microfinance

Anchit Agrawal Mayank Mathur Aditya Verma Neha Sharma

Microfinance
It refers to the provision of financial services to low-income clients. Credit Savings/Deposits Insurance Plans Money Transfer
Definitions Why Key Features Building Blocks Innovations Indian Scenario Challenges Conclusion

Microfinance It refers to the provision of financial services to low-income clients. Definitions Why Key Features Building Blocks Innovations Indian Scenario Challenges Conclusion .

Definitions Why Key Features Building Blocks Innovations Indian Scenario Challenges Conclusion BOP .Microfinance It refers to the provision of financial services to low-income clients.

Strategy + Business. Access to BOP Markets The dominant assumption is that distribution access to the BOP markets is very difficult and therefore represents a major impediment for the participation of large firms and MNCs. BOP consumers are getting connected and networked. They are also extremely value-conscious by necessity. the BOP consumers accept advanced technology readily. The BOP Markets Are Brand-Conscious The dominant assumption is that the poor are not brand-conscious.Bottom Of the Pyramid It refers to the provision of financial services to low-income clients. Prahalad and Stuart Hart. 2002 There Is Money at the BOP The dominant assumption is that the poor have no purchasing power and therefore do not represent a viable market. Issue 26. Definitions Why Key Features Building Blocks Innovations Indian Scenario Challenges Conclusion . K. On the contrary. BOP Consumers Accept Advanced Technology Readily Contrary to popular belief. C. They are rapidly exploiting the benefits of information networks. The BOP Market Is Connected Contrary to the popular view. The Fortune at the Bottom of the Pyramid. the poor are very brand-conscious.

and this has resulted in very high repayment rates in micro credit over the last three decades. High Risks Innovations The poor are not creditworthy Indian Scenario The real causes probably had more to do with the mechanisms of service Challenges provision and inadequate regulation. Key Features Building Blocks 1. .BOP and Financial Services Definitions It refers to the provision of financial services to Why low-income clients. The poor's lack of collateral can be overcome with joint liability within a group Conclusion of borrowers.

Key Features Building Blocks 1. Costs would quickly mount and programs would quickly get bogged down. High Risks Innovations 2. The experience of Bangladesh s Grameen Bank turned this around and now a broad range of alternative microfinance models are in place. High Transaction Costs Indian Scenario The programs need to be subsidized Challenges Failed government initiatives work on the premise that the poor households Conclusion cannot afford to borrow at high interest rates.BOP and Financial Services Definitions It refers to the provision of financial services to Why low-income clients. . giving little incentives for any expansion.

Empirical research shows that the poor use many financial instruments frequently. they have to rely mainly on unreliable informal service providers. below health. Finance falls lower in the 'hierarchy' of needs for the poor. but due to absence and unsuitability of formal mechanisms. 1.BOP and Financial Services It refers to the provision of financial services to low-income clients. education etc. High Risks 2. High Transaction Costs 3. Definitions Why Key Features Building Blocks Innovations Indian Scenario Challenges Conclusion .

Finance falls lower in the 'hierarchy' of needs for the poor. and c) investment/risk management mechanisms that allow for wealth creation and diversification of risk Definitions Why Key Features Building Blocks Innovations Indian Scenario Challenges Conclusion .BOP and Financial Services It refers to the provision of financial services to low-income clients. b) savings facilities to smooth consumption and get reasonable returns even on small amounts. 1. Credit is the only financial service required by the poor Poor need a range of services such as a) risk mitigation mechanisms. 4. High Risks 2. below health. High Transaction Costs 3. for example insurance. education etc. to protect against exogenous shocks.

education etc. It seems this is the only way they can meet multiple needs using informal instruments. The poor are not sophisticated in using financial services. Finance falls lower in the 'hierarchy' of needs for the poor. financial diaries of the poor show how they creatively use a variety of loan sources to deal with the irregularity in their incomes and expenditures. 1. Credit is the only financial service required by the poor 5. For example. below health.BOP and Financial Services It refers to the provision of financial services to low-income clients. High Transaction Costs 3. 4. Due to the absence of well-designed formal services. High Risks 2. so access to finance may end up damaging their livelihoods. they end up creating a complex mesh of informal financial mechanisms around their lives. Definitions Why Key Features Building Blocks Innovations Indian Scenario Challenges Conclusion .

Vol XXXVII Dec 99 pg 1574. .Characteristics of Leading Programs Definitions Why Key Features Building Blocks Innovations Indian Scenario Challenges Conclusion Repayment Rates: > 90% Source: Journal of Economic Literature.

impact Definitions Why Key Features Building Blocks Innovations Indian Scenario Challenges Conclusion Source: WWB : Building Domestic Financial Systems that Work for the Majority . enterprises ‡ High outreach. sporadic. enable profits ‡ Excellent portfolio quality ‡ Understand household economies.Characteristics of Leading Programs Compliance Culture Sustainable Microfinance ‡ Low interest rates ‡ Low repayments ‡ Low know your customer ‡ Minimal loan amounts ‡ Low. economic activities of the poor ‡ Financial products and processes that respond to poor households. and shallow outreach relative to demand ‡ Interest rates that cover costs.

connection Flexible Loans Small initial loan sizes Larger loans over time Longer terms Variety of Products Housing loans Education loans Life cycle products Business development services What The Poor Want Group Individual Loans Definitions Why Key Features Building Blocks Innovations Indian Scenario Challenges Conclusion No Traditional Collateral Source: WWB research Source: WWB : Building Domestic Financial Systems that Work for the Majority .Characteristics of Leading Programs Service Asset Building. Risk Mitigating Products Voluntary savings Health and life insurance Rapid. convenient access Respect.

growth Portfolio quality Definitions Why 3. Key Features Provide appropriate Building Blocks support modalities² institutions that meet Innovations high standards need: Indian Scenario Challenges Policies. regulations Conclusion and legal structures that fit microfinance Access to finance that fits the institution s size and stage The ability to mobilize savings . profitability Financial integration Impact Portfolio size. Encourage a range of financial institutions and methodologies: 2.Building Financial Services for the Poor 1. Adopt standards on performance in: Commercial banks Regulated MFIs Microfinance NGOs Finance companies Coops. credit unions Grassroots organizations Client reach Efficiency.

Characteristics of Leading Programs Definitions Why Key Features Building Blocks Innovations Indian Scenario Challenges Conclusion Innovations Cutting costs to clients and the institutions Building new distribution channels Helping clients build assets and mitigate risk Mobilizing capital markets for microfinance Source: WWB : Building Domestic Financial Systems that Work for the Majority .

Indian Scenario Definitions Evolution of Microfinance in India Why Key Features 1904 Microfinance has been in practice for ages ( though informally). 1976 Grameen Bank. Indian Scenario Challenges 1934 Reserve Bank of India Act provided for the establishment of the Agricultural Credit Department. Building Blocks Legal framework for establishing the co-operative movement Innovations set up. 1995 Passing of Mutually Aided Co-op. Act in AP in 1995. 1975 Regional Rural Banks created. Conclusion 1969 Nationalisation of banks. The Geographic Distribution Of Microfinance Services In India 2007 . Yunus 1982 NABARD established as an apex agency for rural finance. Source: Doug Johnson.

Indian Scenario Definitions Why Key Features Building Blocks Innovations Indian Scenario Challenges Conclusion Source: Doug Johnson. The Geographic Distribution Of Microfinance Services In India 2007 .

The Geographic Distribution Of Microfinance Services In India 2007 .Indian Scenario Definitions Why Key Features Building Blocks Innovations Indian Scenario Challenges Conclusion Source: Doug Johnson.

The Geographic Distribution Of Microfinance Services In India 2007 .Indian Scenario Definitions Why Key Features Building Blocks Innovations Indian Scenario Challenges Conclusion Source: Doug Johnson.

The Geographic Distribution Of Microfinance Services In India 2007 .Indian Scenario Definitions Why Key Features Building Blocks Innovations Indian Scenario Challenges Conclusion Source: Doug Johnson.

ac.829 Microcredit Foundation of India (MFI) 410.html .692 BISWA 200.108 Bandhan 449.462 Cashpor 201.in/cmf/map/notes_on_data.304 AML 416.261 Share 826.517 SKS 513.Indian Scenario Top 10 India MFIs by Number of Active Borrowers MFI* Total # of Active Borrowers (2007)** Spandana 916.329 KAS 394.912 BASIX Definitions Why Key Features Building Blocks Innovations Indian Scenario Challenges Conclusion Source: http://ifmr.

Only about 5 % of rural poor have access to microfinance.000 crores. 60. Annual credit demand by the poor in the country is estimated to be about Rs.ppt .in/presentation/sou.Indian Scenario:Profile Definitions Why Key Features Building Blocks Innovations Indian Scenario Challenges Conclusion Estimated that 350 million people live Below Poverty Line This translates to approximately 75 million households. Source: http://www.microfinance.

Unfavourable policies like caps on interest rates which effectively limits the Challenges viability of serving the poor. Key Features inter-alia.Lack of an appropriate legal vehicle . This is due to.Indian Scenario : Status of MF Definitions Considerable gap between demand and supply for all financial services Why Majority of poor are excluded from financial services.Limited access to equity . the following reasons: Building Blocks .Difficulty in accessing low cost on-lending funds (as of now they are unable to offer savings services in a legitimate manner. Innovations .Bankers feel that it is fraught with risks and uncertainties.ppt . Conclusion While MFIs have shown that serving the poor is not an unviable proposition there are issues that have constrained MFIs while scaling up. Source: http://www.in/presentation/sou.microfinance.High transaction costs Indian Scenario . These include .

Definitions Why Key Features Building Blocks Innovations Indian Scenario Challenges Conclusion Less than 15 % of the households have any kind of insurance.Indian Scenario : Status of MF About 56 % of the poor still borrow from informal sources.microfinance.in/presentation/sou. 70 % of the rural poor do not have a deposit account 87 % have no access to credit from formal sources. Source: http://www.2 %).ppt .4 %) and crop insurance (0. Negligible numbers have access to health insurance (0.

in/presentation/sou. 75 % of the total poor households of 80 million (i. about 60 million will be reached in the next five years. Definitions Why Key Features Building Blocks Innovations Indian Scenario Challenges Conclusion Source: http://www. The loan outstanding will consequently grow from the present level of about 1600 crores to about 42000 crores.microfinance.e.Indian Scenario : Projections Annual growth rate of about 20 % during the next five years.ppt .

Ability to attract and retain professional and committed human resources.Indian Scenario : Challenges Appropriate legal structures for the structured growth of MF operations Finding adequate levels of equity for the new entities to leverage loan funds Ability to access loan funds at reasonably low rates of interest. Design of apt MIS including user friendly software for tracking accounts and operations. Appropriate loan products for different segments. Definitions Why Key Features Building Blocks Innovations Indian Scenario Challenges Conclusion Source: http://www.ppt .in/presentation/sou.microfinance.

The Microfinance Revolution Definitions Why Key Features Building Blocks Innovations Indian Scenario Challenges Conclusion .

The Microfinance Revolution ? Low-Income Entrepreneurs and Households LARGE ENTERPRISES Middle Class Definitions Why Key Features Building Blocks Innovations Indian Scenario Challenges Conclusion Wealthy .

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