FINAL DRAFT

Macro & Micro finance in Dena Bank

A

FINAL PROJECT REPORT

ON

“MACRO & MICRO FINANCE IN DEN BANK”

Submitted by:

Dinky Khandor (09047)

Komal Lalwani (09051)

BATCH 2009 – 2011

Submitted to:

Prof. Hitendra Lachhwani

Faculty (TIMS)

In partial fulfillment of the requirement of

Tolani Institute of Management Studies, Adipur

For the awarded of the degree of

Post Graduate Diploma in Management

Tolani Institute of Management Studies

Adipur-370205

February 2011

Tolani Institute of Management Studies Page 1




CHAPTER- 1

INTRODUCTION



1.1 Introduction of the project.

Microfinance is a movement whose object is a world in which as many poor and near-poor

households as possible have permanent access to an appropriate range of high quality financial

services, including not just credit but also savings, insurance, and fund transfers. Those who

promote microfinance generally believe that such access will help poor people out of poverty.

Microfinance is a broad category of services, which include microcredit. Microcredit can be

defined as the provision of credit services to poor clients. Although microcredit by definition can

achieve only a small portion of the goals of microfinance.

Small medium enterprises (Macro) are the growth engines of the Indian economy due to

their ability to create jobs, foster entrepreneurship and to provide depth to the industrial base of the

economy. MSMEs are contributing to the process of economic of the growth, employment

generation and helping in more equitable distribution of national income. The major advantage of

the sector is its employment at low capital cost. MSMEs are second only to agriculture in the field

of employment.

This is a voluntary Code, which sets minimum standards of banking practices for banks to

follow when they are dealing with Micro and Small Enterprises (MSEs) as defined in the Micro

Small and Medium Enterprises Development (MSMED) Act, 2006. It provides protection to you

and explains how banks are expected to deal with you for your day -today operations and in times

of financial difficulty.

The Code does not replace regulatory or supervisory instructions issued by the Reserve

Bank of India (RBI) and we will comply with such instructions /directions issued by the RBI from

time to time. The provisions of the Code may set higher standards than what is indicated in the

regulatory or supervisory instructions and such higher standards will prevail, as the Code represents

best practices agreed by us as our commitment to you. In the Code, ‘you’ denotes the MSE in India

and ‘we’, the bank that you deal with.



As defined in the MSMED Act, 2006, MSEs cover Micro and Small Enterprises engaged

in the manufacturing or production or processing or preservation of goods and those engaged in

providing or rendering of services. Unless it says otherwise, all parts of this Code apply to all the

products and services listed below, under current regulatory instructions, whether they are provided

by branches, subsidiaries, joint ventures or agents, across the counter, over the phone, by post,

through interactive electronic devices, on the internet or by any other mode. However, all products

discussed here may or may not be offered by us.

Thus SME plays a very signification role in the socio-economic development of the

country. With the opening up to the Indian economy due to globalization and liberalization, this

vital sector of the economy is facing a lot of challenges and competition from the domestic as well

as multinational corporations.

Micro finance

There is growing interest in microfinance as one of the avenues to enable low income

population to access financial services. India with a population of around 300 million poor people

has emerged as a large potential opportunity for the microfinance sector. With only 48% of the

population accessing financial services, expanding the microfinance sector is also important from

the perspective of financial inclusion (World Bank, 2008). Since 2004, the Reserve Bank of India

(RBI) has emphasised financial inclusion as an important goal.

With the growth of the sector both in terms of size, scope and number of participants, there

is however now a need for developing a more formal regulatory structure. First, regulation is

needed to enable a number of large microfinance institutions (MFIs) to offer savings services, so as

to address a major shortcoming of the sector. The largest MFIs in the country, which cumulatively

account for 80% of the sector in terms of portfolio outstanding, are non-banking finance companies

(NBFCs), who are unable to accept savings deposits. In order to do so, NBFCs need to obtain

investment grade rating from a credit rating institution, which is difficult for the MFIs. As a result,



most of the growth in microfinance in India has been concentrated on provision of loans or

“microcredit”.

A number of studies have stressed the importance of savings for the poor .Many MFI

members simultaneously both borrow and save. The lack of saving services results in their saving

in less convenient, riskier and often lower yielding ways such as through purchase of ornaments.

For the MFIs, this lack of access to deposits implies that they tend to be highly leveraged.

The provision of financial services to low-income clients or solidarity lending groups

including consumers and the self-employed, who traditionally lack access to banking and

related services.

Microfinance is the giving of small loans to people who need capital to start a small

business and become self employed to help themselves and build a sustainable future.

Micro (Manufacturing) enterprises –

Enterprises engaged in the manufacture/production, processing or preservation of goods

and whose investment in plant and machinery (original cost excluding land and building) does not

exceed Rs.25 lakhs irrespective of location of the unit.

Micro (service) enterprises –

Enterprises engaged in providing/rendering service and whose investment in equipment (original

cost excluding land & building and furniture, fitting and other items not directly related to the

service rendered) does not exceed Rs.10 lakhs.



Micro finance includes

Agriculture

Motor Repairing

Auto Repairing

Crop Loan

Auto Rickshaw

Embroidery

Tailors

Others

Macro Finance

The provision of financial services to small and medium- sized enterprises (SME).

Small (Manufacturing) Enterprises –

Enterprises engaged in the manufacture/ production, processing or preservation of goods

and whose investment in plant and machinery (original cost excluding land and building) does not

exceed Rs.5 Crore.

Small (service) enterprises-

Enterprises engaged in providing/rendering service and whose investment in equipment

(original cost excluding land & building and furniture, fitting and other items not directly related to

the service rendered) does not exceed Rs.2 crore.



Medium (Manufacturing) enterprises-

Enterprises engaged in the manufacture/ production, processing or preservation of goods

and whose investment in plant and machinery (original cost excluding land and building and the

items specified by the Ministry of small scale industry) is more than Rs. 5 crore but does not

exceed Rs. 10 Crore.

Medium (service) enterprises-

Enterprises engaged in providing/rendering service and whose investment in equipment

(original cost excluding land & building and furniture, fitting and other items not directly related to

the service rendered) is more than Rs.2 Crore but does not exceed Rs.5 crore.

The small and micro (service) enterprises shall include a mall road & water transport

operators, small business, professional & self-Employed persons and all other service enterprises.

Manufacturing Sector Service SectorOriginal investment in Plan & machinery

Original investment in Equipments

Micro Up to Rs.25 Lakhs Up to 10.LakhsSmall Enterprises From Rs.25 Lakhs to Rs. 500

lakhsFrom 10 lakhs to 200 lakhs

Medium enterprises From Rs. 500 lakhs to 1000 lakhs From 200 lakhs to 500 lakhs ( Source :- Dena bank web site )

Advances granted to private retail traders with credit limits not exceeding Rs.20 lakhs.

Micro credit means loan of very small amount not exceeding Rs. 50000/- per borrower

provided by bank either directly or indirectly through a SHG.



1.2 Literature review

By Mayada M. Baydas, Douglas H. Graham,& Liza Valenzuela, August 1997

Commercial Banks in Microfinance: New Actors in the Microfinance World

Objective:-

To describe some of the issues facing all commercial banks interested in entering microfinance;

Methodology:-

The approach used in this paper is first to describe the challenge & issues of

microfinance for commercial banks then to show microfinance products and methodology.

This paper shows that most commercial banks largely use their own deposit base for microloans

and activities for various periods of time, good repayment rates and high effective interest rates that

far exceed the cost of funds allow most organizations to at least break even in the use of their own

funds for micro lending.

Findings:-

The most of banks have not offered microfinance services Because of three main reasons

are too risky, too expensive & Socio-economic and Cultural Barriers. The banks generally reported

larger average and maximum size microloans.

The commercial banks offer microfinance with a minimum maturity as short as one to a few

months & maximum maturity for these as long as two to four years.

Financial products and methodologies can be adapted to the microenterprise or low-income

client.

The larger commercial banks are able to engage in sufficient self-provisioning to manage

these activities properly.



Two institutional challenges remain in Microfinance.

1. The search for the most cost-effective organizational form for large banking institutions to

include microfinance in an organization naturally ill-suited to adapt to the cultural world of

the microfinance customers.

2. The most appropriate governance structure for former financial service NGOs evolving into

banks.

Conclusion

Micro finance is generally provided with terms and conditions different from those

associated with the traditional loans provided by private commercial banks. These differences have

prompted some commercial banks to offer microloans in separate locations from their traditional

banking services, highlighting the differences between products. Microfinance should be able to

emerge in open niche markets as long as formal lenders in financial markets are free to charge

interest rates that cover their operating costs, risks, and the opportunity cost of capital.

By Dr. Jivan Kumar Chowdhury

Microfinance reevaluation and microfinance services in India perspective

Objective:-

To understand the models of the micro finance.

Methodology:-

The approach used in this paper is describe the bank Linkage models like SHG & MFI.

Findings –

There are two types of models in microfinance.



1) Self help group (SHGs)

2) Micro Financial Institutions (MFI)

A) Self Help Group

A rapid growth

An estimated 58 million poor people

Major Regional variations in its development and bank linkage.

There three types of SHG- Bank Linkage model

1. Bank as SHPI

2. NGO/SHIPs as facilitator

3. NGO as Financial Intermediary

B) Micro-Finance Institutions (MFI)

Continuous efforts needed to promote

A scheme was launched by NABARD to financial support to banks for rating of it.

Conclusion

The existing banking policies, systems and procedures and deposits and loans product

were not well suited to meet the credit need of the poor. There are supportive policies of RBI for

Microfinance like complete freedom to choose their models, maximum flexibility. They have also

given some initiatives of microfinance like develop collateral substitutes, focus on the Rural &

urban poor, especially for women.

By NasrinShahinpoor

The link between Islamic banking and microfinance

Objective:- The objective of this research paper is to show the link between Islamic

banking and microfinance.



Methodology:-

The approach used in this paper is first to describe the basic principles of Islamic

banking and microfinance and then to show the link between the two financial practices.

Findings:–

Microfinance has received a lot of attention in developing countries where small-scale

enterprises by farmers and villagers are seen as solutions to the economic development to rural

communities and keys to reducing poverty.

Microfinance has several characteristics.

Provide small short-term loans mainly to poor farmers and villagers.

An alternative approach to collateral.

The relatively easy and quick way of evaluating the qualifications of the borrowers.

The higher than market interest rate to cover the transaction costs.

High-re payment rates.

Convenient locations for easy access to financial services for borrowers.

Conclusions

The two practices are not compatible since microfinance allows interest payments on

loans and Islamic banking prohibits interest payment based on Islamic law, sharia. Both

practices, however, promote quality and fairness for all members of the society and

encourage entrepreneurship by giving collateral-free loans to the poor.

By Glenn D. Rudebusch_ January 2010

Macro-Finance Models of Interest Rates and the Economy

Objective:-

To describe three different strands of such interdisciplinary macro finance model.



Methodology:-

The first adds macroeconomic variables and structure to a declare arbitrage-free finance

representation of the yield curve. The second examines bond pricing and bond risk premiums in a

sanctify.

Macroeconomic dynamic stochastic general equilibrium model. The third develops a new

class of arbitrage-free term structure models that are empirically tractable and well suited to macro-

finance investigations.

Findings:-

Macro finance issue highlighted in the recent crisis is the link between bond supply

and the risk premium. As the short-term policy rates reached their effective lower bound,

various central banks tried to lower longer term yields by taking various unconventional

balance sheet actions.

Conclusions:-

Existing models can provide little if any guidance to central banks about the link between

bond supply, which is effectively reduced by the central bank purchases, and bond risk premiums.

Understanding potential quantity effects on bond yields from a macro finance perspective is also an

important future research topic.



1.3 Introduction of Dena bank

Dena Bank is an Indian commercial bank based in Mumbai. The bank was founded by the

Devkaran Nanjee family on the 26th of May, 1938. At the time of establishment, its name was

Devkaran Nanjee Banking Company Ltd. Further, the banking company was incorporated as a

Public Ltd. Company in December 1939, changing its name to Dena Bank Ltd. The bank was

nationalized by the Government of India along with 13 other commercial banks in the year 1969.

Recently Chairman of Dena Bank is Mr.D.L.Rawal.

Mission of Dena Bank:

Dena Bank will provide its Customers - premier financial services of great value,

Staff - positive work environment and opportunity for growth and achievement,

Shareholders - superior financial returns, Community - economic growth.

Vision of Dena Bank :

Dena Bank will emerge as the most preferred Bank of customer choice in its area of

operations, by its reputation and performance.

Dena Bank came out with its maiden equity issue of 6 crore-equity shares of Rs. 10/- each

at a premium of Rs. 20/- per share in 1996.The issue was oversubscribed by 1.2 times. The shares

have been listed at Delhi stock exchange, Ahmedabad stock exchange, Mumbai stock exchange and

National Stock Exchange.

Dena Bank has a large network of branches spread throughout the country, which includes

1130 branches in Delhi, Gujarat, Karnataka, Kerala, Andhra Pradesh, M.P, Maharashtra, and

Rajasthan etc. And 13 extension counters.



Dena Bank also has 76 specialized branches to cater to the needs of industrial finance,

trade finance, personal banking, international banking, NRIs and small-scale industries. A Bank

with robust technology infrastructure offering Any Branch Banking, m-banking, Dena bill pay,

Tele banking, information Kiosks, ATM Network, etc.134 ATMs across 58 centers all over India.

Cent of the total business and branches are computerized in the Dena bank. Dena Bank

was introduced Krishi Sakh Patra – credit card for farmers in 1988. Product portfolio of the Dena

bank includes Trade Finance, Consumer Loans, Credit Cards and Kisan Cards, Retail lending

products etc. Now a day Dena bank focuses on Retail & SME segment.



CHAPTER-2

OBJECTIVE OF THE STUDY



2. Objective of the Study

Primary Objective

To understand the system and process of approving Macro & Micro financing loan in Dena

Bank.

Secondary Objective

To identify what are the problems face by the banks especially PSU banks while doing

Micro finance.

To indentify the how Micro finances helps bank to earn more profits.

To identify what are the problems being faced by people while getting Micro finance loan



CHAPTER-3

METHODOLOGY



3. Methodology

The research methodology for the project has been designed in order to cover all the

concepts related with Macro & Micro finance in banking sector.

Research design: Descriptive Method

The data collection sources for the report are as following:

Primary Data: By interview of managers of different Banks and sample survey though the

Questionnaires.

Secondary Data: For data collection we used websites Magazines, Banking Journals.

Sample Size:

100 Questionnaires (We Randomly selected the customer of the following banks who are

taking a micro finance loan)

Personal interviews of manager of these five followings banks:

DENA BANK, SBI, BOI, CBI, BOB. We randomly selected the banks.



CHAPTER-4

FINDINGS AND RESULTS



Current scenario

Emerging technologies and globalization have taken away certain advantages which the

large industries were enjoying the based on their balance sheet size. Economy of scale which was

an advantage earlier is no more so. This has increased the potential success of the medium

enterprises significantly in USA, SMEs account for the about 50 % of GDP. The highest

contribution incidence is in Thailand with SMEs contributing nearly 95% of GDP. In India SME

contributes for 1) 95% of all industrial unit,2) 40% of industrial outputs, 3) 45% of industrial

employment & 4) 50% of exports. Lack of credit delivery to this segment often obstructs SMEs

from developing their potential. Therefore in India, SMEs contributing 30% of GDP are becoming

critical growth drivers at par with others such as Service sector.

With the integration of Indian economy with the world economy and resultant

globalization, Indian SMEs are repositioning themselves to be compatible to global trade scenario

and also becoming competitive internationally through greater emphasis on cost-efficiency, scale of

operations and quality.

More than three millions in numbers contributing over 30% towards employment. Small

& Medium enterprises have emerged as the new thrust area of the policy makers. SME is the

second largest employment provider after agriculture and also has a high share in exports. Within

the SME sector, the small sector service is a green field for nurturing of entrepreneurial talent and

helping the units to grow into medium and large scale.

SME provide the country with a diverse range of products from the very basic to the

highly sophisticated. They are the backbone of industry development of the as every major industry

has several SMEs on the supplier side contributing to its success.

The SME sector today displays a stratified structure. At one end is the very modern

industry and at the other end are the very traditional and old set ups. What is required is the

attitudinal reorientation with focus on professionalism, innovativeness and modernizations.



System of Micro finance

AS per RBI norms every bank has to work on Micro finance because RBI wants to

develop rural area increase the economic growth, improve the financial condition of farmers & to

sink the differences between have and have not’s.

Thus, every bank starts to do micro finance. RBI gives target to each and every bank for

microfinance on basis of net worth.

After that banks plan that how to achieve targets of microfinance. Then H.O allocates

targets to its branches according to location of the branches. Then, the branches have to achieve

targets with in limit area. Targets will be increase 20% every year.

Ex: - suppose Dena Bank gets target of micro finance of Rs.250 crore. Now Dena Bank distributes

the target among its branches on the basis of the capacity, location etc of the branch. Dena bank of

Anjar branch gets target of Rs. 1 crore. Now, it’s up to the branch that who has the ability to get the

micro finance loan.

Procedures of micro finance loan of Dena Bank.

Dena Kisan Credit Scheme (DKCC)

Objective: - TO provide hassle free and timely production credit to farmers.

Eligibility:- All types of farmers, irrespective of land holding expect defaulters, are eligible.

Validity: - valid for 3 year

Dena Kisan gold credit card scheme (DKGCC)

Objective: - This is a flexible direct agriculture loan scheme with “whole Farm Approach” along

with DKCC.

Eligibility: - All Farmers including existing borrowers / new borrsowers/ take over loan, barring

defaulters, may be issued DKGCC cards.



Permissible Loan Amount

Maximum loan amount available, under the scheme, is Rs. 5.00 lakhs only

Repayment Period

Each loan account under the scheme would have its own repayment period and maximum

repayment available would be 7 years. However, maximum repayment period for tractor / farm

equipment loans will be 9 years.

Scheme for financing motor cycles/two wheelers to farmers.

Eligibility: - Framers having good track Record, engaged in agriculture or allied activities within

the command area of branch.

Interest: – As per agriculture Scheme –BPLR-2% + term premium.

Repayment:- Maximum in 60 months

Scheme for financing purchase of Land

Eligibility: - small and marginal farmers, sharecropper and tenant farmers

Interest: - Rate is applicable as for the priority sector agriculture advances.

Repayment: - 7- 10 year in half / yearly installment including 2 year moratorium.

Permissible loan amount: - Maximum Rs. 2 lakhs under this scheme



Dena Bhumiheen Kisan Credit Card (DBKCC)

Eligibility:- Tenant farmer, oral lessees & share croppers constitute around 20% of total

cultivators. Have no proper land records.

Interest: - BPLR (-) 2.5%+ tenor premia.

Repayment: - 1 year

Permissible loan amount: -Max 25000/-

Scheme for SME

Channel financing scheme:

Supplier bill discounting scheme

Reputed Corporate Borrower furnishes a list of their suppliers with recommendation and

letter of comfort to the bank. Bank appraises the individual supplier independently and finalizes

list. Bank provides immediate finance to the selected supplier by discounting bill to the

corporate.

Dealer Finance Scheme

Procedure of selection of borrower is the same. bank shall have discretion to finance the

dealers either by way of bill discounting, overdraft or short loan depends on their appraisal.

Rice mill scheme

Scheme is specifically for SME sector. To enable Rice Mill owners to get finance at lower

rate of interest with minimum hassle for new project/up gradation /expansion and for their working

capital requirement/ peak period requirement. Proprietary & partnership firm, cooperative society,

corporation & company, which are from SME sector eligible for the schemes credit facility

available under scheme, are our regular credit facilities.



Wind mill scheme

As per the scheme credit facility will be in the form of term loan which will be need based.

The eligible constituents may be a partnership concern, a private limited company or limited

company or any business concern whether our existing or new clients but in existence for 3 year.

Processing of Application

1. Issue of Acknowledgement of loan Application

Branch to give acknowledgement for loan application received from the borrowers. each

branch may affix a running serial number on the main application form as well as the

corresponding portion for acknowledgment.

2. Disposal of application

All loan application from SME up to Rs. 25000/- should be disposed of within 2 weeks

and those up to Rs. 5 lakhs within 4 weeks provided the loan application are complete in all

respects and accompanied by a ‘ check list’. Apart from above branch to ensure that no loan

application form from SME is pending with them for more than 8 weeks. Credit Rating is must

if loan requirement is more than Rs. 10.00 lakhs.

3. Register of Rejected applications

A register should be maintained at branch wherein the date of receipt, sanction/ rejection/

disbursement with reasons therefore etc., Should be recorded. The register should be a made

available to all inspecting agencies.

Rejection of application for fresh limits /enhancement of existing limits should not be done

without the approval of the next higher authority.

Sanction of reduced limits should be reported to the next higher authority immediately with

full details for reviewed and confirmation.



4. Sanctioning Authority

The limits in MSME sector will be sanctioned by the authorized person of bank.

Documentation

2 passport size photographs

Proof of Residence

Copy of pan card/passport/Ration card/voter id card/driving License/employment ID Card

Bank Statement for last 6 months. ( for SME if existing business)

Last year Balance sheet ( for SME if existing business)

Pre project Planning (for newly open firm)



AGRICULTURE

Direct finance

Direct finance to individual farmers- it shall include short, Medium and long term loans

given for agriculture and activities (daily, fishery, piggery, poultry, beekeeping, etc.)directly to

individual farmers [ including self help groups(SHGs) or joint Liability Groups ( JLGs)i.e. group of

individual farmers provided banks maintain disaggregated data on such finance] for agriculture and

allied activities.

Short – term loans for raising crops i.e. for crop loan. This will include traditional/

nontraditional plantation and horticulture.

Advances up to Rs.10 lakhs to farmers against pledge/hypothecation of agricultural produce

(including warehouse receipts) for a period exceeding 12 months, irrespective of whether

the farmers were given crop loans for raising the produce or not.

Loans to small & marginal farmers for purchase of land for agricultural purposes.

Loans granted for pre harvest and post harvest activities spraying , weeding , harvesting ,

grading , sorting ,processing and transporting undertaken by individuals , SHGs and

cooperatives in rural areas .

AGRICULTURE & ALLIED ACTIVIES DIRECT FINANCE

Direct finance to others (such as cooperates, Partnership firms, institutions) for Agriculture &

allied Activities (daily, fishery, piggery, poultry, beekeeping, etc.)

Loans granted for pre harvest & post harvest activities such as spraying, weeding,

harvesting, grading, sorting, processing and transporting.

One- third of loans in excess of Rs.1 crore in aggregate per borrower for Agriculture &

allied Activities.



Agriculture Indirect Finance- finance for agriculture & Allied Activities –

Two – third of loans to entities covered under agriculture & allied activates direct finance in

excess of Rs.1 crore in aggregate per borrower for Agriculture & Allied Activities.

100% of the credit outstanding under loans for general purposes under General credit card

(GCC).

Loans to farmers through Primary Agricultural Credit Societies (PACS), Farmers’ Service

Societies (FSS) and Large sized Adivasi Multi Purpose Societies (LAMPS).

Loans to cooperative societies of farmers for disposing of the produce of members.

Credit for purchase & distribution of fertilizers, pesticides, seeds, etc.

Loans granted up to Rs.40 Lakh for purchase and distribution of inputs for the allied

activities such as cattle feed, poultry feed, etc.

Finance extended to dealers in drip irrigation/sprinkler irrigation system /agricultural

machinery, irrespective of their locations, subject to following conditions that a ) the dealer

should be dealing in exclusively in such items or if dealing in other products, should be

maintaining separate and distinct records in respect of such items. b) A ceiling of up to

Rs.30 lakhs per dealer should be observed.

Advances to customs Service units managed by individuals, institutions or organizations

who maintain a fleet of tractors, bulldozers, well- boring equipment, threshers, combines,

etc. and undertake work for farmers on contract basis.

The deposits placed in Rural Infrastructure Development Fund (RIDF) with NABARD by

banks on account of non achievement of priority sector lending targets/ sub targets and

outstanding as on 30.04.2007 would be eligible for classification as indirect finance to

agriculture sector till the date of maturity of such deposits or March 31, 2010 whichever is

earlier.



Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).

Credit Guarantee Fund Scheme for Small Industries (CGFSI) renamed as Credit

Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). origin of the Scheme :

Hon'ble Union Finance Minister, in his budget speech for 1999- 2000, had indicated that "Inability

of the entrepreneur to provide adequate security to banks and low recovery are often cited as major

constraints in flow of investment credit to SSI units. The problem is more acute for export oriented

and tiny sector enterprises. To improve the problems, it was announced that a new credit insurance

scheme will be launched."

As a follow up measure, Ministry of SSI and Agro and Rural Industries, Government of

India, in consultation with Small Industries Development Bank of India (SIDBI) have formulated a

Credit Guarantee Fund Scheme for Small Industries (CGFSI) for guaranteeing the loans and

advances up to Rs. 25 lakhs extended by Scheduled Commercial Banks and selected Regional

Rural Banks (RRBs) without collaterals and / or third party guarantees (TPG) , to Small Scale

Industrial Units including those engaged in Information Technology/software industry. To

operationalise the guarantee scheme, Credit Guarantee Fund Trust for Small Industries (CGTSI)

has been set up by GOI and SIDBI. Under the scheme, all eligible loans extended on or after June

1, 2000 by the lending institutions can be covered under the purview of this scheme. The scheme

was formally launched by Hon'ble Prime Minister on August 30, 2000.

According to RBI guidelines, the CGTSI guaranteed loans carry zero risk weight and no

provision needs to be made for the guaranteed portion, in case the advances become NPAs.

Subsequent Modifications under the Scheme: To make the scheme more entrepreneur -friendly,

the scheme is modified from time to time. Some of the important modifications affected under the

scheme are furnished here under:

Inclusion of Non-fund based working capital facilities under CGFSI within the overall limit:

The scheme has been modified w. e. f 01.02.2005 to cover "Credit facilities " which means any

financial assistance by way of term loan and / or fund based and non-fund based working capital



facilities (cash credit, overdraft, bills purchased or discounted, bank guarantee, Letter of credit, etc.)

extended to the eligible borrower. For the purpose of calculation of guarantee fee, the "credit

facility extended" shall mean the amount of financial assistance committed by the lending

institution to the borrower, whether disbursed or not. For the purpose of the calculation of service

fee, the credit facility extended shall mean the credit facilities (both fund and non-fund based)

covered under CGFSI and for which guarantee fee has been paid, as at March 31, of the relevant

year.

Extending additional term loan / working credit facilities to the borrowers already covered

under the Scheme :

In respect of eligible borrowers already covered under the Scheme , banks can extend

additional term loans / enhanced working capital facilities to such borrowing units by taking

collateral security and / or TPG, if considered necessary, keeping in view the risk perception. The

collateral security / TPG would, however, be restricted to the additional loan / credit facility only.

Package for promotion of Micro & Small Enterprises

Based on the modifications suggested in the "Package for promotion of Micro and Small

Enterprises" as approved by Cabinet Committee on Economic Affairs on October 16, 2006 and as

announced in the Parliament on February 27, 2007 by the Hon’ble Minister of Micro, Small and

Medium Enterprises and further approvals as obtained from the Settlers of the Trust, the following

changes have been effected in the scheme: The Trust has been renamed as the Credit Guarantee

Fund Trust for Micro and Small Enterprises (CGTMSE). The Scheme is known as the ‘Credit

Guarantee Fund Scheme for Micro and Small Enterprises’ instead of ‘Credit Guarantee Fund

Scheme for Small Industries’.

The coverage of the Scheme has been extended to all new and existing Micro and Small

Enterprises (both in the Manufacturing Sector as well as in the Service Sector) instead of SSI

/SSSBE (IR) units. It has been clarified by CGTMSE that in respect of Micro and Small Enterprises

(in the service sector) lending institutions to adhere to RBI’s guidelines on "lending to Priority



Sector " i.e. to include small road and water transport operators, small business, professional

and self employed persons and all other service enterprises under the ambit of Micro and Small

Enterprises but exclude retail trade.

The eligible loan limit under the Scheme is increased to Rs. 50 Lakh instead of Rs.25 Lakh

as obtaining earlier. The credit guarantee cover is raised from 75% to 80% for the following

category of loans: a. Loans to Micro enterprises up to Rs. 5 Lakh; and b. Loans to Micro and Small

enterprises operated and/ or owned by women. In North Eastern Region, the up-front Guarantee Fee

is reduced by 50% from 1.5% to 0.75% for all loans and the extent of guarantee cover is raised

from 75% to 80 % for all loans in the North Eastern Region.

Rationalisation of Guarantee Fee (GF) / Annual Service Fee (ASF) :

Consequent upon the announcement of reduction in GF/ASF made by the Hon’ble Union

Finance Minister, Government of India, in the Parliament on February 29, 2008 while presenting

the Union Budget for FY 2008-09, it has been decided to modify the GF/ASF structure in respect of

credit facility up to Rs. 5 Lakh sanctioned by MLIs (member lending institution). Accordingly, it

has been informed by CGTMSE that though the budget proposals are made effective from April

01st of the subsequent year, it has decided to extend the benefit of reduced GF/ASF to the Micro

and Small Enterprises (MSEs) sector during the financial year (2007-08). The reduction in GF is

effective from March 01, 2008 and the ASF for FY 2008 will be charged at the reduced rate.

Consequently, schedule of Guarantee Fee / Annual Service Fee is revised as under.

A onetime guarantee fee at specified rate (currently 1.00% in the case of credit facility up

to Rs. 5 Lakh and 1.5% in the case of credit facility above Rs. 5 Lakh) of the credit facility

sanctioned (comprising term loan and / or working capital facility) shall be paid upfront to the Trust

by the institution availing of the guarantee within 30 days from the date of first disbursement of

credit facility. The annual service fee at specified rate (currently 0.50% in the case of credit facility

up to Rs. 5 Lakh and 0.75% in the case of credit facility above Rs. 5 Lakh) of the credit facility

sanctioned (comprising term loan and / or working capital facility) shall be paid by the lending

institution within 60 days i.e. on or before May 31, of every year.



To encourage the entrepreneurs, in case of advances granted under Credit Guarantee

Fund Scheme of CGTMSE, 50% of the guarantee fee is borne by Dena Bank and remaining 50%

Guarantee Fee is to be borne by borrower.

Issues of micro finance

Banks incur substantial costs to manage a client account, regardless of how small the sums

of money involved.

Ex:- The total gross revenue from delivering 100 loans worth Rs. 10000 each will not differ

greatly from the revenue that results from delivering one loan of Rs.100000, it takes nearly

a ten times as much work and cost to manage a hundred loans as it does to manage one.

Insecurity towards repayment

Banks give the loan to poor people, their income is not fixed income so they may pay or not.

Diversify of funds

Ex:-suppose someone takes loan of Rs.100000 for embroidery business but they use that

money for their personnel use.

Facing Problems because of non documentations

Because of illiteracy of rural people they have not enough documentations like identity

proof, address proof etc. So banks hesitate to give loan to that kind of persons.

Lack of information to the customer

Poor people are worried only for money they don’t care about legal process, interest rate,

time of due date, repayment duration, mode etc.

Not easily recover the amount of loan from women

Generally most of women are taking micro finance loan compare to men. This ratio is high.

Thus, it is difficult to recover money from them because of banks can’t use hard treatment

to women.



Understanding the Rural Consumer

Banks face the many problems while granting the micro finance because lack of knowledge

of rural consumer about the micro finance loan. They are not ready to listen carefully.

Infrastructure Constraints

In rural area, there are lack of transportation, electricity and machinery etc. They don’t have

proper knowledge about their fields.

Because of these difficulties, When poor people borrow them often rely on relatives or a

local moneylender, whose interest rates can be very high. Thus, most of the poor people get ready

to take micro finance loan from the bank and also they can get benefits of the subsidiary from the

government.

Problems are facing by Banks for macro finance

High sickness/ NPA level

Lack of entrepreneurship

Infrastructural Constraints

Competition

Diversion of funds

Lack of Knowledge

Inadequate reach of banks



For each value of a variable, a frequency table displays the number of times (count) that value occurs. The table displays the number and percentage of cases for each value of the variable.The table displays the number and percentage of cases for each value of the variable. Frequency tables are useful for summarizing categorical variables -- variables with a limited number of distinct categories.

1. Aware about microfinance

Valid Frequency Percent Valid PercentCumulative

PercentYes 90 90.0 90.0 90.0

No 10 10.0 10.0 100.0Total 100 100.0 100.0

90%

10%

YesNo

Aware about microfinance

From above data we can see that 90% is aware about the Micro finance out of 100%. Thus,

we can say that from our survey almost all the customer aware about Micro finance.



2. Interested in taking loan

ValidFrequenc

y PercentValid

PercentCumulative

PercentYes 97 97.0 97.0 97.0No 3 3.0 3.0 100.0Total 100 100.0 100.0

From our survey in rural area farmers are more interested in taking Micro finance.

Government also Support in many scheme to attract the farmers.



3. Already take microfinance loan

Valid Frequency PercentValid

Percent Cumulative PercentYes 94 94.0 94.0 94.0

No 6 6.0 6.0 100.0 Total 100 100.0 100.0

96%

96%

4%

Already take microfinance loan

YesNo

From our survey we can say that all most 94% are already having Microfinance.They

shows all most all the banks are providing Microfinance in Rural Areas.



4. From which bank

ValidFrequenc

y PercentValid

PercentCumulative

PercentDena Bank 28 28.0 28.0 28.0Bank of Baroda

18 18.0 18.0 46.0

SBI 29 29.0 29.0 75.0Others 25 25.0 25.0 100.0Total 100 100.0 100.0

SBI and Dena bank are providing more micro finance facility compare to other banks.

Because we can say that SBI& Dena bank are public Bank and it is also maintain in RBI norms .All

public Banks have to provide microfinance compulsory.



5. Loan amt sanction


PercentCumulative

PercentLess than Rs.500,000/-

91 91.0 91.0 91.0

Rs.500,000/- to Rs.10,00,000/-

6 6.0 6.0 97.0

Rs.10,00,000/- to Rs.20,00,000/-

3 3.0 3.0 100.0

Total 100 100.0 100.0

As per our survey we found that either requiment of people may be less than Rs.5,00,000/-

or may be bank not sanction micro finance loan more than Rs. 500000/-. Also possible that pepole

may not aware about other scheme.


91%

6%

3%

Loan amt sanction

Less than Rs.500,000/-Rs.500,000/- to Rs.10,00,000/-Rs.10,00,000/- to Rs.20,00,000/-


6. Major problem

Valid Frequency Percent Valid PercentCumulative

PercentYes 71 71.0 71.0 71.0No 29 29.0 29.0 100.0

Total 100 100.0 100.0

As per our survey we found that thay are facing problems while availing micro

finance.there is too much limitations and documentation problems.they don’t have proper

documents and they have lack of knowledge about that.


79%

21%

Major problem

YesNo


7. Interest rate


PercentCumulative

Percent7% 50 50.0 50.0 50.0more than 7% but less than 12%

25 25.0 25.0 75.0

more than 12% but less than 13%

22 22.0 22.0 97.0

more than 13% but less than 14%

3 3.0 3.0 100.0

Total 100 100.0 100.0

All the bank having this kcc scheme and as compare to other scheme rate of interst is less

than others and all the customer are more interested in taking this scheme.


50%

25%

22%

3%

Interest rate

7%more than 7% but less than 12%more than 12% but less than 13%more than 13% but less than 14%


8. Interest rate appropriate


PercentCumulative

PercentYes 79 79.0 79.0 79.0

No 21 21.0 21.0 100.0 Total 100 100.0 100.0

As Per Survey All Customer Having Kcc Scheme And Rate Of Interest Of Kcc Scheme Is

Appropriate. We found that interest rate is appropriate as per their requirement.


79%

21%

Interest rate appropriate

Yes

No


9 .Easy to repay principal plus interest


PercentCumulatie

PercentYes 49 49.0 49.0 49.0

No 51 51.0 51.0 100.0 Total 100 100.0 100.0

AS per survey we found that it’s not more difficult to repay E.M.I.but if their products are not sold

Than sometime they missed to pay EMI Amt.


49%51%

Easy to repay principal plus interest

YesNo


10. Reason for missing installment


PercentCumulative

PercentBank policy 34 34.0 34.0 34.0

Financial Problem

42 42.0 42.0 76.0

Others 24 24.0 24.0 100.0 Total 100 100.0 100.0

As per our survey we found that reason behind missing installment is bank policy. They are not able

To pay installment because policy of bank is hard.


34%

42%

24%

Reason for missing instalment

Bank policyFinancial ProblemOthers


11. Repayment mode


PercentCumulative

PercentCash 91 91.0 91.0 91.0

Cheque 7 7.0 7.0 98.0 Kisan Credit

Card1 1.0 1.0 99.0

Others 1 1.0 1.0 100.0 Total 100 100.0 100.0

As per our survey we found that generally they repay installment by cash. As per

above 96% persons repay installment by cash.


91%

7%

1% 1%

Repayment mode

CashChequeKisan Credit CardOthers


Correlations

Interested in taking loan Interest rate

Annual income

Interested in taking loan

Pearson Correlation

1 .043 .029

Sig. (2-tailed) .667 .773N 100 100 100

Interest rate Pearson Correlation

.043 1 .002

Sig. (2-tailed) .667 .984N 100 100 100

Annual income Pearson Correlation

.029 .002 1

Sig. (2-tailed) .773 .984N 100 100 100

Interpretation: For correlation we took interested in taking loan, interest rate, and annual income.

As the variables for correlation. We found above results that there is weak positive correlation

between interested in taking loan and interest rate that is people who are interested in taking

loan do not consider interest rate as important criteria. Similarly there is weak correlation

between interested in taking loan and annual income. It means that people having less income

are also interested in taking loan.



This is essentially a t-test for the value of the common odds ratio. We have done this

T-test because we want to know that is there any significance difference or not between use of

micro and macro finance by male and female.

T-TEST

Group Statistics

Gender N Mean Std. DeviationStd. Error

Meanservice of bank Male 24 2.50 .834 .170

Female 6 2.33 .516 .211behavior of employee Male 24 2.63 1.056 .215

Female 6 3.33 .516 .211consistency Male 24 2.92 1.381 .282

Female 6 2.33 1.033 .422documentations Male 24 3.00 1.285 .262

Female 6 3.50 .548 .224flexibility of instalment Male 24 2.92 1.248 .255

Female 6 3.17 .983 .401flexibility of repayment mode

Male 24 2.67 1.129 .231Female 6 3.00 .632 .258

individual attention Male 24 2.92 1.248 .255Female 6 2.67 1.033 .422

delay in loan sanction procedures

Male 24 2.83 1.274 .260

Female 6 2.83 .753 .307

Null Hypothesis H0= There is no significance different between Gender.

Alternative Hypothesis H1= There is a difference between Gender.



Independent Samples Test

Interpretation:-

As we done T-taste so in this if Equal Variances assume if it > 0.05 than we have to

look upper and if it < 0.05 than we have to look lower so we found that all the results have >

0.05 so we can say that there is no significant difference between Male and Female. We found

that Male are using more Micro and Macro Finance than Female and so that there is no

significant difference in it.



Reliability Statistics

Cronbach's Alpha N of Items

.604 32

Interpretation:

Since the cronbach’s alpha value is more than 0.5. The Instrument is reliable



Recommendations

MFIs are giving more services than Banks and they are personally focusing on the customers so Banks have to improve their that part

Growth of the SHG is more so it will be direct competitor of Banks which are providing Micro Finance services

Banks have to build a good relation with the customer so that they can maintain their customer and more and more new entrepreneurs will attract towards getting the Micro and Macro Finance services.



CONCLUSION:

In earlier time Dena Bank was not more focusing in Micro Finance service, they was

more interested in Macro Finance. After the RBI norms regarding Micro Finance every Bank

has to do Micro finance. We found that Bank of Baroda is leading as service provider in Micro

Finance, and second is Dena Bank because Dena Bank is now focusing on both Micro and

Macro finance. As per the norms of RBI Dena Bank is getting target from RBI and then Dena

Bank give different targets to their Branches and try to provide more services to the customers.

State Bank of India, Bank of India, Indian Overseas Bank, Punjab National Bank and SIDBI

— which have maximum exposure in the sector — are also said to be toying with this idea,

said a banking source. “The microfinance industry is a very lucrative sector and we consider it

very good from the investor perspective. From now on, we will be putting a clause in our loan

contracts through which we will get an equity stake in the MFI in case of a default.

There are many Micro Finance institution but still customers are using more Bank

services rather than MFIs and SHGs because they have perception like Bank having more

Securities than MFIs and SHGs. Public sector lenders have come out with a proposal to

salvage troubled microfinance industries (MFIs) —conversion of loans into equity in the

company in case of any default. State-run Corporation Bank is the first bank which has come

with the idea to safeguard its risk through this route.

We also found that many women aspiring to become entrepreneurs begin their

businesses using their own seed money and after a successful run they need to get financial

help, in order to make their ventures grow and prosper and it is possible just because of Micro

Finance. There are many helping hands available in the form of NGOs and Public Sector

Banks, Self-Help Groups, Microfinance Institutions, Government Finance Schemes, and

Venture Capitalists, depending on the type of financial help required by the Entrepreneur.

Many a time, women entrepreneurs are not aware of many of the avenues of finance available

to them. When they want funds for expand their business they take loans from Banks and as

per their business profile Banks advise them to go for Micro Finance.



Questionnaire

Dinky Khandor and Komal Lalwani, we are students of TIMS doing our final project on

MACRO FINANCE & MICRO FINANCE IN DENA BENK. So we need your few minutes to fill the following questionnaire and help us to find relevant observations and analysis through this questionnaire. Al l the information given by you will be kept confidential.

1. Have you heard about Micro finance?

( ) Yes ( ) No

2. If yes then for which purpose you can relate it to?

( ) Agriculture ( ) Auto & Motor Repairing( ) Tailoring ( ) Others, specify________________________

3. Do you want to take Microfinance loan?

( ) yes ( ) No

4. Have you taken Microfinance loan? ( ) Yes ( ) No

5. If yes, from which bank?

( ) Dena Bank ( ) Bank of Baroda

( ) SBI ( ) Other, specify ________________

6. In Which Year, You have taken microfinance loan? ____________________

7. What was your loan sanction amt.?

( ) Less than 5, 00,000 ( ) 5, 00,000 – 10, 00,000( ) 10, 00,000 – 20, 00,000 ( ) 20, 00,000 – 25, 00,000

8. For which Purpose you borrowed microfinance loan? (you may tick more than one) ( ) Agriculture ( ) Auto & Motor Repairing

( ) Tailoring ( ) Others, Specify____________9. Is there any major problem while availing micro finance loan?

( ) Yes ( ) No

10. If Yes, Which were the major problems for you? (You may tick more than one)( ) Documentation ( ) Limitation



( ) Delaying ( ) Area Constrain

( ) Personal Creditability ( ) Other, specify_________________

11. Is there any statement facility which provided by bank?

( ) yes ( ) No

12. How frequently provided by bank?

( ) Monthly ( ) Quarterly

( ) Yearly ( ) As per requirement

13. What is the rate of interest charged by bank? _________________

14. Is interest rate appropriate?

( ) Yes ( ) No

15. Is it easy to repay the principal amount plus interest?

( ) Yes ( ) No

If No, How many installments missed? ___________

What was the reason for that?

( ) Bank policy ( ) Financial Problem

( ) other __________________

16. Repayment mode

( ) Cash ( ) Cheque

( ) Kisan credit card ( ) Others, Specify ______________________

17. Repayment period __________________________________________

18. Do you intend to re- borrow after repaying the first loan?

( ) Yes ( ) No

If ‘yes’ then purpose of re borrowing ____________________________



Give your opinion regarding to the banking service for the following

Sr.

No.

Highly

Satisfied

Moderately

Satisfied

Neutra

l

Moderately

Dissatisfied

Highly

dissatisfie

d

19. Service of Bank

20. Behavior of the

bank’s employee

21. Interest rate

22. Documentations

23. Flexibility of

installment

24. Flexibility of

repayment mood

25. Individual

attention

26. Delay in loan

sanction

procedures

Information of Business

1. Nature of Business:( ) Agriculture ( ) Auto & Motor Repairing( ) Tailoring ( ) Others, specify_____________________

2. Form of Business:( ) Sole proprietorship( ) Partnership (Specify no. Of partners) _____________( ) Other (please specify) _________________________

3. Year of starting Business___________________________



PERSONAL DETAILS1. Name:-2. Age:-

( ) Below 30 years ( ) 30 – 40 ( ) 40 – 50 ( ) above 50 years

3. Gender:- ( ) Male ( ) Female

4. Qualification:- ( ) Below H.S.C. ( ) Graduate ( ) H.S.C ( ) Others

5. Annually Income:- ( ) Less tshan 150000 Rs. ( ) Rs. 150000 - 250000 ( ) Rs. 250001 – Rs. 350000 ( ) More than 350000 Rs.

6. Contact no.____________



BIBLIOGRAPHY

Books:-

Study material on banking topics for Promotional tests.

Dena Bank’s book

Journals

Reference taken from following websites for input :

http://www.denabank.com/viewsection.jsp?lang=0&id=0,135,181,183,191

http://ezinearticles.com/?Importance-of-Self-Help-Groups-in-RuralDevelopment&id=3481129

http://www.smeworld.org/story/money/microfinance-step-away-indian-women.php

http://www.indianexpress.com/news/PSU-banks-plan-MFI-loan-conversion-into-equity/720234

http://www.sksindia.com/

http://www.idlo.int/MF/Documents/Publications/22E.pdf

http://www.gdrc.org/icm/conceptpaper-india.html

http://www.vnl.in/whitepapers/vnl_wp_microfinance.pdf

http://www.iimahd.ernet.in/publications/data/2002-12-01MSSriram.pdf

http://www.siescoms.edu/images/pdf/reserch/idea_reserch/challenges_opportunities.pdf

http://www.ifmr.ac.in/cmf/rap/Program_Description.pdf

http://www.malacors.org/pdf/microfin_proverty_122006.pdf

http://www.enterweb.org/microcre.htm


http://www.enterweb.org/microcre.htm

http://www.malacors.org/pdf/microfin_proverty_122006.pdf

http://www.ifmr.ac.in/cmf/rap/Program_Description.pdf

http://www.siescoms.edu/images/pdf/reserch/idea_reserch/challenges_opportunities.pdf

http://www.iimahd.ernet.in/publications/data/2002-12-01MSSriram.pdf

http://www.vnl.in/whitepapers/vnl_wp_microfinance.pdf

http://www.gdrc.org/icm/conceptpaper-india.html

http://www.idlo.int/MF/Documents/Publications/22E.pdf

http://www.sksindia.com/



http://www.smeworld.org/story/money/microfinance-step-away-indian-women.php

http://ezinearticles.com/?Importance-of-Self-Help-Groups-in-RuralDevelopment&id=3481129

http://www.denabank.com/viewsection.jsp?lang=0&id=0,135,181,183,191


http://www.rume-rural-microfinance.org/IMG/pdf_WP5.pdf

CREDIT RATING REPORT(For borrowers with total limits of above Rs. 10 lac and up to Rs.5 crore (For SME) & Rs. 2 crore for Non-SME) these is for model 1.


http://www.rume-rural-microfinance.org/IMG/pdf_WP5.pdf

FINAL DRAFT

Documents

macro micro finance

microfinance sector

micro financethere

savings services

dena bank chapter

den bank

goals of microfinance

small medium enterprises