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Presented by:


Saigal Asim Waghu Mihir Desai Prasad Rumde Vaibhav Pandya Vivek Parekh

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1 . Introduction 2 . Micro - Finance in India 3. Viability of Micro-Finance 4. Government Policies 5. Self Help Groups 6. Microfinance Models 7. Comparative Study 8. Marketing of Microfinance Products 9. Success Factors of Microfinance in India 10. Issues related to Microfinance in India 11. Implications of Micro Credit 12. A Real Example : Empowerment of Women 13. Recommendations

Microfinance is defined as any activity that includes the provision of financial services such as credit, savings, and insurance to low income individuals which fall just above the nationally defined poverty line, and poor individuals which fall below that poverty line, with the goal of creating social value.

According to International Labor Organization (ILO), Microfinance is an economic development approach that involves providing financial services through institutions to low income clients. "The poor stay poor, not because they are lazy but because they have no access to capital."

The typical micro finance clients are low-income persons that do not have access to formal financial institutions. Self-employed, often household-based entrepreneurs. In rural areas, small farmers and others who are engaged in small incomegenerating activities such as food processing and petty trade. In urban areas, micro finance activities are more diverse and include shopkeepers, service providers, artisans, street vendors, etc. Micro finance clients are poor and vulnerable non-poor who have a relatively unstable source of income.`

Lifecycle Needs: such as weddings, funerals, childbirth, education, home building, widowhood, old age. Personal Emergencies: such as sickness, injury, unemployment, theft, harassment or death. Disasters: such as fires, floods, cyclones and man-made events like war or bulldozing of dwellings. Investment Opportunities: expanding a business, buying land or equipment, improving housing, securing a job (which often requires paying a large bribe), etc.

Microcredit Micro savings Micro Insurance


Microfinance helps poor households meet basic needs and protects them against risks. The use of financial services by low-income households leads to improvements in household economic welfare and enterprise stability and growth. By supporting womens economic participation, microfinance empowers women, thereby promoting gender-equity and improving household well being. The level of impact relates to the length of time clients have had access to financial services.

The Regulations have been governed by RBI under: The RBI Act of 1934

Banking Regulation Act, Regional Rural Banks Act, The Cooperative Societies Acts of the respective state governments for cooperative banks. NBFCs registered under the Companies Act, 1956

2.1 Micro - Finance in India 2.2 Growth of Microfinance Institutions in India 2.3 Growth Index of Microcredit in India 2.4 Microfinance Social Aspects`

Micro-Finance is emerging as a powerful instrument for poverty alleviation in the new economy. In India, micro-Finance scene is dominated by Self Help Groups (SHGs) - Banks linkage Program, aimed at providing a cost effective mechanism for providing financial services to the 'unreached poor'. In the Indian context; terms like "small and marginal farmers", " rural artisans" and "economically weaker sections" have been used to broadly define micro-finance customers.

Scale : X axis = Year Y axis = No of institutions r

Growth in 2008-09 continued to be strong i.e 58.3%

Personal/Household level Empowerment of women Better education Ability to cope with economic shocks Local community level Creation of jobs Encourages Entrepreneurship/ Self Employment It Increases the income level and living standard of poor. It is a powerful weapon to fight against poverty. Enables families to obtain healthcare.

Revenue Expenses Financial Viability Operational Self Sufficiency Cost Of Capital Financial Self Sufficiency Trend Analysis Productivity Analysis

Initiatives taken by the Government in Budget 2010-11

The programme for linking Self Help Groups (SHGs) with the banking system has emerged as the major micro-finance initiative in the country. It was redesignated as the 'Micro-Finance Development and Equity Fund' in 2005-06 with a corpus of Rs.200 crore. The fund corpus is being doubled to Rs.400 crore in 2010-11 budget. National Social Security Fund for unorganised sector workers has been proposed in the budget 2010-11.

To resolve a number of issues which affect the growth of this sector, Prime Minister constituted a High-Level Task Force and drew up an agenda for action. In Budget, it was proposed to raise the allocation for this sector from Rs.1,794 crore to Rs.2,400 crore for the year 2010-11.

5 - Self Help Groups

Self help group is a small, homogenous affinity group of rural poor (10-20) comprising agricultural labour, small and marginal farmers, and micro entrepreneurs who have voluntarily come forward to form into a group. Members of SHG save and contribute to a common fund, from which small loans are lent to the needy members as per the decision of the group.

Most SHGs in India have 10 to 20 members. Regular group meeting to collect the savings from members. Discuss joint activities (such as training, running of a communal business, etc.)

to mitigate any conflicts that might arise.

The Group elects chairperson, a deputy, a treasurer, and sometimes other office holders.

SHGs can only fulfill a role in the rural economy if group members have access to financial capital and markets for their products and services. While the groups initially generate their own savings through thrift their aim is often to link up with financial institutions in order to obtain further loans for investments in rural enterprises. NGOs and banks are giving loans to SHGs either as "matching loans" or as fixed amounts, depending on the group's record of repayment, recommendations by group facilitators, collaterals provided, etc.

In our country the SHG and credit linkage is undertaken in three ways :

SHGs are formed by NGOs/SHPIs and credit linked by banks. SHGs are formed by Banks and credit linked by Banks. SHGs are formed by Government Agencies and credit linked by Banks.

1. Micro Finance Institutions (MFIs): MFIs are an extremely heterogeneous group comprising NBFCs, societies, trusts and cooperatives. They are provided financial support from external donors and apex institutions including the Rashtriya Mahila Kosh (RMK), SIDBI Foundation for micro-credit and NABARD and employ a variety of ways for credit delivery 2. Bank Partnership Model The bank is the lender and the MFI acts as an agent for handling items of work relating to credit monitoring, supervision and recovery, The model has the potential to significantly increase the amount of funding that MFIs can leverage on a relatively small equity base.

3. Banking Correspondents The proposal of banking correspondents could take this model a step further extending it to savings. It would allow MFIs to collect savings deposits from the poor on behalf of the bank. 4. Service Company Model Under this model, the bank forms its own MFI, perhaps as an NBFC, and then works hand in hand with that MFI to extend loans and other services. (a) The MFI uses the branch network of the bank as its outlets to reach clients. (b) The Partnership model uses both the financial and infrastructure strength of the bank to create lower cost and faster growth.

Contract Farming and Credit Bundling : Banks and financial institutions have been partners in contract farming schemes, set up to enhance credit. Agri Service Centre Rabo India: The services provided are similar to those in contract farming, but with additional flexibility and a wider range of products including inventory finance. Non Traditional Markets: Horticulture farmers produce is planned with production and supply assurance and provides both growers and buyers a common platform to negotiate better rates. Apni Mandi: Innovation of The Punjab Mandi Board, which has experimented with a farmers market to provide small farmers located in proximity to urban areas, direct access to consumers by elimination of middlemen.

Positive impact on poverty reduction, including increased outreach, improved efficiency, and long-term viability of microfinance providers Means to support themselves. Financial independence. It creates economic opportunities for the worlds poorest. Builds a better future for children. Positive impact on household income

It has made a positive impact on poverty reduction, including increased outreach, improved efficiency, and long-term viability of microfinance providers also

More readily adopt new ideas Canvassing by various actors, FIs like NABARD , SIDBI and lately by commercial banks. Promotion. Quick and high customer satisfaction is the USP. The idea appears simple to implement. Attractive interest rate. Policy push. A vast network of branches

Sustainability Lack of Capital Financial service delivery

HR Issues
Micro insurance Adverse selection and moral hazard

Lakshmi, a 22-year-old school dropout, lived in a remote village of Tamil Nadu. Instead of getting married and starting a family like any other village girl of her age in India, she wanted to set up on her own business. Lakshmi started an Internet kiosk in her village, offering services like e-mail, Internet chat and tips on health and education. The kiosk was partially financed by ICICI Bank and was set up in association with n-Logue Communications. Latha, a 29-year-old married woman with three children borrowed Rs.18,000 to set up a small provision store in Kothaipalli, a small village, in the north of Andhra Pradesh. Within a year, she started earning Rs.3500 a month from the store. With this money, she was able to provide her children a good education at a local private school. She was a part of a self help group in Andhra Pradesh which received financial assistance from ICICI Bank. These are real-life examples to illustrate how the micro-lending initiatives of ICICI Bank affected the lives of poor women in India. By becoming a part of self-help groups, several rural women were able to move out of poverty. Apart from financial benefits, the initiatives helped the women to develop self confidence, improve their communication skills and raise their position in society.

SHGs should not lend outside the Group. SHGs can decide on some cap on borrowings per Member. Group to decide on apportioning of income earned during a year. Marketing support must also be provided to SHGs. The government should encourage helping in the formation of SHGs. NGOs interested in providing training to borrowers and marketing channels for rural produce should also be encouraged. Care should be taken to ensure that no element of coercion is involved in effecting recoveries. Transparency in rate/method of fixation of interest by the NBFC / MFIs. Complete income tax exemption to companies lending micro credit (to the donor and to the receiver). Govt. to consider complete exemption from IT for income earned, as the main purpose of the organization is to empower the poor.

NABARD M-CRIL State Bank Of India Reserve Bank of India Budget 2010-11 Debt and Investment Survey, Banker to the Poor, By Prof. Muhammad Yunus Wikipedia

Loans that change Lives