´Issues and success factors in Micro financingµ

Special emphasize on ICICI
Presented by: Priya Sharma MBA -4th semester 2k8-MRCE-MBA-038



The report provides an overview of the current state of microfinance in India . Covering extensively the two primary facilitators of microfinance microfinance Institutions (MFIs) and SHG¶s bank linkage programme (SBLP). Concept of self help groups in Indian scenario Activities included in micro finance and working mechanism of icici bank in this concern. Success factors and issue factors of micro finance in India to solve the problem of poverty. Role and functions of financial institutions in India.



Microfinance, a concept popularized by Muhammad Yunus, has grown tremendously in India. The growing understanding of achieving self sustainability among the rural and urban poor has led to the acceptance and implementation of this idea across India. Any activity that targets poor and low-income individuals for the provision of financial services, with the goal of creating social value. Microfinance is an economic development approach that involves providing financial services through institutions to low income clients. 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.

Use of micro finance for people 

Micro credit Micro savings Micro insurance remittances

FACTS ««««. 

Banking with the poor is a challenging task as the nature of demand requires doorstep services, flexibility in timings, timely availability of services, low value and high volume transactions and require simple processes with minimum documentation. The nature of supply however involves high cost of service delivery, rigid, inflexible timings and procedures and high transaction costs for the customers.
The reach of the banking sector in the rural areas was as low as 15% in terms of credit potential, and 18% in terms of population with physical access to a bank branch. 


ICICI Bank has been highly successful in the microfinance sector, primarily because of its innovative microfinance business models. ICICI Bank chose to pursue the untreated rural markets as part of its strategy of being a universal bank. Offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialized subsidiaries and affiliates in the areas of investment banking, life and non-life insurance, venture capital and asset management.

Initiation to Microfinance - The SHG Bank Linkage Model  

To enable its foray into the rural markets, ICICI Bank merged with the Bank of Madura (est.1943), which had a substantial network of 77 branches in the rural areas of a South Indian state ± Tamil Nadu. Within three years of the merger with Bank of Madura, ICICI Bank had extended its reach to 12000 SHGs.

The SHGs had been repaying at very good rates, above 95%, yet there was a need to control the quality of group formation and link it to credit S H G-Bank discipline. Linkage
Bank Branch N GO 



Branches asse ss cred ib ility and m o nito r rep aym ent fro m S H Gs Group fo rm atio n b y N GO s

Microfinance Institutions (MFI) Intermediation Model 

The MFIs were willing to take on the risk of the financial performance of the groups/ individuals that were being lent to. this channel was better for leveraging large amounts of funds without necessarily having a grassroots level presence of the bank staff For instance there was a double charge on capital created, once at the level of the Bank lending to the MFI and secondly at the level of the MFI on lending to the client.
Bank-MFI Linkage
Bank MFI SHG/ JLG/ Individuals 

Bank on lends to MFIs based on their capital  MFI lends to the clients individually or through groups  MFI legally registered as Society/ Trust/ Section 25/ NBFC


It is generally accepted that SHGs often do not include the poorest of the poor, for reasons such as:  (a) Social factors (the poorest are often those who are socially marginalized because of caste affiliation and those who are most skeptical of the potential benefits of collective action).  (b) Economic factors (the poorest often do not have the financial resources to contribute to the savings and pay membership fees; they are often the ones who migrate during the lean season, thus making group membership difficult).  (c) Intrinsic biases of the implementing organizations (as the poorest of the poor are the most difficult to reach and motivate, implementing agencies tend to leave them out, preferring to focus on the next wealth category). 



Its borrowers include agricultural laborers, street vendors, home based artisans, and small scale producers. Its model is based on 3 principlesAdopt a profit-oriented approach in order to access commercial capital Standardize products, training, and other processes in order to boost capacity Use Technology to reduce costs and limit errors Bandhan opened its first microfinance branch at Bagnan in Howrah district of West Bengal in July 2002. Bandhan started with 2 branches in the year 2002-03 only in the state of West Bengal and today it has grown as strong as 412 branches across 6 states of the country 

contribution in india



Sustainability Lack of Capital Financial service delivery HR Issues Micro insurance Adverse selection and moral hazard


For NGO¶S - quick and high µcustomer satisfaction¶ is the USP that has attracted
NGOs to this trade. - For many NGOs the idea of µorganizing¶ ± forming a samuha ± has inherent appeal. Groups connote empowerment and organizing women is a double bonus. 

For Financial institutions and banks
This also seems to sound nice to the government, which in the post liberalization era is trying to explain the logic of every rupee spent. That is the reason why microfinance has attracted mainstream institutions like no other developmental project.


Non- availability and restricted access to the various confidential information. No proper knowledge of all statistical tools and their use. Secondary data collected through website and journal which can be altered time to time.

A good microfinance program exhibits an attractive combination of the quality, depth, cost, breadth, length and variety of outreach. Progress in microfinance does allow improvements in one dimension of outreach without deterioration of another dimension. Indeed there are serious gaps between the current achievements and potential supply. Reducing the gap between current achievements and potential supply is the most immediate challenge for microfinance. Expanding the frontier requires more than greater technical efficiency; it requires innovation.



Anil K Khandelwal, ³Microfinance Development Strategy for India´, Economic and Political Weekly, March 31, 2007 Raven Smith, ³ The Changing Face of Microfinance in India- The costs and benefits of transforming from an NGO to a NBFC´, 2006 R Srinivasan and M S Sriram, ³Microfinance in India- Discussion´ Piyush Tiwari and S M Fahad, HDFC, ³Concept paper- Microfinance Institutions in India´ Report, ³Status of Microfinance in India 2006-2007´, NABARD Bindu Ananth and Soju Annie George, Microfinancial Services Team of Social Initiatives Group, ICICI Bank, ³Scaling up Microfinancial Services: An overview of challenges and Opportunities´, August, 2003 www.google.com www.frontiermkts.com/blog/uploaded_images/Products-research-767885.jpg www.wikipedia.org www.icicibank.com www.grameen-info.org/bank www.images.google.co.in

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