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Published by: Jose George on Apr 03, 2011
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BY JOSE T GEORGE 092103104


money transfers. However increases in scale cannot be achieved. However. when communities set up their own institutions. • It provides credit to that section of society that is unable to obtain credit at reasonable rates from traditional sources. • Transaction costs. • The poor are often not in a position to offer collateral to secure the credit. counseling. covering every village in the country. Primary Agricultural Co-operative Societies numbering 95. • It enables women’s empowerment by routing credit directly to women. accounting for the balance 8% of the outstanding loan portfolio. high transaction costs are unavoidable. • Easy access to credit is more important for the poor than cheaper credit which might involve lengthy bureaucratic procedures and delays. It covers a range of services which include. The provision of credit to the Microfinance sector is based on the following postulates: • It addresses the concerns of poverty alleviation by enabling the poor to work their way out of poverty. etc. etc. with a combined membership of over 13 crores and loans outstanding of over . both for individual operations and of the sector as a whole in the absence of cost recovery and profit incentive. such as SHG federations and cooperatives the transaction costs are lower. can be reduced through economies of scale. societies. the community and society at large. thereby enhancing their status within their families.Introduction: Microfinance is an economic development tool whose objective is to assist the poor to work their way out of poverty. The players in the Indian Microfinance sector can be classified as falling into three main groups a) The SHG-Bank linkage Model accounting for about 58% of the outstanding loan portfolio b) Non-Banking Finance Companies accounting for about 34% of the outstanding loan portfolio c) Others including trusts. insurance. • Given the imperfect market in which the sector operates and the small size of individual loans. many other services such as savings.663. in addition to the provision of credit.

`64. women in a village are encouraged to form a Self help Group (SHG) and members of the Group regularly contribute small savings to the Group. and are later supplemented by loans provided by banks for income-generating activities and other purposes for sustainable livelihood promotion. Thrift and credit co-operatives are scattered across the country and there is no centralized information available about them. or it may evolve from a traditional rotating savings and credit group (ROSCA) or other locally initiated grouping. Under this model. The system was pioneered by Professor Yunus in 1976. training and capacity building assistance to Self Help Promoting Institutions (SHPI). The members make regular savings with the MFI.09 have a much longer history and are under a different regulatory framework. The group formation process may be facilitated by an NGO or by the MFI or bank itself. and banks. where it has been widely imitated by a number of large and small MFI. their federations. and recoveries are made from members towards their loans from the SHGs. The Group has weekly/ monthly meetings at which new savings come in. The SHG-Bank Linkage Model was pioneered by NABARD in 1992. NABARD provides grants. They each have individual savings and loan accounts with the MFI. 044 crores as on 31. according to a fixed compulsory schedule. and they also take regular loans.03. The Grameen system The Grameen system dominates the market in Bangladesh. which in turn act as facilitators/ intermediaries for the formation and credit linkage of the SHGs. and has grown very rapidly since. In this system the potential clients are asked by the MFI to organise themselves into ‘Groups’ of five members which are in turn organised into ‘Centres’ of around five to seven such Groups. These savings which form an ever growing nucleus are lent by the group to members. and the main function of the Groups and Centres are to facilitate the financial intermediation process The SHG system The members form a group of around twenty members. .

Many of the NBFCs operating this model started off as non-profit entities providing micro-credit and other services to the poor. Significance and Scope of the study The scope of this study is limited to : • Introduction to Microfinance and the sector in India • The provision of credit to microfinance sector • Key players in Indian Microfinance sector • Various models for microfinance in India and there comparisons • Grameen System • SHG system • NBFC-JLG linkage model • Commercialisation of MFI’s in India • Brief study of need for regulation of MFI’s in India • Conclusions & Suggestions OBJECTIVE: The objective of this project is • to study the performance of microfinance in India • to study the ill effects of commercialisation of microfinance in India • to study the need for regulation of MFI’s in India . they converted themselves into for-profit NBFCs. Others entered the field directly as forprofit NBFCs seeing this as a viable business proposition. The individual loans are jointly and severally guaranteed by the other members of the Group.NBFC-JLG system Under the NBFC model. Significant amounts of private equity funds have consequently been attracted to this sector. NBFCs encourage villagers to form Joint Liability Groups (JLG) and give loans to the individual members of the JLG. as they found themselves unable to raise adequate resources for a rapid growth of the activity. However.

Sources of Data: This study is based on secondary data.in http://www.mixmarket. For further details refer to References/Bibliography Chapter Scheme: Ch 1: Introduction to Microfinance and the sector in India • Provision for credit in Microfinance sector • Key players in Indian Microfinance sector Ch 2: Various models for microfinance in India and there comparisons • Grameen System • SHG System • NBFC-JLG linkage model • Pros and Cons of each system with respect to other Ch 3: Commercialisation of MFI’s in India Ch 4: Regulatory issues Ch 5: Conclusions and Suggestions References/Bibliography: Websites http://www.rbi.org/ Journals Malegam committee Report on Issues of Microfinance in India Journal of Microfinance Volume 6 Number 2 Status of Micro Finance 2009-10 published by NABARD CRISIL ratings of India’s-top-50-mfis .org.nabard.org/ http://www.

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