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Microcredit Models

Microcredit Models

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Published by riteshbhatnagar

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Published by: riteshbhatnagar on Jul 15, 2012
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05/13/2014

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Bangladesh Grameen Bank (BGB) Model

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5 members groups, they must be neighbors but not relatives Joint Liability Groups (JLG) or Solidarity Groups (SG) Individual lending within JLG model 7 groups constitute a centre at the village level All loans must be approved by other group members as well as all other centre members Lending is in the order of 2:2:1 (leader being the last) Every member must contribute Rs. 5/week Inability of a client to pay savings results in the concerned group or centre paying up for that client

Loan disbursement is done at the centre level. 1/week. Weekly repayment schedule (maximum 52 weeks) Interest rate varies between 15-24 % p. no interest charge There is also an emergency fund (optional) where each member contribute Rs. on flat basis and on a weekly basis. .a.Bangladesh Grameen Bank (BGB) Model       5 % of all productive loans disbursed to a group is collected as tax and deposited in the group fund From this group fund. member can access loans for consumption purposes (maximum 75% of group fund).

can select cheaper supplier of funds .Flexible internal operations .can evolve into Federations .SHG V/s BGB Model – Client Perspective  Strength for SHG Model .can evolve from existing groups .very empowering .a major part of the interest is retained within the group fund .

can be hijacked internally or externally .SHG V/s BGB Model – Client Perspective  Weaknesses of SHG model . if savings are held within the group .cash may not be secure.Need management skills .

Bank/MFI can offer tailor-made services . which can be used in emergencies .No need for literacy .Protected from internal exploiters .savings are safe .Poorer are included .members are forced to accumulate reserves.SHG V/s BGB Model – Client Perspective  Strengths of BGB model .

must meet frequently (weekly).SHG V/s BGB Model – Client Perspective  Weaknesses of BGB model .inflexible internal operations. more time consuming .group composition not in members‟ control . very rigid .

groups can fit to any branch . recovery done by members) . (one account for whole group) and (appraisal.large access to clients .No social intermediation cost as groups are promoted by SHPI .SHG V/s BGB Model – Bank/MFI Perspective  Strength of SHG model .lower costs.

may be forced to link the groups under some “schemes” .slow process to increase the scale of business .SHG V/s BGB Model – Bank/MFI Perspective  Weaknesses of SHG model .Need SHPI to promote the groups .Groups may move to other bank .more risks as hard to monitor the groups .

so less risk .Tight control over the groups.SHG V/s BGB Model – Bank/MFI Perspective  Strengths of BGB model .standardized procedures .members have the feelings of „belonging‟ to bank/MFI .

SHG V/s BGB Model – Bank/MFI Perspective  Weaknesses of BGB model .members need continuous guidance and presence .needs dedicated system .Higher transaction costs .

or wealth level There are credible NGOs or other community development institutions to promote the groups Peoples‟ opportunities and financial service needs are diverse .SHG Model – Suitable Conditions     Existing bank network in rural areas Communities are fragmented. with various different groups based on caste.

BGB Model – Suitable Conditions     The prospective clients are very poor and marginalized. and are vulnerable to exploitation unless they are protected by a rigid structure Clients are illiterate The area is densely populated. so that it is practical for MFI staff to visit the groups every week The population is fairly homogenous .

Federated SHG Model       Federation is apex institution of all SHGs in an area (1000-3000 members) SHG------Cluster------------Federation Federation can be registered under Society registration Act. Helps in promotion of new SHG and strengthening of existing SHGs Facilitate inter-group exchange (financial and non-financial) Access of outside funds to member SHGs .

it becomes difficult for SHPI to interact directly with each group SHPI can start withdrawing and can concentrate on other area External funds for on-lending are routed through federation Federation can help SHGs in loan recovery .Federated SHG Model     As the number of groups increases.

NBFC Model       Profit maximization through financial services to rural/poor clients Registered as profit making NBFC under the Companies Act 1956 Diverse client group Multiple channels Sound financial intermediation. no social intermediation Diversified products for different clients .

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