IMPACT OF MICRO-CREDIT ³STUDY BASED IN SEMI URBAN AREA OF JALANDHAR´

Submitted to Lovely Professional University In partial fulfillment of the requirements for the award of degree of MASTER OF BUSINESS ADMINISTRATION

Submitted by: Group No: T034 Arshpreet Singh RTI803A14 Karan Wadhera RT1803A16 Sunny RT1803A18 Seema Bhatia RT1803A19

Supervisor: Mr. Ramandeep Singh Deol Lecturer in LIM

DEPARTMENT OF MANAGEMENT LOVELY PROFESSIONAL UNIVERSITY PHAGWARA (2008-2010)

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TO WHOMSOEVER IT MAY CONCERN

This is to certify that the project report titled ³Impact of Micro-credit-Study based in semi-urban area of Jalandhar´ carried out by our group consisting of Arshdeep, Karan Wadhera, Sunny and Seema has been accomplished under my guidance & supervision as a duly registered MBA student of the Lovely Professional University,Phagwara.This project is being submitted by them in the partial fulfillment of the requirements for the award of the Master of Business Administration from Lovely Professional University. Their dissertation represents their original work and is worthly of consideration for the award of the degree of Master of Business Administration.

___________________________________ (Name & Signature of the Faculty Advisor) Date:

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DECLARATION

We, hereby declare that the work presented herein is genuine work, done originally by us and has not been published or submitted elsewhere for the requirement of a degree programme. Any literature, data or works done by others and cited within this dissertation has been given due acknowledgement and listed in the reference section.

Arshdeep Singh_______________________ Karan Wadhera_______________________ Sunny ______________________________ Seema______________________________

Date:__________________

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ACKNOWLEGEMENT We express our deep sense of gratitude & indebtedness to Mr. Ramandeep Singh Deol (Faculty Advisor & Lect. in LIM ), for his invaluable guidance and help in improving the standard and quality of this report. We are very glad to express our utmost gratitude to Mr. Jagit Singh , Mr. Amit Dutt ( lect. in LIM) for their invaluable guidance and help for using SPSS for conducting our research. We are also very thank full to Ms. Sukhwinder Kaur and Mr. Amrit Pal ( Lect. in LIM ) for their guidance regarding the submission of the capstone project.

Arshdeep singh Karan Wadhera. Sunny Seema

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TABLE OF CONTENTS
S.NO. CHAPTER P.No.

1.

Executive summary

6-7

1.

1.Introduction to Micro-Finance««««««««««««««««««««8 8-12 i. ii. iii. iv. Activities in Micro-Finance«««««««««««««««««.«..8 Who are the clients of Micro-Finance?......................................................8-9 Micro-Finance Models««««««««««««««««««.....9-11 Legal forms of MFIs in India«««««««««««««««««12 13-15 16-18 19-42 43-44 45 46

2. 3. 4. 5. 6. 7. 8.

Review of Literature Need,Objectives,Scope and methodology Data Analysis & interpretations Findings & Suggestions Conclusion References Appendix(Questionnaire)

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EXECUTIVE SUMMARY
OBJECTIVE OF THE STUDY

Microfinance has proved to be a successful step towards poverty alleviation and empowerment in rural area and now the time is for semi-urban areas. The objective of this study is to find out how feasible will the replication of micro finance model be in semi-urban area. It also tries to gauge the openness of semi-urban people towards microfinance. The study also compares the effectiveness of microfinance vis-à-vis various sources of finance available, which sources the clients, prefer & which factor do they consider before taking micro-credit & problem faced by people while opting for micro-credit in jalandhar semi-urban area. Micro Financing has greatest scope in India especially in developing semi -urban cities like Jalandhar because many of the people don¶t have high income resulting in low purchasing power and Micro Finance institutions target market as low income group and it is common impression is that the poor people need and use a variety of financial services including deposits, loans etc. they use financial services for some reason like ±     Seize business opportunities To fulfill their need of necessities Improve their standard of living Deal with emergencies like illness etc.

Primary data was collected through questionnaire from people of semi-urban area Semantic Differential Scale was used to understand the degree of satisfaction of below Rs. 15,000 Income level per month regarding various sources of finance. Secondary data was collected through government websites and various websites of banks, newspapers, magazines etc. Analysis was conducted with the help of SPSS software by using One-Way Anova at significance level of 0.05 & MS-Excel

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MAJOR FINDINGS The research stated that, ³The micro-finance is feasible in Jalandhar region´. And most of the people are availing micro-credit in order to do business and to deal with emergencies. For reliable source of finance private and public banks have been regarded as the most suitable one comprising of ICICI bank , HDFC bank , Punjab National Bank and State Bank of Patiala. SUGGESTIONS Its required by banks to open their own MFI in Jalandhar region so that it will be more suitable for the needy people to avail the micro-credit service through it. More of NGO¶s should come forward in Jalandhar region inorder to help the poor and needy people to satisfy their needs.the interest rates charged on micro finance should not be more than 15 %. IMPLICATIONS If a micro-finance institution plans to launch micro finance service in semi-urban areas, it may be successful in terms of having little non-performing assets, however it will first have to popularize the concept, so that the target customers are more open to the idea and understand the relative benefits that it will have over existing sources of finance.

CONCLUSION 
To conclude we can say that its just the beginning of the micro-credit in Jalandhar region and it will of more success when people will rely more towards organized sector for micro-credit such as Public and Private sector banks.  There is need for opening of MFI¶s in Jalandhar region so that micro-credit can be provided with more of ease  Micro-credit can be regarded as tool which will help to eradicate poverty  Help for women upliftment by making them more independent and monitory fit.  Help poor to set²up businesses and earn their livelihood.

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INTRODUCTION TO MICROFINANCE
Microfinance can be defined as financial services targeting and catering to clients who are excluded from the traditional financial system on account of their lower economic status. Microfinance can include micro-credit, micro-savings, micro-insurance and payment services. 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. 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.

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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 nonpoor 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.

MICRO FINANCE MODELS I. 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 Rashtriya Mahila Kosh (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 ³into´ 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. II. Bank Partnership Model 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.

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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 fulfils the ³true 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.

III.

Banking Correspondents The proposal of ³banking 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.

IV.

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:

(a) 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 arms 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.

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(b) 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.

V. SHGs-Bank Linkage Model
NABARD is presently operating three models of linkage of banks with SHGs and NGOs: Model ± 1: In this model, the bank itself acts as a Self Help Group Promoting Institution (SHPI). It takes initiatives in forming the groups, nurtures them over a period of time and then provides credit to them after satisfying itself about their maturity to absorb credit. About 16% of SHGs and 13% of loan amounts are using this model (as of March 2002). Model ± 2: In this model, groups are formed by NGOs (in most of the cases) or by government agencies. The groups are nurtured and trained by these agencies. The bank then provides credit directly to the SHGs, after observing their operations and maturity to absorb credit. While the bank provides loans to the groups directly, the facilitating agencies continue their interactions with the SHGs. Most linkage experiences begin with this model with NGOs playing a major role. This model has also been popular and more acceptable to banks, as some of the difficult functions of social dynamics are externalized. About 75% of SHGs and 78% of loan amounts are using this model. Model ± 3: Due to various reasons, banks in some areas are not in a position to even finance SHGs promoted and nurtured by other agencies. In such cases, the NGOs act as both facilitators and micro- finance intermediaries. First, they promote the groups, nurture and train them and then approach banks for bulk loans for on-lending to the SHGs. About 9% of SHGs and 13% of loan amounts are using this model.

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LEGAL FORMS OF MFIs IN INDIA Table 4.1 Legal forms of MFIs in India Types of MFIs Estimated Number* 1. Not for Profit MFIs a.) NGO - MFIs b.) Non-profit Companies 10 400 to 500 Societies Registration Act, 1860 or similar Provincial Indian Trust Act, 1882 Section 25 of the Companies Act, 1956 Acts Legal Acts under which Registered

2. Mutual

Benefit

MFIs 200 to 250

Mutually Aided Cooperative Societies Act enacted by State Government

a.) Mutually Aided Cooperative Societies (MACS) and similarly set up institutions

3. For Profit MFIs a.) Non-Banking Financial

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

Companies (NBFCs) Total 700 - 800

Source: NABARD website

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REVIEW OF LITERATURE
1. Sayma Rahman, (2010) Consumption difference between Micro-credit borrowers and Non-Borrowers: A Bangladesh Experience. The Journal of Developing areas, Vol.43, Iss 2; p.g. 313, 14 pgs This paper investigates the consumption behavior of borrowers of two major microcredit institutions in Bangladesh and compares that with non-borrowers. Primary data has been collected from borrowers of the Grameen Bank and Bangladesh Rural Advancement Committee (BRAC) operating in three major districts in Bangladesh. Along with borrowers, non-borrowers data has also been collected from non-program village to avoid endogeneity. Control-group method (non-borrowers from non-program villages) has been used to compare the differences in consumption patterns between the two groups. This study analyses the impact of per capita monthly expenditure and other household characteristics on the budget share of eleven items (food and non-food) consumed by borrowers and non-borrowers. Results from the estimation on linear and quadratic model suggest that borrowers of microcredit programs are better off in terms of consumption than non-borrowers. 2. Masahiro Shoji. Does Contingent Repayment in Microfinance Help the Poor During Natural Disasters? The Journal of Development Studies. London: Feb 2010. Vol. 46, Iss. 2; pg. 191 Microfinance¶s in Bangladesh introduced a contingent repayment system beginning in 2002, which allowed rescheduling of savings and instalments during natural disasters for affected members. This paper is one of the first attempts to evaluate the system employing a unique dataset. In using evidence from a flood in 2004, the author found that rescheduling plays the role of a safety net by decreasing the probability that people skip meals during negative shocks by 5.1 per cent. This effect is even higher on the landless and females. This study attempts to contribute to the issue regarding the poverty reduction effect of microfinance¶s.

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3. Sayma Rahman, Rafiqul Bhuyan Rafiq, Mo Vaziri. Microcredit Programs and Consumption Behaviour of the Borrower: Evidence from Bangladesh. Journal of American Academy of Business, Cambridge. Hollywood: Mar 2009. Vol. 14, Iss. 2; p. 83 (10 pages) Microcredit program in Bangladesh provides small loans to rural people especially to women with the purpose of eradicating poverty. This study investigates the impact of microcredit on consumption pattern of borrowers and compares if the impact is the same for non-borrowers. Primary data has been collected from the Grameen Bank and the Bangladesh Rural Advancement Committee (BRAC) borrowers of some selected villages from three major districts in Bangladesh. Data of non-borrowers are collected from the same cohort to provide a control group for comparison with borrowers. To estimate the impact of per capita monthly expenditure and other household characteristics on budget share of items consumed by borrowers and nonborrowers the study relies on An Almost Ideal Demand System (AIDS) model. The estimated results of Iterative Seemingly Unrelated Regression (SURE) suggest that borrowers of microcredit programs are better off in terms of consumption of most of the food and non-food items compared to non-borrowers. 4. Yunus, Banker to the Poor: The Story of Grameen Bank. The Lahore Journal of Economics. Lahore: Summer 2009. Vol. 14, Iss. 1; pg. 173, 3 pgs Loans are given for income-generating work and initially it was decided to influence the clients on their choice of work. The principle of the Grameen Bank system is that the people should not have to go to the bank, rather the bank should go to the people. In comparing Grameen to conventional banks, Yunus states that the difference for one, lies in the fact that their clients do not need to show how large are their savings and how wealthy they may be, instead they need to prove how poor they are and how meagre are their savings. Further, the success of the bank is gauged not by bad debt figures or repayment rates, although this is necessary for their internal records, but whether or not the lives of the clients have improved and they have been extricated from the evils of poverty. The author's economic philosophy is another chapter of great interest. Although not considering himself to be a follower of capitalism per se, he does believe in the global free market economy and the power of the free market. He does not think it right to offer unemployment benefits to
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redress the problem of the poor. All the poor need, he holds, is financial capital. He also advocates competition as a driving force for all innovations. Yunus proposes that we replace the limited profit maximization principle of capitalism with a generalized principle - an entrepreneur who maximizes both profit and social returns. In this way an entrepreneur could run social services such as a health care service for the poor, if financially viable. Such entrepreneurs would be steeped in social consciousness. A willing suspension of disbelief is called for here, as even though one would wish to endorse his views on the goodness of human nature, sadly his philosophy seems to border on the idealistic and ephemeral rather than being a true depiction of man's inherent nature. Yet, so successful has been this venture that it has been replicated with greater or lesser success in other countries of Asia, Africa, Latin America and now even in the US. It has also expanded its spheres of activities to ventures such as housing loans, fisheries and retirement schemes. To conclude, a word on Pakistan's experience with micro finance. Unfortunately this has not been as salubrious as the experience of Bangladesh thus far, for whatever reason. Yet the intended outreach this fiscal year is 3 million poor, up from last year's 2 million. We all live with rampant poverty and our reaction is invariably one of apathy, indifference or resignation that individually there is very little if at all we can do about it. Yunus is that rare individual who not only believes that the evil of poverty can be eradicated but has devoted his entire life's work to realizing this dream.

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NEEDS FOR MICROFINANCE
y Poor people need not just loans but also savings, insurance and money transfer services. y Microfinance must be useful to poor households: helping them raise income, build up assets and/or cushion themselves against external shocks. y ³Microfinance 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. y y Microfinance means building permanent local institutions. Microfinance also means integrating the financial needs of poor people into a country¶s mainstream financial system. y y ³The job of government is to enable financial services, not to provide them.´ ³The key bottleneck is the shortage of strong institutions and managers.´ Donors should focus on capacity building. y Interest rate ceilings hurt poor people by preventing microfinance institutions from covering their costs, which chokes off the supply of credit. y Microfinance institutions should measure and disclose their performance ± both financially and socially.

SCOPE:
Micro Financing has greatest scope in India especially in developing semi -urban cities like Jalandhar because many of the people don¶t have high income resulting in low purchasing power and Micro Finance institutions target market as low income group and it is common impression is that the poor people need and use a variety of financial services including deposits, loans etc. they use financial services for some reason like ±     Seize business opportunities To fulfill their need of necessities Improve their standard of living Deal with emergencies like illness etc.
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OBJECTIVE OF THE STUDY
Microfinance has proved to be a successful step towards poverty alleviation and empowerment in rural area.  The objective of this study is to find out how feasible will the replication of micro finance model be in semi-urban area of Jalandhar. We will also try to gauge the openness of people towards microfinance.  The study shall also measure the effectiveness of microfinance. It is a feasibility study which we intend to share with the people who wish to implement microfinance in Jalandhar region.     What are the various sources available for the micro-finance credit in Jalandhar. Which source the clients prefers the most to avail the facility of micro-credit. What are the major factors for which people are taking micro-credit. What are the problems faced by clients while opting for micro-credit.

HYPOTHESIS
y Micro-Finance is feasible in Jalandhar city.

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RESEARCH METHODOLOGY y RESEARCH TOPIC- ³IMPACT OF MICRO-CREDIT STUDY BASED IN SEMI URBAN AREA OF JALANDHAR´ y RESEARCH TYPEDescriptive research

y DATA COLLECTION TOOLS; -SECONDARY DATA: With the help of websites of various banks and
Govt. websites, magazines, news-papers etc.

-PRIMARY DATA:

By direct interaction with clients and local Non- Banking institutes and money-lenders and with help of questionnaire.

y y y y

SAMPLING TECHNIQUE: Convenience sampling SAMPLING UNIT: SAMPLE SIZE: TOOLS USED FOR THE STUDY:
y Open Ended & Closed Ended Questionnaire with the help of Semantic Differential Scale Jalandhar region(Semi-urban area)

60 Respondents

y

TECHNIQUES OF ANALYSIS Quantitative: One-way Anova & MS-Excel

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DATA ANALYSIS AND INTERPRETATION Part-I I. Have you ever taken micro-credit? OPTION NO. OF RESPONDENTS YES 50 N0 10

Micro-Credit Availed

NO 17%

YES 83%

Interpretation:This shows that most of the respondents we cover were availing the service of micro-credit and thus shows that micro-credit is playing vital role in their life in some or the other way.

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II.

What is your occupation? No. of respondents Occupation Farmer Auto/rikshaw puller Business Service Others 3 9 22 18 8 percentage 5% 15% 37% 30% 13%

occupation

farmer 5%

others 13% service 30%

autorikshawpuller 15%

bussiness 37%

Interpretation:This shows that most of the respondents were indulged in the business and service class contributing about 67% of the total respondents where respondents like farmers are low i.e. just 5% , with auto/rikshaw puller form 13 and 15% respectively.

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III.

What is your income level (Per Month)? No. of respondents 7 17 21 15 Percentage % 12 28 35 25

Income level Below Rs. 5000/Rs.5000-10,000/Rs.10,000-15,000/More Than Rs.15,000/-

Income level

More Than Rs.15,000/25%

Below Rs. 5000/12%

Rs.5000-10,000/28% Rs.10,000-15,000/35%

Interpretation:The basic purpose to ask this question was to know the respondents who belong to income group more than 15000/- were not availing much of the micro-credit facility this question further helped us to conduct our study as only 6 people among this group are availing the service of micro credit where as people belonging to the lowest income group i.e. 7 all are availing this service.

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IV.

Which source you rely the most while taking micro-credit?(50 respondents) No. of respondent 11 13 0 2 16 3 4 1 Percentage % 22 26 0 4 32 6 8 2

Source Local-Money Lenders Public Banks Self-Help Groups Co-Operative banks Private Banks Peers NBFI¶s others

Reliable Source
others 2% NBFI s 8%

Peers 6%

Local-Money Lenders 22%

Private Banks 32%

Public Banks 26%

Co-Operative banks 4%

Self-Help Groups 0%

Interpretation:This shows that most of the respondents rely on private banks followed by public banks contributing about 58% as the reliable source for taking micro-credit and then local money lenders i.e. 22% where as others i.e. NBFC, peers, others contributes about 20% for total respondents where as self-help groups have just 0% showing that self-help groups should be formed in Jalandhar region as we know that self help groups have played a very significant role in the South India for success of micro-finance there.

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V.

What are the reasons for which you have taken micro-finance?(50 respondents) Reasons Seize business opportunities to fulfill needs of necessities Improve standard of living Deal with emergencies like illness etc. No. of respondents 22 10 4 14 Percentage % 44 20 8 28

REASONS

Deal with emergencies like illness etc. 28%

Seize business opportunities 44%

Improve standard of living 8% to fulfill needs of necessities 20%

Interpretation:This shows that most of the respondents takes micro-credit to do some business so that they could earn their livelihood for business the respondents contributes about 44% of the whole respondents followed by to deal with emergencies i.e. 28% where as to improve standard of living and to fulfill necessities contributes about 28% of the total.

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VI.

If you are taking the micro-credit from banks which bank you prefer the most? (50respondents)

Banks ICICI PNB HDFC State Bank of Patiala Punjab Grameen Bank NBFI¶S Others

No. of respondents 12 3 3 18 2 4 8

Percentage % 24 6 6 36 4 8 16

BANKS

Others 16%

ICICI 24%

NBFI S 8% Punjab Grameen Bank 4% PNB 6% HDFC 6%

State Bank of Patiala 36%

Interpretation:This shows that about 32% of the respondents are taking micro-credit from State Bank of Patiala i.e. for 36% of total respondents followed by ICICI Bank contributing about 24% of total where as for others its about 44% which is of NBFI¶s, Punjab Grameen Bank , PNB ,HDFC and others sources.
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VII.

Rate the essence of micro-finance on the scale of 1-5?(60 respondents)

Significant

Scale 1 No. 31 Respondents

2 17

3 8

4 3

5 1

Insignificant

scaling 1to5
35 30 25 20 15 10 Series 1

5 0 Significant 1 2 3 4 5 Insignificant

Interpretation:This shows that as most of the people lie between 1 to 2 rating on scale i.e. about 48 number of respondents therefore we can say that micro-credit will have significant at present in Jalandhar region as people at scaling rate of 4 and 5 are very low i.e. about 4 out of 60 respondents.

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VIII.

How much Interest rates are charged by micro-credit providers? (50 respondents) Interest rates No. of respondents Nil 27 13 3 6 1
more than 25% below 5% 2% 0%

Below 5% 5-10 10-15 15-20 20-25 More than 25

Percentage % Nil 54 26 6 12 2

20 to 25% 12% 15 to 20% 6%

5 to 10% 54% 10 to 15% 26%

Interpretation:This show that most of the respondents are undertaking the micro-credit at the interest rate of 5 to 10 % that contributes about 54% of the total respondents followed by 10 to 15% interest rates which are about 26 % of the respondents. It shows that respondents mostly prefer to take micro-credit at the rate of 5 to 15 percent which accounts for 80% of the total respondents. Whereas micro-credit is not available at a low interest rate of less than 5%.

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IX.

How will you rate the present interest rates being charged on you for taking micro-credit? (50 respondents) Insignificant Significant Scale 1 2 3 4 5 No. 23 14 8 3 2 Respondents

scaling 1to5
25

20

15

Series 1 10

5

0 Satisfactory 1 2 3 4 5 Unsatisfactory

Interpretation:This shows that most of the respondents are satisfied with the present interest rates charged on micro-credits as most of the respondents lie between the rating scale of 1 to 2 i.e. about 37 out of 50 respondents who have undertaken the micro-credit.

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X.

According to you which factor will be more crucial for the growth of micro-finance in Jalandhar city? (50 respondents) FACTOR LOW INTEREST RATES TIME PROCESSING INSTALLMENT FACTOR AVAILABILITY BUSINESS ASSISTANCE OTHERS NO.OF RESPONDENTS 8 12 2 7 18 3 PERCENTAGE % 16 24 4 14 36 6

Factor's

LOW INTEREST RATES 17% BUSINESS ASSISTANCE 38% TIME PROCESSING 26%

AVAILABILITY 15% INSTALLMENT FACTOR 4%

Interpretation:This show that most of the respondents take micro-credit not only to get money for their business but also to get business assistance to run their business successfully, here about 36% of the respondents have stated that the business factor is the most important factor of the micro-credit facility followed by time for processing which is about 26%, then availability, installment factor and low interest rates forms about 38% of the total respondents.

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XI.

Do you think micro-finance is a tool to eradicate poverty? (60 respondents) No. of respondents 39 15 6 Percentage % 59 23 18

Yes No Can¶t say

Can't say 18%

No 23%

Yes 59%

Interpretation:Most of the respondent feels that micro-finance will help to eradicate poverty i.e. about 59% of the respondents as it have helped them to earn their livelihood where as 23% says no and rest 18 % were not able to make their judgment on this issue.

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XII.

Do you think that micro-finance can be helpful for unemployed youth? (60 respondents) No. of respondents 25 27 8 Percentage % 42 45 13

Yes No Can¶t say

Can t say 13%

Yes 42%

No 45%

Interpretation:This shows that majority of the respondents say no i.e. about 45% but 42% says yes it can help youth to remove unemployment as the variation between the two is quite low thus it will be difficult to say whether micro-finance will help to eradicate the problem of unemployment among the youth or not .

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XIII.

Do you think micro-finance can be helpful for women upliftment?(60 respondents) No. of respondents 41 11 8 Percentage % 64 25 11

Yes No Can¶t Say

Can't Say 11%

No 25%

Yes 64%

Interpretation:This shows that most of the respondents says that micro-credit will help in the upliftment of the women as more than 64% of the respondents agree with this statement only 25 % doesn¶t agree with it as the variation is quite high thus we can say that it will help for women upliftment.

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XIV.

How do you anticipate future for micro-finance , rate it between 1-5 ?

Prosperous

Rating 1 scale No. of 26 respondents

2 14

3 9

4 7

5 3

Dim

scaling 1to5
30

25

20

15 Series 1 10

5

0 Prosperous 1 2 3 4 5 Dim

Interpretation:This shows that the future of the micro credit in Jalandhar region is going to be prosperous as most of the respondents are between the scaling rate of 1 to 2 i.e. about 40 out of 60 respondents.

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Part ±II SCALE RATING (50-respondents)  PEERS

RATING SCALE
TIME AVAILABILITY EXPLOITATIVE COURTEOUS EFFICIENT

3 18 7 6 7 1 23 9 11 7 6 3 7 3 5 4 6 2 4 0 1 low 7 6 5 4 3 2 1 high 6 8 9 1 13 2 14 3 9 11 11 0 17

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Interpretation:This show that for peer , most of the respondents for peers are towards the positive side only thus we can say that it can be seen as the favorable source for the taking micro-credit.

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LOCAL MONEY LENDERS

RATING SCALE
TIME AVAILABILITY EXPLOITATIVE COURTEOUS EFFICIENT

2 4 20 7 7 14 21 6 6 11 9 8 7 2 2 5 7 5 4 3 5 8 7 8 12 17 15

12

9

1 0 1 low 7 6

2 1 2 5

4

3

2

1 high

Interpretation:This shows that in terms of availability the local-money-lenders are easy for accessing microfinance but it is highly exploitive in nature, thus it can¶t be regarded as reliable source for poor people who have low wage rate.

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CO_OPERATIVE CREDIT SOCIETIES/ SHG¶s

RATING SCALE
TIME AVAILABILITY EXPLOITATIVE COURTEOUS EFFICIENT

7 7 11 3 11 3 12 12 10 5 3 5 7 5 7 7 4 10 4 6 8 17 5 11 3 3 14 11 8 14

3 1 9

2 2 low 7 6

5

4

3

2

1 high

Interpretation:Through the research we came to know that the general awareness of people towards the SHG is quite low in Jalandhar reign and there is very few SHG here in Jalandhar. The best for such source of micro-credit is that its highly efficient and courteous one and most suitable for poor people.

35 

PRIVATE BANKS

RATING SCALE
TIME AVAILABILITY EXPLOITATIVE COURTEOUS EFFICIENT

15

12

21 9 9 6 7 6 5 4 1 4 3 6 5 7 3 4 3 4 7 4 7 6 3 8 8 8 8 11 13 16 24 12

2 3 1 2 1 low 7

2

1 high

Interpretation:This shows that all the respondents are at the high side , which shows that private banks such as ICICI has been regarded as the most effective and efficient in terms of time and availability for the micro-credit.

36 

PUBLIC BANKS

RATING SCALE
TIME AVAILABILITY EXPLOITATIVE COURTEOUS EFFICIENT

8 12 4 4 12 6 8 12 3 4 8 6 3 7 2 10 4 7 3 8 2 8 8 8 13 9 7 13 5 4 4

6

10

10

2 4 3 2 1 high

low 7

6

5

Interpretation:This shows that most of the respondents are satisfied with the way the Public banks like PNB, Bank of Patiala , all these are moderately rated by the respondents in term of micro-credit facility.

37

PART-III  TEST FOR HYPOTHECATION  Hypothesis 1: ³Micro-finance is feasible in jalandhar city´

Descriptives Sources on people Rely N low interest rate time for processing and sactioning of loans installment factors Availability Business assistance Others Total 8 12 2 7 18 3 50 Mean 1.00 1.75 2.00 2.29 4.11 4.33 2.72 95% Confidence Interval for Mean Std. Error Lower Bound Upper Bound Minimum Maximum .000 .131 .000 .184 .159 1.667 .210 1.00 1.46 2.00 1.83 3.77 -2.84 2.30 1.00 2.04 2.00 2.74 4.45 11.50 3.14 1 1 2 2 3 1 1 1 2 2 3 6 6 6

Std. Deviation .000 .452 .000 .488 .676 2.887 1.485

ANOVA SourceOnPeopleRely Sum of Squares Between Groups Wit hin Groups Total 79.957 28.123 108.080 df 5 44 49 Mean Square 15.991 .639 F 25.019 Sig. .021

38

Contrast Coefficients FactorCrucialForGrowthInJalandhar time for processing and Contra sactioning of st low interest rate loans 1 1 2

installment factors 3

availability -4

Business assistance 1

others -3

Contrast Tests Contr ast SourceOnPeople Assume equal Rely variances Does not assume equal variances 1 1 Value of Contrast -7.53 -7.53 Std. Error 2.566 5.063 t -2.935 -1.487 df 44 2.103 Sig. (2tailed) .005 .039

MEANS PLOT

39

POST Hoc Tests ; multiple comparisons (I) FactorCrucialF orGrowthInJala ndhar (J) FactorCrucialF Mean orGrowthInJala Differen Std. ndhar ce (I-J) Error 95% Confidence Interval Lower Bound

Sig.

Upper Bound

low interest rate time for processing and sactioning of loans installment factors Availability Business assistance Others time for low interest rate processing and installment sactioning of factors loans Availability Business assistance Others installment factors low interest rate time for processing and sactioning of loans Availability Business assistance Others Availability low interest rate

-.750*

.365

.046

-1.49

-.01

-1.000 -1.286* -3.111* -3.333* .750
*

.632 .414 .340 .541 .365 .611 .380 .298 .516 .632

.121 .003 .020 .031 .046 .034 .036 .031 .025 .121

-2.27 -2.12 -3.80 -4.42 .01 -1.48 -1.30 -2.96 -3.62 -.27

.27 -.45 -2.43 -2.24 1.49 .98 .23 -1.76 -1.54 2.27

-.250 -.536 -2.361* -2.583* 1.000

.250

.611

.034

-.98

1.48

-.286 -2.111* -2.333* 1.286*

.641 .596 .730 .414

.050 .001 .003 .003

-1.58 -3.31 -3.80 .45

1.01 -.91 -.86 2.12

40

time for processing and sactioning of loans installment factors Business assistance Others Business assistance low interest rate time for processing and sactioning of loans installment factors Availability Others Others low interest rate time for processing and sactioning of loans installment factors Availability Business assistance

.536

.380

.036

-.23

1.30

.286 -1.825* -2.048* 3.111*

.641 .356 .552 .340

.050 .021 .001 .020

-1.01 -2.54 -3.16 2.43

1.58 -1.11 -.94 3.80

2.361*

.298

.031

1.76

2.96

2.111* 1.825* -.222 3.333*

.596 .356 .499 .541

.001 .021 .050 .031

.91 1.11 -1.23 2.24

3.31 2.54 .78 4.42

2.583*

.516

.025

1.54

3.62

2.333* 2.048* .222

.730 .552 .499

.003 .001 .050

.86 .94 -.78

3.80 3.16 1.23

*. The mean difference is significant at the 0.05 level.

41

INTERPRETATION:  Null hypothesis is rejected as sign 2-tailed value is less than 0.05. Thus, ³Micro-finance is feasible in Jalandhar city´. 

DESCRIPTIVE:  There is more difference in mean of low interest rate & other factors which has the potential for growth of micro-credit in semi-urban area of jalandhar.  ANOVA TABLE:  As the sign 2 tailed value is less than 0.05 i.e. 0.021 ,null hypothesis is rejected and therefore Micro-finance has the potential for growth in Jalandhar,there is more variation between groups  CONTRAST TEST:   As the sign 2 tailed value is less than 0.05,null hypothesis is rejected.  MEAN PLOT DIAGRAM: As we can see there is significant difference in lower interest rate & others factors which people think has the potential for growth of micro-finance in jalandhar.

42

FINDINGS & SUGGESTIONS  FINDINGS 
 H1: micro-credit is feasible in Jalandhar region, as proved by Anova test. Most of the respondents below the income group of more than Rs. 15000/- are taking micro-credit in order to start business, meet need of necessities or to meet certain emergencies.50 out of 60 respondents are under taking this facility of micro-credit.  Most of the respondents are taking micro-credit to start business in order to earn their livelihood and so that they generate some regular source of income for their families. These are about 44 % of the total respondents followed by ot deal with emergencies such as illness etc. which is about 28%.  Most of the respondents rely on both public and private i.e. about 58% of total respondents collectively followed by Local-money lender i.e. about 22%. Showing that respondent¶s reliability towards public and private sector banks is maximum.  Most of the respondents have taken micro-credit from State Bank of Patiala i.e. about 36 % followed by ICICI bank which is about 24 % where as PNB, HDFC and Punjab Grameen Bank are not being regarded as better source for taking micro-credit in Jalandhar.  As the range of micro-credit interest rates is between 5% to 25 % , most of the respondents are paying interest rates between 5 to 15 % which forms about 80% of the total respondents.   Majority of the respondents are happy with the present interest rates being charged on micro-credit. The business assistance factor has been regarded as the most significant factor of the micro-credit which form about 62 % of the total respondents followed by time taken and availability of micro-credit.   About 59% of the total respondents say that, it will help to remove the poverty so it can be seen as tool to remove poverty from Jalandhar region. For being helpful for unemployed youth 45% says no and 42% says yes , as the variation between the two is quite low thus it¶s difficult to judge , therefore we can say it has neutral effect for helping unemployed youth.

43 

    

About 64% of the respondents says that , it will help in women upliftment therefore it can be said it can play a vital role for women upliftment. Peers as the source of micro-credit has been regarded as the most favorable one in terms of time, availability and effectiveness. Local-money-lenders are high at availability but these are highly exploitive. Private Banks such as ICICI, HDFC etc. has been regarded as highly courteous, efficient and but these are a bit high at exploitive part too. Public Banks such as Punjab National Bank, State Bank of Patiala are moderately rated Self Help Groups and Co-operative Societies are highly moderate in nature. 

SUGGESTIONS  People should be make aware about Self-Help Groups and various steps should be taken by various Private and Public banks to form Self Help Groups among masses.   Various NGO¶s should come forward to help poor people by helping them to provide micro-credit at low interest rates and provide them business assistance. People¶s reliability over Local-money-lenders should be tried to decrease as they exploit poor by not only charging high interest rates but also in compounded form.    The interest rates charges shouldn¶t be more than 15% for micro-credit as it should be regarded as a tool for poor¶s upliftment. Public and Private sector Banks should try to open their own MFI¶s in Jalandhar region. There should be MFI¶s such as SSK working in South India, which is not only working successful but also main reason for the success of microfinance in South India.

44

CONCLUSION 
To conclude we can say that its just the beginning of the micro-credit in Jalandhar region and it will of more success when people will rely more towards organized sector for micro-credit such as Public and Private sector banks.  There is need for opening of MFI¶s in Jalandhar region so that micro-credit can be provided with more of ease  Micro-credit can be regarded as tool which will help to eradicate poverty  Help for women upliftment by making them more independent and monitory fit.  Help poor to set²up businesses and earn their livelihood. Thus, we can say that micro-credit is of great significance and it will help poor for their upliftment.

45

References: 

Nabard website            
Anil K Khandelwal, ³Microfinance Development Strategy for India´, Economic and Political Weekly, March 31, 2007 R Srinivasan and M S Sriram, ³Microfinance in India- Discussion´ Shri Y S P Thorat, Managing Director, NABARD, ³Innovation in Product Design, Credit Delivery and Technology to reach small farmers´, November, 2005 Shri Y S P Thorat, Managing Director, NABARD, ³Microfinance in India: Sectoral Issues and Challenges´, May, 2005 Report, ³Status of Microfinance in India 2006-2007´, NABARD http://www.microfinancegateway.org/p/site/m/ http://www.microfinancegateway.org/p/site/m/ brijj.com/group/microfinance-in-india--presentation--Nabard-And-Microfinance http://www.infibeam.com/Books/info/PRABHU-GHATE/MICROFINANCE-IN-INDIAA-State-of-the/9788178298931.html http://www.merinews.com/article/microfinance-fact-and-fiction/147023.shtml http://www.rediff.com/money/2007/nov/08micro.htm http://www.axisbank.com/corporate/credit/microfinance/Micro-Finance.asp

46

QUESTIONAIRE Part -I SECTION I: The answers to your survey will remain anonymous and confidential. The answers are meant for survey purpose only to help us understand the impact of micro-credit on livelihood of people. Personal Information NAME: __________________________________________ ADDRESS: ____________________________________________________________ _____________________________________________________________ AGE: ________________ SEX: SECTION II: XV. Have you ever taken micro-credit? Yes XVI. No MALE FEMALE

What is your occupation? Farming Business Auto-rickshaw Servicemen other____________

XVII.

What is your income level (Per Month)? Below Rs. 5000/Rs.10,000-15,000/Rs.5000-10,000/More Than Rs.15,000/-

XVIII.

Which source you rely the most while taking micro-credit? Local-Money Lenders Self-Help Groups Private Banks Public Banks Co-Operative banks Peers
47

Non-Banking Financial Institute¶s XIX.

others____________________

What are the reasons for which you have taken micro-finance? Seize business opportunities Improve standard of living to fulfill needs of necessities Deal with emergencies like illness etc.

XX.

If you are taking the micro-credit from banks which bank you prefer the most?

ICICI HDFC PUNJAB GRAHMIN BANK Others________________________

PUNJAB NATIONAL BANK STATE BANK OF PATIALA NON-BANKING FINANCE CORPORATIONS

XXI.

Rate the essence of micro-finance on the scale of 1-5? 1 2 3 4 5 Insignificant

Significant XXII.

How much Interest rates are charged by micro-credit providers? Below 5% 5% - 10% 10% - 15% 15% - 20% 20% - 25% Above 25%

XXIII.

How will you rate the present interest rates being charged on you for taking micro-credit?

1 Significant

2

3

4

5 Insignificant

48

XXIV.

According to you which factor will be more crucial for the growth of micro-finance in Jalandhar city? Low interest rates Time for processing and sanctioning of loans Installment factor Availability Business assistance Others _____________________

XXV.

Do you think micro-finance is a tool to eradicate poverty? Yes No Can¶t say

XXVI.

Do you think that micro-finance can be helpful for unemployed youth? Yes No Can¶t say

XXVII.

Do you think micro-finance can be helpful for women upliftment? Yes No Can¶t say How do you anticipate future for micro-finance , rate it between 1-5 ? Prosperous 1 2 3 4 5 Dim

XXVIII.

49

PART- II
OBJECTIVE

To understand the degree of satisfaction of people having income level below Rs.15,000 per month regarding various sources of finance: Local-Money lender

7 Timely Easy (to get) 7

6

5

4

3

2

1 Not Timely

6

5

4

3

2

1

Difficult (to get)

7 Not Exploitative

6

5

4

3

2

1 Exploitative

7 Courteous 7 Efficient

6

5

4

3

2

1 Not courteous

6

5

4

3

2

1 Inefficient

Co-op Credit Societies/ SHG¶S

7 Timely

6

5

4

3

2

1 Not Timely

Easy (to get)

7

6

5

4

3

2

1

Difficult (to get)

7 Not Exploitative

6

5

4

3

2

1 Exploitative

50

Courteous

7

6

5

4

3

2

1

Not courteous

Efficient

7

6

5

4

3

2

1

Inefficient

Private Banks

7 Timely 7

6

5

4

3

2

1 Not Timely

Easy (to get)

6

5

4

3

2

1

Difficult (to get)

7 Not Exploitative

6

5

4

3

2

1 Exploitative

7 Courteous

6

5

4

3

2

1 Not courteous

7 Efficient Public Banks

6

5

4

3

2

1 Inefficient

7 Timely

6

5

4

3

2

1 Not Timely

Easy (to get)

7

6

5

4

3

2

1

Difficult (to get)

51

7 Not Exploitative

6

5

4

3

2

1 Exploitative

7 Courteous

6

5

4

3

2

1 Not courteous

7 Efficient

6

5

4

3

2

1 Inefficient

Peers 7 Timely Easy (to get) 7 6 5 4 3 2 1 6 5 4 3 2 1 Not Timely Difficult (to get)

7 Not Exploitative 7 Courteous 7 Efficient

6

5

4

3

2

1 Exploitative

6

5

4

3

2

1 Not courteous

6

5

4

3

2

1 Inefficient

52

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