MICROENTREPRENEURSHIP &

MICROFINANCING

ANU RANJAN
 MICROFINANCE - INTRODUCTION
 MICROFINANCE REFERS TO THE PROVISION OF
FINANCIAL SERVICES TO POOR OR LOW-INCOME
CLIENTS, INCLUDING CONSUMERS AND THE SELF-
EMPLOYED.

 MICROFINANCE REFERS TO THE PRACTICE OF

SUSTAINABLY DELIVERING THOSE SERVICES.

 MICROFINANCE PROMOTERS GENERALLY BELIEVE THAT

ACCESS WILL HELP POOR PEOPLE OUT OF POVERTY.

 MICROFINANCE MEANS BUILDING PERMANENT LOCAL

INSTITUTIONS.
MICROFINANCE - INTRODUCTION
 MICROFINANCE ALSO MEANS INTEGRATING THE
FINANCIAL NEEDS OF POOR PEOPLE INTO A
COUNTRY’S MAINSTREAM FINANCIAL SYSTEM.

 MICROFINANCE INSTITUTIONS SHOULD MEASURE

AND DISCLOSE THEIR PERFORMANCE – BOTH
FINANCIALLY AND SOCIALLY.

 IN 2006 NOBEL PEACE PRIZE WAS AWARDED TO

MOHAMMED YUNUS, THE FATHER OF
MICROFINANCE.
DEVELOPMENT PROCESS THROUGH MICROFINANCE
EVOLUTION OF MICROFINANCE IN INDIA
 THE PROFILE OF MICROFINANCE IN INDIA
 ESTIMATED THAT 350 MILLION PEOPLE LIVE BELOW
POVERTY LINE.

 THIS TRANSLATES TO APPROXIMATELY 75 MILLION

HOUSEHOLDS.

 ANNUAL CREDIT DEMAND BY THE POOR IN THE COUNTRY

IS ESTIMATED TO BE ABOUT RS. 60,000 CRORES.

 CUMULATIVE DISBURSEMENTS UNDER ALL MICROFINANCE

PROGRAMMES IS ONLY ABOUT RS. 5000 CRORES.(MAR. 04)

 TOTAL OUTSTANDING OF ALL MICROFINANCE INITIATIVES

IN INDIA ESTIMATED TO BE RS. 1600 CRORES. (MARCH 04)

 ONLY ABOUT 5 % OF RURAL POOR HAVE ACCESS TO

MICROFINANCE.
FEATURES OF INDIAN MICROFINANCE

 ABOUT 60 % OF THE MFIS ARE REGISTERED AS

SOCIETIES.

 ABOUT 20 % ARE TRUSTS.

 ABOUT 65 % OF THE MFIS FOLLOW THE OPERATING

MODEL OF SHGS.

 LARGE CONCENTRATION IN SOUTH INDIA.

 600 MFI INITIATIVES HAVE A CUMULATIVE OUTREACH

OF 1.25 CRORE POOR HOUSEHOLDS.

 NABARD’S BANK LINKAGE PROGRAM HAS

CUMULATIVELY REACHED A TOTAL OF 9.4 LAKH SHGS
WITH ABOUT 1.4 CRORE HOUSEHOLDS.
 THE STATUS OF MICROFINANCE IN INDIA
 CONSIDERABLE GAP BETWEEN DEMAND AND SUPPLY FOR ALL
FINANCIAL SERVICES.

 MAJORITY OF POOR ARE EXCLUDED FROM FINANCIAL SERVICES.

 WHILE MFIS HAVE SHOWN THAT SERVING THE POOR IS NOT AN

UNVIABLE PROPOSITION THERE ARE ISSUES THAT HAVE
CONSTRAINED MFIS WHILE SCALING UP.

 LIMITED ACCESS TO CAPACITY BUILDING SUPPORT WHICH IS AN

IMPORTANT VARIABLE IN TERMS OF QUALITY OF THE PORTFOLIO, MIS,
AND THE SUSTAINABILITY OF OPERATIONS.

 ABOUT 56 % OF THE POOR STILL BORROW FROM INFORMAL SOURCES.

THE STATUS OF MICROFINANCE IN INDIA

 70 % OF THE RURAL POOR DO NOT HAVE A DEPOSIT

ACCOUNT.

 87 % HAVE NO ACCESS TO CREDIT FROM FORMAL

SOURCES.

 LESS THAN 15 % OF THE HOUSEHOLDS HAVE ANY KIND

OF INSURANCE.

 NEGLIGIBLE NUMBERS HAVE ACCESS TO HEALTH

INSURANCE (0.4 %) AND CROP INSURANCE (0.2 %).
CHALLENGES TO INDIAN MICROFINANCE

 APPROPRIATE LEGAL STRUCTURES FOR THE STRUCTURED

GROWTH OF MF OPERATIONS.

 FINDING ADEQUATE LEVELS OF EQUITY FOR THE NEW

ENTITIES TO LEVERAGE LOAN FUNDS.

 ABILITY TO ACCESS LOAN FUNDS AT REASONABLY LOW

RATES OF INTEREST.

 ABILITY TO ATTRACT AND RETAIN PROFESSIONAL AND

COMMITTED HUMAN RESOURCES.

 DESIGN OF APT MIS INCLUDING USER FRIENDLY SOFTWARE

FOR TRACKING ACCOUNTS AND OPERATIONS.
CHALLENGES TO INDIAN MICROFINANCE

 APPROPRIATE LOAN PRODUCTS FOR DIFFERENT

SEGMENTS.

 ABILITY TO INNOVATE, ADAPT AND GROW.

 BRING OUT A COMPENDIUM OF SMALL AND MICRO

ENTERPRISES FOR THE MF CLIENTS.

 IDENTIFY AND PREPARE A PANEL OF LOCALLY AVAILABLE

TRAINERS.

 CAPACITY TO PROVIDE BACKWARD LINKAGES OR CREATE

SUPPORT STRUCTURES FOR MARKETING.
PROJECTIONS FOR THE FUTURE
 ANNUAL GROWTH RATE OF ABOUT 20 % DURING
THE NEXT FIVE YEARS.

 75 % OF THE TOTAL POOR HOUSEHOLDS OF 80

MILLION (I.E. ABOUT 60 MILLION WILL BE REACHED
IN THE NEXT FIVE YEARS.

 THE LOAN OUTSTANDING WILL CONSEQUENTLY

GROW FROM THE PRESENT LEVEL OF ABOUT 1600
CRORES TO ABOUT 42000 CRORES.
ICICI BANK METHODOLOGY
 SHG OF 6 WOMEN.

 EACH CONTRIBUTES RS. 50 EVERY MONTH.

 IN 6 MONTHS, RS. 6000 AVAILABLE AS A FUND FOR

EMERGENCY EXPENSES.

 JOINT GUARANTEE FOR REPAYMENT.

 AFTER 1 YEAR, SHG QUALIFIES FOR LARGER LOANS

OF UP TO RS. 2 LAKHS.
ICICI BANK METHODOLOGY
 HIERARCHICAL STRUCTURE SET UP FOR
SCALABILITY.

 “PROMOTERS” SELECTED FROM AMONG TOP SHG

WOMEN TO SETUP UP TO 20 SHGS.

 “COORDINATOR” SELECTED FOR UP TO 6

“PROMOTERS”.

 ICICI BANK STAFF ONLY AT PROJECT MANAGER

LEVEL TO SUPERVISE UP TO 6 “COORDINATORS”.
ICICI BANK SUCCESS
 SOCIAL COLLATERAL ENSURES 99.99% REPAYMENT.

 LOANS ARE USED FOR PURCHASE OF LIVESTOCK,

LEASING LAND, SETTING UP TEASHOPS, COTTAGE
INDUSTRIES.

 GREW FROM 1000 SHGS IN 2001 TO 8000 SHGS IN 2003.

 NOW EXPANDING INTO MUTUAL FUNDS, LIFE

INSURANCE, AND REMITTANCES THROUGH MOBILE
AND RURAL ATMS.
GRAMEEN BANK:
FOUNDED BY DR. MOHAMMAD YUNUS

 PH. D. IN ECONOMICS; CHAIRMAN OF DEPARTMENT OF

ECONOMICS, CHITTAGONG UNIVERSITY.

 A BANKER WHO BELIEVES THAT CREDIT IS A HUMAN

RIGHT.

 FATHER OF MICROCREDIT CONCEPT

 AWARDED NOBEL PEACE PRIZE IN 2006.

GRAMEEN BANK

 INITIALLY STARTED AS A PROJECT, RECOGNIZED AS

INDEPENDENT BANK IN 1983 BY GOVERNMENT LEGISLATION.

 NO COLLATERAL OR GUARANTEE REQUIRED.

 OWNERSHIP: BORROWERS-94%; GOVERNMENT-6%

 NO. OF MEMBERS (BORROWERS) – 7.6 MILLIONS

 LOAN DISBURSEMENT TILL SEP. 2008 – US $ 7.4 BILLION

 LOAN RECOVERY RATE-98%.

GRAMEEN BANK

 LENDS LOAN TO VILLAGE WOMEN TO BUY GRAMEEN

PHONE; GENERATES REVENUE AND REACHES
COMMUNICATION TOOL TO THE POOR.

 5-STAR RATING SYSTEM FOR GOAL SETTING AND

ENCOURAGING COMPETITION.

 DECENTRALIZED DECISION MAKING STRUCTURE.

 STRONG MANAGEMENT INFORMATION SYSTEM

GRAMEEN BANK
 GRAMEEN BANK HAS INSPIRED MANY AND IS
INSPIRING MANY TO CREATE SIMILAR
MICROCREDIT STRUCTURE ALL AROUND THE
WORLD INCLUDING U.S.A. AND EU.

MOHAMMAD YUNUS:
“ALL HUMAN BEINGS ARE POTENTIAL
ENTREPRENEURS, SOME OF THEM GET CHANCE
TO EXPRESS THEIR TALENT; OTHERS NEVER GET
THE CHANCE BECAUSE WE ARE LED TO IMAGINE
THAT ENTREPRENEURS ARE ENORMOUSLY
SPECIAL PEOPLE.”
THANK YOU