Professional Documents
Culture Documents
ARBAZ KHAN A
(2ND BBA ‘B’)
TABLE OF CONTENT
History of microfinance can be traced back to the middle of the 1800s. During the
1800s, the benefits of small credits to entrepreneurs and farmers was written by
Lysander Spooner, the theorist, as a way to get people out of poverty. Later, the first
cooperative lending bank was founded independently by Friedrich Wilhelm
Raiffeisen to support the farmers in rural Germany.
The term “microfinancing” was first used in the 1970s during the development of
Grameen Bank of Bangladesh, which was founded by the microfinance pioneer,
Muhammad Yunus. In 1976, Yunus institutionalized the approaches of microfinance,
along with the foundation of Grameen Bank in Bangladesh. Since, in the developing
countries, a large number of people still depends largely on subsistence farming or
basic food trade for their livelihood, therefore, smallholder agriculture in these
developing countries has been supported by the significant resources.
HISTORY OF MICRO FINANCIAL INSTITUIONS IN INDIA
Lack of security and high operating costs are some of the major limitations faced by the
banks while providing loans to poor people. These limitations led to the development of
microfinance in India as an alternative to provide loans to the poor with an aim to create
financial inclusion and equality.
SEWA Cooperative Bank was initiated in 1974 in Ahmedabad, Gujarat, by Ela Bhatt
which is now one of the first modern-day microfinance institutions of the country. The
National Bank for Agriculture and Rural Development (NABARD) offered financial
services to the unbanked people, especially women and later decided to experiment with
a very different model, which is now popularly known as Self-help Groups (SHGs). The
SHG-Bank linkage program in India has savings accounts with 7.9 million SHGs and
involves the participation of regional rural banks (RRBs), commercial banks and
cooperative banks in its operations. The origin of SHGs in India can be traced back to
the establishment of the Self-Employed Women’s Association (SEWA) in 1972.
VARIOUS SCHEMES OF MICRO FINANCIAL INSTITUTION
Under the Chairmanship of Hon'ble Prime Minister , the Ministry of Micro, Small and Medium Enterprises
(MSME) implements various programs/ MSME schemes for the development and promotion of MSMEs across the
country.
Moreover, the Government of India has been really proactive to ensure that all the benefit of these MSME schemes
reaches to the MSMEs in time. To provide immediate relief to the MSME sector, various announcements (in
addition to the various MSME schemes) have been made under the Aatmanirbhar Bharat Package. The most
important ones also included:
* INR 3 lakh crore collateral-free automatic loans for MSMEs to buy raw material, meet operational liabilities and
restart businesses
* Revision of MSME definition to extend maximum benefits to the sector
* Disallowing global tenders in procurements upto INR 200 crore to create attractive opportunities for
domestic players
* Clearing of MSME dues by the Government and Public Sector Units (PSUs) within 45 days
Scheme 1: Prime Minister Employment Generation Programme and
Other Credit Support Schemes
* Prime Minister Employment Generation Programme (PMEGP)
PMEGP scheme aims to generate employment opportunities in both rural and urban areas for the MSMEs through
setting up of new self-employment projects in the country. This MSME scheme is being managed by Khadi and
Village Industries Commission (KVIC) at the national level and being implemented by State KVIC Directorates, State
Khadi and Village Industries Boards (KVIBs), District Industries Centres (DICs) and banks at the state and districts
level
* Credit Guarantee Trust Fund for Micro & Small Enterprises (CGTMSE)
Ministry of MSME and SIDBI has jointly established the Credit Guarantee Fund Trust for Micro and Small Enterprises
(CGTMSE) to implement Credit Guarantee Scheme for MSE’s. The corpus of CGTMSE is contributed by the
Government of India and SIDBI.
A. Central Government
1. Central Board for Micro, Small and Medium Enterprises
2. Small Industries Development Organizations
3. National Small Industries Corporation Ltd
4. National Institute for MSMEs
5. Entrepreneurship Development Institute of India
B. State Government
1. District Industries Centers
2. State Financial Corporations
3. Khadi and Village Industries Commission
4. State Small Industries Development Corporations
5. State Industrial Development Corporations/State Industrial Investment Corporations
C. Banks
1. Small Industries Development Corporations of India (SIDBI)
2. Commercial Banks
3. Regional Rural Banks
4. Cooperative Banks
5. National Bank for Agriculture and Rural Development (NABARD)
Analysis of Bank Credit against MSMEs Fixed Investments and Production
Indian MSMEs performance is showing excellent
growth in production over the period of time. Production contributing towards 45% of industrial output and
40% in export has attracted the attention of policy makers and financial institutions. Various initiatives
jointly by Government of India and Small Industrial Development bank of India
lead to financial inclusion and growth of MSME sector in recent years. The growth percentage of bank
credit against fixed asset investment and production of MSME is increasing at 33% and 22% respectively.
Increase in credit flow from formal sector to MSME is due to GOI and SIDBI initiatives which
includes:
• Inclusion of Micro and Small Enterprises in
Priority Sector Lending
• Funding support to Credit Guarantee Fund
Scheme to enhance unsecured financing
• Financial support to increase penetration of credit rating
• Promotion of Cluster Development
• The Nair Committee Recommendations
• Priority Sector Lending Norms
Extension of financial assistance to MSME’s
Extent of cover
The extent of cover is up to 80% for:
* A business plan
Borrowers also need to conduct a market analysis and prepare a business model, promoter profile, projected financials, etc. this report
is important as it is presented before the credit facility and then an application is filed for the loan. It is advisable to get this report
prepared by a professional as it increases the chances of loan approval.
* Loan sanction
After carefully analyzing the viability of the business model and the other information provided the bank sanctions the loan according
to its policies.
* Guarantee cover
After the bank sanctions the loan, it applies to the CGTMSE authorities to obtain the guarantee cover. If the
CGTMSE approves the loan, the borrower needs to pay the guarantee fee and the service charges.