Presentation on Micro-Finance

1. Role of Nationalized Banks in
Micro Finance In Rural India

2. Industry Profile
Microfinance is a category of financial
services targeted at individuals and small
businesses who lack access to
conventional banking and related services.
Microfinance includes microcredit, the
provision of small loans to poor
clients; savingss and checking
accounts; microinsurance; and payment
system
Microfinance services are designed to
reach excluded customers, usually poorer
population segments, possibly socially
marginalized, or geographically more
isolated, and to help them become self-
sufficient

3. Microfinance initially had a limited
definition - the provision of
microloans to poor entrepreneurs and
small businesses lacking access
to credit. The two main mechanisms
for the delivery of financial services to
such clients were:
(1) relationship-based banking for
individual entrepreneurs and
small businesses; and
(2) (2) group-based models, where
several entrepreneurs come
together to apply for loans and
other services as a group.
 Over time, microfinance has
emerged as a
larger movement whose object is
"a world in which as everyone,
especially the poor and socially
marginalized people and
households have access to a wide
range of affordable, high quality
financial products and services,
including not just credit but also
savings, insurance, payment
services, and fund transfers."
Microfinance

4. Company profile: J&K Bank
Jammu and Kashmir
Bank (J&K Bank) is a
J&K -based private
sector banking
and financial
services company.
It is a Private-owned bank
with state share with its
headquarters
in Srinagar, Jammu and
Kashmir, India.
J&K Bank, incorporated
on October 1, 1938, was
the first bank in the country
to emerge as a state–owned
bank.

5. J&K Bank
The J&K Bank has been
organizing micro finance
awareness camp throughout
the state and created
awareness about various
credit products which are
given as under:
 Kissan Credit Cards
 Self Help Groups
 Crop Loans
 Village Industries and
 Self-employment Schemes
 Handicraft Term Loans.

6. In order to generate
employment avenues for the
masses, the bank
substantially contributes to
the six major government
sponsored schemes these
are:
 Swarnjyanti Gram
Swarozgar Yojana (SGSY)
 Prime Minister Rozgar
Yojna (PMRY)
 J&K Self-employment
schemes (SJSRY)
 The Scheme for Schedule
Caste/Schedule Tribe and
other backward classes
(SSC/SST)
 Khadi and Village Industry
(KVIB)

7. Introduction to topic
Microfinance is the
provision of savings
accounts, loans,
insurance, money
transfers and other
banking services to
customers that lack
access to
traditional financial
services, usually
because of poverty

8. Microfinance
• WHAT IS UNIQUE ABOUT MICRO-FINANCE?
• Most people in developing countries live in rural areas; like their countries,
they are poor and unable to save; and they need to be helped. These
plausible assumptions resulted in a well-intentioned type of development
assistance: subsidized targeted credit provided through special programs,
administered by agricultural (and other) development banks (ADBs).
During the 1950s and 60s, directed agricultural credit was synonymous
with rural development finance. The argument was subsequently extended
to urban areas, where many of the rural poor had migrated, and they too
became beneficiaries of subsidized targeted programs; these were mostly
financed and administered by NGOs. In both cases, ADBs and NGOs,
donors played a crucial role in providing funds and methodologies.

9. • As directed credit failed to deliver the expected results in terms of poverty alleviation
and development, a new type of development finance has emerged during the 1990s,
both in theory and in practice, backed by an emerging international consensus
• Agricultural credit has been replaced by rural finance, i.e., credit by a range of
financial services including savings; the emphasis on agriculture by finance for a
broad range of loan purposes
• Rural finance has been integrated into the financial system .

10. Micro-Finance in India
“Micro-Finance in
India is
approaching a
historic 'tipping
point' that could
lead to a massive
poverty reduction
in the next five to
ten years”
- Grameen Foundation US in 2005.
Grameen Foundation, India Initiative,
Winter 2005 Update, www.gfusa.org.

11. INDIAN MICRO-FINANCE CONTEXT
Indian public policy for rural finance from 1950s to till date mirrors the
patterns observed worldwide.
Increasing access to credit for the poor has always remained at the core of
Indian planning in fight against poverty.
The assumption behind expanding outreach of financial services, mainly
credit was that the welfare costs of exclusion from the banking sector,
especially for rural poor are very high. Starting late 1960s, India was home to
one of largest state intervention in rural credit market and has been
euphemistically referred to as ‘Social banking’ phase.
It saw nationalization of existing private commercial banks, massive
expansion of branch network in rural areas, mandatory directed credit to
priority sectors of the economy, subsidized rates of interest and creation of a
new set of rural banks at district level and an Apex bank for Agriculture and
Rural Development (NABARD) at national level.
National Bank for Agriculture and Rural Development (NABARD)

12. These measures resulted
in impressive gains in
rural outreach and
volume of credit. As a
result, between 1961 and
2000 the average
population per bank
branch fell tenfold from
about 140 thousand to
14000 (Burgess &
Paned, 2005) and the
share of institutional
agencies in rural credit
increased from 7.3%
1951 to 66% in 1991.

13. LIMITATIONS
• Commitment and Bank Culture
Commitment at the highest levels of the bank is necessary to make a Micro-finance
program work successfully. Without this support, Micro-finance programs will not
receive the human and financial resources they require to consolidate and expand.
Especially for the large, multi-service banks, the issue of commitment is a true
constraint. Micro-finance programs are so different from conventional corporate
banking that they are generally not understood by most mid-level bank managers, and
sometimes they are even considered a second-class activity.
• Financial Products and Methodologies
• Micro-lending. Over the years, NGOs in Micro-finance have developed
innovative lending methodologies to reach poor clients with Micro-loans. They have
borrowed many of their practices from informal finance. Absence of these
methodologies explains, in part, why formal lending institutions such as banks have
traditionally had difficulty reaching Micro-clients. Some of the principal
characteristics of Micro-lending are:

14. LIMITATIONS
Short-term, working-capital loans;
Lending based on character, rather than collateral;
Sequential loans, starting small and increasing in size;
Group loan mechanisms as a collateral substitute;
Prompt loan disbursement and simple loan procedures;
Frequent repayment schedules to facilitate monitoring of borrowers;
Prompt loan collection procedures;
Simple lending facilities, close to clients;
Computerization with special software to allow loan tracking for larger programs.
Staff drawn from local communities with access to information about potential clients
Interest rates considerably higher than those for larger bank customers to cover all
costs of the Micro-finance program;
Quick cash-flow analysis of businesses and households, especially for individual loans

15. LIMITATIONS
Micro deposits. The new Micro-finance bankers knew relatively little about deposit
mobilization methodologies that reach the low-income and/or microenterprise
client. There were some notable exceptions, however, such as the Bank Rakyat
Indonesia and the Bank Dagan Bali. Perhaps best known is the Bank Rakyat
Indonesia Unit Desa savings program, which has the following characteristics:
Features attractive to the micro client:
• Liquid passbook savings accounts and low minimum balances;
• Depositories conveniently located;
• Secure deposits; and
• Real, positive interest rates on deposits. Operational features of the
program:
• Savings accounts with very low minimum balances;

16. RECOMMENDATIONS
Uniform Legal
Framework
National Policy on
Micro Finance
Availability of
Information/Statistics
Cost Covering Interest
Rates
Transparency
Credit-Linked Subsidy
Formation of
Consortiums by Banks
Extension Services
Micro Insurance

17. BIBLIOGRAPHY
1. Journals:
Develtere, P. and A. Huybrechts (2005). "The impact of Micro-Credit on the poor in
Bangladesh." Alternatives 30(2): 165-189.
McIntosh, C., A. de Janvry, et al. (2005). "How rising competition among Micro-Finance
institutions affects incumbent lenders." Economic Journal 115(506): 987-1004.
2. Articles
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1127009
http://preprodpapers.ssrn.com/sol3/papers.cfm?abstract_id=770387&rec=1&srcabs=912771
http://www.csa.com/discoveryguides/Micro-Finance/abstracts-f.php
3. Books
Annual Report, 2004-2005, NABARD, Mumbai
4. Webs
http://www.planetd.org/2010/01/18/literature-review-impact-Micro-Finance/
http://www.lacea.org/meeting2000/FernandoAportela.pdf
http://www.wikipedia.com

18. ANNEXTURE
Name: Aijaz Ahmed Rather
Roll No: 1811449
Whatsapp: +919796964627
Email: aijazaryanrather@gmail.com
Name of University: IKGPTU
Topic of Summer Training: Role of
Nationalized Banks in Microfinance in
Rural India