MICROFINANCE<br />Microfinance is the supply of loans, savings and other basic financial services to the poor. As the financial services of microfinance usually involve small amounts of money- small loans, small savings, etc- the term microfinance helps to differentiate these services from those which formal banks provide. Microfinance has been defined by RBI as provision of thrift, credit and other financial services and product of very small amount to the poor in a rural, semi-urban and urban areas for enabling them to raise their income levels and improve living standard.<br />
<ul><li> This is a central government project which launched on 1.4.1999 main objective: to raise individual / groups of rural poor above poverty line within 3 yrs & at least in the 3rd yr net income would be not less than rupees 2000p.m. features of the group are almost same as SHG here members of the group will come from the BPL (below poverty line) sense’s duly approved by gram sabha 30% members may come from APL ( above povert line) purpose of loan: economically viable & productive, farm sector & non farm sector activities identified for each block with approval of panchayatsamities at block.
5 to10 persons doing same activities & same standard may form a joint liability group this is for the persons who are engaged in tiny business self-employed persons or marginal farmers living in same area bank provide loan to this groups NABARD refinances 100% loan
Number of members can be between 10 to 20 but for irrigation projects minimum 5 members can form SHG.
Banks allow advance to SHG with repayment within 3 to 10 yrs savings are considered as margin and there is no requirement of collateral security. bank can also finance to the groups through NGOs NABARD refinances 100% against this loans (national bank for rural development). </li></li></ul><li>
Role of Government…<br />DO<br />DON’T<br /><ul><li>Promote microfinance as a key vehicle in tackling poverty, and as vital part of the financial system
Create policies, regulations and legal structures that encourage responsive, sustainable microfinance </li></ul>Have government agencies provide retail microfinance<br />Encourage a range of regulated and unregulated institutions that meet performance standards<br />Place interest rate ceilings on micro loans<br /><ul><li>Encourage competition, capacity building and innovation to lower costs and interest rates in microfinance</li></ul>Support autonomous, wholesale structures<br />