RAI BUSINESS SCHOOL

PROJECT ON

MANAGEMENT OF FINANCIAL
INSTITUTIONS
Micro Finance in India

SUBMITTED To
SUBMITTED BY

Mrs. Aditi Dhool SANJEET

KUMAR SINGH

SR. LECTURER HARJIT

SINGH

RBS, Delhi
22/PGPPE/08E/168

1
 Sem- IV, RBS,
New Delhi

ACKNOWLEDGEMENT
I am grateful to those who have helped me in
compiling the matter for this project. While I take
this opportunity to thank all of them-they are too
numerous to be mentioned in this brief preface.

I would like to acknowledge my deep sense of

gratitude to Mrs. Aditi Dhool (Faculty , RBS
Delhi) for her valuable help at all stage.

Lastly no words can adequately express my dept

e.g. gratitude to my all faculty members of RBS
DELHI and I also thanks my friends for their
support.

2
TO WHOM SO EVER IT MAY
CONCERN

This is to certify that Sanjeet Kumar Singh as a student of

Rai Business School, Delhi, Batch (2008-2010) PTU
University Enrollment number 22/PGPPE/08E/168 has
completed Project study of Life Skills in completed under
Guidance.

Mrs. Aditi Dhool

(LECTURER, R.B.S. Delhi)

3
 TABLE OF CONTENTS

Page
No.
1 Introduction 4
1. Introduction of the topic 5

2 Review of Literature 6

1. Theory & Concepts 9 – 12

2. Review of Literature

3 Analysis 13-20

4 Bibliography, Recommendation & Conclusion

1. Conclusion
21
2. Bibliography 22

4
 INTRODUCTION
MICRO FINANCE
Micro-Finance refers to ―small savings, credit and insurance services extended to socially and
economically disadvantaged segments of society, for enabling them to raise their income levels
and improve living standards. The main aim of Micro-Finance is too provide loan to the poor
people or to below poverty line, who are not able borrow from other sources and to make their
living standard better. Micro- finance‘s concept was first given by the Nobel laureate Prof.
Mohammad Yunus in 1976 and started Grameen Bank in that year and from then many countries
has followed Grameen Bank Model. Microfinance evolved in India in the early 1980s with the
formation of informal Self Help Group (SHG) for providing access to financial services to the
needy people. The MFIs are organized under three models: SHGs, Grameen model/Joint liability
groups and Individual banking groups as in cooperatives.

Micro financing is not a new concept. Small microcredit operations have existed since the mid
1700s. Although most modern microfinance institutions operate in developing countries, the rate
of payment default for loans is surprisingly low - more than 90% of loans are repaid. It is not just
a financing system, but a tool for social change, specially for women - it does not spring from
market forces alone - it is potentially welfare enhancing - there is a public interest in promoting
the growth of micro finance - this is what makes it acceptable as a valid goal for public policy.
Over the past few decades, this innovative scheme has attracted a range of non-governmental and
State-sponsored institutions. Leading financial institutions are the Small Industries Development
Bank of India (SIDBI), the National Bank for Agriculture and Rural Development (NABARD)
and the Rashtriya Mahila Kosh (RMK).

MICRO CREDIT

Microcredit is the extension of very small loans (microloans) to those in poverty designed to
spur entrepreneurship. These individuals lack collateral, steady employment and a verifiable

5
credit history and therefore cannot meet even the most minimal qualifications to gain access to
traditional credit. Microcredit is a part of microfinance, which is the provision of a wider range
of financial services to the very poor.

Microcredit is a financial innovation that is generally considered to have originated with the
Grameen Bank in Bangladesh. In that country, it has successfully enabled extremely
impoverished people to engage in self-employment projects that allow them to generate an
income and, in many cases, begin to build wealth and exit poverty. Due to the success of
microcredit, many in the traditional banking industry have begun to realize that these microcredit
borrowers should more correctly be categorized as pre-bankable; thus, microcredit is
increasingly gaining credibility in the mainstream finance industry, and many traditional large
finance organizations are contemplating microcredit projects as a source of future growth, even
though almost everyone in larger development organizations discounted the likelihood of success
of microcredit when it was begun.

The concept of micro credit is known more by its approach than by monetary limits to the
amount of loans. Of course, the target segment is the poorest, but Mohammed Yunus tried the
concept of joint-liability or peer-pressure. Most micro credit loans are dispensed through village
or community-level self-help groups (SHGs) who agree to create a pressure on the individual
borrower to perform as per contract.

Difference between microcredit and microfinance:

The term Micro Finance is much broader than micro credit. The main components of micro
finance are:

• Deposits
• Loans
• Payment services
• Money transfers
• Insurance to poor and low-income households and their microenterprises

6
Thus, micro credit is only a component of the broad spectrum of micro financing.

REVIEW OF LITERATURE THEORY AND CONCEPT

Microfinance is the provision of financial services to low-income clients, including consumers

and the self-employed, who traditionally lack access to banking and related services. More
broadly, it is a movement whose object is "a world in which as many poor and near-poor
households as possible have permanent access to an appropriate range of high quality financial
services, including not just credit but also savings, insurance, and fund transfers." Those who
promote microfinance generally believe that such access will help poor people out of poverty.

Origin of the concept

In 1974, Professor Muhammad Yunus, then a professor of economics, in Bangladesh was moved
by the plight of people when the country faced a famine. Famine-struck “skeleton-like people
began showing up in the railway stations and bus stations of the capital, Dhaka. Soon this trickle
became a flood. Hungry people were everywhere. Yunus left the campus and went to Jobra, a
village in Chittagong of Bangladesh, to learn a new method of banking for the poor. That is
where he tried the idea of tiny loans for self-employment of the poor, and thus, the idea of micro
finance was born. It is from here that it took the shape of Grameen Bank, Bangladesh, and
thereafter, has spread all over the world.

India‘s population is more than 1000 million, and it‘s the second largest in term of population
after China. India's GDP ranks among the top 15 economies of the world. However, around 300
million people or about 80 million households are living below the poverty line, i.e. less than $2
per day according to the World Bank and the poorest are which earns $1 per day. It is further
estimated that of these households, only about 20% have access to credit from the formal sector.
Out of these 80 million house hold, 80% takes credit from the informal sources i.e. local
Zamidars, Chit Funds etc. With about 80 million households below poverty line and 80% out of

7
this is access from informal sector, so it‘s obvious to solve this problem and this gave birth to
Micro Finance Institutions (MFI‘s). MFIs include non-governmental organizations (NGOs),
credit unions, non-bank financial intermediaries, and even a few commercial banks. India has
about 153,000 retail outlets of the formal banking infrastructure—commercial banks…There are
about 33,000 banks in rural areas, and also have special category of banks called regional rural
banks, in the abbreviated form, RRBs. There are about 14,500 branches and the cooperatives…
The cooperatives—about 100,000 retail outlets…the population for the regional outlet comes
down to as low as 4,700. Annual credit demand by the poor in the country is estimated to be
about Rs 60,000 crores. In the Indian context terms like "small and marginal farmers", " rural
artisans" and "economically weaker sections" have been used to broadly define micro-finance
customers. Women constitute a vast majority of users of micro-credit and savings services. In
short, Micro Finance means providing very poor families with very small loans to help them
engage in productive activities or grow their very small businesses. It is firstly (and this is
essential) a tool in the fight against poverty. It is not for poor people in general but for poor
people who are considered to be economically active, in other words, those who carry out
activities which generate revenues which in turn allow them to cover their needs and those of
their families, even if these revenues are low and precarious. Microfinance offers to help them
get started by giving them access to financial services from which they are generally excluded
(including savings and credit facilities, insurance and fund transfers), and in ways that are suited
to their economic and management skills. Ultimately, the goal of microfinance is to give low
income people an opportunity to become self-sufficient by providing a means of saving money,
borrowing money and insurance.

Micro Credit is defined as provision of thrift, credit and other financial services and products of
very small amount to the poor in rural, semi-urban and urban areas for enabling them to raise
their income levels and improve living standards. Micro Credit Institutions are those, which
provide these facilities. (As per RBI Master Circular, 2008). Evidently, the word micro credit
does not have an exact definition.

History

8
Ideas relating to microcredit can be found at various times in modern history. Jonathan Swift
inspired the Irish Loan Funds of the 18th and 19th centuries. In the mid-1800s, Individualist
anarchist Lysander Spooner wrote about the benefits of numerous small loans for entrepreneurial
activities to the poor as a way to alleviate poverty. Ideas relating to microcredit were mentioned
in portions of the Marshall Plan at the end of World War II.

The origins of microcredit in its current practical incarnation, with attention paid by economists
and politicians worldwide, can be linked to several organizations founded in Bangladesh,
especially the Grameen Bank in the 1970s and onward, for which its founder Muhammad Yunus
was awarded the Nobel Peace Prize in 2006.

The World Bank estimates at there are now over 7000 microfinance institutions, serving some 16
million poor people in developing countries. The total cash turnover of MFIs world-wide is
estimated at US$2.5 billion and the potential for new growth is outstanding. It is estimated that,
worldwide, there are 13 million microcredit borrowers, with US$ 7 billion in outstanding loans,
and generating repayment rates of 97 percent. It has been growing at a rate of 30 percent annual
growth.

Microfinance in India through its major channels served over 33 million Indians in the financial
year 2007-08, up by 9 million over the last financial year, out of which around 80% clients were
women. As on 31st March, 2008, outstanding microcredit portfolio of India Microfinance was
about Rs. 22,000 crore, out of which 75% are accounted for by SHG- Bank Linkage Program,
20% by large MFIs and 5% by medium and small MFIs. India's MFIs operate in 209 out of 331
poorest districts of the country; up by 5% over the previous year. The Table below gives the
volumes of MFIs, that is, excludes the volume of SFG-Bank linkage program.

Legal and Regulatory Framework for the Microfinance Institutions in India:

1. SOCIETIES REGISTRATION ACT, 1860:

NGOs are mostly registered under the Societies Registration Act, 1860. Since these entities were
established as voluntary, not-for-profit development organizations, their microfinance activities

9
were also established under the same legal umbrella. This act is applicable to the NGO‘s and the
main purpose is:
• Relief of poverty

• Advancement of education

• Advancement of religion

• Purposes beneficial to the community or a section of the community.

2. INDIAN TRUSTS ACT, 1882:

Some MFIs are registered under the Indian Trust Act, 1882 either as public charitable trusts or as
private, determinable trusts with specified beneficiaries/members.
3. NOT-FOR-PROFIT COMPANIES REGISTERED UNDER SECTION 25 OF
COMPANIES ACT, 1956:

An organization given a license under Section 25 of the Companies Act 1956 is allowed to be
registered as a company with limited liability without the addition of the words “Limited” or
“Private Limited” to its name. It is also eligible for exemption from some of the provisions of the
Companies Act, 1956. For companies that are already registered under the Companies Act, 1956,
if the central government is satisfied that the objects of that company are restricted to the
promotion of commerce, science, art, religion, charity or any other useful purpose; and the
constitution of such company provides for the application of funds or other income in promoting
these objects and prohibits payment of any dividend to its members, then it may allow such a
company to register under Section 25 of the Companies Act.

Types of Micro-credit providers in India

1) Domestic Commercial Banks

• Public Sector Banks;
• Private Sector Banks & Local Area Banks

2) Regional Rural Banks

10
 3) Co-operative Banks

4) Unregistered Non Banking Financial Corporations

5) Registered Non Banking Financial Corporations, Co-operative Societies.

RELATED LITERATURE

Boundaries and principles of micro finance

Poor people borrow from informal moneylenders and save with informal collectors. They receive
loans and grants from charities. They buy insurance from state-owned companies. They receive
funds transfers through formal or informal remittance networks. It is not easy to distinguish
microfinance from similar activities. It could be claimed that a government that orders state
banks to open deposit accounts for poor consumers, or a moneylender that engages in usury, or a
charity that runs a heifer pool are engaged in microfinance. Ensuring financial services to poor
people is best done by expanding the number of financial institutions available to them, as well
as by strengthening the capacity of those institutions. In recent years there has also been
increasing emphasis on expanding the diversity of institutions, since different institutions serve
different needs.

Some principles that summarize a century and a half of development practice were
encapsulated in 2004 by Consultative Group to Assist the Poor (CGAP) and endorsed by
the Group of Eight leaders at the G8 Summit on June 10, 2004:

• Poor people need not just loans but also savings, insurance and money transfer
services.
• Microfinance must be useful to poor households: helping them raise income, build up
assets and/or cushion themselves against external shocks.
• "Microfinance can pay for itself." Subsidies from donors and government are scarce
and uncertain, and so to reach large numbers of poor people, microfinance must pay
for itself.

11
 • Microfinance means building permanent local institutions.
• Microfinance also means integrating the financial needs of poor people into a
country's mainstream financial system.
• "The job of government is to enable financial services, not to provide them."
• "Donor funds should complement private capital, not compete with it." "The key
bottleneck is the shortage of strong institutions and managers." Donors should focus
on capacity building.
• Interest rate ceilings hurt poor people by preventing microfinance institutions from
covering their costs, which chokes off the supply of credit.
• Microfinance institutions should measure and disclose their performance – both
financially and socially.

Microfinance is considered as a tool for socio-economic development and can be clearly

distinguished from charity. Families who are destitute, or so poor they are unlikely to be able to
generate the cash flow required to repay a loan, should be recipients of charity. Others are best
served by financial institutions.

Financial needs of poor people

12
 Financial needs and financial services.

In developing economies and particularly in the rural areas, many activities that would be
classified in the developed world as financial are not monetized: that is, money is not used to
carry them out. Almost by definition, poor people have very little money. But circumstances
often arise in their lives in which they need money or the things money can buy.

In Stuart Rutherford’s recent book The Poor and Their Money, he cites several types of
needs:

• Lifecycle Needs: such as weddings, funerals, childbirth, education, homebuilding,

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

Ways in which poor people manage their money

Rutherford argues that the basic problem poor people as money managers face are to gather a
'usefully large' amount of money. Often people don't have enough money when they face a need,
so they borrow. A poor family might borrow from relatives to buy land, from a moneylender to
buy rice, or from a microfinance institution to buy a sewing machine. Most needs are met
through mix of saving and credit. A benchmark impact assessment of Grameen Bank and two
other large microfinance institutions in Bangladesh found that for every $1 they were lending to
clients to finance rural non-farm micro-enterprise, about $2.50 came from other sources, mostly
their clients' savings.

The work of Rutherford, Wright and others has caused practitioners to reconsider a key aspect of
the microcredit paradigm: that poor people get out of poverty by borrowing, building
microenterprises and increasing their income. The new paradigm places more attention on the
efforts of poor people to reduce their much vulnerability by keeping more of what they earn and

13
building up their assets. While they need loans, they may find it as useful to borrow for
consumption as for microenterprise. A safe, flexible place to save money and withdraw it when
needed is also essential for managing household and family risk.

Strengths of micro finance

In the past few years, savings-led microfinance has gained recognition as an effective way to
bring very poor families low-cost financial services. For example, in India, the National Bank for
Agriculture and Rural Development (NABARD) finances more than 500 banks that on-lend
funds to self-help groups (SHGs). SHGs comprise twenty or fewer members, of whom the
majorities are women from the poorest castes and tribes. Members save small amounts of money,
as little as a few rupees a month in a group fund. Members may borrow from the group fund for
a variety of purposes ranging from household emergencies to school fees. As SHGs prove
capable of managing their funds well, they may borrow from a local bank to invest in small
business or farm activities. Banks typically lend up to four rupees for every rupee in the group
fund. Groups generally pay interest rates that range from 30% to 70% APR, or 12% to 24% a
year, based on the flat calculation method. Nearly 1.4 million SHGs comprising approximately
20 million women now borrow from banks, which make the Indian SHG-Bank Linkage model
the largest microfinance program in the world. Similar programs are evolving in Africa and
Southeast Asia with the assistance of organizations like Opportunity International, Catholic
Relief Services, CARE, APMAS and Oxfam. Micro financing also helps in the development of
an economy by giving everyday people the chance to establish a sustainable means of income.
Eventual increases in disposable income will lead to economic development and growth.

Challenges or obstacles to micro finance

The obstacles or challenges to building a sound commercial microfinance industry include:

• Inappropriate donor subsidies

• Poor regulation and supervision of deposit-taking MFIs
• Few MFIs that meet the needs for savings, remittances or insurance
• Limited management capacity in MFIs

14
 • Institutional inefficiencies
• Need for more dissemination and adoption of rural, agricultural microfinance
methodologies.

ANALYSIS
THE MICRO CREDIT MODEL

• The model is fairly straightforward and simple.

• Focus on jump-starting self-employment, providing the capital for poor women to use their
innate "survival skills" to pull themselves out of poverty.

• Lend to women in small groups (credit circles), say of five or seven.

• Make loans of small amounts to two out of five.

• The three who have not received loans will be eligible only when this first round of loans has
been repaid. • Draw up a weekly or bi-weekly repayment schedule.

• In case any member defaults the entire circle is denied access to credit.

• Banks have been given freedom to formulate their own lending norms keeping in view ground
realities. They have been asked to devise appropriate loan and savings products and the related
terms and conditions including size of the loan, unit cost, unit size, maturity period, grace period,
margins, etc.

CURRENT SCALE OF MICRO FINANCE OPERATIONS

No systematic effort to map the distribution of microfinance has yet been undertaken. A useful
recent benchmark was established by an analysis of 'alternative financial institutions' in the
developing world. The authors counted approximately 665 million client accounts at over 3,000
institutions that are serving people who are poorer than those served by the commercial banks.

15
Of these accounts, 120 million were with institutions normally understood to practice
microfinance. Reflecting the diverse historical roots of the movement, however, they also
included postal savings banks (318 million accounts), state agricultural and development banks
(172 million accounts), financial cooperatives and credit unions (35 million accounts) and
specialized rural banks (19 million accounts).

MICRO FINANCE AND SOCIAL INTERVENTIONS

There are currently a few social interventions that have been combined with micro financing to
increase awareness of HIV/AIDS. Such interventions like the "Intervention with Microfinance
for AIDS and Gender Equity" (IMAGE) which incorporates micro financing with "The Sisters-
for-Life" program a participatory program that educates on different gender roles, gender-based
violence, and HIV/AIDS infections to strengthen the communication skills and leadership of
women. Microfinance has also been combined with business education and with other packages
of health interventions.

Comparative Analysis of Microfinance Services Offered To The Poor

PARAMETER Money Lenders Commercial Govt.Sponsored Financial

banks Programs Program of
MFIS’
Ease of Access High Low Low High

Lead time for Low Very high Very High Low-Medium

loans

Repayment Very Short Extreme Long Extreme Long Short

terms

Interest Rates Fixed and Rigid Fixed and easy Fixed and easy Flexible

Incentives None None None Repeat and larger

loan
Possible but likely Possible but likely
Repeat Possible Stream credit is
Borrowing assured
Extreme time Extreme time
Loan Access Very quick consuming consuming Simple and quick
Procedure

Collateral and Mandatory Required but Not required Not required

Demand hypothecation of although a charge social collateral is
Promissory Note asset may suffice on the assets used for physical

16
 become collateral
automatic

SWOT Analysis of micro finance

SWOT stands for Strength, Weakness, Opportunity, and Threat.

Strength
• Helped in reducing the poverty: The main aim of Micro Finance is to provide the loan to the
individuals who are below the poverty line and cannot able to access from the commercial banks.
As we know that Indian, more than 350 million people in India are below the poverty and for
them the Micro Finance is more than the life. By providing small loans to this people Micro
finance helps in reducing the poverty.

• Huge networking available: For MFIs and for borrower, both the huge network is there. In
India there are many more than 350 million who are below the poverty line, so for MFIs there is
a huge demand and network of people. And for borrower there are many small and medium size
MFIs are available in even remote areas.

Weakness
• Not properly regulated: In India the Rules and Regulation of Micro Finance Institutions are
not regulated properly. In the absent of the rules and regulation there would be high case of
credit risk and defaults. In the shed of the proper rules and regulation the Micro finance can
function properly and efficiently.

• High number of people access to informal sources: According to the World Bank report 80%
of the Indian poor can‘t access to formal source and therefore they depend on the informal
sources for their borrowing and that informal charges 40 to 120% p.a.

17
• Concentrating on few people only: India is considered as the second fastest developing
country after China, with GDP over 8.5% from the past 5 years. But this all interesting figures
are just because of few people. India‘s 70% of the population lives in rural area, and that portion
is not fully touched.

Opportunity
• Huge demand and supply gap: There is a huge demand and supply gap among the borrowers
and issuers. In India around 350 million of the people are poor and only few MFIs there to
serving them. There is huge opportunity for the MFIs to serve the poor people and increase their
living standard. The annual demand of Micro loans is nearly Rs 60,000 crore and only 5456
crore are disbursed to the borrower.

• Employment Opportunity: Micro Finance helps the poor people by not only providing them
with loan but also helps them in their business, educate them and their children etc. So in this
way Micro Finance is helping to increase the employment opportunity for them and for the
society.

• Huge Untapped Market: India‘s total population is more than 1000 million and out of 350
million is living below poverty line. So there is a huge opportunity for the MFIs to meet the
demand of that unserved customers and Micro Finance should not leave any stones unturned to
grab the untapped market.

• Opportunity for Pvt. Banks: Many Pvt. Banks are shying away from to serve the people are
unable to access big loans, because of the high intervention of the Govt. but the door open for the
Pvt. Players to get entry and with flexible rules Pvt. Banks are attracting towards this segment.

Threat
• High Competition: This is a serious threat for the Micro Finance industry, because as the more
players will come in the market, their competition will rise , and we know that the MFIs has the

18
high transaction cost and after entrant of the new players there transaction cost will rise further,
so this would be serious threat.

• Neophyte Industry: Basically Micro Finance is not a new concept in India, but that was all by
informal sources. But the formal source of finance through Micro Finance is novice, and the
rules are also not properly placed for it.

• Over involvement of Govt.: This is the biggest that threat that many MFIs are facing. Because
the excess of anything is injurious, so in the same way the excess involvement of Govt. is a
serious threat for the MFIs. Excess involvement definition is like waive of loans, make new rules
for their personal benefit etc.

HOW THE RECENT SLOWDOWN AFFECTS THE MICRO FINANCE

INSTITUTIONS

Microfinance institutions have weathered the global financial storm remarkably well, but in
2009 the credit crunch and global recession could hit the sector hard. The micro finance sector is
not fully integrated into mainstream banking and so MFIs are partially insulated from financial
markets contagion. The industry has consequently attracted mainstream banks like Citigroup,
Standard Chartered, and BNP Paribas. SKS Microfinance, India's largest MFI, recently raised
about 75 million dollars from private equity sources. The most immediate worry is that the
global credit crunch will affect the cost and availability of funding. The most vulnerable MFIs
will be those that get their money from foreign banks. Credit is now tighter, slower, and more
costly. As financial institutions are struggling with their liquidity, they have less money to lend
to microfinance institutions, which in turn means less to lend to the poor, and lending happens
then at the higher rate. Current slowdown also increases the rate of interest on borrowed sum,
this further increases the funding loan of the MFI‘s and the poor people who takes loan from the
MFI‘s, would find it difficult to borrow and this further increases the more people Below Poverty
Line (BPL)

19
Many microfinance banks are not disturbed by the global happenings due to, the fact that they all
have high savings- and deposit this leads to less dependence on government, bank and external
funding. But even savings-led institutions are not immune to a global economic crisis. MFI
managers now report that high prices for food and fuel, a lack of demand for microenterprise
products and decrease in the incomes of the earning members are hurting their clients. More and
more clients withdraw their savings or have trouble repaying their loans.

Future of Micro Finance

Microfinance expansion over the next decade can be expected to be an extension of what has
been achieved so far while overcoming the hurdles that have been posing difficulty in effective
microfinance operation and its expansion. There may be several participants in this process and
their participation may be seen in the following forms.
Existing microfinance institutions can expand their operations to areas where there are no
microfinance programs.

• More NGOs can incorporate microfinance as one of their programs.

• In places where there are less micro finance institutions, the government channels at the
grassroots level may be used to serve the poor with microfinance.

• Postal savings banks may participate more not only in mobilizing deposits but also in
providing loans to the poor and on lending funds to the MFIs.

• More commercial banks may participate both in microfinance wholesale and retailing.
They many have separate staff and windows to serve the poor without collateral.

• International NGOs and agencies may develop or may help develop microfinance
programs in areas or countries where micro financing is not a very familiar concept in
reducing poverty.

Considering that the majority of the 360 million poor households (urban and rural) lack access to
formal financial services, the numbers of customers to be reached, and the variety and quantum
of services to be provided are really large. It is estimated that 90 million farm holdings, 30
million non-agricultural enterprises and 50 million landless households in India collectively need
20
approx US$30 billion credit annually. This is about 5% of India's GDP and does not seem an
unreasonable estimate.

However, 80% of the financial sector is still controlled by public sector institutions. Competition,
consolidation and convergence are all being discussed to improve efficiency and outreach but
significant opposition remains.
Many private and foreign banks have unveiled their plans to enter the Indian microfinance sector
because of its very low NPAs and high repayment rate of more than 95% in spite of offering
loans without any collateral security.

Microfinance is not yet at the centre stage of the Indian financial sector. The knowledge, capital
and technology to address these challenges however now exist in India, although they are not yet
fully aligned. With a more enabling environment and surge in economic growth, the next few
years promise to be exciting for the delivery of financial services to poor people in India

Development of Small-Scale Enterprises through microfinance will not only increase the
outreach but will also help the generation of more employment and income for the poor. It is
expected that in the following years there will be considerable deepening of microfinance in this
direction along with simultaneous drives to reach and serve the poorest of the poor.

21
 CONCLUSION

• The concept of Micro Finance is still new in India. Not many people are aware the Micro
Finance Industry. So apart from Government programmes, we the people should stand
and create the awareness about the Micro Finance.
• The purpose of this study was to understand micro finance in India Micro Finance
Industry has the huge potential to grow in future, if this industry grows then one day
we‘ll all see the new face of India, both in term of high living standard and happiness

22
BIBLIOGRAPHY

• www.indiamicrofinance.com
23
• www.forbes.com

• www.ifmr.ac.in

• www.google.com

• www.microfinanceinsight.com

• www. wikipedia.com

24