MICRO FINANCE

ESBD
Mukesh Ranga
Roll no. 078
GH Batch
Definition
Microfinance is defined as the provision of thrift
(savings), credit and other financial services and
products of very small amounts to the poor for
enabling them to raise their income levels and
improve living

To most, micro finance means providing very poor

families with very small loans (micro credit) to help
them engage in productive activities or grow their tiny
businesses
Services Provided

 Loans
 Savings
 Insurance
 Pensions
 Financial Counseling
 Remittance
 Risk Mitigation Products
MICRO FINANCE IN INDIA

Evolution of Micro finance in India

 Micro finance has been in practice for ages ( though

informally).
 Legal framework for establishing the co-operative
movement set up in 1904.
 Reserve Bank of India Act, 1934 provided for the
establishment of the Agricultural Credit Department.
 Nationalization of banks in 1969
 Regional Rural Banks created in 1975.
 established as an apex agency for rural finance in 1982.
 Passing of Mutually Aided Co-op. Act in AP in 1995.
Major Milestones in India
●
Major commercial banks nationalized
●
Regional Rural Banks established

●
NABARD established as an apex agency for rural finance
●
NABARD launches SHG bank linkage program

Establishment of SIDBI Foundation for Micro-credit

●

Proposed bill on microfinance regulation

●
Types of financial institutions

Types of financial institutions

Formal/ Banks Informal/ Non Banks

 Types of Microfinance Institutions
Non Banking Financial
Investor For Profit Corporation

Pool of funds

Self Help Groups and

Intermediary Mutual Federation
banking Benefit Cooperative Societies

Microfinance
institution

Public Trusts, Societies,

Micro Non-profit
Section 25 companies
entrepreneur
SUCCESSFUL MICRO FINANCE MODELS
THAT HAVE EMERGED IN INDIA

 An Intermediate Model that works on banking principles with

focus on both savings and credit activities and where banking
services are provided to the clients either directly or through
SHGs;
 There is also a Wholesale banking Model where the clients
comprise NGOs, MFIs and SHG Federations. This Model
involves a unique package of providing both loans and
capacity building support to its partners; and
 Further, there is an Individual Banking-based Model that has
its clients as individuals or joint liability groups. While
programme management and client appraisal in this Model
may be a challenge, it is best suited to lending to enterprises.
Trends and Characteristics

 Low penetration level provides tremendous

growth opportunities
 Large scale PE/VC activity
 High interest rate and issue with repayments
 Lack of interest from formal financial
institutions
 Opportunity in the urban sector
WHAT IS THE MICRO FINANCE DEVELOPMENT
FUND ?

Union Finance Minister has given a provision for the development of fund, this Rs. 100
crore Fund has been created in NABARD to support broadly the following activities:
a) giving training and exposure to self-help group (SHG) members, partner NGOs, banks
and govt. agencies
(b) providing start-up funds to micro finance institutions and meeting their initial
operational deficits
c) meeting the cost of formation and nurturing of SHGs; (d) designing new delivery
mechanisms
e) promoting research, action research, management information systems and
dissemination of best practices in micro finance.

This Fund is thus expected to address institutional and delivery issues like institutional
growth and transformation, governance, accessing new sources of funding, building
institutional capacity and increasing volumes. RBI and NABARD have contributed Rs. 40
crore each to this Fund. The balance Rs. 20 crore were contributed by 11 public sector
banks.
TYPES OF MICRO CREDIT PROVIDERS IN INDIA

Source: Text 11
Leading banks and microfinance institutions are
innovating to provide efficient, responsive,
sustainable services

Innovations
Innovations

Cutting costs to Building new Helping clients build Mobilizing capital

clients and the distribution assets and mitigate markets for
institutions channels risk microfinance
 CHALLENGES AHEAD

 Appropriate legal structures for the structured growth of MF operations

 Ability to access loan funds at reasonably low rates of interest.
 Ability to attract and retain professional and committed human resources.
 Design of apt MIS including user friendly software for tracking accounts
and operations.
 Ability to innovate, adapt and grow.
 Bring out a compendium of small and micro enterprises for the MF clients.
 Identify and prepare a panel of locally available trainers.
 Ability to train trainers.
 Capacity to provide backward linkages or create support structures for
marketing
 Thank You