BARATHAN.

S
II YEAR MBA
 Microfinance
• Microfinance refers to the provision of a broad
range of financial services to low-income
households and their microenterprises.
• It refers to a movement that envisions “a
world in which poor have permanent access to
an appropriate range of high quality financial
services
 Evolution of Microfinance
• Concept of Microfinance is not new; savings
and credit groups have operated for centuries
• 1700s - writer Jonathan Swift started micro-
credit organizations in Ireland lending to rural
poor
• 1800s - more formal savings and credit
institutions known as People’s Banks and
Credit Unions began to emerge in Europe
• Muhammad Yunus, the Nobel laureate known
by many as the "father of microfinance.
• Founder of Grameen Bank in Bangladesh in
1976 which revolutionized the field of
microfinance.
What is the need for Microfinance in India

• 87 percent of India’s poor can not access credit

from formal sources.
• Depend on lenders who charge them interest
rates ranging from 48% to 120% per annum or
even higher.
• 70% of Indians living in villages needs
financial support.
Sources: World Bank in its report
 Who are the clients.
• Mainly persons who don’t have stable source of
income.
• Low income persons with no access to financial
institutions.
• Especially self employed or house hold entrepreneurs.
• Even in urban areas small shop keepers and service
providers.
 Features of Microfinance institutions

• Borrowers are the poor

• Small Amounts of loans
• For Production, Consumption or House
Construction and Shelter Improvement
• Group Based Lending
• A large Number of Financial Services
• Simple Procedure
• No Security
 What are the Financial services provided by
MFI’s
• Providing loans
• Accepting deposits
• Life-Insurance products
Micro Insurance
• Money Transfer System
 IMPACT OF MICRO-FINANCING

• Changes in Borrowing Patterns

• Increase in Savings
• Impact on income
 Microfinance in India
• Microfinance providers in India
can be classified under three
broad categories:
• Formal
• Semiformal
• 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 micro-enterprise development
and primarily target the poor.
 Semi Formal sector
• The majority of institutional microfinance
providers in India are semi-formal
organizations broadly referred to as MFIs
• About 60 % of the MFIs are registered as
societies.
• About 20 % are Trusts
• About 65 % of the MFIs follow the operating
model of SHGs.
• Large concentration in South India
 Informal Sector
• In addition to friends ,family, moneylenders,
landlords, and traders constitute the informal
sector.
• Even with growth of both formal and semi
formal sector, they continue to play a
significant role in the financial lives of the
poor.
Problems faced by Microfinance institutions

• Evaluating the credit worthiness of the client

• Expenses incurred are same for low amount

loans
• Expanding their network requires Human
resource which is scarce in this sector.
 RBI Guidelines
• Interest rates are left to the discretion of SHG
or MFI
• Banks may choose their own intermediary
• Banks may have their own lending norms
• Banks can devise loan and saving products
• MF for consumption, production and housing
• Simple procedure and documentation
 NEXT SESSION
• What is Interest rates charged by the MFI’s.
• Success stories of microfinance institutions in
India and Abroad.
 CONCLUSION
• If you are uplifting the poor You are uplifting the
Nation”
Mahatma Gandhi

• Self realization and self initiative are the two most

powerful weapons to wash poverty out from the
world
Chanakya
(World’s Greatest Ancient Economic and Political
Scholar)
A Tribute
THANK YOU