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Report submitted in partial fulfilment of the requirement for the

degree of Post Graduate Diploma in Management in

Under the Supervision of

Prof. Dr. Latha Shreeram

Mijjin Oommen
Batch: F2 Roll No: 256

ITM Business School

Plot No. 25/26, Institutional Area
Sector-4 Kharghar Navi Mumbai

ABSTRACT:The purpose of this study was to understand micro finance in India The main objective of this
research paper is analysis to the Microfinance in India as a powerful tool for poverty alleviation.
There are many societies, companies, trusts and bodies corporate and such other institutions
which are engaged in providing micro finance services to the poor households as a
complementary to the banking system. There are two broad approaches that characterize the
microfinance sector in IndiaSHGbank linkage (SBL) and Microfinance Institutions (MFIs).
SBL is a larger model than MFIs in India, contrary to the global practices of other MFIs.
Microfinance total loan growth is estimated to have risen by around 30% year on year in fiscal
2012/13 (April-March). The Central Government have felt that since these institutions lack a
formal statutory framework for providing such micro finance services, The Micro Finance
Institutions (Development and Regulation) Bill, 2012 has passed on 11 February, 2014to provide
a statutory framework for the promotion, development, regulation and orderly growth of such
Micro Finance Institutions (MFIs) and thereby facilitate financial inclusion.

INTRODUCTION:Micro-Finance refers to small savings, credit and insurance services extended to socially and
economically disadvantaged segments of society, for enabling them to raise their income levels
and improve living standards. The main idea behind microfinance is that poor people, who can
provide no collateral, should have access to some sort of financial services.
Microfinance in India new dynamics India is today the world's third-largest economy
(measured in terms of purchasing power) after the US and China. The economic potential of this
country, which has more than 1.2 billion Inhabitants, is, however, far from being exhausted. This
is because around half a billion Indians are still excluded from the formal financial sector. This
enormous excess demand has driven the powerful expansion of the local microfinance sector at
least until three years ago, when it was suddenly disrupted: In October 2010, the government of
the state of Andhra Pradesh decided to prohibit the local microfinance business. This surprising
move was ostensibly motivated by considerations relating to consumer protection. As a result,
borrowers were urged by the government to refuse to repay their loans.
The situation has since eased. The national microfinance sector has emerged from the crisis
stronger than before. It now serves 25 million clients and has been growing by an impressive
30% to 50% per year a rate that appears to be sustainable. The effective measures taken in the
wake of the crisis contributed to this rapid recovery. The sector is now overseen by the Reserve
Bank of India. In addition, well-functioning credit bureaus are providing greater transparency.
Even the key market of India, which has hundreds of millions of vulnerable households, is
expected to grow by around 30% which is roughly the average for the whole region and
represents a faster rate of growth than at any point since 2009 Furthermore, established MFIs
appear to have successfully adapted their operations to the legally prescribed profit margin and
interest rate limits. They have managed to enhance their operational efficiency by taking steps
such as significantly expanding their client base and increasing the average loan volume granted
per loan officer.

Micro financing is not a new concept. Small microcredit operations have existed since the mid1700. Although most modern microfinance institutions operate in developing countries, the rate
of payment default for loans is surprisingly low - more than 90% of loans are repaid. It is not just
a financing system, but a tool for social change, especially for women - it does not spring from
market forces alone - it is potentially welfare enhancing - there is a public interest in promoting
the growth of micro finance - this is what makes it acceptable as a valid goal for public policy.
Over the past few decades, this innovative scheme has attracted a range of non-governmental and
State-sponsored institutions. Leading financial institutions are the Small Industries Development
Bank of India (SIDBI), the National Bank for Agriculture and Rural Development (NABARD)
and the Rashtriya Mahila Kosh (RMK).
Microfinance is the provision of financial services to low -income clients, including consumers
and these self-employed, who traditionally lack access to banking and related services. More
broadly, it is a movement whose object is "a world in which as many poor and near-poor
households as possible have permanent access to an appropriate range of high quality financial
services, including not just credit but also savings, insurance, and fund transfers." Those who
promote microfinance generally believe that such access will help poor people out of poverty.
In the global arena there is already the impression that microfinance is successful in reducing
poverty. Many policy makers are therefore engaged on how to make microfinance sustainable
and available to many poor households in the future.
In the past few years, savings-led microfinance has gained recognition as an effective way to
bring very poor families low-cost financial services. For example, in India, the National Bank for
Agriculture and Rural Development (NABARD) finances more than 500 banks that on-lend
funds to self-help groups (SHGs). SHGs comprise twenty or fewer members, of whom the
majorities are women from the poorest as 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. As SHGs prove capable of
managing their funds well, they may borrow from a local bank to invest in small business or
farm activities. Banks typically lend up to four rupees for every rupee in the group fund. Groups
generally pay interest rates that range from 30% to 70%APR, or 12% to 24% a year, based on the
flat calculation method. Nearly 1.4 million SHGs comprising approximately 20 million women
now borrow from banks, which make the Indian SHG-Bank Linkage model the largest
microfinance program in the world.

LITERATURE REVIEW:These literatures include books written on the subject by experts and also journals, manuals etc.
Mark Schreiner (2003)
A Cost-Effectiveness Analysis of the Garmin Bank of Bangladesh. Reports of the success of the
Garmin Bank of Bangladesh have led to rapid growth in funding for microfinance. But has the
Garmin Bank been cost-effective? This article compares output with subsidy for the bank in a
present-value framework. For the timeframe 198397, subsidy per person-year of membership in

Garmin was about $20, and subsidy per dollar-year borrowed was about $0.22. The Garmin Bank
if not necessarily other micro lenders was probably a worthwhile social investment.
Jonathan Morduch
Leading advocates for microfinance have put forward an enticing win-win proposition:
microfinance institutions that follow the principles of good banking will also be those that alleviate
the most poverty. This vision forms the core of widely-circulated best practices, but as a general
proposition the vision is fully supported neither by logic nor by the available empirical evidence.
Recognizing the limits to the win-win proposition is an important step toward reaching a more
constructive dialogue between microfinance advocates that privilege financial development and
those that privilege social impacts
Although the word of finance in the term of microfinance in core value & the core element of
microfinance are those of the finance discipline has yet to break into the mainstream &
entrepreneur finance literature. The purpose of this article is to introduce the finance academic
community to the discipline of microfinance & microfinance institutions.

Objectives Of the Study:

To study the performance of microfinance in India.

To know about the various institutions that is doing the job of promoting microfinance in

To know the role of Microfinance in removing the poverty of the study.

Research Methodology:The type of research that is being used in this report is the descriptive one as in this particular
type of research the researcher doesnt have any control over the present scenario of the things
that are being studied & we can only study the factors such as HOW,WHO,WHEN,WHAT etc.
Data will be collected through Books and various websites and publications of recent research
papers available in different websites and magazines. Corporate finance Books, Newspapers,
Research Articles, Research Journals, E-Journals, RBI Report, Report of NABARD, The micro
finance institution (development and regulation) bill etc.