MICROFINANCING

who traditionally lack access to banking and related services .INTRODUCTION  Microfinance is the provision of financial services to low-income clients. including consumers and the self-employed.

The Grameen Bank and Dr. Dr. During a visit to the nearby village of Jorba. Yunus were awarded the Nobel Peace Prize. Yunus to create The Grameen Rural Bank in 1983.96 billion in loans to over eight million borrowers. This simple idea that the poor could use credit to lift themselves out of poverty. led Dr. . its methodologies have become the cornerstone of the microfinance industry. it has made over $8. He took $27 from his pocket and made 42 loans to the stool makers in this tiny village. he was determined to find a practical way to help the poor. he was astounded to find that a sum of $27 could radically change the lives of 42 people in the village. This was the sum of money they collectively needed to buy bamboo to make the stools they sold to make a living. At the time. Muhammad Yunus was a professor of economics at the University of Chittagong.HISTORY OF MICROFINANCE   The concept of microfinance mainly started after the initiated by Nobel winner for peace Prof Yunus In 1974. famine struck Bangladesh. In 2006. Since its inception. Disillusioned by the elegant theories of economics that could not explain the thousands of poor people dying of starvation on the streets. They were able to pay him back with interest and take a step towards lifting themselves out of poverty.

With 52000 commercial bank branches. Banks were nationalized three and half decade ago with the hope and promise that their products and services would reach the poor. 12522 branches of regional rural banks and 100000 cooperative bank branches. The consequences have been devastating. it is tough persuading them to even let you open a bank account. Consider these numbers: 75 million households in India depend on money lenders to meet financial needs. the country is teeming with institutions that should be able to meet the credit needs of the people.NEED FOR MICROFINANCE  India has one of the largest networks of bank branches in the world. And even families earning Rs 4000-5000 a month in urban areas spends huge portions of their earning to service their ever continuous debt. almost 90 percent of the people in the rural India have no access to insurance. But if you are poor. . But that goal is not even close to being met today. you are also probably out of luck with banks. 50 million households are landless and need small credit to start some economic activity. but the hundreds of millions of poor in the country are largely out of it.

KEY PLAYERS IN MF SYSTEM      NABARD Reserve Bank of India Self Help Groups Micro Finance Institutions (MFIs) NGO’s .

Models of microfinance   The SHG-Bank Linkage Model Partnership Model .

. are living below poverty. And only 12.000 crores are disbursed .Scenario of microfinance in India      India’s population is more than 1000 million. Out of that 20% only 10% have access to micro finance. Annual credit demand by the poor is estimated to be about rs 60000 crores.(April 09) Customers of micro finance are “ small and marginal farmers”. around350 million. Only 20% access loan from formal sources and 80% from the informal sources. “rural artisans” and “ economically weaker section”.

000 crore 75% are accounted for by SHG Linkage.500 crore savings. 3.Micro-Finance reach in India       Microfinance in India through its two major channels – SHG Linkage and MFIs – served over 33 million Indians. 28% of the new clients are from Urban areas. 22. only MFI Bank. 40 crore savings portfolio MFIs operate in 209 out of 331 districts of the country. up by 9 million over FY 2006-07 4 out of 5 microfinance clients in India are women. . 20% by large MFIs and 5% by medium and small MFIs SHG Linkage reports over Rs. Micro-credit portfolio of India Microfinance was Rs. KBS Bank reports about Rs.

weather and other general insurance services are still nascent .Demand of Micro-Finance services in India     Through all channels. Asset. hence trillion of Rs needed Penetration of life insurance services in rural India is <10%. reach is only 30 million 250 million people live below poverty line Rupee One lakh per individual needed for livelihood promotion. health.

Challenges in Micro Finance       High Volume of Financial Transaction but value wise very low Majority of the financial transactions are off-site in nature Geographic spread of operations and density of customers Lack of infrastructure facilities like power. lead to high operating cost . broadband etc Unsecured lending and no documented financial history is available Combination of above.

banks. employment opportunity huge untapped market. NBFCs.Swot analysis of micro finance  Strength helped in reducing the poverty huge networking available  Weakness not properly regulated high number of people access to informal sources of finance.  Opportunity huge demand and supply gap. foreign banks to enter this business segment. concentrating on few people only and mainly in urban areas. opportunity for pvt. .

This figure translates to 1. Spanning across the world. health and medical services.Role in poverty alleviation  The key to alleviating poverty is how effectively the tools of food. infrastructure. the World Bank estimates that around 25% of the population in developing regions lives below the poverty line. basic education. Poverty is a pervasive problem in our society.25 a day. financial services. poverty exists in different levels and various forms. At the current threshold of $1. or about 20% of the global population . shelter.3 billion people living in poverty. opportunities for employment. markets and communication are deployed either singularly or severally to the poor.

among others.Contd………………  One such poverty alleviation tool is microfinance. such as micro-insurance and micro-mortgage that are designed to accommodate the poor’s financial needs. the poor can obtain collateral-free loans at relatively low interest rates and use the money for creating micro enterprises (small businesses owned by poor people). and improving homes. Microfinance is the provision of financial services to the poor. funding children’s education. . aiming to empower low-income populations by providing them with access to credit and other financial services. which has gained worldwide recognition since the 1990s and has been proven to have positive effects on poverty levels in developing countries. Through microfinance institutions (MFI). MFIs have also developed numerous financial products. Aside from micro credit.

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