This document discusses microfinance in India. It defines microfinance and microcredit, and outlines the evolution and current state of microfinance in India. Key points include: - Microfinance provides small loans, savings, and other basic financial services to low-income individuals who lack access to traditional banking. - Modern microfinance began in the 1970s by making small group loans to rural women in countries like India and Bangladesh. These programs proved poor people can repay loans at high rates. - An estimated 30% of Indians live below the poverty line, but only 5% have access to microfinance due to gaps between demand and supply of financial services for the poor. - Major microfinance initiatives in India

1. ENVISIONING
MICROFINANCE
Siddharth Dasgupta -033; Manoj Kumar - 018
Ravi Sharma – 028;
Business
Research Methods
IMT - December, 2009

2. What is Microfinance?
Microfinance is the supply of loans, savings and
other basic and other basic financial service to poor –
CGAP
Microfinance is the proviso of financial
services/entrepreneurs to low-income clients, including
consumers and the self-employed, who conventionally
lack access to banking and related services –
Financial Gateway
IMT - December, 2009

3. About Microfinance
IMT - December, 2009
The modern Microfinance movement dates
back to the 1970’s when experimental
programs in Brazil, Bangladesh and few other
countries began to extend tiny loans to the
group of rural women in order to set up self
satiating enterprise.
By lending to groups of women, where
every member of the group guaranteed the
repayment of all members, these micro credit
programs challenged the prevailing
conventional wisdom and proved that poor
people without collateral could be “credit
worthy”, when offered the opportunity, they
would repay the loans with interest at
extraordinary rates or repayment.

4. Microfinance and Microcredit
 Microfinance
refers to
loans,
savings,
insurance,
transfer
savings and
other financial
products
targeted at
low income
clients.
 Microcredit
refers to small
loan to a client
made by a bank
or other
institution.
Microcredit can
be offered, often
without
collateral, to an
individual or
through group
lendingIMT - December, 2009
Microfinance Microcredit

5. Face of Microfinance in India
IMT - December, 2009
Evolution of Microfinance in India
Microfinance has been in practice for ages (though
informally)
Legal framework for establishing the co-operative
movement set up in 1904
Reserve Bank of India Act, 1934 provided for the
establishment of the agricultural credit development
Nationalization of banks - 1964
Regional Rural Banks created in 1974 – established as
an apex agency for rural finance in 1982
Passing of mutually aided Co. Op. Act in AP - 1995

6. The Profile of Microfinance in
INDIA
IMT - December, 2009
The Scenario
Estimated that about 30% of India falls under BPL, i.e. more than 350
million people live below poverty line
This translates more than 75 million households
Annual credit demand in of Indian rural is more than INR 60,000 crore
Cumulative disbursements under all microfinance programs is only
about 100,000 crore.
Only about 5 % rural poor has access to Microfinance.

7. Study Impact
IMT - December, 2009
 Our study primarily envisages, how the
present microfinance programs is trying and
actually made some differences in rural poor’s
lives.
 By means of in – depth sample studies and
FGD’s, we sketched out different portraits of
microfinance in India.
 Got a first hand insight in some new emerging
concepts like CIG’s.

8. Study Impact contd…
(testimonies)
IMT - December, 2009

9. Conclusions
 Microfinance which is more focused on credit rather than savings or
other services is largely routed through women in poor households
 In microfinance, transparency is practiced on financial performance
& this is the most important element in making microfinance more
acceptable & approachable for the target group
 The challenge is to practice transparency in an environment where
non-transparency is the norm, however Microfinance Transparency
will create an enabling environment, which means enabling
industry-supported “truth-in-lending”
 In India, the microfinance fraternity seems to have come to an
understanding regarding the potential of technology and the value
that it adds to microfinance businesses
 The graduation to the next level may necessitate resolving the
techno-commercial issues as well as addressing the regulatory
considerations through targeted advocacy efforts. The process may
be aided through more focused experimentation and innovation
incorporating technology and microfinance.
IMT - December, 2009

10. The Status of Microfinance in
India
Some of the considerable gaps between
demand and supply of all the financial services
– Majority of the poor are excluded from the
financial services, we found the following
reasons for the same:
 Bankers feels that it is marked with ample risk
and uncertainties.
 High transaction cost
 Unfavorable policies like cap on interest rates
which effectively limits the viability of servicing
the poor. IMT - December, 2009

11. Contd….
 Limited accessibility to capacity enhancement support
which is again a very vital variable in terms of the quality
of the portfolio.
 About 52% of the poor still borrow from informal sources
 Near about 68% of the poor don’t have a deposit
account
 Nearly 80% have no access to formal sources
 Less than 19% of the households have any insurance,
whatsoever
 Almost negligible number have access to health
insurance
IMT - December, 2009

12. Sigh of Relief
 About 76 % of the MFIs are registered as
societies.
 About 37 % are Trusts
 About 73 % of the MFIs follow the operating
model of SHGs.
 Large concentration in South India
 Nearly 640 MFI initiatives have a cumulative
outreach of 4.65 crore poor households
 NABARD’s bank linkage program has
cumulatively reached about11.2 lakh SHGs
with nearly 6.8 crore households.IMT - December, 2009

13. Challenges Ahead
 Appropriate legal structures for the structured growth of MF
operations
 Ability to access loan funds at reasonably low rates of
interest.
 Ability to attract and retain professional and committed
human resources.
 Design of apt MIS including user friendly software for
tracking accounts and operations.
 Ability to innovate, adapt and grow.
 Bring out a compendium of small and micro enterprises for
the MF clients.
 Identify and prepare a panel of locally available trainers.
 Ability to train trainers.
 Capacity to provide backward linkages or create support
structures for marketingIMT - December, 2009

14. IMT - December, 2009
“IF You are
Uplifting
The Poor
Your Uplifting
The Nation”
-> Mahatma Gandhi

15. IMT - December, 2009