“Impact of Micro Finance on Living Standard Empowerment and Poverty Alleviation of Poor Women: A Case Study of North India”
Submitted to:

Kurukshetra University, Kurukshetra
in partial fulfillment for the degree of

Master of Business Administration (Session -)

Under the Supervision of: Ms. Shelly Singhal Faculty MBA MAIMT

Submitted by: Uni. Roll. No.……….. MBA (F)



Approved by AICTE and HRD Ministry, affiliated to Kurukshetra University, Kurukshetra

I hereby declare that this research project report entitled "Impact of Micro Finance on Living Standard Empowerment and Poverty Alleviation of Poor Women: A Case Study of North India” submitted by me for the partial fulfillment of the degree of Master of Business Administration, submitted to Kurukshetra University, Kurukshetra is an original work done by me. I also hereby declare that this project report has not been submitted at any time to any other university or institute for the award of any Degree or Diploma.

(student name)


The project on “Impact of Micro Finance on Living Standard Empowerment and Poverty Alleviation of Poor Women: A Case Study of North India’’ would not have seen the light of the day without the following people and their priceless support and cooperation. Hence I extend my gratitude to all of them. As a student of MAHARAJA AGARSEN INSTITUTE OF MGT & TECH, JAGADHRI. I would first of all like to express my gratitude to Dr. Raj Kumar, Director, MAIMTfor granting me permission to undertake the project report in their esteemed organization. I would also like to express my sincere thanks to Mr.AdarshAggarwal (H.O.D -MBA Department) for supporting me and being always there for me whenever I needed. During the actual research work, Ms. Shelly Singhal (Research Guide) and other office staff who set the ball rolling for my project. They had been a source of inspiration through their constant guidance; personal interest; encouragement and help. I convey my sincere thanks to them. In spite of their busy schedule they always found time to guide me throughout the project. I am also grateful to them for reposing confidence in my abilities and giving me the freedom to work on my project. Without their invaluable help I would not have been able to do justice to the project. I express my sincere thanks to Ms. Shelly Singhal, Faculty MBA, MAIMT for the valuable suggestion & making this project a real successful.

(Student name)


MBA Students of Kurukshetra University are required to undergo Research Project as an integral part of curriculum.To accomplish this project as “Impact of Micro Finance on Living Standard Empowerment and Poverty Alleviation of Poor Women: A Case Study of North India” there is need to become familiar with the project. It can be possible through theoretical inputs as well as practical exposure in which my practical knowledge is helpful acquired at the college. I have also done this study from secondary sources.




Introduction Microfinance is defined as any activity that includes the provision of financial services such as credit, savings, and insurance to low income individuals which fall just above the nationally defined poverty line, and poor individuals which fall below that poverty line, with the goal 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 micro enterprise, and insurance and savings for risk mitigation and consumption smoothing. A large variety of sectors provide microfinance in India, using a range of microfinance delivery methods. Since the ICICI Bank in India, various actors have endeavored to provide access to financial services to the poor in creative ways. Governments also 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. This has resulted in a rather broad definition of microfinance as any activity that targets poor and low-income individuals for the provision of financial 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 is the creation of social value. Microfinance Definition According to International Labor Organization (ILO), “Microfinance is an economic development approach that involves providing financial services through institutions to low income clients”. In India, Microfinance has been defined by “The National Microfinance Taskforce, 1999” 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”. "The poor stay poor, not because they are lazy but because they have no access to capital." The dictionary meaning of ‘finance’ is management of money. The management of money denotes acquiring & using money. Micro Finance is buzzing word, used when financing for micro entrepreneurs. Concept of micro finance is emerged in need of meeting special goal to empower underprivileged class of society, women, and poor, downtrodden by natural reasons or men made; caste, creed, religion or otherwise. The principles of Micro Finance are founded on the philosophy of cooperation and its central values of equality, equity and mutual self-help. At the heart of these principles are the concept of human development and the brotherhood of man expressed through people working together to achieve a better life for themselves and their children.

Traditionally micro finance was focused on providing a very standardized credit product. The poor, just like anyone else, (in fact need like thirst) need a diverse range of financial instruments to be able to build assets, stabilize consumption and protect themselves against risks. Thus, we see a broadening of the concept of micro finance--- our current challenge is to find efficient and reliable ways of providing a richer menu of micro finance products. Micro Finance is not merely extending credit, but extending credit to those who require most for their and family’s survival. It cannot be measured in term of quantity, but due weightage to quality measurement. How credit availed is used to survive and grow with limited means. Concept and Features of Micro-finance: 1. It is a tool for empowerment of the poorest. 2. Delivery is normally through Self Help Groups (SHGs). 3. It is essentially for promoting self-employment, generally used for: (a) Direct income generation (b) Rearrangement of assets and liabilities for the household to participate in future opportunities and (c) Consumption smoothing. 4. It is not just a financing system, but a tool for social change, specially for women. 5. Because micro credit is aimed at the poorest, micro-finance lending technology needs to mimic the informal lenders rather than the formal sector lending. It has to: (a) Provide for seasonality (b) Allow repayment flexibility (c) Fix a ceiling on loan sizes.


Microfinance approach is based on certain proven truths which are not always recognized. These are:
1. That the poor are bankable; successful initiatives in micro finance demonstrate that there need

not be a tradeoff between reaching the poor and profitability - micro finance constitutes a statement that the borrowers are not ‘weaker sections’ in need of charity, but can be treated as responsible people on business terms for mutual profit . 2. That almost all poor households need to save, have the inherent capacity to save small amounts regularly and are willing to save provided they are motivated and facilitated to do so. 3. That easy access to credit is more important than cheap subsidized credit which involves lengthy bureaucratic procedures - (some institutions in India are already lending to groups or SHGs at higher rates - this may prevent the groups from enjoying a sufficient margin and rapidly accumulating their own funds, but members continue to borrow at these high rates, even those who can borrow individually from banks). 4. 'Peer pressure' in groups helps in improving recoveries.




Mohammed AnisurRahaman (2007) Has examined that about microfinance and to investigate the impact of microfinance on the poor people of the society with the main focus on Bangladesh. We mainly concise our thesis through client’s (the poor people, who borrowed loan from microfinance institutions) perspective and build up our research based on it. Therefore, the objective of this study is to show how microfinance works, by using group lending methodology for reducing poverty and how it affects the living standard (income, saving etc.) of the poor people in Bangladesh. Microfinance has the positive impact on the standard of living of the poor people and on their life style. It has not only helped the poor people to come over the poverty line, but has also helped them to empower themselves. SusyCheston (2002) Has examined that Microfinance has the potential to have a powerful impact on women’s empowerment. Although microfinance is not always empowering for all women, most women do experience some degree of empowerment as a result. Empowerment is a complex process of change that is experienced by all individuals somewhat differently. Women need, want, and profit from credit and other financial services. Strengthening women’s financial base and economic contribution to their families and communities plays a role in empowering them. Product design and program planning should take women’s needs and assets into account. By building an awareness of the potential impacts of their programs, MFIs can design products, services, and service delivery mechanisms that mitigate negative impacts and enhance positive ones. Linda Mayoux (Feb 2006) Has examined that Micro-finance programmes not only give women and men access to savings and credit, but reach millions of people worldwide bringing them together regularly in organized groups. Through their contribution to women’s ability to earn an income, micro-finance programmes can potentially initiate a series of ‘virtuous spirals’ of economic empowerment, increased well-being for women and their families and wider social and political empowerment Banks generally use individual rather than group-based lending and may not have scope for introducing non-financial services. This means that they cannot be expected to have the type of the focused empowerment strategies which NGOs have EoinWrenn (2005) Has examined that microfinance creates access to productive capital for the poor, which together with human capital, addressed through education and training, and social capital, achieved through local organization building, enables people to move out of poverty (1999). By providing material capital to a

poor person, their sense of dignity is strengthened and this can help to empower the person to participate in the economy and society. The impact of microfinance on poverty alleviation is a keenly debated issue as we have seen and it is generally accepted that it is not a silver bullet, it has not lived up in general to its expectation (Hulmeand Mosley, 1996). However, when implemented and managed carefully, and when services are designed to meet the needs of clients, microfinance has had positive impacts, not just on clients, but on their families and on the wider community. Cheston& Kuhn (2004) Has examined that in their study concluded that micro-finance programmes have been very successful in reaching women. This gives micro-finance institutions an extraordinary opportunity to act intentionally to empower poor women and to minimize the potentially negative impacts some women experiences. We also found increased respect from and better relationships with extended family and in-laws. While there have been some reports of increased domestic violence, Hashemi and Schuler found a reduced incidence of violence among women who were members of credit organizations than among the general population. Dr. JyotishPrakashBasu (2006) Has examined that the two basic research questions. First, the paper tries to attempt to study how a woman’s tendency to invest in safer investment projects can be linked to her desire to raise her bargaining position in the households. Second, in addition to the project choice, women empowerment is examined with respect to control of savings, control of income, control over loans, control over purchasing capacity and family planning in some sample household in Hooghly district of West Bengal. The empowerment depends on the choice of investment of project. The choice of safe project leads to more empower of women than the choice of uncertain projects. The Commercial Banks and Regional Rural banks played a crucial role in the formation of groups in the SHGs -Bank Linkage Program in Andhra Pradesh whiles the Cooperative Banks in West Bengal. Chintamani Prasad Patnaik (March 2012) Has examined that microfinance seems to have generated a view that microfinance development could provide an answer to the problems of rural financial market development. While the development of microfinance is undoubtedly critical in improving access to finance for the unserved and underserved poor and low-income households and their enterprises, it is inadequate to address issues of rural financial market development. It is envisaged that self-help groups will play a vital role in such strategy. But there is a need for structural orientation of the groups to suit the requirements of new business. Microcredit movement has to be viewed from a long-term perspective under SHG

framework, which underlines the need for a deliberate policy implication in favour of assurance in terms of technology back-up, product market and human resource development. Hunt, J &Kasynathan (2002) Has examined that poor women and men in the developing world need access to microfinance and donors should continue to facilitate this. Research suggests that equity and efficiency arguments for targeting credit to women remain powerful: the whole family is more likely to benefit from credit targeted to women, where they control income, than when it is targeted to men. Microfinance must also be re-assessed in the light of evidence that the poorest families and the poorest women are not able to access credit. A range of microfinance packages is required to meet the needs of the poorest, both women and men. Donors need to revisit arguments about the sustainability of microfinance programmes. Financial sustainability must be balanced against the need to ensure that some credit packages are accessible to the poorest. R.Prabhavathy (2012) Has examined that collective strategies beyond micro-credit to increase the endowments of the poor/women enhance their exchange outcomes the family, markets, state and community, and sociocultural and political spaces are required for both poverty reduction and women empowerment. Even though there were many benefits due to micro-finance towards women empowerment and poverty alleviation, there are some concerns. First, these are dependent on the programmatic and institutional strategies adopted by the intermediaries, second, there are limits to how far micro-credit interventions can alone reach the ultra-poor, third the extent of positive results varies across household headship, caste and religion and fourth the regulation of both public and private infrastructure in the context of LPG to sustain the benefits of social service providers. Reginald Indon (2007) Has examined that informal businesses represent a very large cross-section of economic enterprises operating in the country. Informal businesses may be classified as either the livelihood/ survival type or the entrepreneurial/ growth-oriented type. Livelihood enterprises are those which show very limited potential for growth in both income and employment generation. There are existing policies, program and services that directly/ indirectly cover informal. Variety of support programs, services and information are currently being offered by different institutions. These programs and support services fail to reach or remain inaccessible to informal business operators and owners. This is borne out of and perpetuated by lopsided economic policies and poor governance that inadvertently encumber informal businesses from accessing mainstream resources and services.

Mallory A. Owen (2006) Has examined that microfinance has signaled a paradigm shift in development ideology. Using my experiences with microfinance in a fishing village in Senegal, this study will address the claims driving the microfinance movement, debate its pros and cons and pose further questions about its validity and widespread implementation. Instead of lifting people out of poverty and empowering women, microfinance may have regressive long term potential for borrowers. How loans get used is a central theme of this essay. How microfinance and the notion of the “entrepreneur” fit into the rural, Senegalese cultural context is also addressed. Microfinance programs should be implemented with complementary measures that challenge the systematic causes of inequality examined in this article. The microfinance model (group lending based on joint liability) uses the social capital generated by group membership to ensure that loans get re-financed. If one woman fails to pay back her loan, she puts her entire loan group at jeopardy. As a result, “Women’s participation in microenterprise does not show any signs of creating the new forms of solidarity among women that the advocates of empowerment desire. Instead, women are placed under enormous pressure to maintain existing modes of social relationships, on which depends not only the high rates of loan repayments but also the survival of families.” Jennifer Meehan (2004) Has examined that it will need to do three things simultaneously. First, it will need to rapidly scale up, in key markets, like India, home to high numbers of the world’s poor. Second, in this process, clear priority is needed for philanthropic, quasi-commercial and commercial financing for the business plans of MFIs targeting the poorest segments of the population, especially women. Third, microfinance will need to realize its possibility as a broad platform and movement, more than simply an intervention and industry. The pioneering financings completed by leading, poverty-focused MFIs have shown the industry what is possible – large amounts of financing that allows for rapid expansion of financial services to new poor customers. The MFIs offer a model to others that are interested in tapping the financial markets. If leading MFIs continue on their present course and adopt some or all of the suggestions offered, financial market interest – or more specifically, debt capital market interest – in leading, poverty-focused MFIs is expected to grow. Jacob Levitsky and Leny van Oyen (1999) Has examined that micro-businesses to large corporations, located in large urban centres, in rural areas and in the formal and informal sectors. Financing needs are therefore of varying nature. In describing experiences, a link is made between size of enterprises, financing schemes/instruments and typical delivery channels. When referring to enterprises in this paper, focus is predominantly on businesses,

both existing and potential, in the manufacturing sector and related services. It is clear from this paper that increasing the volume of finance available and the delivery of such funds in various appropriate forms, to support enterprises in Africa, is a difficult challenge. Central banks have to be given more independence, strengthened with qualified, experienced personnel, able to fulfil adequately the role of supervising and monitoring the performance of commercial banks in the provision of loans to those enterprises able to make effective use of them. Formal financial institutions such as commercial banks and, in a few cases, development banks, have to be encouraged and pressed to make appropriate loans to those who have proved themselves by paying off a number of loans they have received from NGOs or from formal financial institutions. The minimalist credit approach has clear limitations, and for credit schemes to be effective and have impact, complementary services are needed. Marguerite S. Robinson (1995) Has examined that HIID's role in the formulation of the initial hypotheses and HIID's contributions in planning and coordinating the underlying research, advising on the policies and implementation strategies that put concept into practice, analysing the results, and disseminating the findings. Drawing on work in Asia, Africa, and Latin America, the paper analyses the paradigm shift in microfinance from government and donor-funded subsidized credit to sustainable financial intermediation. This shift has occurred because of the work of many people in many countries. This paper, however, is limited to HIID's contribution. The policy implications of the 'new microfinance' for governments, donors, banks, and NGOs are explored. HIID is advising BRI on its program for international visitors. In addition, HIID is analysing and teaching - in universities, financial institutions, donor agencies, bank superintendence’s, and NGOs - the principles and the results of the new microfinance paradigm. Pillai (1995) Has examined that the emergence of liberalization and globalization in early 1990's aggravated the problem of women workers in unorganized sectors from bad to worse as most of the women who were engaged in various self-employment activities have lost their livelihood. Microfinance is emerging as a powerful instrument for poverty alleviation in the new economy. In India, Microfinance scene is dominated by Self Help Group (SHGs)-Bank Linkage Programme as a cost effective mechanism for providing financial services to the "Unreached Poor" which has been successful not only in meeting financial needs of the rural poor women but also in strengthening collective self-help capacities of the poor leading to their empowerment. Micro finance is necessary to overcome exploitation, create confidence for economic self-reliance of the rural poor, particularly among rural women who are mostly invisible in the social structure. Micro finance can contribute to solving the problems of inadequate housing and urban services as an integral part of poverty alleviation programmes. The challenge lies in finding the level of flexibility in the credit instrument that could make it match the

multiple credit requirements of the low income borrower without imposing unbearably high cost of monitoring its end use upon the lenders. Crabb, P. (2008) Has examined that the relationship between the success of microfinance institutions and the degree of economic freedom in their host countries. Many microfinance institutions are currently not selfsustaining and research suggests that the economic environment in which the institution operates is an important factor in the ability of the institution to reach this goal, furthering its mission of outreach to the poor. The sustainability of the micro lending institutions is analyzed here using a large crosssection of institutions and countries. The results show that microfinance institutions operate primarily in countries with a relatively low degree of overall economic freedom and that various economic policy factors are important to sustainability. Fehr, D. and G. Hishigsuren. (2006) Has examined that microfinance institutions (MFIs) provide financial services to the poorest households. To date, funding of MFI activities has come primarily from outright donor grants, government subsidies, and often debt capital, including debt with non-market terms favorable to the MFI. These traditional sources of MFI financing may not be sufficient to allow MFIs to provide maximum services. There is a subset of the pool of mainstream equity investors who would consider investing in MFI opportunities, even knowing that they would not expect to earn the full economic rate of return that such investments would otherwise require. However, as part of their investment evaluation process, these investors would ask: What would the market determine required expected rate of return for my MFI investment be? What return on investment (ROI) do I expect to earn on my MFI investment? Is the difference in the above two returns acceptable given my level of social motivation? How will I "monetize" my investment and when? The purpose of this article is to employ modern corporate finance techniques to address these questions. Demirguc-Kunt, A. and Martinez, P.M.S. (2005) Has examined that this paper (i) presents new indicators of banking sector penetration across 99 countries, based on a survey of bank regulatory authorities, (ii) shows that these indicators predict household and firm use of banking services, (iii) explores the association between the outreach indicators and measures of financial, institutional, and infrastructure development across countries, and (iv) relates these banking outreach indicators to measures of firms ‘financing constraints. In particular, we find that greater outreach is correlated with standard measures of financial development, as well as with economic activity. Controlling for these factors, we find that better communication and transport

infrastructure, and better governance are also associated with greater outreach. Government ownership of financial institutions translates into lower access, while more concentrated banking systems are associated with greater outreach. Finally, firms in countries with higher branch and ATM penetration and higher use of loan services report lower financing obstacles, thus linking banking sector outreach to the alleviation of firms’ financing constraints. Srinivasan, Sunderasan (2007) Has examined that micro banking facilities have helped large numbers of developing country nationals by supporting the establishment and growth of microenterprises. And yet, the microfinance movement has grown on the back of passive replication and needs to be revitalised with new product offerings and innovative service delivery. Renewable Energy systems viz., solar home systems, biogas digesters, etc., serve to improve indoor air quality, provide superior light and extend working and study hours. Such applications are not inherently income generating and returns on such investments accrue from cost avoidance, but should qualify for micro funding, as such 'quality of life' investments, reflect borrower maturity and simultaneously contribute to MFI sustainability. Basu, P., Srivastava (2005) Has examined that the current level and pattern of access to finance for India's rural poor and examines some of the key microfinance approaches in India, taking a close look at the most dominant among these, the Self Help Group (SHG) Bank Linkage initiative. It empirically analyzes the success with which SHG Bank Linkage has been able to reach the poor, examines the reasons behind this, and the lessons learned. The analysis in the paper draws heavily on a recent rural access to finance survey of 6,000 households in India, undertaken by the authors. The main findings and implications of the paper are as follows: India's rural poor currently have very little access to finance from formal sources. Microfinance approaches have tried to fill the gap. Among these, the growth of SHG Bank Linkage has been particularly remarkable, but outreach remains modest in terms of the proportion of poor households served. The paper recommends that, if SHG Bank Linkage is to be scaled-up to offer mass access to finance for the rural poor, then much more attention will need to be paid towards: the promotion of high quality SHGs that are sustainable, clear targeting of clients, and ensuring that banks linked to SHGs price loans at cost-covering levels. At the same time, the paper argues that, in an economy as vast and varied as India's, there is scope for diverse microfinance approaches to coexist. Private sector micro financiers need to acquire greater professionalism, and the government, too, can help by creating a flexible architecture for microfinance innovations, including through a more enabling policy, legal and regulatory framework. Finally, the paper argues that, while microfinance can, at minimum, serve as a quick way to deliver finance to the poor, the medium-term strategy to scale-up access to finance for the poor should be to 'graduate' microfinance clients to formal financial

institutions. The paper offers some suggestions on what it would take to reform these institutions with an eye to improving access for the poor. Robinson, M. (2001) Has examined that the timing of this book is excellent it has few close substitutes in terms of its sweeping overview of the terrain, and the revolution is now so advanced that the time is right for a history, or at least a retrospective. As with any revolution, however, splits have emerged within the movement. On one side are those who argue that the way forward is to require microfinance institutions to meet the test of financial sustainability essentially, requiring these institutions to cover their costs, even if this means that the very poorest of the poor remain under-served. Against this, the poverty lending approach emphasizes the importance of outreach, especially to the very poorest borrowers, as a poverty fighting approach. Gallardo, Joselito (1999) Has examined that the Bank should maximize opportunities to expand the use of leasing as an approach to financial intermediation in Bank projects to promote the development of small businesses and microenterprises. In most developing countries, capital markets are relatively undeveloped and banks are often unable or unwilling to undertake term lending. Operations in microenterprises and small businesses are cash-flow-oriented but rarely have organized historical financial records or the assets needed for collateral for conventional bank financing. Gallardo explores the potential of leasing as an option to expand small businesses' access to medium-term financing for capital equipment and new technology. In a lease-financing contract, the lessor-financier retains ownership of the asset, lease payments can be tailored to fit the cash-flow generation patterns of the lessee-borrower's business, and the security deposit is smaller than the equity stake required in conventional bank financing. Other small businesses require medium-term financing to acquire the tools and equipment needed to support production growth and expansion. Gallardo examines and compares the Bank's experience: Lease financing was used to promote the development of small businesses in Pakistan, as part of a microenterprise development loan project. For a Bank-supported alternative-energy project in Indonesia, a variant of lease financing-the hire-purchase contract-is being used in marketing and distribution by private distributors of photovoltaic solar home systems. Lease financing was used by Grameen Trust in Bangladesh to finance the purchase of small tools and equipment and in other countries to promote the growth of alternative energy systems. This paper-a product of the Development Research Group-is part of a larger effort in the group to identify appropriate policies for environmental regulation in developing countries. The study was funded by the Bank's Research Support Budget under the research project "The Economics of Industrial Pollution Control in Developing Countries"

Muhammad Yunus (1998) Has examined that this approach to poverty reduction at the macro-level is inadequate. The primary causes of poverty are not lack of human capital or lack of demand for labor. Lack of demand for labor is only a symptom, not a cause, of poverty. Poverty is caused by our inadequate understanding of human capabilities and by our failure to create enabling theoretical frameworks, concepts, institutions and policies to support those capabilities. My main argument is that economics as we know it is not only unhelpful in getting the poor out of poverty; it may even be a hindrance. In this paper, I would like to explore those institutions that perpetuate poverty, share my experiences with an effective poverty alleviation institution, and present my thoughts on the future of poverty alleviation. Before addressing these points, however, I would like to provide a useful framework to define the concept of "the poor" more concretely. Ashta, A. & De Selva, R. (2009) Hass examined that the relationship between microfinance and religion, and provides future research directions in this area. Religious institutions often play a crucial role in establishing microfinance systems, but interactions between microfinance and religion have received little attention of researchers. Some of the topics addressed by articles reviewed in this paper include the impact of the Great Irish Famine on Irish loan funds, indigenization within support groups for chronically ill Haitian women, impact of religion on borrowing patterns of Jordanian micro-entrepreneurs, Islamic microfinance in Pakistan and Indonesia, spirituality as an asset in a Christian initiative role of religious leaders in identifying entrepreneurial talent, microfinance and charity in Thailand and the Philippines, and extensive socio-economic studies in Bangladesh and India. Ernest Aryeetey (2005) Has examined that informal finance and microfinance suitable for financing growing small to medium size enterprises (SMEs) in Sub-Saharan Africa? First, I present the characteristics of informal finance, focusing on size, structure, and scope of activities. Informal finance has not been very attractive for the private sector. Indeed, the informal sector has considerable experience and knowledge about dealing with small borrowers, but there are significant limitations to what it can lend to growing microbusinesses. Second, I discuss some recent trends in microfinance. While externally driven microfinance projects have surfaced in Africa, their performance relative to small business finance has not been as positive as in Asia and Latin America. Third, I introduce some possible steps toward a new reform agenda that will make informal and microfinance relevant to private sector development, including focusing on links among formal, semi-formal and informal finance and how these links can be developed.

Yunus (2003) Has examined that count 130 McMaster School for Advancing Humanity on women to spread the word to their neighbors and friends about the success of these loans. The testimony is expected to convince others to seek out Grameen for help. Yunus also encourages members to save some of their money in case they fall on hard times, such as natural disasters, or to use this money for other opportunities. In 1977, Yunus founded Grameen Bank after working for six months to get a loan from the Janata Bank. Yunus realized that having groups of people take out a loan was a better plan for success than giving loans to individuals. He describes the process by which Grameen Bank lends money. Loan repayments are to be made in very small amounts, and in the first project, Yunus chose a villager to be in charge of collecting the repayments. Monique Cohen (2002) Has examined that the ideas presented in this paper are designed to direct the arena of discourse towards a more holistic market driven or client focused microfinance agenda. Currently, the debate on market-driven microfinance is primarily framed by the ‘problems’ of competition and dropouts among established MFIs. The solutions to the problems are defined in terms of more responsive products, the creation of new products, and the restructuring of existing ones. Appropriate products will not only benefit the operations of an institution they will also have a positive impact on the wellbeing of the client, reducing the risk of borrowing and the poor’s vulnerability. In presenting current thinking on a client-led agenda, this paper finds itself in a precarious position in the midst of this debate. Client-led models are still in their infancy, and the fact that this topic is the theme of this special edition of the Journal of Development Studies is itself an important milestone. When this author began to focus on clients in microfinance six years ago, the notion that clients deserved a voice in the design and delivery of services was dismissed out of hand. Shannon Doocy, Dan Norell, ShimelesTeffera, and Gilbert Burnham (2005) Has examined that Management decision making in MFIs is becoming increasingly tied to collecting information about social performance. This paper examines the impact of participation in an Ethiopian microfinance program on indicators of socioeconomic status including wealth, income, and home or land ownership. A survey assessing these outcomes was conducted in May 2003 in two predominantly rural sites in Southern Ethiopia and included 819 households. The article discusses management decisions made as the result of survey findings about socioeconomic status and food security to increase retention rates and to facilitate client savings. Additionally, the management was prompted to increase the number of female clients and raise the proportion of female loan officers. This paper illustrates how data from routine monitoring and evaluation can be linked to MFI management

decision making, which ultimately results in providing better microfinance services. Household asset data indicates that participation in the WISDOM microfinance program did not result in increased household wealth. Significant differences in household income were not observed between participant groups in either survey site and client status was not a significant predictor of income in univariate or multivariate regression models. John A. Brett. (2006) Has examined that having borrowed money from a microfinance organization to start a small business, many women in El Alto, Bolivia are unable to generate sufficient income to repay their loans and so must draw upon household resources. Working from the women's experience and words, this article explores the range of factors that condition and constrain their success as entrepreneurs. The central theme is that while providing the poor access to credit is currently very popular in development circles, the social and structural context within which some women operate so strongly constrains their productive activity that they realize a net income loss at the household level instead of the promised benefits of entrepreneurship. This paper explores the social and structural realities in which women seek out and accept debt beyond their capacity to repay from the proceeds of their business enterprise. By examining some of the "hidden costs" of microfinance participation, this paper argues for a shift from evaluation on outcomes at the institutional level to outcomes at the household level to identify the forces and factors that condition women's success as micro-entrepreneurs. While there has been much discussion on the benefits of microcredit lending and increasing critique of it on both ideological and substantive grounds, there have been few ethnographically informed studies on consequences to users. NidhiyaMenon (2006) Has examined that this paper studies the benefits of participation in micro-finance programs, where benefits are measured in terms of the ability to smooth the effect of seasonal shocks that cause consumption fluctuations. It is shown that although membership in these programs is an effective instrument in combating inter-seasonal consumption differences, there is a threshold level of length of participation beyond which benefits begin to diminish. Returns from membership are modelled using an Euler equation approach. Fixed effects non-linear least squares estimation of parameters using data from 24 villages of the Grameen Bank suggests that returns to participation, as measured by the ability to smooth seasonal shocks, begin to decline after approximately two years of membership. This implies that membership alone no longer has a mitigating marginal effect on seasonal shocks to per capita consumption after four years of participation. Such patterns suggest that the ability to smooth consumption as a function of length of membership, need not accrue indefinitely in a linear fashion.; Reprinted by permission of Frank Cass & Co. Ltd.



The Origin of Microfinance Although neither of the terms microcredit or microfinance were used in the academic literature nor by development aid practitioners before the 1980s or 1990s, respectively, the concept of providing financial services to low income people is much older. While the emergence of informal financial institutions in Nigeria dates back to the 15th century, they were first established in Europe during the 18th century as a response to the enormous increase in poverty since the end of the extended European wars (1618 – 1648). In 1720 the first loan fund targeting poor people was founded in Ireland by the author Jonathan Swift. After a special law was passed in 1823, which allowed charity institutions to become formal financial intermediaries a loan fund board was established in 1836 and a big boom was initiated. Their outreach peaked just before the government introduced a cap on interest rates in 1843. At this time, they provided financial services to almost 20% of Irish households. The credit cooperatives created in Germany in 1847 by Friedrich Wilhelm Raiffeisen served 1.4 million people by 1910. He stated that the main objectives of these cooperatives “should be to control the use made of money for economic improvements, and to improve the moral and physical values of people and also, their will to act by themselves.” In the 1880s the British controlled government of Madras in South India, tried to use the German experience to address poverty which resulted in more than nine million poor Indians belonging to credit cooperatives by 1946. During this same time the Dutch colonial administrators constructed a cooperative rural banking system in Indonesia based on the Raiffeisen model which eventually became Bank Rakyat Indonesia (BRI), now known as the largest MFI in the world. EVOLUTION OF MICROFINANCE IN INDIA (1960 TO TODAY) Microfinance in India emerged as an effort to reach out to the un-banked, lower income segments of the population 1960 to 1980 Phase 1: Social Banking 1.Nationalization of 1990 Phase 2: Financial Systems 2000 Phase 3: Financial Inclusion 1.NGO-MFIs and SHGs gaining more legitimacy 2.MFIs emerging as strategic partners to diverse entities interested in thelow-income segments 3.Extension of subsidized credit 3.Consumer finance emerged ashighgrowth area

Approach private 1.Peer-pressure

commercial banks 2.Expansion of rural branch 2.Establishment of network MFIs,typically of non-profit origins


4.Establishment of Rural Regional Banks 5.Establishment of apex institutionssuch as National Bank for Agricultureand Rural Development and SmallIndustries Development Bank of India Table 3.1

4.Increased policy regulation 5.Increasing commercialization

Phase 1: In the 1960’s, the credit delivery system in rural India was largely dominated by the cooperative segment. The period between 1960 and 1990, referred to as the “social banking” phase. This phase includes nationalization of private commercial banks, expansion of rural branch networks, extension of subsidized credit, establishment of Regional Rural Banks (RRBs) and the establishment of apex institutions such as the National Bank for Agriculture and Rural Development (NABARD) and the Small scale Industries Development Board of India (SIDBI). Phase 2: After 1990, India witnessed the second phase “financial system approach” of credit delivery. In this phase NABARD initiated the Self Help Group (SHG) - Bank Linkage Bank Linkage program, which links informal women's groups to formal banks. This concept held great appeal for nongovernment organizations (NGOs) working with the poor, prompting many of them to collaborate with NABARD in the program. This period also witnessed the entry of Microfinance Institutions (MFIs), largely of non-profit origins, with existing development programs. Phase 3: In 2000, the third phase in the development of Indian microfinance began, marked by further changes in policies, operating formats, and stakeholder orientations in the financial services space. This phase emphasizes on “inclusive growth” and “financial inclusion.” This period also saw many NGO-MFIs transform into regulated legal formats such as Non-Banking Finance Companies (NBFCs). Commercial banks adopted innovative ways of partnering with NGO-MFIs and other rural organizations to extend their reach into rural markets. MFIs have emerged as strategic partners to individuals and entities interested in reaching out to India's low income client segments.

Policy Attention to Microfinance After 2000 1999 --- Official definition of microfinance by RBI

August 2000 --- 'Micro Credit/Rural Credit' included in the list of permitted non-banking financial company (NBFC) activities considered for Foreign Direct Investment (FDI) 2005 --- MFIs acknowledged for the first time in the Budget Speech by the Finance Minister “Government intends to promote MFIs in a big way. The way forward, I believe, is to identify MFIs, classify and rate such institutions, and empower them to intermediate between the lending banks and the beneficiaries.” January 2006 --- Announcement of the business correspondent model February 2006 --- Budget Speech by the Finance Minister promises a formal statutory framework for the promotion, development and regulation of the microfinance sector March 2006 --- Comprehensive guidelines by RBI on loan securitization July 2006 --- RBI master circular allows NGOs involved in microfinance to access External Commercial Borrowings (ECB) up to USD 5 million (INR 20.25 crores) during a year. March 2007 --- Finance Minister introduces the “Micro Finance Sector Development and Regulation Bill 2007” in LokSabha Entities in Micro Finance:Indian Microfinance dominated by two operational approaches:  SHG • • Initiated by NABARD through SHG Bank Linkage Program. Largest outreach to microfinance clients in the world.

 MFIs • • Emerged in the late 1990s to harness social and commercial funds. Today the number of Indian MFIs has increased and crossed 1000.

SHGs and MFIs disbursement till 2007- USD 3.7 billions SHGs comprise twenty or fewer members, of whom the majority are women from the poorest castes and tribes. Members save small amounts of money, as little as a few rupees a month in a group fund. Members may borrow from the group fund for a variety of purposes ranging from household emergencies to school fees. Banks typically lend up to four rupees for every rupee in the group fund.

Groups pay a reasonable 12-24% annual rate of interest. Nearly 1.4 million SHGs comprising approximately 20 million women now borrow from banks, which makes the Indian SHG-Bank Linkage model the largest microfinance program in the world. MFI is an organization that offers financial services to low income populations. Almost all of these offer microcredit and only take back small amounts of savings from their own borrowers, not from the general public. Term refers to a wide range of organizations - NGOs, credit unions, cooperatives, private commercial banks and non-bank financial institutions. Microfinance Today In the 1970s a paradigm shift started to take place. The failure of subsidized government or donor driven institutions to meet the demand for financial services in developing countries let to several new approaches. Some of the most prominent ones are presented below. Bank Dagan Bali (BDB) was established in September 1970 to serve low income people in Indonesia without any subsidies and is now “well-known as the earliest bank to institute commercial microfinance”. While this is not true with regard to the achievements made in Europe during the 19th century, it still can be seen as a turning point with an ever increasing impact on the view of politicians and development aid practitioners throughout the world. In 1973 ACCION International, a United States of America (USA) based non-governmental organization (NGO) disbursed its first loan in Brazil and in 1974 Professor Muhammad Yunus started what later became known as the Grameen Bank by lending a total of $27 to 42 people in Bangladesh. One year later the Self-Employed Women’s Association started to provide loans of about $1.5 to poor women in India. Although the latter examples still were subsidized projects, they used a more business oriented approach and showed the world that poor people can be good credit risks with repayment rates exceeding 95%, even if the interest rate charged is higher than that of traditional banks. Another milestone was the transformation of BRI starting in 1984. Once a loss making institution channeling government subsidized credits to inhabitants of rural Indonesia it is now the largest MFI in the world, being profitable even during the Asian financial crisis of 1997 – 1998. In February 1997 more than 2,900 policymakers, microfinance practitioners and representatives of various educational institutions and donor agencies from 137 different countries gathered in Washington D.C. for the first Micro Credit Summit. This was the start of a nine yearlong campaign to reach 100 million of the world poorest households with credit for self-employment by 2005. According to the Microcredit Summit Campaign Report 67,606,080 clients have been reached through 2527 MFIs by the end of 2002, with 41,594,778 of them being amongst the poorest before they took their first loan. Since the campaign started the average annual growth rate in reaching clients has been almost 40 percent. If it has continued at that speed more than 100 million people will have access to microcredit by now and by the end of 2005 the goal of the microcredit summit campaign would be

reached. As the president of the World Bank James Wolfensohn has pointed out, providing financial services to 100 million of the poorest households means helping as many as 500 – 600 million poor people. Need for Micro-Finance: The gap between Demand and Supply Since independence, various governments in India have experimented with a large number of grant and subsidy based poverty alleviation programmes. These programmes were based on grant/subsidy and the credit linkage was through commercial banks only. Hence was adopted the concept of micro-credit in India. Success stories in neighboring countries, like Grameen Bank in Bangladesh, Bank Rakiat in Indonesia, Commercial & Industrial Bank in Philippines etc, gave further boost to the concept in India in the 1980s. India thus adopted the similar model of extending credit to the poorest sector and took a no. of steps to promote micro-financing in the country. Since the 1950s, various governments in India have experimented with a large number of grant and subsidy based poverty alleviation programmes. Studies show that these mandatory and dedicated subsidized financial programmes, implemented through banking institutions, have not been fully successful in meeting their social and economic objectives: The common features of these programmes were:• • • Target orientation Based on grant/subsidy, and Credit linkage through commercial banks.

These programmes:• • • • • Were often not sustainable Perpetuated the dependent status of the beneficiaries Depended ultimately on government employees for delivery Led to misuse of both credit and subsidy and Were treated at best as poverty alleviation interventions.

Who are the clients of micro finance? The typical micro finance clients are low-income persons that do not have access to formal financial institutions. Micro finance clients are typically self-employed, often household-based entrepreneurs. In rural areas, they are usually small farmers and others who are engaged in small income-generating activities such as food processing and petty trade. In urban areas, micro finance activities are more diverse and include shopkeepers, service providers, artisans, street vendors, etc. Micro finance clients are poor and vulnerable non-poor who have a relatively unstable source of income.

Access to conventional formal financial institutions, for many reasons, is inversely related to income: the poorer you are the less likely that you have access. On the other hand, the chances are that, the poorer you are, the more expensive or onerous informal financial arrangements. Moreover, informal arrangements may not suitably meet certain financial service needs or may exclude you anyway. Individuals in this excluded and under-served market segment are the clients of micro finance. As we broaden the notion of the types of services micro finance encompasses, the potential market of micro finance clients also expands. It depends on local conditions and political climate, activeness of cooperatives, SHG & NGOs and support mechanism. For instance, micro credit might have a far more limited market scope than say a more diversified range of financial services, which includes various types of savings products, payment and remittance services, and various insurance products. For example, many very poor farmers may not really wish to borrow, but rather, would like a safer place to save the proceeds from their harvest as these are consumed over several months by the requirements of daily living. Central government in India has established a strong & extensive link between NABARD (National Bank for Agriculture & Rural Development), State Cooperative Bank, District Cooperative Banks, Primary Agriculture & Marketing Societies at national, state, district and village level. The Need in India:• • • India is said to be the home of one third of the world’s poor; official estimates range from 26 to 50 percent of the more than one billion population. About 87 percent of the poorest households do not have access to credit. The demand for microcredit has been estimated at up to $30 billion; the supply is less than $2.2 billion combined by all involved in the sector. Due to the sheer size of the population living in poverty, India is strategically significant in the global efforts to alleviate poverty and to achieve the Millennium Development Goal of halving the world’s poverty by 2015. Microfinance has been present in India in one form or another since the 1970s and is now widely accepted as an effective poverty alleviation strategy. Over the last five years, the microfinance industry has achieved significant growth in part due to the participation of commercial banks. Despite this growth, the poverty situation in India continues to be challenging. Some principles that summarize a century and a half of development practice were encapsulated in 2004 by Consultative Group to Assist the Poor (CGAP) and endorsed by the Group of Eight leaders at the G8 Summit on June 10, 2004: • • Poor people need not just loans but also savings, insurance and money transfer services. Microfinance must be useful to poor households: helping them raise income, build up assets and/or cushion themselves against external shocks.

• • • • • • • •

“Microfinance can pay for itself.”Subsidies from donors and government are scarce and uncertain, and so to reach large numbers of poor people, microfinance must pay for itself. Microfinance means building permanent local institutions. Microfinance also means integrating the financial needs of poor people into a country’s mainstream financial system. “The job of government is to enable financial services, not to provide them.” “Donor funds should complement private capital, not compete with it.” “The key bottleneck is the shortage of strong institutions and managers.” Donors should focus on capacity building. Interest rate ceilings hurt poor people by preventing microfinance institutions from covering their costs, which chokes off the supply of credit. Microfinance institutions should measure and disclose their performance – both financially and socially.

Microfinance can also be distinguished from charity. It is better to provide grants to families who are destitute, or so poor they are unlikely to be able to generate the cash flow required to repay a loan. This situation can occur for example, in a war zone or after a natural disaster. Financial needs and Financial services:In developing economies and particularly in the rural areas, many activities that would be classified in the developed world as financial are not monetized: that is, money is not used to carry them out. Almost by definition, poor people have very little money. But circumstances often arise in their lives in which they need money or the things money can buy. In Stuart Rutherford’s recent book The Poor and Their Money, he cites several types of needs:
• • • •

Lifecycle Needs: such as weddings, funerals, childbirth, education, homebuilding, widowhood, old age. Personal Emergencies: such as sickness, injury, unemployment, theft, harassment or death. Disasters: such as fires, floods, cyclones and man-made events like war or bulldozing of dwellings. Investment Opportunities: expanding a business, buying land or equipment, improving housing, securing a job (which often requires paying a large bribe), etc.

Poor people find creative and often collaborative ways to meet these needs, primarily through creating and exchanging different forms of non-cash value. Common substitutes for cash vary from country to country but typically include livestock, grains, jewellery and precious metals.

As Marguerite Robinson describes in The Microfinance Revolution, the 1980s demonstrated that “microfinance could provide large-scale outreach profitably,” and in the 1990s, “microfinance began to develop as an industry”. In the 2000s, the microfinance industry’s objective is to satisfy the unmet demand on a much larger scale, and to play a role in reducing poverty. While much progress has been made in developing a viable, commercial microfinance sector in the last few decades, several issues remain that need to be addressed before the industry will be able to satisfy massive worldwide demand. The obstacles or challenges to building a sound commercial microfinance industry include: • • • • • • Inappropriate donor subsidies Poor regulation and supervision of deposit-taking MFIs Few MFIs that mobilize savings Limited management capacity in MFIs Institutional inefficiencies Need for more dissemination and adoption of rural, agricultural microfinance methodologies

Role of Microfinance:The micro credit of microfinance progamme was first initiated in the year 1976 in Bangladesh with promise of providing credit to the poor without collateral , alleviating poverty and unleashing human creativity and endeavor of the poor people. Microfinance impact studies have demonstrated that 1. Microfinance helps poor households meet basic needs and protects them against risks. 2. The use of financial services by low-income households leads to improvements in household economic welfare and enterprise stability and growth. 3. By supporting women’s economic participation, microfinance empowers women, thereby promoting gender-equity and improving household well-being. 4. The level of impact relates to the length of time clients have had access to financial services. 1.1 Strategic Policy Initiatives

Some of the most recent strategic policy initiatives in the area of Microfinance taken by the government and regulatory bodies in India are: • • • • • Working group on credit to the poor through SHGs, NGOs, NABARD, 1995 The National Microfinance Taskforce, 1999 Working Group on Financial Flows to the Informal Sector (set up by PMO), 2002 Microfinance Development and Equity Fund, NABARD, 2005 Working group on Financing NBFCs by Banks- RBI


Activities in Microfinance

Microcredit: It is a small amount of money loaned to a client by a bank or other institution. Microcredit can be offered, often without collateral, to an individual or through group lending. 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. 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. 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.
Donors and Banks Micro-Finance Governmentand Banks


Legal Regulations
Implementing Organisations

Banks in India are regulated and supervised by the Reserve Bank of India (RBI) under the RBI Act of
Individual 1934, Banking Regulation Act, Regional Rural Banks Act, and the Cooperative Societies Acts of the

respective state governments for cooperative banks.


Awareness/Promotional Work

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, SHGs 1860, the Indian Trust Act, 1882, or the relevant state acts. There has been a strong reliance on selfregulation for NGO MFIs and as this applies to NGO MFIs mobilizing deposits from clients who also Consolidation of SHGs Micro Enterprise 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 Savings microfinance services for NBFCs registered under the Companies Act so that they are not subject to any capital or liquidityNeeds Consumption requirements if they do not Delivery the deposit taking business. Absence of Credit go into liquidity requirements is concern to the safety of the sector.
Recovery Follow-up Monitoring Income Generation (Sustainable & Growth Oriented) Production Needs Micro Enterprise Promotion and Formation of

Non-Farm Related

Farm Related

DevelopmentSelf-Sustainability of SHGs Finance Process through Micro

Economic Empowerment through use30 Micro-Credit as of an entry point for overall Empowerment

National Financial Institutions


Government Funded Programmes

Donors/Bilateral Projects

Implementing Organisations

Figure 3.1
Resource/Support Organisations Directly engaged in Micro-Finance Indirectly engaged in Micro-Finance


Micro-finance interventions through different organisations

31 Members

Figure 3.2

Microfinance in India At present lending to the economically active poor both rural and urban is pegged at around Rs.7000 crores in the Indian banks’ credit outstanding. As against this, according to even the most conservative

estimates, the total demand for credit requirements for this part of Indian society is somewhere around Rs.2,00,000 crores. Microfinance changing the face of poor India 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 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. A more refined model of micro-credit delivery has evolved lately, which emphasizes the combined delivery of financial services along with technical assistance, and agricultural business development services. When compared to the wider SHG bank linkage movement in India, private MFIs have had limited outreach. However, we have seen a recent trend of larger microfinance institutions transforming into Non-Bank Financial Institutions (NBFCs). This changing face of microfinance in India appears to be positive in terms of the ability of microfinance to attract more funds and therefore increase outreach. In terms of demand for micro-credit or micro-finance, there are three segments, which demand funds. They are:

At the very bottom in terms of income and assets, are those who are landless and engaged in agricultural work on a seasonal basis, and manual labourers in forestry, mining, 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 such as illness. They also need credit for acquiring small productive assets, such as livestock, using which they can generate additional income.

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, a small part of which also serves consumption needs. This segment also needs term credit for acquiring additional productive assets, such as irrigation pumpsets, borewells and livestock in case of farmers, and equipment (looms, machinery) and worksheds in case of non-farm workers.

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. Well these are the people who require money and with Microfinance it is possible. Right now the problem is that, it is SHGs' which are doing this and efforts should be made so that the big financial institutions also turn up and start supplying funds to these people. This will lead to a better India and will definitely fulfill the dream of our late Prime Minister, Mrs. Indira Gandhi, i.e. Poverty. One of the statements is really appropriate here, which is as: “Money, says the proverb makes money. When you have got a little, it is often easy to get more. The great difficulty is to get that little.”Adams Smith. Today India is facing major problem in reducing poverty. About 25 million people in India are under below poverty line. With low per capita income, heavy population pressure, prevalence of massive unemployment and underemployment, low rate of capital formation, misdistribution of wealth and assets , prevalence of low technology and poor economics organization and instability of output of agriculture production and related sectors have made India one of the poor countries of the world. Present Scenario of India: India falls under low income class according to World Bank. It is second populated country in the world and around 70 % of its population lives in rural area. 60% of people depend on agriculture, as a result there is chronic underemployment and per capita income is only $ 3262. This is not enough to provide food to more than one individual. The obvious result is abject poverty, low rate of education, low sex ratio, exploitation. The major factor account for high incidence of rural poverty is the low asset base. According to Reserve Bank of India, about 51 % of people house possess only 10% of the total asset of India .This has resulted low production capacity both in agriculture (which contribute around 22-25% of GDP) and Manufacturing sector. Rural people have very low access to institutionalized credit (from commercial bank). Poverty alleviation programmes and conceptualization of Microfinance: There has been a continuous effort of planners of India in addressing the poverty. They have come up with development programmes like Integrated Rural Development progamme (IRDP), National Rural Employment Programme (NREP), Rural Labour Employment Guarantee Programme (RLEGP) etc. But these progamme have not been able to create massive impact in poverty alleviation. The production oriented approach of planning without altering the mode of production could not but result of the gains of development by owners of instrument of production. The mode of production does

remain same as the owners of the instrument have low access to credit which is the major factor of production. Thus in Nineties National bank for agriculture and rural development(NABARD) launches pilot projects of Microfinance to bridge the gap between demand and supply of funds in the lower rungs of rural economy. Microfinance the buzzing word of this decade was meant to cure the illness of rural economy. With this concept of Self Reliance, Self Sufficiency and Self Help gained momentum. The Indian microfinance is dominated by Self Help Groups (SHGs) and their linkage to Banks. Deprived of the basic banking facilities, the rural and semi urban Indian masses are still relying on informal financing intermediaries like money lenders, family members, friends etc. Distribution of Indebted Rural Households: Agency wise Credit Agency Government Cooperative Societies Commercial banks and RRBs Insurance Provident Fund Other Institutional Sources All Institutional Agencies Landlord Agricultural Moneylenders Professional Moneylenders Relatives and Friends Others All Non Institutional Agencies All Agencies Percentage of Rural Households 6.1 21.6 33.7 0.3 0.7 1.6 64.0 4.0 7.0 10.5 5.5 9.0 36.0 100.0 Table 3.2 Self Help Groups (SHGs) Self- help groups (SHGs) play today a major role in poverty alleviation in rural India. A growing number of poor people (mostly women) in various parts of India are members of SHGs and actively engage in savings and credit (S/C), as well as in other activities (income generation, natural resources management, literacy, child care and nutrition, etc.). The S/C focus in the SHG is the most prominent element and offers a chance to create some control over capital, albeit in very small amounts. The SHG system has proven to be very relevant and effective in offering women the possibility to break gradually away from exploitation and isolation. How self-help groups work NABARD (1997) defines SHGs as "small, economically homogenous affinity groups of rural poor, voluntarily formed to save and mutually contribute to a common fund to be lent to its members as per the group members' decision".

Most SHGs in India have 10 to 25 members, who can be either only men, or only women, or only youth, or a mix of these. As women's SHGs or sangha have been promoted by a wide range of government and non- governmental agencies, they now make up 90% of all SHGs. The rules and regulations of SHGs vary according to the preferences of the members and those facilitating their formation. A common characteristic of the groups is that they meet regularly (typically once per week or once per fortnight) to collect the savings from members, decide to which member to give a loan, discuss joint activities (such as training, running of a communal business, etc.), and to mitigate any conflicts that might arise. Most SHGs have an elected chairperson, a deputy, a treasurer, and sometimes other office holders. Most SHGs start without any external financial capital by saving regular contributions by the members. These contributions can be very small (e.g. Rs.10 per week). After a period of consistent savings (e.g. 6 months to one year) the SHGs start to give loans from savings in the form of small internal loans for micro enterprise activities and consumption. Only those SHGs that have utilized their own funds well are assisted with external funds through linkages with banks and other financial intermediaries. Micro Finance Models 1. Micro Finance Institutions (MFIs): MFIs are an extremely heterogeneous group comprising NBFCs, societies, trusts and cooperatives. They are provided financial support from external donors and apex institutions including the RashtriyaMahilaKosh (RMK), SIDBI Foundation for micro-credit and NABARD and employ a variety of ways for credit delivery. Since 2000, commercial banks including Regional Rural Banks have been providing funds to MFIs for on lending to poor clients. Though initially, only a handful of NGOs were “into” financial intermediation using a variety of delivery methods, their numbers have increased considerably today. While there is no published data on private MFIs operating in the country, the number of MFIs is estimated to be around 800. Legal Forms of MFIs in India Types of MFIs 1. Not for Profit MFIs a.) NGO - MFIs Estimated Legal Acts under which Registered Number* 400 to 500 Societies Registration Act, 1860 or similar Provincial Acts

Indian Trust Act, 1882 b.) Non-profit Companies 10 Section 25 of the Companies Act, 1956 2. Mutual Benefit MFIs 200 to 250 Mutually Aided Cooperative Societies

a.) Mutually Aided Cooperative Societies (MACS) and similarly set up institutions 3. For Profit MFIs a.) Non-Banking Financial 6

Act enacted by State Government

Indian Companies Act, 1956 Reserve Bank of India Act, 1934

Companies (NBFCs) Total 2. Bank Partnership Model

700 – 800 Table 3.3

This model is an innovative way of financing MFIs. The bank is the lender and the MFI acts as an agent for handling items of work relating to credit monitoring, supervision and recovery. In other words, the MFI acts as an agent and takes care of all relationships with the client, from first contact to final repayment. The model has the potential to significantly increase the amount of funding that MFIs can leverage on a relatively small equity base. A sub - variation of this model is where the MFI, as an NBFC, holds the individual loans on its books for a while before securitizing them and selling them to the bank. Such refinancing through securitization enables the MFI enlarged funding access. If the MFI fulfills the “true sale” criteria, the exposure of the bank is treated as being to the individual borrower and the prudential exposure norms do not then inhibit such funding of MFIs by commercial banks through the securitization structure. 3. Banking Correspondents The proposal of “banking correspondents” could take this model a step further extending it to savings. It would allow MFIs to collect savings deposits from the poor on behalf of the bank. It would use the ability of the MFI to get close to poor clients while relying on the financial strength of the bank to safeguard the deposits. This regulation evolved at a time when there were genuine fears that fly-by-night agents purporting to act on behalf of banks in which the people have confidence could mobilize savings of gullible public and then vanish with them. It remains to be seen whether the mechanics of such relationships can be worked out in a way that minimizes the risk of misuse. 4. Service Company Model Under this model, the bank forms its own MFI, perhaps as an NBFC, and then works hand in hand with that MFI to extend loans and other services. On paper, the model is similar to the partnership model: the MFI originates the loans and the bank books them. But in fact, this model has two very different and interesting operational features:

• The MFI uses the branch network of the bank as its outlets to reach clients. This allows the client to be reached at lower cost than in the case of a stand–alone MFI. In case of banks which have large branch networks, it also allows rapid scale up. In the partnership model, MFIs may contract with many banks in an arm’s length relationship. In the service company model, the MFI works specifically for the bank and develops an intensive operational cooperation between them to their mutual advantage.
• The Partnership model uses both the financial and infrastructure strength of the bank to create

lower cost and faster growth. The Service Company Model has the potential to take the burden of overseeing microfinance operations off the management of the bank and put it in the hands of MFI managers who are focused on microfinance to introduce additional products, such as individual loans for SHG graduates, remittances and so on without disrupting bank operations and provide a more advantageous cost structure for microfinance. Bank Led Model The bank led model was derived from the SHG-Bank linkage program of NABARD. Through this program, banks financed Self Help Groups (SHGs) which had been promoted by NGOs and government agencies. ICICI Bank drew up aggressive plans to penetrate rural areas through its SHG program. However, rather than spending time in developing rural infrastructure of its own, in 2000, ICICI Bank announced merger of Bank of Madura (BoM), which had significant presence in the rural areas of South India, especially Tamil Nadu, with a customer base of 1.9 million and 87 branches. Bank of Madura's SHG development program was initiated in 1995. Through this program, it had formed, trained and initiated small groups of women to undertake financial activities like banking, saving and lending. By 2000, it had created around 1200 SHGs across Tamil Nadu and provided credit to them.

Partnership Models A model of microfinance has emerged in recent years in which a microfinance institution (MFI) borrows from banks and on-lends to clients; few MFIs have been able to grow beyond a certain point. Under this model, MFIs are unable to provide risk capital in large quantities, which limits the advances from banks. In addition, the risk is being entirely borne by the MFI, which limits its risk-taking. This model aimed at synergizing the comparative advantages and financial strength of the bank with social intermediation, mobilization power and infrastructure of MFIs and NGOs. Through this model, ICICI Bank could save on the initial costs of developing rural infrastructure and micro credit distribution channels and could take advantage of the expertise of these institutions in rural areas.

Initially, ICICI Bank started off by lending to MFIs and NGOs in order to provide the necessary financial support to their activities. Later, ICICI Bank came up with a plan where the NGO/MFI continued to promote their microfinance schemes, while the bank met the financial requirements of the borrowers. TYPES OF ORGANIZATION These organizations are classified in the following categories to indicate the functional aspects covered by them within the micro finance framework. The aim, however, is not to "typecast" an organization, as these have many other activities within their scope: Microfinance providers in India can be classified under three broad categories: formal, semiformal, and informal. • Formal Sector The formal sector comprises of the bankssuch as NABARD, SIDBI and other regional rural banks (RRBs). They primarily provide credit for assistance in agriculture and micro-enterprise development and primarily target the poor. Their deposit at around Rs.350 billion and of that, around Rs.250 billion has been given as advances. They charge an interest of 12-13.5% but if we include the transaction costs (number of visits to banks, compulsory savings and costs incurred for payments to animators/staff/local leaders etc.) they come out to be as high as 2124%. • Semi - formal Sector The majority of institutional microfinance providers in India are semi-formal organizations broadly referred to as MFIs. Registered under a variety of legal acts, these organizations greatly differ in philosophy, size, and capacity. There are over 500 non-government organizations (NGOs) registered as societies, public trusts, or non-profit companies. Organizations implementing micro-finance activities can be categorized into three basic groups. I. II. III. Organizations which directly lend to specific target groups and are carrying out all related activities like recovery, monitoring, follow-up etc. Organizations who only promote and provide linkages to SHGs and are not directly involved in micro lending operations. Organizations which are dealing with SHGs and plan to start micro-finance related activities. • Informal Sector

In addition to friends and family, moneylenders, landlords, and traders constitute the informal sector. While estimates of their importance vary significantly, it is undeniable that they continue to play a significant role in the financial lives of the poor. These are the organizations that provide support to implementing organizations. The support may be in terms of resources or training for capacity building, counseling, networking, etc. They operate at state/regional or national level. They may or may not be directly involved in micro-finance activities adopted by the associations/collectives to support implementing Organizations. Grameen Bank The Grameen Model which was pioneered by Prof MuhammedYunus of Grameen Bank is perhaps the most well-known, admired and practiced model in the world. The model involves the following elements. • • • • • • • Homogeneous affinity group of five Eight groups form a Centre Centre meets every week Regular savings by all members Loan proposals approved at Centre meeting Loan disbursed directly to individuals All loans repaid in 50 installments

The Grameen model follows a fairly regimented routine. It is very cost intensive as it involves building capacity of the groups and the customers passing a test before the lending could start. The group members tend to be selected or at least strongly vetted by the bank. One of the reasons for the high cost is that staff members can conduct only two meetings a day and thus are occupied for only a few hours, usually early morning or late in the evening. They were used additionally for accounting work, but that can now be done more cost effectively using computers. The model is also rather meeting intensive which is fine as long as the members have no alternative use for their time but can be a problem as members go up the income ladder. The greatness of the Grameen model is in the simplicity of design of products and delivery. The process of delivery is scalable and the model could be replicated widely. The focus on the poorest, which is a value attribute of Grameen, has also made the model a favourite among the donor community. However, the Grameen model works only under certain assumptions. As all the loans are only for enterprise promotion, it assumes that all the poor want to be self-employed. The repayment of loans


starts the week after the loan is disbursed – the inherent assumption being that the borrowers can service their loan from the ex-ante income. SKS Microfinance(CEO-VikramAkula) Many companies say they protect the interests of their customers. Very few actually sit in dirt with them, using stones, flowers, sticks, and chalk powder to figure out if they will be able to repay a $20 loan at $1 a month. With this approach, this company has created its own loyal gang of over 2 million customers. Its borrowers include agricultural laborers, mom-and-pop entrepreneurs, street vendors, home based artisans, and small scale producers, each living on less than $2 a day. It works on a model that would allow micro-finance institutions to scale up quickly so that they would never have to turn poor person away. Its model is based on 3 principles1. Adopt a profit-oriented approach in order to access commercial capital- Starting with the pitch that there is a high entrepreneurial spirit amongst the poor to raise the funds, SKS converted itself to for-profit status as soon as it got break even and got philanthropist Ravi Reddy to be a founding investor. Then it secured money from parties such as Unitus, a Seattle based NGO that helps promote micro-finance; SIDBI; and technology entrepreneur VinodKhosla. Later, it was able to attract multimillion dollar lines of credit from Citibank, ABN Amro, and others. 2. Standardize products, training, and other processes in order to boost capacity- They collect standard repayments in round numbers of 25 or 30 rupees. Internally, they have factory style training models. They enroll about 500 loan officers every month. They participate in theory classes on Saturdays and practice what they have learned in the field during the week. They have shortened the training time for a loan officer to 2 months though the average time taken by other industry players is 4-6 months. 3. Use Technology to reduce costs and limit errors- It could not find the software that suited its requirements, so it they built their own simple and user friendly applications that a computerilliterate loan officer with a 12th grade education can easily understand. The system is also internet enabled. Given that electricity is unreliable in many areas they have installed car batteries or gas powered generators as back-ups in many areas. Scaling up Customer Loyalty Instead of asking illiterate villagers to describe their seasonal pattern of cash flows, they encourage them to use colored chalk powder and flowers to map out the village on the ground and tell where the

poorest people lived, what kind of financial products they needed, which areas were lorded over by which loan sharks, etc. They set people’s tiny weekly repayments as low as $1 per week and health and whole life insurance premiums to be $10 a year and 25 cents per week respectively. They also offer interest free emergency loans. The salaries of loan officers are not tied to repayment rates and they journey on mopeds to borrowers’ villages and schedule loan meetings as early as 7.00 A.M. Deep customer loyalty ultimately results in a repayment rate of 99.5%. Leveraging the SKS brand Its payoff comes from high volumes. They are growing at 200% annually, adding 50 branches and 1,60,000 new customers a month. They are also using their deep distribution channels for selling soap, clothes, consumer electronics and other packaged goods. Marketing of Microfinance Products:1. Contract Farming and Credit Bundling Banks and financial institutions have been partners in contract farming schemes, set up to enhance credit. Basically, this is a doable model. Under such an arrangement, crop loans can be extended under tie-up arrangements with corporate for production of high quality produce with stable marketing arrangements provided – and only, provided – the price setting mechanism for the farmer is appropriate and fair. 2. Agri Service Centre – Rabo India Rabo India Finance Pvt. Ltd. has established agri-service centres in rural areas in cooperation with a number of agri-input and farm services companies. The services provided are similar to those in contract farming, but with additional flexibility and a wider range of products including inventory finance. Besides providing storage facilities, each centre rents out farm machinery, provides agricultural inputs and information to farmers, arranges credit, sells other services and provides a forum for farmers to market their products. 3. Non Traditional Markets Similarly, Mother Dairy Foods Processing, a wholly owned subsidiary of National Dairy Development Board (NDDB) has established auction markets for horticulture producers in Bangalore. The operations and maintenance of the market is done by NDDB. The project, with an outlay of Rs.15 lakh, covers 200 horticultural farmers associations with 50,000 grower


members for wholesale marketing. Their produce is planned with production and supply assurance and provides both growers and buyers a common platform to negotiate better rates. 4. ApniMandi Another innovation is that of The Punjab Mandi Board, which has experimented with a ‘farmers’ market’ to provide small farmers located in proximity to urban areas, direct access to consumers by elimination of middlemen. This experiment known as "ApniMandi" belongs to both farmers and consumers, who mutually help each other. Under this arrangement a sum of Rs.5.2 lakh is spent for providing plastic crates to 1000 farmers. Each farmer gets 5 crates at a subsidized rate. At the mandi site, the Board provides basic infrastructure facilities. At the farm level, extension services of different agencies are pooled in. These include inputs subsidies, better quality seeds and loans from Banks. ApniMandi scheme provides self-employment to producers and has eliminated social inhibitions among them regarding the retail sale of their produce. Commercial banksas Microfinance Vehicles Commercial banks recently have stepped into the realm of microfinance. They have taken tentative but very important steps toward distributing Microfinance loans to the poor. One advantage of these institutions is that they bring in the risks management practices that they regularly use in their commercial operations risk management practices that they regularly use in their commercial operations. The other important aspect they bring in is the professional credit appraisal practices that are used in their normal operations. These important features combined with a mission to provide the poor entrepreneurs will enhance the social lives and they can run their business effectively with proper access to credit. In some cases, successful microfinance NGOs have transformed themselves into for profit commercial banks (BancoSol of Bolivia is a prime example of a microfinance NGO that has successfully transformed itself into a for-profit commercial bank). This transformation from a not-forprofit institution into for-profit organization has increased the focus of these organizations on financial self-sufficiency. This transformation has been possible because commercial banks have entered this arena bringing in key concepts like self-sufficiency, proper credit appraisal and risk management practices. But there are some issues that have to be dealt with by the banks before embarking on the Microfinance journey. They are: 1. Banks Outreach 2. Clarity in objectives

Banks outreach is one of the most crucial aspects that must be critically examined by them before entering into microfinance sector. One reason for it is that most of the commercial banks have little or no rural presence with rate exceptions such as India, where rural banking was a priority and there is a significant presence of commercial banks in the rural areas. They have to decide whether to start their own branches in rural areas if they do not have any or partner with other banks or other microfinance institutions in order to get a foothold in the rural finance sector. The other issue that has to be resolved is the clarity in the bank in dealing with its microfinance operations. They have to decide whether it will be completely independent operation or it will be part of their existing rural banking framework. For example, ICICI bank’s microfinance operation is a completely independent operation and it does not have any link with its commercial banking operation. Once these major issues are sorted out commercial banks will have enough leverage to approach the microfinance sector with confidence.


Microfinance institutions are perhaps one of the most important vehicles to reach the rural poor. These institutions can act as very important tool to provide the rural entrepreneurs with micro-loans, which will help them to start their own businesses and sustain them. One advantage that these institutions have over other financial services delivery vehicles is the focus. While NGOs have to straddle with various non-financial and financial services activities and commercial bank with other operations. MFIs can solely focus on providing the financial service to the poor since the very objective of starting this kind of institution is to provide financial services in the rural areas. There are many examples of MFIs that has done some stellar work in this area such as ACCION International, BancoSol and Grameen Bank. These institutions have helped many people in enhancing their lives and achieving a decent social status in the societies that they are living in. The key advantages that they have over the other forms of microfinance are: • • Focus is solely on providing financial services. It can provide whole gamut of services from loans to insurance.

However, it has also some advantages like sustainability of these institutions. Most of the MFIs including Grameen bank are still donor supported organization and many of them still depend on outside funds for their survival. Only some have like BancoSol have made successful transition from donor supported financially self-sustained organization.


Apart from these there are several other important mechanisms through while microfinance is provided like mutual community groups, regional woman group like Development of Women and Child in Rural Area (DWCRA) and other local organizations. However, they have not played a significant role in the microfinance movement till now and they can play a major role in providing rural financial services in the long run.

ICICI Bank launches new initiative in micro-finance  ICICI Bank has taken a stake of under 20 per cent in Financial Information Network and Operations Private Ltd (FINO), which was launched on Thursday, July 13, 2001.  FINO would provide technological solutions as well as services to finance providers to reach the underserved in the country. ICICI Bank is the lead facilitator.  According to Mr. NachiketMor, Deputy Managing Director, ICICI Bank, FINO is an independent entity. "We would reduce our stake in the company when required," he said.  ICICI Bank expects to target 200 micro-finance institutions (MFIs) by March 2007, he said, speaking on the sidelines of the press conference to launch FINO. At present, the bank has tieups with 100 MFIs.

FINO is an initiative in the micro-finance sector. It would target 300-400 million people who do not have access to basic financial services, said Mr. Manish Khera, CEO, FINO. The company has an authorized capital of Rs.50 crore. MFIs, NBFCs, RRBs, co-operative banks, etc. would directly or indirectly tie up with FINO to use its services, he said. FINO would charge Rs.25-30 per account every year.

Core banking products

FINO has partnered with IBM and i-flex to offer core banking products. It would also provide credit bureau services, which includes individual customer credit rating and analytics based on transaction history. It also launched biometric cards for customers, which would be a proof of identity and give collateral to them. The card would also offer multiple products including savings, loans, insurance, recurring deposits, fixed deposits and remittances. The company would also build-up customer database, thus bringing them into mainstream banking. "There was a need for automated structured data system like FINO," said Mr. Mor. "Essential pieces of infrastructure are missing in India. We lack credit-tracking mechanism; therefore there was a need for an intervention like FINO."

The company expects to reach 25 million customers in five years and two million customers by the end of 2007. FINO aims bringing scale to "micro" business leading to lowering of costs for the local financial institutions (LFIs) and act as an internal technology department for the LFIs, said Mr. Khera. The company is working on providing technological solutions in insurance, especially the health insurance sector to the under-privileged," he said. It is interacting with Nabard, SIDBI and other banks to give shape to what FINO does, said Mr. Khera.

ICICI Bank's thrust on micro-finance


ICICI Bank has entered into partnerships with various microfinance

institutions (MFI) and non-Government organizations (NGOs) to scale up its micro lending business. Addressing presspersons here, today, NachiketMor, Executive Director, ICICI Bank, said, the partnership model would provide assured source of funding to NGOs and MFIs. The bank had extended advances to the tune of Rs.150 crores as on February 29, this year, under this scheme, Mr. Mor said. The bank had acquired a network of self-help groups (SHGs) developed by the erstwhile Bank of Madura after its merger with ICICI Bank. Since then the SHG programme had grown substantially and 10,175 groups had been promoted reaching out to 2.03 lakh women spread across 2,398 villages, the Executive Director said. One of the micro finance institutions, `Microcredit Foundation of India', established by K. M. Thiagarajan, former Chairman of Bank of Madura in 2002, had initiated a programme for microcredit through self-help groups. ICICI Bank has entered into a memorandum of understanding with Microcredit Foundation to outsource SHG development, maintenance of groups, credit linkage and recovery of loans.

Financial Institutions and banks


Microfinance has been attractive to the lending agencies because of demonstrated sustainability and of low costs of operation. Institutions like SIDBI and NABARD are hard-nosed bankers and would not work with the idea if they did not see a long term engagement – which only comes out of sustainability (that is economic attractiveness). On the supply side, it is also true that it has all the trappings of a business enterprise, its output is tangible and it is easily understood by the mainstream. 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. Perhaps the most important factor that got banks involved is what one might call the policy push.Given that most of our banks are in the public sector, public policy does have some influence on what they will or will not do. In this case, policy was followed by diligent, if meandering, promotional work by NABARD. The policy change about a decade ago by RBI to allow banks to lend to SHGs was initially followed by a seven-page memo by NABARD to all bank chairmen, and later by sensitization and training programmes for bank staff across the country. Several hundred such programmes were conducted by NGOs alone, each involving 15 to 20 bank staff, all paid for by NABARD. The policy push was sweetened by the NABARD refinance scheme that offers much more favorable terms (100% refinance, wider spread) than for other rural lending by banks. NABARD also did some system setting work and banks lately have been given targets. The canvassing, training, refinance and close follow up by NABARD has resulted in widespread bank involvement. Moreover, for banks the operating cost of microfinance is perhaps much less than for pure MFIs. The banks already have a vast network of branches. To the extent that an NGO has already promoted SHGs and the SHG portfolio is performing better than the rest of the rural (if not the entire) portfolio, microfinance via SHGs in the worst case would represent marginal addition to cost and would often reduce marginal cost through better capacity utilization. In the process the bank also earns brownie points with policy makers and meets its priority sector targets. It does not take much analysis to figure out that the market for financial services for the 50-60 million poor households of India, coupled with about the same number who are technically above the poverty line but are severely under-served by the financial sector, is a very large one. Moreover, as in any emerging market, though the perceived risks are higher, the spreads are much greater. The traditional commercial markets of corporates, business, trade, and now even housing and consumer finance are being sought by all the banks, leading to price competition and wafer thin spreads. Further, 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.

Finally, both agri-input and processing companies such as EID Parry, fast-moving consumer goods (FMCG) companies such as Hindustan Levers, and consumer durable companies such as Philips have realized the potential of this big market and are actively using SHGs as entry points. Some amount of free-riding is taking place here by companies, for they are using channels which were built at a significant cost to NGOs, funding agencies and/or the government. On the whole, the economic attractiveness of microfinance as a business is getting established and this is a sure step towards mainstreaming. We know that mainstreaming is a mixed blessing, and one tends to exchange scale at the cost of objectives. So it needs to be watched carefully. The RBI will now directly regulate microfinance sector

The Reserve Bank of India has now decided to bunch together the beleaguered microfinance sector as a niche segment within the category of non-banking financial companies (NBFC). This means it will now be the direct regulator of this sector – in line with the recommendations of the Malegam Committee which made recommendations in this regard after the Andhra microfinance fiasco. Under guidelines issued on Friday, the RBI has directed all existing microfinance institutions (MFIs) who can meet its new regulatory norms to register as NBFC-MFIs by April 2012. Those who do not meet the norms cannot, henceforth, lend more than 10 percent of their total assets to the sector. The conditions set for NBFC-MFIs include the following:

They must have minimum net owned funds of Rs.5 crore (Rs.2 crore if they operate in the North-East). Their capital adequacy ratio (CAR) has to be 15 percent. This ratio is the measure of a bank’s capital weighed against its risk assets (loans). Since MFIs in Andhra are stuck up to their necks in bad debts, the RBI has given them a one-year concession in capital adequacy. MFIs with more than 25 percent exposure to Andhra Pradesh need to maintain only 12 percent CAR in the first year.

MFIs cannot lend at more than 26 percent interest, and margins on borrowed funds cannot exceed 12 percent. This means if MFIs can borrow cheap – say at 10 percent – the interest rate cap on lending is 22 percent, and not 26 percent.

As far as lending is concerned, not more than two MFIs can lend to the same borrower while one borrower cannot be a member of two groups simultaneously. The frequency of repayment installments can be decided by the borrower.

• •

MFIs should have higher cutoffs for lending in urban and semi-urban areas. MFIs have to start provisioning for defaults, and loans that are not serviced for more than 90 days should be classified as non-performing.

The Reserve Bank has had to step in because states were beginning to impose their own regulations. This is what happened in Andhra Pradesh, where the state issued an ordinance last October when reports of borrower suicides and unfair debt collection methods were reported. The MFI boom collapsed immediately after the Andhra law was imposed. In its recent report on “Trend and Progress of the Banking in India, 2011-12″, the RBI had expressed concern over states bringing in their own regulations. This was queering the pitch for big MFIs with business across several states since they would have to follow different laws in different states. The collapse of MFIs in Andhra Pradesh also sent a clear warning signal those MFIs needed a single regulatory environment – especially since micro financing is seen as one way of improving financial inclusion. The National Bank for Agriculture and Rural Development (Nabard) was one of the choices for regulating MFIs, but since it has its own lending exposures to rural areas, the mantle finally fell on the RBI itself. The MFI industry is likely to welcome the new norms, barring the one capping interest rates. In the current high interest rate scenario and high default rates, the 26 percent limit will squeeze their margins.


Women as micro and small entrepreneurs have increasingly become the key target group for micro finance programs. Consequently, providing access to micro finance facilities is not only considered a pre-condition for poverty alleviation, but also considered as a strategy for empowering women. In developing countries like INDIA micro finance is playing an important role, promoting gender equality and is helping in empowering women so that they can live quality life with dignity. The study conducted by FINCA Client Poverty Assessment conducted in 2003 revealed that of the interviewed clients 81 percent were women, and it was found that food security was 15 percent higher among their village banking clients than non-clients. The report also showed clients to have 11 percent

more of their children enrolled in school with an 18 percent increase in healthcare benefits. Clients’ housing security was reported as 18 percent higher than non-clients. The assessment concluded that microfinance improved the wellbeing of women clients and their families. Microfinance has a positive effect on the empowerment of women by creating an “empowerment indicator”. These indicators can be based on the following factors: • • • • • • • • • • • • Mobility. Economic security- enables poor women in making them economic agents of change by increasing their income and productivity. Ability to make small purchases. Ability to make larger purchases. Involvement in major household decisions. Relative freedom from domination within the family. Political and legal awareness. Involvement in political campaigning and protests. To access to markets and information. They become more confident. They get a better control of the resources. They can confront systemic gender inequalities


Important among them are as follows: • • • • • • Increase in self-esteem, individual and collective confidence Increase in articulation, knowledge and awareness on health, nutrition reproductive rights, law and literacy Increase an decrease in personal leisure time and time for child care; Increase on decrease of workloads in new programmes Change in roles and responsibility in family & community. Visible increase on decrease in violence on women and girls;

• • • • • • • •

Responses to, changes in social customs like child marriage, dowry, discrimination against widows Visible changes in women's participation level attending meeting, participating and demanding participation Increase in bargaining and negotiating power at home, in community and the collective Increase access to and ability to gather information Formation of women collectives Positive changes in social attitudes Awareness and recognition of women's economic contribution within and outside the household; Women’s decision-making over her work and income

WOMEN’S EMPOWERMENT AND MICRO FINANCE: DIFFERENT PARADIGMS Concern with women’s access to credit and assumptions about contributions to women’s empowerment are not new. From the early 1970s women’s movements in a number of countries became increasingly interested in the degree to which women were able to access poverty-focused credit programmes and credit cooperatives. In India organizations like Self- Employed Women’s Association (SEWA) among others with origins and affiliations in the Indian labour and women’s movements identified credit as a major constraint in their work with informal sector women workers.

a) Feminist Empowerment Paradigm The feminist empowerment paradigm did not originate as a Northern imposition, but is firmly rooted in the development of some of the earliest micro-finance programmes in the South, including SEWA in India. It currently underlies the gender policies of many NGOs and the perspectives of some of the consultants and researchers looking at gender impact of micro-finance programmes (e.g. Chen 1996, Johnson, 1997). Here the underlying concerns are gender equality6 and women’s human rights. Women’s empowerment is seen as an integral and inseparable part of a wider process of social transformation. The main target group is poor women and women capable of providing alternative female role models for change. Increasing attention has also been paid to men's role in challenging gender inequality. Micro-finance is promoted as an entry point in the context of a wider strategy for women’s economic and socio-political empowerment which focuses on gender awareness and feminist organization. As

developed by Chen in her proposals for a sub sector approach to micro credit, based partly on SEWA's strategy and promoted by UNIFEM, microfinance must be: Part of a sectorial strategy for change which identifies opportunities, constraints and bottlenecks within industries which if addressed can raise returns and prospects for large numbers of women. Possible strategies include linking women to existing services and infrastructure, developing new technology such as labour-saving food processing, building information networks, and shifting to new markets, policy level changes to overcome legislative barriers and unionization. Based on participatory principles to build up incremental knowledge of industries and enable women to develop their strategies for change (Chen, 1996). Economic empowerment is however defined in more than individualist terms to include issues such as property rights, changes intra-household relations and transformation of the macro-economic context. Many organizations go further than interventions at the industry level to include gender-specific strategies for social and political empowerment. Some programmes have developed very effective means for integrating gender awareness into programmes and for organizing women and men to challenge and change gender discrimination. Some also have legal rights support for women and engage in gender advocacy. These interventions to increase social and political empowerment are seen as essential prerequisites for economic empowerment.

b) Poverty Reduction Paradigm The poverty alleviation paradigm underlies many NGO integrated poverty-targeted community development programmes. Poverty alleviation here is defined in broader terms than market incomes to encompass increasing capacities and choices and decreasing the vulnerability of poor people. The main focus of programmes as a whole is on developing sustainable livelihoods, community development and social service provision like literacy, healthcare and infrastructure development. There is not only a concern with reaching the poor, but also the poorest. Although term 'empowerment' is frequently used in general terms, often synonymous with a multi-dimensional definition of poverty alleviation, the term 'women's empowerment is often considered best avoided as being too controversial and political.

c) Financial Sustainability Paradigm


The financial self-sustainability paradigm (also referred to as the financial systems approach or sustainability approach) underlies the models of microfinance promoted since the mid-1990s by most donor agencies and the Best Practice guidelines promoted in publications by USAID, World Bank, UNDP and CGAP. The ultimate aim is large programmes which are profitable and fully self-supporting in competition with other private sector banking institutions and able to raise funds from international financial markets rather than relying on funds from development agencies. The main target group, despite claims to reach the poorest, is the ‘bankable poor': small entrepreneurs and farmers. This emphasis on financial sustainability is seen as necessary to create institutions which reach significant numbers of poor people in the context of declining aid budgets and opposition to welfare and redistribution in macro-economic policy. These paradigms do not correspond systematically to any one organizational model of micro-finance. Micro-finance providers with the same organizational form e.g. village bank, Grameen model or cooperative model may have very different gender policies and/or emphases and strategies for poverty alleviation. The three paradigms represent different ‘discourses’ each with its own relatively consistent internal logic in relating aims to policies, based on different underlying understandings of development. They are not only different, but often seen as ‘incompatible discourses’ in uneasy tension and with continually contested degrees of dominance. In many programmes and donor agencies there is considerable disagreement, lack of communication and/or personal animosity and promoted by different stakeholders within organizations between staff involved in micro-finance (generally firm followers of financial self-sustainability), staff concerned with human development (generally with more sympathy for the poverty alleviation paradigm and emphasizing participation and integrated development) gender lobbies (generally incorporating at least some elements of the feminist empowerment paradigm). What is of concern in current debates is the way in which the use of apparently similar terminology of empowerment, participation and sustainability conceals radical differences in policy priorities. Although women’s empowerment may be a stated aim in the rhetoric of official gender policy and program promotion, in practice it becomes subsumed in and marginalized by concerns of financial sustainability and/or poverty alleviation.

Micro Credit and Women's Empowerment


Before 1990's, credit schemes for rural women were almost negligible. The concept of women's credit was born on the insistence by women oriented studies that highlighted the discrimination and struggle of women in having access to credit. However, there is a perceptible gap in financing genuine credit needs of the poor especially women in the rural sector. There are certain misconceptions about the poor people that they need loan at subsidized rates of interest on soft terms, they lack education, skills, capacity to save, credit-worthiness and therefore are not bankable. Nevertheless, the experiences of several SHGs(self-help groups) reveal that rural poor are actually efficient managers of credit and finance. Availability of timely and adequate credit is essential for them to undertake any economic activity rather than credit subsidy. The Government measures have attempted to help the poor by implementing different poverty alleviation programmes but with little success. Since most of them are target-based involving lengthy procedures for loan disbursements, high transaction costs, and lack of supervision and monitoring. Banks often suffer from poor repayment leading to a high level of non-performing assets NPAs (nonperforming assets). Since the credit requirements of the rural poor cannot be adopted on project lending approach as it is in the case of organized sector, there emerged the need for an informal credit supply through SHGS. The rural poor with the assistance from NGOs have demonstrated their potential for self-help to secure economic and financial strength. Various case studies show that there is a positive correlation between credit availability and women's empowerment. Microfinance refers to the provision of financial services to low-income clients, including consumers and the self-employed. Microfinance programmes are currently being promoted as a key strategy for simultaneously addressing both poverty alleviation and women's empowerment. Where financial service provision leads to the setting up or expansion of microenterprises there are a range of potential impacts including: • • • Increasing women's income levels and control over income leading to greater levels of economic independence Access to networks and markets giving wider experience of the world outside the home, access to information and possibilities for development of other social and political roles. Enhancing perceptions of women's contribution to household income and family welfare, increasing women's participation in household decisions about expenditure and other issues and leading to greater expenditure on women's welfare.


The term micro finance is of recent origin and is commonly used in addressing issues related to poverty alleviation, financial support to micro entrepreneurs, gender development etc. There is, however, no statutory definition of micro finance. The taskforce on supportative policy and Regulatory Framework for Microfinance has defined 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”. The term “Micro” literally means “small”. But the task force has not defined any amount. However as per Micro Credit Special Cell of the Reserve Bank Of India , the borrowal amounts up to the limit of Rs.25000/- could be considered as micro credit products and this amount could be gradually increased up to Rs.40000/over a period of time which roughly equals to $500 – a standard for South Asia as per international perceptions. The term micro finance sometimes is used interchangeably with the term micro credit. However while micro credit refers to purveyance of loans in small quantities, the term microfinance has a broader meaning covering in its ambit other financial services like saving, insurance etc. as well. The mantra “Microfinance” is banking through groups. The essential features of the approach are to provide financial services through the groups of individuals, formed either in joint liability or coobligation mode. The other dimensions of the microfinance approach are:• • • • Savings/Thrift precedes credit Credit is linked with savings/thrift Absence of subsidies Group plays an important role in credit appraisal, monitoring and recovery.


Women have been the vulnerable section of society and constitute a sizeable segment of the povertystruck population. Women face gender specific barriers to access education health, employment etc. Micro finance deals with women below the poverty line. Micro loans are available solely and entirely to this target group of women. There are several reason for this: Among the poor , the poor women are most disadvantaged –they are characterized by lack of education and access of resources, both of which is required to help them work their way out of poverty and for upward economic and social mobility. The problem is more acute for women in countries like India, despite the fact that women’s labor makes a critical contribution to the economy. This is due to the low social status and lack of access to key resources. Evidence shows that groups of women are better customers than men, the better managers of resources. If loans are routed through women benefits of loans are spread wider

among the household. Since women’s empowerment is the key to socio economic development of the community; bringing women into the mainstream of national development has been a major concern of government. The ministry of rural development has special components for women in its programmes. Funds are earmarked as “Women’s component” to ensure flow of adequate resources for the same. Besides SwarnagayantiGrameenSwarazgarYojona (SGSY), Ministry of Rural Development is implementing other scheme having women’s component .They are the Indira AwasYojona (IAJ), National Social Assistance Programme (NSAP), Restructured Rural Sanitation Programme, Accelerated Rural Water Supply programme (ARWSP) the (erstwhile) Integrated Rural Development Programme (IRDP), the (erstwhile) Development of Women and Children in Rural Areas (DWCRA) and the JowaharRozgarYojana (JRY).


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) – Bank Linkage Programme, aimed at providing a cost effective mechanism for providing financial services to the “unreached poor”. Based on the philosophy of peer pressure and group savings as collateral substitute , the SHG programme has been successful in not only in meeting peculiar needs of the rural poor, but also in strengthening collective self-help capacities of the poor at the local level, leading to their empowerment. Micro Finance for the poor and women has received extensive recognition as a strategy for poverty reduction and for economic empowerment. Increasingly in the last five years , there is questioning of whether micro credit is most effective approach to economic empowerment of poorest and, among them, women in particular. Development practitioners in India and developing countries often argue that the exaggerated focus on micro finance as a solution for the poor has led to neglect by the state and public institutions in addressing employment and livelihood needs of the poor. Credit for empowerment is about organizing people, particularly around credit and building capacities to manage money. The focus is on getting the poor to mobilize their own funds, building their capacities and empowering them to leverage external credit. Perception women is that learning to manage money and rotate funds builds women’s capacities and confidence to intervene in local governance beyond the limited goals of ensuring access to credit. Further, it combines the goals of financial sustainability with that of creating community owned institutions. Before 1990’s, credit schemes for rural women were almost negligible. The concept of women’s credit was born on the insistence by women oriented studies that highlighted the discrimination and struggle

of women in having the access of credit. However, there is a perceptible gap in financing genuine credit needs of the poor especially women in the rural sector. There are certain misconception about the poor people that they need loan at subsidized rate of interest on soft terms, they lack education, skill, capacity to save, credit worthiness and therefore are not bankable. Nevertheless, the experience of several SHGs reveals that rural poor are actually efficient managers of credit and finance. Availability of timely and adequate credit is essential for them to undertake any economic activity rather than credit subsidy. The Government measures have attempted to help the poor by implementing different poverty alleviation programmes but with little success. Since most of them are target based involving lengthy procedures for loan disbursement, high transaction costs, and lack of supervision and monitoring. Since the credit requirements of the rural poor cannot be adopted on project lending app roach as it is in the case of organized sector, there emerged the need for an informal credit supply through SHGs. The rural poor with the assistance from NGOs have demonstrated their potential for self-help to secure economic and financial strength. Various case studies show that there is a positive correlation between credit availability and women’s empowerment

A real life Examples:Lakshmi, a 22-year-old school dropout, lived in a remote village of Tamil Nadu. Instead of getting married and starting a family like any other village girl of her age in India, she wanted to set up on her own business. Lakshmi started an Internet kiosk in her village, offering services like e-mail, Internet chat and tips on health and education. The kiosk was partially financed by ICICI Bank and was set up in association with n-Logue Communications. Latha, a 29-year-old married woman with three children borrowed Rs.18000 to set up a small provision store in Kothaipalli, a small village, in the north of Andhra Pradesh. Within a year, she started earning Rs.3500 a month from the store. With this money, she was able to provide her children a good education at a local private school. She was a part of a self help group in Andhra Pradesh which received financial assistance from ICICI Bank. These are real-life examples to illustrate how the micro-lending initiatives of ICICI Bank affected the lives of poor women in India.




INTRODUCTION This chapter focuses on the methodology & the techniques used for the collection, classification & tabulation of data. It light on the research problem, the objective of study & its limitaions. OBJECTIVES OF THE STUDY: • • •

To study the impact of micro finance in empowering the social economic status of women and developing of social entrepreneurship. To know about relationship between SHG’s members, micro finance banks and entrepreneur’s women. To clarify the limitation of microfinance programmes as the tool for women’s empowerment and the type of support service necessary to maximize the contribution of microfinance service. To study potential hurdles in the development of women entrepreneurship.

RESEARCH METHODOLOGY Research methodology is a way to systematically solve the problem. It is a game plan for conducting research. In this we describe various steps that are taken by the researcher. “All progress is born of inquiry. Doubt is often better than overconfidence, for it leads to inquiry and inquiry leads to invention.” Research in a common parlance is a search for knowledge. Research is an art of scientific and systematic investigation. Thus research comprises defining and redefining problems, formulating hypothesis or suggested solutions; collecting, organizing and evaluating data, making deductions and reaching conclusions. Research methodology is the arrangement of condition for collection and analysis of data in a manner that aims to combine relevance to the research purpose with economy in

procedure. Research Methodology is the conceptual structure within which research is conducted. It constitutes the blueprint for the collection measurement and analysis of the data. Research methodology is a framework for the study and is used as a guide in collecting and analyzing the data. It is a strategy specifying which approach will be used for gathering and analyzing the data. it also includes time and cost budget since most studies are done under these two constraints. The research methodology includes overall research design, the sampling procedure, the data collection method and analysis procedure.

TYPE OF RESEARCH USED:Descriptive Research In the study descriptive research design has been used. As descriptive research design is the description of state of affairs, as it exists at present. In this type of research the researcher has no control over the variables; he can only report what has happened or what is happening Descriptive research designs are those design which are concerned with describing the characteristics of particular individual or of the group. In descriptive and diagnostic study the researcher must be able to define clearly what he wants to measure and must find adequate method for measuring it. METHOD OF DATA COLLECTION After the research problem has been identified and selected the next step is to gather the requisite data. While deciding about the method of data collection to be used for the researcher should keep in mind two types of data i.e. primary and secondary.





Figure 4.1 Primary Data The primary data are those, which are collected afresh and for the first time, and thus happened to be original in character. We can obtain primary data either through observation or through direct communication with respondent in one form or another or through personal interview.






Figure 4.2 Secondary Data The secondary data on the other hand, are those which have already been collected by someone else and which have already been passed through the statistical processes. When the researcher utilizes secondary data then he has to look into various sources from where he can obtain them. For e.g. books, magazine, newspaper, internet, publications and reports. In this study data have been taken fromvarious secondary sources like: • • • • • Internet Books Magazines Newspapers Journals


Objective 1:-To study the impact of micro finance in empowering the social economic status of women and developing of social entrepreneurship. AmountInCrore/No. in Lakhs
Particular SHG Savingswit h banks as on 31st March Loan disbursed to SHGs during the year Loan outstanding against SHGs as on 31st March Year Total SHGs No. 2009-10 2010-11 2009-10 2010-11 2009-10 2010-11 69.53 74.62 15.87 11.96 48.51 47.87 Amount 6198.71 7016.30 14453.3 14547.73 28038.28 31221.17 All Women SHGs No. 53.10 60.98 12.94 10.17 38.98 39.84 Amount 4498.66 5298.65 12429.37 12622.33 23030.36 26123.75 % ofWomanGroups No. 76.4 81.7 81.6 85 80.30 83.2 Amount 72.6 75.5 86 86.8 82.1 83.7

Table 5.1 Total No. of Loan disbursed:Particular 2009-10


Total SHGs All Women SHGs


11.96 10.17

Table 5.2

Figure 5.1 Total Amount of loan disbursed:Particular Total SHGs All Women SHGs 2009-10 6198.71


5298.65 Table 5.3

Figure 5.2

INTERPRETATION: - According to main objective to know the economic and social development of women entrepreneurship. Above table show the economic development of women. In 2009-10loans disbursed amount to women is 12429.37crore and 2010-11 is 12622.33crore. In 2009-10 SHG Savings amount to women is 4498.66crore and 2010-11 is 5298.65crore and in 2009-10 loan outstanding Details of SHGs Saving linked Out Of Total SHGs- Exclusive Sr. with Banks Women SHGs Name of The Bank No. Of No. of Saving No. Of No. of Saving No. SHGs Members Amount SHGs Members Amount Delhi 1 2 3 4 5 6 7 8 Allahabad Bank Bank of Baroda Bank of India Indian Bank Central Bank of India Syndicate Bank Punjab National Bank State Bank of India 30 383 35 815 8 19 760 751 320 3775 552 8956 80 173 7600 9012 14.00 62.83 6.73 43.59 0.30 2.58 108.42 31.00 30 377 35 789 8 16 705 751 320 3685 552 8675 80 165 7050 9012 14.00 60.96 6.73 38.39 0.30 2.54 103.99 31.00

amounts to women is 23030.36crore and 2010-11 is 26123.75crore. That shows the economic development of women.

Objective 2:-To know about relationship between SHG’s members, micro finance banks and entrepreneur’s women. Savings of SHGs with public sector commercial banks as on 31st March 2011 Amount Rs. Lakh Table 5.4


Amount Rs. Lakh Details of SHGs Saving linked with Banks No. Of SHGs No. of Members Saving Amount Out Of Total SHGs- Exclusive Women SHGs No. Of SHGs No. of Members Saving Amount

Sr. No. Punjab 1 2 3 4 5 6 7 8

Name of The Bank

Allahabad Bank Bank of Baroda Bank of India Canara Bank Central Bank of India Punjab & Sind Bank Punjab National Bank State Bank of India

304 150 374 159 540 1113 4315 3944

3040 1200 4452 1936 6022 11744 46575 47328 Table 5.5

9.40 50.30 25.43 9.53 64.42 50.89 2041.77 89.00

95 142 271 137 354 745 2105 3156

950 710 3253 1502 4106 7911 22073 37872

2.94 24.50 18.76 7.28 42.06 31.08 183.38 71.00


Sr. No.

Name of The Bank

Details of SHGs Saving linked with Banks No. Of SHGs No. of Members Saving Amount

Out Of Total SHGs- Exclusive Women SHGs No. Of SHGs No. of Members SavingAmount

Haryana 1 2 3 4 5 6 7 8 Bank of Baroda Bank of India Canara Bank Central Bank of India Indian Bank Punjab & Sind Bank Punjab National Bank State Bank of India 152 139 453 482 114 704 10703 4984 725 1398 4925 5296 1710 7040 109260 59808 16.00 42.15 52.25 28.72 3.63 49.76 7002.82 207.00 129 31 390 350 114 411 8037 4190 350 290 4052 3844 1710 4110 84148 50280 2.60 2.20 37.59 19.14 3.63 28.57 4264.17 170.00

Amount Rs. Lakh

Table 5.6


Amount Rs. Lakh Details of SHGs Saving linked with Banks No. of SHGs No. of Members Saving Amount Out of Total SHGs- Exclusive Women SHGs No. Of SHGs No. of Members Saving Amount

Sr. No.

Name of The Bank

Himachal Pradesh 1 2 3 4 5 6 7 8 Bank of India Canara Bank Central Bank of India Indian Bank Punjab & Sind Bank Punjab National Bank State Bank of India UCO Bank 46 118 412 39 92 18049 6794 993 465 1440 4244 585 920 182407 81528 11432 Table 5.7 INTERPRETATION:-There are four states which show the relationship between Banks SHGs and women SHGs. According to above table it show the total saving of women SHGs with total SHGs and total saving of SHGs with banks. There are more % of women SHGs saving out of total SHGs saving. In Delhi region 2010-11 highest SHG Savings amount to women in Punjab national bank is 103.99 lakh and lowest in Central Bank of India is 0.30 lakh. In Punjab region 2010-11 highest SHG Savings amount to women in Punjab National Bank is 183.38 lakh and Lowest in Allahabad Bank is 2.94 lakh.In Haryana region 2010-11 highest SHG Savings amount to women in Punjab National Bank is

11.50 4.65 48.21 2.37 11.62 1127.80 126.00 333.19

0 118 324 39 53 12301 5436 760

0 1440 3382 585 530 123010 65232 8680

0.00 4.65 33.68 2.37 6.73 946.24 100.00 259.91

4264.17 lakh and Lowest in Bank of India is 2.20 lakh. In Himachal Pradesh region 2010-11 highest SHG Savings amount to women in Punjab National Bank is 946.24 lakh and Lowest in Bank of India is 0.00 Lakh. It shows the good relationship of women SHGs with SHGs group and banks.

Objective 3:- To clarify the limitation of microfinance programmes as the tool for women’s empowerment and the type of support service necessary to maximize the contribution of microfinance service.

Figure 5.3 CHALLENGES FACED BY THE WOMEN ENTREPRENEURS Challenges are faced by the women entrepreneurs due to many reasons. Some of the challenges faced by the women entrepreneurs include• • Intense competition from similar products, limited knowledge, production and quality standards as well as low confidence and morale. Many women started their own business due to the adverse circumstances, such as loss of spouses, divorce or financial hardship.

• • • • • • • • • • • • • •

Lack of follow up and holding support (i.e. Capital, market linkages, technical information and marketing techniques) after receiving Entrepreneurship development training. A risk averse mindset. Inadequate capital. Networking problem (i.e. with raw supplier to buyer of products) Insufficient management and marketing skills. Low level of motivation and courage. Lack of support from male members (of the families) as well as banks Large magnitude of the target group of poor people. Attitudinal rigidities. Difficulty in creating awareness among people. Limited resources with the NGOs. Large requirements of training and sensitization of issues. Limited number of experienced intervention agencies. Diversities of situations due to wide coverage.

OVERCOMING THE CHALLENGES The challenges faced by the women entrepreneurs can be overcome with the help of the following measures• • • • • • • • Creating the Importance of Entrepreneurship program and skills training, and MF and support under single roof. Training programme operating in several states helped NGOS-MFIs provide their microfinance clients different set of skills for successfully running enterprises. Provide micro credit for livelihood support and to micro enterprises development. Encouraging women entrepreneur to utilize the loans for productive purposes and have the potential to become entrepreneur. Establishing a network of SHG to serve as a “self-help community” for micro enterprises development activities. Social recognition of women leading an enterprise. Developing female mentors, trainers and advisors. Establishing sources of credit.

Objective 4:-To study potential hurdles in the developing of women entrepreneurship. Role of Microfinance Services:70

1. Do not restrict loan use: - Access to financial services provides the poor with the opportunity to accumulate assets, to reduce their vulnerability to shocks (such as illness or death in the household, crop failure, theft, dramatic price fluctuations, the payment of dowries) and to invest in incomegeneration activities. It also enables them to improve the quality of their lives through better education, health and housing. One of the most important roles of access to credit is that it enables the poor to diversify their incomes. Most poor households do not have one source of income or livelihood. Instead they pursue a mix of activities, depending on the season, prices, their health and other contingencies. This may include growing their own food, working for others, running small production or trading businesses, hunting and gathering, and accessing loans. What to do? Microfinance organizations should allow for the fact that microentrepreneurs have a variety of uses for funds, not only for the activity for which a loan is formally given but also for household operations and other family enterprises. It would be too risky for the poor, particularly the poorest of the poor, to invest all their income in a single activity. If the single activity or enterprise failed, the consequences of this would be much greater than if they had several sources of income. Providers of quality financial services recognize this and place relatively few restrictions on loan use. Most microfinance organizations do not monitor client loans to ensure that the loan is being used for its stated purpose because they recognize that it is part of the survival strategy of poor clients to make an on-going stream of economic choices and decisions. The clients themselves know how best to manage their funds. Example: Kamala Rani's diversified activities (Bangladesh). Kamala Rani is an experienced borrower. She has taken loans three times. She invested her small, first loan (1,000 taka) in her husband's business. He trades in bamboo and sells bamboo products in his shop. Kamala also provides labour to make bamboo mats. When she obtained her second loan (2,000 taka), she used it to make large containers for storing crops and other products, which she sells fromhome to wholesalers and villagers. Next she borrowed another 4,000 taka, primarily to buy a cow. She can repay her loan from her profits from selling milk and from her investment in her husband's business. She still makes mats and other bamboo products, which she plans to sell at the end of the year, when the price of the mats will go up. She can take advantage of this increase in the price of the mats because she has other sources of income to make her weekly loan instalment payments. Like other low- income clients, Kamala Rani’s diversified activities enable her to maximize returns from investment. 2. Provide access to financial services, not subsidies:For microenterprises, the most common constraint is the lack of access to working capital to grow their business. Low-income entrepreneurs want rapid and continued access to financial services rather than subsidies, and they are able – and willing – to pay for these services from their profits. Most micro entrepreneurs borrow small amounts for short-term working capital needs. The returns from their economic activities are normally sufficient to pay high interest rates for loans and still make a profit.

Micro entrepreneurs value the opportunity to borrow and save with MFIs since they provide services that are cheaper than those that would normally be available to poor clients or that would be entirely unavailable to them. Moneylenders charge very high interest rates, often many times the rate charged by MFIs, and the moneylenders' terms may not be suited to the borrower. Micro entrepreneurs have consistently demonstrated that they will pay the full interest cost to have continued access to financial services from MFIs. What to do? MFIs cannot afford to subsidize loans. If the organization is to provide loans on an on-going basis, it must charge interest rates that allow it to cover its costs. These costs tend to be high because providing unsecured, small loans costs significantly more than loans in traditional banking. The costs to the institution include operating costs, the cost of obtaining the funds for loans, and the cost of inflation. MFIs cannot rely on governments and donors as long-term sources of funding. They must be able to generate their own income from revenues, including interest and other fees. Since the poor seek continued and reliable access to financial services and are able and willing to pay for it, it is advantageous to both the institution and the clients to charge interest rates that cover the cost of the services Examples: Client demand as an indicator. If clients repay their loans, pay full-cost interest rates and remain in a programme as borrowers or savers, it is a very good indication that they value these services. A detailed, independent review of the microfinance activities of the United Nations Capital Development Fund (UNCDF) in Africa, Asia and Latin America found evidence that poor clients were willing to pay the interest rates necessary to provide these services. “Even when they have to pay the full cost of those services, they use them and come back to use them again and again.” Continued and reliable access to credit and savings services is what is most needed. “Subsidized lending programs provide a limited volume of cheap loans. When these are scarce and desirable, the loans tend to be allocated predominantly to a local elite with the influence to obtain them, bypassing those who need smaller loans.In addition, there is substantial evidence from developing countries worldwide that subsidized rural credit programs result in high arrears, generate losses both for the financial institution administering the programs and for the government or donor agencies, and depress institutional saving and, consequently, the development of profitable, viable rural financial institutions." 3. Financial services contribute to women’s empowerment:Women entrepreneurs have attracted special interest from MFIs because they almost always make up the poorest segments of society, they have fewer economic opportunities, and they are generally responsible for child-rearing, including education, health and nutrition. Given their particularly vulnerable position, many MFIs seek to empower women by increasing their economic position in society. Experience shows that providing financial services directly to women aids in this process. Women clients are also seen as beneficial to the institution because they are seen as creditworthy. Women have generally demonstrated high repayment and savings rates.

What to do? MFIs interested in serving women should understand the specific needs of women clients and attract women as customers. Women often have fewer economic opportunities than men. Women also face cultural barriers that often restrict them to the home (for example, the institution of the veil, or purdah), making it difficult for them to access finance services.Women have more traditional roles in the economy and may be less able to operate a business outside of their homes. Women also tend to have disproportionally large household obligations. Loan sizes may need to be smaller, given that women’s businesses tend to be smaller than men's. They tend to focus on trade, services and light manufacturing. Women's businesses are often based in the home and frequently use family labour. Loans to women should allow women to balance their household and business activities, for example, by not requiring that too much time be spent in meetings and holding meetings in convenient locations. The gender of loan officers may also affect the level of female participation in financial services, depending on the social context. Examples: Women and empowerment. Regardless of culture or national context, impact assessments have found positive results for women with access to financial services. For instance, a study on the impact of microfinance on poverty alleviation in East Africa, conducted by the UNDP MicroSave-Africa programme, found that participation in a microfinance institution "typically strengthens the position of the woman in her family. Not only does access to credit give the woman the opportunity to make a larger contribution to the family business, but she can also deploy it to assist the husband's business and act as the family's banker - all of which increase her prestige and influence within the household." Access to networks and markets giving wider experience of the world outside the home, access to information and possibilities for development of other social and political roles • Enhancing perceptions of women's contribution to household income and family welfare, increasing women's participation in household decisions about expenditure and other issues and leading to greater expenditure on women's welfare •

More general improvements in attitudes to women's role in the household and community Many programmes have had negative as well as positive impacts on women. Where women have set up enterprises this has often led to small increases in access to income at the cost of heavier workloads and repayment pressures.

Within schemes, impacts often vary significantly between women. There are differences between women in different productive activities and between women from different backgrounds.

Positive impact on non-participants cannot be assumed, even where women participants are able to benefit. Women micro-entrepreneurs are frequently in competition with each other and the poorest micro-entrepreneurs may be disadvantaged if programmes do not include them.



• Micro financial institutions play a very important role today to provide the micro finance to the women entrepreneure. Mostly MFI provide the assistance to the women entrepreneur through MFI- bank linkage programme. • SKS is the largest micro financial institute which providing the micro finance through different ways. It also coming up with their IPO to get the more capital to increase their functioning • From the current situation we can understand that today the main focus of micro finance industry is to empower the woman that’s why more loans are provided to woman and on easy terms. • From the total SHG more SHG are coming in which only women are member because women can better run a business and his family. • Narega and SGSY Swaranjyanti Gram SwarojgarYojna are one of the schemes which are introduced by the government to help the poor people Schemes are provided by the government to poor people but there is less people who avail the benefit from these schemes.

There are many challenges face by women to doing the business as entrepreneur like lack of capital, networking problems etc. But these challenges can be overcoming with the help of Provide micro credit for livelihood support and to micro enterprises development, establishing sources of credit.

With the help of relationship data we can see that there are more percentage of women SHGs out of total SHGs. So that is good indicator for women entrepreneur.

The loan distributed data show increase the % of loan amount to women as compare to last year. This show the economic development of women entrepreneur.


Shortage of time was a very big constraint due to which some area of micro finance has been included in the study. • RESOURCE CONSTRAINT Availability of data was a constraint due to which only secondary data is considered, which is available, and also there are some MFIs whose data was not available • SECONDARY DATA All the information available was from secondary sources and data was very vastto analyze properly & accurately • WIDE AREA TO STUDY Study being conducted was very wide & analysis require expertise knowledge & skills which was lacking • NO DIRECT SOURCE OF INFORMATION AVAILABLE The information is collected from indirect sources so in some information data is not available • FUTURE ANALYSIS The whole study was based on historical data which was not much useful in analysis of present and prediction of future.



Traditionally women have been marginalized. A high percentage of women are among the poorest of the poor. Microfinance activities can give them a means to climb out of poverty. Microfinance could be a solution to help them to extend their horizon and offer them social recognition and empowerment. Numerous traditional and informal system of credit that was already in existence before micro finance came into vogue. Viability of micro finance needs to be understood from a dimension that is far broader- in looking at its long-term aspects too. A conclusion that emerges from this account is that micro finance can contribute to solving the problems of inadequate housing and urban services as an integral part of poverty alleviation programmes. The challenge lies in finding the level of flexibility in the credit instrument that could make it match the multiple credit requirements of the low income borrower without imposing unbearably high cost of monitoring its end use upon the lenders. A promising solution is to provide multipurpose lone or composite credit for income generation, housing improvement and consumption support. Consumption loan is found to be especially important during the gestation period between commencing a new economic activity and deriving positive income. India is the country where a collaborative model between banks, NGOs, MFIs and Women’s organizations is furthest advanced. It therefore serves as a good starting point to look at what we know so far about ‘Best Practice’ in relation to micro-finance for women’s empowerment and how different institutions can work together. It is clear that gender strategies in micro finance need to look beyond just increasing women’s access to savings and credit and organizing self-help groups to look strategically at how programmes can actively promote gender equality and women’s empowerment. On the other hand, thank to women's capabilities to combine productive and reproductive roles in microfinance activities and society has


enabled them to produce a greater impact as they will increase at the same time the quality of life of the women micro-entrepreneur and also of her family.

• Credit is important for development but cannot by itself enable very poor women to overcome their poverty. • Making credit available to women does not automatically mean they have control over its use and over any income they might generate from micro enterprises. • In situations of chronic poverty it is more important to provide saving services than to offer credit. • A useful indicator of the tangible impact of micro credit schemes is the number of additional proposals and demands presented by local villagers to public authorities. • Globalization will not be allowed to expand the gap between the rich and the poor. Affluent countries cannot continue to dump aid on needy nations; developing countries must not be permitted to ignore the needs of their impoverished population. • As the poor are vulnerable it is not sufficient for us just to provide micro credit, but to have a series of support systems provided at the appropriate time.
Government can contribute most effectively by setting sound macroeconomic policy that provides stability and low inflation.

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