WHAT IS MICRO FINANCE ?

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

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. -> Financial Gateway

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Overview
Microfinance is the supply of loans, savings, and other basic financial services to the poor. In India it generally provided by SHG-Bank linkage, and by MFIs itself. SHG-Bank 54 million members MFI 22.6 million members MFIs added 8.5 million new members in 2008-09 ` 3732.33 crore was disbursed to 581 Micro Finance

Institutions (MFIs) during 2008-09.

2 Source: http://www.microsave.org/briefing_notes/india-focus-note-40-state-of-microfinance-in-india-2010

Origin of Microfinance
The concept of micro finance originated in the mid-1970s in Bangladesh through a pioneering experiment by Dr Muhammad Yunus, then a Professor of Economics.

Origin of Microfinance
Dr. Mohammad Yunus Established Bangladesh Grameen Bank to:Providing financial services and entrepreneurship opportunities to poor so they could produce, manage and maintain their own finances. It was an end to mistreatment by money lenders

Grameen Bank
Established in 1976 in Jobra village in Bangladesh by

Professor Muhammad Yunus . It provides credit to the poorest of the poor in rural Bangladesh without any collateral. By June 2010: -2,564 branches in 81,362 villages -8.28 million borrowers (90% are women). Total equity: -90% - Borrowers -10% - Government
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Source- http://www.grameen-info.org

Contd..
Owned by the Poor. No Collateral, no legal instrument, no group-guarantee or joint liability. Over Tk 546 billion Disbursed in 2009-10. Loan recovery rate is 97.20 percent. Low Interest Rates- 20% - Income generating 8% - Housing loans

5% - Students 0% - Beggers.
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Source- http://www.grameen-info.org

Objectives
Extend banking facilities to poor people. Eliminate the exploitation of the poor people by money lenders. Create opportunities for self-employment for unemployed people in rural Bangladesh. Reverse vicious circle of "low income, low saving & low investment", into virtuous circle of "low income, injection of credit, investment, more

income, more savings, more investment, more income".

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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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Process of Micro Loan distribution

A micro credit program gives small loans to the poor so that they can procure whatever they need to start a small local business of their choice

Process of Micro Loan distribution

In the absence of collateral, the loans are made to groups of five, mostly women, who guarantee each others' loans. Called Joint liability Group (JLG)

Process of Micro Loan distribution

All persons who have paid back a first loan, are automatically eligible for a second loan and eventually a third so their businesses can grow

Process of Micro Loan distribution

At the same time from the interest, the loan fund is growing, though slowly, and loans are available to more persons.

Process of Micro Loan distribution

If one does not pay back one's loan, no one in the group will receive a second loan

Process of Micro Loan distribution

To guard against emergencies, such as one's cow dying and not being able to repay the loan, an emergency fund is set up at the time of the first loan. This simply means that a few coins, perhaps an additional

Social Impact of Microfinance

The empowerment of women
As the microfinance services mostly offered to women; they are now more financially literate and confident

Social Impact of Microfinance

Building Economic citizenship

Financial services foster Independence. Microfinance can help clients to grow more confident and with that economic citizenship they can step out and become a part of main stream of society.

Social Impact of Microfinance

To fight with poverty Financial services give clients to access to education, healthcare, and other necessities that improves their quality of life. i.e. school fee loan, health insurance and home improvement loan.

Social Impact of Microfinance

Normally If a poor household loses a source of income he might have to withdraw a child from school or selling valuable assets or fall deep into poverty.

Social Impact of Microfinance

protecting against vulnerabilities Financial services like saving, credits and insurance provide sustainable and low cost coping strategies. They can re-build there assets or alternate source of income without falling in poverty

Scope of Microfinance
In India, Micro finance is growing faster than banking and, if the experience in other developing countries is mirrored here, microfinance will reach more individuals than the banking sector,
- Robert Annibale, global director Citigroup Inc. Microfinance

Scope of Microfinance
Nos. of Clients in Millions
35 30 25 20 15 10 5 0 2008 2010 2015 Banking Microfinance

*For 2015 the projection sourced from citigroup microfinance

Key Players
SKS Microfinance Ltd. Spandana Sphoorty Financial Limited Share Microfin Limited Bandhan Asmitha Microfin Ltd. Shri Kshetra Dharmasthala Rural Development Project (SKDRDP) BASIX

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Number of branches as on March'2010

Bandhan

1550 1056 Number of branches

SHARE

Spandana

1533 1627

SKS

www.sharemicrofin.com www.bandhanmf.com www.spandanaindia.com www.sksindia.com

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Number of Clients(000) as on March 2010

8000 7000 6000 5000 4000 3000 2000 1000 0 6780

Number of clients

4164 3058 2772 Number of Clients(000)

SKS

Spandana

SHARE

Bandhan

Company

www.sharemicrofin.com www.bandhanmf.com www.spandanaindia.com www.sksindia.com

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Upto 2010

Loan Disbursed (crores) 14000 14000 12000 10000 8000 crores 6000 4000 2000 0

3540.5 2234 1589

Loan Disbursed (crores)

SKS Spandana SHARE Bandhan company

www.sharemicrofin.com www.bandhanmf.com www.spandanaindia.com www.sksindia.com

SKS- More number of clients so more amount dispersed.

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Commercialisation of Microfinance
The transformation of NGO-MFIs into

commercial banks. Link to commercial providers of capital. Way of formalise and professionalise microfinance. Sequoia made the first private equity (PE) investment in Indian microfinance, buying shares in SKS for an investment of $11 million.

Source:- http://www.microfinancegateway.org/p/site/m/template.rc/1.9.43770/ 26

Contd.
Transformation of four large Indian MFIs into commercial entities:SKS Microfinance. Spandana Spoorthy Financials Limited. Share Microfin Limited. Asmitha Microfin Limited. SKS Microfinance, Indias largest MFI, which serves about 5.5 million clients intended to raised $347 million in an initial public offering in 2010
Source:- http://www.microfinancegateway.org/p/site/m/template.rc/1.9.43770/ 27

Commercialisation is Essential
Allowed a massive increase in outreach and expansion of credit to the poor in India, at rates of interest that are relatively modest. To provide credit- Require trillions of dollars To provide safe and secure savings services

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Concerns
An opportunity to make money for commercial banks rather than worrying about what happens to the poor people Organizations are becoming loan sharks themselves. Growth of an organisation erode its mission to tackle poverty.

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Limitations
Micro Loans should never lends to individuals without first providing them with the expertise and training to build a business plan that is likely to succeed.

Limitations
Micro finance is mainly intended for social investment, the utilization of funds depends on the capacity of the poor clients productively use it creating a sustainable social impact

Limitations

Mere flow of funds alone in MF sector cannot bring desired level of social impact unless other infrastructure is enough in the given area/region to absorb the funds

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.

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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, inter-Alia, 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

Limited access to equity

Difficulty in accessing low cost on-lending funds (as of now they are unable to offer savings services in a legitimate

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FEATURES OF INDIAN MF
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 tota of 9.4 lakh SHGs with about 1.4 crore households.
CHECK LATEST FIGURES ITS 2004 DATA

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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

CHECK LATEST FIGURES ITS 2004 DATA

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WHAT IS THE MICRO FINANCE DEVELOPMENT FUND ?

Union Finance Minister in his budget speech for the year 2000-01, 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.

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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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IF You are Uplifting The Poor Your Uplifting The Nation

-> Mahatma Gandhi

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Source DATA SOURCE

www.rbi.org.in

www.microfinanceindia.org/ CGAP

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