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Microfinance is quickly becoming a popular corner of the capital markets as more investment banks and wealthy philanthropists such as George Soros and eBay co-founder Pierre Omidyar see the business of providing small loans to low-income individuals in poor countries as potentially profitable as well as a powerful tool for development. MICRO FINANCE can be defined as any activity that includes the provision of financial services such as credit, savings, and insurance to low-income individuals which fall just above the nationally defined poverty line, and poor individuals which fall below that poverty line, with the goal of creating social value, which includes poverty alleviation and improving livelihood opportunities through the provision of capital for micro enterprise, and insurance and savings for risk mitigation and consumption smoothing. Micro-finance movement in India can be traced back in 1992 when NABARD linked SHG with banks. It is a paradigm shift from class banking to mass banking growing at a significant pace, Out of 9 crore clients or customers of MFIs in India, 80% are women and 90% have SC/ST and minority background. SCOPE:The demand for microcredit is in range of Rs 3.3 lakh crore to Rs 4.5 lakh crore, while the current outstanding of MFIs is over Rs 15,000 crore. The sector would have an outstanding MICROFINANCE MODELS FOR THE INDIAN CONTEXT Any robust banking model for financial inclusion in India must take into account the perceived issues in doing business with the target group. These include: 1. 2. 3. 4. Small-sized transactions Geographical spread of customers Absence of well-defined propriety rights Absence of well-defined property rights

A tie-up with an organization like the ITC to leverage the strength of its rural supply chain network e-Choupal can be a viable solution for the same. The models described below can resolve the major issue of Geographical Spread of customers. However. A similar model has been very successful in penetrating the rural markets of countries like Fiji in the South Pacific. Technology infrastructure like ATMs and biometric finger print scanners are high costs solutions. then terminals such as bankcard readers can be set up at very low costs. Risks faced by small producers to be factored into product pricing. Mobile banks will essentially be large vans modified for the purpose and connected to the main bank by a satellite network. The size of the fleet should vary with the number of villages and rural population under each district. a more complex hierarchical system of mobile banks will emerge. The possible solutions for the same can be: 1. if network infrastructure is already available at customer locations. the model will comprise of a fleet of mobile banks that travel on a regular schedule to a designated set of villages within a defined geographical area. Bankcard readers can be installed at e-Choupals and the choupals can work as an intermediary . Taking the bank to the customers 2.5. As the name suggests. However. since India is a large country with higher degree of diversity. Setting up proxy branches at customer locations Taking the bank to the customers: Mobile Banking This model proposes a commercial banking service to rural communities to enable rural people to better manage their money and to make informed choices on the best use of the new banking service. Setting up proxy branches at customer locations: Branchless Banking This model focuses on the use of technology to set up bank terminals close to the customers.

At the all India level. pharmacies and gas stations with point-ofsale devices. Credibanco. The southern states account for almost 75% of funds flowing under microfinance programmes. Many other countries have adopted innovative models to achieve the same. has adapted its technology and service infrastructure to help the country's banks reach low-income customers and equip small merchants like grocery stores. THE ROAD AHEAD The move towards inclusive financing is a big challenge for the financial system. Banks have a critical role to play in inclusive growth and thus reaching the BoP customers. customer-friendly approach to increase their effective reach so that share of organized finance increases. experience can be drawn from the various microfinance models set up internationally. By far the most successful model of microfinance in India in terms of outreach is SHG Bank Linkage. Multiple international experiences of successful inclusive banking indicate that it is useful for banks to deal with groups of customers organized in the form of Self-Help Groups rather than trying to approach and attract customers individually. SUCCESSFUL INTERNATIONAL MODELS To set up successful models for microfinance in India. The bank can pay a fee to ITC on a per transaction basis in order to utilize its network. Grameen Bank offers small-sized loans to groups of customers. Banks would need to adopt an innovative. a lot needs to be done to achieve the benchmark levels in terms of Banks' outreach and deposit ratios. However.between the bank and the customer. In Bangladesh. This helps in better recovery as the group ensures that its members maintain the credit discipline. the Visa franchise holder in Colombia. . less than 5% of poor rural households have access to microfinance as compared to 60% in Bangladesh.

Each successful business feeds a family. we provide people living in poverty with non-financial (community development) services to strengthen their businesses and develop their communities. since its inception. loans are paid back and lent out again. Here’s how it works… By helping a mother buy a sewing machine to start a tailoring business or a father buy seeds to plant a vegetable garden. With 97% of loans repaid.Tameer Micro finance Bank Limited of Pakistan. has aimed to be a pioneer and trendsetter in terms of deploying innovative. year after year. small loans enable people in poverty to earn an income and provide for their families. This ensures we understand the needs of people living in poverty in the area and allows us to serve them effectively. economical and user-friendly technologies in order to provide easy access of financial services to its customer base across the country. It has installed Pakistan's first biometric ATMs. Microfinance plus As well as microfinance. . the cycle continues. employs more people and eventually helps empower a whole community. As each business grows. Our partners Opportunity International Australia works through local microfinance institutions in developing countries.

No body bothers as they know they need not repay.even the select groups are hand-picked by politicians for political ends and the those who recommend sanctioning of the amount get a cut.-ves Problem for micro financing falling into dire straits is due to -Egged by Politicians who consider people as vote banks(a bane of Democracy). they dare not collect from the defaulters for fear of . for their party is in power. the borrowers do not repay. and the borrowers lend the money to others not covered by micro finance who can not repay. As far as the first one is concerned .Even if the opposition were to come back to power.

The hostility toward microfinance is a sharp reversal from the praise and good will that politicians. social workers and bankers showered on the sector in the past decade. This will play havoc with the Economy. activists and politicians have urged borrowers not to repay their loans. In India. Sheik Hasina Wazed— who had championed microloans alongside Mr. The principle of making people depending on State with out working must end as also freebies by the Government. Story: Microcredit was once extolled by world leaders like Bill Clinton andTony Blair as a powerful tool that could help eliminate poverty. Clinton at talks in Washington in 1997. through loans as small as $50 to cowherds.losing votes. In Nicaragua. which had pioneered microcredit and which. Pakistan and Bolivia. Nicaragua and other developing countries. while Mr. India. Groups as the Self Help Group in Tamil Nadu. basket weavers and other poor people for starting or expanding businesses. She said microlenders were “sucking blood from the poor in the name of poverty alleviation. But now microloans have met with political hostility in Bangladesh. along with its founder.over a period of time those who pay also see the wisdom(?) of not repaying. Philanthropists and investors poured billions of dollars into nonprofit and for-profit microlenders.India are being promoted vigorously with an eye on the election and in fact many benamis of those in power form a consortium by linking many groups and siphon off money.” and she ordered an investigation into Grameen Bank. Clinton was president — turned her back on them. lending has slowed sharply since the state with the most microloans adopted a strict law restricting lending. the prime minister of Bangladesh. until recently home to the world’s fastest-growing microcredit businesses. which were considered vital players in achieving the United Nations’ ambitious Millennium Development Goals . was awarded the Nobel Peace Prize in 2006. In December.

This is more important than setting caps on interest rates and other restrictions on the terms of the contract. One of the goals was to reduce by half the number of people in extreme poverty. which world leaders set in 2000. aided by district task forces.for 2015. it said misunderstanding of contract could translate to higher interest rate. Highlighting the need for transparency. similar to the sub-prime crisis that happened in the United States. Stressing on transparency more than capping of interest rates. most of them women. the pre-budget Economic Survey asked the government to take steps to ensure borrowers understand the contract when he borrows from micro finance institutions. A government investigation into the spate of suicides reported in recent weeks — allegedly due to loan recovery harassment — has established that most of the victims were borrowers from big and registered microfinance institutions (MFIs) and that they had indeed been subjected to coercive and unethical tactics by MFIs loan sharks. "To misunderstand (the contract) this can lead the borrower to make huge losses and the lender to make huge unfair profits. microcredit has struggled to turn rhetoric into tangible success. The attention lavished on microcredit helped the sector reach more than 91 million customers. We have seen these kinds of phenomena even in advanced economies like the US where the sub-prime home borrowers took on loans without understanding the terms they were. "Government has to take measures to ensure that MFIs make the terms of contract transparent to the borrowers. India and Bangladesh account for half of all borrowers. has tabulated 42 suicides and ." the Survey said. A special cell of the Society for Elimination of Rural Poverty. But as with other trumpeted development initiatives that have promised to lift hundreds of millions from poverty. with loans totaling more than $70 billion by the end of 2009.

The committee also suggested that small loans cannot exceed Rs 25.000 and asked for creating a separate category of nonbanking financial companies (NBFC-MFI) for the MFI sector.. The investigations are in various stages and. Share Microfin and Spandana Spoorthy. “A majority of the victims had borrowed from the so-called registered NBFCs including SKS Microfinance. Malegam Committee to study the state of MFIs in the country. which submitted its report on January 19.. suggested among other things capping interest rate at 24 per cent for MFI loans.attempted suicides that had occurred in the past three to four weeks across the state. . The committee. we will initiate criminal action against the MFIs The MFI sector has come under scanner after cases of suicides were reported in Andhra Pradesh over allegations of coercive recovery tactics and high interest rates.. if proved.

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