Microfinance

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Dr.BishnuCharan Nag
Assistant Professor of Economics
University of Delhi

Published in: Economy & Finance, Technology
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Microfinance

  1. 1. MICROFINANCE:A RAY OF HOPE<br />Dr.BISHNU CHARAN NAG<br />MOTILALNEHRU COLLEGE(E)<br />UNIVERSITY OF DELHI<br />
  2. 2. Microfinance is an approach of economic development that involves providing financial services, through institutions, where the market fails to provide appropriate services, to low-income clients including consumers and the self- employed<br />The Canadian International Development Agency (CIDA) defines microfinance as, “the provision of a broad range of financial services to poor, low income households and Micro-enterprises usually lacking access to formal financial institutions”. <br /> <br />MEANING <br />
  3. 3. Microcredit and Microfinance<br />Microcredit - A small amount of money loaned to a client by a bank or other institution<br />Microfinance-Loans savings, insurance, transfer services, microcredit loans and other financial products targeted at low-income clients<br />
  4. 4. MuhammadYunnus-<br />Department of Economics, Chittagong University <br />NOBLE PEACE PRIZE-2006<br />Grameen Bank-Established on the outskirts of the village of Jobrain Bangladesh in 1976.<br />Credit is a fundamental human right.<br />Objective: To help poor people escape from poverty by providing loans on terms suitable to them and by teaching them a few sound financial principles so they could help themselves<br />BACKGROUND<br />
  5. 5. About three billion people, half of the world’s population, living on the income of less than two dollars a day<br />Among the poor communities, one child in five does not live to see his or her fifth birthday<br />The ratio of the income between the 5% richest and 5% poorest of the population <br />74 to 1 in 2006 <br />30 to 1in 1960,<br />REALTY-WORLD<br />
  6. 6. Growth not sustainable, as benefits of growth are not widespread<br />While Indian economy has shown an average growth of around 7 to 8 per cent in last eight years, the benefits have not equitably percolated to the different segments of the society<br />Rural agricultural sector has not gained the desired momentum of growth and development<br />In spite of so many developmental strategies undertaken by the government of India, poverty ratio is 28 per cent which subsists on less than US$ 1 a day, 74.9 per cent live on US$ 2 a day<br />214 million people are chronically food insecure<br /> About 50 per cent people are undernourished<br /> 68 out of 1000 die before the age of one year<br />REALITY-INDIA<br />
  7. 7. Formal financial services are not available to poor people because of<br />High interest rate, <br />Collateral requirements,<br />Complicated application, <br />Long admission procedures<br />Lack of awareness<br />Inaccessibility of Credit<br />
  8. 8. POVERTY RATIO OF INDIA<br />
  9. 9. VICIOUS CIRCLE<br />
  10. 10. SOLUTION<br />
  11. 11. Joint Liability Mechanism<br />charging lower interest rates and generating high repayment rates<br />Cross-Reporting Mechanism <br />truthful-telling about the state of the project and subsequently can minimize the deadweight loss<br />MECHANISM <br />
  12. 12. PERFORMANCE<br />In 2009 more than 8.6 crore poor households were associated with banking agencies under SHG-Bank Linkage Programme<br />
  13. 13. Net household income between pre-SHG and post-SHG registered a significant growth per year at 6.1 per cent.<br />The annual growth rate per household consumption expenditure on food and non-food items recorded 5.1 per cent and 5.4 percent, respectively.<br />Per household annual expenditure on education and health recorded 5.6 per cent and 5.5 per cent growth, respectively.<br />The average loan amount per household grew at an annual rate of 20.5 per cent between the pre-SHG and the post-SHG periods.<br />About 93 per cent of households reported that loans had been taken in the post-SHG situation as compared to that of 46.5 per cent during pre-SHG<br />On the issue of repayment of loan by SHG members, the findings showed that 96.4 per cent of households had reported regularity in repayments of loans.<br />The share of households living below the poverty line reduced from 58.3 per cent in the pre-SHG period to 33 per cent in the post-SHG situation. The average annual poverty reduction rate was 10 per cent.<br />About 92 per cent of households reported that the social empowerment of women had increased after joining membership in SHGs over a period of time.<br />Impact Assessment Study –National Council of Applied Economic Research (NCAER)-2008-09<br />
  14. 14. 1.Corruption free development<br />2.Overall development<br /><ul><li>Increase in level of education
  15. 15. Increase in standard of living
  16. 16. Increase in level of awareness
  17. 17. Gradual removal caste system
  18. 18. Increase in self-dignity and confidence
  19. 19. Peace and harmony in family and society</li></ul>3.Realization of democratic values<br />
  20. 20. <ul><li>Training for self-employment opportunities
  21. 21. Gradual increase in loan amount
  22. 22. Supervision </li></ul>RECOMMENDATIONS<br />
  23. 23. THANK YOU<br />

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