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Microfinance is the provision of financial

services to low income including
consumers and the self employed who
traditionally lack access to banking and
related services.

Since 1970 ,microfinance has been proven

to be one of the most effective &
sustainable tools in poverty fighting
 Estimated that 350 million people live Below
Poverty Line(75million households)
 Annual credit demand by the poor in the
country is estimated to be about Rs. 60,000
 Only about 5 % of rural poor have access to

 Considerable gap between demand and supply
for all financial services. Majority of poor are
excluded from financial services. This is due to,
inter-alia, the following reasons :
1. Bankers feel that it is fraught with risks and
2. High transaction costs
3. Unfavorable policies like caps on interest rates
which effectively limits the viability of serving the

The beginnings of Microfinance movements:-
 In 1974, in famine struck Bangladesh.
 The simple idea that the poor could use credit to lift
themselves out of poverty led Dr. Mohammad Yunus
to create the Grameen Rural Bank in 1983.
 In 2006, the Grameen Bank and Dr.Yunus were
awarded the Nobel Peace Prize.

Explosive growth:-
 In 1970s and 80s,inspired by Grameen bank’s success,
social innovators and organisations around the world
began to experiment with different programs to bring
financial services to the poor.
 In 2006, microfinance summit campaign Report
estimates that there are now more than 3000
microfinance institutions, serving more than 100
million poor people in developing countries.

Microfinance goes mainstream:-
 In the early years of microfinance, most of the these
organizations were funded by either private or
government grants.
 But in recent years, many institutional and high net
worth investors have begun to invest in microfinance.
Today, major banks like Morgan Stanley and Citigroup
have begun to offer products and services that enable
investment in microfinance.

 A self-help group (SHG) is a village-based financial
intermediary usually composed of between 10-20 local
 Having homogeneous social &economic background
 Mutually agree to contribute to a common fund
 Meet their emergency needs
 Major activities: saving & credit activities (apart from
other activities focusing on women’s empowerment,
health and educational attainment, etc).
Some of SGHs are-
 Ekta Mahila Bachat Mandal
 Shiv Mahila Bachat Mandal
 Nilkanth Mahila Mandal
 Nari Shakti Bachat Juth
 Shri Adarsh Group Bachat Mandal
 Jay Mahakali Karigar YuvakMandal

 To create group feeling among women.
 To enhance the confidence and capabilities of women.
 To develop collective decision making among women.
 To encourage habit of saving among women and
facilitate the accumulation of their own capital
resource base.
 To motivate women taking up social responsibilities
particularly related to women development.

 NABARD, in 1996
 By march 06 ,22,38,565 were linked with banks
 545 banks participating
 4869 promoting partners

 Micro-finance and Poverty Alleviation
 The Formal Sector Institutions
 The Existing Informal financial sources
 Credit Mechanisms Adopted by HDFC (India) for
Funding the Low Income Group Beneficiaries
 Other Institutions like Grameen Banks.

 The idea of microfinance not being just about credit,
transactions takes its inspiration from the "Credit-Plus"
approach. The Credit-plus approach essentially integrates
adequate and timely credit into larger developmental processes
such as community organizing, leadership training,
entrepreneurship etc.

 It is indeed a two way street - many interlinked and

interdependent criteria need to be satisfied for the success of
microfinance programmes, and conversely - availability of
microfinance assists such activities.
 Trust building
Building trust among the various actors of the microfinance
programme – the community leaders, borrowers, NGOs and other
internal and external stakeholders. Trust building among the various
individuals involved is also a critical ingredient in good repayment
and recovery.
 Small enterprise management
Good management of an enterprise not only ensures that finance is
invested properly and profitably, it also leads to long-term financial
 Skills and vocational development
Access to good finance goes hand in hand with providing the
appropriate skills and vocational resources to utilize the finances.
This not only includes the development of new skills and vocations,
but strengthens existing skills that the microfinance recipients
possess - leading on to more equitable economic development.
 Leadership training
Identification and nourishing good community leaders helps in
bringing the community together and in giving a representative
voice to the community in articulating its needs and wishes. Many
microfinance programmes have leadership training components
built into them. Good leaders instill discipline among the
borrowers, leading to better financial management.
 Community development
Microfinance programmes bring the community together, and help
in the development of relationship among the residents -
particularly those that focus on women. Existing networks of
kinship and community organization, conversely, greatly facilitates
the implementation and success of MFI activities. In the long term,
it leads to better quality of life and well-being.

 Microfinance does not directly address
some structural problems facing Indian
society and the Economy
 Loans products are still too inflexible.
 Its progress in delivering financial services
in less densely populated areas has
been slow

 Lies in the areas of training and capacity
 Poor regulation and supervision of
deposit taking- MFI’s
 Few MFI that meets the need for savings,
remittances & insurance
 Little evidence of progress towards the
goal of microfinance.