Introduction of microfinance

WHAT IS MICRO FINANCE ?
Micro Finance is the supply of loans, savings, and other basic financial service to the poor . -> CGAP
To most, micro finance means providing very poor families with very small loans (micro credit) to help them engage in productive activities or grow their tiny businesses. -> Financial Gateway

ABOUT MICRO FINANCE
The modern micro finance movement dates back to the 1970s when experimental programs in Bangladesh, Brazil, and a few other countries began to extend tiny loans to groups of poor women to invest in micro enterprises
By lending to groups of women where every member of the group guaranteed the repayment of all members, these micro credit programs challenged the prevailing conventional wisdom and proved that poor people without collateral could be "credit worthy". When offered the opportunity, they would repay loans with interest, at extraordinary rates of repayment.

MICRO FINANCE IN INDIA
Evolution of Micro finance in India
Micro finance has been in practice for ages ( though informally).
Legal framework for establishing the co-operative movement set up in 1904.
Reserve Bank of India Act, 1934 provided for the establishment of the Agricultural Credit Department.
Nationalization of banks in 1969
Regional Rural Banks created in 1975.
established as an apex agency for rural finance in 1982.
Passing of Mutually Aided Co-op. Act in AP in 1995.

FEATURES OF INDIAN MF
About 60 % of the MFIs are registered as societies.
About 20 % are Trusts
About 65 % of the MFIs follow the operating model of SHGs.
Large concentration in South India
600 MFI initiatives have a cumulative outreach of 1.25 crore poor households
NABARD’s bank linkage program has cumulatively reached a total of 9.4 lakh SHGs with about 1.4 crore households.

/16 Justification and definition of microfinance FINANCE MICRO
Micro-entrepreneurs
Self-employed
Low income populations
Excluded populations
Business & educational loans
Savings
Micro-insurances
Remittances
Micro-entrepreneur training
Coaching & workshops on health, hygiene, etc.

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10,000 MFIs manage a global portfolio of US$30 Billions
In a range from 150 US$ to 7,000 US$, the average loan size is US$ 450
150 Mio micro-credit active clients
300 Mio micro-saving active clients
50 Mio micro-insurance active clients
Sources : CGAP, BIT, Microcredit Summit, PlaNet Finance Microfinance in the world today

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Development of MF in industrialized countries (e.g. Israel, France, USA) thanks to the adaptation of the tools and methodologies
Commercialization of the stakeholders
Use of new technologies as a new development tool
New trends

Characteristics of Leading Programs
Definitions
Why
Key Features
Building Blocks
Innovations
Indian Scenario
Challenges
Resources
Road map
Source: WWB : Building Domestic Financial Systems that Work for the Majority
Low interest rates
Low repayments
Low “know your customer”
Minimal loan amounts
Low, sporadic, and shallow outreach relative to demand
Interest rates that cover costs, enable profits
Excellent portfolio quality
Understand household economies, economic activities of the poor
Financial products and processes that respond to poor households, enterprises
High outreach, impact
Compliance Culture Sustainable Microfinance

Characteristics of Leading Programs
Definitions
Why
Key Features
Building Blocks
Innovations
Indian Scenario
Challenges
Resources
Road map
Source: WWB : Building Domestic Financial Systems that Work for the Majority What The Poor Want
Asset Building, Risk
Mitigating Products
Voluntary savings
Health and life insurance
Variety of Products
Housing loans
Education loans
Life cycle products
Business development services
Group Individual Loans
Flexible Loans
Small initial loan sizes
Larger loans over time
Longer terms
No Traditional Collateral
Service
Rapid, convenient access
Respect, connection
Source: WWB research

Indian Scenario
Definitions
Why
Key Features
Building Blocks
Innovations
Indian Scenario
Challenges
Resources
Road map
Source: Doug Johnson, The Geographic Distribution Of Microfinance Services In India 2007 Evolution of Microfinance in India Microfinance has been in practice for ages ( though informally). Legal framework for establishing the co-operative movement set up. Reserve Bank of India Act provided for the establishment of the Agricultural Credit Department. Nationalisation of banks . Regional Rural Banks created. NABARD established as an apex agency for rural finance . Passing of Mutually Aided Co-op. Act in AP in 1995. 1904 1934 1969 1975 1982 1995 1976 Grameen Bank, Yunus

Indian Scenario
Definitions
Why
Key Features
Building Blocks
Innovations
Indian Scenario
Challenges
Resources
Road map
Source: Doug Johnson, The Geographic Distribution Of Microfinance Services In India 2007

Introduction of microfinance

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