SUMMER INTERNSHIP PROGRAM

A REPORT ON
Microfinance in India with special reference to Canara Bank

Canara Bank Head Office

Bangalore

BY
SWATI BHARDWAJ
ITM2009-11/53
ITM BANGALORE

Canara Bank Head Office Bangalore

“MICROFINANCE IN INDIA WITH SPECIAL REFERENCE TO
CANARA BANK”

A Dissertation Submitted to
Institute for Technology and Management, Bangalore

For the Partial Fulfillment of the PGDM Program

By

SWATI BHARDWAJ
Reg. No: PGDM 2009-11/53

Under the Guidance of:

Industry Guide- Mr. B. S. Umesh Rao
Senior Manager-Microfinance Division
Faculty Guide- Prof Madhavi Jayanthi
Lecturer Finance

Institute for Technology and Management

Bangalore-560076

2009-11
 DECLARATION
I hereby declare that this project entitled study on ‘Microfinance in India-with special

reference to Canara Bank’ conducted at Canara Bank Head Office Bangalore, is a record of
independent work carried out by me during the academic year 2009-11 under the guidance of my
faculty guide Prof. Madhavi Jayanthi of ITM Bangalore and my company guide Mr. B. S.
Umesh Rao, Senior Manager-Microfinance Division and Mr. Ashwani Kumar, Manager, Agri-
Business, Marketing unit, Priority Credit Wing, Canara Bank H.O., Bangalore.
I also declare that this project is the result of my effort and
has not been submitted to any other university or institution for the award of any degree or
personal favor whatsoever. All the details and analysis provided in the report hold true to the best
of my knowledge.

SWATI BHARDWAJ
Place: Bangalore
Date:
 ACKNOWLEDGEMENT
Working on this project has been a great learning experience for me. I would like to take this
opportunity to express my gratitude to the people who have helped me to bring out this project.
I take this opportunity to express my profound gratitude and deep regards to my guide Mr. B. S.
Umesh Rao, Senior Manager-Microfinance Division, Canara Bank H.O., Bangalore for his
guidance, monitoring and constant encouragement throughout the course of this project.
I would also like to thank Prof.Latha Ramesh and Prof Madhavi
Jayanthi for his guidance and support.I am also grateful to Mr. Ashwani Kumar, Manager,
Agri-Business, Marketing unit, Priority Credit Wing, Canara Bank H.O. who gave me the
opportunity to do this project. His timely guidance, valuable knowledge and experience helped a
lot.

SWATI BHARDWAJ
Management Trainee
ITM, Bangalore

1
 INDEX
Chapter Particulars Page No
1 Statement of Problem 06
2 Objectives of the Study 06
3 Methodology 06
4 Limitations of the Study 06

Part A
Chapter Particulars Page No
1 Industry Profile 8-9
2 Company Profile 10-24
2.1 Background of the Company 10-11
2.2 Nature of the Business carried 12
2.3 Vision, Mission and Quality Policy 12
2.4 Products/ Services Profile 13-17
2.5 Area of Operation 18
2.6 Ownership Pattern 18-20
2.7 Competitors Information 21
2.8 Infrastructural Facilities 22
2.9 Work Flow Model 22
2.10 Achievement/ Award 23-24
2.11 Future Growth and Prospect 24
3 McKinsey’s 7S Frame Work 25-28
4 SWOT Analysis 29-30
5 Analysis of Financial Statement 31-33

Part B
Chapter Particulars Page No
1 Executive summary 35
2 Microfinance Introduction 36
3 Microfinance definitions 37-38
4 Activities/Products/Services in microfinance 39
5 History/Origin of Microfinance 40
6 Demand for Microfinance services 41-43
7 Supply for Microfinance services 44
8 Legal and Regulatory Framework 45-47
9 Major players 48

2
 10 Growth of Microfinance 49-51
11 Microfinance delivery methodologies 52-54
12 Present situation 55-60
13 Success factors of Microfinance in India 61-63
14 Indian Microfinance at Global context 64
15 Impact of Microfinance 65
16 Issues of Microfinance 66-68
17 Microfinance at Canara Bank 69-82
18 Future of Microfinance 83-84
19 Conclusion 85
20 Suggestion 86
21 Learning experience 87
22 Bibliography 88-89
23 Abbreviations 90

LIST OF TABLES
Table Particulars Page no.
no.
1 Product and services of Canara Bank 13
2 Personal Banking 14-15
3 Corporate Banking 15
4 NRI Services 16
5 Priority credit finance 17
6 Ownership Pattern of Canara Bank 19
7 Financial Statement Analysis 31
8 Growth of Microfinance 49
9 Classification of MFIs in India 50
10 Characteristics of Microfinance delivery models in India 51
11 Growth in Indian Microfinance Sector 56
12 Biggest MFIs in India 58
13 SHG-Bank linkage model 59
14 MFIs Bank Linkage model 60
15 Coverage of Women SHGs 60
16 Comparative analysis of Micro financial services offers to the poor 63
17 Coverage under DIR scheme 74
18 Coverage under Debt Swapping Scheme 75
19 Coverage under Krishi Mitra Card 78
20 Coverage under SHG Credit linkage 79

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21 Performance of Group 80
22 Coverage under JLG/TFG 82

LIST OF FIGURES AND GRAPHS

1 Ownership pattern of Canara Bank 19
2 Work Flow Model 22
3 McKINSEY’s Framework 25
4 Development Process through Microfinance 46
5 Micro finance intervention through Different organization 47
6 Outstanding portfolio of Microfinance 57
7 Portfolio of Borrowers 57
8 Microfinance portfolio of Canara Bank on 31/03/09 70
9 Microfinance portfolio of Canara Bank on 31/03/10 71
10 Canara Bank lending to priority sector 72
11 Cansaral Saving Account and GCC 73
12 Coverage under DIR scheme 74
13 Coverage under Debt swapping scheme 75
14 Coverage under Krishi Mitra Card scheme 78
15 Coverage under SHG Credit linkage 79
16 Performance of group during the year 80
17 Coverage under JLG &TFG 82

4
1) STATEMENT OF THE PROBLEM
“The study of Microfinance in India with special reference to Canara Bank”.
India is one of the highly populated countries in the world currently. Reason being unawareness,
illiteracy, avoidance or disinterest; in turn leading to economic downfall and almost 30-35% of
the people are under the Below Poverty Line (BPL). These people are not even able to meet their
consumption need. Therefore there is a need of a tool that not only serves them but also make
them self capable, Microfinance is such an approach that would result in the better standard of
living for them.
2) OBJECTIVE OF THE STUDY
The objective of this study is to get an overview of Microfinance Industry in India, finding out
the need of microfinance by poor, different types of micro financial products available to the
poor their supply and demand and to know the initiatives taken by Canara Bank for meeting the
financial need of poor as well as to find out where they are lagging in fulfilling their need and
how to overcome this.

3) METHODOLOGY
Secondary data collection: The study is purely theoretical; no primary data collection was
required for the project. All the data collected for the study was based on different sources, like
company reports, websites, details provided by the guide, case studies related to financial
inclusion, RBI guidelines, Canara bank reports and initiatives etc

4) LIMITATIONS OF THE STUDY

 The study holds good only for the time period the project was undertaken.
 Study was focused mostly on Canara Bank, Head Office
 The data recorded is presumed to be authentic and information collected mainly
from secondary sources.
 Lack of comprehensive data about the future plans.
 Lack of information which is confidential in nature prevented an in-depth study of
the positive and negative effects of microfinance.
5
PART A

6
1) INDUSTRY PROFILE

Banking Industry in India

The world economy today is driven by the way the banks in the world perform. The economical
position of the country is also driven by the performance of banks. Banks, by extending their
services to areas hitherto untouched and making themselves accessible to the common man, have
become a part of our lives. The banking institutions in the past performed very limited functions
such as receiving deposits against bank notes and then issuing notes in the country, as the time
advanced and with the progress of commerce and industry, the scope of banking also expanded.
Modern banking institution is a large corporate giant with large resources and a vast field of
activity. Since the nationalization of some big commercial banks in India in the year 1969, there
has been a great surge of banking industry throughout the world with the growing number of
banking offices. The banking business today has become highly critical and competitive between
various classes of banks in offering a greater variety of services nationally and internationally.
With globalization setting in, banks are also modernizing operations with a view to satisfying
modern customers with an aim to improve bank operations with a view to maintain high standard
banking system that involves applications of better management techniques. In India, class
banking has given way to mass banking, bringing in its fold very large number of customers.
Banks are now looked upon as development agents instead of purveyors of credit to the large
industries and big business companies. Apart from providing credit to trade, industry and
agriculture it is also involved in offering pension for retired employees, government servants and
collection of utility bills.
The Indian banking system can be classified into nationalized, private and specialized banking
institutions. The industry is highly fragmented with 30 banking units contributing to almost 50%
of deposits and 60% of advances. The Reserve Bank of India is the foremost monitoring body in
the Indian Financial sector. It is a centralized body that monitors discrepancies and shortcomings
in the system. Industry estimates indicate that out of 274 commercial banks operating in the
country, 223 banks are in the public sector and 51 are in the private sector. These private sector
banks include 24 foreign banks that have begun their operations here. The specialized banking

7
institutions that include cooperatives, rural banks, etc. form a part of the nationalized banks
category.
The Indian banking system is financially stable and resilient to the shocks that may arise due to
higher non-performing assets (NPAs) and the global economic crisis, according to a stress test
done by the Reserve Bank of India (RBI). Significantly, the RBI has the tenth largest gold
reserves in the world after spending US$ 6.7 billion for the purchase of 200 metric tonnes of gold
from the International Monetary Fund (IMF). The purchase has increased RBI’s share of gold
holdings from approximately 4% to 6%. In the annual international ranking conducted by UK-
based Brand Finance Plc, 20 Indian banks have been included in the Brand Finance® Global
Banking 500. The State Bank of India has become the first Indian bank to be ranked among the
Top 50 banks in the world, capturing the 36th rank, as per the Brand Finance study. The brand
value of SBI increased from US$ 1.5 billion in 2009 to US$ 4.6 billion in 2010. ICICI Bank also
made it to the Top 100 list with a brand value of US$ 2.2 billion. The total brand value of the 20
Indian banks featured in the list stood at US$ 13 billion.
Following the recent financial crisis, new deposits have gravitated towards the public sector
banks. According to RBI's 'Quarterly Statistics on Deposits and Credits of Scheduled
Commercial Banks: December 2009', nationalized banks, as a group, accounted for 50.9% of the
aggregate deposits, while State Bank of India and its associates accounted for 23.4%. The share
of other scheduled commercial banks, foreign banks and regional rural banks in aggregate
deposits were 17.1%, 5.5% and 3% respectively. With respect to gross bank credit, nationalized
banks hold the highest share of 50.6% in the total bank credit, with SBI and its associates at
23.8% and other scheduled commercial banks at 17.8%. Foreign banks and regional rural banks
had a share of 5.3% and 2.5% respectively in the total bank credit.
The confidence of non-resident Indians (NRIs) in the Indian economy is reviving again. NRI
deposits have increased by nearly US$ 47.8 billion on March 2010, as per the RBI’s June 2010
bulletin. Most of this has come through Foreign Currency Non-resident (FCNR) accounts and
Non-resident External Rupee Accounts. Foreign exchange reserves were up by US$ 1.69 billion
to US$ 272.8 trillion, for the week ending June 11, on account of revaluation gains. June 21,
2010.

8
2) COMPANY PROFILE
Canara Bank: “A good bank is not only the financial heart of the community, but also one
with an obligation of helping in every possible manner to improve the economic conditions of
the common people”

2.1) BACKGROUND AND INCEPTION OF THE COMPANY

Canara Bank was founded by Shri Ammembal Subba Rao Pai, a great visionary and
philanthropist, in July 1906, at Mangalore, then a small port in Karnataka. It was started as
'Canara Bank Hindu Permanent Fund' in 1906. This small seed blossomed into a limited
company as 'Canara Bank Ltd.' in 1910 with its head office in Bangalore. The Bank has gone
through the various phases of its growth trajectory over the hundred years of its existence. In
1958, the Reserve Bank of India (RBI) ordered Canara Bank to acquire G. Raghumathmul Bank,
in Hyderabad. This bank had been established in 1870, and had converted to a limited company
in 1925. At the time of the acquisition the bank had five branches. The growth of Canara Bank
was phenomenal, especially after nationalization by the Government of India along with 13 other
major banks in the country in the year 1969. It has attained the status of a national level player in
terms of geographical reach and clientele segments. In 1976, Canara Bank inaugurated its 1000th
branch.
Eighties was characterized by business diversification for the Bank. In the year 1985 Canara
Bank opened its first overseas office in London and also established a subsidiary in Hong Kong,
Indo Hong Kong International Finance Ltd and opened its third foreign branch, this one in
Shanghai. It has established in the areas of mutual funds, venture capital and factoring. It is the
First Bank to be conferred with ISO 9002 certification for one of its branches in Bangalore and is
the maiden bank to start Initial Public Offering (IPO). It has launched internet and mobile
banking services.
In June 2006, the Bank completed a century of operation in the Indian banking industry. This
eventful journey of the Bank has been characterized by several memorable milestones. Today,
Canara Bank occupies a premier position in the comity of Indian banks. With an unbroken record
of profits since its inception, Canara Bank has several firsts to its credit. These include:
 Launching of Inter-City ATM Network
 Obtaining ISO Certification for a Branch

9
  Articulation of ‘Good Banking’ – Bank’s Citizen Charter
 Commissioning of Exclusive Mahila Banking Branch
 Launching of Exclusive Subsidiary for IT Consultancy
 Issuing credit card for farmers
 Providing Agricultural Consultancy Services
Over the years, the Bank has been scaling up its market position to emerge as a major 'Financial
Conglomerate' with as many as nine subsidiaries/sponsored institutions/joint ventures in India
and abroad.
 Canfin Homes Limited
 Canbank Factors Limited
 Canbank Venture Capital Fund Limited
 Canbank Computer Services Limited
 Gilt Securities Trading Limited
 Canara Robeco Asset Management Company Limited
 Canbank Financial Services Limited
 Canara HSBC Oriental Life Insurance Company Limited
As at March 2010, the Bank has further expanded its domestic presence, with 3043 branches
spread across all geographical segments. Keeping customer convenience at the forefront, the
Bank provides a wide array of alternative delivery channels that include over 2000 ATMs- one
of the highest among nationalized banks- covering 728 centers, 1959 branches providing Internet
and Mobile Banking (IMB) services and 2091 branches offering 'Anywhere Banking' services.
Canara bank made a partnership with UNEP to initiate a successful solar loan programme. It was
a four-year $7.6 million effort, launched in April 2003 to help accelerate the market for financing
solar home systems in southern India.
Canara Bank had a major IT initiative to network all branches and move them to a single
software platform. Canara Bank chose Flex cube from I-flex solutions as the application. The
Bank entered into an agreement with IBM for rolling out flex cube to over 1000 branches as part
of Phase I. The all India network of Canara Bank boasts of multiple branches in all the major
cities like Chennai, Pune, Bangalore, Mumbai, New Delhi, Gurgaon, Kolkata, Lucknow and
Hyderabad. The Canara Bank official site gives us an ATM and branch locator that can give you
the exact location and address of your nearest Canara Bank branches and ATM's.

10
2.2) NATURE OF THE BUSINESS CARRIED
Canara Bank is a Public Sector Company undertaking which is running under the Administrative
Control of Govt of India. The total share capital is Rs 410 crores of which government capital is
300 crores, others Rs 110 crores and, the total business of the Bank reached 403,986 crore.
Canara Bank was ranked at 1299 in the Forbes Global 2000 list.
Canara bank offers its services to the industry, NRI’s and all the classes of people such as
Personal Banking, Corporate Banking, NRI banking, Priority credit and other services etc. It has
come to the forefront of the commercial and financial services and established a leadership in the
financial services. The Bank has also carved a distinctive mark, in various corporate social
responsibilities, namely, serving national priorities, promoting rural development, enhancing
rural self-employment through several training institutes and spearheading financial inclusion
objective.

2.31) VISION
“To emerge as a ‘Best Practices Bank’ by pursuing global benchmarks in profitability,
operational efficiency, asset quality, risk management and expanding the global reach.”

2.32) MISSION
“To provide quality banking services with enhanced customer orientation, higher value creation
for stakeholders and to continue as a responsive corporate social citizen by effectively blending
commercial pursuits with social banking”.

2.33) QUALITY POLICY

 To remove Superstition and ignorance.
 To spread education among all to sub-serve the first principle.
 To inculcate the habit of thrift and savings.
 To transform the financial institution not only as the financial heart of the
community but the social heart as well.
 To assist the needy.
 To work with sense of service and dedication.
 To develop a concern for fellow human being and sensitivity to the surroundings
with a view to make changes/remove hardships and sufferings.

11
2.4) PRODUCTS AND SERVICES OF CANARA BANK (table 1)
Personal Banking Corporate Banking NRI Banking Priority and SME Credit
Savings & Account and Deposits Deposit Products Schemes
Deposits
Loan Products Cash Management Loans and SME Business
Services Advances
Technology Loans & Advances Remittance RRB Divison
Products Facilities
Mutual Funds Syndication Services Consultancy Agri-Marketing
Services
Insurance Business IPO Monitoring Other Services Agri-Consultancy
Activity
International Merchant Banking Rural Development
Services Services
Card Services TUF Schemes Social Banking
Consultancy Canara e-Tax CED for Women
Services
Depository One time settlement for
services M& SE
Ancillary Services

Personal Banking (table 2)

1.Savings & Deposits 2.Loan Products 3.Credit services 4.Consultancy
Services
Current Accounts Housing loan Cash credit for Tax Assistance
working capital services

12
 Fixed Deposits Home improvement Bill Discounting Trustee services –
loan private and
charitable
Recurring Deposits Canara Cash Bank Guarantee Debenture
(Shares) Trusteeship
Kamdhenu Deposits Canara Mobile Loan for SME’s
(Vehicle) Security
Trusteeship

Savings Bank Account Canara Site loan Finance to SSI’s Attorney ship

Saving Gold Scheme Teacher’s loan Agricultural loans Estate & Will
Service
Canara Champ Deposit Scheme Canara Budget

Canara Saral Savings Account Canara Pension

Canara Tax Saver Scheme Canara Rent
Ashraya Deposit scheme Canara Jeevan
Canara Auto Renewal Deposit Canara Mortgage
Canara Super Savings Salary Doctors Choice
Account Scheme
Education loan
Swarna loan

5.Card Services 6.Mutual Funds 7.Ancillary 8.Other Services

Services
Canara Visa classic Canara Robeco MF Safe Deposit Insurance (Life &
products Lockers General)
Canara Global Gold Card HDFC MF products Safe Custody Technology
Services Products (ATMs)
Canara Corporate card 7 day Banking Depository
Services
DD Shoppe

13
 Extended Banking
hrs

Corporate Banking (table 3)

Accounts & Deposits Cash Management Loans & Advances Other services
Services
Current deposits Super Fast Service Term loans Canara e-Tax
Fixed Deposits Bulk Collection Gold Card Scheme for TUF Scheme
Service Exporters
Kamdhenu Deposits Fast Track Service Infrastructural Merchant Banking
financing services
Recurring Deposits Working capital IPO Monitoring
Finance Activity
Export Finance Syndication Services

NRI Services (table 4)

Deposits Loans and Remittance Consultancy Other services
Products Advances Facilities services

NRE(Non Resident
External Rupee) Housing Loan Canbank Remit NRI Safe custody
Account money scheme Consultancy

NRO(Non Resident Home Bank Western Union

Ordinary) Accounts Improvement Remittance scheme Safe Deposit Locker
loan

FCNR (Foreign Can Jewel Swift Nomination Facility

14
 Currency Non
Resident) Accounts
CanCash Rupee Drawing Investments
(Shares) Arrangement
CanMortgage Attorney ship
services
CanMobile NRI Service Centre
(Vehicle
CanSite Facilities For
Returning Indians
Loan Against
Deposits

Priority credit finance (table 5)

Agriculture & Rural Education loan RRB Divison Rural Others
Credit Scheme & other Priority Development
sector loan schemes
Kisan Credit Card Loan For Pragiti Grameen Rural Clinic Govt.sponsered
Students bank service Scheme
(SJSRY & SGSY)
Loan for Agri-Clinics Laghu Udyami South Malabar Rural Service Lead Bank Initiative
Credit Card Gramin Bank Volunteer 26 dist
Scheme scheme
Minor Irrigation Loan Loan for Retail Shreyas Gramin Jalyoga Scheme SME Business Unit
Traders Bank
Farm Development Loan for solar Harikalyana SME Marketing Unit
loan Water Heating Yojna
System
Gold Loan For Direct Financing Rural Resource Agri-Business
Agricultural Purpose to SHGs Development Marketing unit
Kisan Tatkal Lending To Mobile Sales Agri Consultancy
MCGs Van (for helping services
Women
entrepreneur in
marketing.)
Krishi Mitra Card Finance to CED for Women
Scheme NGO/MFI for

15
 on-Lending to
SHG
General Credit Card Social Banking

2.5) AREAS OF OPERATION

Over the years, Canara Bank has a reputation as a top quality service provider to its customers
and it believes in the centricity of its customers. Canara Bank of India has a network of 3046
branches, spread over 25 States/4 Union Territories of the country. It has its Head office in
Bangalore along with 34 circle offices and 1 international division. The bank also has
international presence in several centers, including London, Hong Kong, Moscow, Shanghai,
Doha, and Dubai. In terms of business it is one of the largest nationalized commercial banks in
India. Canara Bank has international division which supervises the functioning of its various
foreign departments to give the required thrust to foreign exchange business especially exports
and to meet the requirements of NRIs.

2.6) OWNERSHIP PATTERNS

The board consists of a whole time Chairman and Managing Director and two executives
director and one director representing Govt. of India and one representing Reserve bank of India
and four part times Non-official Director. Canara bank is a public sector undertaking (PSU),
73.17% of its share his held by Govt. of India and mutual fund/other institutions 5.75% private
corporate bodies 3.33% and public ownership is 17.75%. The bank is listed NSE, BSE and
Bangalore Stock Exchange.

16
 Ownership Pattern of Canara Bank (table 6)
Category Number of % of
shares equity
Promoters
Central govt./state govt 300000000 73.17
Institutional Investors
Mutual funds/UTI 8070610 1.96
Financial institutions 420940 0.10
Insurance companies 31064973 7.58
Foreign Institutional Investors 47581514 11.61
Non institutions
Bodies corporate 1983985 0.48
Individuals -
Individual shareholders holding nominal share capital up 20056041 4.89
to Rs. 1 lakh.
Individual shareholders holding nominal 489984 0.12
Share capital in excess of Rs. 1 lakh.
Trusts 5560 0.00
Clearing Members 74085 0.02
Non-resident India 252308 0.06
Total 410000000 100

17
 ownership pattern of Canara Bank

Bodies corporate Indian public NRI/OCB Trusts

0% 5% 0% 0%
central/state Govt.
Foreign Instnl. Investors mutual funds/UTIs
12% financial instn./Insurance
cos
financial instn./Insurance cos Foreign Instnl. Investors
8% Bodies corporate
mutual funds/UTIs central/state Govt. Indian public
2% 73% NRI/OCB
Trusts

Figure 1

18
2.7) COMPETTIORS INFORMATION
1) State Bank of India:
The State Bank Group, with over 16000 branches, has the largest branch network in India
and the bank has 141 overseas offices spread over 32 countries. State Bank of India is
one of the Big Four Banks of India with ICICI Bank, Axis Bank and HDFC Bank. The
State bank of India is 29th most reputable company in the world according to Forbes. The
products of the bank are Loans Credit Cards, Savings, Investment, vehicles, SBI Life
Insurance etc.

2) ICICI Bank:
It is India's largest private sector bank by market capitalization and second largest overall
in terms of assets. The Bank also has a network of 1,640 branches and about 4,816 ATMs
in India and presence in 18 countries, as well as some 24 million customers. ICICI Bank
offers a wide range of banking products and financial services to corporate and retail
customers through a variety of delivery channels. ICICI Bank is also the largest issuer of
credit cards in India.

3) Bank of India:
It was established on 7 September 1906 is with its headquarters in Mumbai.
Government-owned since nationalization in 1969, It is one of India's leading banks, with
about 3101 branches including 27 branches outside India. Bank of India is a founder
member of SWIFT (Society for Worldwide Inter Bank Financial Telecommunications) in
India which facilitates provision of cost-effective financial processing and
communication services.

19
2.8) INFRASTRUCTURAL FACILITY
 Canara bank is located in the centre of the city where the bank has multi-floor building
where it has separate partition for all the departments.
 The bank is fully computerized and well furnished with air condition facility to the
employees
 The bank provides medical facilities to its employees
 It also provides educational facility to the employees and their children.
 The bank also provides vehicle faculty or traveling allowances to their employees
 The bank also has provided with quarters facilities to its employees (officers).
 The bank has established its own training centre to develop the employees’
knowledge, skill & attitude.

2.9) WORK FLOW MODEL

Figure 2 the loan sanction process

The bank has a two way approach in its work flow pattern. Let’s consider a loan sanction model,
the person who requires the loan needs to fill an application and submit it to the respective
branch authority. Each branch has certain limitations regarding the loan amount; bank needs to
check the authentication of the details and information produced by the party. Loan can be
sanctioned only if the securities pledged are valid and are free from legal considerations.
The loan is sanctioned by the bank authorities if the requirements are fulfilled; else if the loan
amount is exceeding the limits of the branch, the request is forwarded to the circle office or the

20
head office. The circle or the head office verifies and approves or rejects the proposal. The order
(approved/rejected) is sent back to the respective branch, and hence sent to the person. The
figure above provides a clear understanding of the same.

2.10) AWARDS/ACHIEVEMENTS

 First National Award, instituted by the Ministry of Micro, Small & Medium Enterprises,
Govt. of India for 'Excellence in Micro & Small Enterprises (MSE) Lending' for 2006-07.
 'Golden Peacock Award for Corporate Social Responsibility' for the year 2007. Canara
Bank is the first PSB to receive the award since its institution in the year 1991.
 ‘Golden Peacock National Training Award-2007’, instituted by the Institute of Directors,
New Delhi, a pioneer in Quality Revolution.
 Conferred the Business Super brands Status for 2008.
 'The Organization of the Year Award- for PR Excellence', instituted by Public Relations
Council of India.
 Excellence in the field of Khadi & Village Industries in South Zone for the year 2006-07,
instituted by Khadi & Village Industries Commission, Ministry of Micro, Small & Medium
Enterprises, Government of India.
 Received during 2008-09Conferred 'First Rank' in India's Best Banks awards under the
category 'Strength and Soundness' for 2006-07 by a survey conducted by Ernst & Young.
 Best Performing Bank under Rural Employment Generation Programme, (REGP) of
Khadi and Village Industries Commission (KVIC), in South Zone for the year 2007-08,
instituted by the Ministry of MSME, Government of India.
 Golden Peacock National Training Award 2008 for excellence in training.
 Global HR excellence in Training, an award conferred by the Asia Pacific HR Congress,
the largest rendezvous of HR Professionals, at its Employer Branding Talent Management
Congress held on 22nd and 23rd August 2008, Delhi.
 Best Corporate Social Responsibility Practice Award, instituted by BSE, NASSCOM and
Times Foundation.

21
 The Bank won two Silver Corporate Collateral Awards for Best Corporate Ad in the Print
Media and Best Corporate Film on Corporate Social Responsibility at the Public
Relations Council of India Awards 2009.
 Best Bank in South Zone Award for the year 2008-09 in respect of lending under KVIC and
PMEGP Schemes. The award was handed over by Dr.Manmohan Singh, Hon’ble Prime
Minister of India
 The Bank received the Credit Guarantee Approval Certificate issued by CGTMSE from
Shri Pranab Mukherjee, Hon’ble Finance Minister of India.

2.11) FUTURE GROWTH AND PROSPECT

 The Bank aims to reach an aggregate business figure of Rs.5 lakh crore, comprising total
deposits of Rs.285000 crore and advances of Rs.215000 crore.
 The Bank will continue to focus on core business, with the objective of augmenting
profits and profitability.
 Expanding global footprints, the Bank is likely to open a Representative Office at Sharjah
shortly in addition to RBI approval already obtained in 9 international centres.
 Targets to achieve 100% CBS coverage by June 2010
 The Bank has plans to open over 200 new branches during FY2011.

22
3) McKINSEY’S 7s FRAMEWORK
The Mckinsey’s 7s plays a vital role for the success of any organization. There are hard and soft
components. The figure below shows the framework.
Fig. 3: Mckinsey’s Framework

Figure 3

3.1) Structure
The design of organizational structure is a downward communication of information in the bank.
The information flows top down, i.e. from top-level management to lower levels. The chairman
and managing director have the sole authority in the organization. They give instructions to the
executive director and the general manager who in turn give instructions to the lower level
managers. The middle level management consists of general manager and company secretary.
Among these departments the General Manager division is very large. It consists of many
sections and sub sections. All sectional heads will communicate or report their sectional
performance or activities regularly to the general manager.

3.2) Skills
The important software for the success any organization is the skills of the
employees & of the management. The Canara bank is having highly skilled employees. The
skills of the organization are:

23
Credit Skills: They face the challenges in improving the asset quality suitable training programs
for upgrading the appraisal & credit monitoring skills, pre-sanction & post-sanction supervision,
including monitoring of stocks, financial statements, etc., will be provided. The rigor of NPA
discipline & provisioning will only increase in the days to come & they have to equip themselves
for this task.
Technology Skills: Canara bank is having a very good brand equity & loyalty of customers.
Bank has already introduced product like, Tele-Banking, credit cards, ATMs etc., cross selling of
other financial services like insurance, mutual funds, government securities. Increasing non-fund
income, personal segment advances & trades finance in order to improve the profitability & to
make growth in business volumes more sustainable. Importance has also been given to areas like
low cost deposits, NPAs/AUCs recovery & reduction in operating expenses to improve
efficiency of their operations.
Operating Skills: Bank has to increasing non-fund income, personal segment advances & trades
finance in order to improve the profitability & to make growth in business volumes more
sustainable. Importance has also been given to area like low cost deposits, reduction in operating
expenses taken sufficient measures to identify measure, monitor & manage various risks
associated with the Banking business in the areas of credit, interest rate & liquidity.

3.3) Style
The style of an organization according to the Mckinsey framework becomes evident through the
pattern of actions taken by members of top management team over a period of time.

Leadership Style in Canara Bank

It has been observed in the Canara bank that the behavior of superior towards the subordinate is
pleasant. They motivate fresher who are working under them. The superior tells subordinates
what exactly he has to do. The object of the work is clearly defined to them. Otherwise the
superior councils the subordinate, superiors who act as leaders conduct meetings, discussions,
presentation etc, on regular basis and take suggestions and ideas given by subordinates. The
leader takes the final decisions only. This style of leadership is called conservative leadership.

24
3.4) Strategy
Strategy indicates a specific program of action for achieving the organization objectives by
efficiently employing the firms’ resources. It involves preparing oneself for meeting unforeseen
factors. It is also concerned with meeting the challenges posed by the policies and actions of
other competitors in the market.

3.5) Systems
Training System : The Bank under various categories were imparted training in diverse
functional areas such as assets liability management, consumer credit, housing finance, retail
finance Recovery, trade finance. The Bank adopts its own training system with the help of their
training centers. Training mainly helps with updating skills, knowledge improvement etc.
Technology System: The bank has initiated business process re-engineering with an effort to
stay at the top in the competition. It has enabled Core-Banking Service, has its own Cheque
Processing unit, and has initiated installation of ATM’s in all the areas.
The Bank has taken necessary steps to implement structured financial messaging system
(SFMS) a modularized software solution for financial message communication in a highly
secured environment.
Recruitment & Selection System: The sources of recruitment at the organization in the form of
both external & internal. The Bank follows the recruitment & selection processes that are
commonly followed by public sector Banks.
Systems and Procedures: Many systems and procedures in the Bank were received re-oriented
and simplified during the year without diluting any controls. Noteworthy among the initiatives
were revision/updating of all ten credit manuals, rationalization of entire applications in retail
lending schemes, simplification of documentation against valuable securities, rationalization of
printing supply and usage of forms, pilot implementation of single window system at select
branches revision of DD payment procedures & streamlining of procedures or scanning of
signature at branches.

25
3.6) Staff
The bank is motivated to harness the unique assets of the human resources for growth of the
institution and to imbibe team spirit for self and mutual development among bank’s staff. The
bank has made inroads towards establishment of quality circle concept among its employees.
Training & Development
Canara bank has been a fore runner in establishment of its own training college at Bangalore,
supported by 13 regional training centers spread over length & breadth of the country. These
centers take care of knowledge, skill & attitudinal development of the employees.

3.7) Shared values

 Improve market share on rural & semi-urban markets.
 Increase number of performing branches and eliminate below performing branches.
 To develop competent and vibrant human work force.
 To develop the competencies and skills of the employees through training (Internal &
external) and other HRD measures.
 To improve the work environment in the bank through welfare measures and healthy
Industrial relations.
 To encourage employees to share knowledge and information about the various activities
in the bank through the House Magazine and other publications.
 To encourage employees for implementation of office language in their day to day work.
 The wing will continually improve all the processes involved during the performance of
the above functions for “Total satisfaction of customer” ( Internal) by implementing
quality management system requirements of all personal of the Bank as per IS/ISO
9001:2000

26
4) SWOT ANALYSIS
The bank had envisioned to not only offer financial services but also fulfill social causes such as
removal of superstitions and ignorance, promotion of habit of saving, providing assistance to the
people in need and develop a sense of humanity among the people.

Strengths
 It is the first bank in India to have launched Inter-City ATM network
 It is the first bank to have been awarded ISO Certification for providing credit card for
farmers for the first time in India along with offering Agricultural Consultancy Services
 It has established 3046 branches across the nation as of March of 2010.
 It has the maximum number of ATM installations among all the nationalized banks
summing up to more than 2000 of them at 698 centers
 1959 branches of the bank provide Internet and Mobile Banking (IMB) services
 ‘Anywhere Banking’ services are being provided at 2091 of its branches
 All the branches of Canara Bank are enabled with Real Time Gross Settlement (RTGS)
and National Electronic Fund Transfer (NEFT) transaction facilities
 Bank also offers Personal Banking Services, Corporate Banking Services, NRI Banking
Services and Priority & SME Credit Services.

Weakness
 Still sticks to most of the traditional banking systems
 Requires training program due to introduction of many new schemes & technologies
 Weak research team
 Staff take time to get adjusted to the new inventions
 Stands 4th position in the nationalized banks ratings

27
Opportunities
 To improvise on mutual funds, to lead the banks into MF transactions
 To adapt to the new technological inventions, to stay at the top in the competitive market
 To provide enough training facilities to the staff, to deliver efficient & effective services
 To provide extra privileges to the customers to maintain & retain customers
 To attract customers with good loan offers at very impressive rates, against the
competitors.
 To be aware of the changes in the market, & provide space for instantaneous changes

Threats
 Establishment of private banks, increasing the competition
 Introduction of new technologies in the new banks with high infrastructure
 Innovative interest rates & attractive customer care services
 Adoption of many technologies & banking systems from abroad
 Very efficient research team, who are always tracking the new inventions in the market
 Most of the private banks provide 24hrs facility

28
5) FINANCIAL STATEMENT ANALYSIS
Ratio Analysis of the Balance Sheet (table 7)
Mar’ Mar ' Mar ' Mar ' Mar ' Mar '
 
10 09 08 07 06 05
         
Per share ratios          
Reported EPS (Rs) 73.69 50.55 38.17 34.65 32.76 27.06

Dividend per share 10 8 8 7 6.6 5.5

Operating profit per share (Rs) 73.99 47.02 33.29 33.15 27.6 26.7
Profitability ratios          
Net profit margin (%) 13.77 10.89 9.61 11.6 13.82 12.81
         
Leverage ratios          
Total debt/equity 18.71 18.62 18.57 17.55 16.64 16.17
Fixed assets turnover ratio 4.65 4.08 3.65 2.85 5.29 5.26
         
Liquidity ratios          
Current ratio .01 0.3 0.19 0.25 0.32 0.34
Quick ratio 26.98 11.29 9.17 9.49 10.19 9.46
         
Payout ratios          
Dividend payout ratio (net profit) 15.88 18.51 24.53 23.63 22.97 23.08
Earning retention ratio 84.10 81.48 75.45 76.36 77.02 76.91

Interpretation of the above ratios:

It is a very powerful tool useful for measuring performance of an organization. Below are some
of the ratios considered to analyze the performance of Canara Bank over the last 6 years. Firstly,
let’s consider market based/ per share ratios.
1) Earnings Per Share: (Net profit after tax and preference dividend/No. equity shares). This
ratio checks the economic performance of the entity; it has a major affect on decision of dividend
29
policy. The values consolidated in the above table provide a clear view that the net profit has
been increasing by the year and it has shown an increase of 172.3% over the last six years.

2) Dividend per share: Dividends are the share of profit distributed among the share holders per
share. The value has been increasing from Rs. 5-10. It has shown an increase of 81.18% over the
last 6 years.

3) Net Profit Margin: (Net Profit before Interest and Tax/Sales)*100. The non operating
incomes and expenses are ignored for computation of profit before tax, depreciation and interest.
The value has reduced by the years, mostly because costs debited to the P&L account are fixed in
nature and increase in sales declines the per unit cost. There has been an increase of 7.4% over
the year

4) Debt-Equity Ratio: (Total Debt/Shareholders Funds). It indicates the relationship between

loan funds and net worth of the entity. Generally 2:1 is the norm accepted for financing projects,
higher ratio of 3:1 may be permitted for capital intensive industries. It has a high impact on the
returns to the share holders. The values show a declining trend over the years and it’s considered
to be a positive sign, increasing the cash accrual and debt repayment.

6) Fixed Asset Turn Over Ratio: (Sales/Fixed Assets). It’s a difficult ratio to be analyzed
because the asset values are based on historic costs. There are variations in the values which may
be due to replacement of an asset at an increased price or purchase of an additional asset to
increase production.

7) Current Ratio: (Current Assets, Loans & Advances/Current Liabilities & Provisions). The
banks consider 1.33:1 as the minimum acceptable level for providing working Capital Finance.
This determines the solvency of the company. The values show that the ratio has been decreasing
giving a positive sign, but there has been an increase in the year March 2009 which may be due
to high cash balance, bank accounts without proper investments etc.

30
8) Quick Ratio: (Current Assets, Loans & Advances-Inventories/Current Liabilities &
Provisions-Bank Overdraft). It’s a supplement to current ratio to determine solvency or liquidity
of the company. It also measures the company’s ability to meet its customer’s obligations.

9) Dividend Pay Out Ratio: (Dividend per Share/Earning Per Share). Bank has a considerable
liberal policy, as the values are high in the past years. There has been a little decrease in the ratio,
mostly due to low profits or changes in the earnings ratio.

10) Earnings Retention Ratio: this ratio provides the margin distributed to the share holders
and the percentage retained. The amount retained may be due to further expansion plans of the
company or the investment decisions.

31
 PART B

1) EXECUTIVE SUMMARY
Micro-Finance is emerging as a powerful instrument for poverty alleviation in the new economy.
In India, micro-Finance scene is dominated by Self Help Groups (SHGs) - Banks linkage
programme, aimed at providing a cost effective mechanism for providing financial services to
the 'unreached poor'. In the Indian context terms like "small and marginal farmers", " rural
artisans" and "economically weaker sections" have been used to broadly define micro-finance

32
customers. Research across the globe has shown that, over time, microfinance clients increase
their income and assets, increase the number of years of schooling their children receive, and
improve the health and nutrition of their families as the global financial system buckles,
microfinance institutions continue to grow on the back of their record for low risk and solid
returns.
In this paper I tried to cover all the aspects of Microfinance industry in India, starting from
defining microfinance, knowing the need of poor, products of microfinance their demand and
supply, evolution and growth of microfinance industry, reach to clients, major players regulatory
body, present situation, Impact on poverty alleviation, issues, challenges, future potential etc.
with a focus on Canara Bank initiatives. I have explained Canara Bank’s portfolio on
microfinance and the entire scheme that are adopted by Bank for Financial Inclusion, whether
it’s no frill account or KCC scheme ,GCC scheme etc.

2) MICROFINANCE INTRODUCTION
The financially weaker section, like the rest of society, need financial products and services to
build assets, stabilize consumption and protect themselves against risks. MF serves as the last-
mile bridge to the low-income population excluded from the traditional financial services system
and seeks to fill this gap and alleviate poverty.
Microfinance loans serve the low-income population in multiple ways by:

33
(1) Providing working capital to build businesses;
(2) Infusing credit to smooth cash flows and mitigate irregularity in accessing food, clothing,
shelter, or education; and
(3) Cushioning the economic impact of shocks such as illness, theft, or natural disasters.
Moreover, by providing an alternative to the loans offered by the local moneylender priced at
60% to 100% annual interest, microfinance prevents the borrower from remaining trapped in a
debt trap which exacerbates poverty.
MF loans in India range in size from $100 to $500 per loan with interest rates typically between
25% and 35% annually by MFIs and much below by banks i.e. 18 to 25 %.The MF model is
designed specifically to help the low income population overcome typical challenges such as
illiteracy, lack of financial knowledge and deficiency of collateralizable assets. At the same
time, the model takes advantage of existing community support systems and networks to
encourage financial discipline and ensure high repayment rates with an aim of creating social
value. The creation of social value includes poverty alleviation and the broader impact of
improving livelihood opportunities through the provision of capital for microenterprise, and
insurance and savings for risk mitigation and consumption smoothing.
A large variety of actors provide MF in India, using a range of MF delivery methods.
Governments have piloted national programs, NGOs have undertaken the activity of raising
donor funds for on-lending, and some banks have partnered with public organizations or made
small inroads themselves in providing such services.
The range of activities undertaken in microfinance include group lending, individual lending,
the provision of savings and insurance, capacity building, and agricultural business development
services. Whatever the form of activity however, the overarching goal that unifies all actors in
the provision of microfinance in the creation of social value.

3) MICROFINANCE DEFINITIONS. 
According to Robinson, Marguerite.

“Microfinance refers to small-scale financial services for both credits and deposits — that are
provided to people who farm or fish or herd; operate small or microenterprises where goods are
produced, recycled, repaired, or traded; provide services; work for wages or commissions; gain

34
income from renting out small amounts of land, vehicles, draft animals, or machinery and tools;
and to other individuals and local groups in developing countries, in both rural and urban
areas”

According to International Labor Organization (ILO),

“Microfinance is an economic development approach that involves providing financial services

through institutions to low income clients”.

The Task Force on Supportive Policy and Regulatory Framework for Microfinance has
suggested a working definition of microfinance 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".

While exclusively covering the poor, it lays emphasis on graduating borrowers from pre-mE
stage to post mE stage. This graduation is done through financial and non-financial services. The
emphasis of support under mF is on the poor in 'pre-microenterprise' stage for building up their
capacities to handle larger resources. No specific limit for 'small' amount of financial services is
envisaged.

"Microfinance institutions (MFIs) are those which provide thrift, credit and other financial
services and products of very small amounts mainly to the poor in rural, semi-urban or urban
areas for enabling them to raise their income levels and improve living standards".

 MFIs have emerged broadly under three categories:

i). Not-for-Profit MFIs
Societies registered under Societies Registration Act, 1860 or similar State Acts
Public Trusts registered under the Indian Trust Act, 1882

35
Non-profit Companies registered under Section 25 of the Companies Act, 1956
ii). Mutual Benefit MFIs
State credit cooperatives
National credit cooperatives
Mutually Aided Cooperative Societies (MACS)
iii). For-Profit MFIs
Non Banking Financial Companies (NBFCs) registered under the Companies Act, 1956
Banks which provide MF along with their other usual banking services could be termed as mF
service providers.

Asian Development Bank’s Microfinance development strategy defines

“Microfinance is the provision of a broad range of financial services such as deposits, loans,
payment services, money transfers, and insurance to poor and low-income households and, their
microenterprises”.

Microfinance services are provided by three types of sources:

 formal institutions, such as rural banks and cooperatives;
 semiformal institutions, such as nongovernment organizations; and
 Informal sources such as money lenders and shopkeepers.
Institutional microfinance is defined to include microfinance services provided by both formal
and semiformal institutions.

4) ACTIVITIES/ PRODUCTS/SERVICES 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. E.g. through JLG,
SHG, MCG etc

36
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. E.g. Cansaral accounts

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. E.g. insurance for
crop, machinery, equipment, animals etc

Remittances:
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.

5) HISTORY/ORIGIN OF MICROFINANCE

There are 3 main factors that count to the bringing up of Microfinance as a Policy in India

1. The first of these pivotal events was Indira Gandhi’s bank nationalization drive launched in
1969 which required commercial banks to open rural branches resulting in 15.2% increase in
rural bank branches in India between 1973 and 1985.

37
2. The second national policy that has had a significant impact on the evolution of India’s
banking and financial system is the Integrated Rural Development Program (IRDP) introduced in
1978 and designed to be ‘a direct instrument for attacking India’s rural poverty.’

3. The last major event which impacted the financial and banking system in India was the
liberalization of India’s financial system in the 1990s characterized by a series of structural
adjustments and financial policy reforms initiated by the Reserve Bank of India (RBI).

The systems and procedures of banking institutions was emphasizing on complicated qualifying
requirements, tangible collateral, margin, etc., that resulted in a large section of the rural poor
shying away from the formal banking sector. The banks too experienced that the rapid expansion
of branch network was not contributing to an increasing volume of business to meet high
transaction costs and risk provisioning, which even threatened the viability of banking
institutions and sustainability of their operations. At the same time, it was not possible for them
to allow a population of close to 300 million - even if poor - to remain outside the fold of its
business. The search for an alternative mechanism for catering to the financial service needs of
the poor was thus becoming imperative.

The evolution of modern microfinance can be stated with the origin of Grameen bank in the year
1976 and get the independent status of bank 1983 in Government legislations. Dr.Muhammed
Yunus was known as the pioneer of this, he is the father of modern microfinance. Later on his
model was spread all over the world.

6) DEMAND FOR MICROFINANCE SERVICES

Due to its large size and population of around 1000 million, India's GDP ranks among the top 15
economies of the world. However, around 300 million people or about 60 million households,
are living below the poverty line. It is further estimated that of these households, only about 20%
have access to credit from the formal sector and rest 80% unable to access credit at reasonable
rate. Additionally, the segment of the rural population above the poverty line but not rich enough
to be of interest to the formal financial institutions also does not have good access to the formal
financial intermediary services, including savings services.

38
It was found that poor and low income households, irrespective of rural/urban status have 3 kinds
of needs:
1) Life cycle needs: marriage, other family events, birth, death, education, house construction,
old age, widowhood, festivals, etc.
2) Emergency needs: medical emergencies, natural calamities, theft, accidents etc
3) Investments needs: asset purchase, small business

They have effective demand for a range of Microfinance services including:

1) Safe and convenient deposit services — so they can save for emergencies, investment,
consumption, social obligations, and the education of their children
2) Credit services — for consumption smoothing, and to finance livelihood activities and large
expenses for education, housing improvements, migration, etc.
3) Other financial services — such as insurance and funds transfer services.

Demand for Credit

In terms of demand for micro-credit, there are three segments:
1)At the very bottom in terms of income and assets, and most numerous, are those who are
landless and are engaged in agricultural work on a seasonal basis, and manual labourers in
forestry, mini household industries, construction and transport.
This segment requires, first and foremost consumption credit during those
months when they do not get labour work, and for contingencies as illness. They also need credit

39
for acquiring small productive assets, such as livestock, using which they can generate additional
income.
2) The next market segment is small and marginal farmers and rural artisans, weavers and those
self-employed in the urban informal sector as hawkers, vendors, and workers in household
micro-enterprises.
This segment mainly needs credit for working capital (crop production), a small
part of which also serves consumption needs. The segment also needs term credit for acquiring
additional productive assets, such as irrigation pump sets, bore wells and livestock in case of
farmers, and equipment (looms, machinery) and work sheds in case of non-farm workers. This
market segment also largely comprises the poor but not the poorest.

3) The third market segment is of small and medium farmers who have gone in for commercial
crops such as surplus paddy and wheat, cotton, groundnut, and others engaged in dairying,
poultry, fishery, etc. Among non-farm activities, this segment includes those in villages and
slums, engaged in processing or manufacturing activity, running provision stores, repair
workshops, tea shops, and various service enterprises. These persons are not always poor, though
they live barely above the poverty line and also suffer from inadequate access to formal credit.

Technically the second and third segments indicated above are eligible for loans from the banks,
but in reality they have been not covered by the Banking System. The first segment is the present
focus of NGO oriented microfinance institutions. Women are also one of the important segment
for microfinance services.

Demand for Saving Services

The demand for savings services is ever higher than for credit. Studies of rural households in
various states in India show that the poor, particularly women, are looking for a way to save
small amounts whenever they can. The irregularity of cash flows and the small amounts
available for savings at one time, deter them from using formal channels such as banks.
In urban areas also this is true, in spite of better banking facilities, as shown by the experience of
the SEWA Bank, Ahmadabad. The poor want to save for various reasons – as a cushion against

40
contingencies like illness, calamities, death in the family, etc; as a source of equity or margin to
take loans; and finally, as a liquid asset. The safety of savings is of higher concern than interest
rate .

Demand for Insurance Services

The demand for insurance services, though not very well articulated, is also substantial. This
comes from the fact that not only incomes of microfinance customers low, but are also highly
variable. Insurance by the poor is needed for assets such as livestock and pump sets, for shelter.
Crop insurance could be very useful to the rural poor. Finally, insurance against illness, disability
and death would also reduce the shocks caused by such contingencies, which lead the poor into
taking loans at such times at high interest.

7) SUPPLY FOR MICROFINANCE SERVICES

Supply of Microcredit
Whereas there are some estimates of demand for micro credit in India, the estimates on the
projected microfinance supply and the arising financial requirement for future growth of
microfinance in India are limited. In 2006 Sa-Dhan has made a detailed study and brought out a
report on ‘financial requirement for future growth of microfinance in India. In this study an

41
estimate of reaching Rs28, 000 crore microfinance portfolio (out of which Rs. 12804 crore from
MFI channel alone) by 2010 was made another projection made by the research and consultancy
firm Intellecap for MFI portfolio under three scenarios (low, most likely and high) ranges from
Rs. 21404- 29974 crore by 2012. RBI data shows that informal sources provide a significant part
of the total credit needs of the rural population.

Supply of Saving Services

In the case of savings services, again while banks have provided access to a large number of
small depositors, the demand is nowhere near being met, particularly for small, frequent
"recurring" deposits. Hence the poor turn to other means such as chits, bishis and savings
mobilization companies like Peerless and Sahara.
Many such companies are fly-by night and as a result, the poor lose their money. The RBI has
tightened up deposit taking activity since 1997, but this has, perversely, also led to legitimate
MFIs being not allowed to take deposits and thus provide savings services to the poor.
Transaction costs of savings in formal institutions were high for the rural poor.

Supply of Insurance Services

The supply of insurance services to the poor has been increased substantially over the 1990s, and
there are a large number of low premium schemes covering them against death, accidents,
natural calamities, and loss of assets due to fire, theft, etc. However, the usage is limited by low
awareness among the poor. Crop and livestock insurance, however, are quite expensive and their
reach to the poor is negligible. Livestock and asset insurance was extended to the poor along
with the IRDP subsidized loans, and thus remained scheme driven, with little awareness among
the customers.
8) LEGAL AND REGULATORY FRAMEWORK

 Banks in India are regulated and supervised by the Reserve Bank of India (RBI) under
the RBI Act of 1934, Banking Regulation Act, Regional Rural Banks Act, and the
Cooperative Societies Acts of the respective state governments for cooperative banks.

42
  NBFCs are registered under the Companies Act, 1956 and are governed under the RBI
Act.

 There is no specific law catering to NGOs although they can be registered under the
Societies Registration Act, 1860, the Indian Trust Act, 1882, or the relevant state acts.

There has been a strong reliance on self-regulation for NGO MFIs and as this applies to NGO
MFIs mobilizing deposits from clients who also borrow. This tendency is a concern due to
enforcement problems that tend to arise with self-regulatory organizations. In January 2000, the
RBI essentially created a new legal form for providing microfinance services for NBFCs
registered under the Companies Act so that they are not subject to any capital or liquidity
requirements if they do not go into the deposit taking business. Absence of liquidity
requirements is concern to the safety of the sector.

Development process through Microfinance

fig 4

Donors and Banks Microfinance Government Banks

Implementing
organizations
43
Individual Individual
Awareness/ promotional
work
 Micro finance intervention through different organization

NATIONAL
v BANKS GOVT. FUNDED DONORS
FINANCIAL
V PROGRAMME /BILATERAL
INSTITUTIONS
PROJECTS

IMPLEMENTING
ORGANISATIONS

DIRECTLY INDIRECTLY
RESOURCE
INVOLVE IN INVOLVE IN
SUPPORT
MICROFINANCE MICROFINANCE
ORGANISATIONS

SHGS INDIVIDUALS

Fig 5
MEMBERS

44
9) MAJOR PLAYERS
The major players which were instrumental in the growth of microfinance industry in India
includes NABARD, SIDBI, Rashtriya Mahila Kosh, FWWB and SHARE Microfin Limited etc.

NABARD
NABARD was established in 1982 to provide credit to the rural sector. NABARD was a pioneer
in microfinance programs in India. The bank’s vision is “to facilitate sustained access to
financial services for the unreached poor in rural areas through various microfinance innovations
in a cost effective and in sustainable manner.” By 2005 NABARD SHG Bank linkage
programme had emerged as one of the largest microfinance programs in the world. NABARD
has also collaborated with NGOs, MFIs, banks and governmental agencies in order to use other
models of rural credit like the Grameen Model and the Individual Banking Model.
SIDBI
SIDBI Foundation for Micro Credit (SFMC) was launched by the Bank in January 1999 for
channelizing funds to the poor in line with the success of pilot phase of Micro Credit Scheme.
SFMC's mission is to create a national network of strong, viable and sustainable Micro Finance
Institutions (MFIs) from the informal and formal financial sector to provide micro finance
services to the poor, especially women. 

RASHTRIYA MAHILA KOSH

In 1993, the Ministry of Human Resource Development, Government of India set up the
Rashtriya Mahila Kosh (RMK) with initial funding of Rs.310 million to act as a provider of
wholesale funds for the sector and to develop the sector through capacity building and advocacy.

45
10) GROWTH OF MICROFINACE
1960s – 1980s 1990s 2000
(table 8)
Phase 1 Phase 2 Phase 3
Social banking Financial system approach Financial inclusion

 Nationalization of  Peer pressure  NGO-MFIs SHGs are

private commercial  SHG Bank Linkage gaining more legitimacy.
banks.  Establishments of  MFIs emerging as
 Expansion of rural Microfinance Institutions strategic partners to
branch network. especially of Nonprofit diverse entities interested
 Extension of origins. in the low income
subsidized credit. segment.
 Establishment of  Consumers finance
RRB. emerged as high growth
 Establishment of apex area.
institutions like  Increased policy
NABARD, SIDBI etc regulation.
 Increasing
commercialization.

46
Classification of MFIs in India as at the beginning of FY 2010 (table 9)

Tier 1 Tier 2 Tier 3 New age MFIs

5-6 large NBFC
500-800 NGO
MFIs that have 10-15 mid-
MFIs that have 5- 10 MFIs promoted recently by
been in operation sized MFIs
been growing professionals who are convinced
as NBFC for 6-10 that have
Description steadily and face of the opportunity at the ‘bottom
years and recently
difficulty in of the pyramid’. Most of them are
previously as an transformed
borrowing from for-profit NBFCs
NGO for several into NBFCs
banks
years
Total
Nearly 10 million 2-5 million < 1 million < 0.5 million
Outreach
Typical ~= RS 50- ~= RS 30-50
> RS 100 crore < 30 crore
Portfolio 100 crore crore
Have availed
Most have Dependent on
or are
Source of availed of donated equity Promoters equity and commercial
looking for
equity commercial and ‘social’ equity capital
commercial
equity capital investors
equity capital
Institutional Institutional
Source of Institutional loans
loans + loans, soft loans, Institutional loans + buyout
debt funds + buyout
buyout grants
Leverage Moderate Moderate High Low

Characteristics of Microfinance Delivery Models in India (table 10)

47
Financial Description Service
Characteristic

Credit Loan amount Determined by the longevity of the client’s association with the MFI.
Not often directly related to the credit needs of the borrower.

Loan term Usually 12 months, occasionally less, sometimes greater

Repayment Monthly or weekly Installment – usually fixed, equal amounts

Interest Range: 24-36%, usually levied as a flat charge, partly to simplify
charges calculations for both the MFI and the client. Some MFIs charge lower
rates but suffer from poor sustainability as a result.

Collateral No physical collateral but often linked to some compulsory savings

component which acts as financial collateral. Reinforced by joint
liability (Grameen) with other clients or peer pressure arising from
membership of a community group revolving its own as well as
borrowed funds (SHGs, cooperatives). Some MFIs also create reserve
funds to cover the risk of default

Savings Amount Grameen: Compulsory – usually a fixed proportion of the repayment

deposited installment SHG: Compulsory – fixed amounts per (weekly or monthly)
meeting to be deposited as part of the group fund; occasionally also
voluntary Some MFIs now offer long term fixed deposits.

Withdrawals Compulsory savings cannot be withdrawn except when the client leaves
the group. Voluntary savings often require some notice of withdrawal

Interest paid Most programmes pay 4-6% interest (not consistent)

Insurance Life Some MFIs are starting to offer life insurance covering client loan
repayments plus a small payment to the family in case of the death of the
client. A reserve fund is created for the purpose or insurance is bought
from the organized sector on behalf of the client

Animal Usually linked with a formal insurance company which obtains bulk
business from the MFI while the latter provides the service of premium
collection; assists in the verification of claims

11) MICROFINANCE DELIVERY METHODOLOGIES

48
The sheer geographical size of the country, a wide range of social and cultural groups, the large
spectrum of economic classes and a variety of NGOs movement has contributed towards the
diversity of microfinance models in India.
Some of the common models used in India are
1) Self help group model
2) Grameena model
3) Cooperative/mutually aided cooperative model
4) Non banking company finance model
5) Bank using other agencies for distribution of microfinance

1) Models of SHGs in India

SHGs are small (membership of 10-20 persons) informal groups that have socially and
economically homogeneous membership of poor people drawn from the same hamlet or from
nearby hamlets. The composition of membership is mainly exclusively male or exclusively
female (as of now in India more than 90% of the SHG members are female only). The members
are self selected. With the liberty to chose their group depending on their level of affinity with
other potential members. Thus the basic designs of SHG are robust and make it easy for the
NGO facilitator to build it into a strong social and financial institution. Once the basic group is
identified, the NGO facilitator builds system that makes the SHG a viable, sustainable institution.
The NGO meets regularly, mostly weekly at an appointed time and places to carries out its
financial transaction of savings and credits. The group mobilizes savings among members and
meets the need based loan of members out of the pool of fund created.
Thus while SHG provides members with financial services, the NGO provides them with
support services, training, systems setting and development linkages.

2) The Grameen bank model

49
The Grameen bank methodology has been a case of exceptional success. Though the Grameen
Bank evolved in methodology in Bangladesh, many organizations in India like SHARE Microfin
Ltd., Activist for social Alternative (ASA) and CASPHOR Financial and Technical services Ltd
have adopted methodology with slight variations.
Some of the salient features of Grameeen Bank model are mentioned below:

 Homogeneous affinity group of five members are formed at village level

 The field worker facilitates the process of group forming
 All the group member undergo a compulsory training
 Some group members undergo a Group Recognition Test (GRT)
 Eight joint liability group are affiliate together to form a centre
 The centre meets every week, meetings are very structured and a bank assistant
attends this meeting
Some of the significant elements of this model are
 Low transaction cost
 No collateral- peer pressure
 All kinds of loans- productive and consumption
 Repayment in small, regular and short intervals
 Quick loan sanctions-minimal formalities and paper work
The most remarkable aspect of Grameen Bank is its loan recovery rate, in the range of 98% and
above. This has contributed to the bank to have low cost credit and attracting low cost of funds
from the Govt. and International donors.

3) The cooperative /mutually aided cooperative model

50
The organization that has been the most successful in using cooperative forum in rural micro
finance in India has been the Cooperative Development Forum (CDF), Hyderabad. This
approach has realized on a credit union model involving a ‘savings first’ strategy. It has built up
a network of financial cooperatives based upon women’s and men’s thrift groups.
The main features of CDF system are as follows:
 The primary entities are the women’s/men’s thrift cooperative which consists of
300 members usually from the same village.
 It has started off by promoting much smaller units, but over time it encourage
these small units to merge into larger units as it felt that smaller units are not
viable
 Each group has a leader, who convenes the group meetings, collect group savings,
and monitor repayment of loans.
 All the members of the primary cooperative constitute the General Body with a 12
member board of directors who are elected for a three year term and adopt a
uniform set of bylaws.
 A set of geographically contiguous cooperative federate to form an association
of women’s/men’s thrift cooperatives.

4) Non banking Financing Companies

It has emerged as a nearest substitute to being a fully fledged bank for those MFIs who want to
go for profit route. Since registered as a bank is costly and local area bank (LAB) idea has not
been pursued beyond the initial level approval, the NBFC route have been chosen by MFIs
operating for profit.
One of the best examples is BASIX, a new generation NBFC that has been promoted for
promoting tailor made financial services for the poor.

12) PRESENT SITUATION

51
India’s Microfinance institutions reached 76.6 million clients against last year’s 59 million,
according to the “State of the Sector Report” September 2009.MFI’s have recorded about 8.5
million clients during the year 2008-09, a growth of 60% over the previous year. More than 50
percent of low income households are covered by some form of microfinance product. The total
outstanding microfinance loans posted a growth rate of 30% or 359.39 billion over the last year’s
level of Rs 229.54 billion.. The SHG loan outstanding has increased by Rs. 71.5 billion with an
addition of 6.9 million clients. MFIs so far reached 234 of the 331 poorest districts identified by
the government. The MF penetration index shows especially in Bihar, Madhya Pradesh,
Rajasthan and Uttar Pradesh compared to extraordinary levels reached in Andhra Pradesh,
Karnataka and Tamilnadu. While last year’s report focused on the increased risk in the sector,
this years’ report takes stock of the uninterrupted growth rate of the sector despite several
internal and external adversities. Today 25 million Indians have taken so called microfinance
loans, often without adequate documentation or collateral, according to Micro-Credit Ratings
International Ltd. In rural India, people are being lent to at 150 percent of the value of their
enterprises.
India is considered as the World’s Largest Market, Most microfinance loans in India range from
5,000 rupees to 20,000 rupees. The country, where more than 600 million people live on less
than $1.50 a day, is the world’s largest microfinance market, Interest rates range from 18 percent
to 35 percent .The Largest 5 MFIs grew at 71.7% in 2008-09 (compared to 59.6% earlier), while
the Next10 MFIs slowed down substantially (down from 71.6% per annum in 2006-08 to just
29.3% growth in 2008-09).This has resulted from competitive pressures and aggressive growth
of the largest MFIs together with a slowdown in the availability of funds from commercial
banks to all but the largest MFIs. Distribution of MFIs is heavily concentrated in South India but
the share of the East is growing. MFIs in the North and the West have become less important
but, the larger institutions in the south and east have started to expand North and West. MFIs
have increasingly shifted towards Grameen-type programmes at the expense of SHG-based
programmes (SHG).

MFI loan portfolios grew by a factor of nearly 35 between 2002 and March 2009 reaching a
figure of around Rs 8,000 crore or over $1.5 billion. The share of the Top10 MFIs increased
from 43% in 2002 to over 72% in 2009. Average outstanding loan balances have increased from

52
Rs 3,300 ($72) in 2002 to Rs 5,300 ($104) with average disbursements of Rs 8,500 ($173) in
2009. Indian microfinance continues to be the most efficient in the world, the operating
efficiency of Indian MFIs measured by the average operating expense ratio declined further,
from 15-16% in the mid-2000s to 11.5% in 2008-09. This compares with a median OER of
15.0% for Asia and 18.1% globally. The Top10 MFIs, however, have not improved their
efficiency over the past few years. The increase in OER for the Top10 MFIs from 10.8% in
2004 to 12-13% in recent years is a result of the fast growth of these organizations. Yet, despite
the improvement in OER over the past few years, the yield on portfolio of Indian MFIs has risen
significantly. This means that Indian microfinance borrowers are now paying a relatively high
cost for their microfinance loans, higher than the global median – a reversal of the earlier
situation when Indian MFI clients paid the lowest cost in the world – just 25% in 2006. This is
caused mainly by the increase in yields of the largest MFIs; the Top10 average yield has risen to
33.6% by March 2009 - the extent of the widening margin is apparent from the figures below.
Analyzing this issue by MFI organizational form shows that it is the NBFCs, as a group that is
charging the highest rates.

(table 11)
GROWTH IN INDIAN MICROFINANCE SECTOR
Year ending march 31 200 2005 2006 2007 2008 2009
4
Outstanding portfolio($ $80 $252 $496 $824 $1535 $2346
millions)
Growth rate 215 96.80 66.10 86.30 52.80
% % % % %
Borrowers (million) 1 2.3 4.9 7.9 14.2 22.6
Growth rate 130 113% 61.20 79.80 59.20
% % % %
Source: Microfinance India State of the Sector Report 2009

53
 outstanding portfolio(in millions)
$2,500 $2,346

$2,000

$1,535
$1,500 outstanding portfolio(in
millions)

$1,000
$824

$496
$500
$252
$80
$0
2004 2005 2006 2007 2008 2009

Figure 6

borrowers (million)
25
22.6

20

15 14.2
borrowers (million)

10
7.9

4.9
5
2.3
1
0
2004 2005 2006 2007 2008 2009

Figure 7
Analysis:
It can be analyzed that the outstanding portfolio for loan has been increased by 96.58% from
2004-09 and number of borrowers has increased by 95.57%. This shows the increase business of
microfinance .

54
 THE BIGGEST MFI IN INDIA Source: M-Cril ratings 2009 (table 12)
Name of Headquarter Legal Lending No. of Loan Borrower Net worth
MFIs status model branches outstandin no (Rs mn)
g (Rs mn)

1)SKS Secundrabad NBFC JLG 1413 18227 2590950 2395

Microfinance A.P.
Ltd
2)Share Hyderabad NBFC JLG 696 11987 1668807 1225
Microfin Ltd A.P. individua
l
3)Spandana Hyderabad NBFC JLG 666 8568 12351556 1448
Sphoorty A.P. individua
Financial Ltd l
4) Asmitha Hyderabad NBFC JLG 363 4944 694350 475
Microfin. A.P.
Ltd.
5)SKDRDP Dharmasthala trust SHG 22 4060 612482 157
Karnataka
6)Bhartiya Hyderabad NBFC Diversifi 87 3882 457668 317
Samrudhi A.P. ed
Financial Ltd
7)Bandhan Kolkata Societ JLG 385 3389 851713 435
W.B. y
8)Casphor Varanasi Sec 25 JLG 247 1431 303935 93
Microcredit U.P. compa
(CMC) ny
9)Grama Tiruchirapalll NBFC JLG 126 1316 288311 231
Vidyal i Tamilnadu
Microfinance
Pvt.Ltd.
10)Grameen Bangalore NBFC JLG 62 1287 153453 127
service Karnataka
Pvt.Ltd.

Overall Progress under Microfinance during the last two years

A) SHG –BANK LINKAGE MODEL

1) NABARD-Bank -SHG Model- Bank directly finance the SHG without the intervention/
facilitation by any NGO.

2) NABARD-Bank-SHG Model- Bank directly financing SHGs with NGOs acting as facilitator
(most popular model)

55
 3) NABARD-Bank-NGO-SHG Model- Bank financing indirectly to SHG, consists of smaller
group compared to SHGs. The NGO accepts the contractual responsibility for repayment to the
Bank. (table 13)

Particulars No. of Amt No. of Amt No. of Amt

SHGs (crore) SHGs (crore) SHGs
2007-08 2007-08 2008-09 2008-09 %Growth %Growth
Savings of SHGs Total 5009794 3785.39 6121147 5545.62 22.5 46.5
with bank as on SHGs
31 March
Out of 1203070 809.51 1505581 1563.38 25.1 93.1
which
SGSY

Bank loan Total 1227770 8849.46 1609586 12253.31 31.3 38.5

disbursed to SHGs
SHGs within the
year Out of 246649 1857.74 264653 2015.22 7.3 8.5
which
SGSY

Bank loan Total 3625941 16999.9 4224338 22679.84 16.5 33.4

outstanding with SHGs 1
SHGs as on 31
March

O/t of 916978 4816.87 978887 5861.72 6.5 21.7

which
SGSY

B) MFI- BANK LINKAGE MODEL

MFI uses two models
1) INDIVIDUAL MODEL -for financing individuals and
2) GROUP MODEL-SHG/MCG/JLG
( table 14 )
Particulars No. of Amt No. of Amt % growth % growth
SHG (2007-08) SHG (2008-09) (No. of (amt)

56
 (2007-08) (crore) (2008-09) (crore) SHG)
Bank loan disbursed to 518 1970.15 581 3732.33 12.2 89.4
MFIs during the year
Bank loans outstanding 1109 2748.84 1915 5009.09 72.7 82.2
with MFIs as on 31
March

C) Coverage of Women SHGs

The details of total number of women SHGs saving linked, credit linked and loans outstanding
for the last two years are given in table , as under;
(table 15)
Particulars Year Total SHGs Exclusive women %of women SHGs to total
SHGs SHGs
No. Amt. No. Amt. No. Amt. (crore)
(crore) (crore)
Saving 2007- 500979 3785.39 398609 3108.65 79.57 82.12
linked 08 4 3
SHGs 2008- 612114 5545.62 486392 4434.03 79.46 79.96
09 7 1
Loans 2007- 122777 8849.26 104099 7474.26 84.79 84.46
disbursed 08 0 6
2008- 160958 12253.5 137457 10527.3 88.39 85.91
09 6 1 9 8
Loans 31.03.0 362594 16999.9 291725 13335.6 80.46 78.45
outstanding 8 1 1 9 1
31.03.0 422433 22679.8 327735 18583.5 77.58 81.93
9 8 4 5 4

13) SUCCESS FACTORS OF MICROFINANCE IN INDIA

Over the last ten years, successful experiences in providing finance to small entrepreneur and
producers demonstrate that poor people, when given access to responsive and timely
financial services at market rates, repay their loans and use the proceeds to increase their
income and assets. Community banks, NGOs and grass root savings and credit groups around
the world have shown that these microenterprise loans can be profitable for borrowers and
for the lenders, making microfinance one of the most effective poverty reducing strategies.
A. For NGOs:

57
1) The resources required of microfinance is small, entry and exit are easy, tasks are (perceived
to be) simple and people’s acceptance is high, field itself requires new ideas and NGOs more
readily adopt new ideas especially in the above situation mentioned.

2) Supply push ; that is microfinance is canvassed by various factors, including the NABARD,
SIDBI, FWWB, RMK, CAPART, RGVN, various donor funded programmes especially by
the IFAD, UNDP, World Bank and Department for International Development, UK, and
lately commercial banks, has greatly added. Induced by the worldwide focus on microfinance,
donor NGOs too have been funding microfinance projects.

3) The concrete results and sustained interest, quick and high ‘customer satisfaction among
beneficiaries of microfinance has attracted most of NGOs to this trade.

4) The idea of implementing microfinance appears simple. The most common route followed by
NGOs is promotion of SHGs. It is implicitly assumed that no ‘technical skill’ is involved.
Besides, external resources are not needed as SHGs begin with their own savings. Those NGOs
that have access to revolving funds from donors do not have to worry about financial
performance any way.

5) Finally, to many NGOs, microfinance is a way to financial sustainability. Especially for the
medium-to-large NGOs that are able to access bulk funds for on-lending, for example from
SIDBI, the interest rate spread could be an attractive source of revenue than an uncertain,
highly competitive and increasingly difficult-to-raise donor funding.
B. For Financial Institutions and banks:
Banks have several advantages over nonbank, micro lending institutions

1) They offer loans, deposits, and other financial products that are, in principle, attractive to a
microfinance clientele.

2) The process helps the banks to meets its priority sector targets.

58
3) Comparison to other rural lending by banks, MF has much more favorable terms.

4) They are regulated institutions fulfilling the conditions of ownership, financial disclosure, and
capital adequacy that help ensure prudent management.

5) Bank-groups are motivated by a number of cross-selling opportunities in the market, for

deposits, insurance, remittances and eventually mutual funds. Since the larger banks are offering
all these services now through their group companies, it becomes imperative for them to
expand their distribution channels as far and deep as possible, in the hope of capturing
the entire financial services business of a household.

6) Many have physical infrastructure, including a large network of branches, from which to
expand and reach out to a substantial number of microfinance clients.

7) They have well-established internal controls and administrative and accounting systems to
keep track of a large number of transactions.

8) Their ownership structures of private capital tend to encourage sound governance structures,
Cost-effectiveness, and profitability, all of which lead to sustainability.

9) Because they have their own sources of funds (deposits and equity capital), they do not have
to depend on scarce and volatile donor resources (as do NGOs).

COMPARITIVE ANALYSIS OF MICROFINANCIAL SERVICES OFFERED TO THE

POOR (table 16)
Parameter Money lender Commercial Govt sponsored Financial
bank bank products of
MFIs
Ease of access High low low High
Transaction low Very high Very high High-medium
cost of access
Lead time for Very short Extremely long Extremely long Short
loan
Repayment Fixed and rigid Fixed and easy Fixed and easy Flexible

59
 terms
Interest rates Exorbitantly high Low and very Low , affordable Reasonable and
affordable and subsidized affordable
Repeat possible Possible but not Possible but not Stream of credit
borrowings likely likely is assured
Loan access Very quick Extremely time Extremely time Simple and quick
procedures consuming and consuming and
complicated complicated
Loan Informal but Exhaustive and Exhaustive and Simple and
application exploitive complex complex informal
procedure
Collateral and mandatory Required but Not required Not required
demand hypothecation of although a social collateral
promissory asset may suffice charge on the is used for
notes asset becomes physical
automatic collateral
incentives none none None Repeat and larger
loans, interest
rebates

14) INDIAN MICROFINANCE AT GLOBAL CONTEXT

Indian microfinance with one of the highest growth rates globally since 2002, has emerged as
one of the most socially conscious, commercially viable, and financially sustainable. According
to a MIX market study, India has one of the lowest average loan sizes of around $150 as well as
the lowest yield on portfolio of 21.2%. The small loan size combined with the low interest rates
testify to the social inclination of Indian MFIs, which seek to genuinely foster financial inclusion
among the poor and alleviate poverty. In conjunction with this goal, Indian MFIs have succeeded
not only in comfortably covering costs, but also returning healthy profits and Return on Assets
(ROA). This highlights Indian MFIs’ operational efficiency and ability to function on tight
budgets. MFIs in other countries such as Brazil and Mexico have higher profit margins, but they
offer significantly larger loans with interest rates typically between 40-65%.
The inherent efficiency and resiliency of the Indian microfinance industry proved critical during
the recent financial meltdown during which growth continued unabated despite a slowdown in
the flow of funds which negatively affected growth in microfinance in other markets around the
world. This demonstrated self-sustainability is prognostic of the long term viability and potential

60
of the sector. Moreover, the Indian financial system as a whole has demonstrated its long-term
confidence in the industry through its own investment choices. Whereas the global average of
domestic investment in microfinance hovers around 65%, over 90% of the funding in India
comes through domestic channels, highlighting confidence in the underlying business model and
expectations of high future growth and returns.

15) IMPACT OF MICROFINANCE

1) Microfinance Enhances Choices Available to the Poor

Microfinance has enhanced the opportunity to save and to acquire a productive asset, reduced
dependency on moneylenders, and reduced the interest burden on total borrowings.

2) Microfinance can Help Clients in Coping with Vulnerable Situations

Building of assets, new livelihoods and accumulated savings help the coping strategies of the
poor. Nevertheless, It is the most vulnerable (those with irregular income sources, women
headed households, existing indebtedness) who are the least creditworthy. Such very poor
households may struggle as MFI clients and their vulnerability can lead to dropout.

3) Microfinance can be an Empowering Opportunity for Women Clients

Targeting women for financial services is a good start on the road to women’s empowerment,
enhancing opportunities for their individual growth, economic activity, decision-making in the
household and the community.

61
4) Microfinance Helps in Reducing Client’s Dependence on Money Lenders (though use of
this source continues)
In comparison with non-clients, fewer client households are borrowing small loans from high
cost informal sources. Nevertheless, one-third of ‘old’ client households borrows from
moneylenders especially for larger amounts (for example, needed to meet marriage obligations)
or for amounts needed urgently (for example, needed for medical costs). Microfinance, so far,
has not reduced either the business or the terms of moneylenders. There is some evidence for the
reverse, that microfinance may in fact increase informal money lending, if clients need to 'top up'
micro-loans, or borrow to repay according to the installment schedule.

5) Impact on poverty
These are clear effects of microfinance, but whether they are sufficient to move households out
of poverty is unclear. But it has helped in reducing poverty for some clients, but not for all.

16) ISSUES RELATED TO MICROFINANCE

Some of the main issues are discussed below:
1) Borrower Unfriendly Products and Procedures
With a majority of the customers being illiterate, and a majority of them needing consumption
loan and a majority of them requiring high documentation and collateral security, the products
are not reaching the rural poor.

2) Inflexibility and Delay

The rigid systems and procedures result in lot of time delay for the borrowers and de-motivate
them to take further loans.

3) High Transaction Costs, both Legitimate and Illegal

Although the interest rate offered to the borrowers is regulated, the transaction costs in terms of
the number of trips to be made, the documents to be furnished etc. plus the illegal charges to be
paid result in increasing the cost of borrowing, thus making it less attractive to the borrowers.

62
4) Social Obligation and not a Business Opportunity
Micro-finance has historically been seen as a social obligation rather than a potential business
opportunity.

5) Legal and Regulatory Framework

The policymakers feel that farmers and poor people need low interest and subsidized credit.
They believe that poor cannot save, they are unwilling to repay the loans, and the administrative
costs of servicing them are high. Also small loans have been used as a tool for disbursing
political patronage, undermining the norm that loans must be repaid. Thus the mainstream
institutions feel that these loans are risky, difficult to serve and have a low or negative net
spread. The RRB Act does not permit any private share holding in any RRBs, and the
Cooperative Act of all states do not permit district level co-operative banks to be set up except
by the state government. The result of these two laws together is that rural credit has been a
monopoly of state owned institutions.

6) Problems for Alternative Micro-Finance Institutions

The main aim with which the alternative MFIs have come up is to bridge the increasing gap
between the demand and supply. A vast majority of them set up as NGOs for getting access to
funds as, the existing practices of mainstream financing institutions such as SIDBI and
NABARD and even of the institutions specially funding alternatives, such RMK and FWWB, is
to fund only NGOs, or NGO promoted SHGs. As a result, the largest incentive to enter such
services remains through the nonprofit route. The main problems faced by these institutions are:

6.1) Inappropriate Legal Forms

NGOs invented micro-finance but NGOs are not the best type of agencies to carry out
microfinance on a long-term sustainable basis. If an MFI opts to become an NGO, it has the
problems of funding that are very limited; they don’t have the appropriate financial structure for
carrying out micro finance activities. They don’t have equity capital and If the NGOs earn a
substantial part of their income from lending activity, they violate section 11 (4) of the Income
Tax Act and can lose their charitable status under Section-12. Then the cooperatives are
politicized in most of the states thus not an appropriate form of incorporation for an MFI. That

63
leaves an MFI with the choice to be incorporated as a company and then become an NBFC or a
Bank. The latter requires a license and a minimum start up equity of Rs100 crores, which is very
difficult for an MFI to mobilize. If an MFI opts to become an NBFC, it has the problems of
minimum entry-level capital requirement i.e.Rs 2 Crores, wef April 1999. It is difficult to
mobilize any borrowings from Indian Financial Institutions due to the negative image of NBFCs
in general. The MFI taking loan in foreign currency loans are subject to exchange risks.

6.2) Lack of Commercial Orientation

Driving to make the customer’s credit available at low cost with subsidies and grants, most of the
ternate MFIs achieve a lot of success in their programs in the initial period, but they fail to
maintain the same record in the long run because of lack of commercial orientation thus making
it unsustainable.

6.3) Lack of Proper Governance and Accountability

Governance and accountability are limited in case of non-profits and need to be improved. Their
boards must be made aware of their financial liabilities in case of failure. The lenders should be
more stringent and insist on nominating a few directors.

6.4) Isolated and Scattered

Alternate MFIs are isolated and scattered. There is no proper coordination among them and also
there is lack of information dissemination.

64
17) MICROFINANCE AT CANARA BANK

Financial Sector has made substantial progress since Nationalization and particularly at a rapid
pace since the beginning of the financial sector reforms. However, even today a vast segment of
the society remains vulnerable and excluded from the opportunities & services provided by the
financial sector. As a responsible corporate entity Canara Bank realize and share the concern that
continuous exclusion is bound to have social ramifications besides lopsided and inequitable
economic prosperity. There should be a process of bringing the disadvantaged, underserved and
those generally from the weaker sections of the society into the fold and the efforts on inclusion
shall be across all segments of the society and regions but shall have a focus on underserved
regions and underserved communities.

The delivery of simple and key Financial Services, namely access to payments and remittance
facilities, savings, loans and Insurance services at affordable costs to those who tend to be
excluded was the main concern for bank. Financial inclusion shall graduate the excluded to

65
economic freedom through capacity building and as entrepreneurs of economic activities and
enabling factor in the country's goal of an inclusive growth.

Canara Bank has grown into a veritable giant in the Banking firmament with well over 3046
branches and a business of over Rs. 4, 00,000 Crores. The Bank that had chosen as its path to
serve the social cause, serve the common man, and has never wavered all through its journey of a
Century of years and more .The Bank set up an Education fund in 1952 to help deserving poor to
pursue studies in Medicine, Law, and Engineering etc. Launched the Housing Loan Scheme for
Lower income families in 1956.Financing Agriculture had been taken up as a mainstream
activity since early 1960s.One of the first Public Sector Banks to introduce Education loan
Scheme in 1978 that Pioneering efforts in Self Help Group Credit linkage in 1990s and has credit
linked more than One and a half lakh Self Help Groups until now Specific financial products
developed to the focus groups like marginal & Tenant farmers, Artisans, Self- employed women
entrepreneurs .Now, the CANSARAL savings accounts (No Frills account) Scheme and General
Credit card Scheme.

Canara Bank's Initiatives

Micro Finance portfolio of Canara Bank- as on 31.03.2009
Direct lending: 95490 A/cs - 62655 Lakhs.
Through’ NGO Facilitation: 28720 A/cs 20861 Lakhs.
Through’ MFI: 167 MFIs: 11544 Lakhs.
Total 95060 Lakhs

66
 Microfinance portfolio of Canara Bank (fig in lakhs)

through MFIs; 11544; 12%

direct lending
through NGO facilitation
through MFIs
through NGO facilitation; 20861; 22%

direct lending; 62655; 66%

Figure 8

Micro Finance portfolio of Canara Bank- as on 31.03.2010

Direct lending: 95290 A/cs – 68435 Lakhs.

Through’ NGO Facilitation: 28638 A/cs – 21093 Lakhs.
Through’ MFI: 101 MFIs: 13894 Lakhs.
Total 103422 Lakhs

67
 Micro Finance portfolio of Canara Bank- as on
31.03.2010

Through’ MFI; 13894; 13%

Direct lending
Through’ NGO Facilitation
Through’ MFI
Through’ NGO Facilitation; 21093; 20%

Direct lending; 68435; 66%

Figure 9

Analysis:
It can be seen clearly that the Canara Bank’s share in financial year 2009 is more through direct
lending.i.e. 44% more through NGO facilitation and 54% more through MFIs. Similarly in the
year 2010 the share through direct lending is 46% more through NGO facilitation and 52% more
than MFIs.

Canara Bank lending to priority sector

68
 70000
59310
60000
48763
50000
43203
40000
31074
30000 25052 23823
20144
17996 18600
20000 year 2007-08
year 2008-09
10000
year 2009-10
526 786 926
0
r it Gs ce
s
ecto r ed SH n
ys lc to va
rit ra ad
io ltu ed s
pr ir cu nc E
v a SM
to ag ad
ed
anc Amt in crore
v
ad

Figure 10

Analysis:
From the above graph it can be easily analyzed that the advanced to priority sector has been
increasing year by year and this growth is 37.28% from 2007-08 to 2009-10, in same way there
focus is on agricultural credit also and that has shown an increase of 39.20 % as well advanced to
SHGs has been increased 76.04% from year 2007-08 to 2009-10 and also to SME advances has
shown an increase of 67.06% from 2007-08 to 2009-10 in the microfinance portfolio.

The products and the scheme launched by the Bank recently and the existing products aiming
financial inclusion are

1) Cansaral Savings Account/ No-Frill Account

These are a kind of savings account that can be maintained with zero balance, and can be opened
with an initial balance of Rs 25; rate of interest is same as that of saving bank accounts. They are
provided with free ATM cum Debit card facility, free internet and mobile banking, cheque book
facility etc. the account holder can’t keep more than Rs 50,000 and the total credit in the year is
not expected to exceed by Rs 1,00,000.
2) General Credit Card Scheme

69
It is to provide a hassle free credit to rural/semi urban households without insistence on security
purpose or end use of the credit. It can be sanctioned for any general purpose including
consumption. In this the loan quantum should be 50% of that of the net income of the entire
household subject to a maximum of Rs 25,000

2500000

2179683

2000000
1729416

1500000 no of a/c during the year 2009-

10
cumulative no.of a/c till Mar
2009
1000000 cumulative no of a/c till Mar
2010

500000 450267

188762
124732
64030
0
Cansaral GCCS

Figure 11

Analysis:
The cumulative number of Cansaral accounts has shown a 384% increase from the financial year
2008-09 to 2009-10 and the number of GCC accounts has been increased 194.8% from the
financial year 2008-09 to 2009-10. The reason for this growth was aggressive marketing by bank
and coverage of more and more people under the scheme.

3) Scheme for Prepayment of Debts of Urban poor from Non-institutional

Sources
This is for the distressed urban poors who have in the past raised loans from non-institutional
sources and the loan quantum is 150% of the gross income subject to a maximum of Rs 50,000
and repayment term is monthly in 5yrs with interest.
4) Differential Rate of Interest (DIR) Scheme
70
Loans can be considered both working capital and term loan for any Agricultural/Allied activity
as per various schemes under Agriculture. This is the only scheme in bank which provides loan
at 4% simple interest. This scheme provides loan for an amount of Rs 15,000 except housing
loans and housing loan to an extent of Rs 20,000 to the members of SC/ST who fulfill the DRI
norms. For getting this loan the family income should be Rs 18,000 or less in rural areas and Rs
24,000 in urban and semi urban areas.
DIR scheme (table 17)
outstanding Mar’07 Mar’08 Mar’09 Mar’10
No.of Amt No.of Amt No.of Amt No.of Amt
a/cs (crore) a/cs (crore) a/cs (crore) a/cs (crore)
DIR 13308 65 15974 40 17333 48 27188 50

30000
27188

25000

20000
17333
15974
15000 No.of a/cs
13308
amt (in lakh)

10000
6500
4800 5000
5000 4000

0
Mar’07 Mar’08 Mar’09 Mar’10

Figure 12

Analysis:
The number of accounts under DIR scheme has shown an increased by 104.2% by Mar’07 to
Mar’10 more people are covered under the scheme by doing aggressive marketing and creating
awareness among the people.
5) Scheme for Redemption of Debts of Farmers from Non-institutional
sources

71
Its main purpose is to prepay the debt availed by the farmers from non institutional sources so as
to relieve the farmer from debt burden from non-institutional sources and the loan quantum
maximum of is Rs 50,000 subject to 150 % of the gross annual income, subject to repayment
within 5yrs in quarterly/half yearly/yearly installments.
Debt Swapping Scheme
(table 18)
outstanding Mar’09 Mar’10
No of a/c Amt (in crore) No.of a/c Amt (in crore)
Debt swapping 10447 47.61 10446 41.33
Scheme

12000

10447 10446
10000

8000

6000 No of a/c
4761 Amt (in lakh)
4133
4000

2000

0
Mar’09 Mar’10

Figure 13

Analysis:
The number of accounts from Mar’09 to Mar’10 is almost same. There has not been any
significant change but the amt has shown a slight decrease of 13.19% from the financial year
ending Mar’09 to Mar ’10.
6) Canara Grameena Vikash Vahini
Bank has provided Canara Grameena Vikas Vahini Vehicles in 50 potential districts across the
country. The objective of the vehicle is to create awareness about Bank's products and Banking

72
facilities among the rural households and enable the Bank branches to design programmes based
on feedback on the Bank's schemes and requirements of villagers. The vehicle is provided with
pamphlets covering the schemes of the Bank, Application forms for opening "No frill" accounts
and other accounts. Trained agriculture extension officers of the Bank and other staff who are
well conversant with the schemes of the Bank and needs of the rural households are
accompanying the vehicles to disseminate the information and create awareness.

7) Financially Literacy Books

Bank has come out with two booklets, for financial literacy and education, in English and
Kannada. The booklets are named as 'Money' and 'Savings'. The Booklets are made available
to the rural people through their Lead banks, Branches and farmers' clubs.

8) Financial Inclusion and Credit Counseling Centre

Bank has started financial Literacy and Credit Counseling Centres (FLCCs) in three Lead
Districts, namely Chitradurga, Kolar and Chikkaballapura in Karnataka state.

9) Smart Card Technology

Bank has piloted Smart card Technology in two villages near Bangalore for financial inclusion.

10) Bank has signed MOU with Govt. of Karnataka for implementing Smart Cards
for disbursement of Government Benefits, like NREGS wages payment and Social Security
Pension in three districts namely, Bellary, Gulbarga and Chitradurga.

11) Bio metric Voice enabled ATMs

The Bank has installed Bio Metric Voice Enabled ATMs in nine rural/Semi urban locations, to
enable even the illiterate persons to have access and operate their account. Bio metric ATM
card holders and Smart card holders can operate their account through the Bio metric ATMs.
12) Bio metric Voice enabled Mobile ATM
As a marketing initiative, Bank has also taken steps to bring the ATM facility to the doorsteps of
the customer. Bank has launched a Mobile VAN with Biometric ATM facility. This mobile

73
ATM is specially designed for providing ATM facility to the rural folk as well as other
customers. This VAN shall move in and around Bangalore city at the pre-determined places.
These ATMs are accessible to Biometric card holders also. Apart from the ATM facility, this
mobile Van is having customer lobby where the Bank personnel are available to market/educate
the various products of the Bank.

13) Canara Bank Training Institute for Micro finance, Sonnahallipura

Training
It was set up in 1993, is a unique institute.  It is engaged in training SHGs and promoting the
micro finance concept.  The institute has so are trained 10472 candidates.

14) Farmers training Cells

With an objective to strengthen the Knowledge base of farming community with necessary
technical and marketing skills, Canara Bank has set up Farmers Training Cells (FTCs) through
its Canara Bank Centenary Rural Development Trust, which has established eight Self
Employment Training Institutes across the country. The Farmers Training Cells plan, design and
conduct demand driven specific training programmes in the field of agriculture and allied
activities, like, technology transfer programmes, field exposure visits to progressive farmers'
units, demonstrations, farmers' meets ,farmers' clubs, agri-seminars etc. The twin objectives of
FTCs are Credit counseling and credit linkage to trained farmers.

15) Canara Nayee Disha

Bank has launched a New scheme called "Canara Nayee Disha “by bringing all the existing
eligible credit schemes under one umbrella, for financial deepening under the second phase of
financial inclusion. As per the scheme, the Bank has targeted 20% of the households which were
brought to the Banking fold, during total financial inclusion process, for providing necessary
credit individually or through group mechanism. It is the endeavor of the Bank to provide credit
facility to 3.50 lakh households to the extent of Rs.750 crore, under the new scheme.

16) Krishi Mitra Card scheme

74
It has an objective to provide easy credit to individual tenant farmers, oral lessees, share croppers
etc for cultivation of crops, maintenance of farm and machinery, replacement of machinery and
animals etc for which loan quantum is maximum of Rs. 50,000 subject to value of the produce.

Coverage under Krishi Mitra Card (table 19)

outstanding Mar’07 Mar’08 Mar’09 Mar’10
No.of Amt No.of Amt No.of Amt No.of Amt
a/cs (crores) a/cs (crores) a/cs (crores) a/cs (crores)
Krishi Mitra 772 2.88 1516 3.94 2223 7.28 1917 14.48
Card

2500
2223

2000 1917

1516 1448
1500
no. of a/cs
amt in lakh
1000
772 728

500 394
288

0
Mar'07 Mar'08 Mar'09 Mar'10

Figure 14

Analysis:
The number of accounts under Krishi Mitra Card has been increased from the financial year
ending Mar’07 to Mar’10 by 148% and the amount have been increased by 402% from Mar’07
to Mar’10 that shows the aggressive marketing by canara bank after the inception of separate
microfinance branch since 2006.
17) Scheme for Self Help Group (SHG) finance/ SHG Credit Linkage
It is a very popular and widely accepted group lending scheme. Unlike JLGs/MCGs it is a
savings linked scheme. The scheme provides for Opening of SB account with the bank, group
meetings, internal lending and recovery, maintenance of books and registers, minimum period of
six months existence for availing bank loan. Bank loan is sanctioned basing on the corpus of the

75
group which includes the savings of the group, cash in hand, amount lent to the members out of
own sources, donations received and interest earned by SHG. The limit permitted is 1:4 of the
owned funds. ( Table 20 ) (a/c in actual)
Cumulative Performance Mar'07 Mar'08 Mar'09 Mar'10
Groups formed 150278 210441 275100 319990
Groups Credit linked 120165 172290 224647 275349
Loan sanctioned (Rs. In
crores)* 649.67 990.37 1365.29 1844.07

350000 319990
300000 275100 275349
250000 224647
210441
200000 172290 Groups formed
150278 Groups credit linked
150000 120165 Loan sanctioned (Rs. In
100000 crores)

50000
649.67 990.37 1365.69 1844.07
0
Mar'07 Mar'08 Mar'09 Mar'10

Figure 15
Analysis:
The above graph shows a progressive trend in the SHG group formed that has been an increment
of 112.9% from the FY ending Mar’07 to Mar’10 and in also the Credit linked group has been
increased as well as in terms of loan sanctioned increased by 64.76 % in compare of financial
year ending march 07 and march 2010, this is because microfinance sector is considered as
profitable and bank started aggressive marketing.
Performance during the year (table 21)
Performance During the
Year Mar'07 Mar'08 Mar'09 Mar'10
Groups formed 37507 60363 64659 44890
Groups Credit linked 36814 52125 52358 50701

76
 70000
64659
60363
60000
52125 52358 50701
50000
44890

40000 37507 36814

Mar'07
Mar'08
30000
Mar'09
Mar'10
20000

10000

0
groups formed groups credit linked

Figure 16
Analysis:
The number of groups formed has been increased by 19.6% from year ending Mar’07 to Mar’10
where as it has shown a decrease of 30.57% from year ending Mar’09 to Mar’10.
In case of groups credit linked also there has been an increase of 37.72% from year ending
Mar’07 to Mar’10.

19) Micro Credit Groups (MCG) linkages

MCG is also a group lending scheme like SHG where maximum number of members is limited
to 10 and the loan is sanctioned for starting /improving and expanding any income generating
activity. The scheme also covers debt redemption of the members to a maximum of Rs.25000/-
out of the total limit permitted per borrower. Unlike SHG it is a credit linked scheme. The limit
permitted per borrower is Rs.50000/- and Rs.500000/- per group. Maximum repayment
permitted is 60 months.
20) Government sponsored schemes
Loans can also be sanctioned under various government schemes sponsored by departments
like women and child development (CDPO), Minorities Development Corporation, SC

77
development corporation, ST development corporation, Municipalities/ City Corporations, Block
development offices etc

21) Other products like Kisan Credit Card, Kisan Suvidha, Artisan Credit Card, Swarojgar
Credit Card, Cantools etc can also encourage financial inclusion.

22) Total Financial Inclusion Campaigns-Multi Pronged Approach

The Bank has taken up the Financial Inclusion in a multi-pronged approach under which the
Bank has brought 1639 villages under Total Financial Inclusion named as Village wise campaign
The Bank has piloted a project on 'Financial Inclusion Campaign' in the first phase to cover a
village by each of its rural and semi urban branches cite to ensure that every family in these
villages are brought into Banking services by opening Savings Bank Accounts and Cansaral (No
Frill Accounts) for families hitherto outside the ambit of Banking Services.
 Till date the bank has brought 1639 villages across the country under Total
Financial inclusion under one village under one Rural/Semi urban branch-
programme.
 Opened 1.74 Lakhs no frill Accounts during the current financial year.
 Covered 19.04 lakhs persons under Financial inclusion
 Achieved Total Financial inclusion in all Twenty six lead districts, spread over
five states, namely Karnataka, Kerala, Tamil Nadu, Bihar and Uttar Pradesh.
 Bank is the SLBC convener of Kerala State. The State has been declared as Total
Financially included on 24.12.2007.
 Bank has issued 1.49 lakhs General Credit Cards since inception.
 Bank has so far formed 2.89 lakh SHGs and credit linked 2.43 lakh SHGs since
inception.
 Bank has so far formed 1085 farmers clubs.
23) Coverage under Joint Liability Group / Tenant Farmers Group
(table 22)
outstanding Mar’07 Mar’08 Mar’09 Mar’10
No. of Amt No. of Amt (in No. of Amt No. of Amt
a/cs (in a/cs crores) a/cs (in a/cs (in
crores) crores) crores)

78
 TFG/JLG 765 8.54 2638 14.2 821 14.7 997 42.08

4500
4208
4000

3500

3000
2638
2500
no of a/c
amt in lakh
2000
Series 3
1420 1470
1500
997
1000 765 854 821

500

0
year ending Mar'07 Year ending Mar'08 year ending Mar'09 Year ending Mar'10

Figure 17

Analysis:
The amount for JLG and TFG lending has shown an increasing trend. Number of accounts under
this has increased by 30.32% from year ending Mar’07 to Mar’10 and the amount has also been
increased by 392.7%.

18) THE FUTURE OF MICROFINANCE

Microfinance has gradually developed to be a worldwide movement, no longer being a subject

matter of microfinance practitioners alone. Governments, donors, development agencies, banks,
foundations, corporations, business communities, civil societies, researchers, universities,
consultants, philanthropists and others are taking an increasing interest in it. The concept was
born in Bangladesh almost three decades ago; microfinance has proved its value, in many
79
countries, as a weapon against poverty and hunger. It really can change people’s lives for the
better, especially the lives of those who need it most. It has been evidenced worldwide that
microfinance helps the poor to overcome poverty, and not through charity. It is a financial
system that serves the poor with financial services in a most effective and productive way.

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. Who will take the lead and where, are the two
questions that need to be addressed first without any bias. Given their experience and expertise,
it is expected that the current providers of financial services to the poor will take the lead in the
expansion of microfinance.

There may be several participants in this process and they will expand their services by existing
microfinance institutions expansions of their operations to areas where there are no microfinance
programs and cooperatives/credit unions may be more active in providing financial services to
the poor, more NGOs can incorporate microfinance as one of their programs. In places where
there are no 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 microfinance
programs in areas or countries where microfinance is not a very familiar concept in reducing
poverty. Community based organizations may get involved in microfinance services.

In the case of NGOs, which have more focus on poverty lending, funding is a very critical issue
for both start-up and scaling-up projects. Unless the funding problem is taken care of, it will be
difficult for microfinance programs to start and expand their operation and increase their
outreach. The situation may be different for regulated MFIs who can mobilize savings and use it
for on lending purposes and who have access to commercial sources. All the possible financial

80
services can be tapped and all the actors committed to poverty alleviation whether in urban or
rural areas can get involved in increasing the microfinance outreach.

In addition to the focus on bottom poor, attention may also be given to the ‘‘missing middle’’.
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. The role of
the government, the donors, the networks and the media will remain as important as before in
creating an enabling environment, in providing/channeling funds and creating awareness for the
rapid expansion of microfinance.

19) CONCLUSION

Microcredit and microfinance have received extensive recognition as a strategy for poverty
reduction and for economic empowerment. Microfinance is a way for fighting poverty,
particularly in rural areas, where most of the world's poorest people live. Accessing small
amounts of credit at reasonable interest rates give poor people an opportunity to set up their own
small business. Many studies show that poor people are trustable, with higher repayment rates
than conventional borrowers.

81
When poor people have access to financial services, they can earn more, build their assets, and
cushion themselves against external shocks. Poor households use microfinance to move from
everyday survival to planning for the future: they invest in better nutrition, housing, health, and
education.
Most poor people cannot get good financial services that meet their needs because there are not
enough strong institutions that provide such services. Strong institutions need to charge enough
to cover their costs. Cost recovery is not an end in itself. Rather, it is the only way to reach scale
and impact beyond the limited levels that donors can fund. A financially sustainable
institution can continue and expand its services over the long term. Achieving sustainability
means lowering transaction costs, offering services that are more useful to the clients, and
finding new ways to provide banking services to the poor. At the end it should be mentioned that
Poor people with no income or means of repayment need other kinds of support before they can
make good use of loans. In many cases, other tools will alleviate poverty better—for instance,
small grants, employment and training programs, or infrastructure improvements. Where
possible, such services should be coupled with building savings.

20) SUGGESTION
 Canara bank should help in formation as well as maintenance of SHGs that offer financial
guidance and credit, promote savings, free members from unfair debt burdens, and create
collective action opportunities that minimize exploitation of women and other
marginalized groups.

82
  Offer skills training and capacity-building workshops to increase economic
independence, empowerment, and local employability of women and other underserved
groups.

 Develop small businesses that produce saleable goods, such as traditional handicrafts.

 Consult start-up microfinance programs that struggle with operational, financial, or

institutional sustainability.

 Provide entrepreneurial skills training to conduct feasibility studies, perform cost/benefit

analyses, write business plans, acquire financing, and initiate start-ups.

 Research and analyze numerous topics that include local economic conditions, migration
patterns, obstructions to economic growth, and efficacy of microfinance programs.

 Canara bank should expand and increase exposure of microfinance programs to outlying
villages.

 Canara bank should also help in marketing, distribution, pricing, and management
training to local microenterprises.

21) LEARNING EXPERIENCE

 The project provided introduction to one of the emerging issue-Microfinance. The study
gives details about the active participation of different microfinance institutions,
NABARD facilitation, NGO’s, different banks-private, government, nationalized,
commercial etc. with a focus on Canara Bank achievements.

83
  The purpose of the study is to gain in depth knowledge about Microfinance- a tool for
poverty eradication.
 The study gives details about the demand and supply of microfinance services.
 It provided insight about various schemes and initiatives adopted by the RBI,
NABARD,SIDBI etc
 It helped me to understand in detail all the schemes of Canara Bank for Financial
inclusion.
 The study provided exposure to the benefits and impact of Microfinance and financial
inclusion.
 The study gave details about the RBI guidelines and targets.
 The study shows the quantitative impact of each scheme and tool.
 The study also provides information about the extent of financial inclusion
 It has also details regarding 100% inclusion achievement.

22) BIBLIOGRAPHY:
Books
1) Debadutta kumar Panda , Understanding Microfinance
2) Microfinance perspectives and operation by Macmillan publication for Indian institute of
banking and finance

84
Reports
Director’s Report of Canara Bank 2007-08
Director’s Report of Canara Bank 2008-09
Director’s Report of Canara Bank 2009-10
A report on Dhaka Starting Microfinance in India – Vijay Mahajan, Bharti Gupta Ramola and
Mathew Titus , Basix
Research paper by Prabhu Ghate Research paper by Vishal Sehgal Presentation by N. Srinivasan
Websites
http://www.canarabank.com/English/scripts/PCCentreEDFWomen.aspx
http://www.canarabank.com/English/scripts/PersonalBanking.aspx
http://www.canarabank.com/English/scripts/CorporateBanking.aspx
http://www.canarabank.com/English/scripts/NRIBanking.aspx
http://www.canarabank.com/English/scripts/prioritycredit.aspx
http://www.canarabank.com/English/scripts/VissionandMission.aspx
http://www.canarabank.com/English/scripts/ShareholderInformation.aspx
http://www.canarabank.com/English/scripts/AwardsandAch.aspx
http://www.canarabank.com/English/scripts/Subsidiaries.aspx
file:///C:/Documents%20and%20Settings/User/Desktop/micro%20finance/CANARA%20BANK
%20-%20PRIORITY%20CREDIT.htm
file:///C:/Documents%20and%20Settings/User/Desktop/micro%20finance/Microfinance%20-
%20Wikipedia,%20the%20free%20encyclopedia.htm
file:///C:/Documents%20and%20Settings/User/Desktop/micro%20finance/Reserve%20Bank
%20of%20India.htm
file:///C:/Documents%20and%20Settings/User/Desktop/micro%20finance/Reserve%20Bank
%20of%20India3.htm
file:///C:/Documents%20and%20Settings/User/Desktop/micro%20finance/Small%20customers,
%20big%20market%20...%20-%20Google%20Books.htm#v=onepage&q&f=false
file:///C:/Documents%20and%20Settings/User/Desktop/micro%20finance/Dead%20Presidents!
%20-%20India%20Equity%20Research%20%20Canara%20Bank%20-%20Annual%20Report
%20-%202008-2009.htm

85
86
23) ABBREVIATIONS
 IRDP-Integrated Rural Development Programme
 IFAD- International Fund for Agricultural Development
 JLG-Joint Liability Group
 MFIs- Micro Finance Institutions
 ME-Microenterprises
 MACS-Mutually aided co-operative society
 MCG-Micro Credit Group
 NBFC-Non Banking Financial Corporation
 NGO-Non Govt. Organization
 OER-Operating Efficiency Ratio
 SHG-Self Help Group
 SFMC-SIDBI Foundation for Microcredit
 SGSY-Swarna Jayanti Gram Swarojgar Yojna
 UNDP-United Nations Development Programme

87