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Old August 24th, 2013, 10:40 AM
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Pleae provide me MBA Projects in Microfinance as soon as possible ?

Microfinance deals with activity of provision of financial services to clients who are excluded from the traditional financial systems on account of their lower economic status.

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For your concern, I am giving the MBA Projects for Microfinance. Have a look.

Finance Dissertation Project Report on Micro Financing
Report on Micro-Finance in India
TRN Microfinance MBA
MicroFinance – Current Status and Growing Concerns in India
A Project Report On Microfinance In India

The Key Factor of Microfinance

Supply of credit
Demand for finance
Intermediation by individuals or authorities.
Regulation by statutory bodies.
Borrowers are from the low income group
Loans are of small amount – micro loans
Short duration loans
Loans are offered without collaterals
High frequency of repayment
Loans are generally taken for income generation purpose

Microfinance covers following

Gaps in Financial system and Need for Microfinance
Channels of Micro finance
SHG – Bank Linkage Programme
Micro Finance Institutions
Financial illiteracy
Inability to generate sufficient funds
Dropouts and Migration of group members
Transparent Pricing
Cluster formation – fight to grab established market
Multiple Lending and Over-Indebtedness
Recommendations

Report on Micro-Finance in India

Meaning of Microfinance
Microfinance is a term used to refer to the activity of provision of financial services to clients who are excluded from the traditional financial systems on account of their lower economic status. These financial services will most commonly take the form of loans (see micro credit) & savings, through some microfinance institutions will offer other services such as insurance & payment services. The Microfinance is changing the landscape of banking across the world. It has changed the ivies of people & revitalized communities in the world’s poorest as well as richest countries. The microfinance is a better targeted financial help to a clientele that is poorer & vulnerable than traditional bank clients. The broad classification of microfinance includes rural credit through specialized banks traditional informal microfinance like loans from friends & relatives money lenders etc.
Microfinance as a Development Tool
People living in poverty –like everyone else need access to a diverse range of financial services, including loans, saving services, insurance & money transfers. Access to financial services can help enable the poor to increase income & smooth consumption flows, & thus expend their asset base & reduce their vulnerability to the external shocks that are a part of their daily existence. The availability of financial services acts as a buffer against sudden emergencies, business risk & seasonal slums that can push a family into destitution. More & better financial services specifically geared towards low income groups can help poor households to move from everyday survival to planning for the future, investing in better nutrition, improver living condition & children’s health & education.
Microfinance has the potential to benefit poor people both indirectly, through increased growth, & directly as they gain access to needed services. Impact studies show that in money cases ,microfinance reduced poverty through increasing income levels. Studies also show that microfinance improves poor people’s lives by contributing to improved healthcare, children’s education & nutrition & women’s empowerment.
In particular, the ability to borrow, save & earn income reduced economic vulnerability for women & their households, increased financial & food security can bring a new confidence & hope which often translates to a greater sense of empowerment to a person.
Nonetheless, microfinance is not a panacea. Even the most innovative & participative programmes can lead to unwanted negative impacts. Microfinance has in many cases been shown to benefit the better off poor more than the truly destitute. Many early impact studies on microfinance showed increasing income levels, but more recent & better designed studies have shown that in many cases the impact varies per income group. In most cases the better off benefit more from micro credit, due to their higher skills level, better market contacts & higher initial resource base. Lower income groups may be more risk-averse & benefit more from saving & micro insurance.
Many microfinance & micro credit programmed target women in particular, largely due to their (generally) higher repayment rates, but in many cases this is mixed blessing. If a programmed excludes men, particularly in areas where access to financial services is limited, the man may require his wife to get the loan for him. Others have argued that exclusive access for women actually increases her bargaining power within the household. While inspiring examples abound of women taking loans & then using the income from their business to provide employment to others, feed their children’s send them to school, & become empowered members of their community & their household, many more examples exist of vivacious circles of debt, family violence & increased workloads.
How Many People Have Access to Microfinance?
The consultative group to assist the poor (CGAP) estimates that of the three billion poor people of working age who could be making use of these services about 500 million-one sixth currently have access to formal financial services.
If we are ever to reach the estimated three billion poor people who could use financial services, it will require a whole range of institutions, not just traditional NGO microfinance institutions to do it. Microfinance institutions have played a key role in
the development of microfinance & they will continue to do so. But what is really needed-to reach both further & deeper-is a whole range of institutions that will jostle & compete with one another to serve poor people & to innovate to reach more & more poor people.
Sustainable Microfinance
Microfinance is unique as a development tool because of its potential to be self-sustaining. Successful microfinance institutions have proven that providing financial services to the poor can be an effective means of poverty reduction & be a profitable business. Dozens of institutions have proven that financial services for poor people can cover their full costs, through adequate interest spreads, relentleless focus on efficiency & aggressive enforcement of repayment. A large & growing proportion of today’s microfinance services are being provided by institutions that are profitable even after adjusting for subsidies that they may have recd.
There will never be enough aid funding available to make an appreciable client the scale of poverty that still exists around the world. The financial viability of institutions is what will ultimately guarantee the long term provision of financial services for poor people and today there’s greater consensus than even before on what is needed to make microfinance sustainable.
How Does Microfinance contribute to the Millennium Development Goals?
Evidence confirms that access to financial services significantly impacts the lives of the poor.
Extreme Poverty & Hunger
Empirical evidence shows that among the poor, those who participated in microfinance programmed were able to improve their living standards-both at the in individual & household level – much better than those without access to financial services. For example the clients of BRAC, formerly known as the Bangladesh rural advancement committee & the largest NGO in the world, increased household expenditures by 28% & assets by 112%. In EI Salvador, the weekly income of FICA clients increased on average by 145%.

Universal Primary Education
Impact studies show that in poor households with access to financial services. Children are not sent to school in longer nos.-including girls-but they also stay in school longer. In Bangladesh, almost all girls in grimacer client households had some schooling, compared to 60% of non-client house-holds.
Women’s empowerment
The Indian School of Microfinance for Women, an organization based in Ahmadabad, is a unique initiative in the discipline of Microfinance. The School has been set up with the purpose of addressing the huge capacity building gap that exists in the Microfinance sector.
Launched on 4th October 2003, The School’s aim is to strengthen and spread Microfinance as a strategy for poverty alleviation through development of knowledge and skilled human resources. It believes that microfinance is an effective tool for the alleviation of poverty and betterment of the lives of women. It looks to bring the realities of the lives of women to organizations and people working with microfinance to help them reach the women better in turn. Promoted by SEWA Bank, FWWB (I), and Coady International Institute, Canada, The School brings together the best of the indigenous knowledge and expertise from around the world to a common platform from where it could be disseminated and made utilitarian for the Microfinance sector.
The Current State of Microfinance
These are interesting time for these involved in the provisioning of financial services for the poor. The boundaries between microfinance and the formal financial sector are finally breaking down. In some areas, microfinance is now an inherent part of the financial system. In other areas, new & innovative financial delivery methods are being developed to overcome the barriers of sparse, population & large distance between settlement, as well as poor infrastructure. Technology can play an important role but we may have to accept that for the moment, some areas truly are unbreakable.
Many microfinance institutions, many whose origins were social, are professionalizing becoming sustainable & in some cases even profitable. Many of these institutions are have seeking commercial funding. To attract this type of funding, they must become transparent in their financial reporting. The microfinance Information Exchange (MIX) is an information exchange website where more than 600 MFIs and 75 funds post information on their organizations & their performance.
At the same time, commercial institutions are also beginning to get involved in providing financial services to poorer clients. CGAP has identified over 200 domestic retail banks or consumer credit companies getting involved in microfinance, often driven by competition & technologies that promise to allow then to make small transactions more cost effectives. E-Banking, smart cards & telephone are beginning to be used by microfinance providers to reduce transaction costs, a key to reaching poorer clients.
Challenges Ahead
The real challenge facing the microfinance industry today is scaling up services to reach the estimated three billion people in developing countries will still lack access to formal financial services. Successful microfinance institutions have proven that providing financial services to the poor can be an effective means of poverty reduction & be a profitable business. A major bottleneck to the development of sustainable microfinance is limited institutional & managerial capacity at the level of retail microfinance institutions, as reflected in inadequate man information system, poor strategic planning, & high operating costs. This is also a marked storage of organizations that can provide safe saving facilities for the poor & that can sustainably mobilize these domestic savings for on-lending.
Many of the necessary elements needed to scale up microfinance are already in place. A great deal of knowledge about the requirement of sustainable microfinance already exists. High-performing microfinance institutions have developed methodologies to extend credit, saving & other services to the poor clients. A no. of banks & other institutions with nationwide distribution system are beginning to take defective interest in reaching poorer clients. Advances in information technology have the opportunity to lower the cost & risk of providing microfinance to the poor. The challenge is to mobilize this knowledge & apply it on a much vaster scale, creating financial systems that work for the poor & boost their contribution to economic growth.
One approach is to tap into developed capital market through microfinance investment funds enable individual investors & portfolio managers to allocate a part of their equity or fixed income investment to microfinance as an asset class.
The microfinance is changing the landscape of banking across the world. It has change the ivies of people & revitalized communities in the world’s poorest as well as richest countries. The microfinance is a better targeted financial help to a clientele that is poorer & vulnerable than traditional bank clients. The broad classification of microfinance includes rural credit through specialized banks traditional informal
Microfinance like loans from friends & relatives money lenders etc. BANK-NGO partnership based on microfinance, non NGO, non collateralized microfinance, Garmin bank type microfinance etc. anyone who can access to saving, credit, insurance other financial services is more resilient & better able to deal with everyday demands. Microfinance helps the poor & low income clients deal with such basic needs, like with access to micro insurance which is a part of microfinance, poor people can cope with sudden expenses associated with serious illness or loss of assets. It also provides them access to formal saving accounts & thus an incentives to save. Clients who join & stay in microfinance programmed have better economic condition than no clients.






FURTHERSTIC STUDY OF MICRO FINANCING IN INDIA
The micro financial institutions are today, no doubt, acquiring the status of moment in the banking sector. Its importance can be gauged from the fact that United Nations has designated year 2005 as the international year of micro credit. Today effective micro finance is seen as solution to many of the existing social and emotive problems ranging from rural employment to empowerment. The various micro finance institutions models are quite effective in dispensing the much needed credit to the targeted clients. However, there exists certain weakness in existing micro finance institution models. There is enough space of more efficiency and better results in credit disbursement through micro finance institutions.
If we look back, it is found that Garmin Bank type micro finance institution model is one of the most successful models in micro finance. The bank has successfully served the rural people in Bangladesh with on physical collateral relying on group responsibility to replace the collateral requirements. This model, like other model, has also some weaknesses. It involves too much of external subsidy which is not replicable. Garmin Bank has not oriented itself towards mobilizing people’s resources. The repayment system of 50 weekly equal installments is not practical because poor do not have a stable job and have to migrate to other places for job. The communities are agrarian during lean seasons it becomes responsible for them to repay the loan. Pressure for high repayment drives members to money lenders.
Most of the existing micro finance institutions are facing problems regarding skilled labor, which is not available for local level accounting. Drop out of the trained staff is very high. Also most of the models do not lend for agriculture.
The four pillars of micro finance credit systems are
• Supply of credit
• Demand for finance
• Intermediation by individuals or authorities.
• Regulation by statutory bodies.
The end goal of any such basic model is accessibility of finance to poor.
The new model calls for exploiting the latent rural human resource by talent spotting and training them as per their, for example, the graduates can be trained in accounting or as Self Help Group leaders. The awareness campaign regarding various rights, subsidies, and incentives given by various micro finance schemes may be disseminated by involving local rural youth, which may very well connect to the local based on similarity in dialect, living ways and culture.
It envisages the CENTRE as the hub of all activities. It is a place where all funding, responsibility and accountability, is concentrated. This will ensure efficiency, better control and reduced cost of interfacing between dispenser and taker of credit. The CENTRE will also do a grading systems-A,B,C,D, Effect under which grading system would be based on number of years client has been attached with any of the micro finance institutions and its positive track in repaying the loans, including the condition that at least one amount of the loan was greater than rupees 5000.
The criteria for grading are:
A>=12 years attached with any MFI, subject to the conditions above.
B>=10 years attached with any MFI, subject to the condition above.
C>=7 years attached with any MFI, subject to the condition above.
D>=5 years attached with any MFI, subject to the condition above.
E>=3 years attached with any MFI, subject to the condition above.
The client of A, B and Consumption can take loan directly from the CENTRE, other conditions for eligibility being the same. These are persons who have successfully came out of the vicious circle of poverty, cycle and are aspiring to grow big and still bigger, comparatively.




Micro Finance (MF) Institutions
Introduction
A range of institutions in public sector as well as private sector offers the microfinance services in India. They can be broadly categorized in to two categories namely, formal institutions and informal institutions. The former category comprises of Apex Development Financial Institutions, Commercial Banks, Regional Rural Banks, and Cooperative Banks that provide micro finance services in addition to their general banking activities and are referred to as micro finance service providers. On the other hand, the informal institutions that undertake micro finance services as their main activity are generally referred to as micro Finance Institutions (MFIs). While both private and public ownership are found in the case of formal financial institutions offering micro finance services, the MFIs are mainly in the private sector.
Micro Finance Service Providers
The micro finance service providers include apex institutions like National Bank for Agriculture and Rural Development (NABARD), Small Industries Development Bank of India (SIDBI), and, Rashtriya Mahila Kosh (RMK). At the retail level, Commercial Banks, Regional Rural Banks, and, Cooperative banks provide micro finance services. Today, there are about 60,000 retail credit outlets of the formal banking sector in the rural areas comprising 12,000 branches of district level cooperative banks, over 14,000 branches of the Regional Rural Banks (RRBs) and over 30,000 rural and semi-urban branches of commercial banks besides almost 90,000 cooperatives credit societies at the village level. On an average, there is at least one retail credit outlet for about 5,000 rural people. This physical reaching out to the far-flung areas of the country to provide savings, credit and other banking services to the rural society is an unparalleled achievement of the Indian banking systems.



The Emergence of Private Micro finance Industry
The micro finance initiative in private sector can be traced to the initiative undertaken by Ms.Ela Bhat for providing banking services to the poor women employed in the unorganized sector in Ahmedabad City of Gujarat State. Shri Mahila SEWA (Self Employed Women’s Association) Sahakari Bank was set up in 1974 by registering it as a Urban Cooperative Bank. Since then, the bank is providing banking services to the poor self-employed women working as hawkers, vendors, domestic servant etc. As on March 2003, the mFI had a membership of 30,000, seventy per cent of whom are from urban area. The deposit and loan portfolio stood at Rs 623.9 million ($ 13.86 million) and Rs133.6 million ($2.97 million) respectively. Though the mFI is making profit, yet the SEWA bank model of mFI has not been replicated elsewhere in the country.
In the midst of the apparent inadequacies of the formal financial system to cater to the financial needs of the rural poor, NABARD sponsored an action research project in 1987 through an NGO called MYRADA. For this purpose a grant of Rs. 1 million ($22,222) was provided to MYRADA for an R&D programme related to credit groups. Encouraged by the results of field level experiments in group based approach for lending to the poor, NABARD launched a Pilot Project in 1991-92 in partnership with Non-governmental Organizations (NGOs) for promoting and grooming self help groups (SHGs) of homogeneous members and making savings from existing banks and within the existing legal framework. Steady progress of the pilot project led to the
mainstreaming of the SHG-Bank Linkage Programme in 1996 as a normal banking activity of the banks with widespread acceptance. The RBI set the right policy environment by allowing savings bank accounts of informal groups to be opened by the formal banking system. Launched at a time when regulated interest rates were in vogue, the banks were expected to lend to SHGs at the prescribed rates, but the RBI advised the banks not to interfere with the management of affairs of SHGs, particularly on the terms and conditions on which the SHGs disbursed loans to their members.
The uniqueness of the micro finance through SHG is that it is a partnership based approach and encouraged NGOs to undertake not only social engineering but also financial intermediation especially in areas where banking network was not satisfactory. The rapid progress achieved in SHG formation, which has now turned into an empowerment movement among women across the country, laid the foundation for emergence of MFIs in India.
MFIs and Legal Forms
With the current phase of expansion of the SHG – Bank linkage programme and other mF initiatives in the country, the informal micro finance sector in India is now beginning to evolve. The MFIs in India can be broadly sub-divided into three categories of organizational forms as given in Table 1. While there is no published data on private MFIs operating in the country, the number of MFIs is estimated to be around 800. However, not more than 10 MFIs are reported to have an outreach of 100,000 micro finance clients. An overwhelming majority of MFIs are operating on a smaller scale with clients ranging between 500 to 1500 per mFI. The geographical distribution of MFIs is very much lopsided with concentration in the southern India where the rural branch network of formal banks is excellent. It is estimated that the share of MFIs in the total micro credit portfolio of formal & informal institutions is about 8 percent.
MFIs: There are a large number of NGOs that have undertaken the task of financial intermediation. Majority of these NGOs are registered as Trust or Society. Many NGOs have also helped SHGs to organize themselves into federations and these federations are registered as Trusts or Societies. Many of these federations are performing non-financial and financial functions like social and capacity building activities, facilitate training of SHGs, undertake internal audit, promote new groups, and some of these federations are engaged in financial intermediation. The NGO MFIs vary significantly in their size, philosophy and approach. Therefore these NGOs are structurally not the right type of institutions for undertaking financial intermediation activities, as the byelaws of these institutions are generally restrictive in allowing any commercial operations. These organizations by their charter are non-profit organizations and as a result face several problems in borrowing funds from higher financial institutions. The NGO MFIs, which are large in number, are still outside the purview of any financial regulation. These are the institutions for which policy and regulatory framework would need to be established.
Non-Profit Companies as MFIs: Many NGOs felt that combining financial intermediation with their core competency activity of social intermediation is not the right path. It was felt that a financial institution including a company set up for this purpose better does banking function. Further, if MFIs are to demonstrate that banking with the poor is indeed profitable and sustainable, it has to function as a distinct institution so that cross subsidization can be avoided. On account of these factors, NGO MFIs are of late setting up a separate Non-Profit Companies for their micro finance operations. The mFI is prohibited from paying any dividend to its members. In terms of Reserve Bank of India’s Notification dated 13 January 2011, relevant provisions of RBI Act, 1934 as applicable to NBFCs will not apply for NBFCs (i) licensed under Section 25 of Companies Act, 1956, (ii) providing credit not exceeding Rs. 50,000 ($1112) for a business enterprise and Rs. 1, 25,000 ($2778) for meeting the cost of a dwelling unit to any poor person, and, (iii) not accepting public deposits.
Mutual Benefit MFIs: The State Cooperative Acts did not provide for an enabling framework for emergence of business enterprises owned, managed and controlled by the members for their own development. Several State Governments therefore enacted the Mutually Aided Co-operative Societies (MACS) Act for enabling promotion of self-reliant and vibrant co-operative Societies based on thrift and self-help. MACS enjoy the advantages of operational freedom and virtually no interference from government because of the provision in the Act that societies under the Act cannot accept share capital or loan from the State Government. Many of the SHG federations, promoted by NGOs and development agencies of the State Government, have been registered as MACS. Reserve Bank of India, even though they may be providing financial service to its members, does not regulate MACS.
For-Profit MFIs: Non Banking Financial Companies (NBFC) are companies registered under Companies Act, 1956 and regulated by Reserve Bank of India. Earlier, NBFCs were not regulated by RBI but in 1997 it was made obligatory for NBFCs to apply to RBI for a certificate of registration and for this certificate NBFCs were to have minimum Net Owned funds of Rs 25 lakhs and this amount has been gradually increased. RBI introduced a new regulatory framework for those NBFCs who want to accept public deposits. All the NBFCs accepting public deposits are subjected to capital adequacy requirements and prudential norms. There are only a few MFIs in the country that are registered as NBFCs. Many MFIs view NBFCs more preferred legal form and are aspiring to be NBFCs but they are finding it difficult to meet the requirements stipulated by RBI. The number of NBFCs having exclusive focus on mF is negligible.
Capital Requirements
NGO-MFIs, non-profit companies MFIs, and mutual benefit MFIs are regulated by the specific act in which they are registered and not by the Reserve Bank of India. These are therefore not subjected to minimum capital requirements, prudential norms etc. NGO MFIs to become NBFCs are required to have a minimum entry capital requirement of Rs. 20 million ($ 0.5 million). As regards prudential norms, NBFCs are required to achieve capital adequacy of 12% and to maintain liquid assets of 15% on public deposits.
Foreign Investment
Foreign investment by way of equity is permitted in NBFC MFIs subject to a minimum investment of $500,000. In view of the minimum level of investment, only two NBFCs are reported to have been able to raise the foreign investment. However, a large number of NGOs in the development - empowerment are receiving foreign fund by way of grants. At present, over Rs.40, 000 million ($ 889 million) every year flows into India to NGOs for a whole range of activities including micro finance. In a way, foreign donors have facilitated the entry of NGOs into micro finance operations through their grant assistance.
Deposit Mobilization
Not for profit MFIs are barred, by the Reserve Bank of India, from mobilizing any type of savings. Mutual benefit MFIs can accept savings from their members. Only rated NBFC MFIs rated by approved credit rating agencies are permitted to accept deposits. The quantum of deposits that could be raised is linked to their net owned fund.
Borrowings
Initially, bulk of the funds required by MFIs for on lending to their clients were met by apex institutions like National Bank for Agriculture and Rural Development, Small Industries Development Bank Of India, and, Rashtiya Mahila Kosh. In order to widen the range of lending institutions to MFIs, the Reserve Bank of India has roped in Commercial Banks and Regional Rural Banks to extend credit facilities to MFIs since February 2011. Both public and private banks in the commercial sector have extended sizeable loans to MFIs at interest rate ranging from 8 to 11 per cent per annum. Banks have been given operational freedom to prescribe their own lending norms keeping in view the ground realities. The intention is to augment flow of micro credit through the conduit of MFIs. In regard to external commercial borrowings (ECB) by MFIs, not-for-profit MFIs are not permitted to raise ECB. The current policy effective from 31 January 2004, allows only corporate registered under the Companies Act to access ECB for permitted end use in order to enable them to become globally competitive players.
Interest Rates
The interest rates are deregulated not only for private MFIs but also for formal banking sector. In the context of softening of interest rates in the formal banking sector, the comparatively higher interest rate (12 to 24 per cent per annum) charged by the MFIs has become a contentious issue. The high interest rate collected by the MFIs from their poor clients is perceived as exploitative. It is argued that raising interest rates too high could undermine the social and economic impact on poor clients. Since most MFIs have lower business volumes, their transaction costs are far higher than that of the formal banking channels. The high cost structure of MFIs would affect their sustainability in the long run.


Collateral requirement
All the legal forms of MFIs have the freedom to waive physical collateral requirements from their clients. The credit policy guidelines of the RBI allow even the formal banks not to insist on any type of collateral and margin requirement for loans up to Rs 50,000 ($1100).
Regulation & Supervision
India has a large number of MFIs varying significantly in size, outreach and credit delivery methodologies. Presently, there is no regulatory mechanism in place for MFIs except for those that are registered as NBFCs. As a result, MFIs are not required to follow standard rule and it has allowed many MFIs to be innovative in its approach particularly in designing new products and processes. But the flip side is that the management and governance of MFIs generally remains weak, as there is no compulsion to adopt widely accepted systems, procedures and standards. Because the sector is unregulated, not much is known about their internal health. Following Committees have examined the road map for regulation and supervision of MFIs
Task Force (appointed by NABARD) Report on Regulatory and Supervision.
Framework for MFIs, 1999. (Kindly see publications Section for a complete report
Working Group (constituted by Government of India) on Legal & Regulation of MFIs, 2002
Informal Groups (appointed by RBI) on Micro Finance which studied issues relating to (i) Structure & Sustainability, ii) Funding (iii) Regulations and (iv) Capacity Building, 2003
Advisory Committee (appointed by RBI) on flow of credit to agriculture and related activities from the Banking System, 2004
To address the issue of need for a differential regulatory framework, the latest committee sought answers to the following questions and concerns facing private MFIs in the Country:
(i) Is non-existence of a separate differential regulatory framework a critical bottleneck hindering the growth of the sector?
(ii) Will MFIs be sustainable in medium term? If so, will they continue to focus on the poor?
(iii) Is access to public / member deposit the key issue for their sustainability?
(iv)Can MFIs finance loans for income generation at interest rates, which are sustainable by the rural poor?
(v) Is it possible to evolve commonly agreed standards for MFI sector covering performance, accounting and governance issues,
which can open up possibilities of self-regulation?
(vi) Has the sector reached a critical mass where regulation becomes important?
An Effective Poverty Reduction Strategy
Microfinance is often considered one of the most effective and flexible strategies in the fight against global poverty. It is sustainable and can be implemented on the massive scale necessary to respond to the urgent needs of those living on less than $1 a day, the World’s poorest.
Microfinance consists of making small loans, usually less than $200, to individuals, usually women, to establish or expand a small, self-sustaining business. For example, a woman may borrow $50 to buy chickens so she can sell eggs. As the chickens multiply, she will have more eggs to sell. Soon she can sell the chicks. Each expansion pulls her further from the devastation of poverty.
Microfinance, the Garmin way, includes several support systems that contribute greatly to its success. Microfinance institutions offer business advice and counseling, while clients provide peer support for each other through solidarity circles. For example, if a client falls ill, her circle helps with her business until she is well. If a client gets discouraged, the support group pulls her through. This contributes substantially to the extremely high repayment rate of loans made to microfinance entrepreneurs.

An equally important part of microfinance is the recycling of funds. As loans are repaid, usually in six months to a year, they are re-loaned. This continual reinvestment multiplies the impact of each dollar loaned.
Microfinance has a positive impact far beyond the individual client. The vast majority of the loans go to women because studies have shown that women are more likely to reinvest their earnings in the business and in their families. As families cross the poverty line and micro-businesses expand, their communities benefit. Jobs are created, knowledge is shared, civic participation increases, and women are recognized as valuable members of their families and communities.
Microfinance is often considered one of the most effective and flexible strategies in the fight against global poverty. It is sustainable and can be implemented on the massive scale necessary to respond to the urgent needs of those living on less than $1 a day, the World’s poorest.
Microfinance consists of making small loans, usually less than $200, to individuals, usually women, to establish or expand a small, self-sustaining business. For example, a woman may borrow $50 to buy chickens so she can sell eggs. As the chickens multiply, she will have more eggs to sell. Soon she can sell the chicks. Each expansion pulls her further from the devastation of poverty.
Microfinance, the Garmin way, includes several support systems that contribute greatly to its success. Microfinance institutions offer business advice and counseling, while clients provide peer support for each other through solidarity circles. For example, if a client falls ill, her circle helps with her business until she is well. If a client gets discouraged, the support group pulls her through. This contributes substantially to the extremely high repayment rate of loans made to microfinance entrepreneurs.
An equally important part of microfinance is the recycling of funds. As loans are repaid, usually in six months to a year, they are re-loaned. This continual reinvestment multiplies the impact of each dollar loaned.
Microfinance has a positive impact far beyond the individual client. The vast majority of the loans go to women because studies have shown that women are more likely to reinvest their earnings in the business and in their families. As families cross the poverty line and micro-businesses expand, their communities benefit. Jobs are created, knowledge is shared, civic participation increases, and women are recognized as valuable members of their families and communities.
What is microfinance?
To most, microfinance means providing very poor families with very small loans (microcredit) to help them engage in productive activities or grow their tiny businesses. Over time, microfinance has come to include a broader range of services (credit, savings, insurance, etc.) as we have come to realize that the poor and the very poor who lack access to traditional formal financial institutions require a variety of financialproducts.
Microcredit came to prominence in the 1980s, although early experiments date back 30 years in Bangladesh, Brazil and a few other countries. The important difference of microcredit was that it avoided the pitfalls of an earlier generation of targeted development lending, by insisting on repayment, by charging interest rates that could cover the costs of credit delivery, and by focusing on client groups whose alternative source of credit was the informal sector. Emphasis shifted from rapid disbursement of subsidized loans to prop up targeted sectors towards the building up of local, sustainable institutions to serve the poor. Microcredit has largely been a private (non-profit) sector initiative that avoided becoming overtly political, and as a consequence, has outperformed virtually all other forms of development lending.
Traditionally, microfinance was focused on providing a very standardized credit product. The poor, just like anyone else, need a diverse range of financial instruments to be able to build assets, stabilize consumption and protect themselves against risks. Thus, we see a broadening of the concept of microfinance--our current challenge is to find efficient and reliable ways of providing a richer menu of microfinance products.
Who are the clients of microfinance?
The typical microfinance clients are low-income persons that do not have access to formal financial institutions. Microfinance clients are typically self-employed, often household-based entrepreneurs. In rural areas, they are usually small farmers and others who are engaged in small income-generating activities such as food processing and petty trade. In urban areas, microfinance activities are more diverse and include shopkeepers, service providers, artisans, street vendors, etc. Microfinance clients are poor and vulnerable non-poor who have a relatively stable source of income.
Access to conventional formal financial institutions, for many reasons, is directly related to income: the poorer you are, the less likely that you have access. On the other hand, the chances are that, the poorer you are, the more expensive or onerous informal financial arrangements. Moreover, informal arrangements may not suitably meet certain financial service needs or may exclude you anyway. Individuals in this excluded and under-served market segment are the clients of microfinance.

As we broaden the notion of the types of services microfinance encompasses, the potential market of microfinance clients also expands. For instance, microcredit might have a far more limited market scope than, say, a more diversified range of financial services which includes various types of savings products, payment and remittance services, and various insurance products.
How does microfinance help the poor?
Experience shows that microfinance can help the poor to increase income, build viable businesses, and reduce their vulnerability to external shocks. It can also be a powerful instrument for self-empowerment by enabling the poor, especially women, to become economic agents of change.
Poverty is multi-dimensional. By providing access to financial services, microfinance plays an important role in the fight against the many aspects of poverty. For instance, income generation from a business helps not only the business activity expand but also contributes to household income and its attendant benefits on food security, children's education, etc. Moreover, for women, who, in many contexts, are secluded from public space, transacting with formal institutions can also build confidence and empowerment.

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Why do MFIs charge such high interest rates to poor people?
Providing financial services to poor people is quite expensive, especially in relation to the size of the transactions involved. This is one of the most important reasons why banks don't make small loans. A $100 dollar loan, for example, requires the same personnel and resources as a $2,000 one thus increasing per unit transaction costs. Loan officers must visit the client's home or place of work, evaluate creditworthiness on the basis of interviews with the client's family and references, and in many cases,
follow through with visits to reinforce the repayment culture. It can easily cost US$25 to make a microloan. While that might not seem unreasonable in absolute terms, it might represent 25% of the value of the loan amount, and force the institution to charge a “high” rate of interest to cover its cost of loan administration.
The microfinance institution could subsidize the loans to make the credit more "affordable" to the poor. Many do. However, the institution then depends on permanent subsidy. Subsidy-dependent programs are always fighting to maintain their levels of activity against budget cuts, and seldom grow significantly.
Evidence shows that clients willingly pay the higher interest rates necessary to assure long term access to credit. They recognize that their alternatives—even higher interest rates in the informal finance sector (moneylenders, etc.) or simply no access to credit—are much less attractive for them. Interest rates in the informal sector can be as high as 20 percent per day among some urban market vendors. Many of the economic activities in which the poor engage are relatively low return on labor, and access to liquidity and capital can enable the poor to obtain higher returns, or to take advantage of economic opportunities. The return received on such investments may well be many times greater than the interest rate charged.
Aren't the poor too poor to save?
The poor already save in ways that we may not consider as "normal" savings--- investing in assets, for example, that can be easily exchanged to cash in the future (gold jewelry, domestic animals, building materials, etc.). After all, they face the same series of sudden demands for cash we all face: illness, school fees, need to expand the dwelling-burial-weddings.
These informal ways that people save are not without their problems. It is hard to cut off one leg of a goat that represents a family's savings mechanism when the sudden need for a small amount of cash arises. Or, if a poor woman has loaned her "saved" funds to a family member in order to keep them safe from theft (since the alternative would be to keep the funds stored under her mattress), these may not be readily available when the woman needs them. The poor need savings that are both safe and liquid. They care less about the interest rates that they can earn on the savings, since they are not used to saving in financial instruments and they place such a high premium on having savings readily available to meet emergency needs and accumulate-assets.
These savings services must be adapted to meet the poor’s particular demand and their cash flow cycle. Most often, the poor not only have low income, but also irregular income flows. Thus, to maximize the savings propensity of the poor, institutions must provide flexible opportunities--- both in terms of amounts deposited and the frequency of pay ins and pay outs. This represents an important challenge for the microfinance industry that has not yet made a concerted attempt to profitably capture deposits.
What is a Microfinance Institution (MFI)?
Quite simply, a microfinance institution is an organization that offers financial services to low income populations. Almost all of these offer microcredit and only take back small amounts of savings from their own borrowers, not from the general public. Within the microfinance industry, the term microfinance institution has come to refer to a wide range of organizations dedicated to providing these services: NGOs, credit unions, cooperatives, private commercial banks and non-bank financial institutions (some that have transformed from NGOs into regulated institutions) and parts of state-owned banks, for example-The image most of us have when we refer to MFIs is of a “financial NGO”, an NGO that is fully and virtually exclusively dedicated to offering financial services; in most cases microcredit NGOs are not allowed to capture savings deposits from the general public. This group of a few hundred NGOs have led the development of microcredit, and subsequently microfinance, the world over. Most of these constitute a group that is commonly referred to as "best practice" organizations, ones that employ the newest lending techniques to generate efficient outreach that permit them to reach down far into poor sectors of the economy on a sustainable basis. A great many NGOs that offer microcredit, perhaps even a majority, do many other non-financial development activities and would bristle at the suggestion that they are essentially financial institutions. Yet, from an industry perspective, since they are engaged in supplying financial services to the poor, we call them MFIs. The same sort of situation exists with a small number of commercial banks that offer microfinance services. For our purposes, we refer to them as MFIs, even though only a small portion of their assets may actually be tied up in financial services for the poor. In both cases, when people in the industry refer to MFIs, they are referring only to that part of the institution that offer microfinance. There are other institutions, however, that consider themselves to be in the business of microfinance and that will certainly play a role in a reshaped and deepened financial sector. These are community-based financial intermediaries. Some are membership based such as credit unions and cooperative housing societies. Others are owned and managed by local entrepreneurs or municipalities. These institutions tend to have a broader client base than the financial NGOs and already consider themselves to be part of the formal financial sector. It varies from country to country, but many poor people do have some access to these types of institutions, although they tend not to reach down market as far as the financial NGOs.

Can microfinance be profitable?
Yes it can. Data from the Micro-Banking Bulletin reports that 63 of the world's top MFIs had an average rate of return, after adjusting for inflation and after taking out subsidies programs might have received, of about 2.5% of total assets. This compares favorably with returns in the commercial banking sector and gives credence to the hope of many that microfinance can be sufficiently attractive to mainstream into the retail banking sector. Many feel that once microfinance becomes mainstreamed, massive growth in the numbers of clients can be achieved.
Others worry that an excessive concern about profit in microfinance will lead MFIs up-market, to serve better off clients who can absorb larger loan amounts. This is the “crowding out” effect. This may happen; after all, there are a great number of very poor, poor, and vulnerable non-poor who are not reached by the banking sector.
It is interesting to note that while the programs that reach out to the poorest clients perform less well as a group than those who reach out to a somewhat better-off client segment, their performance is improving rapidly and at the same pace as the programs serving a broad-based client group did some years ago. More and more MFI managers have come to understand that sustainability is a precursor to reaching exponentially greater numbers of clients. Given this, managers of leading MFIs are seeking ways to dramatically increase operational efficiency. In short, we have every reason to expect that programs that reach out to the very poorest micro-clients can be sustainable once they have matured, and if they commit to that path.
Are commercial banks involved in microfinance?
Yes. Increasingly, formal financial institutions are recognizing the benefits of serving poorer clients. For more information, see the following documents in the Microfinance Gateway Library:
CGAP: 227 Formal Financial Institutions http://microfinancegateway.org/conte...e/detail/18156
Thirty Global Examples of Commercial Banks and Formal Financial Institutions (FFIs) with Established Microfinance Service http://microfinancegateway.org/conte...e/detail/21504
What is the government’s role in supporting microfinance?
Governments have a complicated role when it comes to microfinance. Until recently, governments generally felt that it was their responsibility to generate development finance', including credit programs for the disadvantaged. Twenty years of insightful critique of rural credit programs revealed that governments do a very bad job of lending to the poor. Short term political gain is just too tempting for politically controlled lending organizations; they disburse too quickly (and thoughtlessly) and they collect too sporadically (unwillingness to be tough on defaulters). In urban areas, governments never really got into the act, and subsidized microenterprise credit is still relatively rare when compared to its rural counterpart.
Now that microfinance has become quite popular, governments are tempted to use savings banks, development banks, postal savings banks, and agricultural banks to move microcredit. This is not generally a good idea, unless the government has a clear acceptance of the need to avoid the pitfalls of the past and a clear means to do so. Many governments have set up apex facilities that channel funds from multilateral agencies to MFIs. Apex facilities can be quite complicated and there are few successful examples in microfinance. Successful apex organizations in microfinance tend to be built on the backs of successful MFIs, not the other way around. Finally, governments can also get involved in microfinance by concerning themselves with the regulatory framework that impinges on the ability of a wide range of financial actors to offer financial services to the very poor. This topic is treated below.

What is the role of the financial regulator in supporting the developmenttofmicrofinance?
Many feel that the most important role of a financial regulator in supporting the development of microfinance is to create an alternative institutional type that allows sound financial NGOs, credit unions, and other community-based intermediaries to obtain a license to offer deposit services to the general public and obtain funds through apex organizations. In a few countries, this may be an appropriate strategy. In most countries, however, the general level of development of the microfinance industry does not yet warrant the licensing of a separate class of financial institutions to serve the poor. And, in most countries, budgetary restrictions faced by bank regulators make it very unlikely that they will be able to supervise a whole host of small institutions; these institutions' total assets may make up a tiny percent of the total financial system, but the cost of adequate supervision could eat up between 25 and 50% of the total budget of the agency. Rather, regulators can work with the nascent microfinance industries of most countries on issues such as modifying usury limits as stated in the commercial code to allow appropriate levels of interest, generating credit information clearinghouses to share information on defaulting borrowers to limit their ability to go from one MFI to another, working with civil authorities to ensure that private loan contracts can be recognized by courts in those transition economies that lack even basic legislative infrastructure, and reporting requirements that will prepare MFIs to eventually become regulated. Regulators can also examine the laws, executive decrees, and internal regulations that limit the ability of traditional banking institutions to do microfinance. These regulations include limits on the percent of a loan portfolio that can be lent on an unsecured basis, limits on group guarantee mechanisms, reporting requirements, limits on branch office operations (scheduling and security), and requirements for the contents of loan files.

When is microfinance not an appropriate tool?

Microfinance increasingly refers to a host of financial services—savings, loans, insurance, remittances from abroad, and other products. It is hard to imagine that there would be any family in the world today for which some type of formal financial service couldn't be designed and made useful. But the fact of the matter is, that in most people's mind, "microfinance" still refers to microcredit.
Microcredit is only useful in certain situations, and with certain types of clients. As we are finding out, a great number of poor, and especially extremely poor, clients
Often time’s governments and aid agencies wish to use microfinance as a tool to compensate for some other social problem such as flooding, relocation of refugees from civil strife, recent graduates from vocational training, and redundant workers who have been laid off. Since microcredit has been sold as a poverty reduction tool, it is often expected to respond to these situations where whole classes of individuals have been “made poor”. Microcredit programs directed at these types of situations rarely work. Credit requires a 98% “hit” rate to be successful. This means that 98% of recent vocational school graduates or returning refugees would need to be successful in establishing a microenterprise for repayment rates to be high enough to allow for a program's overall sustainability. This is simply unrealistic. Running a program with substantial default rates undermines the very notion of credit and destroys credit discipline among those who could repay promptly but who look foolish given that many do not. Microcredit serves best those who have identified an economic opportunity and who are in a position to capitalize on that opportunity if they are provided with a small amount of ready cash. Thus, those poor who work in stable or growing economies, who have demonstrated an ability to undertake the proposed activities in an entrepreneurial manner, and who have demonstrated a commitment to repay their debts (instead of feeling that the credit represents some form of social re-vindication), are the best candidates for microcredit.
What is Micro Credit?
Micro Credit is defined as provision of thrift, credit and other financial services and products of very small amount to the poor in rural, semi-urban and urban areas for enabling them to raise their income levels and improve living standards. Micro Credit Institutions are those which provide these facilities.
What are the interest rates applicable?
The reform of the interest rate regime has constituted an integral part of the financial sector reforms initiated in our country in 1991. In consonance with this reform process, interest rates applicable to loans given by banks to micro credit organizations or by the micro credit organizations to Self-Help Groups/member-beneficiaries has been left to their discretion. The interest rate ceiling applicable to direct small loans given by banks to individual borrowers, however, continues to remain in force.
What are the terms & conditions for accessing micro credit?
Banks have been given freedom to formulate their own lending norms keeping in view ground realities. They have been asked to devise appropriate loan and savings products and the related terms and conditions including size of the loan, unit cost, unit size, maturity period, grace period, margins, etc. Such credit covers not only consumption and production loans for various farm and non-farm activities of the poor but also include their other credit needs such as housing and shelter improvements.
What is the difference between microfinance and microcredit?
Microfinance refers to loans, savings, insurance, transfer services and other financial products targeted at low-income clients. Micro credit refers to a small loan to a client made by a bank or other institution. Micro credit can be offered, often without collateral, to an individual or through group lending.


What role does a Non-Governmental Organization (NGO) play in provision of Micro Credit?
A Non-Governmental Organization (NGO) is a voluntary organization established to undertake social intermediation like organizing SHGs of micro entrepreneurs and entrusting them to banks for credit linkage or financial intermediation like borrowing bulk funds from banks for on-lending to SHGs.
What are the latest Micro Credit disbursement indicators?
With a view to facilitating smoother and more meaningful banking with the poor, A pilot project for purveying micro credit by linking Self-Help Groups (SHGs) with banks was launched by NABARD in 1991-92 with a view to facilitating smoother and more meaningful banking with the poor. RBI had then advised commercial banks to actively participate in this linkage programmed. The scheme has since been extended to RRBs and co-operative banks. The number of SHGs linked to banks aggregated 4,61,478 as on March 31, 2002. This translates into an estimated 7.87 million very poor families brought within the fold of formal banking services as on March 31, 2002. More than 90 per cent of the groups linked with banks are exclusive women groups. Cumulative disbursement of bank loans to these SHGs stood at Rs. 1026.34 crores as on March 31, 2002 with an average loan of Rs. 22,240=00 per SHG and Rs. 1,316=00 per family. As regards model-wise linkage, while Model I, viz. directly to SHGs without intervention/facilitation of any NGO now accounts for 16%, Model II, viz. directly to SHGs with facilitation by NGOs and other formal agencies amounts to 75% and Model III, viz. through NGO as facilitator and financing agency represents 09% of the total linkage. While 488 districts in all the states/UTs have been covered
under this programmed, 444 banks including 44 commercial banks (including 17 in the private sector), 191 RRBs and 209 co-operative banks along with 2,155 NGOs are now associated with the SHG-bank linkage programmed.
While the SHG-bank linkage programmed has surely emerged as the dominant micro finance dispensation model in India, other models too have evolved as significant micro finance purveying channels.
The other successful models that have emerged are:
(a) An Intermediate Model that works on banking principles with focus on both savings and credit activities and where banking services are provided to the clients either directly or through SHGs;
(b) There is also a Wholesale banking Model where the clients comprise NGOs, MFIs and SHG Federations. This Model involves a unique package of providing both loans and capacity building support to its partners; and
(c) Further, there is an Individual Banking-based Model that has its clients as individuals or joint liability groups. While programmed management and client appraisal in this Model may be a challenge, it is best suited to lending to enterprises.
Keeping these validated models for delivery of credit to the poor and the unorganized sector in view, RBI is moving towards a systems perspective for providing effective policy support not only because a number of different institutions, viz. banks, MFIs, NGOs & SHGs are involved, but also because these institutions have very different institutional goals. With this in view, a series of initiatives is being planned in the coming months for putting in place a more vibrant micro finance dispensation environment in the country where complementary and competitive models of micro finance delivery would be encouraged to co-exist.
Is Foreign Investment allowed in Micro Credit projects?
Govt. of India vide their notification dated August 29, 2011 have included ‘Micro Credit/Rural Credit’ in the list of permitted non-banking financial company (NBFC)
Activities for being considered for Foreign Direct Investment (FDI)/Overseas Corporate Bodies (OCB)/Non-Resident Indians (NRI) investment to encourage foreign participation in micro credit projects. This covers credit facility at micro level for providing finance to small producers and small micro enterprises in rural and urban areas.
What is the Micro Finance Development Fund?
There is an urgent need for micro credit providers to shift from a minimalist approach – that is offering only financial intermediation – to an integrated approach to poverty alleviation taking a more holistic view of the client including provision of enterprise development services like marketing infrastructure, introduction of technology and design development. In this context, the setting up of the Micro Finance Development Fund marks an important step. Pursuant to the announcement of Union Finance Minister in his budget speech for the year 2011-01, this Rs. 100 crore Fund has been created in NABARD to support broadly the following activities: (a) giving training and exposure to self-help group (SHG) members, partner NGOs, banks and govt. agencies; (b) providing start-up funds to micro finance institutions and meeting their initial operational deficits; (c) meeting the cost of formation and nurturing of SHGs; (d) designing new delivery mechanisms; and (e) promoting research, action research, management information systems and dissemination of best practices in micro finance. This Fund is thus expected to address institutional and delivery issues like institutional growth and transformation, governance, accessing new sources of funding, building institutional capacity and increasing volumes. RBI and NABARD have contributed Rs. 40 crore each to this Fund. The balance Rs. 20 crore were contributed by 11 public sector banks.

What are the advantages of financing through SHGs?
An economically poor individual gain strength as part of a group. Besides, financing through SHGs reduces transaction costs for both lenders and borrowers. While lenders have to handle only a single SHG account instead of a large number of small-sized individual accounts, borrowers as part of a SHG cut down expenses on travel (to & from the branch and other places) for completing paper work and on the loss of workdays in canvassing for loans.
The norms for SHGs in a particular place may have to be developed keeping in view the local conditions. The above pattern is only a model and indicative one and could be used as the basis for developing suitable norms for financing SHGs be it banks or any other financing institution. A few proactive commercial banks, Regional Rural Banks and Cooperative Banks have already introduced their own norms and the same is being followed by the financing units.
This note may be read with NABARD circular letter dated February 2011, which also shares different formats for appraising a SHG for finance.
For any financing institution, appraisal is very important for ensuring the utility of the loan and repayment of the loan. Bankers generally appraise the project and the borrower. In case of SHG financing, most of the project appraisal norms like assessing the cost benefit and profits will not be workable due to the peculiarities of SHG financing. For considering a loan application for financing the Financer has to evaluate the capacity and character of the prospective borrower. SHG’s also being customers have to be appraised before extending credit facilities. But then assessment of creditworthiness of a SHG is very different from that of an individual. SHGs are not to be assessed in terms of their ability to provide collateral or guarantees of net worth. The SHGs have to be assessed in terms of Group dynamics like cohesion, vibrancy, goal-oriented action, participation of members, democratic decision and collective leadership. The appraiser has to see whether the group is functioning, actually as a group, why the members have come together, whether it is for obtaining loan from bank or the group sees other purposes, what is the group discipline and whether it is sustainable.
The basic principles on which the SHGs function are:
• The members of the groups should be residents of the same area and must have an affinity. Homogeneity of relationship could be in terms of caste/occupation/gender or economic status (which is critical).
• Savings first, credit thereafter SHGs should hold regular meetings
• SHGs should maintain record of financial and other transactions
• They should have norms regarding membership, meetings etc.
• Group leaders should be elected by members and rotated periodically.
• Transparency in operations of the group and participatory decision making.
• Rates of interest on loans should be decided by the group
• Group liability and peer pressure to act as substitutes for traditional collateral.
For assessing a Self Help Group the important aspects that a financer should look into include.
Norms for functioning:
The SHG should have developed some kind of norms for its functioning the norms should be covering major areas of its functioning as well as the decision making processes, leadership etc., Norms generally relate to-
Membership
Meetings - time, periodicity
Savings - amount, periodicity, rate of interest (return)
Credit - procedure for sanction, ceiling amount, purposes, rate of interest to be charged, repayment period etc.
Fines - in case of default in attending meetings, savings and credit repayment. Group may also levy fines for any deviant behavior etc
Leadership - election or nomination of leaders, rotation of leaders etc.
Personal/Social improvement - minimum literacy level to be achieved, social work to be done etc.
The above norms may be written or oral. They may be decided in the initial meetings or they may evolve over a period of time depending upon the need of the group. The important aspect to be looked into are:
• How norms evolved, whether by the consensus of the whole group.
• Whether the members are aware of the norms (even if they are oral) and understand them.
• Whether the norms are implemented.
Meetings
The group decides the periodicity of the meetings i.e., weekly, fortnightly or monthly. They also decide on the time of the meeting. Decision on time and periodicity helps in regular conduct of meetings. The regularity in the holding of the meeting and the attendance during meeting gives an indication bout groups functioning. Therefore a Financer should see whether.
• The meetings have been held regularly.
• The attendance in the meetings.
• The members are punctual and stay till the end of the meeting.
• Are there any sanctions for the delinquent members ?
The Financier can use his observations during the meetings and the meeting register to get data on this appraisal aspect.
Maintenance of Books
Whether group is maintaining the basic books that will give details of its functioning and accounts of the group is an important criterion to be judged. The books should give the details of number of meetings held, decisions taken in the meetings, amount of savings of the members and credit availed, the total savings of the group and repayments. Who maintains these books is another important criteria for judging the group. Do members maintain it, if not are they making efforts to achieve basic numeracy or literacy so that they can start doing it themselves.
Financer has to verify:
Whether details of meetings, proceedings, and attendance are maintained.
Whether member-wise record of saving and credit are maintained.
Whether the records are up to date.
Whether all members are kept informed of their savings and credit balances from time to time.
In case of illiterate groups whether what is the system followed, does the group verify the books maintained by NGO/outsider.
Whether systems have been developed to ensure safe custody of cash.


Leadership
Two or three group members are elected as leaders/ book-writers. Initially the opinion leaders may be the leaders and over a period of time they are expected to be take turns. The group leaders are expected to a) regularly convene and conduct the meetings, b) help the group members in taking decisions, c) resolve conflicts, d) maintain books of account and e) approach bank branch for operation of accounts.The aspects that are to be seen are :
Whether the leaders have been elected and rotated.
Whether they help in democratic functioning of the group.
Whether there is a conscious attempt to groom other members to take up leadership
Are they marginalizing the benefits (especially loans)
Participation and Awareness of Group Members
Are the Members aware of the purpose of group formation, the operations and activities of the group viz. The savings and the credit of the group as well as the individual member’s savings and credit details.
• Do they participate in group discussions and decision making?
• Do they help solve the problem that are raised in the meetings?
• Do they work cohesively and have transparent dealings?
The democratic character of the group may be judged by attending one or two meetings and talking to individual members. The awareness level of members helps in healthy functioning of the group and resolution of conflicts within the group.
Savings :
The group decides on the amount of savings as also its periodicity. It has to be seen whether the saving, as decided upon, is regularly made, how the defaults are dealt with and whether the system is modified as per the requirements of the members.
Credit:
The following aspects to be looked into while assessing the credit function of group:
• The decision making process of selecting loanees
• The system followed in assessing credit requirement of individual members and the amount to be sanctioned.
• The system of monitoring the credit.
• The repayment performance of members and incidence of defaults besides the effectiveness to deal with such defaults; whether the concept of `peer pressure’ is working.
Self Reliance of the Group
Can the group function on its own without the support of the NGO is an important criterion for assessment? The level of dependency on the NGO/promoter of the group and impact of withdrawal of NGO/promoter on the group is to be assessed.
What is Unique about the SHGs and Linkage Programmed?

Decision making Members make decisions collectively. SHG concept offers opportunity for participative decision making on conduct of meetings, thrift and credit decisions. The participative process makes the group a responsible borrower.
Financial services SHGs provide the needed financial services to the members at their doorstep. The rural poor needs different types of financial services, viz. Savings, consumption credit, production credit, insurance, remittance facilities etc. The platform of SHG provides the possibility to converge these services.
Supplementary to formal banking SHG linkage does not supplant the existing banking system, but it supplements it thus taking full advantage of the resources and other advantages of the banking system.
Cutting costs SHG linkage cuts costs for both banks and borrowers. In a study sponsored by FDC, Australia, it was observed that the reduction in costs for the bankers is around 40 % as compared to IRDP loans. The poor have a net advantage of 85 % as compared to individual borrowing. Similar finding was also observed in a NABARD study.
NPA Savvy The Linkage mechanism has proved that the repayments are as high as 95% - 100 %
Peerpressue as collateral The SHG linkage emphasizes peer pressure within the group as collateral substitute.
Quality clients The SHGs are turning out to be quality clients in view of better credit management, mobilization of thrift, low transaction costs and near full repayments.


Client preparation The members of the SHGs could over a period of time, very selectively graduate to the stage of micro entrepreneurship and have been prepared with requisite credit discipline.
Social agenda Available statistics indicate dependency of 35%-40% of rural households on non-institutional sources for credit needs. SHG Linkage offers a better way of dealing with the magnitude of social agenda. Many NGOs/ Governments have recognized the SHG as a vehicle for carrying and deepening of their developmental agenda/ delivery of services.
Exclusive poor focus SHGs have exclusive focus on absolute have-nots, who have been bypassed by the banking system. Social banking does not have any meaning if the lowest strata and the unreachedss are not focused.
No-subsidy- dependence syndrome The programme does not envisage any subsidy support from the government in the matter of credit. The issue is to build capabilities and enterprise of the individual members, blending with group cohesion and solidarity through training provided by a SHPI to set the ball rolling for the SHG.

India Advisory Council
Vikram Gandhi, Chair
Vikram Gandhi is Head of the Global Financial Institutions Group (FIG) at Credit Suisse. In addition to significant client responsibilities, Mr. Gandhi is responsible for the coordination and integration of CSFB’s financial institutions capabilities across a wide range of advisory and financing products, including derivatives and structure products.
Before joining CSFB, Mr. Gandhi spent 16 years at Morgan Stanley where he held various positions including the Co-Head of the Financial Institutions Practice; Head of Institutional Strategy and Business Development; Chief Operating Officer for the Firm’s E-Commerce Steering Committee; and President, Morgan Stanley India.
Mr. Gandhi has a wealth of experience in being involved in various Financial Institutions high-profile M&A transactions and financings across the globe; such as Bank of America’s acquisition of Fleet, the sale of National Processing Company to Bank of America, merger of Chase Manhattan and Chemical Bank, the sale of First Fidelity to First Union, and Bank of Boston’s acquisition to Bay Bank.
Mr. Gandhi received his B. Com from the University of Bombay and an MBA from the Harvard Business School, where he was designed a Baker Scholar. He is also a qualified Chartered Accountant.
Susan Davis, Member
Susan serves as the Vice President and Director of Global Academy for Social Entrepreneurship. She oversees expansion to the Middle East and Central Asia region. Susan also acts as an advisor to the International Labor Organization and Environmental Defense. In 1997, she helped to found and now chairs the board of the Grameen Foundation. She also serves on the boards of Project Enterprise and Aid to Artisans. Susan is a member of the Positive Futures Network and serves on the Human Rights Advisory Council of the Ethical Globalization Initiative. Susan lived in Bangladesh from 1987-1991 where she worked for the Ford Foundation and was responsible for the organizing the donor consortia to scale up Grameen Bank, BRAC and Proshika. She also started Ashoka's program in Bangladesh and was its first volunteer representative. She was educated at Georgetown, Harvard and Oxford universities.
RobertEichfeld,Member
During a 33-year career with Citigroup, Mr. Eichfeld managed many of Citibank's country and regional activities in postings throughout the Caribbean, Brazil, India, Indonesia, New Zealand, Pakistan and Saudi Arabia. While abroad, he also served on the boards of several business and community affairs organizations including chairing various school boards. Since 2011, he has continued to use the unique business and cultural awareness skills that arise from having lived in or traveled to over 100 countries. He has advised a de-novo venture capital fund in Dubai, and with other investors, helped to set up a new Islamic bank in Bahrain. He advised Harvard Business School when it established its executive training program for the Middle East and he is currently a member of the Global Advisory Council at his alma mater, the Garvin School of International Management at Thunderbird. He also remains active in Rotary, particularly with Rotary’s international microfinance and other social development programs and is a member of the International Executive Services Corps and the Financial Services Volunteer Corps. . Bob’s other interests include international current affairs, tennis, hiking, rafting, extensive travel.
Jim Greenberg, Member
Chairman and CEO of DevCorp International, Greenberg developed and managed two large joint venture companies in Saudi Arabia as General Manager. In 1995 he became the founding partner of DevCorp International E.C., a GCC based venture development and investment company with active projects spanning shrimp farming, petrochemicals, light manufacturing, and telecoms/IT. Jim is a 1968 Graduate of West Point and holds advanced degrees from Harvard Business School, the University of Southern California, and the Industrial College of the Armed Forces.
Elke Ward-Smith, Member
Elke Ward-Smith, a multilingual German citizen, started her 20 year banking career at Citibank NY with assignments in Latin America, Europe and Asia. These assignments typically involved building new structured finance business and taking US financial expertise to “emerging” markets and helping multinationals raise liquidity in an environment of debt crises and strict capital controls. Elke later joined Chase Manhattan Asia, Ltd in Hong Kong to set up an Asian Structured Finance Unit, then moved onto UBS in Zurich and London to add her international tax expertise to Project and Leveraged Finance. Most recently Elke structured and closed tax efficient cross border transactions for the German HypoVereinsbank working out of its London, Munich and New York offices.
Deepak Amin, Member
Deepak is the co-founder and CEO of Covelix, Inc, a Seattle and India based software consulting company. Prior to Covelix, Deepak was the Senior Vice-President at Streamserve, heading its next generation web services products division. Prior to Streamserve, Deepak was the founder and CEO of vJungle, Inc, a web services integration and deployment platform company. Deepak also worked at Microsoft for many years as a technical lead in Microsoft Works and Windows95 Networking teams and was a senior engineer in the original Internet Explorer team at Microsoft, Redmond-USA.
Micro Finance - NABARD's Vision and Mission
Vision
Empowerment of rural poor by improving their access to the formal credit system through various mF innovations in a cost effective and sustainable manner.


Mission
To extend financial services to one third of India's unreached and underserved rural poor numbering nearly 100 million through one million SHGs with focus on women during a ten year period through various microFinance interventions
Micro Finance- NABARD's Strategy
Overall Strategy
Forming and nurturing small, homogeneous and participatory self help groups (SHGs) of the poor has today emerged as a potent tool for human development. This process enables the poor, especially the women from the poor households, to collectively identify and analyse the problems they face in the perspective of their social and economic environment. It helps them to pool their meagre resources, human and financial, and prioritise their use for solving their own problems.
The emphasis on regular thrift collection and its use to solve immediate problems of consumption and production not only helps to meet their most urgent needs, but trains them to handle larger financial resources more skillfully, prudently and with a more lasting impact.
The SHGs have also become a forum for many social sector interventions.
SHG-Bank Linkage Programmed
The availability of bank loan to the group helps fulfill their needs further. SHG-Bank Linkage Programmed has proved to be the major supplementary credit delivery system with wide acceptance by banks, NGOs and various government departments.
Region-specific Initiatives
NABARD has intensified its efforts in identifying potential districts in the Southern Region and for enlarging its partner spread.
Priority has been assigned to awareness- building and for identification of NGOs and other partners in Eastern and North Eastern Regions.
Capacity Building Initiatives
Sensitisation of senior executives of commercial banks and Chairmen of RRBs have been taken up by NABARD.
Under the direct training programme for staff of banks/ NGOs, over 25,000 field level functionaries have already been trained by NABARD.
NABARD provides training inputs on SHG financing to training establishments of participating banks, to help them to internalise the training requirements at their level.
NABARD gives technical support to banks to evolve suitable intermediate structures like Farmers' Clubs (Vikas Volunteer Vahini Programmed of the National Bank) to increase the outreach of their branches in promotion and linking SHGs
NABARD supports and helps banking institutions (especially RRBs) to take on the role of Self Help Promoting Institutions (SHPIs).
Support to Governments
Necessary assistance is provided to the governments by NABARD for dovetailing mF practices with the poverty alleviation programmed.
NABARD also encourages the association of Panchayati Raj Institutions ( PRIs ) in adopting group processes for maximization of empowerment.
Support to NGO Partners
Several steps have been taken by NABARD for capacity building of NGOs which partner in promotion and nurturing of SHGs. The emphasis is on involving a large number of NGOs. Special focus is on those NGOs participating in watershed development, health, literacy and women development, to encourage them to take up promotion, nurturing and linkage of SHGs as an 'add-on' activity.
NABARD has a scheme of part-financing the cost of promotion of groups by NGOs.


Alternate Micro Finance Practices
The NGOs and other local bodies at village, block and district levels in the North Eastern States are encouraged to take up alternative micro-credit delivery mechanisms through direct funding. Formation and operation of SHG Federations is supported and encouraged by NABARD. Similarly, networking of NGOs is also encouraged.
Policy and Regulatory Initiatives
The recommendations of the Task Force on microfinance are being followed up and implemented, to spawn a supportive and conducive policy mechanism for sustained growth of mF initiatives in India. These steps include facilitating emergence of standards for Micro Finance in India, Supporting graduation of Micro Finance - NGOs to pure Micro Finance Institutions, etc..









LITERATURE
REVIEW










These literatures include books written on the subject by experts and also journals, manuals etc. In fact, there are very few literatures available, regarding socio-economic, political and entrepreneurial development of women. Philanthropic views and ideas of great people also reviewed. Most of the studies are more general in nature and some are more scientifical. “The habit of looking upon marriage as the soul economic refuge for women will have to go before women can have any freedom. Freedom depends on economic conditions, even more than political, and even if women is not economically free and self earning she will have to depend on the husband or someone else, and dependents are never free” (Jawaharlal Nehru).Dr.C.Rangarajan (2006) in his topic ‘Microfinance and its future directions’ in the introductory part of the book, outline the evolution of SHG through microfinance evolve through in three stages. First, to meet survival requirement need, in the second stage is to meet the subsistence level through investing in tradition activities and in the final stage by setting up of enterprises for sustainable income generation. Robert

Peck Christen (2006) in his paper “Microfinance and Sustainable International Experience and lesson for India”, he articulates the changing general perception of bankers, that SHGs are profitable clients or bank. Lanmdau Mayoux’s study (1998) on Participatory Learning for Women’s Empowerment in Micro Finance Programs (IDS Bulletin, Vol. 29 No.4, 1998) proposes a participatory approach for integrating women’s empowerment concerns into ongoing programs learning, which itself would be a contribution to empowerment. Micro finance programs for women are currently
promoted not only as a strategy for poverty alleviation but also for women’s empowerment.
The current literature on micro finance is also dominated by the positive linkages between micro finance and achievement of Millennium Development Goals (MDGs). Micro Credit Summit Campaign’s 2005 report argues that the campaigns offers much needed hope for achieving the Millennium Development Goals especially relating to poverty reduction. IFAD along with Food and Agriculture Organization (FAO) and the World Food Programmed (WFP) declared that it will be possible to achieve the eight MDGs by the established deadline of 2015 “if the developing and industrialized countries take action immediately” by implementing plans and projects, in which micro credit could play a major role (Alok Mishra,2006).
BANCOSOL: THE CHALLENGE OF GROWTH FOR MICROFINANCE ORGANIZATIONS
BancoSol shows outstanding success in terms of breadth, depth, and quality of outreach and in terms of sustainability. It is the microfinance organization with the largest number of clients in Latin America and it reaches poor clients who could never expect to gain access to conventional financial institutions. The paper discusses the incentive structure associated with a lending technology that has resulted in low loan arrears and the cost- effective supply of small loans. Success is explained by a strong concern with financial viability, development of a lending technology appropriate for the market niche, a long learning period, and upgrading into a formal intermediary. As it grew, BancoSol had to face a reduction of revenues as a proportion of productive assets and an increase in the average cost of funds, which combined reduced its operating margin by 13 percentage points. This challenge was fully met by reducing operating expenses as a proportion of productive assets.
Mark Schreiner (2003)

A Cost-Effectiveness Analysis of the Garmin Bank of Bangladesh.
Reports of the success of the Garmin Bank of Bangladesh have led to rapid growth in funding for microfinance. But has the Garmin Bank been cost-effective? This article compares output with subsidy for the bank in a present-value framework. For the timeframe 1983–97, subsidy per person-year of membership in Garmin was about $20, and subsidy per dollar-year borrowed was about $0.22. The Garmin Bank — if not necessarily other micro lenders — was probably a worthwhile social investment.
David Hulme
This paper reviews the methodological options for the impact assessment (IA) of microfinance. Following a discussion of the varying objectives of IA it examines the choice of conceptual frameworks and presents three paradigms of impact assessment: the scientific method, the humanities tradition and participatory learning and action (PLA). Key issues and lessons in the practice of microfinance IAs are then explored and it is argued that the central issue in IA design is how to combine different methodological approaches so that a “fit” is achieved between IA objectives, program context and the constraints of IA costs, human resources and timing.
Jonathan Morduch
Leading advocates for microfinance have put forward an enticing “win-win” proposition: microfinance institutions that follow the principles of good banking will also be those that alleviate the most poverty. This vision forms the core of widely-circulated “best practices,” but as a general proposition the vision is fully supported neither by logic nor by the available empirical evidence. Recognizing the limits to the win-win proposition is an important step toward reaching a more constructive dialogue between microfinance advocates that privilege financial development and those that privilege social impacts
GARY M. WOLLER
Although the word of finance in the term of microfinance in core value & the core element of microfinance are those of the finance discipline has yet to break into the mainstream & entrepreneur finance literature. The purpose of this article is to introduce the finance academic community to the discipline of microfinance & microfinance institutions.







Models of Microfinance
Microfinance Institutions & Poverty Elimination
A MFI is an organization that provides the financial service targeted to the poor. Its clients are generally poor & low income people. They may be female head of household, pensioner, artisans or small farmers. It obtains finance from banks & in turn provides small scale credit & other financial services to low income household & other informal business. The microfinance works around the concept of group lending where it allows a no. of individuals to provide collateral or guarantee a loan through a group repayment pledges. The incentives to repay are based on peer pressure if on person in the group default; the other group members make the payment. It is powerful tool to reducing poverty as it makes capital available to the unbaked poor at reasonable rates. A survey by ABN AMRO bank clients has shown that 58% of those who have used microfinance for four years experience a significant reduction in poverty & 41% have come right out of it. The microfinance institutions aim primarily to empower people to manage their resources on their own & build sustainable livelihoods. Development of local indigenous skills & vocational training to foster employment opportunities are integral part of the objectives, with the ultimate goal to alleviate poverty.
Existing Models of Microfinance Institutions
Presently the microfinance institutions are operating with diverse methods & means with common end results to provide affordable financial services to the poor & low income people. With access to range of financial tools such families can invest according to their own priorities viz. school fees, health care, business nutrition having etc.
The microfinance was not popular before seventies. It was in late eighties & early nineties that it started showing exemplary results in the field of poverty alleviation. The pioneering effort in this direction was done by Muhammad Yunus of Bangladesh. Today Garmin Bank has over 1000 branches a branch covers around 25-30 villages with 12 lakh borrows with over 90% women. The most important feature of the recovery rate of the loans, which is as high as 98% yet another interesting feature of this bank is advancing credit without any collateral security.
Garmin Bank Model
The bank lending system is simple but effective to obtain loans, potential borrower must form a group of five, gather once a week for loan repayment meeting to start with learning the bond rules & “16 decisions” which they chant at the start of their weekly sessions. These decisions incorporate code of conduct that members are encouraged to follow in their daily life. Ex. Production of fruits & housing& education for children, safe drinking water better health etc. No. of groups in the same village is combined into a centre. The organization of members in groups & centers serves a no. of purposes. It gives individuals a measure of personal security credit. Loans are initially made to two individuals in a group, who are then under pressure from the rest of the numbers to repay in good time. If the borrowers default, the owner of the group may forfeit their chance of loan. The loan repayment is in weekly installments spread over a year & simpler interest of 20% is charged once at the year end. Factor behind the success of GRAMMEN BANK are participatory process in every aspect of lending mechanism, peer pressure of group members on each other, lending for activities which generate regular income, weekly collections of loans in small amount, intense interaction with borrowers through weekly meetings, strong central management, dedicated field staff, extensive staff training, willingness to innovate, committed pragmatic leadership & decentralized as well as participatory style of working.
PAG IBIG FUND (PHILIPPINES) MODEL
PAG IBIG FUND, is one of the most financially stable government owned and controlled corporation in Philippines today. It has a total of 1.2 million members with a fund base of US 800 million dollars. The fund is a provident saving fund and a housing credit system for the wage earners. Its objectives are:
1) To promote self reliance and self determination among the workers though the memberships in an integrated nation-wide saving system.
2) To invest provident saving of its members taking into account the provident benefits upon the termination of their membership in fund.
3) To promote home ownership through the establishment of an affordable and adequate housing credit system for its members.
4) To promote small & short loans & other benefits to its members.
Savings and housing are closely related and the first step was to take care of the member’s basic need of housing. The fund instituted a systematic, regular and easy saving system and tapped new groups of savers who could not be reached by the commercial banks and became a major source of funds for developing the economy. Thus, PAG IBGI helps every Filipino to have his own house by pooling the savings of its members and channeling them for the long term financing requirement of housing.
HDFC MODEL
HDFC has been making continuous and sustained efforts to reach the lower income groups of the society especially the economically weaker sections, thus
enabling then to realize their dreams of possessing the house of their own. Its response to the need for better housing & living environment for the poor, both the urban & rural sectors materialized in its collaboration with kreditanstalt fur wiederaufbau (KFW), a German development bank. KFW sanctioned DM 55 million to HDFC for low cost housing projects in India.
For the purpose of actual implementation of the low cost housing projects, HDFC collaborates with the organization, both government and non-government. Such organization act as coordinating agencies for the projects involving a collective of individuals belonging to economically weaker sections.




Objectives Of the Study

The project work is done to fulfill the requirement of our M.B.A degree course. It is an integral part of the curriculum of this program
• To study the performance of microfinance in India.
• To know about the various institutions that is doing the job of promoting microfinance in India.
• To know the role of Microfinance in removing the poverty of the study.














Limitation of The study

Time Constraint:- This study has been carried out in the period of 2 months, so the results & interpretation will only be valid till said period.

Lack of resources required:- Another major constraint of the study is that the resources that had been required for its successful completion were not available at all the time when required.








RESEARCH
METHODOLOGY








Research Methodology

Type of Research
The type of research that is being used in this report is the descriptive one as in this particular type of research the researcher doesn’t have any control over the present scenario of the things that are being studied & we can only study the factors such as HOW,WHO,WHEN,WHAT etc.
Data Collection Method
Both the primary & secondary data will be used in this study.
Type of Data Used
Secondary data and Primary data.
Source of Data Collection
Following are the major sources of data collection that have been used-
• NABARD annual reports – various issues.
• Reports issued by the government.
• Research companies & trade directories.
• Report on trend & progress of Indian banking.
• Various issued of hand book of statistics.

Primary Data Collection
The starting point for primary data collection over the internet in this research is the use of electronic mail. Questionnaires are mailed to the respondents at their e-mail addresses. Provision is made in the questionnaire to complete the form online and return it to the researcher. The following advantages are obvious:
• Greater speed of delivery.

• Higher speed of receiving responses.
• Tremendous cost savings over regular mail.

SIZE OF SAMPLE
The population of the sample would be 50 respondents.
Tools that have been used for data collection:-
• Internet.
• Newspaper.
• Magazines.
• Journals.
• Publication.

Last edited by Sashwat; July 1st, 2019 at 03:32 PM.
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  #2  
Old August 30th, 2013, 01:53 PM
Senior Member
 
Join Date: Aug 2013
Default Re: MBA Projects in Microfinance

Here I am giving you MBA project report in Micro finance in a word file attached with it so you can get it easily.. some content of Attachement is given below :

MICROFINANCE MODELS FOR THE INDIAN CONTEXT

Any robust banking model for financial inclusion in India must take into account the perceived issues in doing business with the target group. These include:

1. Small-sized transactions
2. Geographical spread of customers
3. Absence of well-defined propriety rights
4. Absence of well-defined property rights
5. Risks faced by small producers to be factored into product pricing.

The models described below can resolve the major issue of Geographical Spread of customers. The possible solutions for the same can be:

1. Taking the bank to the customers
2. Setting up proxy branches at customer locations

Taking the bank to the customers: Mobile Banking
Attached Files Available for Download
File Type: doc MBA Projects in Microfinance.doc (32.5 KB, 68 views)
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  #3  
Old May 2nd, 2020, 12:03 AM
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Default Dr. Thomas Bhebhe

What is your publication charge
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