Introduction to Microfinance S.Anne Priya, Operational Manager, NELINDCO Foundation
Microfinance – an introductionMicrofinance is…•a provision of financial services•in a sustainable way•to the micro entrepreneurs or anybody with low income•who do not have access to the formal financial services. In simple terms, It is banking with the poor people
The Microfinance umbrellabusiness grants business development services • trainingwelfare grants Financial Services • marketing assistancein-kind lending • association building • creation of market chain Savings Lending Micro insurance • other business development services
Success in Microfinance is … 1. enabling significant, lasting improvements in the lives of many poor people by 2. developing permanent, sustainable entities that enable such change. Parameter for success in MF Depth of outreach – How poor are the Impact – How much of people served? changes does MF make? Breadth of outreach – How many Length of outreach – How to make MF people does MF reach? sustainable?
Principles of MicrofinanceThe poor are able to save despite Self employment/enterprise their low-level income formation is a viable means for poverty alleviation. Lack of access to capital assets/credit is a constraint for existing and potential Micro enterprises.
Capacity building of various partners Sustainability of Upscaling of the CBOs programme Major issues in Microfinance Impact of Govt.scheme with subsidy Graduation from component micro finance to micro enterprises Attitude of stakeholders
Interest rates in MF Declining balance method Flat rate methodFeatures: Features:1. The declining balance method is more 1. The flat rate method is simpler and does accurate, in the sense that it is a true not need financial calculators or representation of how much some one spreadsheets. It is used most of the has to pay for the borrowed money. It is commercial banks and micro finance easy for the members to understand and institutions, which are on their way to calculate independently, so it is prevalent becoming formal banking institutions. in most of the SHGs which set out their own interest rates.2. The interest rate in this method becomes 2. The interest remain constant till the lower over time. This means that a 10% completion of the loan interest rate on a declining balance is much cheaper than a flat rate of 10%3. The exact difference will depend on the 3. It is most costly to pay interest calculated frequency of the repayment and the loan on a flat rate method. term.4. The amount of interest paid is calculated 4. The amount of interest paid is calculated on the outstanding balance of the loan at as a percentage of the total loan size. A the time of each payment installment. If fixed amount of interest is paid for each the payment installment is constant, the repayment installment. Flat rate interest interest portion decreases each month, is not depended on the amount that has and the principal repayment portion been repaid. increases.
1. Promoted and replicated widely in India. 2. Scope for SHG-Bank empowerment. Linkage 3. Participation of women members in development. Microfinance 1. Acts as financialDelivery Models intermediary. 2. Poverty focus is Microfinance slightly lesser than Institutions Model SHG model. 3. The Interest rate to end user is normally higher than SHG model
Meaning of SHGSelf help groups are informal associations,• of 10 to 20 members (average size is 15)• who meets regularly (once, twice or four times in a month)• pool savings (according to the capacity of the members)• rotate their savings as small loans among themselves.
Characteristics of good SHGs1. Self help2. Unity.3. Democracy4. Transparency5. Good byelaws6. Good Leadership7. Conflict management skill.8. Proper planning9. Growth10. Sustainability.
1. The SHG would form another SHG with the left out women, insisting the importance of the SHGs. Road map of SHG 2. The member of the SHG would get the loan from the SHG without any constraint. 3. All the members would involve in their own income generating activities. 4. They would be in the position to give training to other groups. Maturity stage1. Completed the training on the basic concept. Above 24 months 1. Conduct meeting by2. Framed Savings and themselves. lending Policies. 2. They would finish the3. Opened savings account first linkage from and got linkage in the external source and got nationalised bank. Growth stage second linkage. 3. The group would concentrate and shift from loan for 13 to 24 months consumption purposes to economic activity loan. 4. External auditing will Secondary stage be completed and the details of the common fund will be shared 4 to 12 months among the members. Books of accounts introduced Formation Stage Bye laws framed Members enrolled in 0 to 3 months the group