poor:Poor people constitute the vast majority of the population in most developing countries. Yet, an overwhelming number of the poor continue to lack access to basic financial services. In many countries, microfinance continues to be seen as a marginal sector and primarily a development concern for donors, government and socially responsible investors. In order to achieve its full potential of reaching a large number of the poor, microfinance should become an integral part of the financial sector.

4. Financial sustainability is necessary to reach significant number of poor people:Most poor people are not able to access financial services because of the lack of strong retail financial intermediaries. Building financially sustainable institute is not enel itself. It is the only way to reach significant scale and impact far beyond what donor agencies can fund. Sustainability is the ability of microfinance provider to cover all of its costs. To allows the continued operation of the microfinance provider and the ongoing provision of financial services to the poor. Achieving financial sustainability means reducing transaction costs, offering better products and services that clients needs, and finding new ways to reach the un banked poor.

5. Microfinance is about building permanent local financial institute:Building financial system for the poor means building sound domestic financial intermediaries that can provide financial services to poor people on a permanent basis. Such institute should be able to mobilize and recycle domestic savings, extend credit, and provide a range of services. Dependence on funding from donors and government including government financed development banks will gradually diminish as local financial institute and private capital markets mature. 6. Microcredit is not always the answer:Microcredit not appropriate for everyone or every situation. The destitute and hungry have no income or means of repayment need other form of support before they can make use of loans. In many cases, small grants, infrastructure improvements, employment and training programs, and other non financial services may be more appropriate tools for poverty alleviation wherever possible; such non-financial services should be coupled with building savings. 7. Interest rate increasing can damage poor peoples access to financial services:It costs much more to make many small loans than a few large loans. Unless micro lenders can charge interest rates that are well above average bank loan rates, they cannot cover their costs and their growth and sustainability will be limited by the scare and uncertain supply of subsidized funding. When governments regulate

interest rates they usually set them at levels too low to permit sustainable microcredit. At the same time micro lenders should not pass on operational inefficiencies to clients in the form of price (interest and other fees) that are far higher than they need to be.

8. The governments role is an enabler, not as a direct provider of financial services:National plays an important role in setting a supportive policy environment that stimulates the development of financial services while protecting poor peoples saving. The key things that government can do for microfinance are to maintain microeconomic.

Stability, avoid interest rate caps, and refrain from distorting the market with unsustainable subsidized, high-delinquency loan programs. Government can also support financial services for the poor by improving access to markets and infrastructure. In special situations, government funding sor sound and independent microfinance institute may be warranted when other funds are lacking.

9. Donor subsidies should complement , not compete with private sector capital:Donor should use appropriate grant, loan and equity instrument on a temporary basis to build the institutional capacity of financial providers , develop supporting infrastructure (like rating agencies, credit bureans, audit capacity etc.) and support experimental services and products. In some cases, longer term donor subsidies may be required to reach sparsely populated and otherwise difficult to-reach population. To be effective , donor funding must seek to integrate financial services for the poor into local financial market, apply specialist expertise to the design and implementation of projects; require that financial institute, and other partners meet minimum performance standard as a condition for continued support; and plan for exit from the outset.

10. The lack of institutional & human capacity is the key constraint:Microfinance is specialized field that combines banking with social goals, and capacity needs to be built at all levels, from financial institutions through the regulatory and supervisory bodies and information systems, to government development entities and donor agencies. Most investments in the sector, both public and private, should focus this capacity building.

11. The importance of financial and outreach transparency: Accurate standardized and comparable information of financial and social performance of financial institutions providing services to the poor is imperative. Bank supervisors and regulators, donors, investors and more importantly the poor who are clients of microfinance need this information to adequately assess risk and returns.
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Role of Microfinance: The micro credit of microfinance prename 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. 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 micro credit 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 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. While India is one of the fastest growing economies in the world, poverty runs deep throughout country. About two thirds of Indias more than 1billion people live in rural areas and almost 170 million of the mare poor For more than 21 percent of

them, poverty is a chronic condition. Three out of four of Indias poor live in rural areas of the country. Poverty is deepest among scheduled castes and tribes in the countrys rural areas. The micro-finance scene in India is dominated by Self Help Groups (SHGs) - Banks linkage program for over a decade now. As the formal banking system already has a vast branch network in rural areas, it was perhaps wise to find ways and means to improve the access of rural poor to the existing banking network. This was tried by routing financial. Indian microfinance is poised for continued growth and high valuation but faces pressing challenges and opportunities that left unaddressed could negatively impact the long-term future of the industry. The industry needs to move past a single-minded focus on scale, expand the depth and breadth of products and services offered, and focus on the double bottom line and over indebtedness to effectively address the risks facing the industries. Even by the spread of the commercial banks the financial problem of the masses could not be solved as we all know the commercial banks are based on the minimization of risks and maximization of profits and unfortunately cannot reach the masses.

Activities in Microfinance: Micro credit:

It is a small amount of money loaned to a client by a bank or other institution. Micro credit 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:
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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. Product Design:

The starting point is: how do MFIs decide what product s to offer? The actual loan products need to be designed according to the demand of the target market. Besides the important question of what risks to cover, organizations also have to decide whether they want to bundle many different benefits into one basket policy, or whether it is more appropriate to keep the product simple. For marketing purposes, MFIs sometimes prefer the basket cover, since it can make the policies sound comprehensive, but is that the right approach for the low-income market? After picking products, one must also understand how they are priced What assumptions do the organizations make with regard to operating costs, risk premiums, and reinsurance, and how did they come to those conclusions? Would their clients be willing to pay more for greater benefits? From price, the logical next set of questions involves efficiency. Indeed, given the relative high costs of delivering large volumes of small policies, maximizing efficiency is a critical strategy to ensuring that the products are affordable to the low-income market. One way is to make the products mandatory, which increases volumes, reduces transaction costs and minimizes adverse selection. What does an organization lose by offering mandatory insurance, and how does it overcome the disadvantages? MFIs can combine a mandatory product with some voluntary features to make the service more us to mar-oriented while. Techniques of Product Design:

To design a loan product to meet borrower needs it is important to understand the cash pattern of the borrowers. Cash pattern is important so far as they affect the debt capacity of the borrowers. Lenders must ensure that borrowers have sufficient cash inflow to cover loan payments when they are due efficiency depends less on the delivery model than on the simplicity of the product or product menu. Simple products work best because they are easier to administer and easier for clients to understand .Another efficiency strategy is to use technology to reduce paperwork, manual processing and errors .MFIs need to conduct a

costing analysis to determine how much they need to earn in commission to cover their administrative expenses MFIs Products and its Management:

Product & services of Microfinance Financial services Other financial services Non financial services health and

1. Credit service-is small credit, Micro Finance, Health Family Small business Credit Insurance, Insurance, 2. Deposit Loan Life sanitation, for Financial

Education, Education,

services-voluntary Housing, Health

Micro-entrepreneur Training

Saving services, Manda Tory Savings

The players in the Microfinance sector can be classified as falling into three main groups:a) The SHG-Bank linkage Model accounting for about 58% of the outstanding loan portfolio b) Non-Banking Finance Companies accounting for about 34% of the outstanding loan portfolio c) Others including trusts, societies, etc,

Self Help Groups (SHGs) form the basic constituent unit of the microfinance movement in India. An SHG is a group of a few individuals usually poor and often women who pool their savings into a fund from which they can borrow as and when necessary. Such a group is linked with a bank a rural, co-operative or commercial bank where they maintain a group account. Over time the bank begins to lend to thegroup as a unit, without collateral, relying on self-monitoring and peer pressure within the group for repayment of these loans. A SelfHelp Group (SHG) is a registered or unregistered group of micro entrepreneurs having homogenous social and economic backgrounds, voluntarily coming together to save regular small sums of money, mutually agreeing to contribute to a common fund and to meet their
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emergency needs on the basis of mutual help. Also it is a group of people who pool in their resources to become financially stable by taking loans from the money collected by that group and by making everybody of that group self-employed. The group members use collective wisdom and peer pressure to ensure proper end-use of credit and timely repayment. This system eliminates the need for collateral and is closely related to that of solidarity lending, widely used by microfinance institutions.[1] To make the book-keeping simple enough to be handled by the members, flat interest rates are used for most loan calculations.

Under the NBFC model, NBFCs encourage villagers to form Joint Liability Groups (JLG) and give loans to the individual members of the JLG. The individual loans are jointly and severally guaranteed by the other members of the Group. Many of the NBFCs operating this model start doff as non-profit entities providing micro-credit and other services to the poor. However, as they found themselves unable to raise adequate resources for a rapid growth of the activity, they converted them selves into for-profit NBFCs. Others entered the field directly as for-profit NBFCs seeing this as a viable business proposition. Significant amounts of private equity funds have consequently been attracted to this sector.

Others including trusts, societies etc., accounting for the balance 8% of the outstanding loan portfolio. Primary Agricultural Co-operative Societies numbering 95,663, covering every village in the country, with a combined membership of over 13 crores and loans outstanding of over `64, 044 crores as on 31.03.09 have a much longer history and are under a different regulatory framework. Thrift and credit co-operatives are scattered across the country and there is no centralized information available about them.

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Challenges:Although the importance of microfinance in the process of poverty eradication is realized, it faces multiple problems. This is because offering credit to the poor is a complicated process and the sector is still in its experimental stage-: 1) Perceived High Risk of Micro Entrepreneurship and Small Businesses:Micro entrepreneurs usually have no collateral to offer to microfinance providers against loans, they usually lack an alternate source of income, and have little, if any, formal education or training in the area of their business. As a result, commercial banks attribute a high credit risk to micro entrepreneurs and steer clear of this sector. Microfinance institutes (MFIs) are compelled to compensate for this risk by charging interest rates on loans (read 10 determinants of interest rates in microfinance).Fortunately, the challenge can be resolved through the idea of group lending (social collateral against loans) which ensures good repayment rates. 2) High Costs Involved in Small Transactions/Micro lending:The small size of micro enterprises increases the transaction cost for MFIs because they cannot process loans in bulk (unless good management information systems are in place). This denies MFIs the benefit of economies of scale, hence, they are forced to cover their costs through high interest rates on loans (read 4 ways to control high interest rates).According to a study conducted by Asian Development Bank, microfinance providers in the Asia-Pacific region charge interest rates on micro-sized loans ranging from 30 to 70% a year, which is much higher than rates offered by commercial banks (Fernando, 2006). However, there are instances where the interest rates charged were too low for the MFIs sustainability. There is, however, a possible solutions to this problem by improving the technology model used by microfinance institutes, their operational costs can be significantly lowered and efficiencies may be gained during automated loan processing. 3) Lack of Debt and Equity Funds for MFIs to Pass on to the Poor:Capital availability for microfinance is hardly a problem owing to the rapid growth in the microfinance sector, which has been fueled by attention from the media and development agencies. Even though there are plenty of financing options available for MFIs, there is an emerging shortage of money because of the current financial crisis across the globe. Another reason for this shortfall is the lack of awareness of funding sources by MFI managers.
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4) Difficulty in Measuring the Social Performance of MFIs:Microfinance is delivering the economic returns its proponents promised, but there are only a handful of tools available that measure the social return of loan programs for the poor. To add to the problem, the tools use proxies to estimate the amount of poverty and social change surrounding micro entrepreneurs. This makes the gathering of funds a challenge because donors may question the actual impact made my microfinance. 5) Mixing Charity With Business:Since credit without strict discipline is nothing but charity (Professor Yunus), if microfinance providers fail to protect themselves against loan delinquency, they will, in effect, prioritize social objectives at the expense of financial sustainability. Improper delinquency management is a result of inadequate implementation of corporate governance principles, and formal as well as semi-formal microfinance providers often suffer from this. As a result, looser controls over microfinance deals will lead to higher default rates. Read more about the difficulty in mixing charity with business. 6) Lack of Customized Solutions for the Poor Inappropriate targeting of poor households by microfinance programs is a common problem because MFIs fail to understand the varied needs of micro entrepreneurs. MFIs must spend time in the field with their clients and his/her business, and then use this research to develop customized microfinance tools for each micro entrepreneur. Generalized solutions may work for large companies dealing dealing with large homogeneous customer groups, but microfinance providers need to serve the varied needs of individuals in each micro market segments. 7) Lack of microfinance training for Human Resource in Microfinance Institutions Working in the microfinance sector is a different ball game compared to the traditional financial sector. For instance, microfinance officers and volunteers need to talk a different language, build lasting relationships with individual micro entrepreneurs, understand the unique needs of the poor, evaluate the borrowers sustainability, and grasp the cultural nuances of the borrowers communities (Im sure Ive missed a few). Of course, all this needs to be done by large financial firms as well, but the needs and characteristics of the two markets are very different. Its no surprise microfinance providers need special training to ensure they avoid problems such as intimidating or under-serving clients.
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8) Poor Distribution System of Microfinance Institutions and lack of information about microfinance investment opportunities:There are over 10,000 MFIs across the world, but their reach is only 4% of the potential market. World Bank, 2001. Firstly, microfinance providers may be complacent with their client base in certain cities and feel no economic need (ignoring the social need to eradicate poverty) to spread out their distribution system to cater to the poorest of households. Secondly, micro entrepreneurs are sprawled over large geographical areas, often in remote places, which often makes them inaccessible to MFIs. This is a slight problem because even though there are over 10,000 MFIs around the world, they may not know about the existence and needs of certain micro entrepreneurs. 9) Dual mission of Microfinance Institutions to be financially Sustainable as well as Development Oriented:Microfinance providers tend to forget their main objective is social development and not profit creation. The principle of one micro entrepreneur one micro loan is overlooked by profit-hungry MFIs who end up targeting the same individual for many loans and cause multiple borrowing (also known as credit pollution). This is a major problem because at the end of the day, that individual gets burdened by mounting interest payments and is pushed deeper into the folds of poverty. Poor governance on the side of MFIs as well as the micro entrepreneur are to blame for this. All these problems can broadly fall into either financial and operational in nature and we can therefore see that they should not be impossible to solve as the microfinance sector moves towards it optimal performance level in the next several years. In other words, despite these problems, the prospects of microfinance are quite bright. In the coming weeks, we will look at potential solutions to all these problems, which arent difficult to adopt (a couple have been already been mentioned above). The microfinance industry in India is growing by the day. According to one recent study by Intellecap, the 60 largest microfinance institutions in India have 10 million clients. That's 10 million of the working poor who have been given small loans that allow them to pull themselves and their family out of poverty. Microfinance loans are aimed at empowering the impoverished, mostly women, to start their own businesses and to grow their money so they can achieve long-term financial independence. That's why this concept carries many advantages over typical philanthropic endeavors.
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Legal forms of MFIs in India: MFIs and Legal Forms: With the current phase of expansion of the SHG Bank linkage programmed and other MF initiatives in the country, the informal micro finance sector in India is now beginning to evolve. The MFIs in India can be broadly sub-divided into three categories of organizational forms as given in Table 1.While there is no published data on private MFIs operating in the country, the number of MFIs is estimated to be around 800. However, not more than 10 MFIs are reported to have an outreach of 100,000 micro finance clients. An overwhelming majority of MFIs are operating on a smaller scale with clients ranging Between 500 to1500 per MFI. The geographical distribution of MFIs is very much lopsided with concentration in the southern India where the rural branch network of formal banks is excellent. It is estimated that the share of MFIs in the total micro credit portfolio of formal & informal institutions is about 8 per cent.

Not for profit MFIs governed by societies registration act, 1860 or Indian trusts act 1882

Non profit companies governed by section 25 of the companies act, 1956

For profit MFIs regulated by Indian companies act, 1956

NBFC governed by RBI act, 1934.

Cooperative societies by cooperative societies act enacted by state government.

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Top 10 Microfinance Institutions in India:

CRISIL List of Top 10 Microfinance Institutions in India by Loan Amount Outstanding for 2010:1. SKS Microfinance Ltd (SKSMPL). 2. Spandana Sphoorty Financial Ltd (SSFL) .3. Share Micro fin Limited (SML) 4. Asmitha Micro fin Ltd (AML). 5. Shri Kshetra Dharmasthala Rural Development Project (SKDRDP). 6. Bhartiya Samruddhi Finance Limited (BSFL). 7. Bandhan Society. 8. Cashpor Micro Credit (CMC). 9. Grama Vidiyal Micro Finance Pvt Ltd (GVMFL). 10. Grameen Financial Services Pvt Ltd (GFSPL).

Future of Micro Finance:

The Future: Microfinance expansion over the next decade can be expected to be an extension of what has been achieved so far while overcoming the hurdles that have been posing difficulty in effective microfinance operation and its expansion. There may be several participants in this process and their participation may be seen in the following forms. Existing microfinance institutions can expand their operations to areas where there are no microfinance programs. More NGOs can incorporate microfinance as one of their programs. In places where there are less microfinance institutions, the government channels at the grassroots level may be used to serve the poor with microfinance. Postal savings banks may participate more not only in mobilizing deposits but also in providing loans to the poor and on lending funds to the MFIs. More commercial banks may participate both in microfinance wholesale and retailing. They many have separate staff and windows to serve the poor without collateral. International NGOs and agencies may develop or may help develop microfinance programs in areas or countries where micro financing is not a very familiar concept in reducing poverty. Considering that the majority of the 360 million poor households (urban and rural) lack access to formal financial services, the numbers of customers to be reached, and the variety and quantum of services to provided are really large. It is estimated that 90 million farm
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holdings, 30 million non-agricultural enterprises and50 million landless households in India collectively need approx US$30 billion credit annually. This is about 5%of India's GDP and does not seem an unreasonable estimate. However, 80% of the financial sector is still controlled by public sector institutions. Competition, consolidation and convergence are all being discussed to improve efficiency and outreach but significant opposition remains. Many private and foreign banks have unveiled their plans to enter the Indian microfinance sector because of its very low NPAs and high repayment rate of more than 95% in spite of offering loans without any collateral security. Microfinance is not yet at the centre stage of the Indian financial sector. The knowledge, capital and technology to address these challenges however now exist in India, although they are not yet fully aligned. With a more enabling environment and surge in economic growth, the next few years promise to be exciting for the delivery of financial services to poor people in India Development of Small-Scale Enterprises through microfinance will not only increase the outreach but will also help the generation of more employment and income for the poor. It is expected that in the following years there will be considerable deepening of microfinance in this direction along with simultaneous drives to reach and serve the poorest of the poor. But the crux of the discussion is that, if the over excess involvement of the government would be there in the Micro Finance sector, than the growth of the Micro Finance wont much possible. The Govt. involvement should limited to the important decisions only, but not to interfere in each and every matter of the management.

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1.2
The objectives of the study are:

Objectives of the study

To understand the concept of Micro Finance To study the evalution of Micro Finance and the recent development. To study the main areas of their operations. To study the operations of the MAI MARATHI SANSTHA (Financial institution) which provides micro finance to Sahyadri Bachat Gat To understand the activities of Sahyadri Bachat Gat.

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1.3

Scope of study

I have conducted the study in the kandivali, Mumbai area. So, study is restricted to the one area and I have visited only one SHG and Financial institution because of time limit but if I get the chance to do more work on this project then survey can be conducted at state level and I can get more relevant data.

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1.4

Limitation of the study

There was time limit for the project. I have targeted only one SHG and one Institution for the survey. Sample size were also less, only 20 womens were targeted for survey.

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2.1Introduction to Company
2.1 Mai Marathi Sanstha Mai Marathi Sanstha
Mai Marathi Sanstha is a registered NGO which works for Marathi People. It aims at uniting the vast Marathi Community which is talented, knowledged but scattered and disunited. Mai Marathi Sanstha was formed with the intention of creating a network of Marathi People Few like minded youths from different walks of life, with similar dreams happened to meet online, they had dreamt to form a group that would work to unite Marathi People scattered all over the world, this this group would be apolitical in nature. Soon, online meetings transformed into real meetings, this group decided to form a Yahoo Group, which unlike many other group would not be just for exchange of emails. A group by the name Mai Marathi was soon launched thereafter. The response received to this group was simply overwhelming; the group soon started its monthly e-publication by the name e-Masik. The Founder Members of Mai Marathi were, Ms. Seema Shelar, Ms. Kshama Keer, Shri Vijay Joshi.

It was soon realized that merely forming a Yahoo Group would be of no use unless the movement percolated to the grassroots level; hence, the need of forming a NGO was felt. The Founding Members invited members of Yahoo Group to spread their ideas. The formalities of forming a NGO was undertaken with the support of Shri Bhusan Paithankar, CA. Mai Marathi is now a registered NGO registered under Indian Public Trust Act 1950 & Indian Societies Act 1860. (Reg. No.140/2007/GBB/SD/2006-07) (Cert. of Regn.)

Mission of Institution Our Mission is very simple, our vision pretty clear. We dream to unite all the Marathi People, bring them together, irrespective of their caste, creed or social status. Difficult it may seem, but we don't consider it impossible. Marathi People are very talented lot, however, they are scattered, we intend to act as a bridge and bring Marathi People together. Create a sense of pride of being a 'Marathi'.
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Mai Marathi would act as a facilitator and would network with agencies both government and private to provide the needy the much required help. We have kept all the spheres of activities open for Mai Marathi. We would not restrict our activities in any specific fields. All that concerns Marathi people would come under our sphere of activities. Mai Marathi would work in fields such as Education, Self-Employment, Awareness, Culture and other fields. Initially, our scope of operations would be limited to areas in and around Mumbai; however, we would extend our activities all over the places where Marathi people reside. We intend to make Marathi Youths competitive enough to sustain and develop in this world. Let us make it clear that though we are working for Marathi People, it does not mean that we are promoting regionalism or sectarism. We are as proud Indians as others are. We just aim to 'target' Marathi people, for their welfare and their unit.

Sahyadri Bachat Gat (SHG)

To conduct the study of I visited Sahyadri Bachat Gat (SHG) in Kandivali area, Mumbai. There are 20 members in SHG. Mai Marathi Sanstha is a Financial Institution which gives moral and financial support to the Sahyadri Bachat Gat. With the help of Mai Marathi Sanstha Bachat Gat, womens do so many activities and also make agarbatti, perfume detergent powder, phenol etc. They sell all these products to the market to generate income for SHG.

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2.3 Organizational Structure

President

Vice President

Treasurer

Member

Member

Member

Member

Member

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a) Research design:The descriptive study was conducted to do the project.

b) Sampling Techniques: Sampling units:The research study was conducted in Kandiwali area Mumbai Size of sample:-

Sample size is 20

c) data collections:Two types of data collected primary data and secondary data Primary sources:Sahyadri Bachat Gat, Mai

Primary data was collected through questionnaire, members of Marathi Sanstha.

Secondary sources:-

Secondary Data sources were suggested by the project guide while assisting me in my project, and it mainly consisted of internet web sites, books and manuals which are been noted in the bibliography section.

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DATA ANALYSIS AND INTERPRETATION

1) Age Group: 20-30 2 10% 30-40 9 45% 40-50 7 35% 50-60 2 10% Total 20 100%

10%

10%

35% 45%

20-30 30-40 40-50 50-60

Interpretation:In this survey it was observed that 2 individuals which 10% of sample size were comes under the age group of 20 to 30, 9 individuals which is 45% were comes under the age group of 30 to 40, 7 individuals which is 35% were comes under age group of 40 to 50 and 2 individuals which is 10% were comes under the age group of 50 to 60.

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2) Marital status: Married 19 95% Unmarried 0 0 Widow 1 5% Divorced 0 0 Deserted 0 0 Total 20 100%

1%

Married Unmarried Widow Divorced Deserted 99%

Interpretation:In this survey it was observed that 19 individuals which is 95% of the sample size were married. However 1 individual which 5% of sample size was found to be widow.

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3) Education status:Literate Illiterate Primary 18 47% 2 5% 4 11% Secondary Higher secondary 5 13% 4 11% Degree 5 13% professional Total 0 0 20

13% 11% 47% Literate Illiterate Primary Secondary 11% 5% Higher Secondary Degree

13%

Interpretation:Thus in this survey it was found a individuals which is 47% were attend only primary school, 5 individual which is 13% attend secondary school, 4 individuals which is 11% learn up to higher secondary, 5 individuals which is 13% has been completed their degree it means total 18 individuals which is 47% are literate. However 2 individuals which is 5% were illiterate.

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4) Occupational distribution:Labour 2 10% Service 2 10% Manual work 1 5% Housewife 10 50% Business 5 25% total 20 100%

25%

10% 10% 5% Labour Service Manual Work Housewife 50% Businessman

Interpretation:Thus in this survey found that 2 individuals which is 10% were labour, 2 individuals which is 10% were doing service, 1 individual which is 5% doing manual work, 10 individual which is 50% are housewives, 5 individual which is 25% are doing business.

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4) Economic status of family, main occupation of family:Labour 2 10% Business 2 10% Service 16 80% Own farm 0 0 total 20 100%

10% 10%

Labour Business 80% Service

Interpretation:In this survey it was found that 2 families which 10% are labour, 2 families which is 10% are have family business, 16 families which is 80% are doing service.

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6)

Table showing monthly income of family:No. of individuals 0 3 15 2 % 0 15% 75% 10%

Monthly income in Rs. Less than 2000 2000 to 5000 5000 to 10000 10000 to 20000

0% 7%

36% 57%

Less than 2000 2000 to 5000 5000 to 10000 10000 to 25000

Interpretation:In this survey it was observed that 3 individuals which is 15% have family income up to 2000 to 5000, 15 individuals which 75% have family income up to 5000 to 10000, 2 individuals which is 10% have family income up to 10000 to 20000.

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7)

How much amount do you spent in SHG? 500 to 1500 3 15% 1500 to 2000 6 30% Total 20 100%

100 to 500 11 55%

30%

55% 15%

100 to 500 500 to 1500 1500 to 2000

Interpretation:In this survey it was observed that how much is their monthly saving, 11 individuals which is 55% invest Rs. 100 to 500/- monthly, 3 individuals which is 15% invest Rs. 500 to 1500/per month, 6 individuals which is 30% invest Rs. 1500 to 2000 per month.

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8)

How do you pay this amount? the home total

Asking from husband From yourself earned From money 8 40% 6 30%

expenses given 6 30% 20 100%

30%

40% Asking from husband From your self earned money 30% From the home expenses given

Interpretation:In this survey it was found that 8 womens which is 40% pay their installment by asking from their husband, 6 womens which 30% pay their installment from self earned money and 6 womens which 30% pay their installment from their home expenses.

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9)Do you pay the installment regularly? Yes 10 50% No 8 40% Sometimes late 2 10% Total 20 100%

Installment pattern
10%

50% 40%

Yes No Sometimes Late

Interpretation:In this survey it was found that 10 womens which is 50% pay their installment regularly, 8 womens which is 40% did not pay their installment regularly and 2 womens which is 10% pay their installment after the due date.

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10) How much loan you have taken? 5000 to 10000 7 35% 10000 to 15000 0 0 15000 to 20000 2 10% Total 9 45%

0% 5%

5000 to 10000 10000 to 15000 15000 to 20000 95%

Interpretation:In this survey it was observed that 7 womens which 35% of sample size have taken the loan up to Rs. 5000 to 10000/- 2 womens which is 10% of sample size have taken the loan up to Rs. 15000 to 20000/-.

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11) How did you joined the SHG? Self motivated Suggested neighbor 4 20% 11 55% by Invited members 5 25% 20 100% by SHG Total

25%

20%

Self motivated Suggested by neighbour Invited by SHG members 55%

Interpretation:Thus in this survey it was observed that 4 womens which is 20% of sample size joined the SHG by their own wish, 11 womens which is 55% joined the SHG because their neighbor suggested them and 5 womens which is 25% invited by SHG members.

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12) Are the acceptable by all the women members? Yes 20 100% No 0 0 Total 20 100%

0%

Yes No

100%

Interpretation:In this survey it was observed that all the members that 20 womens which is 100% of sample size are accepted by other members of SHG.

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13) What action is taken if women did not repay the loan on time? Charge more interest rate 0 0 Block the members saving A/c 20 100% Total 20 100%

0%

Charge more interest rate Block the members saving A/c

100%

Interpretation:In this survey it was found that 20 womens which is 100% of sample size take the decision of block the saving A/c if any women did not repay the loan on time.

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14) What do you feel are the important problems faced by the women in your locality or village? Alcoholic husband Cost of living is high Balancing personal life & work life 5 25% 6 30% 9 45% 20 100% Total

25% 45% Alcoholic husband Cost of living is high 30% Balancing personal life & work life

Interpretation:In this survey it was observed that 5 womens which is 25% of sample size have alcoholic husband is their main problem, 6 womens which is 30% says that their main problem is cost of living is so high and 9 womens which is 45% of sample size says it is difficult manage personal life and work life together.

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Findings
Majority of the individuals were belonging to the age group 30-40 years as generally the working capability of individuals in these age groups is high as compared to others. Also there are no individuals below 20-30 years which shows that children below prescribed age limit are not allowed to work in such SHGs. Majority of individuals in SHG are married while some are single. Many individuals in the SHG are literate whereas only few have degree qualification to avail a good job. However 5% of them are illiterate so efforts should be taken to literate these individuals. 50% of the individuals working in SHG were housewives as they have enough spare time to work as member in SHG and few of them were involved in rendering services. 25%of them were involved in business other than SHG and hence they can render their business knowledge in conducting the business transactions for SHG. Majority of the individuals were belonging from service background as their families were involved in service sector. 75% of the individuals had income in the range of 5000-10000 which is very low thus the womens become member of SHG for secondary source of income. As they have low monthly family income they spend as low as Rs.100-500 per month in SHG. And only few spend Rs.1500-2000 in SHG. As these individuals of SHG are still quite reserved and socially backward thus they generally seek permission from their husbands before spending any amount in SHG. Majority of them pay such installments regularly whereas 40% paid these installments late which may be due to lack of family income. Many of the individuals in SHG took loans amounting to 5000-10000 which might be due to low family income or occasional expenses. Many individuals were suggested by their neighbors to join such SHG as they mainly interact with their neighbors itself. It is observed that there is mutual understanding between the members of SHG.
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All the members were of the opinion that if the loan is not repaid on time then the members saving account is blocked so that the profit sharing is not being withdrawn by those members.

As the SHG is located in interiors of kandivali which is economically backward thus the womens find it very difficult to balance their personal life of household chores along with their work life as member of SHG.

Recommendation
Increase membership. Start some educational programme. Increase the number of working women by providing them job. Give them market knowledge. Teach them some business activities. Start doing other type of business which can increase their profit level.

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The main reason for formation of such SHGs is because the members belong from low income group and need to earn secondary source of income to support their families.

The primary source of income of SHG is earned through sales of hand made products by the members. A loan provided also earns them considerable interest. Market knowledge to members as well as financial help is being provided by Mai Marathi Sanstha.

There is good mutual understanding between the members of SHG which creates healthy environment in the SHG.

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Books
Microfinance in India by Arunachalam.P, Serials Publications Microfinance and Indias rural Economy by Das Sudhanshukumar, New Century Publication Microfinance and Women Empowerment by Malleswari, B, Serials Publications.

Websites
http://www.maimarathi.org/eng/index.html http://indiamicrofinance.com/ http://microfinancehub.com/2010/02/09/problems-faced-by-microfinance-institutes/ http://www.microcreditsummit.org/papers/Plenaries/Latifee.pdf http://www.nabard.org/microfinance/microfinance.asp http://articles.economictimes.indiatimes.com/2011-07-07/news/29747758_1_mfiscoercive-recovery-finance-institutions

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Annexure
Questionnaire for institutions
1. Name of the institutions: .. 2. Address:.................................................. ........................... 3. Category:Government institutions NGO

4. Aim behind starting SHG: . 5. How many SHG are sponsored by institutions? .. 6. Total No. of members of SHG . 7. The date of the establishment of SHG . 8. If registered, Registration No.:- 9. How many women have been in contact with SHG? . 10. How much is monthly saving? ..

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11. Whether the money is deposited regularly Yes No

12. Has the SHG received any grant? Yes No

13.from whom? How much? For how many SHGs? 14.Total amount of loan sanctioned 15. Is there any groupism in SHG? Yes No

16. The SHGs are helpful in other activities of the institution Yes No

17. What according to you are the important problems faced by the women in the SHG? 18. What efforts have been done by institutions to solve them? .. 19. What is the future plan for further development of the SHG? ..

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Individual information
1. Name:- 2. Husband / Father Name:- 3. Address: 4. Name of the SHG which you are a member .. Name of the institution supporting SHG .. 5. Urban area 6. Age:- .. 7. Marital status:Married Unmarried Widow 8. Literate Illiterate Divorced Deserted Rural area

9. Education:........................................................ ..............

10. Occupation:Farm labour Other type of labour Self employment

Manual work Housewife Services

11. Post held in institution/ SHG:.

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12. Main occupation of family:................................................................................. 13. Monthly income of family:. 14. How much amount do you spent in SHG? 15. How do you pay this amount? Asking from husband From your self-earned money From the money give to you for household exp. 16. Do you pay installment regularly? Yes No 17. How much loan you have taken? After you joined the SHG 18. How did you joined the SHG? 19. Are the acceptable by all the women members ? Yes No

20. What action is taken if a women did not repay loan on time? 21. What do you feel are the important problems faced by the women in your locality or village? ..

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