Project Report

(Submitted for the Degree of B.Com Honours in Accounting & Finance under the University of
Calcutta)

“MICRO-FINANCE INSTITUTIONS IN INDIA”

Submitted by

Name of the Candidate: Kumar Kshitij

Registration No: 017-1111-2191-18
CU Roll No: 181017-21-0825
Name of the College: The Bhawanipur Education Society College
College UID: 0103183201

Supervised by

Name of Supervisor : PROF. Debdutt Sen

Name of the College : The Bhawanipur Education Society College

Month and year of submission

July, 2021

Supervisor’s Certificate

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This is to certify that Mr.KUMAR KSHITIJ a student of B.Com Honours in Accounting and
Finance of THE BHAWANIPUR EDUCATION SOCIETY COLLEGE under the University
of Calcutta has worked under my supervision and guidance for her Project Work and prepared a
Project Report with the title MICRO-FINANCE INSTITUTIONS IN INDIA which he is
submitting, is his genuine and original work to the best of my Knowledge .

Place: Kolkata
Date:

Signature:
Name: Deb Dutta Sen
Designation: Lecturer
Name of the College: The Bhawanipur Education Society College

Student’s Declaration

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I hereby declare that the Project Work with the title MICRO-FINANCE INSTITUTIONS IN
INDIA submitted by me for the partial fulfillment of the degree of B.Com Honours in
Accounting & Finance under the University of Calcutta is my original work and has not been
submitted earlier to any other University for the fulfillment of the requirement for any course of
study.
I also declare that no chapter of this manuscript in whole or in part has been incorporated in
this report from any earlier work done by others or by me. However, extracts of any literature
which has been used for this report has been duly acknowledged providing details of such
literature in the references.

Signature:
Name: KUMAR KSHITIJ
Address: B.H Colony , PATNA
Registration No: 017-1111-2191-18

Place: PATNA
Date: 14-07-2021

ACKNOWLEDGEMENT

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This report is an outstanding prospect to convey my gratefulness to those many people whose
timely help and guidance went a long way in finishing this project work from commencement
to achievement.

I am very grateful to my project guide PROF. DEBDUTTA SEN for her valuable and
timely guidance throughout the project. Her feedbacks, guidance and support has been very
useful and are valuable. I would thank him for being my mentor in this research.

Last but not the least would like to thank my friends, family and all those people who have found
out time to help me with my project as and when needed. Without their help this project would
not have been a presentable one.

Working on this project has proved to be an enlightening experience for me.

INDEX
CHAPTER CHAP DETAILS PAGE
NO T ER NO

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 1.1Background of the 7-8
1. INTRODUCTION study
1.2Review of literature 8-10
1.3Objective of the 10
study
1.4Research 11-12
methodology
1.5Limitations of the 12
study.
1.6Chapter planning 13

2.1Definition of the 14-15

2. CONCEPTUAL
concept
2.2Features of 15
FRAMEWORK microfinance
2.3Role and importance 16-17
of microfinance
2.4Advantages of 17-18
microfinance in India
2.5Disadvantages of 18-19
microfinance in India
2.6Evolution of 19-21
microfinance in India
2.7Microfinance 21-24
delivery models in
India
2.8International 25
scenario of
microfinance

3.1 Analysis and 26-41

3. interpretation of the
DATA ANALYSIS & study.
PRESENTATION 3.2 SWOT Analysis of 42
microfinance.

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 4.1 Conclusion 43
4. 4.2 Recommendation 44
CONCLUSION &
RECOMMENDATION

BIBLIOGRAPHY bibliography 45

CHAPTER 1:- INTRODUCTION

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1.1 BACKGROUND OF THE STUDY

Microfinance is not a new concept. It dates back in the 19th century when money lenders were
informally performing the role of now formal financial institutions. Over the past two decades,
various development approaches have been devised by policymakers, international
development agencies, non-governmental organizations, and others aimed at poverty
reduction in developing countries. One of these strategies, which have become increasingly
popular since the early 1990s, involves microfinance schemes, which provide financial services
in the form of savings and credit opportunities to the working poor.

According to the records of World Bank, India falls under low income class. It is second
populated country in the world. In India, rate of underemployment is high as 70 percent of its
population lives in rural area and 60% of people depend on agriculture .Rural people have very
low access to institutionalized credit (from commercial bank). Since 1990s, poverty reduction
has taken priority at both national and international development levels. Within this framework,

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various initiatives have been taken by government. Microfinance has caught the attention as an
effective tool for poverty reduction and socio- economic development. Hence
Microfinance can play a vital role for improving the standard of living of poor.

In India, the beginning of microfinance movement could be traced to Self Help Group (SHG) –
Bank Linkage Programme (SBLP) started as a pilot project in 1992 by NABARD. This
programme proved to be very successful and has also developed as the most popular model of
microfinance in India. The regulatory framework for microfinance in India is not unified.
Microfinance is provided by commercial banks, Regional Rural banks (RRB), the SHG’s,
cooperative societies and institutions (MFIs) that take various forms, including those of
NGO’s and non-Bank Financial Institutions (NBFT’s).Banks and NBFT’s are governed by the
Reserve Bank of India (RBI), SHG’s are regulated by NABARD, and the cooperatives are
governed by Registrar of Cooperative Societies (RCS) etc

banks, Regional Rural Banks (RRBs), the SHG’s, cooperative societies and institutions (MFIs)
that take
various forms, including those of NGO’s and Non-Bank Financial Institutions (NBFI’s).
Banks and
NBFI’s are governed by the Reserve Bank of India (RBI), SHGs are regulated by
NABARD, and the cooperatives are governed by Registrar of Cooperative Societies (RCS) etc
1.2 REVIEW OF LITERATURE

For breadth of perspective, substantiation of arguments and depth in reflection of microfinance

institution I studied the following lists of books that helps to complete the project.

Kumar Vipin et. al. (2015) study concluded that the SHG’s and MFI’s are playing a vital role in
delivery of microfinance services which leads development of poor and low income people in
India. However, slow progress of graduation of SHG members, poor quality of group
functioning, dropout of members from groups etc., have also been reported various study
findings in different parts of the country, which need to be taken into account while designing
the road map for the next phase of the SHG programme.

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Nikita (2014) study concludes that first time in the year 2012-13 after the launch of SHGs BLP
there is a decline in the number of SHGs who’s saving linked with banks. The study also finds
there was growth in the loan outstanding of SHG and which was responsible for increases in
NPAs. At last it is found out that the major share belongs to commercial banks when the agency
wise loan issued to MFI. He suggested that steps should be taken to improve the performances of
programs launched under Microfinance time to time.

Mahanta et. al. (2012) study revealed that lending to the poor through microcredit is not the
end of the problem but beginning of a new era. If effectively handled, it can create miracle in the
field of poverty alleviation. but it must be bundled with capacity building programs. Government
cannot abdicate its responsibility of social and economic development of poor and
downtrodden. The absence of any special skills with the clients of microcredit, the fun is being
used in consumption and procurement of non-productive assets. Hence it is very important
to provide skill development training program like handicraft, weaving, carpentry,
poultry, goat rearing, masonry, bees farming, vegetable farming and many other agricultural
and non-agricultural training. Government has to play proactive role is this case. People
with some skills have to be given priority in lending microcredit. These clients should also
provided with post loan technical and professional aid for success of their microenterprises. If
government and MFIs act together then microcredit can play a great role in poverty alleviation.

Maruthi Ram Prasad, Sunitha and Laxmi Sunitha (2011) conducted a study on
Emergency and Impact of Micro-Finance on Indian Scenario. After the pioneering efforts by
Government, Banks, NGOs, etc the microfinance scene in India has reached in take off stage. An
attempt could be initiated to promote a cadre of new generation micro-credit leaders in order to
strengthen the emergence of Micro-Finance Institution (MFIs), so as to optimize their
contribution towards the growth of the sector and poverty alleviation. Each Indian state
could consider forming multi-party working group to meet with microfinance leaders and have a
dialogue with them about how the policy environment could be made more supportive and to

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clear up misperceptions. With one state leading the way, we need to build on a
successful model. By unleashing the entrepreneurial talent of the poor, we will slowly but
surely transform India in ways we can only begin.

Idowu Friday Christopher (2010) conducted a study to find the Impact of Microfinance on
Small and Medium-Sized Enterprises in Nigeria. The fundamental objective of this study is to
assess the impact of Microfinance on Small and Medium Enterprises (SMEs) in Nigeria. Simple
random sampling technique was employed in selecting the 100 SMEs that constituted the sample
size of the research. Structured questionnaire was designed to facilitate the
acquisition of relevant data which was used for analysis. Descriptive statistics which involves
simple percentage graphical charts and illustrations was tactically applied in data presentations
and analysis. The findings of the study reveal that significant number of the SMEs benefitted
from the MFIs loans even though only few of them were capable enough to secure the required
amount needed. Interestingly, majority of the SMEs acknowledge positive contributions of MFIs
loans towards promoting their market share, product innovation achieving market excellence and
the overall economic company competitive advantage. Other than tax incentives and financial
supports, it is recommended that Government should try to provide sufficient
infrastructural facilities such as electricity, good road network and training institutions to support
SMEs in Nigeria.

1.3 OBJECTIVE OF THE STUDY

 To understand the concept of microfinance in India.

 To study the progress and performance of Microfinance in India since 2016-2019.
 To study the agency wise status of SHG-BLP and loan to MFI during the period under
study.
 To study the region wise progress of saving linked SHGs with banks.
 To do the SWOT analysis of Microfinance in India

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1.4 RESEARCH METHODOLOGY

Research Methodology is the conceptual structure within which research is conducted. It

constitutes the blueprint for the collection measurement and analysis of the data.
Research methodology is a framework for the study and is used as a guide in collecting
and analyzing the data. It is a strategy specifying which approach will be used for
gathering and analyzing the data. it also includes time and cost budget since most studies
are done under these two constraints.

METHOD OF DATA COLLECTION:

After the research problem has been identified and selected the next step is to gather the
requisite data. Data with this reference may be defined as facts and statistics collected
together for reference or analysis. While deciding about the method of data collection to
be used for the researcher should keep in mind two types of data i.e. primary and
secondary.

Primary Data

The primary data are those, which are collected afresh and for the first time, and thus
happened to be original in character. We can obtain primary data either through
observation or through direct communication with respondent in one form or another or
through personal interview.

Secondary Data

The secondary data on the other hand, are those which have already been collected by
someone else and which have already been passed through the statistical processes.
When the researcher utilizes secondary data then he has to look into various sources
from where he can obtain them. For e.g. books, magazine, newspaper, internet,
publications and reports. In this project the data collected are secondary in nature. These

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secondary data are collected from various sources like internet, books, journals, magazines,
newspaper etc.

My project is based on Secondary data After collecting this data from relevant sources some
statistical tools like bar diagram and line diagram are applied to analyse the data with the help of
Microsoft excel. To access the performance of the microfinance institutions in India, the relevant
information relating to loans disbursed, loans outstanding, client outreach, assets, etc. were
collected from Status of Micro Finance in India, NABARD report, The Bharat Microfinance
Report and other relevant sources for the period 2017-2020.

1.5 LIMITATIONS OF THE STUDY

In this project the limitations are:-

 Inadequacy of data
Lack of availability of primary data is one of the major limitations of this study.
 Collection of data is time consuming:-
Collection of primary data for this project is very time taking. Due to shortage of time
the entire study is based on secondary data available in the websites.
 cost constraint:-
Collection of primary data is very expensive.

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1.6 CHAPTER PLANNING
CHAPTER 1: INTRODUCTION
1.1 Background of the study.
1.2 Review of literature.
1.3 Objective of the study.
1.4 Research methodology.
1.5 Limitations of the study.

CHAPTER 2: CONCEPTUAL FRAMEWORK

. 2.1 Definition of the study.
2.2 Features of microfinance.
2.3 Role and importance of microfinance.
2.4 Advantages of microfinance in India.
2.5 Disadvantages of microfinance in India.
2.6 Evolution of microfinance in India.
2.7 Microfinance delivery models in India.
2.8 International scenario of microfinance.

CHAPTER 3: DATA ANALYSIS & PRESENTATION

3.1 Analysis and interpretation of the data.

3.2 SWOT Analysis of microfinance.

CHAPTER 4: CONCLUSION & RECOMMENDATION

4.1 Conclusion.

4.2 Recommendations.

CHAPTER 5: BIBLIOGRAPHY

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CHAPTER 2:- CONCEPTUAL FRAMEWORK

2.1 DEFINITATION OF THE CONCEPT

Micro finance – also called microcredit – is a way to provide small business owners and
entrepreneurs access to capital.

Often these small and individual business don’t have access to traditional financial resources
from major institutions. Microfinance is providing loans, credit, access to saving accounts even
insurance policies and money transfers to the small business owners and entrepreneur. There are
so many enterprises in the developing world.

Micro finance enables the poor and excluded section of people in the society who do not have
an access to formal banking to build assets, diversity livelihood options and increase income, and
reduce their vulnerability to economic stress. In the past, it has been experienced that the
provision for financial products and services to the poor people by MFIs can be practicable and

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sustainable as MFIs can cover their full costs through adequate interest spreads and by operating
efficiently and effectively.

Microfinance is defined as a development tool that grants or provides financial services and
products such as very small loans, savings, micro-leasing, micro-insurance and money transfer to
assist the very or exceptionally poor in expanding or establishing their businesses. The target
group of MFIs are self employed low income entrepreneurs who are; traders, seamstresses, street
vendors, small farmers, rickshaw drivers etc.

2.2 FEATURES OF MICROFINANCE

Some of the features of microfinance are listed below :

 The borrowers are generally from low income background.

 Loans availed in the microfinance are usually of small amount i.e., microloans.
 These kinds of loans do not require any collateral security against them as they basically
provide loans to the people who want to start a business of their own.
 These loans are usually repaid at higher frequencies because the period of the loan is
short term.
 Interest rate is usually in between money lenders and formal banks.
 They provide simplified savings and loan procedures.
 The purpose of most microfinance loans are income generation.

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  Fit for those who cannot access traditional source of financing.

2.3 ROLE AND IMPORTANCE OF MICROFINANCE

According to the research done by the World Bank, India is home to almost one third of the
worlds poor. Though many central government and state government poverty alleviation
programs are currently active in India, microfinance plays a major contributor to financial
inclusion. In the past few decades it has helped out remarkably in eradicating poverty. Reports
show that people who have taken microfinance have been able to increase their income and
hence the standard of living. Thus Microfinance plays a major role in upliftment of Indian
economy in following ways:-

CREDIT TO RURAL POOR:-Usually rural sector depends on non-institutional agencies for

their financial requirements. Micro financing has been successful in taking institutionalized
credit to the doorstep of poor and have made them economically and socially sound.

POVERTY ALLEVIATION:- Due to microfinance poor people get employment. It also helps
them to improve their entrepreneurial skills and encourage them to exploit business
opportunities. Employment increases income level which in turn reduces poverty.

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WOMEN EMPOWERMENT:-Normally more than 50% of SHGs are formed by women .
Now they have greater access to financial and economical resources. It is a step towards greater
security for women. Thus microfinance empowers poor women economically and socially.

ECONOMIC GROWTH:- Finance plays a key role in stimulating sustainable economic

growth. Due to microfinance, production of goods and services increases which increases GDP
and contributes to economic growth of the country.

MOBILISATION OF SAVINGS:-Microfinance develops saving habits among people. Now

poor people with meager income can also save and are bankable. The financial resources
generated through savings and micro credit obtained from banks are utilized to provide loans and
advances to its members. Thus microfinance helps in mobilisation of savings.

DEVELOPMENT OF SKILLS:-Micro financing has been a boon to potential rural

entrepreneurs. SHGs encourage its members to set up business units jointly or individually. They
receive training from supporting institutions and learn leadership qualities. Thus micro finance is
indirectly responsible for development of skills.

MUTUAL HELP AND CO-OPERATION:-Microfinance promotes mutual help and co-

operation among members. The collective effort of group promotes economic interest and helps
in achieving socioeconomic transition.

SOCIAL WELFARE:-With employment generation the level of income of people increases.

They may go for better education, health, family welfare etc. Thus micro finance leads to social
welfare or betterment of society.

2.4 ADVANTAGES OF MICROFINANCE IN INDIA.

Microfinance is the practice of extending a small loan or other form of credit, savings, checking
or insurance products to individuals who do not have access to this type of capital. This allows
individuals who are living in poverty to work on becoming financially independent so they can
work their way into better living conditions. Since a majority of the world is forced to survive

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on the equivalent of just $2 per day , microfinance becomes a solution that can help more people
be able to improve their living conditions. These are the benefits of microfinance in developing
countries and why everyone should consider getting involved in this form of lending.

 It allows people to better provide for their families.

 It gives people access to capital.

 It serves those who are often overlooked in society.

 It offers a better overall loan repayment rate than traditional banking products.

 It provides families with an opportunity to provide an education to their children.

 It creates the possibility of future investments.

 It can create real jobs.

 It encourages people to save and reduces stress.

 It allows people to feel like they matter.

 It offers significant economic gains if income levels remain the same.

2.5 DISADVANTAGES OF MICROFINANCE IN INDIA.

Microfinance established to overcome some of the challenges of micro and small business
enterprises who cannot open bank account with commercial bank because of their low amount of
turnover and in return they cannot borrow from the same banks because they cannot provide any
collateral. As the cash involved is too low commercial bank in many countries are not yet
prepared to deal with micro and small enterprises. The disadvantages of micro financing are as
follows:

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  They deal with low volume of money since there is a limitation on the amount that they
can deal with.
 They provide loans against no collateral and at any times the risk of non payment can
arise.
 Their bad debts are quite high.
 They cannot provide service more than a certain number of customers as they deal with
less number of people.
 Microfinance helps women. That’s good but not good enough to transform communities.
Communities are formed on equal part of men and women, who have a strong affinity of
forming bonds with each other. Development that helps women but does not involve
man has a natural self limitation.

2.6 EVOLUTION OF MICROFINANCE IN INDIA.

The evolution of Indian Microfinance sector can be broadly divided into four distinct phases:

Phase 1: The Cooperative Movement (1900-1960)

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During this phase, credit cooperatives were vehicles to extend subsidized credit to
villages under government sponsorship.

Phase 2: Subsidized Social Banking (1960s - 1990)

With failure of cooperatives, the government focused on measures such as nationalization of

Banks, expansion of rural branch networks, establishment of Regional Rural Banks (RRBs) and
the setting up of apex institutions such as the National Bank for Agriculture and Rural
Development (NABARD) and the Small Scale Industries Development Bank of India (SIDBI),
including initiation of a government sponsored Integrated Rural Development
Programme (IRDP). While these steps led to reaching a large population, the period was
characterized by large-scale misuse of credit, creating a negative perception about the credibility
of micro borrowers among bankers, thus further hindering access to banking services for the
low-income people.

Phase 3: SHG-Bank Linkage Program and Growth of NGO-MFIs (1990 -

2000)

The failure of subsidized social banking triggered a paradigm shift in delivery of rural
credit with NABARD initiating the Self Help Group (SHG) Bank Linkage Programme
(SBLP), aiming to link informal women's groups to formal banks. The program helped increase
banking system outreach to otherwise unreached people and initiate a change in the bank's
outlook towards low-income families from 'beneficiaries' to 'customers'. This period was thus
marked by the extension of credit at market rates. The model generated a lot of interest among
newly emerging Microfinance Institutions (MFIs), largely of non-profit origin, to collaborate
with NABARD under this program. The macroeconomic crisis in the early 1990s that led to
introduction of the Economic Reforms of 1991 resulted in greater autonomy to the financial

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sector. This also led to emergence of new generation private sector banks that would become
important players in the microfinance sector a decade later.

Phase 4: Commercialization of Microfinance

The First Decade of the New Millennium Post reforms, rural markets emerged as the new growth
drivers for MFIs and banks, the latter taking interest in the sector not only as part of their
corporate social responsibility but also as a new business line. On the demand side, NGO
MFIs increasingly began transforming themselves into more regulated legal entities such as Non-
Banking Finance Companies (NBFCs) to attract commercial investment. The microfinance
sector as it exists today essentially consists of two predominant delivery models the SBLP and
MFIs. Four out of five microfinance clients in India are women.

2.7 MICROFINANCE DELIVERY MODELS IN INDIA

The non-availability of credit and banking facilities to the poor and underprivileged segments of
the society has always been a major concern in India. The Government and the Reserve Bank
have taken several initiatives, from time to time, such as nationalisation of banks, prescription of
priority sector lending norms and concessional interest rate for the weaker section of society. It
was, however, realised that further direct efforts were required to address the credit needs of poor
people. In response to this requirement, the Micro finance movement started in India with the
introduction of SHG bank linkage programme (SBLP) in the early 1990s. At present, there
are mainly two models for delivery of Microfinance in India:

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1. SHG – Bank Linkage Programme (SBLP)

A SHG is a small group of about 10-20 persons from a homogeneous class of rural and urban
poor which promoted savings among members and used these resources for meeting their credit
needs The group is democratically formed and elects its own leaders. The vital features of SHGs
are it consists of members belonging to the same community or society and having common
economic goal. In this model, the informal SHGs are credit linked with the formal financial
institutions. The SHG-Bank Linkage Model has emerged as a dominant model in terms of
number of borrowers and loans outstanding. This model is flexible, independence creating,
and imparts freedom of saving and borrowing according to the requirements of group
members. Due to widespread rural bank branch network, the SHG-BLM is very suitable to the
Indian context. Microfinance movement started in India with the introduction of SHG-Bank
Linkage Programme (SHG BLP). The programme uses SHGs as an intermediation between the
banks and the rural poor to help in reducing transaction costs for both the banks and the rural
clients. Banks provide the resources and bank officials/NGOs/ government agencies organise the
poor in the form of SHGs. Under this programme, loans are provided to the SHGs with three
different methodologies:

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 MODEL 1: SHGs formed and financed by banks. In this model, banks
themselves take up the work of forming and nurturing the groups, opening their
savings accounts and providing them bank loans.

 MODEL 2: SHGs formed by agencies other than banks, but directly financed
by banks: in this model, NGOs and other formal agencies in the field of
microfinance facilitate organizing, forming and nurturing of SHGs and train
them in thrift and credit management. The banks directly give loans to these
SHGs .

 MODEL 3: SHGs financed by banks using other agencies as financial

intermediaries. This is the model where the NGOs take on the additional role of
financial intermediation along with the formation of group. In areas where the
formal banking system faces constraints, the NGOs are encouraged to form
groups and to approach a suitable bank for bulk loan assistance. This method is
generally used by most of the NGOs having small financial base.

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2. Micro Finance Institutions (MFIs)

The MFI model has also gained momentum in India in the recent past. MFI model is found
worldwide whereas the SHG-BLM model is an Indian model. In MFI model MFIs borrow large
amount of funds from the apex financial institutions, donors and banks for on-lending to the
individuals or groups. These MFIs provide financial services to the individuals or to the groups
like SHGs. These institutions lend through the concept of Joint Liability Group (JLG). A JLG is
an informal group comprising of 5 to 10 individual members who come together for the
purpose of availing bank loans either individually or through the group mechanism against a
mutual guarantee. MFIs in India exist in a variety of forms like trusts registered under the Indian
Trust Act, 1882/Public Trust Act, 1920; societies registered under the Societies Registration
Act, 1860; Cooperatives registered under the Mutually Aided Cooperative Societies Acts of the
States; and nonbanking financial companies (NBFC)-MFIs, which are registered under Section
25 of the Companies Act, 1956 or NBFCs registered with the Reserve Bank. These MFIs are
scattered across the country and due to the multiplicity of registering authorities

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2.8 INTERNATIONAL SCENARIO OF MICROFINANCE

The growth and performance of microfinance sector in the international arena during the recent
years has shown significant differences across the different regions of the world. This could be
attributable to the fact that microfinance as a part of the overall financial sector is expected to be
influenced directly or indirectly by the positive or negative changes that take place in the global
economy or the regional financial markets. However, till date there is no systematic and
comprehensive database available on MFIs around the world for measuring the changes that is
happening in the microfinance sector. Inspite of the drawbacks, there are independent datasets of
varying quality and coverage that have been collected by different agencies such as Microfinance
Information Exchange (MIX), the savings Groups Information Exchange (SAVIX), the
Microcredit summit, the World Council of Credit Unions (WOCCU) and the World Savings
Banks Institute (WSBI). Amongst these agencies, MIX provides the largest cross-country
database of MFIs around the world. It covers information of approximately 2,000 MFIs that
serve more than 80 % of all known microfinance clients worldwide. MIX reports that the MFIs
currently operate in over 100 countries thereby serving more than 94 million clients across the
globe.

SOME GLOBAL BODIES WORKING IN THE FIELD OF MICROFINANCE

 Microfinance Information Exchange (MIX)

 Consultative Group to Assist the poor( CGAP)
 Foundation for International Community Assistance (FINCA)
 Americans for Community Co-operation in Other Nations (ACCION)
 Grameen Foundation.

HIGHLIGHTS ABOUT MICROFINANCE

Muhammad Yunus was awarded the Nobel Peace Prize for founding the Gramin Bank and
pioneering the concepts of microcredit and microfinance. He is a Bangladeshi social
entrepreneur, banker, economist, and civil society leader. In 2006, Yunus and Gramin Bank were
jointly awarded the noble peace Prize “for their efforts through microcredit to create economic
and social development .”

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CHAPTER 3 :- DATA ANALYSIS AND PRESENTATION
Microfinance is the provision of financial services to the poor who are otherwise considered
un-bankable. In India, National Bank Of Agriculture and Rural Development (NABARD) took
this idea and started the concept of microfinance in India. Microfinance is different from
microcredit-In micro-credit, small loans are given to the borrowers but under microfinance
alongside many other financial services including savings accounts and insurance. There are two
models in India that link the formal financial sector with lending to low-income households in
India, namely SHG and MFI bank linkage programme.

The present study is an attempt to analysis the performance of Microfinance in India. The present
study is based on the secondary data. The relevant data has been collected from NABARD
(status of microfinance in India report). The time period of the study has been taken from
2017-2018 to 2019-2020.

3.1 ANALYSIS OF THE STUDY

Table 3.1.1: Progress under SHG bank linkage programme

Particulars 2017-2018 2018-2019 2019-2020

No of Amount No of Amount No of Amount
SHGs (in (in SHGs (in (in SHGs (in (in
lakhs) crores) lakhs) crores) lakhs) crores)

Savings of SHGs with 85.77 16114.23 87.44 19592.12 100.14 23324.48

banks (8.53%) (17.69%) (1.95%) (21.59%) (14.52%) (19.05%)

Loan distributed by 18.98 38781.16 22.61 47185.88 26.98 58317.63

banks (3.60%) (4.01%) (19.13%) (21.67%) (19.33%) (23.59%)

Bankloan outstanding 48.48 61581.30 50.20 75598.45 50.77 87098.15

with the bank (3.74%) (7.81%) (3.55%) (22.76%) (1.14%) (15.21%)

NOTE:-figures in ( ) indicates increase/decrease over the previous year. SOURCE: NABARD

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 FIGURE: 3.1.1(a)

No of SHGs
120

80

40

0
nk n ks an
k
ba
in lakhs

ba b
th by he
s wi d th
t
te wi
HG u
fS st rib in
g
g so di an
d
in an t st
v lo ou
sa
an
lo
nk
ba

Interpretation: it can be seen that there is in an increase as compare to the previous year in all
the three heads.

FIGURE: 3.1.1(b)

Amount
100000
90000
80000
70000
60000
50000
40000
30000
in crore

20000
10000
0

`27
Interpretation: it can be clearly concluded that there is an increase in the last three years in all
the three heads.

INTERPRETATION:-

(a)Savings of SHGs with the banks: Table depicts the savings of SHGs with banks, as we see,
in the year 2017-2018, 85.77 lakh SHGs were having a saving account with the banking sector
with saving of 16114.23 crore. In the year 2018-2019, the number of SHGs having a saving
account with the banks showed an increase of 1.95% with 21.59% increase in saving amount as
compared to the previous year. Further, in the year 2019-2020 a total of 100.14 lakh SHGs were
having saving account with saving 23324.48 crores against 87.44 lakh SHGs with saving of
19592.12 crore in the previous year. It shows that there has been a progress in amount of saving
balance with the banks to the extent (19.05%) as compared to previous year.

(b)Loan disbursed by banks: During 2017-2018, banks have financed 18.98 lakh SHGs, with
bank loan of 38781.16 crore. In the year 2018-2019, the number of SHGs availing fresh loans by
banks showed an increase of 19.13% and the quantum of fresh loans issued increased by 21.67%
as compared to previous year. Further during the year 2019-2020,the number of SHGs availing
fresh loans by banks showed an increase of 19.33% and the quantum of fresh loans issued
increased by 23.59% as compared to previous year.

(c)Loan outstanding with the banks: In the year 2017-18, total number of 48.48 lakhs SHGs
were having outstanding bank loan of 61581.30 crore. Further, the number of SHGs having loans
outstanding against them from banks increase by 3.55% during the year 2018-19 along with the
quantum of loans outstanding increased to 75598.45 crore (22.76% increase over last year). The
growth in the loan outstanding of SHGs with banks in the year 2019-20 is 15.21% and the
growth in the number of SHGs having outstanding loans with banks is 1.14%. So loan
outstanding is responsible for increase in NPAs of SHGs loan with banks.

`28
Table 3.1.2: Progress under MFI bank linkage programme

Particulars 2017-18 2018-19 2019-20

No of Amount No of Amount No of Amount

accounts (in accounts (in accounts (in
crores) crores) crores)
Loan disbursed by
banks to MFI 2314 19304.38 1922 25515.23 1933 14625.95

Loan outstanding
against MFI with the 5357 29225.45 5073 32305.92 5488 17760.68
bank as on 31st march
SOURCE: NABARD.

FIGURE : 3.1.2(a)

6000 No of Accounts
5000

4000

3000

2000

1000

Interpretation: it can be seen from the graph that in both loan disbursed and loan outstanding
there is a decrease in year 2018-19 and then an increase in the year 2019-20

`29
 FIGURE: 3.1.2(b)

35000 Amount
30000
25000
20000
15000
10000
in crores

5000
0

Interpretation: In the year 2018-19, huge amount of money is involved but there is a downfall
in both the cases in the year 2019-20.

NOTE:-Actual number of MFIs availing loans from banks would be less than the figures shown
as most of MFIs avail loans from more than one bank/more than one loan account.

INTERPRETATION:-

Table3.1.2 highlights that the MFIs seem to loosing the confidence of the client as well as the
lending institution. Fresh loans issued to MFI s by banks showed a decrease in the year 2019-20
as compared to previous year, while the no of MFIs having access to fresh loans increased. But

`30
loan outstanding in bank in the year 2019-20 is the lowest compare To the previous years while
the no of accounts having loan outstanding against MFIs with the bank as on 31 st march
increases.

Table 3.1.3: Agency wise status of SHG-BLP

Financing Period Savings of

SHG Loan disbursed Bank loan
Agency with banks by banks outstanding with
the banks
No of Amount No of Amount No of Amount
SHGs (in SHGs (in SHGs (in
lakhs) lakhs) lakhs)
All 2017-18 4444428 1017002 111644 2429702 267030 3866847
commercial 2018-19 4633712 1166422 2 2870762 290408 4874.05
banks 2019-20 5476914 1324023 127288 3449246 6 5564112
6 290120
151290 9
7
Regional rural 2017-18 2586318 363176 557540 1161300 161184 1911991
banks 2018-19 2807744 580735 782563 1511334 165822 2273864
2019-20 3078473 76920.12 940818 1955264 1 2619598
169553
4
Cooperative 2017-18 1546129 231244 224138 287113 566141 3792922
banks 2018-19 1302981 212054 205683 335892 458051 411176
2019-20 1458856 2392236 244467 4272517 480589 5261055
5
Total by all 2017-18 8576875 1611423 189812 3878116 484828 6158130
agencies 2018-19 8744437 1959211 0 4718588 502058 7559845
2019-20 1001424 2332448 226113 5731762 507733 8709815
3 2 2
269840
0
SOURCE: NABARD(status of microfinance in india )

`31
 FIGURE:3.1.3(a)

Savings of SHGs with banks

2019-20

Cooperative banks
2018-19 Regional rural bank
All commercial banks
2017-18

0 0 0 00 00 0 0
0 00 0 00 00 00 0 00 0 00
1 00 2 00 No of
30
0 SHGs0
4
0
5 00 6 00

Interpretation: it can be clearly concluded that SHGs have the maximum saving account with
the commercial bank and the number of SHGs having saving account keeps on increasing.

FIGURE:3.1.3(b)

Savings of SHGs with banks

2019-20

2018-19 Cooperative banks

Regional rural bank
2017-18 All commercial banks

0 0 0 0 0 0 0 0
0 00 0 00 0 00 0 00 0 00 0 00 0 00
20 40 60 80 1 00 1 20 1 40

Amount (in lakhs)

Interpretation: all commercial banks are having the highest amount as saving with them. There
is an increase in the amount of saving as compared to the previous year.

`32
 FIGURE :3.1.3(c)

Loans distributed by banks

2019-20

2018-19 Cooperative banks

Regional rural banks
All commercial banks
2017-18

0 00 00 00 00 00 00 00 00
0 0 0 0 0 0 0 0
2 00 4 00 6 00 8 00 00 00 00 00
10 12 14 16
No of SHGs

Interpretation: maximum number of SHGs has taken loan from commercial bank.

FIGURE: 3.1.3(d)

Loan distributed by banks

2019-20

Cooperatie banks
2018-19 Regional rural banks
All commercial banks
2017-18

0 1000000 2000000 3000000 4000000

Amount (in lakhs)

Interpretation: commercial bank has distributed the highest amount as loan to SHGs compared
to other banks.

FIGURE: 3.1.3(e)

`33
 Bank loan outstanding with the banks

2019-20

Cooperative banks
2018-19 Regional rural banks
All commercial banks

2017-18

0 1000000 2000000 3000000 4000000

No of SHGs

Interpretation: a huge rise is seen in the number of SHGs having bank loan outstanding in the
year 2017-18

FIGURE:-3.1.3(f)

Bank loan outstanding with the bank

2019-20

Cooperative banks
2018-19 Regional rural banks
All commercial banks

2017-18

0 0 00 00 00 0 0
0 00 00 00 00 0 00 0 00
1 00 0
20 Amount(in
30
0 lakhs)
40
0
5 00 6 00

Interpretation: commercial banks are having the maximum amount as bank loan outstanding
with an increase in every year.

INTERPRETATION:

`34
Table3.1.3 shows that 8576875 SHGs are having saving account with bank with the amount of
16114.23 crore in the year 2017-18. Further, during the same year (2017-18), the 38781.16 crore
loan was distributed to 1898120 SHGs and 61581.30 crore loan amount of 484828 SHGs was
outstanding with bank. While in 2017-18, Commercial bank has opened the maximum saving
account of SHGs with the maximum amount followed by Regional rural bank and then
Cooperative bank. Same case follows in loan distributed by banks and bank loan outstanding
with the banks. As we see in the year 2018-19 and 2019-20, there is an increment in all the three
sector with Commercial bank having the major share followed by Regional rural bank and
Cooperative banks. In the year 2019-20, 10014243 SHGs with the amount of 23324.48 crore
have saving account with the banks. 2698400 SHGs has taken loan of 58317.63 crore from bank
and 5077332 SHGs are having loan outstanding of 8700.5 crore with the banks.

Table3.1.4: Agency wise loan to MFI

Loan disbursed to Loan outstanding

MFI during the year against MFI
Financing Agency Period No of Amount No of Amount
loan (in loan (in
accounts crores) accounts crores)
All commercial banks 2017-18 1430 17091.33 3328 25089.18
2018-19 641 22133.60 1962 26039.52
2019-20 340 13645.23 1287 15896.47

Regional rural banks 2017-18 13 37.83 250 78.75

2018-19 13 55.93 358 64.16
2019-20 6 5.16 37 14.50

Cooperative banks 2017-18 834 207.33 1682 261.54

2018-19 1248 38.70 2653 68.51
2019-20 1567 70.56 4080 133.84

SIDBI 2017-18 37 1967.90 97 3795.98

2018-19 20 3287.00 100 6133.74
2019-20 20 905.00 84 1715.87

Total by all the 2017-18 2314 19304.38 5357 29225.45

`35
agencies 2018-19 1922 25515.23 5073 32305.93
2019-20 1933 14625.95 5488 17760.68

SOURCE: NABARD (Status of microfinance in India)

FIGURE:-3.1.4(a)

Loan disbursed to MFI

100%
90%
80%
70%
No of loan accounts

60%
50%
40%
30%
20%
10%
0%
2017-18 2018-19 2019-20

Interpretation: regional rural bank is having the least loan account whereas cooperative bank is
having the maximum loan account.

FIGURE:-3.1.4(b)

`36
 Loan disbursed to MFI
100%
90%
80%
70%
Amount (in crore )

60%
50%
40%
30%
20%
10%
0%
2017-18 2018-19 2019-20

Interpretation: commercial bank has given the highest % of amount as loan whereas regional
rural bank has given the lowest %of amount.

FIGURE: 3.1.4(c)

Loan outstanding against MFI

100%
90%
80%
70%
No of loan accts

60%
50%
40%
30%
20%
10%
0%
2017-18 2018-19 2019-20

Interpretation: Earlier commercial bank was having the maximum % of loan outstanding
account. Now cooperative banks are having the maximum % of loan outstanding account.

`37
 FIGURE: 3.1.4(d)

Loan outstanding against MFI

100%
90%
80%
70%
Amount (in crore)

60%
50%
40%
30%
20%
10%
0%
2017-18 2018-19 2019-20

Interpretation: commercial bank has the maximum % of amount as loan outstanding against
MFI

Interpretation:-

Table3.1.4 shows that banks have financed to 2314 MFIs with bank loans of 19304.38 crore as
against 647 MFIs with bank loans of 20795.57 crore during 2017-18. Representing decline in the
bank loans disbursed. further, during the same year (2017-18), the outstanding bank loans against
5357 MFIs was 29225.45 crore. While in 2017-18, SIDBI had financed to 37 MFIs with
financial assistance of 1967.90 crore and the loan outstanding against 97 MFIs was 3795.98
crore in the year 2017-18. As such the total exposure of banks and financial institutions to MFIs
as on 2019-20 was to the tune of 17760.68 crore. As we see that after 2018-19 commercial banks
(and financial institutions like SDBI) are losing their confidence in lending to MFIs is evident
from the fact that the fresh lending to MFIs by banks during the year declined. There has also
been a marginal decline in the number of MFIs availing fresh loans from banks. If the trend
continues, this sector is likely to face serious resource crunch and could affect its outbreak plans
in the near future. Overall, as we see among the agencies lending funds to MFIs the major share
belonged to Commercial bank in the year 2017-18 and to Cooperative bank in the year 2018-19
and 2019-20 while in case of loan outstanding against MFIs with the bank the major share

`38
belonged to Commercial bank in the year 2017-18 and to Cooperative bank in the year 2018-19
and 2019-20.

TABLE 3.1.5:REGION-WISE PROGRESS OF SAVING LINKED SHGS WITH BANKS

REGION NO OF SHGS
2017-18 2018-19 2019-20
Northern region 457199 478883 548624
North eastern region 452887 485591 523469
Eastern region 1953076 2130997 2654358
Central region 848514 902222 1062759
Western region 1140601 1097448 1388615
Southern region 3724598 3649296 3836418
TOTAL 8576875 8744437 10014243
SOURCE:- NABARD.

REGIONAL DISTRIBUTION OF SHGs WITH SAVING LINKAGE

% SHARE OF SHGS

FIGURE:3.1.5(a)

2017-18
5%
5% Northern region
North eastern region
Eastern region
43% 23% Central region
Western region
Southern region
10%
13%

Interpretation: southern region is accounted for the highest % share of SHGs in the year.

FIGURE: 3.1.5(b)

`39
 2018-19
5%
6% Nothern region
North eastern region
Eastern region
42%
24% Central region
Western region
Southern region
10%
13%

Interpretation: In the year 2018-19 , southern region records the highest % share in SHGs.

FIGURE: 3.1.5(c)

2019-20
6% Nothern region
5%
North eastern region
Eastern region
38%
27% central region
Western region
Southern region
14% 11%

Interpretation: southern region is having the maximum % share.

INTERPRETATION:-

From the last three year southern region records the maximum % share. The regional share of
SHGs during the year 2018-19, Southern region accounted for major share of 38.3%, followed
by Eastern region (26.5%), Western region (13.9%), Central region (10.6%) and Northern region
(5.5%). The North eastern region had the lowest share of 5.2% of total SHGs in the country.

`40
From the year 2017, Southern region is accounted for major share followed by Eastern region,
Western region, Central region and northern region. The North eastern region is accounted for
the least number of shares of SHGs.

3.2 SWOT ANALYSIS OF MICROFINANACE

`41
Helped in reducing the poverty. Not properly regulated.
Huge networking available. High number of people access to informal sources
SHG bank linkages-widely adopted approach of finance.
involving banks ,NGOs nd poor. Concentrating on few people only ans mainly in
Focus on consumer protection, transparency and urbn areas.
gevernance. Loan fatigue-poor recovery, politicized.

STRENGTHS WEAKNESSES

OPPORTUNITIES THREATS
Huge demand and supply gap. High competition.
employment opportunity. Over involvement of government.
Huge untapped market. Policies and procedures of central banks which
Opportuniy for pvt.banks, NBFCs, foreign banks to might pose hurdles to poor people.
enter this business segment. Uncertain regulatory future due to the underlined
concern.

CHAPTER 4:- CONCLUSION & RECOMMENDATION

`42
4.1 CONCLUSION

Microfinance has emerged as an instrument which aimed at providing financial services to low
income populations neglected by traditional financial institutions. No doubt the provision of
credit to the poor has proved to be powerful tool in development. India’s Self Help Group (SHG)
movement has emerged as the world’s largest and most successful network of women owned
community based microfinance institution. Self-Help Group Bank Linkage Programme (SHG-
BLP) is a landmark model initiated by the National Bank for Agriculture and Rural Development
(NABARD) and has largely achieved the stated goals of financial inclusion. SHG-BLP has
become more popular in India than elsewhere in the world primarily due to its widespread
adoption by Scheduled Commercial Banks, Regional Rural Banks and Cooperative Banks. As on
March 31, 2020 the SHG-BLP programme has reached many a milestone with a total
membership of about 1 crore groups covering 12.5 crore households across India. The
programme has made an indelible mark on the Indian financial landscape by extending loans to
the extent of 87000 crore to 50.77 lakh SHG as on March 31, 2020.

The other channel for growth of microfinance in India is through Microfinance Institutions
(MFIs) lending through individual and group approach alone. They emerged in India in response
to the gap in availability of banking service for the underserved in rural population. The Indian
Microfinance Equity Fund (IMEF) supported MFIs, especially the medium and smaller ones
with equity and quasi-equity. As per MFIN as on 31 March 2020, the microfinance industry has
a total loan portfolio of Rs 187386 crore, representing a year on year growth of 38%.

There are number of problems faced by MFIs despite all those there is no doubt that the model
has enough potential to resolve some of the burning problems the country on the whole is facing
i.e. imbalanced growth between privileged and underprivileged. The challenge, therefore, is to
look beyond the present limitations and opportunities and execute plan which could make MFIs a
vehicle to drive and deliver for all section of the society.

`43
4.2 RECOMMENDATION

 There is considerable scope for development of microfinance in India since there is

enormous unmet demand for financial services in this sector.
 There is an urgent need to streamline the procedure for applying, seeking and releasing
of microfinance. The procedures difficulties are one of the major problems, which have
denied the needy groups, the financial benefits of the banks.
 In order to ensure proper utilisation of the credit, there is an urgent need to introduce
availability of consumption credit from the formal channel. The need is to sensitize
bank staff towards the needs, constraints and inhibitions of the micro-finance clients.
 There is a need to evolve new products by the banks to commensurate with the
requirements of rural, semi-urban and urban people. The customer-contact programmes
especially for the people living below poverty line be organized to disseminate the
information of various schemes and financial needs of these groups.
 Micro-financing institutions need proper regulation and operation of business
transactions. Therefore, RBI, SIDBI, NABARD and other organizations should evolve
proper mechanism for monitoring, supervision, direction, appraisal and evaluation of
micro-financial institutions as well as self help promotion institutions
 The factors responsible for poor performance of microfinance and functioning of SHGs
should be investigated, examined and analysed scientifically and systematically to
resolve the emerging problems, difficulties and challenges being faced.
 More research should be carried out to assess the impact of micro-credit through
SHGs. The impact assessment should be more focused on socio-economic
empowerment of members, social change, dynamics of groups, business, leadership,
promotion of viable micro enterprises, etc

`44
BIBLIOGRAPHY

 NABARD. Status of microfinance in India, Annual Report of National Bank for Agriculture and
Rural Development
 Researchgate , ” a study on the performance of microfinance institutions in India”
 Wikipedia- microfinance.
 Nikita journal-microfinance.
 Bharat microfinance.

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