Transcript
Microfinance is a general term to describe financial services to low-income individuals or to those who do not have access to typical banking services.
"Microfinance is the supply of loans, savings, and other basic financial services to the poor.“
A microfinance institution (MFI) is an organization that provides microfinance services. MFIs range from small non-profit organizations to large commercial banks.
The Micro Finance Institutions (MFIs) accesses financial resources from the Banks and other mainstream Financial Institutions and provide financial and support services to the poor.
The concept of microfinance is not new.
Savings and credit groups that have operated for centuries include the "susus" of Ghana, "chit funds" in India, "tandas" in Mexico, "arisan" in Indonesia, "cheetu" in Sri Lanka, "tontines" in West Africa
One of the earlier micro credit organizations providing small loans to rural poor with no collateral was the Irish Loan Fund system, initiated in the early 1700s by Jonathan Swift.
In the 1800s, various types of larger and more formal savings and credit institutions began to emerge in Europe, organized primarily among the rural and urban poor
Between the 1950s and 1970s, governments and donors focused on providing subsidized agricultural credit to small and marginal farmers, in hopes of raising incomes.
During the 1980s, micro-enterprise credit concentrated on providing loans to poor women to invest in tiny business.
These experiments resulted in the emergence of NGOs that provided financial services for the poor.
In the 1990s, many of these institutions transformed themselves into formal financial institutions in order to access and on-lend client savings, thus enhancing their outreach.
To improve the quality of life of the poor by providing access to financial and support services.
To be a viable financial institution developing sustainable communities.
Learn and evaluate what helps people to move out of poverty faster.
To create opportunities for self-employment for the underprivileged.
To mobilize resources in order to provide financial and support services to the poor.
To train rural poor in simple skills and enable them to utilize the available resources and contribute to employment and income generation in rural areas.
Microfinance is increasingly being considered as one of the most effective tools of reducing poverty.
Helps in achieving financial inclusion. understanding the needs of the poor
and on devising better ways of delivering services in line with their requirements.
SKS microfinance-secunderabad based Spandan sphoorthy financial ltd-
hyderabad based Share microfin ltd-hyderabad based Asmitha microfin ltd-hyderabad based Bandhan microfinance-kolkata based
Present demographic status in india:
•India is a developing country having more than 1000 million population out of which 350 million people are still below poverty line.
•Only 20% access loan from the formal sources and80% from the informal sources.
•70 percent of rural people do not have a bank account.
•Less than 15 percent have any access to any kind of insurance.
•Out of that 20% only 10%have access to Micro finance.
•The genesis of microcredit, and therefore microfinance is credited to Dr. Muhammad Yunus, who founded the Grameen Bank in 1983.
•In India, however, financial services especially for the rural poor also had a parallel evolution, starting from the earliest cooperative societies in 1890 to the burgeoning microfinance sector of today.
•The SHG – Bank linkage programme was formally launched by the NABARD in the year 1992, under a Pilot Project.
•This aimed at financing 500 SHGs across the country through the banking system.
•Good response encouraged the Reserve Bank of India (RBI) to include financing to SHGs as a mainstream activity of banks under their priority sector lending in 1996.
•Microfinance received greater recognition when the Small Industries Development Bank of India set up a Foundation for Microcredit with initial capital of Rs100 crores in 1998.
• The passing of Mutually Aided Cooperative Societies Act by Andhra Pradesh in 1995, followed by some other states has also acted as a stimulant as many new microfinance initiatives have come up under the MACS act.
•In addition to the success of the Nabard-SHG bank linkage programme, alternative microfinance initiative following Grameen and/or SHG methodology or at times individual lending model has also been successful.
•About 60 percent of MFIs ARE REGISTERED as societies.
•About 20 percent are trusts.
•Large concentration in south india.
•600 MFIS INITIATIVES HAVE A CUMULATIVE OUTREACH OF 1.25 CRORE POOR HOUSEHOLDS
•NABARDS BANK LINKAGE PROGRAM HAS CUMUTATIVELY REACHED A TOTAL OF 9.4 LACH SHGS WITH ABOUT 1.4 CRORE HOUSEHOLDS.
Strength•Helped in reducing the poverty.•Huge networking available.
Weakness•Not properly regulated.•High number of people access to informal sources of finance.
Opportunity•Huge demand and supply gap.•Employment Opportunity.•Huge Untapped Market.•Opportunity for Pvt. Banks, NBFCs, Foreign Banks to enter this business segment.
On basis of lending:
Non profit organizations:societies : bandhan,rashtriya seva samiti,Gram utthanPublic trustsNon profit companies
Mutual profit:Co operatives registered understate or national acts(sakh sahkari samiti ltd.,Mutually aided co operative societies(MACs) such as sewa mutually aided cooperative.
For profit MFIsNBFCs such as bhartiya sammrudhhi finance limited .producer companieslocal area banks
The SHG model
Grameen bank model
NBFC model
The self help group model has evolved in the NGO sector. A variety of models arise out of NGO nurturing among which SHGs have become the most popular.
SHGs are small informal groups comprising of membership of 10-20 persons. The composition of membership is mostly exclusively male or exclusively female with all members having economically and socially similar background.
The group meets regularly at an appointed time and place and carries out its financial transactions of savings and credit.
The NGO provides them with support services, training and developing linkages.
However, there are certain features of SHG that need to be looked into:
•The group promotion process is long and the poor have to wait for long periods.
•The amounts available in the beginning are very small and all the members cannot take loans at the same time.
•The functioning of the group relies completely on group dynamics which are very difficult to build in.
•Conflicts arise on seemingly trivial reasons which can lead to the break-down of the group and it is difficult to rebuild it.
The grameen bank methodology which was a case of exceptional success first evolved in Bangladesh and was launched by many other organizations in India with slight variations. Some of the features are as follows:
•Homogeneous groups of 5 members are formed at village level
•The field worker facilitates the process of group forming
•All the group members undergo a 7 day compulsory training
•Some groups undergo the group recognition test
•8 joint liability groups affiliate together to form a centre
•The centre meets every week at a defined time and a bank assistant attends the meetings.
•Group discipline is enforced through peer pressure. Collateral is replaced by peer pressure.
• The incentive to timely repayment is repeat loans and continuous access to increasing credit from the bank.
•A field worker maintains a check on loan utilization.
The four pillars of microfinance credit system (Fig. 1) are supply, demand for finance, intermediation and regulation. Whatever may the model of the intermediary institution, the end situation is accessibility of finance to poor. The following tables indicate the existing and desired situation for each component.
The four pillars of microfinance credit system (Fig. 1) are supply, demand for finance, intermediation and regulation. Whatever may the model of the intermediary institution, the end situation is accessibility of finance to poor. The following tables indicate the existing and desired situation for each component.
Existing Situation
Desired Situation
•fragmented•Undifferentiat
ed•Addicted,
corrupted by capital & subsidies
•Communities not aware of rights and
responsibilities
•Organized•Differentiated
(for consumption,
housing)•Deaddicted
from capital & subsidies•Aware of rights and
responsibilities
DEMAND
•
Existing Situation
Desired Situation
•Grant based (Foreign/GOI)
•Directed Credit - unwilling and
corrupt•Not linked with
mainstream•Mainly focussed
for credit•Dominated
•Regular fund sources
(borrowings/deposits)
•Demand responsive•Part of
mainstream (banks/FIs)
•Add savings and insurance•Reduce
dominance of informal,
unregulated suppliers
SUPPLY
•
Existing Situation
Desired Situation
•Non specialized•Not oriented to financial
analysis•Non profit
capital•Not linked to mainstream
FIs•Not organized
•Specialized in financial services
•Thorough in financial analysis•For profit
•Link up to FIs•Self regulating
INTERMEDIATION
•
Existing Situation
Desired Situation
•Focussed on formal service
providers (informal not
regulated)•regulating the
wrong things e.g. interest rates•Multiple and
conflicting (FCRA, RBI, IT, ROC,
MOF/FIPB, ROS/Commerce)•Negatively
oriented
•include/informal recognise e.g.
SHGs•Regulate rules of
game•Coherence and
coordination across regulators
•Enabling environment
REGULATION
•
INTEREST RATE MISNOMER-when small amounts are discussed percentages can be misleading. MFI's charge 24-30 per cent interest rate.
COLLECTION PRACTICES-need to arrive at the right balance between strictly enforcing group liability and allowing exceptional defaults.
MULTIPLE LENDING-customers borrow from many MFIs.
BETTER REGULATION-Cap the directors' and top
management's salaries.-Cap the return on assets or return
on equity expectations.-Closely monitor MFIs, as in the case
of banks.-Help the sector access debt
cheaper.
Government has imposed strict norms for lending and recovery practices to be followed by the mfis.
Microfinance major SKS is in trouble due to it.the companies activities are on a hault from the last quarter.
It recorded a steep drop of 38.1% in its net profit yoy.
Many small companies are planning to shut down there operations because of the margin pressures since interest rates have also gone down significantly.
•It is estimated that in next five years 65 percent people will have access to micro finance.
•Many private banks and foreign banks will enter this sector due to low NPAs and reinforcement through RBIs new licensing norms.
•According to world bank report around 5% people will get above poverty line.
Finally we firmly believe that in a developing country especially like india where two worlds exist together people are rich by thoughts and talent but poor by money, microfinance acts as one of the most powerful tool against poverty.
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