MICRO FINANCE

WHAT IS MICRO FINANCE ?

Micro Finance is the supply of loans, savings, and other basic financial service to the poor .

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.

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Heres how it works

By helping a mother buy a sewing machine to start a tailoring business or a father buy seeds to plant a vegetable garden, small loans enable people in poverty to earn an income and provide for their families. As each business grows, loans are paid back and lent out again. With 97% of loans repaid, the cycle continues, year after year. Each successful business feeds a family, employs more people and eventually helps empower a whole community.

ABOUT MICRO FINANCE

The modern

micro finance movement dates back to the 1970s when experimental programs in Bangladesh, Brazil, and a few other countries began to extend tiny loans to groups of poor women to invest in micro enterprises
By lending to groups of women where every member of the group guaranteed the repayment of all members, these micro credit programs challenged the prevailing conventional wisdom and proved that poor people without collateral could be "credit worthy". When offered the opportunity, they would repay loans with interest, at extraordinary rates of repayment.
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MICRO FINANCE AND MICRO CREDIT

Micro finance refers to loans, savings, insurance, transfer services and other financial products targeted at low-income clients. Micro credit refers to a small loan to a client made by a bank or other institution. Micro credit can be offered, often without collateral, to an individual or through group lending.
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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 cooperative 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.
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THE PROFILE OF MICRO FINANCE IN INDIA

The scenario Estimated that 350 million people live Below Poverty Line This translates to approximately 75 million households. Annual credit demand by the poor in the country is estimated to be about Rs. 60,000 crores. Cumulative disbursements under all micro finance programmes is only about Rs. 5000 crores.(Mar. 04) Total outstanding of all micro finance initiatives in India estimated to be Rs. 1600 crores. (March 04) Only about 5 % of rural poor have access to micro finance
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THE STATUS OF MICRO FINANCE IN INDIA

Considerable gap between demand and supply for all financial services Majority of poor are excluded from financial services. This is due to, the following reasons Bankers feel that it is fraught with risks and uncertainties. High transaction costs Unfavourable policies like caps on interest rates which effectively limits the viability of serving the poor. While MFIs have shown that serving the poor is not an unviable proposition there are issues that have constrained MFIs while scaling up. These include Lack of an appropriate legal vehicle Difficulty in accessing low cost on-lending funds
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THE STATUS OF MICRO FINANCE IN INDIA ( CONTD.,)

Limited access to Capacity Building support which is an important variable in terms of quality of the portfolio, MIS, and the sustainability of operations. About 56 % of the poor still borrow from informal sources. 70 % of the rural poor do not have a deposit account 87 % have no access to credit from formal sources. Less than 15 % of the households have any kind of insurance. Negligible numbers have access to health insurance

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FEATURES OF INDIAN MICRO FINANCE

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 600 MFI initiatives have a cumulative outreach of 1.25 crore poor households NABARDs bank linkage program has cumulatively reached a total of 9.4 lakh SHGs with about 1.4 crore households.

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PROJECTIONS FOR THE FUTURE

Annual growth rate of about 20 % during the next five years.
75 % of the total poor households of 80 million (i.e. about 60 million will be reached in the next five years. The loan outstanding will consequently grow from the present level of about 1600 crores to about 42000 crores
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ICICI BANK - INNOVATIONS IN MICRO FINANCE

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.
ICICI Bank drew up aggressive plans to penetrate rural areas through its SHG program. However, rather than spending time in developing rural infrastructure of its own, in 2000, ICICI Bank announced merger of Bank of Madura (BoM), which had significant presence in the rural areas of South India, especially Tamil Nadu, with a customer base of 1.2 million and 77 branches
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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

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IFYouareUplifting The Poor Your Uplifting TheNation

-> Mahatma Gandhi

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