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Thesis Proposal - Document Transcript

1. Dissertation 2009 Microfinance and Urban Poor: Case of Ahmedabad Submitted by Anuradha Naulakha URP 0207 Guide Name: Dr. Darshini Mahadevia Urban and Regional Planning Faculty of Planning and Public Policy, CEPT University

2. MICROFINANCE AND THE URBAN POOR: A CASE OF AHMEDABAD 10/11/2008 Introduction What is Micro credit? In developing countries, today, micro

enterprise is making important contribution to economic output and employment. Approximately 30% of employment in underdeveloped and developing country is generated by informal sector and about 18% by Small and medium sized enterprises (World Bank) These small (micro) enterprises find it difficult to raise capital, as the lender (institution or individual) may not find the return from such an investment as profitable as compared to from investment in large enterprises. In addition, investors are also skeptical about repayment from a small enterprise. To address these challenges to small businesses, concept of Microcredit came into picture which would cater to the large clientele in developing world. Micro credit and Micro finance-Difference Microcredit is the extension of very small loans (micro loans) to the unemployed, to poor entrepreneurs and to others living in poverty who are not considered bankable. These individuals lack collateral, steady employment and a verifiable credit history and therefore cannot meet even the most minimal qualifications to gain access to traditional credit. To ensure that the poor not only have access to credit but other financial services, microcredit has expanded over the years to include a variety of financial products such as savings, insurance, transfer payments, and even micro-pensions. Hence, Microcredit is a part of microfinance, which is the provision of a wider range of financial services to the very poor. 1 Microfinance and microcredit do not provide consumers with loans to simply increase their consumption; instead, they provide loans for the specific purpose of creating self-employment for the poor, thereby enabling the poor to build their own microenterprises and move themselves out of poverty. In short, microfinance is an income producing tool rather than a consumption aid. Micro Finance 1 (Marge Magner, March 2007) Anuradha Naulakha, URP 0207, Dissertation Proposal, Guide: Dr. Darshini Mahadevia

3. MICROFINANCE AND THE URBAN POOR: A CASE OF AHMEDABAD 10/11/2008 In essence microfinance is not very much different from the mainstream commercial finance operations but because microfinance serves a totally different client segment, which is poor, they have to address the challenges that arise from their clients dire circumstances. Few challenges that any poor faces are health, lack of housing, lack of education, access to basic necessities, and unexpected threats such as natural disasters that endanger their lives. Influence of these factors on individuals’ economic ability cannot be ignored. MFI Products focus on these kinds of issues to reduce poverty. Some of the issues that have an impact on poverty are: Health: Ill health and sickness are one of the few reasons why poor have not been able to pull out of poverty. Death of a bread earner leaves the household helpless. Their earning is limited and one member falling sick can make the household unstable. Food security: Food security may not be considered as an important factor because now we mostly look at poor who are ready for microfinance and hunger is not main concern. In cases such as Grameen bank’s Struggling Members Program (commonly known as Beggars program) where the participant are from the poorest class for who hunger is most critical issue. BRAC through their IGVGD (Income Generation for Vulnerable Groups Development Program), which is a collaboration with World Food Program seeks to provide food security to their participants. IGVGD provides free grains and skill training for 18 months after which participant in groups receive loans to fund their income generating activities. BRAC also incorporates healthcare and family planning into its products. Program has served 1.6 million women among whom two third have been able to escape the absolute

poverty Education: Education is a vital component of a microfinance service; it allows participants to manage their growing income generating activities. In absence of appropriate support and education it is seen that participant are unable to make financial decisions and overtime are in danger of incurring losses forcing them back into Anuradha Naulakha, URP 0207, Dissertation Proposal, Guide: Dr. Darshini Mahadevia

4. MICROFINANCE AND THE URBAN POOR: A CASE OF AHMEDABAD 10/11/2008 poverty. Provision for adult literacy and financial training are very important parts of a microfinance product. Housing: Housing helps create asset for the poor. Investment in housing is investment in business since poor women do work from home. Housing gives access to many basic services to the poor. Vulnerability: Poor not only suffer from low incomes but also from severe and often sudden dispossession. Certain events drive down their existing income levels E.g. illness, death, theft of asset, marriage, etc. There are 3 factors that contribute to vulnerability: structural factors, crisis factors, life-cycle factors. Then there are other deprivations that make it difficult for poor to come out of poverty like powerlessness, social inferiority, discrimination, gender issues, disability, old age. Micro finance service providers in India: 1. Informal Sector: money lenders, pawnshops, loans from relatives, friends,etc 2. NGO, MFI’s: these extend microfinance to poor by forming Groups. E.g Grameen model (see JLG below) 3. SHG-Bank Linkages: could have an NGO as an intermediary. (See Self help groups below). NABARD proposes to link 1 million SHG’s to banks by 2008. The two models of group lending: 1. JLG (Joint liability group). 2. SHG (Self help group). JLG (Joint Liability Group): Potential clients are asked by the MFI to organize themselves into groups. The members individually make regular savings and take regular loans. They each have individual savings and loan accounts. This model is pioneered in Bangladesh and is based on Grameen bank model. The main purpose of JLG is to facilitate mutual guaranteeing and execution of a joint liability Anuradha Naulakha, URP 0207, Dissertation Proposal, Guide: Dr. Darshini Mahadevia

5. MICROFINANCE AND THE URBAN POOR: A CASE OF AHMEDABAD 10/11/2008 making members jointly liable for interest payment + loan repayment obtained from MFI. SHG: The group formation process may be facilitated by an NGO or by a bank itself. Members start making individual savings and lend by earning interest decided by the group. SHG opens a savings account with bank to deposit the savings and soon qualifies to take loans. This loan is used by the group to supplement its own funds for on lending to its members. Relevance of Study: India has nearly 400 million people living below or just above the poverty line. Approximately, 75 million households need micro finance and of this, 15 million are urban slum dwellers (Sriram 2002) Microfinance claims to provide the poor an access to capital giving them opportunity to climb the economic ladder. A close examination of few microfinance operations around the world has indicated that very small fraction of poor who use the microfinance products are able to uplift themselves from poverty, and even 2 those who do manage to escape poverty take 5 to 10 years at an average. India is fast becoming one of the largest micro finance markets in the world even then; the link between micro finance and poverty alleviation is not proven. Impact assessment is necessary to understand the outreach and effectiveness of micro finance in meeting development objectives. Also, it is important to understand that Micro finance services are an instrument of development and not an end in themselves. For most, if not all, actors in India-NGO’s, MFO’s, donors, even bankers-

Micro finance is not only about the efficient and sustainable delivery of micro-financial services. The ultimate goal is to reduce poverty. Hence, it is important to understand: What changes does microfinance lead to? Do they move poor people out of poverty? How are the various products contributing to poverty reduction? What are the impacts of Micro finance on- Income Marge Magner, Microfinance a platform for social change, Grameen Bank Publication, March 2 2007 Anuradha Naulakha, URP 0207, Dissertation Proposal, Guide: Dr. Darshini Mahadevia

6. MICROFINANCE AND THE URBAN POOR: A CASE OF AHMEDABAD 10/11/2008 Employment (male, female) empowerment of women asset creation housing reducing vulnerability education (Boys, Girls) Health Research Question Does micro finance lead to overall development and pull households out of poverty? Aim To assess the extent to which Microfinance reduces urban poverty For this research, Ahmedabad has been selected as a case study. In Ahmedabad, almost 26% of city’s population accounts for slum population. Although quite a significant proportion of the poor is above the traditional poverty line, they do suffer from other deprivations. The share of employment in informal sector was 77% and it generated 47% of the total city income (CDP, Ahmedabad). This means that the poor contribute to the economy of Ahmedabad as much as the non-poor. But the poor do so without receiving the due economic or other civic facilities or services at par with the non-poor. Objectives To study the broad spectrum of microfinance products and services in the area To analyze the current living conditions of urban poor To measure impacts of various products on the poor with regards to Housing, Income generation, health, education, employment, reducing vulnerability, etc To understand the time scale that is needed for any change to take place Scope The study area is limited to few identified slums in urban areas (Limited to Ahmedabad) Anuradha Naulakha, URP 0207, Dissertation Proposal, Guide: Dr. Darshini Mahadevia

7. MICROFINANCE AND THE URBAN POOR: A CASE OF AHMEDABAD 10/11/2008 Methodology The Methodology is divided into 3 broad stages: Stage 1 of the research work will include an understanding of the existing • Microfinance products by meetings with the Microfinance institutions. Consultation with different levels of stakeholders on their objectives and priorities will be done and their impact hypothesis will be explored. Also, the indicators that are relevant to them will be understood. These meetings will also help in identifying the MFI beneficiaries who will then be identified geographically. The locations with maximum beneficiaries will be selected for further studies which will, then, lead to identification of sample (clients) to be used for various analysis. A number of meetings with MFI, at this stage, would be required. An attempt to include different classes of poor and the impact of different products on them will be made. For this purpose, Representative sampling will be used here. Stage 2 is based on qualitative studies and analysis. Here the history of • interventions by MFI / Government in the study area and their Impacts would be studied. The current living conditions of the clients will be analyzed with help of case studies, focus group discussions, etc and if any difference has occurred in recent past. i.e. ‘without microfinance’ and ‘with microfinance’ differences for the clients will be studied. This stage will also help understand the time frame that is required for any impact to happen. This stage will include questionnaires, discussions with clients, perception studies. Final stage will include quantitative measurements of the impacts of • microfinance on poverty reduction.

Here, comparison between certain indicators (based on products) for the Clients and a “control group” of non- clients will be studied. Data will be analysed through cross tabulation and statistical tools such as regression analysis, etc. Anuradha Naulakha, URP 0207, Dissertation Proposal, Guide: Dr. Darshini Mahadevia

8. MICROFINANCE AND THE URBAN POOR: A CASE OF AHMEDABAD 10/11/2008 Possible chapters 1. Introduction Need of the study Aim, Objectives, scope, Methodology 2. Review of Existing Policy situations and institutional structure Existing governmental policies Existing MFI: their background and what they do, study of existing products 3. Introduction to the City and existing poverty situation 4. Findings from surveys Impact of mf on economic conditions Impact of mf on the living conditions 5. Conclusion and recommendations References: Anderson, Lykke Eg, quot;Micro credit and Group Lending: The collateral Effect.quot; Institute • for Socio-Economic Research • Kota, Ina, quot;Microfinance: Banking for the Poorquot;, Finance and Development, 2007 • Magner, Marge, quot;Microfinance a platform for social changequot;, Grameen bank, 2007 Mitra, Subrata Kumar, quot;Asking Price of Microfinance loan to poor borrowersquot;, Vol. • Paper no. 191, Institute of Rural Managemnet, Anand • Mosley, David Hulme and Paul, quot;Finance Against Povertyquot;, Vol. 1. London and New York: Routledge, 1996 • quot;Role of Micro Finance for poorquot;, FWWB • Sriram, Thomas Fisher and M.S, quot;Beyond Micro Credit: Putting Development back into Micro Financequot;, New Delhi: Vistaar Publications, 2002 • Yunus, Muhammad with Alan Jolis, quot;Banker to the Poor: The story of the Grameen Bankquot;, London: Penguin Group, 2007 AMC and AUDA with CEPT University, quot;City Development Planquot;, Ahmedabad: • JNNURM, 2006-12 Anuradha Naulakha, URP 0207, Dissertation Proposal, Guide: Dr. Darshini Mahadevia

Microfinance An Introduction1 year ago

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nsjhala 4 weeks ago

Hi ! I m a lecturer in social work & require your kind permission to utilise your enricing ppt for educational purpose. May I humbly request you to please email me the same on [email protected]

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Very educating stuff, Send me a copy at [email protected]

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Microfinance An Introduction - Presentation Transcript

1. Microfinance An Introduction Kabare Piyush Madhukar M.B.B.S (Mumbai), PGPM (Indian Institute of Management, Indore) Assistant Manager, Vidarbha Cluster In-Charge Microfinance, RFD-RFU L&T Finance Limited

2. Index (1/2) Introduction • What is Microfinance • Definition Industry Preview • Global Developments in Microfinance • Major Changes in Microfinance Scenario in South East Asia • Developments in Microfinance in India • Pillars of Microfinance in India Microfinance Industry Structure • Role of RBI (Central Bank) and NABARD (Regulator) • Major Players in the Industry • Financing Model adapted by Banks in Microfinance Industry • Microfinance Delivery Model Microfinance Lending Process • Client Characteristic Microfinance Services • Lending Process in Microfinance Business Strategy • Business Strategies of Microfinance Institutions • Business Strategies of Private Banks/Commercial Banks • Growth Drivers for Sector

3. Index (2/2) Key Challenges • High Transaction and Service Cost • Credit Risk • Other Risks Recommendations • Regulations and Policies • Operational Improvement Future Outlook • Future Growth Outlook • Entry of New Players • Sustainability of Microfinance • Role of Private Sector Investment Special Issues • Reasons for Failure to fulfill the desired objective • Urban Microfinance • Rating of Microfinance Institutions Annexure • Abbreviations • References

4. What is Microfinance Definition INTRODUCTION 5. Introduction: What is Microfinance? The scenario of supply of formal financial Access to

financial services are services within India constraint for the poor and not interest rates. The poor can save and can indeed use a An estimated demand for credit ranging from wide range of financial services. $3 to $9 billion annually The formal sector is barely able to provide $200 to $300 million, Poor people use not only credit but also saving service, insurance and affordable remittance systems to manage assets, generate income and improve their A total of over 600,000 villages lives. Barely 30,000 bank branches For most of us, microfinance means providing very poor families with very Various Insurance, Investment and Saving small loans (micro-credit) to help them Products for Poor section engage in productive activities Basic financial services remain out of reach. Microfinance is an collective term used for financial intermediation services to low income group and poor customers. Services offered are Credit facility, Saving accounts, Money transfers, Remittances, Insurance and even Investment.

6. Definition Microfinance refers to small-scale financial services including both credits and deposits provided to people who farm or fish or herd; operate small or microenterprises where goods are produced, recycled, repaired, or traded; provide services; work for wages or commissions; gain income from renting out small amounts of land, vehicles, draft animals, or machinery and tools; in both rural and urban areas. Key Features of Microfinance Cost Group Prefer Do not Prefer Small Lend to the covering appraisal women take saving over short-term poor interest and customers Security borrowing loans

rates guarantee over men Microfinance means the provision of banking services to lower-income people, especially the poor and the very poor.

7. Developments in Microfinance – Global Developments in Microfinance – South East Asia Developments in Microfinance – India Pillars of Microfinance in India INDUSTRY PREVIEW

8. Developments in Microfinance – Global The Grameen Bank has Since 1976, the Grameen been duplicated in Bolivia, Bank has grown to include Chile, China, Ethiopia, Microfinance has spread more than 5.5 million Honduras, India, Malaysia, to cover five continents members with more than Mali, Philippines, Sri and numerous countries. US$5.2 billion in disbursed Lanka, Tanzania, Thailand, loans. United States, and Vietnam. MFIs have become more As MFIs became better Microfinance Institutions efficient; increased their versed in the (MFIs) have also begun to client base and expanding microfinance markets, seek out public and their services through they applied their international financing, different product such as innovations in all increasing their working micro-savings, flexible processes from lending to capital and expanding the loan repayment, and the collection of deposits. scope of their operations. insurance. On an overall perspective Microfinance has immense potentiality with three billion people i.e. half the world’s population living less than US$2 per day, unable to meet their basic human needs

9. Developments in Microfinance – South East Asia Grameen Bank discarded JLG model of Micro-credit • The new approach that is Grameen II in which all savings are on an individual basis and there is no group liability, offers flexible loan arrangements for terms of 3 months to 3 years and variable repayment schedules to avoid seasonal difficulties. The expansion of scope of services beyond credit. • Services offered are Credit facility, Saving accounts, Money transfers, Remittances, Insurance and even Investment. The emergence of profit-making Microfinance Institution (MFIs). • Currently, profitable MFI’s are present in most countries reporting huge returns on assets (ROAs) and returns on equity (ROEs) in comparison to conventional banking institutions. • The MFIs in South Asia have reached profitability through cost efficiency while those in East Asia seem to have relied more on relatively high interest rates. Emergence of Commercial Microfinance • Small core group of highly commercial and professional, market-oriented institutions have emerged but not yet become fully integrated into the broader mainstream commercial financial systems. South Asia has also distinguished itself by forging successful partnerships for microfinance between governments, NGOs, civil society, private sector, and communities.

10. Developments in Microfinance – India Micro finance in India has started to evolve in early 1980’s with an effort of forming informal Small Help Group (SHG) to provide access of financial services to needy. India is 2nd most populous country behind China with a large number of un-financed poor people - Main clients for MFIs MFIs are estimated to have 7.94 million borrowers as of March 2008 with CAGR of 88.42% over the last five years and cumulative outstanding loan portfolio of US$824 million. SHG has loan outstanding of US$356.45 million as of March 2008. It shows a CAGR growth of 78.21% from FY03- FY08. MFIs are increasing their share in Indian microfinance supply as of comparison to SHGs where their share has gone down to 53% in March 2008, from 72% in the year March 2003. National Bank for Agriculture and Rural The strength of microfinance sector lies in the Development (NABARD) and Small Industries diversity

of models, it has adopted including Development Bank of India (SIDBI) are devoting home grown models like MFI and SHG to other their financial resources and time towards the learnt models from various countries like development of microfinance. Bangladesh, Thailand and Bulgaria.

11. Pillars of Microfinance in India Niche-Market • Such as Spandana, SHARE Microfin Ltd, and SKS Microfinance have also MFIs in India scaled up their micro-credit outreach dramatically in recent years. • Expanding its financial services to poor households through a multi- Private Bank like ICICI Bank pronged approach—Directly providing credit facilities to SHG, and Providing wholesale credit facilities to microfinance NGOs and NBFCs. State Owned/ • The Syndicate Bank, Andhra Bank, Canara Bank, and Indian Bank, have Commercial Banks entered this market. • Through its Microfinance Development Strategy, aims to ensure ADB permanent access to institutional financial services for the region's poor people and their small businesses. • Started to eye the low-profile MFIs, as they foresee huge potentiality in Private Equity Firms terms of returns from this sector. e.g. JM Financial have investments from Old Lane Partners and Delhi based Lok Capital • NABARD and SIDBI are performing regulatory and promotional role, NABARD & SIDBI providing financial resources as credit & equity and enhancing technology know-how of MFIs

12. Role of RBI (Central Bank) and NABARD (Regulator) Major Players in the Industry Financing Model adapted by Banks in Microfinance Industry Microfinance Delivery Model MICROFINANCE INDUSTRY STRUCTURE

13. Role of RBI (Central Bank) and NABARD (Regulator) • Support financial liberalization & create conditions sustainable for Sector Role of RBI • Prudential regulation and supervision (Central • Supporting the pilot projects of microfinance Banks) • Collecting data and publication • Training and advocacy • Framing policy and guidelines for rural financial institutions Role of The • Providing credit facilities to issuing organizations NABARD • Preparation of potential-linked credit plans annually for all districts for (Regulator) identification of credit potential • Monitoring the flow of ground level rural credit Division of Responsibility in Microfinance NABARD SIDBI Oversees the linking programme of banks to Lends to MFIs through SIDBI Foundation for SHGs and offers refinance for it micro-credit.

14. Major Players in the Rural Finance Market Public Sector Banks Regional Private Banks Rural Banks Private Funding Rural Schedule Commercial Institution Banks Market Players Cooperative NGO Banks MFIs SHG

15. Microfinance Delivery Model Self Help Groups MFI/Grameen Legal Forms of MFIs • Home grown, co- Replica • NGO MFIs (Societies operative • Group Lending and Registration Act, 1860 or • Savings based / led Regimented Provincial Acts and/or • Meeting diverse needs • Focused on self- Indian Trust Act, 1882) • Promoted by NABARD, sufficiency • Non-profit Companies PSU Banks, NGOs • NGO-MFI and NBFC- (Section 25 of the • Performance –mixed MFI Companies Act, 1956) • Pace of growth - cause • Financial Corporations - for concern Specialized entities focusing on specific segments like SC/ST, Minorities Grameen II Wholesome • Mutually Aided Credit Society (MACS) - • Individual lending Microfinance community owned & - • NBFC-MFI Services popular in Andhra Pradesh • Cooperative MFIs • Progressive Loan • Regulation (Cooperative Societies Acts focused on • Specialized activities of the State & Central enterprise • Cost is major factor Governments) • Future of • Distant dream • Non-

Banking Financial Microfinance Companies (NBFCs) (Indian Companies Act, 1956, RBI Act, 1934)

16. Financing Model adapted by Banks in Microfinance Industry Bank Client Credit NGO (Facilitator) Promotion & Training SHG Client Member Direct Financing Model SHG-Bank Linkage Model • Most MFIs use groups as intermediaries • NGO to act as facilitator/financial for financial transactions, but there are intermediaries between bank and SHG to different ways of working with groups. initiate micro savings through an account • The NGO promotes, imparts training, • The intermediation cost could be around forms groups and also gives credit to 6% of the loan amount. them. • Risk lies with the banks as advances to • Under this model either SHGs are formed the SHGs are reflected in bank portfolios. by banks or by NGOs and formal agencies • Banks bear risk as it involve a lot of but are financed by banks. transaction costs.

17. Client Characteristic Microfinance Services Lending Process in Micro-Finance MICROFINANCE LENDING PROCESS

18. Client Characteristic Microfinance Services Activity RoE RoIC Net Annual Classification of Activities - Return in US$ Micro-credit Loan Trade Vegetable Vending 50 57 143 Trade Production Live Stock General Store 14 29 144 Service Agriculture Other Sweet Making Shop 145 147 1010 Ice Cream Making 13 29 305 3% 6% Agriculture Leasing mango trees 184 185 511 33% Leasing irrigated farm land 160 161 667 25% Services Operating a Flour Mill 52 59 409 Tailoring 121 123 307 10% 23% Roadside Micro-diner 245 246 1528 Livestock Goat rearing 58 65 40 Buffalo rearing 69 74 246 Production Pottery 235 236 520 Microfinance clients are poor with Activities in rural areas are farming, food processing, petty trade, relatively stable source of income. livestock, vending, and production like basket weaving. Clients of microfinance are excluded by Activities in urban areas are shops, services, artisans, street formal financial institutions. vendors & new age businesses (beauty parlor to photography). Women make up the vast majority of Majority of the population borrow for trading, working capital borrowers, especially in Asia (99%). requirements for existing business or for setting up new one.

19. Lending Process in Micro-Finance Geo-Economic • Based on the geo-economic information about his region (typically a district or Survey of Region mandal) and various towns and villages, MFI approach favorable villages. • Then MFI visits the village &tries to gather first hand information about the population Village Appraisal of that village, their religion, cast, type of trades, skills, financial states, their needs. • Conducts a survey to evaluate potentiality for the operations in the village, some key Selection of Village parameters are total population, poverty level, accessibility, political stability & safety. • After selection of village, interested women form self selected four to six member Group Formation groups to serve as guarantors for each other. This process is called Group Formation. • When formed group meets the minimum requirements, it begins Compulsory Group Training of Training program designed to educate clients on the processes and procedures of Borrowers microfinance loans and build a culture of credit discipline. Scrutiny and • Customer details, their business and their earning capacity are scrutinized and judged Underwriting to access repaying capacity. Financial • Collection meetings are held on a weekly/monthly basis by Field Assistants to conduct Transactions all financial transactions. In addition, clients use the weekly meetings to discuss new loan applications, loan utilization and community issues. Near Mandatory •

Insurance products are sold to cover death, accident or health of group member, Insurance member’s spouse and/or children.

20. Business Strategies of Microfinance Institutions Business Strategies of Private Banks/Commercial Banks Growth Drivers for Sector BUSINESS STRATEGY

21. Business Strategy of Microfinance Institutions Social Services and Initiatives: Include Technology: To Investment in nutrition, Leveraging Finance: The overcome its transaction health, education, and NGO leverages livelihood costs, increase the speed vocational training, investments by linking of transaction, reduce Agricultural and Business the rural poor to redundancies and development services. government programs better control and banks. mechanism. Human Resource Learning Best Practices Capacity Building: from the Business workshops, special World: Like standardized programs, trainings and distribution process exposure visits of the used by McDonald staff and clients. Geographical Expansion Business Complete Bouquet of and Vertical Expansion: Increasing the individual Strategy Financial Services: like Savings, Credit , loan portfolio by of MFIs Insurance for the lives providing Micro and livelihoods of the Enterprise Loan, bigger poor, Infrastructure than JLG loans. finance

22. Business Strategies of Private Banks/Commercial Banks • MFIs identify, train & promote microfinance clients. Bank finances Partnership Model clients directly on the recommendation of the MFI. Customer and portfolio resides in the bank’s book. • Bank buys out portfolios from MFIs. MFI continues to service the Securitisation of clients and acts as the collection agent. MFI shares the credit risk Portfolios of MFIs with the bank. • Adopting a 'Core Banking System' for managing the loan portfolio Technology generated under the partnership model. Credit to • A wholesale linkage model which implies extending a bulk loan to MFIs/NGOs the MFIs for lending to poor women Systems and Loan • Active involvement in providing mentoring services to clients, Portfolio Evaluation including in the areas of governance and credit discipline. Liaisons with the • Operating divisions at regional and branch level are in close NGOs connection with NGOs in local area to take the movement ahead. High transaction cost, poor reach and unavailability quality manpower, has obliged Banks to adapt various approaches through Microfinance to fulfill priority sector lending norms

23. Growth Drivers for Sector • Lack of lending from Banks due to lack of collateral and exploitation from Need for Credit by money lenders has exemplified the potential demand for microfinance Unprivileged Class services and the growth prospects of the industry. • These include commercial debt and equity, form of grants and donations Increase in the and PE including VC funding. This has changed capital structure of this sources of finance industry for better • Innovation in diversifying lender base, consolidating internal control systems Innovation and strengthen policies on human resources, disclosure, and organisational processes. Government Policy • Microfinance Bill & proposed regulator NABARD will regulate & promote and Support growth of this sector in line with importance attached by government to this sector. Consolidation in the • Increase in the number of partners in the commercial space will enable Industry them to introduce new products in insurance, remittance etc. Growing Migration • Higher average loan size and greater use of technology such as smart cards and Urbanization and point-of-sale devices with wireless connectivity. in the urban areas will increase urban micro-financing. Human Resource • Microfinance is attracting high quality, talented managers.

People with skills Capacities in specialized HR needs such as local recruitments and cultural and linguistic integration; Standardizing the operating process and systems

24. High Transaction and Service Cost Credit Risk Other Risks KEY CHALLENGES 25. High Transaction and Service Cost Reasons • Average microfinance loan size is small,

hence the transaction cost on a percentage basis for a microfinance loan is higher. • Lending large size loan may require evaluating the client, again increasing cost The most popular form of lending in • Very high operational costs, especially at India is JLG model which incurs loan origination & during monitoring is peculiar costs such as group formation because of doorstep service and little or no costs, cost of training the borrowers deployment of technology solutions. with respect to the procedures to be • Intense monitoring and repeated followed, higher degree of interaction. supervision, as well as higher • Increased competition will lead to better frequency of installment payments. quality in services, lower loan sizes, lower MFIs face the challenge of finding rate of interests, diversification of products and use of technology as well to reduce the ways to reduce lending costs. transaction cost and cost of lending. Technology innovation, improved rural infrastructure, borrower education and urban microfinance are few ways to mitigate high transaction cost

26. Credit Risk Irregular Flow of • Seasonality of agricultural activities & unique requirements of Income due to financing such activities (payback of loans can only take place Seasonality after production) • Traditional farming practices, heavy dependence on monsoon, High Dependence on heavy dependence on the seasonal income, making it difficult to Monsoon assess borrower’s repayment capacity. Uncertainty of • Risk arises because of the nature of uncertainty involved with Market Conditions agricultural output — in terms of yield and price. Lack of Skills leading • Due to lack of proper education and vocational skills, their to Un-employability employability in non-farming jobs is very low. Lack of Tangible • Absence of land deed, no records like IT returns irregular flow of Proof for Assessment income due to seasonality constitutes lack of tangible income of Income proof. Need for Information • Adverse selection, over-indebtedness of clients and moral hazard Sharing & Better due to Lack of information about credit-worthiness of potential Technology clients.

27. Other Risks Operational Risk • Inadequate or failed internal process due to people, system or external events. • Rural people do not have credit history background. Business Promotion • MFIs need skills in business management, such as marketing , finance and HR. • Delivery of these skills is pending issue for most of them Literacy & Skill Levels of Clientele • Low levels of literacy, relatively undiversified economies, high dependence on agriculture • Rural economic activities have low profitability and prone to high risk Diversion of Funds to Unproductive Activities • Use of loans for unproductive activities instead of purpose stated to the lender • It is very difficult to assess where he/she is going to utilize the money. Regulatory Issues • Still unregulated and not supervised by any dedicated body. • MFIs are growing fast & they require regulatory authority to facilitate the growth.

28. Regulations and Policies Operational Improvement RECOMMENDATIONS 29. Regulations and Policies • Definition of MFI: Encompass and allow MFIs to serve poor

not only as lender but as full financial service provider without increasing risk for poor customer and MFI itself. • Recognition of MFI as specialized activity on par with leasing or housing finance and creation of a specialized category of NBFC [Amendment to the

RBI Act] • Easing of entry norms for “loans only companies”. As these companies will not accept savings or offer financial services, they carry less risk of default (Need a RBI notification) • Mechanism to graduate to Microcredit + Service by allow for limited and laddered provisions for strong companies to morph into bank. (Major policy & legal change) • Ensure that commercial activities like microfinance are carried out in commercial forms of organizations when they reach scale. Trusts/Societies are not designed to do so. • MFI can be best regulated on “Usurious” interest and ethical practices by unleashing co- operative and the banking sector to provide effective competition. • State should not interfere in the commerce of the sector by offering Loan waivers or bad policy interventions like Interest rate caps (even informal caps).

30. Operational Improvement Focus on Urban Microfinance Rural Infrastructure • High customer density leads to decrease • Offer financial services with a superior transaction cost. design and convenience to the client. • Increased reach with cost spread and rapid • Connectivity at the village level enabling growth ATMs and other payment devices. Unique identifier Credit Bureau • Basis for initiatives like credit history • Credit information tracking and sharing tracking and targeting for services such as enables lenders to provide incentives to health insurance those with good credit history and • Best done by the Government or agencies provides a strong deterrent to willful such as NUIA. default. Information Sharing Technological innovations • Independent service provider will take care • As smart cards, biometric IDs, and rural of MFI apprehensions on borrower info- kiosks sharing • Help in reducing the transaction costs and • It requires skilled personnel; technological rapid growth. advancements.

31. Future Growth Outlook Entry of New Players Sustainability of Microfinance Role of Private Sector Investment FUTURE OUTLOOK

32. Future Growth Outlook Size and Growth: • Currently Global microfinance sector has estimated loan portfolio of US$25 billions. • It is able to serve only fraction (~100 million) of the potential 1 billion micro borrowers in 2007. • Within next 4 years Loan size in Indian market is expected to grow to a size of about Rs250 billion from the current market size of Rs27 billion at a compounded annual growth rate of 76% and to 400-million client base as against current 15 million. • Greater degree of capital market involvement • Favorable attitude from Government of India and RBI Scalability of Microfinance in Future • Inflexible loan products and unavailability of savings and insurance services due to regulatory barriers are big hindrance for growth. • Insufficient data exists on client-level impact, though new tools such as the Poverty Progress Index of Grameen Foundation and the work of Sa-Dhan (Indian MFIs Association) on measuring client satisfaction are addressing this gap. • The market, and not the state, should decide interest rates. • Ensure transparency and full disclosure of rates including fees • New Technologies

33. Entry of New Players New Player • New players may opt for group or individual lending, village banking or any other form of lending that they find suitable. • Their participation will depend on their capacity and commitment, leadership, enabling environment, and access to financial capital. Non-Governmental Organizations • More NGOs are expected to incorporate microfinance as one of their programs. • International NGOs and agencies will develop microfinance programs in areas where microfinancing is not a familiar concept in reducing poverty. • Community-based organizations may get involved in microfinance services. Government Channels • Government channels at the grassroots

level may be used to serve the poor with microfinance where there are no microfinance institutions, the • Postal savings banks may participate more vigorously not only in mobilizing deposits but also in providing loans to the poor and on-lending funds to the MFIs. Formal Finance Sector • Cooperatives/Credit Unions may be more active in providing financial services to the poor. • More commercial banks may participate both in microfinance wholesale and retailing. They may have separate staff and windows to serve the poor.

34. Sustainability of Microfinance Conducive Policy Reform Environment • Interest rate reforms for microcredit and savings • Flexible Environment to accommodate a wide array of microfinance service providers to meet diverse demand • Redefining the role of the state in microfinance development to facilitate the participation of private sector • Non-financial policies like agricultural pricing and taxation of micro-enterprises Developing Viable Microfinance Institutions • Ownership and governance, Management information systems and accounting policies and practices • Diversified products and services • Management of portfolio quality and growth • Systems, procedures and financial technology for reducing transaction costs and Training facilities Social Intermediation • Awareness-building programs on a broad range of microfinance services; • Information dissemination among service providers • Basic literacy, numeracy and skills training for women, ethnic minorities and other disadvantaged groups • Social mobilization for the formation of community-based organizations and solidarity groups

35. Role of Private Sector Investment MFI funding gap in India • Funding gap for microfinance in India is huge. It similar to global levels. • An increasing involvement of private sector investors is therefore a key medium- term priority to scale up microfinance. • Total foreign MFI funding of both IFIs and private sector investors is expected to increase to US$25 billion by 2015, IFI accounting for US$5 billion or 20% of total. The main drivers of investment • Increasing institutional and retail investor demand • Regulatory changes & enhanced capability of MFIs to absorb commercial funding. Core assumptions underlining the forecast • Increased attractiveness for Private Investor to MFS, either due to the dual nature of microfinance or solely their attractive risk-return profile • Continued sharp rise in socially responsible investments providing extra growth impetus. • Changes in the regulatory framework will increasingly attract retail investors • Increased number of joint investment activities of public and private investors, with public investments ideally acting as multiplier for private sector investments • Use of structured debt instruments will allow involvement of risk-averse commercial investors • Increased attractiveness to institutional investors such as pension funds, insurance companies or trusts as supplement to their portfolios

36. Reasons for Failure to fulfill the desired objective Urban Microfinance Rating of Microfinance Institutions SPECIAL ISSUES

37. Reasons for Failure to fulfill the desired objective Availability of less risky and more rewarding customers • MFIs are funding hawkers and traders branded as poor in urban and semi-urban and even in villages as paying capacity of these customer is good • Farmers are avoided due to seasonal and unpredictable income source. Opportunity to become intermediaries of commercial banks • Banks avoid such lending but are under compulsion of governments and regulators to shore up mandatory requirement percentages . • Foreign banks provide facilities to securitize these loans with some discounts to ease the burden of statutory as well as corporate social responsibility.

Providing short term loans based on cash trading transactions • These transactions generally get paid and hence no default or least number of default arises; • Such short term transactions help creation of group lending and group guarantee both informally and formally without much persuasion. Resistant to loan Farmers • Farming is not yet become viable due to dependence on monsoon, inadequate irrigation facilities and lack of modernizing farming • Lack of knowledge of shift in technology in cropping pattern and irrigation as well as soil maintenance and development. Wrong MFI assessment tools • MFIs are still assessed on the basis of their coverage, profitability and high level of repayment index • They should be assessed on success in achieving their primary goals poverty alleviations and inclusive growth.

38. Urban Microfinance • High proportion of wage earner among urban poor • Average family size is 5 with a monthly expenditure of Rs5000. • 67% of the household live in their own house and 29% in the house they rent. Clients • 31% of the household run at least one business. • 69% of the households have at least one outstanding loan. • Loans are taken from moneylenders (49%), family members (13%), and friends or neighbors (28%). Rarely commercial source • Quicker scale up and Quicker breakeven • Higher loan sizes / enterprise loans • Individual lending possible in urban areas Opportunities • Technology can be better harnessed to provide financial services • Greater economic opportunities / markets • Microfinance has a role to play in alleviating the housing shortages that create slums in the first place. • No dedicated fund for capacity building, technical assistance to support growth of urban microfinance • Does not have NABARD, as it is readily available for rural microfinance. Challenges • Poor in the urban have access to savings but they do not have access to loans. • Only big MFIs can begin operation as loan size & start up cost will be higher in cities • Highly competitive because of the presence of the financial major players

39. Rating of Microfinance Institutions Need for Rating • Enable its clients to set professional benchmarks and standards • External commercial funding like PE, VC, securitization and IPO • Design programs that helps deepen the rural financial markets Micro-Credit Ratings International Ltd. (M-CRIL) • Specialized rating and microfinance research agency that has pioneered and successfully introduced the rating of Microfinance Institutions (MFIs) in Asia. • M-CRIL undertakes ratings on creditworthiness and organizational assessments)and also proprietary sectoral research Indicators for rating • Governance and strategy: The assessment depends on the quality and appropriateness of the board composition, its role and overall organizational strategy. • Management systems: are rated on the quality of human resources, the strength of critical systems like accounting and management information, staff productivity and ensuring compliance • Financial performance: evaluation requires the rating team to construct financial statements, based on internationally accepted prudential norms, to present a fair picture of the operations. • MFIs financial strength based on aspects like repayment performance, asset quality, liquidity, Asset Liability Management (ALM) and profitability.

40. Abbreviations References ANNEXURE 41. Abbreviations Abbreviation Meaning MFI Microfinance Institutions NGO Non-

Governmental Organisation SHG Small Help Group NABARD National Bank for Agriculture and Rural Development SIDBI Small Industrial Development Bank of India ADB Asian Development Bank RBI Reserve Bank of India PSU Public Sector Unit

NBFC Non-Banking Financial Company JLG Joint Liability Group PE Private Equity VC Venture Capital IT Income Tax

42. References (1/5) • ABN AMRO (2007). Presentation regarding Community Engagement and Microfinance Initiatives in India, held on 6th of July, 2007, Amsterdam. • Allianz AG. (August 2006). Microinsurance: Demand and Market Prospects – India. Berlin: Allianz AG, GTZ and UNDP. • Ananth, B. (2005). Financing Microfinance – the ICICI Bank partnership model. Small Enterprise Development. Vol. 16, pp. 57-65. Warwickshire: Practical Action Publishing. • B R Bhattacharjee, S. S. (2004). Emerging Scenarios for Microfinance Regulation in India. Postfach 5180, 65726 Eschborn: Deutsche Gesellschaft fürTechnische Zusammenarbeit (GTZ) GmbH. • Basu, P. and P. Srivastava (2005). Scaling-up Microfinance for India’s Rural Poor. World Bank Policy Research Working Paper 3646. [online]. [Cited at 17th of August, 2007]. Available at the World Wide Web: http://unpan1.un.org/intradoc/groups/public/documents/APCITY/ UNPAN024231.pdf • Bindu Ananth, B. B. (December 2004). A Blueprint for the Delivery of Comprehensive Financial Services to the Poor in India. Mumbai, India: Institute for Financial Management and Research. • Business Line. (2003, August 27). No new licences for local area banks, The Hindu Business Line. • Chowdri, S.H. (2004). Downscaling Institutions and Competitive Microfinance Markets: Reflections and Case-Studies from Latin America. [online]. [Cited at 23rd of August, 2007]. Available at the World Wide Web: <http://www.microfinance gateway.org/files/21118_Calmeadow_Downscaling_Final_Adobe.pdf>

43. References (2/5) • Claire Cain Miller, F. (2006, November 10). Microcredit: Why India is failing. Retrieved June 2009, 23, from http://www.rediff.com/: http://www.rediff.com/Microcredit Why India is failing.htm • Coppoolse, M. (2007). Microfinance: An Emerging Asset Class For Equity and Debt Investors. [online]. [Cited at 5th of September, 2007]. Available at the World Wide Web: <http://www.microcapital.org/downloads/whitepapers/Emerging.pdf> • Cygnus Business Consulting & Research Pvt. Ltd. (September 2008). Industry Report: Microfinance. 4th & 5th Floors, Astral Heights, Road No. 1, Banjara Hills, Hyderabad-500034, India: Cygnus Business Consulting & Research Pvt. Ltd. • Duflo, A. (2005). ICICI Banks the Poor in India: Demonstrates That Serving Low-Income Segments Is Profitable. Microfinance Matters; Building Inclusive Financial Sectors. Issue 17, pp. 13-16. [online]. [Cited at 13th of August, 2007]. Available at the World Wide Web: <http://www.uncdf.org/english/microfinance/pubs/newsletter/pages/2005_10/Microfinance _Matters_Issue_17.pdf> • Ghate, P. (2006). Microfinance in India: A State of the Sector Report, 2006. [online]. [Cited at 13th of August, 2007]. Available at the World Wide Web: <http://www.microfinancegateway.org/content/article/detail/36347> • Harper, M. (2002). Self-help groups and Grameen Bank groups: What are the differences? In T. Fisher & M.S. Sriram (Eds.), Beyond micro-credit: Putting development back into micro- finance. New Delhi: Vistaar. • Hart, C. P. (2000). The Fortune at the Bottom of the Pyramid. Strategy and Business Issue , pp. 1-14.

44. References (3/5) • High Power Committee. (2002). Report of the High Power Committee on Urban Cooperative Banks. RBI Bulletin. Mumbai: Reserve Bank of India. • James Roth, C. C. (September 2005). Good and Bad Practices in Microinsurance: Microinsurance and Microfinance Institutions Evidence from India. New York: CGAP Working Group on Microinsurance. • Jones, H., M. Williams, and Y. Thorat (2007).

Rural Financial Institutions and Agents in India: A Historical and Contemporary Comparative Analysis. Paper presented at the International Conference on Rural Finance Research: Moving Results into Policies and Practice. Held at 19- 20 March, 2007. Rome. • Klaus, M. E. (1999). Report of working group on savings mobilization, Bank Rakyat Indonesia (BRI). Washington DC: Consultative Group to Assist the Poorest (CGAP), World Bank. • Liesbeth Sijtsma, M. (September 2007). Status Report Microfinance in India. Mumbai: Netherlands Platform for Microfinance. • M-Cril. (2002). Microfinance rating: Risk assessment of Bank Dagang Bali. Washington DC: Consultative Group to Assist the Poorest. Available at www.cgap.org • Montgomery, R., Bhattacharya, D., & Hulme, D. (1996). Credit for the poor in Bangladesh. In D. Hulme & P. Mosely, Finance against poverty. London: Routledge. • Mor, N. (March 2005). Expanding Access to Financial Services - Where do we go from here? Mumbai, India: Institute for Financial Management and Research. • National Bank for Agriculture & Rural Development. (2006). Status of Micro Finance in India. Meghalaya Regional Office: National Bank for Agriculture & Rural Development. • Rhyne, E. (2001). Mainstreaming microfinance. Connecticut: Kumarian Press.

45. References (4/5) • Robinson, M. (2001). The microfinance revolution: Sustainable finance for the poor. Washington DC: World Bank. • Rutherford, S. (2000). The poor and their money. New Delhi: Oxford University Press. • Sa-Dhan. (2002). Enhancing Financial Flows to the Poor: The Way Forward. Summary of the sub-group reports presented to the empowered committee on financial flows to the unorganised sector. New Delhi: Sa-Dhan. • Shriram, M. S. (May 2007). Presentation in NAC on Microfinance in India. Ahmedabad: IIM Ahmedabad. • Sinha, S. (2001). The role of central banks in microfinance in Asia and the Pacific. Manila: Asian Development Bank. • SKS Microfinance. (March 2008). The SKS Acceleration Model: Empowering the poor to become economically self -reliant. Hyderabad: SKS Microfinance. • Smith, R. (2006). The Changing Face of Microfinance in India: The cost and Benefits of Transforming from NGO to NBFC. Tufts University: The Fletcher SchoolTufts University. • Sriram, R. S. (June 2003). Microfinance: An Introduction. IIMB Management Review, , 52-53. • Sriram, M. S. (2001). Case study of SHARE group. In S Datta & M. S. Sriram, Flow of Credit to Small and Marginal Farmers in India (report submitted to the Ministry of Agriculture, Government of India). Ahmedabad: Indian Institute of Management. • Upadhyayula, M. S. (2006). The Transformation of the Microfinance Sector in India Experiences, Options, and Future. Ahmedabad: IIM Ahmedabad. • ———. (2002). Information asymmetry and trust: A framework for studying microfinance in India (WP No. 2002-09-02). Ahmedabad: Indian Institute of Management.

46. References (5/5) • Wardhana, A. (2001). Introduction. In M. Robinson (Ed.) The microfinance revolution: Sustainable finance for the poor. Washington DC: World Bank. • Yunus, M. (2003). Some suggestions on legal framework for creating microcredit banks. Dhaka: Grameen Bank.

Microfinance An Introduction - Presentation Transcript

1. Microfinance An Introduction Kabare Piyush Madhukar M.B.B.S (Mumbai), PGPM (Indian Institute of Management, Indore) Assistant Manager, Vidarbha Cluster In-Charge Microfinance, RFD-RFU L&T Finance Limited

2. Index (1/2) Introduction • What is Microfinance • Definition Industry Preview • Global Developments in Microfinance • Major Changes in Microfinance Scenario in South East Asia • Developments in Microfinance in India • Pillars of Microfinance in India Microfinance Industry Structure • Role of RBI (Central Bank) and NABARD (Regulator) • Major Players in the Industry • Financing Model adapted by Banks in Microfinance Industry • Microfinance Delivery Model Microfinance Lending Process • Client Characteristic Microfinance Services • Lending Process in Microfinance Business Strategy • Business Strategies of Microfinance Institutions • Business Strategies of Private Banks/Commercial Banks • Growth Drivers for Sector

3. Index (2/2) Key Challenges • High Transaction and Service Cost • Credit Risk • Other Risks Recommendations • Regulations and Policies • Operational Improvement Future Outlook • Future Growth Outlook • Entry of New Players • Sustainability of Microfinance • Role of Private Sector Investment Special Issues • Reasons for Failure to fulfill the desired objective • Urban Microfinance • Rating of Microfinance Institutions Annexure • Abbreviations • References

4. What is Microfinance Definition INTRODUCTION 5. Introduction: What is Microfinance? The scenario of supply of formal financial Access to

financial services are services within India constraint for the poor and not interest rates. The poor can save and can indeed use a An estimated demand for credit ranging from wide range of financial services. $3 to $9 billion annually The formal sector is barely able to provide $200 to $300 million, Poor people use not only credit but also saving service, insurance and affordable remittance systems to manage assets, generate income and improve their A total of over 600,000 villages lives. Barely 30,000 bank branches For most of us, microfinance means providing very poor families with very Various Insurance, Investment and Saving small loans (micro-credit) to help them Products for Poor section engage in productive activities Basic financial services remain out of reach. Microfinance is an collective term used for financial intermediation services to low income group and poor customers. Services offered are Credit facility, Saving accounts, Money transfers, Remittances, Insurance and even Investment.

6. Definition Microfinance refers to small-scale financial services including both credits and deposits provided to people who farm or fish or herd; operate small or microenterprises where goods are produced, recycled, repaired, or traded; provide services; work for wages or commissions; gain income from renting out small amounts of land, vehicles, draft animals, or machinery and tools; in both rural and urban areas. Key Features of Microfinance Cost Group Prefer Do not Prefer Small Lend to the covering appraisal women take saving over short-term poor interest and customers Security borrowing loans rates guarantee over men Microfinance means the provision of banking services to lower-income people, especially the poor and the very poor.

7. Developments in Microfinance – Global Developments in Microfinance – South East Asia Developments in Microfinance – India Pillars of Microfinance in India INDUSTRY PREVIEW

8. Developments in Microfinance – Global The Grameen Bank has Since 1976, the Grameen been duplicated in Bolivia, Bank has grown to include Chile, China, Ethiopia, Microfinance has spread more than 5.5 million Honduras, India, Malaysia, to cover five continents members with more than Mali, Philippines, Sri and numerous countries. US$5.2 billion in disbursed Lanka, Tanzania, Thailand, loans. United States, and Vietnam. MFIs have become more As MFIs became better Microfinance Institutions efficient; increased their versed in the (MFIs) have also begun to client base and expanding microfinance markets, seek out public and their services through they applied their international financing, different product such as innovations in all increasing their working micro-savings, flexible processes from lending to capital and expanding the loan repayment, and the collection of deposits. scope of their operations. insurance. On an overall perspective Microfinance has immense potentiality with three billion people i.e. half the world’s population living less than US$2 per day, unable to meet their basic human needs

9. Developments in Microfinance – South East Asia Grameen Bank discarded JLG model of Micro-credit • The new approach that is Grameen II in which all savings are on an individual basis and there is no group liability, offers flexible loan arrangements for terms of 3 months to 3 years and variable repayment schedules to avoid seasonal difficulties. The expansion of scope of services beyond credit. • Services offered are Credit facility, Saving accounts, Money transfers, Remittances, Insurance and even Investment. The emergence of profit-making Microfinance Institution (MFIs). • Currently, profitable MFI’s are present in most countries reporting huge returns on assets (ROAs) and returns on equity (ROEs) in comparison to conventional banking institutions. • The MFIs in South Asia have reached profitability through cost efficiency while those in East Asia seem to have relied more on relatively high interest rates. Emergence of Commercial Microfinance • Small core group of highly commercial and professional, market-oriented institutions have emerged but not yet become fully integrated into the broader mainstream commercial financial systems. South Asia has also distinguished itself by forging successful partnerships for microfinance between governments, NGOs, civil society, private sector, and communities.

10. Developments in Microfinance – India Micro finance in India has started to evolve in early 1980’s with an effort of forming informal Small Help Group (SHG) to provide access of financial services to needy. India is 2nd most populous country behind China with a large number of un-financed poor people - Main clients for MFIs MFIs are estimated to have 7.94 million borrowers as of March 2008 with CAGR of 88.42% over the last five years and cumulative outstanding loan portfolio of US$824 million. SHG has loan outstanding of US$356.45 million as of March 2008. It shows a CAGR growth of 78.21% from FY03- FY08. MFIs are increasing their share in Indian microfinance supply as of comparison to SHGs where their share has gone down to 53% in March 2008, from 72% in the year March 2003. National Bank for Agriculture and Rural The strength of microfinance sector lies in the Development (NABARD) and Small Industries diversity of models, it has adopted including Development Bank of India (SIDBI) are devoting home grown models like MFI and SHG to other their financial resources and time towards the learnt models from various countries like development of microfinance. Bangladesh, Thailand and Bulgaria.

11. Pillars of Microfinance in India Niche-Market • Such as Spandana, SHARE Microfin Ltd, and SKS Microfinance have also MFIs in India scaled up their micro-credit outreach dramatically in recent years. • Expanding its financial services to poor households through a multi- Private Bank like ICICI Bank pronged approach—Directly providing credit facilities to SHG, and Providing wholesale credit facilities to microfinance NGOs and NBFCs. State Owned/ • The Syndicate Bank, Andhra Bank, Canara Bank, and Indian Bank, have Commercial Banks entered this market. • Through its Microfinance Development Strategy, aims to ensure ADB permanent access to institutional financial services for the region's poor people and their small businesses. • Started to eye the low-profile MFIs, as they foresee huge potentiality in Private Equity Firms terms of returns from this sector. e.g. JM Financial have investments from Old Lane Partners and Delhi based Lok Capital • NABARD and SIDBI are performing regulatory and promotional role, NABARD & SIDBI providing financial resources as credit & equity and enhancing technology know-how of MFIs

12. Role of RBI (Central Bank) and NABARD (Regulator) Major Players in the Industry Financing Model adapted by Banks in Microfinance Industry Microfinance Delivery Model MICROFINANCE INDUSTRY STRUCTURE

13. Role of RBI (Central Bank) and NABARD (Regulator) • Support financial liberalization & create conditions sustainable for Sector Role of RBI • Prudential regulation and supervision (Central • Supporting the pilot projects of microfinance Banks) • Collecting data and publication • Training and advocacy • Framing policy and guidelines for rural financial institutions Role of The • Providing credit facilities to issuing organizations NABARD • Preparation of potential-linked credit plans annually for all districts for (Regulator) identification of credit potential • Monitoring the flow of ground level rural credit Division of Responsibility in Microfinance NABARD SIDBI Oversees the linking programme of banks to Lends to MFIs through SIDBI Foundation for SHGs and offers refinance for it micro-credit.

14. Major Players in the Rural Finance Market Public Sector Banks Regional Private Banks Rural Banks Private Funding Rural Schedule Commercial Institution Banks Market Players Cooperative NGO Banks MFIs SHG

15. Microfinance Delivery Model Self Help Groups MFI/Grameen Legal Forms of MFIs • Home grown, co- Replica • NGO MFIs (Societies operative • Group Lending and Registration Act, 1860 or • Savings based / led Regimented Provincial Acts and/or • Meeting diverse needs • Focused on self- Indian Trust Act, 1882) • Promoted by NABARD, sufficiency • Non-profit Companies PSU Banks, NGOs • NGO-MFI and NBFC- (Section 25 of the • Performance –mixed MFI Companies Act, 1956) • Pace of growth - cause • Financial Corporations - for concern Specialized entities focusing on specific segments like SC/ST, Minorities Grameen II Wholesome • Mutually Aided Credit Society (MACS) - • Individual lending Microfinance community owned & - • NBFC-MFI Services popular in Andhra Pradesh • Cooperative MFIs • Progressive Loan • Regulation (Cooperative Societies Acts focused on • Specialized activities of the State & Central enterprise • Cost is major factor Governments) • Future of • Distant dream • Non-Banking Financial Microfinance Companies (NBFCs) (Indian Companies Act, 1956, RBI Act, 1934)

16. Financing Model adapted by Banks in Microfinance Industry Bank Client Credit NGO (Facilitator) Promotion & Training SHG Client Member Direct Financing Model SHG-

Bank Linkage Model • Most MFIs use groups as intermediaries • NGO to act as facilitator/financial for financial transactions, but there are intermediaries between bank and SHG to different ways of working with groups. initiate micro savings through an account • The NGO promotes, imparts training, • The intermediation cost could be around forms groups and also gives credit to 6% of the loan amount. them. • Risk lies with the banks as advances to • Under this model either SHGs are formed the SHGs are reflected in bank portfolios. by banks or by NGOs and formal agencies • Banks bear risk as it involve a lot of but are financed by banks. transaction costs.

17. Client Characteristic Microfinance Services Lending Process in Micro-Finance MICROFINANCE LENDING PROCESS

18. Client Characteristic Microfinance Services Activity RoE RoIC Net Annual Classification of Activities - Return in US$ Micro-credit Loan Trade Vegetable Vending 50 57 143 Trade Production Live Stock General Store 14 29 144 Service Agriculture Other Sweet Making Shop 145 147 1010 Ice Cream Making 13 29 305 3% 6% Agriculture Leasing mango trees 184 185 511 33% Leasing irrigated farm land 160 161 667 25% Services Operating a Flour Mill 52 59 409 Tailoring 121 123 307 10% 23% Roadside Micro-diner 245 246 1528 Livestock Goat rearing 58 65 40 Buffalo rearing 69 74 246 Production Pottery 235 236 520 Microfinance clients are poor with Activities in rural areas are farming, food processing, petty trade, relatively stable source of income. livestock, vending, and production like basket weaving. Clients of microfinance are excluded by Activities in urban areas are shops, services, artisans, street formal financial institutions. vendors & new age businesses (beauty parlor to photography). Women make up the vast majority of Majority of the population borrow for trading, working capital borrowers, especially in Asia (99%). requirements for existing business or for setting up new one.

19. Lending Process in Micro-Finance Geo-Economic • Based on the geo-economic information about his region (typically a district or Survey of Region mandal) and various towns and villages, MFI approach favorable villages. • Then MFI visits the village &tries to gather first hand information about the population Village Appraisal of that village, their religion, cast, type of trades, skills, financial states, their needs. • Conducts a survey to evaluate potentiality for the operations in the village, some key Selection of Village parameters are total population, poverty level, accessibility, political stability & safety. • After selection of village, interested women form self selected four to six member Group Formation groups to serve as guarantors for each other. This process is called Group Formation. • When formed group meets the minimum requirements, it begins Compulsory Group Training of Training program designed to educate clients on the processes and procedures of Borrowers microfinance loans and build a culture of credit discipline. Scrutiny and • Customer details, their business and their earning capacity are scrutinized and judged Underwriting to access repaying capacity. Financial • Collection meetings are held on a weekly/monthly basis by Field Assistants to conduct Transactions all financial transactions. In addition, clients use the weekly meetings to discuss new loan applications, loan utilization and community issues. Near Mandatory • Insurance products are sold to cover death, accident or health of group member, Insurance member’s spouse and/or children.

20. Business Strategies of Microfinance Institutions Business Strategies of Private Banks/Commercial Banks Growth Drivers for Sector BUSINESS STRATEGY

21. Business Strategy of Microfinance Institutions Social Services and Initiatives: Include Technology: To Investment in nutrition, Leveraging Finance: The overcome its transaction health, education, and NGO leverages livelihood costs, increase the speed vocational training, investments by linking of transaction, reduce Agricultural and Business the rural poor to redundancies and development services. government programs better control and banks. mechanism. Human Resource Learning Best Practices Capacity Building: from the Business workshops, special World: Like standardized programs, trainings and distribution process exposure visits of the used by McDonald staff and clients. Geographical Expansion Business Complete Bouquet of and Vertical Expansion: Increasing the individual Strategy Financial Services: like Savings, Credit , loan portfolio by of MFIs Insurance for the lives providing Micro and livelihoods of the Enterprise Loan, bigger poor, Infrastructure than JLG loans. finance

22. Business Strategies of Private Banks/Commercial Banks • MFIs identify, train & promote microfinance clients. Bank finances Partnership Model clients directly on the recommendation of the MFI. Customer and portfolio resides in the bank’s book. • Bank buys out portfolios from MFIs. MFI continues to service the Securitisation of clients and acts as the collection agent. MFI shares the credit risk Portfolios of MFIs with the bank. • Adopting a 'Core Banking System' for managing the loan portfolio Technology generated under the partnership model. Credit to • A wholesale linkage model which implies extending a bulk loan to MFIs/NGOs the MFIs for lending to poor women Systems and Loan • Active involvement in providing mentoring services to clients, Portfolio Evaluation including in the areas of governance and credit discipline. Liaisons with the • Operating divisions at regional and branch level are in close NGOs connection with NGOs in local area to take the movement ahead. High transaction cost, poor reach and unavailability quality manpower, has obliged Banks to adapt various approaches through Microfinance to fulfill priority sector lending norms

23. Growth Drivers for Sector • Lack of lending from Banks due to lack of collateral and exploitation from Need for Credit by money lenders has exemplified the potential demand for microfinance Unprivileged Class services and the growth prospects of the industry. • These include commercial debt and equity, form of grants and donations Increase in the and PE including VC funding. This has changed capital structure of this sources of finance industry for better • Innovation in diversifying lender base, consolidating internal control systems Innovation and strengthen policies on human resources, disclosure, and organisational processes. Government Policy • Microfinance Bill & proposed regulator NABARD will regulate & promote and Support growth of this sector in line with importance attached by government to this sector. Consolidation in the • Increase in the number of partners in the commercial space will enable Industry them to introduce new products in insurance, remittance etc. Growing Migration • Higher average loan size and greater use of technology such as smart cards and Urbanization and point-of-sale devices with wireless connectivity. in the urban areas will increase urban micro-financing. Human Resource • Microfinance is attracting high quality, talented managers. People with skills Capacities in specialized HR needs such as local recruitments and cultural and linguistic integration; Standardizing the operating process and systems

24. High Transaction and Service Cost Credit Risk Other Risks KEY CHALLENGES 25. High Transaction and Service Cost Reasons • Average microfinance loan size is small,

hence the transaction cost on a percentage basis for a microfinance loan is higher. •

Lending large size loan may require evaluating the client, again increasing cost The most popular form of lending in • Very high operational costs, especially at India is JLG model which incurs loan origination & during monitoring is peculiar costs such as group formation because of doorstep service and little or no costs, cost of training the borrowers deployment of technology solutions. with respect to the procedures to be • Intense monitoring and repeated followed, higher degree of interaction. supervision, as well as higher • Increased competition will lead to better frequency of installment payments. quality in services, lower loan sizes, lower MFIs face the challenge of finding rate of interests, diversification of products and use of technology as well to reduce the ways to reduce lending costs. transaction cost and cost of lending. Technology innovation, improved rural infrastructure, borrower education and urban microfinance are few ways to mitigate high transaction cost

26. Credit Risk Irregular Flow of • Seasonality of agricultural activities & unique requirements of Income due to financing such activities (payback of loans can only take place Seasonality after production) • Traditional farming practices, heavy dependence on monsoon, High Dependence on heavy dependence on the seasonal income, making it difficult to Monsoon assess borrower’s repayment capacity. Uncertainty of • Risk arises because of the nature of uncertainty involved with Market Conditions agricultural output — in terms of yield and price. Lack of Skills leading • Due to lack of proper education and vocational skills, their to Un-employability employability in non-farming jobs is very low. Lack of Tangible • Absence of land deed, no records like IT returns irregular flow of Proof for Assessment income due to seasonality constitutes lack of tangible income of Income proof. Need for Information • Adverse selection, over-indebtedness of clients and moral hazard Sharing & Better due to Lack of information about credit-worthiness of potential Technology clients.

27. Other Risks Operational Risk • Inadequate or failed internal process due to people, system or external events. • Rural people do not have credit history background. Business Promotion • MFIs need skills in business management, such as marketing , finance and HR. • Delivery of these skills is pending issue for most of them Literacy & Skill Levels of Clientele • Low levels of literacy, relatively undiversified economies, high dependence on agriculture • Rural economic activities have low profitability and prone to high risk Diversion of Funds to Unproductive Activities • Use of loans for unproductive activities instead of purpose stated to the lender • It is very difficult to assess where he/she is going to utilize the money. Regulatory Issues • Still unregulated and not supervised by any dedicated body. • MFIs are growing fast & they require regulatory authority to facilitate the growth.

28. Regulations and Policies Operational Improvement RECOMMENDATIONS 29. Regulations and Policies • Definition of MFI: Encompass and allow MFIs to serve poor

not only as lender but as full financial service provider without increasing risk for poor customer and MFI itself. • Recognition of MFI as specialized activity on par with leasing or housing finance and creation of a specialized category of NBFC [Amendment to the RBI Act] • Easing of entry norms for “loans only companies”. As these companies will not accept savings or offer financial services, they carry less risk of default (Need a RBI notification) • Mechanism to graduate to Microcredit + Service by allow for limited and laddered provisions for strong companies to morph into bank. (Major policy & legal change) • Ensure that commercial activities like microfinance are carried out in

commercial forms of organizations when they reach scale. Trusts/Societies are not designed to do so. • MFI can be best regulated on “Usurious” interest and ethical practices by unleashing co- operative and the banking sector to provide effective competition. • State should not interfere in the commerce of the sector by offering Loan waivers or bad policy interventions like Interest rate caps (even informal caps).

30. Operational Improvement Focus on Urban Microfinance Rural Infrastructure • High customer density leads to decrease • Offer financial services with a superior transaction cost. design and convenience to the client. • Increased reach with cost spread and rapid • Connectivity at the village level enabling growth ATMs and other payment devices. Unique identifier Credit Bureau • Basis for initiatives like credit history • Credit information tracking and sharing tracking and targeting for services such as enables lenders to provide incentives to health insurance those with good credit history and • Best done by the Government or agencies provides a strong deterrent to willful such as NUIA. default. Information Sharing Technological innovations • Independent service provider will take care • As smart cards, biometric IDs, and rural of MFI apprehensions on borrower info- kiosks sharing • Help in reducing the transaction costs and • It requires skilled personnel; technological rapid growth. advancements.

31. Future Growth Outlook Entry of New Players Sustainability of Microfinance Role of Private Sector Investment FUTURE OUTLOOK

32. Future Growth Outlook Size and Growth: • Currently Global microfinance sector has estimated loan portfolio of US$25 billions. • It is able to serve only fraction (~100 million) of the potential 1 billion micro borrowers in 2007. • Within next 4 years Loan size in Indian market is expected to grow to a size of about Rs250 billion from the current market size of Rs27 billion at a compounded annual growth rate of 76% and to 400-million client base as against current 15 million. • Greater degree of capital market involvement • Favorable attitude from Government of India and RBI Scalability of Microfinance in Future • Inflexible loan products and unavailability of savings and insurance services due to regulatory barriers are big hindrance for growth. • Insufficient data exists on client-level impact, though new tools such as the Poverty Progress Index of Grameen Foundation and the work of Sa-Dhan (Indian MFIs Association) on measuring client satisfaction are addressing this gap. • The market, and not the state, should decide interest rates. • Ensure transparency and full disclosure of rates including fees • New Technologies

33. Entry of New Players New Player • New players may opt for group or individual lending, village banking or any other form of lending that they find suitable. • Their participation will depend on their capacity and commitment, leadership, enabling environment, and access to financial capital. Non-Governmental Organizations • More NGOs are expected to incorporate microfinance as one of their programs. • International NGOs and agencies will develop microfinance programs in areas where microfinancing is not a familiar concept in reducing poverty. • Community-based organizations may get involved in microfinance services. Government Channels • Government channels at the grassroots level may be used to serve the poor with microfinance where there are no microfinance institutions, the • Postal savings banks may participate more vigorously not only in mobilizing deposits but also in providing loans to the poor and on-lending funds to the MFIs. Formal Finance Sector • Cooperatives/Credit Unions may be more active in providing financial services to the poor. • More commercial banks may participate both

in microfinance wholesale and retailing. They may have separate staff and windows to serve the poor.

34. Sustainability of Microfinance Conducive Policy Reform Environment • Interest rate reforms for microcredit and savings • Flexible Environment to accommodate a wide array of microfinance service providers to meet diverse demand • Redefining the role of the state in microfinance development to facilitate the participation of private sector • Non-financial policies like agricultural pricing and taxation of micro-enterprises Developing Viable Microfinance Institutions • Ownership and governance, Management information systems and accounting policies and practices • Diversified products and services • Management of portfolio quality and growth • Systems, procedures and financial technology for reducing transaction costs and Training facilities Social Intermediation • Awareness-building programs on a broad range of microfinance services; • Information dissemination among service providers • Basic literacy, numeracy and skills training for women, ethnic minorities and other disadvantaged groups • Social mobilization for the formation of community-based organizations and solidarity groups

35. Role of Private Sector Investment MFI funding gap in India • Funding gap for microfinance in India is huge. It similar to global levels. • An increasing involvement of private sector investors is therefore a key medium- term priority to scale up microfinance. • Total foreign MFI funding of both IFIs and private sector investors is expected to increase to US$25 billion by 2015, IFI accounting for US$5 billion or 20% of total. The main drivers of investment • Increasing institutional and retail investor demand • Regulatory changes & enhanced capability of MFIs to absorb commercial funding. Core assumptions underlining the forecast • Increased attractiveness for Private Investor to MFS, either due to the dual nature of microfinance or solely their attractive risk-return profile • Continued sharp rise in socially responsible investments providing extra growth impetus. • Changes in the regulatory framework will increasingly attract retail investors • Increased number of joint investment activities of public and private investors, with public investments ideally acting as multiplier for private sector investments • Use of structured debt instruments will allow involvement of risk-averse commercial investors • Increased attractiveness to institutional investors such as pension funds, insurance companies or trusts as supplement to their portfolios

36. Reasons for Failure to fulfill the desired objective Urban Microfinance Rating of Microfinance Institutions SPECIAL ISSUES

37. Reasons for Failure to fulfill the desired objective Availability of less risky and more rewarding customers • MFIs are funding hawkers and traders branded as poor in urban and semi-urban and even in villages as paying capacity of these customer is good • Farmers are avoided due to seasonal and unpredictable income source. Opportunity to become intermediaries of commercial banks • Banks avoid such lending but are under compulsion of governments and regulators to shore up mandatory requirement percentages . • Foreign banks provide facilities to securitize these loans with some discounts to ease the burden of statutory as well as corporate social responsibility. Providing short term loans based on cash trading transactions • These transactions generally get paid and hence no default or least number of default arises; • Such short term transactions help creation of group lending and group guarantee both informally and formally without much persuasion. Resistant to loan Farmers • Farming is not yet become viable due to dependence on monsoon, inadequate irrigation facilities and lack of

modernizing farming • Lack of knowledge of shift in technology in cropping pattern and irrigation as well as soil maintenance and development. Wrong MFI assessment tools • MFIs are still assessed on the basis of their coverage, profitability and high level of repayment index • They should be assessed on success in achieving their primary goals poverty alleviations and inclusive growth.

38. Urban Microfinance • High proportion of wage earner among urban poor • Average family size is 5 with a monthly expenditure of Rs5000. • 67% of the household live in their own house and 29% in the house they rent. Clients • 31% of the household run at least one business. • 69% of the households have at least one outstanding loan. • Loans are taken from moneylenders (49%), family members (13%), and friends or neighbors (28%). Rarely commercial source • Quicker scale up and Quicker breakeven • Higher loan sizes / enterprise loans • Individual lending possible in urban areas Opportunities • Technology can be better harnessed to provide financial services • Greater economic opportunities / markets • Microfinance has a role to play in alleviating the housing shortages that create slums in the first place. • No dedicated fund for capacity building, technical assistance to support growth of urban microfinance • Does not have NABARD, as it is readily available for rural microfinance. Challenges • Poor in the urban have access to savings but they do not have access to loans. • Only big MFIs can begin operation as loan size & start up cost will be higher in cities • Highly competitive because of the presence of the financial major players

39. Rating of Microfinance Institutions Need for Rating • Enable its clients to set professional benchmarks and standards • External commercial funding like PE, VC, securitization and IPO • Design programs that helps deepen the rural financial markets Micro-Credit Ratings International Ltd. (M-CRIL) • Specialized rating and microfinance research agency that has pioneered and successfully introduced the rating of Microfinance Institutions (MFIs) in Asia. • M-CRIL undertakes ratings on creditworthiness and organizational assessments)and also proprietary sectoral research Indicators for rating • Governance and strategy: The assessment depends on the quality and appropriateness of the board composition, its role and overall organizational strategy. • Management systems: are rated on the quality of human resources, the strength of critical systems like accounting and management information, staff productivity and ensuring compliance • Financial performance: evaluation requires the rating team to construct financial statements, based on internationally accepted prudential norms, to present a fair picture of the operations. • MFIs financial strength based on aspects like repayment performance, asset quality, liquidity, Asset Liability Management (ALM) and profitability.

40. Abbreviations References ANNEXURE 41. Abbreviations Abbreviation Meaning MFI Microfinance Institutions NGO Non-

Governmental Organisation SHG Small Help Group NABARD National Bank for Agriculture and Rural Development SIDBI Small Industrial Development Bank of India ADB Asian Development Bank RBI Reserve Bank of India PSU Public Sector Unit NBFC Non-Banking Financial Company JLG Joint Liability Group PE Private Equity VC Venture Capital IT Income Tax

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Allianz AG, GTZ and UNDP. • Ananth, B. (2005). Financing Microfinance – the ICICI Bank partnership model. Small Enterprise Development. Vol. 16, pp. 57-65. Warwickshire: Practical Action Publishing. • B R Bhattacharjee, S. S. (2004). Emerging Scenarios for Microfinance Regulation in India. Postfach 5180, 65726 Eschborn: Deutsche Gesellschaft fürTechnische Zusammenarbeit (GTZ) GmbH. • Basu, P. and P. Srivastava (2005). Scaling-up Microfinance for India’s Rural Poor. World Bank Policy Research Working Paper 3646. [online]. [Cited at 17th of August, 2007]. Available at the World Wide Web: http://unpan1.un.org/intradoc/groups/public/documents/APCITY/ UNPAN024231.pdf • Bindu Ananth, B. B. (December 2004). A Blueprint for the Delivery of Comprehensive Financial Services to the Poor in India. Mumbai, India: Institute for Financial Management and Research. • Business Line. (2003, August 27). No new licences for local area banks, The Hindu Business Line. • Chowdri, S.H. (2004). Downscaling Institutions and Competitive Microfinance Markets: Reflections and Case-Studies from Latin America. [online]. [Cited at 23rd of August, 2007]. Available at the World Wide Web: <http://www.microfinance gateway.org/files/21118_Calmeadow_Downscaling_Final_Adobe.pdf>

43. References (2/5) • Claire Cain Miller, F. (2006, November 10). Microcredit: Why India is failing. Retrieved June 2009, 23, from http://www.rediff.com/: http://www.rediff.com/Microcredit Why India is failing.htm • Coppoolse, M. (2007). Microfinance: An Emerging Asset Class For Equity and Debt Investors. [online]. [Cited at 5th of September, 2007]. Available at the World Wide Web: <http://www.microcapital.org/downloads/whitepapers/Emerging.pdf> • Cygnus Business Consulting & Research Pvt. Ltd. (September 2008). Industry Report: Microfinance. 4th & 5th Floors, Astral Heights, Road No. 1, Banjara Hills, Hyderabad-500034, India: Cygnus Business Consulting & Research Pvt. Ltd. • Duflo, A. (2005). ICICI Banks the Poor in India: Demonstrates That Serving Low-Income Segments Is Profitable. Microfinance Matters; Building Inclusive Financial Sectors. Issue 17, pp. 13-16. [online]. [Cited at 13th of August, 2007]. Available at the World Wide Web: <http://www.uncdf.org/english/microfinance/pubs/newsletter/pages/2005_10/Microfinance _Matters_Issue_17.pdf> • Ghate, P. (2006). Microfinance in India: A State of the Sector Report, 2006. [online]. [Cited at 13th of August, 2007]. Available at the World Wide Web: <http://www.microfinancegateway.org/content/article/detail/36347> • Harper, M. (2002). Self-help groups and Grameen Bank groups: What are the differences? In T. Fisher & M.S. Sriram (Eds.), Beyond micro-credit: Putting development back into micro- finance. New Delhi: Vistaar. • Hart, C. P. (2000). The Fortune at the Bottom of the Pyramid. Strategy and Business Issue , pp. 1-14.

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45. References (4/5) • Robinson, M. (2001). The microfinance revolution: Sustainable finance for the poor. Washington DC: World Bank. • Rutherford, S. (2000). The poor and their money. New Delhi: Oxford University Press. • Sa-Dhan. (2002). Enhancing Financial Flows to the Poor: The Way Forward. Summary of the sub-group reports presented to the empowered committee on financial flows to the unorganised sector. New Delhi: Sa-Dhan. • Shriram, M. S. (May 2007). Presentation in NAC on Microfinance in India. Ahmedabad: IIM Ahmedabad. • Sinha, S. (2001). The role of central banks in microfinance in Asia and the Pacific. Manila: Asian Development Bank. • SKS Microfinance. (March 2008). The SKS Acceleration Model: Empowering the poor to become economically self -reliant. Hyderabad: SKS Microfinance. • Smith, R. (2006). The Changing Face of Microfinance in India: The cost and Benefits of Transforming from NGO to NBFC. Tufts University: The Fletcher SchoolTufts University. • Sriram, R. S. (June 2003). Microfinance: An Introduction. IIMB Management Review, , 52-53. • Sriram, M. S. (2001). Case study of SHARE group. In S Datta & M. S. Sriram, Flow of Credit to Small and Marginal Farmers in India (report submitted to the Ministry of Agriculture, Government of India). Ahmedabad: Indian Institute of Management. • Upadhyayula, M. S. (2006). The Transformation of the Microfinance Sector in India Experiences, Options, and Future. Ahmedabad: IIM Ahmedabad. • ———. (2002). Information asymmetry and trust: A framework for studying microfinance in India (WP No. 2002-09-02). Ahmedabad: Indian Institute of Management.

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47. Thank You