Guide to mircofinance-india-sample

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  • 1. Guide to Microfinance - IndiaJuly 2009
  • 2. Executive Summary Microfinance in India operates through two channels – Microfinance institutions (MFIs) Market – NABARD’s SHGs bank linkage programme (SBLP) - a partnership model between SHGs, banks and NGOs Women account for a% of the credit clientele Microfinance is predominant among the Southern States, especially A LE The introduction of the Micro Financial Sector Development and Regulation Bill, 2007 – Major Aspects: Definition of microfinance organizations, conditions for mobilization of savings and creation of Government Initiative P a regulatory body – Limitations: Regulatory body, differential regulation, dual regulation, preferential regulation and lax prudential norms M Trends & A – Recommendation: Encompassing a wide spectrum of institutions and modifying rules for depository MFIs S Low penetration level providing high growth opportunity Large scale PE/VC activityCharacteristics High interest rate and issue with repayments Lack of interest from formal financial institutions Opportunity in the urban sector The major microfinance institutions in India are – Company 1Major Players – Company 2 – Company 3 GUIDE TO MICROFINANCE – INDIA.PPT 2
  • 3. •Introduction•Institutions•Market Overview•Government Initiatives•Trends and Characteristics•Major Players•Key Developments•Appendix GUIDE TO MICROFINANCE – INDIA.PPT 3
  • 4. Microfinance industry has been growing across the globe with India playing a vital role Definition Services Provided •Microfinance is defined as the provision of thrift (savings), credit and other financial Savings Insurance Loans services and products of very small amounts to the poor for enabling them to raise their LE income levels and improve living Remittance Pensions P •World Bank estimates that there are over X microfinance institutions worldwide M Risk Financial Mitigation A Counseling Products Major Milestones in India Major commercial banks nationalized S NABARD established as an apex agency for Establishment of SIDBI Foundation for Micro-credit 19 - - rural finance 19 - - 20 - - 19 - - 19 - - 20 - - Regional Rural NABARD launches Proposed bill on Banks established SHG bank linkage microfinance in 19 - - program regulationSource: GUIDE TO MICROFINANCE – INDIA.PPT 4
  • 5. Types of Microfinance Institutions (1/4) Intermediary Microfinance Micro- Investor Pool of Funds Bank Institution entrepreneur LE Non-profit Mutual Benefit For Profit • Public Trusts MP • Self Help Groups and Federation • Non Banking Financial A • Societies • Co-operative Societies Corporation S • Section 25 companies • Public trusts are established in accordance with the respective State regulations • Private trusts are established under the Indian Trusts Act 18-- • Process of registration is not hindered by the lack of initial capital Trusts • They enjoy tax benefits as they are exempt for taxation if they are registered under C of the Income Tax Act • In order to accept foreign grants the institution needs to be registered under the FCRASource: GUIDE TO MICROFINANCE – INDIA.PPT 5
  • 6. Types of Microfinance Institutions (1/4) • Comprises of Apex Development Financial Institutions, Commercial Banks, Regional Rural Banks, and Cooperative Banks providing Formal / Banks micro finance services in addition to their general banking activities - referred to as micro finance service providers Types of financial institutions LE • Informal institutions that undertake micro finance services as their Informal / main activity are generally referred to as micro Finance P Non-Banks Institutions (mFIs) Investor SAM Pool of Funds Intermediary Bank Microfinance Institution Micro- entrepreneur Non-profit Mutual Benefit For Profit • Public Trusts • Self Help Groups and Federation • Non Banking Financial • Societies • Co-operative Societies Corporation • Section 25 companiesSource: GUIDE TO MICROFINANCE – INDIA.PPT 6
  • 7. In India, microfinance sector operates via two routes -Microfinance Institutions and Self Help GroupsOverview Credit Distribution (07-08) Microfinance in India Large MFIs b% Medium and LE NABARD’s SBLP - a c% Small MFIs Microfinance partnership model institutions (MFIs) MP between SHGs, banks and NGOs SBLP a% SA • Demand for micro-credit is pegged at USD XX bn but the supply stands at less than USD YY bn • Outstanding micro-credit portfolio amounted to ~INR U bn in 2007-08 Client Outreach mn a% Z 60 • Microfinance is predominant among the Southern Y SHGs States, especially Andhra Pradesh 40 MFIs X • v% of the consumers are from the rural sector V Women account for w% of the credit clientele 20 U W • Highest growth observed in the loan segment 0 ranging from INR X0 – INR Y 2006-07 2007-08Source: GUIDE TO MICROFINANCE – INDIA.PPT 7
  • 8. Introduction of the bill is expected to create a definite regulatoryframework for microfinance institutions Micro Financial Sector Development and Regulation Bill, 2007 Regulating and supervising cooperative societies and non-profit institutions (including Purpose societies and trusts) that are providing microfinance • Microfinance: Includes loans, savings, insurance and pension services. Loans cannot LE exceed more than INR X (INR Y for housing purposes) Definitions • MFO: Any organisation that provides micro-finance services including societies, trusts and MP cooperative societies • Definition of Microfinance Organizations: NBFCs and Section 25 companies, which SA account for ~a% of microfinance loans outstanding are excluded from its scope • Mobilization of Savings: States that MFOs are authorized to collect deposits from their members Certain conditions must be satisfied – Have a minimum capital base of INR U mn – Be in operation for a minimum of v yearsMajor Aspects – Receive approval from the Microfinance Development Council (MDC), an entity promoted by NABARD • New Regulator: NABARD to be the regulatory body for both depository and non- depository micro MFOs . Its role entails Facilitating the development of credit rating norms and performance benchmarks Specifying the accounting form and the auditing standards Promoting financial literacy of MFO clients and sector-related research Disseminating information relating to best practices GUIDE TO MICROFINANCE – INDIA.PPT 8
  • 9. Trends and Characteristics Low penetration level provides tremendous growth opportunities Large scale PE/VC activity Trends andCharacteristics ` High interest rate and issue with repayments Lack of interest from formal financial institutions Opportunity in the urban sector GUIDE TO MICROFINANCE – INDIA.PPT 9
  • 10. Players (1/8) Company Snapshot: Company 1 Corporate Information Financial Performance and Outreach Gross Loan Portfolio Established 20-- Number of Active Borrowers Headquarters Kolkata USD mn ‘000 LE • Micro loans 100 1,500 d Services Offered • Micro Enterprise Program P 80 • Health Loan 1,000 60 SAM 40 20 0 a Mar ’05 b Mar ’06 c Mar ’07 Mar ’08 500 0 Business Highlights Business Outlook • It is a non-profit entity • It is planning to raise INR XX bn in FY ’09-’10by selling • Operates in X States through Y branches agricultural loans to banks • Primarily focusing on 3 programs • Plans on expanding operations to Delhi and Mumbai P1 because of large scale rural urban migration P2 • Expected to encompass Uttar Pradesh, Rajasthan and P3 Gujarat • Plans on opening B new branchesSource: GUIDE TO MICROFINANCE – INDIA.PPT 10