A Thesis on

A general study on micro finance. Its positives and negatives to society.

By CHINMAYA H P IUD NO 0801214200

A report submitted in partial fulfillment of the requirements of THE MBA PROGRAM (The Class of 2010)
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This is to certify that the Management Thesis titled ___________________________________ ______________________________________________________________________submitte d during Semester _________________ of the MBA Program (The Class of 2010) embodies original work done by me.

Signature of the Student Name (in Capitals) Enroll Number Campus :______________________________________________________ : ______________________________________________________ : ______________________________________________________

Signature of the Faculty Supervisor Name (in Capitals) Designation Campus : : :

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The project report of CHINMAYA H P.

A general study on micro finance. Its positives and negatives to society.
is approved and is acceptable in quality and form

Campus head

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I here by declare that the thesis entitled

“A general study on micro finance. Its positives and negatives

to society”

Submitted in partial fulfillment of the assignments for the degree of

Master of Business Administration
To ICFAI National College Shimoga. It is my original work and not submitted for the award of any other degree, diploma, fellowship, or any other similar title or prizes.




IUD No: 0801214200
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First, I would like to thank The Almighty for his perpetual blessings and guidance through out this thesis work. I express my deep sense of gratitude to our Campus head and the faculty guide for this thesis work MR. Ramachandra Gunari, ICFAI national college shimoga, for providing me an opportunity and continuous encouragement for doing this thesis. His suggestions benefited immensely. Further, he also provided me with valuable inputs and guidance in writing this project.

I thank all the staff of Dharmastala SIRI Gramodyoga samasthe[R], for their valuable guidance, and also I would like to thank “Pragathi” and all other self help group for the valuable information, co-operation and support, which has been a major contributing factor in the completion of this thesis.

I also like to remember and thank all the respondents who cooperated and answered all my questions with patience. Last but not the least, I thank my family and well wishers for their encouragement and support who have stood by me during this project.

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1. Introduction………………………………………………….………………………………………09 1.1 Micro credit.....................................................................................12 1.2 Self help groups……………………………………………….…..…………………..12 1.3 Grameen bank groups………………………..………………..………….………….13 1.4 Why Grameen in Bangladesh and SHGs in India………..……………….14 1. Literature review…………………………………………………………………………………..18 2. Objectives……………………………………………………………………………………………..25 3. Research design and methodology………………………………………………………..26 4. Methodology of research……………………………………………………………………..27 5. Data collection………………………………………………………………………………………27 6. Scope of the study…………………………………………………………………………………28 7. Theoretical framework…………………………………………………………………………30 8.1. Difference between conventional banking and microfinance banking…………………………………………………………………………………….31 8.2. Between micro credit and microfinance……………………………………..33 8.3. Impact of microfinance on poverty…………………………………………….33 8.4. Microfinance clients………………………………………………………………….34 8.5. Micro finance for the economically active poor…………………………35
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8.6. Main micro financing programs…………………………………………………36 8.7. Significance of microfinance institutions……………………………………37 9. Leading views on microfinance………………………………………………………………39 9.2. Poverty lending approach…………………………………………………………..39 9.3. Financial systems approach…………………………………………………………40 9.4. Sustainability of the micro finance programs………………………….…40 9.5. Supply lending & poverty lending approach………………………………42 9.6. Demand driven and financial system approach……………………….…44 9.7. Target market………………………………………………………………………………45 9.8 objectives of the micro finance institutions…………………………………46 10. Impacts……………………………………………………………………………………………..48 10.1. Moral hazards……………………………………………………………………………48 10.2. Mandatory savings……………………………………………………………………48 10.3. Cash flows…………………………………………………………………………………49 10.4. Social collateral………………………………………………………………………49 11. Discussions and implications……………………………………………….……………….51

12. Negatives and critics about MFIs……………………………………..………………….59

12. Micro finance: challenges ahead………………………………………….………………63

13. Conclusion………………………………………………………..……………….………………..65

14. References ………………………………………………………………………….….……………68
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1.1 Micro credit 1.2 Self help groups 1.3 Grameen groups 1.4 Why Grameen in Bangladesh and SHGs in India

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Kofi Annan said, “Let us be clear: micro finance is not the charity. It is the way to extend the same rights and resources to low income households that are available to everyone else. It is recognition that poor people are the solution, not the problem. It is way to build their ideas, energy and vision. It is a way to grow productive enterprise and to allow communities to prosper”

We can say poverty in India is predominantly rural in character. Micro finance is one of the many ways to help in increasing the incomes and eradicating poverty in rural side. Fighting poverty is one of the core objectives of the Millennium Development Goals. Micro Finance is the best way to eradicate poverty and to empower people. Micro finance is the newly emerging financial industry. It has the target market of more than 1.8 billion people in the whole world. The microfinance institutions have a pivotal role to play in a society marked by economic classes. By providing small loans to poor people, these institutions attempt to provide remedies to the woes of the deprived class. Apart from this, it is through these institutions that poor people are able to avail small loan facilities on reasonable terms and interest rates. In the absence of these institutions the poor people are more likely to fall prey to the exploitation of money lenders, who are more likely to exploit the poor masses by providing loans on enormously high rates.
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We can see many number of self help group across. Serving micro credit facilities is the main purpose of this self help groups. These groups has served nearly 33 million Indians till now as per the statistics given from the government side and in that, 4 out of 5 microfinance clients in India are women. It means micro finance is helping the women and making them empowered for the better.

Still micro finance has some bad remarks and negatives regarding its activities. As per the different articles and other different sources, they say micro finance is sucking the blood of poor by charging extremely high interest rates and other charges. As different articles say like, Micro-finance institutions on a looting spree, making profits from poverty. Poverty has literally become a big and organized business. If you are educated, and looking for a profitable business enterprise, and more so if you are a non-resident Indian and want to translocate to India and still make millions, micro-finance offers you the right avenue.

By looking over these aspects I decided to make a general study on what exactly is a micro finance and what the micro credit institution does and how do they work in the society and many other things regarding this micro finance aspects. The Nobel Prize committee awarded the 2006 Nobel Peace Prize to Muhammad Yunus and the Grameen Bank “for their efforts to create economic and social development from below.” The microfinance revolution has come a long way since Yunus first provided financing to the poor in Bangladesh.
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The committee has recognized microfinance as “an important liberating force” and an “ever more important instrument in the struggle against poverty.” Almost a decade has passed that the micro finance institutions have started working properly after the micro finance ordinance. A number of the Bank’s emerged in the market providing micro financial services in different cities of India. Some Non Governmental Organizations (NGO’s) like Shri Dharmastala SIRI Gramodyoga samasthe[R] etc... And their support programmes upgraded themselves and started delivering micro loans to the different clusters of the population as part of their service. Even some of the institutions are providing only the micro credit services. What ever but still they are in providing services. Majorly, these NGOs and the Microfinance Institutions were working under the umbrella of the govt too. Here micro finance can be defined simply as, it is defined as formal scheme designed to improve the well being of poor through better access to saving and services loans. Micro finance is not simply a way for micro credit but it is something beyond that. When we pay attention towards microfinance, we come across micro credit, self help groups, Grameen bank groups etc... So let us see what these sub branches of micro finance are.

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1.1 Micro credit: Microfinance is the provision of a wider range of financial services to the very poor and Micro credit is one of the services offered by microfinance Institutes. As mentioned in the definition of Microfinance. Micro credit is very small loan given to the poor which are considered unbankable. These people are usually unemployed or poor entrepreneurs. They lack collateral, steady employment and a verifiable credit history and therefore cannot meet even the most minimal qualifications to gain access to traditional credit. Micro credit is a part of microfinance, which is the provision of a wider range of financial services to the very poor.

1.2 Self help groups: A typical Self help group consists of twelve to thirty members. The group is not merely a savings and loan association, but serves as a similar group that provides a platform for a range of issues such as progress and development, awareness building, and family planning. An SHG meets regularly often weekly, and in these meetings, members contribute savings and take decisions on loans to members of the group. Group leadership is by rotation. The SHG may initially lend out of its own pool of funds and after gaining some experience with lending (and recovering loans), it may borrow from a micro credit institutions for lending to members. The overall concept of micro finance is standing on self help groups and the NGOs who are providing the services for these groups.
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1.3 Grameen bank groups:

Grameen bank group system actually started in Bangladesh and still its in existence with Bangladesh. In most of the other countries has adopted the system of self help group system but in Bangladesh, the Bangladesh Grameen bank supports opening of this type of groups. Both groups are similar in the way. Potential clients are asked by the MFI to organize themselves into ‘Groups’ of five members which are in turn organized into ‘Centers’ of around five to seven such Groups. The members make regular savings with the MFI, according to a fixed compulsory schedule, and they also take regular loans. They each have individual savings and loan accounts with the MFI, and the main function of the Groups and Centers are to facilitate the financial intermediation process, through performing tasks such as the tasks which are done in case of self help groups.

The overall system of micro credit and micro finance was pioneered by Professor Yunus in 1976, and has grown very rapidly since. We are considering the micro credit is a major part of micro finance. There is also a large and increasing number of MFIs in India, most of which use the SHG method. A small number of these MFIs use the Grameen system, but the portfolio of the approximately thirty-five larger MFIs which use the SHG system.

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1.4 Why Grameen in Bangladesh and SHGs in India?

The rural poor in India are not so different from their counterparts in Bangladesh, and the differences between Northern and Southern India, for instance, are certainly more pronounced than those between poor rural communities in West Bengal, or UP, Bihar and Orissa, from their neighbors in Bangladesh. It seems prima facie to be odd, therefore, that two such different systems have evolved, and that there are, as yet at any rate, so few examples of the SHG system in Bangladesh or of the Grameen system in India.

The Grameen system is often criticized in India for being over-disciplined or even militarist, with its tradition of saluting, of meetings with imposed seating systems and the necessity for strict adherence to pre-set schedules, by staff and members alike. It may, for that reason, be more acceptable in Bangladesh. But in India we are more co operative so we accepted the name as self help group instead of following the name of Grameen system.
Adapted by article, grameen bank groups and self-help groups; what are the differences? - By malcolm harper.

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Let us have a snapshot of small statistical data which provides us to know about the help taken by the people from the micro finance or simple we say from self help groups. In the financial year 2007-08,  Microfinance in India through its two major channels SBLP [self help group bank linking program. Implemented by NABARD] and MFIs, served over 33 million Indians, up by 9 million over the previous financial year.  4 out of 5 microfinance clients in India are women.  Per 31st March 2008, the outstanding micro-credit portfolio of India Microfinance was about Rs. 22,000 crores.

75% are accounted for by SBLP, 20% by large MFIs and 5% by medium and small MFIs Growth of MFI loan portfolios passed 70% annually between March 2006 and March 2008. The strongest impulse came from medium often urban MFIs in 2006-07 and from large MFIs in 2007-08.

Indian MFIs are true to their mission of serving the poor strata of society. A stable 8 out of 10 clients have been provided loans sized less than Rs. 10,000.

The loan segment between Rs. 5,000 and Rs 10,000 has been growing strongest. This can be explained by two impulses: On one hand, microfinance customers mature to bigger loans over the loan cycles. On the other hand, urban microfinance starts with comparatively bigger loans than rural finance.

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 Indian MFIs serve 4.1 million clients from the SC/ST background. The reported number of SC/ST has been growing alongside the rate of total outreach, thus the SC/ST share is stable at 3 out of 10 clients.  India's MFIs operate in 209 out of 331 poorest districts of the country; up by 5% over the previous year.  Large MFIs are particularly active in expanding their operations to the poorest districts; many of them serving poorest than other districts.  Urban Microfinance is emerging as a strong growth driver; between March 2006 and March 2008, 1 out of 3 new clients was from the urban background. One Quarter of all MFI clients is from the urban background.
Adapted by sa-dhan. Bharat Microfinance Report - Quick-Data 2008.

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Literature review

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The main objective of the literature review is to detail the facts regarding the study and to see an overview of the literatures which supports the study. Basically a detailed study and personal interviews of the different self help groups, NGOs and MFIs is must for this type of study because the true facts can be gathered through these institutions as well as groups. An interaction with people makes the study better and comprehensible. Still many books and other sources help the study to make more realistic.

For the further reference on the study, I studied the literatures of Sridhar Krishna’s book named self help groups in the context of microfinance. The book is published by ICFAI university publications. Mr. Sridhar Krishna holds PhD in economics from the center for economics and planning. Jawaharlal Nehru University. He is an associate editor of Indian journal for labour economics. Currently Krishna is the consulting editor for ICFAI center for research.

In his literature he has quoted that, self help groups has enabled financial intermediation, and taught their members the discipline of saving, pooling their savings for lending to the members of the group for incomegenerating activities. Given their level of poverty in India, it is very difficult for poor people to save money, yet these self help groups have managed to collect small amount of savings from their members. Considering that 70% of these self help groups are in the southern states, the government is thinking of
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replicating this experience particularly the Andra experience, in the states for Bihar and Uttar Pradesh. In Tamilnadu state, the self help groups are adopting even the better technology like satellite programming by the support of government. Vocational satellite centers are opened at 11 different places of TN. In the book, Mr. Krishna has focused his view on SHG majorly. The book contains different view of different authors by their articles. In an article written by Mr. Hemanth Kumar Pamarthy, he points out that, the products of the rural India have great potential for sale not only in the rural areas but also in urban areas like cities and metros. Even if entrepreneurs initiate micro enterprises in rural areas with the aid of micro finance, they find difficulty in marketing their products because the matter of quality. If groups start taking care of these things and if government takes care of it means automatically the sales comes high and it leads to the proper utilization of fund given from the micro finance institutions. In the article written by Malcolm Harper and RV Ramakrishna, they points out that, SHGs are co operatives in all aspect except for their name and legal status. Co operatives such as district central banks and the primary agriculture credit societies can be ideal instruments fro dispensing with credit to different SHGs. In the article “microfinance: An integrated Approach for microenterprise development in India”. Written by Naveen Kumar Shetty, says the study conducted in the place named Belthangadi Taluk of Dakshina Kannada district,
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by considering four type of micro enterprise like, food items, chemical items, textiles and rexine items.

The income generating activities have resulted in an increase in incomes of the members of SHGs. And they spent more on food articles, children’s’ education, on health facility, on new house constructions or repairing the houses, on cloths etc… these all the examples shows the maximum utilitarian of the support of the concept of micro finance.

In article “Role of self help groups in marketing microfinance products in India” written by RS Barathish Rao and Uma Sharma, they pointed out that commercial banks have linked 8,09,238 SHGs so far and regional banks have links with more than 6,15,021 and also the cooperatives have linked with 1,97,217 SHGs. While the self help group link programme in India has emerged as one of the largest programme of its kind in the world. It took a great recognition. However the micro finance is developed and well recognized, it also has some of the negative points in it. Negatives may not be completely proven still some of the writers and thinkers have given those negative points regarding the work and follow ups of the micro finance, self help groups and its other activities.

An article written by Devinder Sharma. An Indian journalist, writer, thinker. He is well-known and respected for his views on food and trade policy. Trained as an agricultural scientist, Sharma had been the Development Editor of the
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Indian Express, the largest selling English language daily in India at that time. He quit active journalism to research on food and developmental policy issues. In his article titled, “Ground reality”-Negative assessment of microfinance institutions. He said and criticized as, Micro-finance institutions on a looting spree: making profits from poverty. Poverty has literally become a big and organized business. If you are educated, and looking for a profitable business enterprise, and more so if you are a non-resident Indian and want to translocate to India and still make millions, micro-finance offers you the right avenue. There can be no better business opportunity than starting a microfinance institution with assured returns and 100 per cent loan recovery. You can even think of trading on the stock exchange after a couple of years. And still more importantly, you can hold your head high and claim that you are helping the poor to come out of the poverty trap. You don’t have to feel ashamed and morally guilty. The elite in the society have knowingly (or unknowingly) given you a license to loot. The unprecedented growth in micro-finance tells us that modern-day Shylocks are everywhere, looking at every possible opportunity to make profits from poverty. Rich countries become rich at the cost of the poor countries. Rich people in any society also (of course there are exceptions) follow the same path. Micro-finance is a classic example.

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He said micro finance player are the game changers. Even an article published in the Hindustan times. The article named ‘game changers’ supported his view. He also said, they have shifted the game from the hands of the villains of the story, the sahukars or money-lenders, to a sophisticatedly organized class of neo money-lenders. These are not the usual banias but a highly educated class of people who use all sophisticated skills to rob the poor. And they have done it remarkably well. He gave supporting points for his view. Most of the micro finance institutions are charging interest rate up to 24% Pa. but no body know up to what extent this is fair in the micro finance. They have named themselves as they are empowering the poor still they are charging the rate of interest above 20%. This comes up to the rate which the money lenders charge. If the poor can be empowered with a 24 per cent rate of interest, how come the resourceful people in the cities/towns need a much lower interest rate to get empowered? If the poor in the villages can make a business enterprise even after paying a 20-24 per cent rate of interest, why do people in the cities find it difficult to do so? Or is it that we need a different yardstick (and in this case it happens to be the interest rate on your borrowing) to empower the poor and the not-so-poor? In other words, since the poor have no voice, some of us (and that includes banks) have joined hands to exploit the poor in the name of development.
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India Microfinance Report 2009 tells us that the portfolio of the microfinance institutions has grown by 97 per cent, and number of beneficiaries has also gone up by 60 per cent. More than 150 million are already borrowing from Micro-finance institutions. What the report however does not tell us but is quite apparent is that this organized group of money-lenders is now beginning to take over the unorganized villains of the game the traditional money lenders. He also said in his article and given proof as, Another news report tells us that SKS Micro-finance is charging approximately 24 per cent rate of interest in Orissa, Karnataka and Andhra Pradesh; in southern India, Equitas Micro-finance is seeking 21-28 per cent interest rate and Basix Microfinance is providing small loans at 18-24 per cent interest rate. There are numerous other players, and they all rake in money. Sewa in Gujarat and the Grameen Bank in Bangladesh too thrive on a similarly high rate of interest. Than we can easily say that they are game changers and taking the business from the hands of money lenders and they are becoming the neo money lenders. Even while studying on this I have come to know that exorbitant interest rate is not completely fake information. Because I have taken interview of one of the group comes under the Stri shakthi sanga[women empowering scheme] where I came to know that, they takes the assistance from the local branches of a national bank but the bank charges 24% interest rate on the loan which is issued to the groups as assistance.

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The groups need to pay the installment on monthly basis and they have to pay the amount including the interest charges and group savings amount. Though the group will get the sufficient amount as subsidies amounted up to one lakh. Still the bank will get back the full amount of money including the interest. Before discussing the interest rate which would be charged by micro finance institutions or any other group, we should clear several questions which arise. First we should get the proper answer for those questions. Like, 1. At what interest rate MFI get debt from Banks, NABARD, SIDBI and other financial institutions? 2. Why a poor women is taking loan at 24% from MFI's (Microfinance has reached 150 million people) when cheaper loans are available from other sources? Are MFI's forcing them to take loans? 3. What is the repayment rate of agriculture loans vis-a-vis compared to MFI’s? 4. What interest rate people pay on loans in rural as well as urban? 5. Does agriculture loan required any collateral and whether is it available to landless poor or who does not have a property to get loan? 6. What collateral MFI's take against the loans they provide?

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We should have clear information regarding all this aspects than only we can comment on the services which are being provided from the micro finance institutions. Than only we can compare the interest rates properly and able to say that banks are charging high rate of interest for the micro finance institution. We can’t say easily that micro finance have all these negatives in it and we do not know up to what extent the data is true and fair. Even giving proof for the information is also a difficult task moreover, this is a controversial topic and it’s beyond our research limitation to prove it.

3. OBJECTIVES OF THE STUDY: 1. To study on what exactly is micro finance and micro credit institutions. 2. To know about different type of MFIs and self help groups. 3. How these MFI works and helps to the society and what is the importance of MFIs. 4. Capital and flow of fund to these MFIs and out flow of money. 5. To know the negative aspects of MFIs and different opinions.

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Problem definition: A research problem, in general, refers to some difficulty which a researcher experiences in the context of either a theoretical or practical situation and wants to obtain a solution for the same.

A problem clearly stated is a problem half solved. Thus, defining a
research problem properly is a prerequisite for any study and is a step of highest importance. It is only on careful detailing the research problem that we can work out the research design and can smoothly carry on all the consequential steps involved while doing the research. In the light of the above background, we can illustrate the main problem definition for the study as, study regarding the positive aspects as well as negative aspects of the micro finance to the society and to the poor.

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5 METHODOLOGY OF RESEARCH: Effective research need to take up the following steps so these are the steps taken largely for the study.
1) Defining the problem and research objectives. 2) Developing the research plan. 3) Collecting the information. 4) Analyzing the information. 5) Presenting the findings.

6. DATA COLLECTION: The required data for the study collected from the primary source of data as well as secondary source of the data. Time required to obtain the primary data is higher compared to that required for collecting secondary data. Primary data collection is directly from respondents, means from different self help groups and few micro finance institutions which are providing assistance to those groups. Other respondents are the members of the self help groups and common people who suggested continuing the study in a manner.

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Primary data collection is through personal meeting of the members of the different groups and interviews. Secondary data is collected through different books, magazines, E books and from various web sites. The details regarding the secondary data source is will be given in the bibliography at the end of the report.

7. SCOPE OF THE STUDY: The scope of the study is mainly to bring out the total and true facts regarding the micro finance institutions and self help groups. About their work, process, what all the facilities provided and also the limitations of it. The research was focused on various reasons for the investments and the ways of investments the investor goes to make hence the findings are fair reflection of respondents.

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Theoretical framework
8.1. Difference between conventional banking and microfinance banking. 8.2. Between micro credit and microfinance25 8.3. Impact of microfinance on poverty. 8.4. Microfinance clients 8.5. Micro finance for the economically active poor 8.6. Main micro financing programs. 8.7. Significance of microfinance institutions.

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Financial developments were concerned about the formal institutions in the “formal market’’. The traditional banking services were not accessible to the poor because of the risk, high costs and low repayments. But what about the poor who live below the line? The poor had no other option except to borrow from informal money lenders, relatives and “pawnbrokers” who often charged high interest rates making them poorer.

To fill in the gap left by formal financial institutions a relatively new concept ‘’Micro financing’’ came up with sole objective to make credit available to extreme poor giving them the opportunity to contribute in the economic growth. After the World War II, Governments also tried to help the poor farmers through credit programs run by their agriculture banks. But these programs could not sustain due to heavy subsidized interest rates and due to political factors the credit access remained the influential only.

The history of the small scale and micro-lending may go to nineteenth century when small scale “credit cooperatives” were established in Germany. But the Grameen Bank of Bangladesh is considered to be the beginning of the modern Micro financing.

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1. DIFFERENCE BETWEEN CONVENTIONAL BANKING AND MICROFINANCE BANKING: The main difference between a conventional banking institute and microfinance institute is of their approach towards their customers. The main difference is of their target market. A microfinance institute is opened with the main aim of targeting the poor and providing its services to that part of the community which is vulnerable to poverty. Now days it also include small and medium enterprises. Where as, a conventional banking institute has a bigger target market. It covers all the clusters of the community. Its main aim is profitability and other things are set aside. Increasingly, formal financial institutions are recognizing the benefits of serving poorer clients but these institutions are only going there because they are recognizing that they can also get profits from the poor. Another difference between the commercial and microfinance banking is of group lending with only social collateral. Commercial banks have developed products that are targeting the poor but they also demand physical collateral whereas the microfinance institutions rely on social collateral. Micro credit is based on a separate set of principles, which are distinguished from general financing or credit, Micro credit emphasizes building capacity of a micro entrepreneur, employment generation, trust building, and help to the micro entrepreneur on initiation and during difficult times. Micro credit is a tool for socioeconomic development.

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Source: R. Arunachalam - Alternative Technologies in the Indian Microfinance Industry
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8.2. BETWEEN MICRO CREDIT AND MICROFINANCE: Microfinance is the provision of a wider range of financial services to the very poor and Micro credit is one of the services offered by microfinance Institutes. As mentioned in the definition of Microfinance. Micro credit is very small loan given to the poor which are considered unbankable. These people are usually unemployed or poor entrepreneurs. They lack collateral, steady employment and a verifiable credit history and therefore cannot meet even the most minimal qualifications to gain access to traditional credit. Micro credit is a part of microfinance, which is the provision of a wider range of financial services to the very poor.

8.3. IMPACT OF MICROFINANCE ON POVERTY: Microfinance has helped poor in increasing their income levels and improvements in other social indicators. The primary Reports of micro finance says that, there was increase in their business and house income of borrowers who were able to repay the first loan. Microfinance has changed lives of thousands of poor just as this woman which is yet to be captured by studies. There are so many examples in this regards. According to Goldberg, apart from these income increases there were social gains of the microfinance programs like the increase in education of children, nutrition of babies and empowerment of women (Goldberg, 2005).

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In the early1970’s, Microfinance started as a revolution in countries of Latin America and South Asia with independent initiatives. Now there are more than one thousand micro finance institutions over 100 countries, 73% are NGO’s, 13.6% are credit unions 7.8% are banks and rest are saving unions. And about 65 million people are served by the micro finance institutions these days. (Morduch, 2005) 8.4. MICROFINANCE CLIENTS: Microfinance clients are poor and vulnerable non-poor who have a relatively stable source of income (microfinance gateway, 2008). The clients of microfinance can be divided in to 2 main categories, ‘’Rural’’ and ‘’Urban’’ clients. But the common character between them is that they are low income persons who do not have access to the formal financial institutions and they are typically self-employed. Usually, they have household-based enterprises (microfinance gateway, 2008). The most common business in which rural clients are typically involved is, food processing including diary, fruits, vegetable and others. This category also constitutes small farmers and petty trade. Whereas, in urban clients are shopkeepers, service providers, artisans, street vendors, etc. Poor can not access to the conventional financial institutions for many reasons including income. The poorer you are it is less likely that you will have access to these services whereas the informal financial institutions are too expensive for the poor.

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For this specific under-served segment microfinance services are offered and they are the real clients of microfinance services. At the house hold level most impact assessment studies have found that borrowers of the micro finance institutions experience positive impacts on income, asset accumulation and consumption. According to a report printed in ‘’The Times’’ magazine the clients have experienced positive increase in their income and the increase was more significant for women than for men. Clients experienced improved relationships with suppliers of inputs for their business, increased household consumptions, improved quality of their children education, increased income and improved employment generations. 8.5. MICRO FINANCE FOR THE ECONOMICALLY ACTIVE POOR: Poor people need shelter, clothes and food. The services of the micro finance institutions are aimed at the economically active poor. The people who are already involved in some ventures and they need some leverage and that are the micro finance which seems to be a catalyst to boost their activities. The economically active poor have some financial literacy. They know how to diversify their portfolios, how to save and where to invest. To such people micro finance is useful which increases their income and improves their lives.

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According to the studies which are done already on micro finance, they say, impoverished people do not have any assets even they do not have irregular incomes. For this group direct aid like food, clothing and shelter are much appropriates not the micro financial services. They further divides the poor people in categories. First impoverished people who do not even feed their families. Second poor who have irregular incomes and they are financially active. They are engaged in some ventures. These groups need micro credit to stimulate or accelerate their financial activities. Third group he defined is Upper poor, they have small but regular cash flows they even can save but due to their living conditions they are considered below poverty line. Fourth group is near poor they consistently meet minimum standards of living like food and health services but they do not have excess funds to face unseen problems like prolong illness, pregnancy or death of a partner. 8.6. MAIN MICRO FINANCING PROGRAMS: No doubt, micro finance has provided lot many facilities to the poor and poorer sector of the society by providing many amenities. In most of the developing countries, existence of micro finance is there in a good structure. People are utilising the facilities provided by the micro finance institutions. Major services provided by micro finance are like, helping people to create their own self help groups, providing financial assistance to the groups as well as individuals, providing different type of micro credit facilities, providing micro insurance, facilitates and encourages people to save money
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for the future needs, etc... Other than this, micro finance institutions try to build up the level o confidence to improve the economic stability of the family and also the ability of the groups which they belongs. They provide stages and opportunity to grow up themselves. By the help of all this they can get in to the production and make profit out of it. 8.7. SIGNIFICANCE OF MICROFINANCE INSTITUTIONS: The microfinance institutions have a pivotal role to play in a society marked by economic classes. By providing small loans to poor people, these institutions attempt to provide remedies to the woes of the deprived class. Apart from this, it is through these institutions that poor people are able to avail small loan facilities on reasonable terms and interest rates. In the absence of these institutions the poor people are more likely to fall prey to the exploitation of money lenders, who are more likely to exploit the poor masses by providing loans on enormously high rates. As a result the problems of the poor class are likely to be multiplied instead of being nullified.

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Leading views on micro finance
9.2. Poverty lending approach. 9.3. Financial systems approach. 9.4. Sustainability of the micro finance programs. 9.5. Supply lending & poverty lending approach. 9.6. Demand driven and financial system approach. 9.7. Target market. 9.8 objectives of the micro finance institutions.

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9.1. LEADING VIEWS ON MICROFINANCE: There are two leading approaches to microfinance:  Poverty lending approach.  Financial systems approach. Both these approaches tend to provide the availability of financial services for the poor, despite having consonance in their goals, each approach tends to adopt a different modus operandi for the achievement of their desired aim. We look at how these two approaches tend to operate.

9.2. POVERTY LENDING APPROACH: The basis focus of the poverty lending approach is the reduction of poverty through institutions which receive funds from donors or governmental authorities. The basic aim of the poverty lending approach is to reach the poorest of the poor. In poverty lending approach to microfinance saving is only limited to a trivial status i.e. only as a compulsion for receiving credit. Institutions adopting the poverty lending approach are not sustainable, the reason being that the interest rate on their loans is too low for the recovery of even their costs. These institutions also do not cater to the demand for micro saving services among the poor. The focus of poverty lending approach is upon micro-credit not microfinance.

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The financial systems approach focuses on financial intermediation between the poor borrowers and savers on commercial basis. This approach lays its emphasis on the institutional self-sufficiency. The world has witnessed the emergence of many commercial microfinance intermediaries in the past decades. These commercial microfinance intermediaries provide credit and saving services to the economically active poor. The loans of these institutions are financed by savings, commercial debts and through profitable investments. The financial systems approach represents a more globally acceptable model of microfinance. 9.4. SUSTAINABILITY OF THE MICRO FINANCE PROGRAMS: The sustainability of Microfinance programmes with or without subsidies still remains a question among the economists and researchers. Most of the microfinance programmes are not sustainable and heavily depend upon external findings. A study says that only one percent of these are sustainable and rest will either close or keep relying on subsidies. Now the question is that should a microfinance programme be given subsidies in the form of low interest rates by the government and external funding by the donors and what if the donors decided to stop their funding. If subsidies are worthy for poverty alleviation then other investments then it is better to continue with them.
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Reaching poor is an expensive job. The formal Institutions left the poor because poor didn’t approach themselves and the financial institution were not ready to outreach poor because of high cost. The microfinance tried to outreach the poor which has its financial costs. In these circumstances, external funding is justifiable. But still the microfinance programs which are sustainable for able to attract more borrowers and in turn able to offer more loan products. (Zeller and Meyer, 2002) Increased access to credit for the poor on a long term and sustainable basis can bring significant benefits, MFIs must continue to work to improve efficiency levels, and to increase scale. The role of economies of scale works same for micro financial services as for other products. By reaching higher scale, MFIs will bring down the cost of providing loans, and the benefits will be transferred to the poor in terms improved loan products, better access to loans, and lower borrowing costs. Operational efficiency is very important here. According to Ledgerwood, 1998, the key factors that contribute to the success and sustainability of the many micro financial institutions are,  Favourable macro economic conditions,  Managed growth,  Deposit mobilization,  Cost control During the 1980’s Microfinance mainly comprised of an integrated package of credit and training and hence the institutions were relying on donor
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agencies and subsidies but with the concept of making these institutions sustainable, these institutions are recognising the need for saving services to their clients and to access market funding sources (Ledger wood, 1998). This recognition is a very positive step to make these institutions stand on their on feet without any assistance from donors or government sector.

According to (Maria Otero, 2005, page 4) in her paper on `Creating financial system to serve poor majority` she stated ``If microfinance institutions want to make a real impact, they have to be permanent`` i.e. that viability of these institutions is important. They should be sustainable because when they will be there people will be benefited from them. As these are reliable and authentic source of funding to them. She also described the common traits of the leading micro finance banks of the world.

9.5. SUPPLY LENDING & POVERTY LENDING APPROACH: poverty lending approach focuses on reducing poverty through

credit and other services provided by institution that are funded by donor and governmental subsidies and other concessional funds. The basic aim of the poverty lending approach is to reach the poor people through the service of credit. One of the leading analyst, Marguerite Robinson state that saving is not given any significance in the poverty lending approach.

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In the poverty lending approach the role of saving is of a trivial nature i.e. mandatory saving is only considered as a pre-condition for the purpose of receiving a loan, other than this role there is no other role for the saving to play in the poverty lending approach. This approach claims that over all goal of the micro finance should be poverty reduction and empowerment. Financial stability of the institutions is worthless unless these institutions have any impact on the lives of the poor. Further states that in poverty lending approach subsidies and the donor funding is important.

These funding are of vital importance in reaching the poor out reach as there will be a lot of delinquencies. The supply lending approach perceives credit as an important and effective tool for the poverty reduction. The target market is poorest of the poor. According to the development economists to enhance economy growth in the rural areas, the farmers needed credit to attain the production inputs. The supply lending approach is based upon the assumption that farmers are faced with shortage of capital and/or are devoid of access to financial resources. As a result these farmers look forward towards informal money lenders for funds. The reason for relying upon these sources is to organize funds for fulfilment of their needs especially during the cultivation season. Consequently they are exploited by the informal lenders who charge unreasonably high interest rates.

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In this scenario there is a need of a system that can provide farmers with funds at subsidized interest rates .There should be a system that is available to supply loans and inputs required for cultivation of improved varieties of crops at subsidized interest rates. Institutions using the poverty lending approach are not sustainable in the long run because they charge subsidized rates on credit advanced, the interest rates charged by these institutions are not adequate enough to cover the operating expenses.

9.6. DEMAND DRIVEN AND FINANCIAL SYSTEM APPROACH: The financial system approach focuses on the commercial financial intermediation among poor borrowers and savers. It emphasizes on the institutional self sufficiency. Donor funds can not finance micro credit programs on global scale. The sustainable micro finance intermediaries have been working for many years successfully. They provide micro credit and saving services to the economically active poor. They finance their loans by savings and different commercial investments. Commercial micro finance is not for the starving borrowers, it’s not for the people who are illiterate, who do not have skills. Starving borrowers spend their loans for buying food and other things for their survival. On the other hand economically active poor spend their loans on their ventures and they have the capacity to repay the loans. The financial system approach focuses on demand of commercial financial services of the poor borrowers and savers. The transformations of NGOs into commercial MFI are the foremost examples of the financial system model that is currently active in Nepal.
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The aim of the institutions operating under the financial systems approach provide the dual benefits i.e. these institutions not only provide easy access to credit at reasonable interest rates to economically active poor and micro-entrepreneurs but also facilitate the provision of convenient and safe saving services to those who want to store cash and gain positive interest rate upon their investment. Since traditional micro credit institutions relied upon donors for the availability of funds. The aim of this model is to enable MFIs to reach selfsufficiency and expand outreach of services to low-income clients profitably. 9.7. TARGET MARKET: For selecting a target market the MFIs need to select their objectives and devise ways to reach the target groups which results in the sustainability of the MFIs. The market must be chosen keeping in view the potential demands. Organizations that do not focuses on their targets and objectives, as a result they are unable to design the appropriate products for the specific targeted market. Eventually, they fails in their operations resultantly they are at loss. The objectives of the MFIs should be clear. What they are producing and for whom they are producing. MFIs should produce the products keeping in view the poverty level of the people. It can be defined by keeping in view the characteristics of the target groups i.e. poverty level, ethnicity, caste, religion, etc. then the MFIs make the clear sketch to whom they want to serve and they want to serve in the competitive environment, why people buy their services? What make their financial products more attractive?
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9.8 OBJECTIVES OF THE MICRO FINANCE INSTITUTIONS: Market selection depends upon the objectives of the micro finance institution and demand of the micro financial products. There are un served and underserved clients in all the countries. The supply side or the poverty lending approach does not cater these un served or underserved people on the continuous basis. Institutions who are working on the financial system approach need to supply these people with suitable services depending upon their needs. The goal of the MFIs which serves as the development organizations is to fulfil the needs of un served and underserved people describes these objectives as,      To reduce poverty To empower women or other disadvantaged population groups To create employment To help existing businesses grow or diversify their activities To encourage the development of new businesses Two main objectives of the MFIs serving in any country are OUTREACH It is to serve those people who have been deprived previously or are underserved. (Women, poor and indigenous and rural poor). SUSTAINABILITY It is to generate enough revenues to cover the expenses for providing the financial services. The main theme of the financial system approach is the sustainability.
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10.1. Moral hazards 10.2. Mandatory savings 10.3. Cash flows 10.4. Social collateral

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10. IMPACTS: When the MFIs have not done the market analysis and have no clear objectives. They can not be sustainable as explained earlier. Most of the Pakistani MFIs are working on the doctrine of poverty lending approach. They just give the credits without viewing the needs of the people, so most of their portfolios are at risk.

10.1. MORAL HAZARDS: The main problem in the micro credit is the compliance of the credit. It is not invested in the portfolio for which it was sanctioned. The loans normally granted for the purpose are not invested accordingly. If the loan was delivered for agriculture or livestock it was used to repay the loan of another bank or the person.

10.2. MANDATORY SAVINGS: In order to sanction a micro loan, the group which is going to take the loan has to open a saving account at the bank which is mandatory. Normally the saving amount is 10% of the loan. These savings are of no benefit to the customers; rather they are of benefit to the bank. When the group or a member of the group becomes defaulter their savings are used as a tool to repay the loan. Hence savings acts as hidden collateral.

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10.3. CASH FLOWS: In order to deliver the micro loans cash flows are conducted by the bank officers. These cash flows interpret the client’s cash flows (revenues and expenses).The reason is the repeated borrowers or people who are aware of the program they provide incorrect information. As this information can not be verified so they do not present a true picture of the client’s revenues. People who have already taken the loans from other sources come under the burden of heavy loans and are unable to repay them. 10.4. SOCIAL COLLATERAL: Unlike conventional banks micro finance banks have social collateral (personal guaranties).At the time when loans are sanctioned the members give cross guarantees that they know each other and are responsible for each others loan payments. When the group becomes defaulter, their savings are adjusted in the loan, in this way the savings of the serious prospects are lost. This practice seriously hits the program and also kills the doctrine of social collateral.

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Discussions and implications

11.1. Negatives and critics about MFIs.

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In this section, we review some of the important questions on microfinance. Our assessment is based on numerous studies, technical surveys, and newspaper reports on microfinance.


Is Microfinance a Desirable Alternative to Informal, Exploitative Sources of Finance? The spread of microfinance and the success of MFIs in various countries around the world prompt a question, who served the poor before the microcredit revolution? It is well known that conventional banks, which act as creditors’ to most entrepreneurial activity in the modern world, have largely avoided lending to the poor. Instead, credit to the poor has been provided mostly by local Moneylenders, often at usurious rates. Therefore, it is not surprising that microfinance has been welcomed by most as an alternative to the abusive practices of village moneylenders. In contrast, MFIs can often offer lower interest rates than local moneylenders because of their higher efficiency in screening and monitoring borrowers, which results from both their economy of scale (serving more borrowers) and their use of joint liability lending mechanisms. This lowers the MFI’s cost of lending relative to that of the local moneylender.


How high are the Repayment Rates for MFIs? This is widely regarded as the greatest achievement of microfinance. Many MFIs report high rates of repayment, often greater than 90 percent. These claims have driven considerable academic Interest in why and how
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microfinance works. Furthermore, these repayment rates are widely cited in popular media and have been one of the reasons for the recent interest generated by microfinance in financial markets worldwide. Morduch studies the repayment rates for the Grameen Bank for the 10-year period of 1985 to1996. During this period, Grameen’s average loan portfolio grew from $10 million to $271 million and membership expanded more than 12-fold to include 2.06 million members in 1996. For this decade, Grameen reports an average overdue rate of only 1.6 percent. [Statistics adapted from the micro finance revolution by Sengupta and Aubuchon].


Is there more importance to microfinance than group lending or joint liability contracts? The success of microfinance in generating high repayment rates led many economists to investigate the reasons behind this success. Joint liability contracts were seen as the break from traditional lending mechanisms and economic theory was used to readily explain how these contracts helped to improve repayment rates. The growth of the literature on group lending contracts in the mid-1990s offers the impression that all MFIs operate as such, but the reality is that MFIs use a variety of lending techniques, such as dynamic and progressive loans, frequent repayment schedules, and nontraditional collateral to ensure high repayment rates among poor, underserved borrowers. Another mechanism used by MFIs is that of frequent repayments, which often begin even the week after the loan is disbursed.
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By requiring small repayments before the business venture has reach maturity, MFIs are essentially requiring that borrowers have a second source of income and, hence, borrow against their current consumption. This allows MFIs to screen against high-risk borrowers from the beginning because borrowers will be able to repay the loan even if their venture fails. Indeed, weekly repayments give the borrowers and lenders the added benefit of discovering problems early. The final mechanism is the requirement of nontraditional collateral, which was introduced by banks such as Bank Rakyat Indonesia (BRI).This feature breaks from the commercial practice that collateral submitted must have a resale value equal to the loan.

In a group lending contract, joint liability often serves as collateral, but BRI Operates on the “notional value” of an item and allows collateral to be any item that is important to the household, regardless of market value. This may include the family’s sole domestic animal, such as a cow, or it may be land that is not secured by title. Neither item could be sold for much of a profit without significant transaction costs to the bank, but both items would be even more difficult and costly for the family to do without.


Is Microfinance an Important Tool for lessening Poverty? Microfinance started as a method to fight poverty, and although microfinance still fulfills this goal, several institutions have sought to make a distinction between the “marginally poor” and the “very poor.”

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The broadest definition distinguishing these two groups comes from the Consultative Group to Assist the Poorest (CGAP), which defines the poor as individuals living below the poverty line and the poorest as the bottom half of the poor. The overall statistics of micro finance and the data of SAdhan micro finance report say that micro finance is one of the best ways to eradicate the poverty and improve the economic status of the poor.


Is Microfinance Sustainable and Profitable? With all of the positive publicity surrounding microfinance, it may be surprising to learn that not all MFIs are sustainable or able to return a profit. Despite their rapid growth and sound operations based on strong theoretical platforms (such a using group loans, dynamic incentives, and frequent repayments), less than half of all MFIs return a profit and most still require the help of donors and subsidies. A lack of financial sustainability doesn’t necessarily indicate a failing MFI, but rather raises questions about the mission and direction of that particular MFI.

Even with subsidies, many MFIs remain the most cost effective method to alleviate poverty; and, as we argued previously, subsidies can help change the profile of the targeted client from the poor to the extremely poor. For an MFI to be sustainable can mean one of two things: The organization can be operationally sustainable or it can be financially sustainable.

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An MFI that is operationally sustainable raises enough revenue to cover the cost of operating the business—paying loan supervisors, opening branch offices, etc. Subsidies might still be used to issue loans or cover defaulted loans. An institution that is financially sustainable does not require any subsidized inputs or outside funds to operate. Instead, it raises money through its lending operations. The Micro Banking Bulletin of 2003 surveyed 124 MFIs with a stated commitment to becoming financially sustainable. In their survey, the Bulletin found that only 66 operations were sustainable, a rate just slightly above 50 percent.


Could Competition Among MFIs Lead to Better Results? Economic theories states that, competition should improve the performance of MFIs and lead to better service and lower interest rates. With such a large poor population and high rates of growth, there is also a large market to support more MFIs. Historically, though, competition has failed to increase services and often decreases the rate of repayment. When clients have access to alternative sources of credit, MFIs lose the leverage they gain from dynamic incentives and progressive loans (i.e., future loans are contingent on repayment).

VII. Does Microfinance Have Any Social Impact in Terms of women Empowerment and Education? Any review of microfinance is incomplete without a discussion of its impact on women. The micro finance Report lists over a thousand programs in which 75 percent of the clients were women.
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SIDBI Foundation for Micro-credit (SFMC), amounts to almost around 85 crores of rupees or thirteen million dollars These MFIs were said in early 2001 to be serving about 200,000 eventual clients, of whom 94% are women.

This focus on women follows that lending to women has a stronger impact on the welfare of the household than lending to men. This has been confirmed by a large volume of research on microfinance. In countries where microfinance is predominant, country-level data reveal signs of a social transformation in terms of lower fertility rates and higher literacy rates for women.

A pro-female bias in lending works well for the MFIs. Practitioners believe that women tend to be more risk averse in their choice of investment projects, more fearful of social sanctions, and less mobile (and therefore easier to monitor) than men—making it easier for MFIs to ensure a higher rate of repayment. However, critics have argued that microfinance has done little to change the status of women within the household. There are few points to evidence that it is mostly the men of the household and not the women borrowers who actually exercise control over the borrowings. Moreover, microfinance does little to transform the status of women in terms of occupational choice, mobility, and social status within the family. Therefore, microfinance hardly “empowers” women in any meaningful sense. Critics’ states whatever but we can see around us how a women is getting support from the micro finance and how she is empowered.
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VIII. Can the Microfinance Experiment Be Successfully Replicated Anywhere?

Although the microfinance revolution has recorded success in most developing countries of the world, it has achieved little success in some of the more developed nations. Because in all the developed countries, per capita income is comparatively very high and also they usually expect large credit rather than small amount. Here micro finance helps to eradicate the poverty but in the developed countries there will not be a problem of poverty. So micro finance does not suit for the developed countries but it suits very well for the countries like India to eradicate the poverty and to empower the poor to increase their economic status.

Overall above study states all the positive points regarding micro finance. And also answered many questions regarding micro finance. Study has given the facts and figures regarding the micro finance development and also statistics of economical developments. We have seen the figures in the beginning part of this report about how many people have involved in micro finance and development of themselves effectively.

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Negative impacts
11.1. Negatives and critics about MFIs.

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12. Negatives and critics about MFIs:

Now we shall have a look over the negatives of the micro finance and what all the critics are there on the topic of micro finance. These negatives are just a look over the critics and no assumptions and criticism has done from these negatives. Moreover we will see only the critics made from the articles, writers and professors. First we shall have a look over Devinder Sharma’s negative assessment of microfinance institutions. Devinder Sharma is an Indian journalist, writer, and thinker. He is well-known and respected for his views on food and trade policy. Trained as an agricultural scientist, Sharma had been the Development Editor of the Indian Express, the largest selling English language daily in India at that time. He quit active journalism to research on food and developmental policy issues.

He has penned down his critics in his article ‘ground reality’ Devinder’s assessment is the latest in a long list of negative articles that have appeared on the microfinance sector in India.

He stated that, Micro-finance institutions on a looting spree: making profits from poverty he substantiated his thoughts by giving some of the facts like, there can be no better business opportunity than starting a microfinance institution with assured returns and 100 per cent loan recovery. Further he state that, At 24 per cent rate of interest if the micro-finance can empower the poorest of the poor I wonder why do we have to keep the rate
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of interest for the urbanites, whether it is for housing, for car, or for any other business activity, as low as 6 to 8 per cent. Many things he has discussed in the article but we feel that he has not given much data regarding his thoughts.

He stated that, micro finance institutions are charging 20-24% interest rate for the amount which they have provided to the people. He is partially right in his thought but not completely. Because banks which are acting as micro credit providers, they are charging the rate of interest which he has stated but NGOs like Shri Dharmastala SIRI Gramodyoga samasthe, they are charging the rate of 9% interest rate on the loans which they have provided. Moreover, banks justify themselves as they are charging the rate of interest because they are not taking anything as collateral or security for issuing loans to the groups and individuals. Further, Hindustan times have published an article regarding micro finance under the heading of ‘game changer’. In that also they have stated the thoughts regarding the interest rate. They sat most of the micro finance institutions charges nearly 30% interest rate on loans. Writer says like, when the borrower asked to pay such a high rate of interest, how they would concentrate on further growth in them? They will be in the worry of repayment of loan so there will not be any empowerment and growth.

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Further there are complaints from micro finance state of the sector report like, although there are some well known exceptions, including MFIs who rely on methods such as an easy-to use housing index to target the poor, most MFIs, while contributing to the financial inclusion objective, are making no special efforts to target the poor.

Other critics like, it is well accepted that microfinance is best suited to reaching the economically active poor. It is ill-suited to solving the problem of chronic income deficits. However it is also the case that there are many potential borrowers whose income deficits could be removed by credit if they were combined with other inputs.

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Micro finance: challenges ahead

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13. MICRO FINANCE: CHALLENGES AHEAD. Micro finance system is developing rapidly in India. Even many countries have adopted micro finance system to grow economically and to make the poor people economically strong. Still there are many challenges are there in micro finance road way. They can be called as suggestions also for the development. They are; 1. Appropriate legal structures for the structured growth of MF operations. 2. Ability to access loan funds at reasonably low rates of interest. 3. Ability to attract and retain professional and committed human resources. 4. Design of MIS including user friendly software for tracking accounts and operations. 5. Ability to innovate, adapt and grow. 6. Bring out small and micro enterprises for the MF clients. 7. Identify and prepare a panel of locally available trainers. 8. Ability to train trainers. 9. Capacity to provide backward linkages or create support structures for marketing.

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With the recognition of the Nobel Peace Prize in 2006, Muhammad Yunus’s vision of extending credit to the poor has reached a global level. Microfinance is not a panacea for poverty alleviation; but, with committed practitioners, a wealth of theoretical work and a surging demand for both international and individual investment, microfinance is a poverty-alleviation tool that has proven to be both effective and adaptable.

In this study, we have tried to give a picture and evaluate the importance of Micro financial Services for making an MFI sustainable while fulfilling the Poor’s needs. In the chapters above we have discussed the poverty lending approach and financial systems approach and their benefits. The success of MFIs in other countries gives some important lessons for MFIs.

It shows that poor people have diverse credit needs. MFIs have to provide different and flexible products to help poor get out of poverty. A good institutional set-up and carefully designed product that is flexible enhances the capabilities of MFI. It is recommended that the product design and development by the MFIs be done after understanding the existing financial service behaviour and the attributes of the poor.

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During the last twenty years, there have been significant changes in both the understanding of the needs of the poor for financial services and of the provision of financial services for them.

The poor has developed its needs for different financial services as he needs to maintain and improve his life style. The microfinance revolution during the 70’s showed that the poor are bankable and now there is a time to show that these poor people are not just the people who need only credit to fulfil their living needs but they have a need for a set of financial services which can be offered by the MFIs that meet the complex livelihood needs of the poor.

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References and bibliography

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15.REFERENCES: 1. Grameen bank groups and self-help groups; what are the differences? By Malcolm harper.

2. Sa-dhan. Bharat Microfinance Report - Quick-Data 2008.

3. Self help groups in the context of microfinance. Sridhar Krishna.

4. “Microfinance:







development in India”. By Naveen Kumar Shetty.

5. “Role of self help groups in marketing microfinance products in India” written by RS Barathish Rao and Uma Sharma,

6. “Ground reality”-Negative assessment of microfinance institutions. By Devinder Sharma.

7. Goldberg, Nathanael. (2005). ‘measuring the impact of microfinance: taking stock of what we know.’ Grameen Foundation USA Publications Series,

8. Murdoch, Jonathan. (1999). ‘The Microfinance promise’, Journal of Economic literature,

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9. Zeller, Manfred and Richard L. Meyer. (2002). ‘The Triangle of microfinance: financial sustainability, outreach, and impact.’ Food Policy Statement.

10. Maria Otero, ‘’The Future of Microfinance: Creating Financial Systems to Serve the Poor Majority’’.

11. Bharat Microfinance Report - Quick-Data 2008 . 12. Micro Credit to Micro Finance Institutions. The need for Transition. Muhammad Amin. Yasir Iqbal Paracha.

13. The Microfinance Revolution: An Overview. Rajdeep Sengupta and Craig P. Aubuchon.

14. Self-Help Groups as Financial Institutions. R. Srinivasan.

15. Micro finance in India. A state of the sector report. By Prabhu ghate.

16.Does Micro-finance really benefit the Poor? Shahid khandker.

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