You are on page 1of 32




I hereby declare that the project titled-A study on MICRO FINANCE submitted to silicon city college of management and commerce (Bangalore University) for the award of BACHELORE OF BUSINESS MANAGEMENT course has been prepared under the guidance of Ms.Shailaja Pai Branch manager,Canara Bank Mahila branch,Bangalore.

This report has been submitted in partial fulfillment of the requirement for the award of Bachelor of Business Management to Silicon City College of management and commerce (Bangalore University) and has not been submitted to any other University /Institution for the award of any degree.




Reg No:10Q8C18004

I take this opportunity to express my great sense of gratitude to my parents and family who have been real source of inspiration and support for me. I am greatful to Prof. B.S.Venkatesh, Director of Silicon City Educational Academy, who has been the back bone in completion of this project.I thank him for extending his co-operation. I express my sincere thanks to my internal guide Ms.SEEMA SHETTY,who has been the torchbearer and has guided me for the successful completion of this project. I also thank all the other faculty members for guiding me. I would like to thank Ms.Shailaja Pai, Branch Manager,Canara Bank Mahila Branch of jaynagar 3rd block, for providing me an opportunity to do a project. I also thank Mr.Shivaraj,assistant,Canara Bank Mahila Branch, who inspite of busy schedule helped and guided me for the completion of this project. Lastly I thank all the staffs and employees for providing such valuable information which became basis for this project.



Micro finance Meanings Definitions Advantages Disadvantages Classifications Contents




Research Design Data collection Primary Data Secondary Data Tools used for Data Collection Scope of the study Objectives of the study Limitations of the study


CHARTER3 Introduction and History Board of Directors Achievements & Awards

Product Development Mission and vision Customer Relationship Management Types of Insurance services Risk Management


CHAPTER4 Introduction Types of analysis Importance of Data Analysis Tools for Data Analysed Interpretation Of Data


Findings Suggestions Results Summary conclusion


CHAPTER6 Annexure Bibliography Appendix



A bank is a institution, which deals in money. It accepts deposits from the public and creates credit with a view to lend or invest. The word bank is derived from the words bancus or banquet that is a bench. The early bankers ,the jews in Italy transacted their business on benches in the market places, when a banker failed, his bench was broken into pieces by the people which indicated the bankruptcy of the individual banker. but this explanation was turned out on the ground that the Italian money changes as such were never called bankers in the middle ages . some others say that the word banks originally derived from the German WORD PACK meaning a joint stock fund, which was italianised into Banco when the Germans were masters of a great part of Italy . According to professor Rama Chandra Rao, what ever be the origin of the word bank, it would trace the history of banking in Europe from the middle ages. A bank is a financial institution and a financial intermediatary that accepts deposits and channels those deposits into lending activities, either directly by loaning or indirectly through capital markets. A bank is a connection between customers that have capital deficits and customers with capital surpluses. Due to their influence within a financial system and an economy, banks are generally highly regulated in most countries. Most banks operate under a system known as fractional reserve banking where they hold only a small reserve of the funds deposited and lend out the rest for profit. They are generally subject to minimum capital requirements

which are based on an international set of capital standards, known as the Basel accords.

According to ancient European history, the Babylonians were the earliest people to develop a systematized banking system. It s said that temples of Babylon were used as banks and as such the temples of Ephesus and Delphi were famous great banking institution. The anti religious feelings which developed afterwards led to the collapse of public confidence in depositing money in temples and the priest ceased to perform the banking business. Whenever peace and solidarity were threatened, the spread of banking also was affected entirely. However, after the revival of civilization and with the development of social and economic institutions, money transactions also were revived. It was in the 12th century that some banks were established in Venice and Genoa. These banks were simply receiving deposit and lending money to the people. In fact they were not banks of the modern type. The origin of modern banking may be traced to money dealers in Florence who received money in the form of deposits and lend it to business people. At this time, Florence was the center of money market in Europe. In England, money changing became an important function of bankers during the reign of Edward III. Money changing refers to conversion foreign coins into British money this function was performed by the royal exchanger on behalf of the Crown. In another development gold smiths of England prepared the ground for modern banking in England during the period of queen Elizabeth.

the gold smiths used to receive valuables and funds of their customers and issue receipts acknowledging the same. These receipts in course of time became promissory notes. The seizure of a huge sum of money kept as safe custody by the city merchants at royal mint by the government resulted in the establishment of public banking in England. As a result of this royal repudiation, the merchants began to entrust their cashiers with large sums but later they misappropriated their masters money for their own benefit. Finding that their employees had not treated them better than their king, the city merchants decided to keep their cash with the goldsmiths. The main players in the bank are: 1. Banker 2. Customer 1.Banker: According to sec5 {c} of the banking regulation act 1949, a banker is a person who undertakes business of banking. A banker is a dealer in debt, his own and other peoples. 2.Customer: As regards the customers, there is no legal definition but based on various judgements on sec131/131A of NI act of 1881, a customer means a person who seeks to open account which banker accepts with proper introduction. The relationship is not based on frequency of transactions, and duration.also a person who avails service like safe custody, remittance, locker facility etc. is not considered as a customer.

Banking in one form or the other, was in existence even in ancient times. the writings of Manu and kautilya contain references to banking. The history of banking begins with the first prototype banks of merchants of the ancient world, which made grain loans to farmers and traders who carried goods between cities. Their began around 2000BC in Assyria and Babylonia. Later, ancient Greece and during the roman empire, lenders based in temples made loans and added two important innovations: they accepted deposits and changed money. Archaeology from this period in ancient china and India, also shows evidence of money lending activity. Banking in the modern sense of the word can be traced to medieval and early renaissance Italy. To the rich cities in the north like Florence ,venice and Sialkot genoa. The bardi and Peruzzi families dominated banking in 14th century Florence, establishing branches in Europe.

One of the most famous Italian bank was the medici bank, setup by Giovanni di biccide medici in 1397. the development of banking spread from northern Italy through Europe and a number of important innovatins took place in amsterdam during the dutch republic in 16th century, and in London in the 17th century. In germany, banking dynasties such as welser, fugger and berenberg have played a

central role over centuries. During the 20th century, developments in telecommunications and computing caused major changes to banks operations and let banks dramatically increase in size and geographic spread. The late-2000s financial crisis caused many bank failures, including of some of the worlds largest banks, and much debate about bank regulation.

History of banking depends on the history of money- and on grain-money and food cattle-money used from atleast 9000 BC, two of the earliest things understood as available to barter. Anatolian obsidian as a raw material for stone-age tools being distributed as early as 12500BC, with organized trade occurring in the 9th millionnia. In Sardinia one of the four main sites sourcing the material deposits of obsidian with in the Mediterranean, trade of this were replaced in the third millionnia by trade in copper and silver. The society adapted from one fixed material as value deposits available for trade to another. However, modern banking is of recent origin. It came into existence only after the industrial revolution. The industrial revolution led to the growth of industries and commerce. In order to meet the rapid growth of financial requirement of industries and commerce, joint stock banks came into exitance. So, joint stock banks or modern banks are of recent development.


The nature of banking business can be understood from the following: 1. Intermediaries or middlemen: banks act as middlemen between those members of public who have sufficient funds to be deposited in commercial banks for earning interests and those who need funds, and so, are willing to borrow funds from banks on interest for investment in their business activities. 2. Dealers in debt or financial obligations: the varies types of deposits accepted by commercial banks from varies depositors are the debts or financial obligations incurred by the banks, and are their financial obligations or liabilities to the depositors, and the advances granted by them to borrowers are the debts incurred by the borrowers in favour of banks. 3. Creator of money: Banks are not only dealers in money but also creators of money. 4. Service industry:All the services provided by banks fall under service sector industry, they render a variety of services to the depositors as well as the general public. 5. Network of branches:banks are one of the orders form of financial institution and they have wide network of branches through which they provide their services across the world.

Thus this is the nature of banking business.


Banking in India originated in the last decades first banks were The General Bank of India, which started in 1786, and Bank of Hindustan, which started in 1770; both are now defunct. The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal.

This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company. For many years the Presidency banks acted as quasi-central banks, as did their successors. The three banks merged in 1921 to form the Imperial Bank of India, which, upon India's independence, became the State Bank of India in 1955.

Merchants in Calcutta established the Union Bank in 1839, but it failed in 1840 as a consequence of the economic crisis of 1848-49. The Allahabad Bank, established in 1865 and still functioning today, is the oldest Joint Stock bank in India.(Joint Stock Bank: A company that issues stock and requires shareholders to be held liable for the company's debt) It was not the first though.

That honor belongs to the Bank of Upper India, which was established in 1863, and which survived until 1913, when it failed, with some of its assets and liabilities being transferred to the Alliance Bank of Simla. Foreign banks too started to app, particularly in Calcutta, in the 1860s. The Comptoir d'Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862; branches in Madras and Pondicherry, then a French colony, followed. HSBC established itself in Bengal in 1869. Calcutta was the most active trading port in India, mainly due to the trade of the British Empire, and so became a banking center.

The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in 1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank, established in Lahore in 1895, which has survived to the present and is now one of the largest banks in India.

Around the turn of the 20th Century, the Indian economy was passing through a relative period of stability. Around five decades had elapsed since the Indian Mutiny, and the social, industrial and other infrastructure had improved. Indians had established small banks, most of which served particular ethnic and religious communities.

The presidency banks dominated banking in India but there were also some exchange banks and a number of Indian joint stock banks. All these banks operated in different segments of the economy.

The exchange banks, mostly owned by Europeans, concentrated on financing foreign trade. Indian joint stock banks were generally under capitalized and lacked the experience and maturity to compete with the presidency and exchange banks. This segmentation let Lord Curzon to observe, "In respect of banking it seems we are behind the times. We are like some old fashioned sailing ship, divided by solid wooden bulkheads into separate and cumbersome compartments." The period between 1906 and 1911, saw the establishment of banks inspired by the Swadeshi movement. The Swadeshi movement inspired local businessmen and political figures to found banks of and for the Indian community. A number of banks established then have survived to the present such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank of India.

The fervour of Swadeshi movement lead to establishing of many private banks in Dakshina Kannada and Udupi district which were unified earlier and known by the name South Canara ( South Kanara ) district. Four nationalised banks started in this district and also a leading private sector bank. Hence undivided Dakshina Kannada district is known as "Cradle of Indian Banking". During the First World War (19141918) through the end of the Second World War (19391945), and two years thereafter until the independence of India were challenging for Indian banking. The years of the First World War were turbulent, and it took its toll with banks simply collapsing despite the Indian economy gaining indirect boost due to war-related economic activities.

The partition of India in 1947 adversely impacted the economies of Punjab and West Bengal, paralyzing banking activities for months. India's independence marked the end of a regime of the Laissez-faire for the Indian banking. The Government of India initiated measures to play an active role in the economic life of the nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed economy. This resulted into greater involvement of the state in different segments of the economy including banking and finance. The major steps to regulate banking included:

The Reserve Bank of India, India's central banking authority, was established in April 1935, but was nationalized on January 1, 1949 under the terms of the Reserve Bank of India (Transfer to Public Ownership) Act, 1948 (RBI, 2005b).

In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in India".

The Banking Regulation Act also provided that no new bank or branch of an existing bank could be opened without a license from the RBI, and no two banks could have common directors.


The IT revolution had a great impact in the Indian banking system. The use of computers had led to introduction of online banking in India. The use of the modern innovation and computerisation of the banking sector of India has increased many fold after the economic liberalisation of 1991 as the country's banking sector has been exposed to the world's market.The Indian banks were finding it difficult to compete with the international banks in terms of the customer service without the use of the information technology and computers.

The RBI in 1984 formed Committee on Mechanisation in the Banking Industry (1984)whose chairman was Dr C Rangarajan, Deputy Governor, Reserve Bank of India. The major recommendations of this committee was introducing MICR Technology in all the banks in the metropolis in India.This provided use of standardized cheque forms and encoders. In 1988, the RBI set up Committee on Computerisation in Banks (1988) headed by Dr. C.R. Rangarajan which emphasized that settlement operation must be computerized in the clearing houses of RBI in Bhubaneshwar, Guwahati, Jaipur, Patna and Thiruvananthapuram. It further stated that there should be National Clearing of intercity cheques at Kolkata,Mumbai,Delhi,Chennai and MICR should be made Operational.It also focused on computerisation of branches and increasing connectivity among branches through computers.

It also suggested modalities for implementing on-line banking.The committee submitted its reports in 1989 and computerisation began form 1993 with the settlement between IBA and bank employees' association. In 1994, Committee on Technology Issues relating to Payments System, Cheque Clearing and Securities Settlement in the Banking Industry (1994) was set up with chairman Shri WS Saraf, Executive Director, Reserve Bank of India. It emphasized on Electronic Funds Transfer (EFT) system, with the BANKNET communications network as its carrier. It also said that MICR clearing should be set up in all branches of all banks with more than 100 branches.

Committee for proposing Legislation On Electronic Funds Transfer Electronic banking refers to DOING BANKING by using technologies like computers, internet and networking,MICR,EFT so as to increase efficiency, quick service,productivity and transparency in the transaction.

The recent developments in the banking are: 1. 2. 3. 4. 5. 6. 7. Mobile banking. Tele banking. E-banking. Automated teller machine. Electronic fund transfer. Core banking. Anywhere banking.


Bank is one of the service sector. Its main aim is to render service not a profit. Bank is an institution that deals with the money. Banks plays a vital role in shaping economic destiny of a nation. They collect the scattered savings of the community and make them available for the socially desirable and economically beneficial purposes. They contribute to the growth and stability of economy by providing finance to industrial and commercial activities. According to prof.kinley defines a Bank as An establishment which makes to individuals such advances of money as may be required and safely made and to which individuals entrust money which is not required by them for use. A bank performs two important functions: 1.Accepting the deposits. 2.lending the deposit to the needy people.

According to Dr.H.L.Hart defines a banker as one who, in the ordinary course of his business, honors cheques drawn upon him by persons from and for whome he receives money on current accounts. According to this definition, the essential characteristics of a bank are: i.acceptance or receiving of current account. ii.payment of cheques drawn against those deposits or repayment of those deposits.

According to Sir John paget customer is difined as To constitute a customer, there must be some recongnisable course or habit of dealing in the nature of regular banking business.

According to the Indian banking regulation act of1949 defines the term banking company as any company which transacts the business of banking in India. According to the Indian banking regulation act of 1949 defines the term Banking as Accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheques, draft, order or otherwise. As per this act, the term banking includes not only the above mentioned important activities, but also several other activities, such as the collection of cheques, drafts and bills, remittance of funds, acceptance of safe custody deposits, which are generally referred to as subsidiary services.

From the above definitions, it is clear that a bank is an institution which deals with the public and lends money to the needy also performs a number of agency and general utility services to the customers and the general public as well.collectig and making payments on behalf of the customers, accepting safe custody deposits, underwriting shares and debentures of companies, issuing of letter of credit, travellers cheques etc..are some of the agency and general utility services of a modern bank.

Banks may be classified into six types based on the functions they perform. They are: 1. 2. 3. 4. 5. 6. commercial banks. Industrial banks. Agricultural bank. Exchange banks. Savings bank. Central bank. 1.commercial banks: it is a bank that accepts deposits from the public and provide credit facilities to commerce and industry.since most of the deposits are repayable on demand or after a fixed period, they do not grant long- term loans.they confine themselves to short and mediumterm laons. In addition to these primary functions of accepting deposits and lending funds, modern banks perform a number of agency and general utility functions. The real significance of the commercial banks lies in the fact that they are not merely dealers in money as they lend many times larger than the deposits.a large part of the money in circulation is in the form of bank money. This helps the economic activities of a country. 2.Industrial banks: it is also called as investment banks. Industrial banks are banks which provide long-term finance to industries. They are also called investment banks, as they invest their funds in subscribing to shares

and debentures of industrial concerns.industrial banks are not found in all the countries of the world. In India there are no industrial banks. Instead, special industrial finance corporations have been set up for providing long term finance to industries. 3.Agricultural banks: Agricultural banks are the banks which provide finance to agriculture. These banks are organized on co-operative basis.they extend loans to the members at a relatively reasonable rate of interest. Agricultural banks in India are of two types a) agricultural co-operative societies and b) land mortgage or land development banks. Agricultural co-operative societies provide short term loans to the agriculturists for the purchase of fertilizers, pesticides,seeds, payment of wages etc. land development banks provide long term finance to the farmers for the purchase of agricultural equipments, tractors, construction of wells, making permanent improvement of lands,etc. 4.Exchange banks: Exchange banks specialize in financing the foreign trade.they supply the necessary foreign exchange for the importers and exporters. In many countries, commercial banks themselves undertake foreign exchange business. 5.savings bank: Savings banks are specialized institutions which induce people to save something out of their income. They pool the small savings of poor and middle income sections of the societies. In India, the

savings banks business is performed by the commercial banks and post offices. 7. Central banks: Central bank is a special institution which regulates the entire banking structure and monetary stability. It regulates the note issue. It functions in close co-operation with the government. It maintains internal and external values of currency. In short central bank is a apex bank of the country. The main functions performed by the central banks are: 1.issue of currency notes. 2. central banks act as the banker to the government. it accepts money to the account of state and central government, and makes payments on behalf,carries out their exchange, remittance and other banking operations and manages debts. 3.central bank has been entrusted with the responsibility of maintaining the external value of rupee and for this purpose bank holds gold and forex reserve. 4.controller of credit. 5. central bank act as a bankers bank. Every commercial bank is required to keep with the central bank as cash balance a certain percentage of their time and demand acts as a leader of last resort to them.the banks can borrow money from the central bank during financial crisis by re-discounting eligible bills and against approved securities.


The two mandatory functions performed by the banks are: 1 primary function 2 secondary function

1 receiving of deposits 2 lending of funds 3creation of credit 4 remittance of funds 1 receiving of deposits: The main type of deposits are a)current deposits b)savings bank deposits c)fixed deposits d)recurring deposits 2 lending of funds Lending of funds constitutes the main business of commercial banks. Banks lend funds to the public by the way of : a)loans: a loan is a financial arrangement under which an advance is granted by a bank to a borrower on a separate account called the loan account. When a loan is granted to the borrower at once in a lumpsum either in cash or by the transfer to the credit of his current account. b)overdrafts: an over draft is a financial arrangement under which a current account holder is permitted by the bank to overdraw his

account, to draw more than the amount standing to his credit up to a agreed limit. c)cash credits: a cash credit is a financial arrangement under which a borrower is allowed to advance under a separate account called as cash credit account up to a specified limit called the cash credit limit. In the case of a cash credit, the borrower need not withdraw the whole amount at once in one lumpsum. He can withdraw the amount in installments as and when he needs money. d)discounting of bills of exchange: discounting of bill is an arrangement under which a bank takes a bill of exchange maturing with in a short period of 60days or 90days from an approved customer and pays him or credit his current account immediately the present value of the bill.then, on the due date the bill the bank receives the face value of the bill from the acceptor of the bill. In case the bill is dishonored by the acceptor the bank recovers the amount from the customer who has discounted the bill. 3 creation of credit: Credit creation is one of the very important function of bank. Banks are basically manufacturers of money. Creation of credit means expansion of bank deposits by giving loans and advances. 4 remittance of funds: Banks help their customers in transferring funds from one place to another by issuing bank draft, mail transfer etc;

Secondary functions 1 group one:agency function:

They are ; a)purchase and sale of securities b)acting as trustees, executor, administrator. c)payment and collection of subscriptions, dividend, salaries, pension etc; d)acting as attorney 2 group two:general functions: They are : a)travelers cheque:these cheques are usually useful for those who travel frequently. These cheques can be purchased by anyone and the purchaser is supposed to deposit money to the issuing bank equivalent to the amount of travellers cheque. b)merchant banking:it includes variety of services, which are provided by non banking agencies and professionals. A number of activities undertaken by merchant bankers like feasibility studies to identify projects, helping in entrepreneurs to get industrial licenses, helping expansion and diversification program of companies. c)safe custody of valuabeles:bank provides safe custody to assets like shares, debentures, bonds, fixed deposits receipts, jewellery etc; bank charge certain amount as bank charges for providing the facility of safe custody to the customer.

d)teller system under this, the teller is authorize to receive cash and make payment upto limited amount without reference to the ledger balance or the specimen signature. e) gifts cheques:bank also sell gift cheque against payment in cash or by debit to accounts.the gifts cheques are usually issued in fixed denominations. These cheques are usually given as gift and these can be drawn even by non account holders. f)credit cards: these cards are basically issued to current and savings account holders, free of charge. The holders of credit cards are able to purchase gooda and services upto a certain amount without making immediate payment. g)tax consultancy: banks provide consultancy services to enable the tax payers to pay tax on time. h)underwriting of securities:banks takes the job of underwriting a portion of the issues of public undertakings.they also underwrite shares and debentures of joint stock company. I)housing finance:banks advice loans directly to the parties or advance housing loans indirectly to state housing boards or urban development corporations. j)factoring:it is an agreement between bank institution and business concern. k)leasing finance:it is a method of financing equipment and is a mechanism where in a person can through a bank acquire an asset for its used by paying a pre-determined amount called rental over a period of time.

L)letter of credit:it refers to letter issued by the importer bank in fovour of the exporter authorizing him to supply goods and draw bills upto a certain amount. m)foreign exchange activities:banks perform a following activities with respect of foreign trade.i)important packing facilities.ii) issue of solvency certificate.iii)dissemination of trade information.etc. n)consultancy functions:banks undertake the number of consultancy services like helping small scale industries in providing information about availability of assistance like marketing, technical and financial etc.


The need and importance of bank or banking are: 1. Mobilisation of savings: banks mobilize the small savings of the people and make them available for the socially desirable sectors. Thus they contribute for the capital formation. 2. Financing industry: banks provide finance to the industries.they provide short term, long term and medium term loans to industries. 3. Finance trade: the commercial banks provide finance both for internal and external trade. They provide loans to retailers, wholesalers, importers, exporters for meeting their financial requirements. 4. development of capital market: commercial banks underwrite the shares and debentures of public limited companies. They have also gone in for mutual funds. This has further strengthened the capital market. 5. financing agriculture: commercial bank provide finance for the agricultural purpose.they provide loans to trade in agricultural commodities.they also provide finance for the small and marginal farmers. 6. financing consumer activities: commercial banks provide finance to consumers for the purchase of houses, vehicles, consumer durables.this helps in raising the standard of living of the people.


Finance is defined in numerous ways by different groups of people. Though it is difficult to give a perfect definition of Finance following selected statements will help you deduce its broad meaning.

1. In General sense, "Finance is the management of money and other valuables, which can be easily converted into cash."

2. According to Experts, "Finance is a simple task of providing the necessary funds (money) required by the business of entities like companies, firms, individuals and others on the terms that are most favourable to achieve their economic objectives."

3. According to Entrepreneurs, "Finance is concerned with cash. It is so, since, every business transaction involves cash directly or indirectly."

4. According to Academicians,

"Finance is the procurement (to get, obtain) of funds and effective (properly planned) utilisation of funds. It also deals with profits that adequately compensate for the cost and risks borne by the business."