DEMAND FOR CREDIT

Those who do not have land
y They need credit for acquiring small

productive assets, such as livestock, using which they can generate additional income.

Farmers and other self employed people

SMALL AND MEDIUM FARMER
This include people who have gone for commercial crops such as surplus paddy and wheat, cotton, groundnut, and others engaged in dairying, poultry, fishery etc. ´ Among non-farm activities, this segment includes those in villages and slums, engaged in processing or manufacturing activity, running provision stores, repair workshops, tea shops, and various service enterprises
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In India and other Asian countries the majority of SHGs consist of women because, in these countries, Self Employment through Microfinance was perceived as a powerful tool for empowerment of women. It has been observed that gender equality is a necessary condition for economic development. The World Bank reports that societies that discriminate on the basis of gender are in greater poverty, have slower economic growth, weaker governance, and lower living standards.

Mainstream Alternative

Mainstream Micro Finance Institutions
National Agricultural Bank for Rural Development (NABARD), Small Industries Development Bank of India (SIDBI), Housing Development Finance Corporation (HDFC), Commercial Banks, Regional Rural Banks (RRBs), the credit co-operative societies etc are examples of mainstream MFI s.

The Problems Associated with Mainstream MFIs

Borrower Unfriendly Products and Procedures

With a majority of the customers being illiterate, and a majority of them needing consumption loans and a majority of them requiring high documentation and collateral security, the products are not reaching the rural poor.

Inflexibility and Delay

The rigid systems and procedures result in lot of time delay for the borrowers and de-motivate them to take further loans.

Alternative Micro Finance Institutions
‡ These are the institutions, which have come up to fill the gap between the demand and supply for microfinance. MFIs were defined as "those which provide credit and other financial services and products of very small amounts, mainly to the poor, in rural, semiurban or urban areas for enabling them to raise their income level and improve living standards

Classification
NGOs, which are mainly engaged in promoting self-help groups (SHGs) and their federations and linking SHGs with banks, under the NABARD scheme. MFIs which are specifically organized as cooperatives, such as the SEWA Bank and various Mutually Aided Cooperative Thrift and Credit Societies (MACTS) in AP.

Problems for Alternative MicroFinance Institutions
Inappropriate Legal Forms ‡ The major source of funds of NGOs are grants, which are very limited. ‡ If the NGOs earn a substantial part of their income from lending activity, they violate section 11(4) of the Income Tax Act and can lose their charitable status under Section-12.

‡ Moreover, NGOs do not have the appropriate financial structure for carrying out micro finance activities. NGOs being registered as societies or trusts, do not have any equity capital and can never be "capital adequate".

Lack of Proper Governance and Accountability ‡ Governance and accountability are limited in case of non-profits and need to be improved. Their boards must be made aware of their financial liabilities in case of failure.

Isolated and Scattered
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The alternate MFIs are isolated and scattered. There is no proper coordination among them and also there is lack of information dissemination.

Issues That Trigger Transformation
Size ‡ The most significant issue that triggers a transformation is growth. This affects the promoters as well as the providers of microfinance. ‡ Banks were unwilling to provide loans at the pace at which microfinance customers needed them.

‡ In such situations, NGOs tend to get into action by opening a microfinance division or by setting up a separate MFO. The origins of several Indian MFOs are rooted in the failure of banks to meet the needs of the poor.

Sustainability
‡ Sustainability is closely linked to growth. Beyond a certain level, MFOs have to seek external funds for keeping the credit activity going. When MFOs seek funds from financial institutions, issues like ownership structure and capital adequacy become critical. For an MFO to survive in the long run, it has to transform itself into an institution with transparent systems and accountability

Taxation
‡ When an NGO carries out commercial activities (microfinance) on a large scale, it could lose its tax free status, and this might jeopardize other activities. Even grants may become taxable. This is a major concern for NGOMFOs. This also triggers a search for an alternative where microfinance could be kept isolated.

Microfinance and Tourism
National tourism policy 2002 has identified village based tourism as a primary tourism product to spread tourism and socio economic benefits to rural and new geographical area by exploring the avenues for livelihood promotion, participative resource management, community development and there by poverty reduction through the creation of micro, small and medium sized enterprises

Destination Facilitation
‡ Destination Facilitation or development involves the application of micro finance as a long-term capital as well as working capital of locally initiated enterprises, there by make the destination more attractive and accessible.

‡ The major activities in this segments are the formation of major components of existing tourism industry i. e, travel agencies, tour operators, guides and escort services, small hospitality activities like home stays, restaurants, running of vehicles, selling of handicrafts and other locally endemic products, opening of other shops etc. at the respective area through the collective mobilization of money and the social cohesion.

Micro finance option under destination facilitation can be summarized as: Collective income from community enterprises or from other partnership Tourism enterprises formation

Dividend from the enterprises

Sale of local products

Wages/ salary based option for employment

Direct sales of goods and services to visitors by poor people

With the help of microfinance poor people can involve themselves with the tourism industry. Tourism can be a successful direct route to provide income to the poor and it can provide visitors with a colorful and rewarding experience.

Voluntary giving/support by tourism enterprises and tourist
Voluntary support in money or kind can act as an influential drivers for local poverty reduction. Many tourism enterprises are also committed to provide sponsorship to development initiative in the areas where they operate.

Employment of poor in tourism enterprises
This involves the measures to increase the level of the poor working in tourism enterprises.

Indeed the relationship between tourism enterprises and the employment of local people is a symbiotic relationship i.e both get benefit considerably.

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