2. Dr.Ambika
Name of Topic: Meaning and scope of Microfinance
Elements of microfinance and history of microfinance
UNIT -1
Lecture –1
DISCOVER . LEARN . EMPOWER
Shri Vishwakarma Skill University
3. Learning Outcomes
1. Knowledge and understanding of microfinance, organization and processes
2. Technical knowledge of products, standards and risks.
3. To acquire generic skills like reading, writing and oral communication
4. To acquire professional skills like planning, problem solving etc
5. Application of microfinance in agriculture sector and development of the
country
To develop a deep understanding of micro financial services based on collective and
women.
To inculcate the element of group dynamics, processes ad systems along with learning
in the domain of credit, insurance and remittance in particular ad other services in
general applicable for the rural areas and farmers.
Course Outcome
COURSE OBJECTIVES
4. INTRODUCTION
Microfinance, also called microcredit is a type of
banking service provided to unemployed or low-
income individuals or groups who otherwise
would have no other access to financial services.
The benefits of microfinance include: Small loans enable
entrepreneurs to start or expand micro, small and medium
enterprises. Savings help families build assets to finance
school fees, improve homes (e.g., install power or running
water) and achieve goals.
5. Meaning and scope of Microfinance
Microfinance is a term for financial services offered to unemployed
or low-income peoples or groups who lack access to conventional
banking and related services.
It is also called as microcredit that includes provision of basic
financial services such as saving accounts, loan and insurances
for peoples having lower earnings but are economically active.
In many instances, microfinance represent the provision of
small amount loans for micro-entrepreneurs. The motive of
microfinance is to provide people with reasonable small
business loans in safe manner and as per the ethical lending
practices.
6. Micro financing organizations support a large number
of activities that range from providing the basics—like bank
checking and savings accounts—to startup capital for small
business entrepreneurs and educational programs that teach
the principles of investing. These programs can focus on
such skills as bookkeeping, cash-flow management,
and technical or professional skills, like accounting.
Scope of Microfinance
Microfinance is an alternative source of finance to the
lower socio-economic strata. The poor and the needy
class who depend on the money lenders who keep
charging exorbitant interest rates from them, can get rid
of these money lenders and can have a better reliable
option through the microfinance institutions. Microfinance
institutions provides loans to the small scale industries.
8. 8
Conti…
Microfinance
It is a provision of a broad range of financial
services such as deposits, loans, payment
services, money transfers, and insurance to
poor and low-income households and their
micro-enterprises.”
9. Microcredit : Microcredit is the extension of very small loans
(microloans) to the unemployed, to poor entrepreneurs and to
others living in poverty who are not considered bankable.
Micro credit
9
10. • Micro insurance : Financial arrangement to protect low-
income people against specific perils in exchange for
regular premium payments proportionate to the
likelihood and cost of the risk involved
• Micro savings : Deposit services that allow one to store
small amounts of money for future use. Often without
minimum balance requirements, savings accounts allow
households to save in order to meet unexpected
expenses.
11. Remittances :
Transfers of funds from people in one place to
people in another, usually across borders to family
and friends.
12. History of Microfinance
• Upon the creation of microcredit by Bangladeshi social entrepreneur
Muhammad Yunus in 1983, microfinance was simultaneously created. In
1983, Yunus established Grameen Bank in Bangladesh. The goal of
Grameen Bank was to initially provide small loans to entrepreneurs.
• Yunus’ vision for microcredit was inspired when he witnessed women
who made bamboo stools in Bangladesh making two cents a day
(0.11877)rs . He decided that if the women were able to fall back on a
loan, they would be able to improve their margins and gain a more
substantial profit. After issuing them a loan of 3000, following the grou
model, the women were able to repay the loan and keep their business
running.
13. • In 2006, Yunus received the Nobel Peace Prize for his efforts
with Grameen Bank. The bank currently oversees 2,500
operational locations and employs about 22,000 individuals.
Furthermore, there are currently 10,000 microfinance
institutions.
Since, in the developing countries, a large number of people still
depends largely on subsistence farming or basic food trade for
their livelihood, therefore, smallholder agriculture in these
developing countries has been supported by the significant
resources.
14. Microfinance in India
• Lack of security and high operating costs are some of the major
limitations faced by the banks while providing loans to poor
people. These limitations led to the development of
microfinance in India as an alternative to provide loans to the
poor with an aim to create financial inclusion and equality.
• SEWA Cooperative Bank was initiated in 1974 in Ahmedabad,
Gujarat, by Ela Bhatt which is now one of the first modern-day
microfinance institutions of the country. The National Bank for
15. • Agriculture and Rural Development (NABARD) offered financial
services to the unbanked people, especially women and later
decided to experiment with a very different model, which is
now popularly known as Self-help Groups (SHGs). The SHG-
Bank linkage programme in India has savings accounts with 7.9
million SHGs and involves the participation of regional rural
banks (RRBs), commercial banks and cooperative banks in its
operations. The origin of SHGs in India can be traced back to
the establishment of the Self-Employed Women’s Association
(SEWA) in 1972.
16. Many argue that microfinance is very beneficial, as it provides
financial opportunities for those in impoverished nations or
those with lower socioeconomic backgrounds. Another benefit
of microfinance is that it encourages people to be financially
independent and provides them financial resiliency to be able
to cover any large unforeseen expenses.
Additionally, microfinance helps to provide financial services to
those in remote locations where traditional financial institutions do
not have operations. It also provides education. Finally, microfinance
can encourage entrepreneurial activity and business development in
poverty-stricken areas.
Advantages and disadvantages
17. Some downsides of microfinance include claims that it
can take advantage of those in tough economic
situations, a situation similar to loan sharks. Some
microfinance loans may include interest that can be as
high as 30% or even higher. Furthermore, according to
several studies, recipients of microfinance loans did not
realize an improvement in their annual net income.
