Final ProjectThe Significance of Micro FinancePresented By:Tashfeen Shahid BM-25576Mehwish Bhutto BM-25408Syed Hassan Ali BM-25409
Introduction• The term ‘micro-credit’ was first invented in the1970s to indicate the facility of loans to the poorto establish income.• Microfinance principally includes micro-credit, micro-savings and micro-insurance and money transfers forthe poor.• Micro-credit, which is part of microfinance, is thepractice of delivering small, collateral-free loans tousually unsalaried borrowers or members ofcooperatives who otherwise cannot get access tocredit.
Purpose of Study• The purpose of study of microfinance is to eliminatepoverty i.e. to raise income levels and to broadenfinancial markets by providing financial and no-financial services to the financially excluded people.• Microfinance targets the poor and the economicallyactive poor in the society to assist them createwealth, accumulate assets and raise income tosmooth consumption.
Research Aim & ObjectiveWe set out to review of experimental research on thesignificance of microfinance (specifically micro-creditand micro-savings) on poor people in PakistanSynthesize what these studies tell us about:• The impact of microfinance on the incomes of thepoor.• The impact of microfinance on wider poverty/wealthof the poor.• The impact of microfinance on other non-financialoutcomes for the poor.
Modes of Financing• The act of providing funds for business activities, formaking purchases or investing.• Financial institutions and banks are in the businessof financing as they provide capital tobusinesses, consumers and investors to help themachieve their goals.• There are different modes of financing i.e. Inventory Financing In-Housing Financing Investment Bank Debt Financing Equity Financing
Roles of NGOs• A non-governmental organization (NGO) is a citizen-based association that operates independently ofgovernment, usually to deliver resources or servesome social or political purpose.• The field of development itself expands and shiftsimportance with the pull of ideas, and NGOs perhapsmore willingly adopt new ideas.• Fund for Agricultural Development (IFAD), UnitedNations Development Programme (UNDP), WorldBank, Department for International Development, UK(DFID)], and lately commercial banks, has greatlyadded to the idea pull.
Contd………• Encouraged by the worldwide focus onmicrofinance, donor NGOs too have been fundingmicrofinance projects. One might call it the supplypush.• Most NGO-led microfinance is with poor women, forwhom access to small loans to meet direemergencies is a valued outcome.• Lastly there are thousands of village leveldevelopment NGOs with little knowledge ofmicrofinance, other than that their beneficiariesneed access to credit.
Impact of Micro Finance• Impact of Economy• Impact on Poverty Reduction
Risk of Micro FinanceRisk in Agriculture Sector:• Agriculture is widely considered to be inherentlyriskier than industry or trade because it is moreeasily, directly, frequently, and severely affected bysuch factors as extreme weather, pests, diseases, andother natural calamities.• Hence, agricultural microfinance is riskier thanagricultural finance in general and non-agriculturalmicrofinance in particular.• Agricultural microfinance, for example, becomesriskier when the agricultural activities of poor.
Loan Process of Micro FinanceIntroduction:• A loan is a type of debt. Like all debt instruments, aloan entails the redistribution of financial assets overtime, between the lender and the borrower.• In a loan, the borrower initially receives or borrowsan amount of money, called the principal, from thelender, and is obligated to pay back or repay an equalamount of money to the lender at a later time.• Typically, the money is paid back in regularinstalments, or partial repayments; in anannuity, each instalment is the same amount.
Loan Process of Micro FinanceLoan Process:• It has been decided to regulate microfinance sectorby the Reserve Bank as a separate category.• A “qualifying asset” shall mean a loan distributed byMFI.• Banks have to ensure that MFIs comply with thefollowing caps on margin and interest rate.• The banks should obtain from MFI, at the end ofeach quarter, a Chartered Accountant’s Certificate.• Bank loans to MFIs, which do not comply with aboveconditions and bank loans to other NBFCs.
Types of Loan• Secured• Unsecured• Demand• Subsidized