Microfinance in India grew rapidly in the 2000s but faced a crisis in 2010 when over 200 suicides were linked to coercive loan collection practices. This prompted the Andhra Pradesh government to waive $1.5 billion in loans, crippling the industry. The document analyzes issues like multiple lending, lack of transparency, and inadequate regulations that led to this crisis. It recommends regulations like a credit bureau, caps on multiple loans to one borrower, allowing MFIs to accept deposits, and improved training to promote a sustainable microfinance industry focused on social welfare over profits.
Why microfinance failed to take off in India?Vaibhav Gahlot
This document proposes policy recommendations to address issues in India's microfinance sector. It summarizes that while microfinance in Bangladesh has been successful in alleviating poverty, it has failed to have the same effect in India due to cut-throat competition between MFIs over a small area. This has led to problems like multiple lending, over-indebtedness, lack of transparency and coercive loan recovery practices. The document then outlines specific policy recommendations to address issues like multiple lending, coercive collection practices, improving transparency and flexible repayment cycles.
This project report provides a critical analysis of microfinance in India. It begins with an introduction that defines microfinance and outlines the various actors and regulatory environment involved. It then discusses the growth and models of microfinance in India, focusing on self-help groups and analyzing examples like ICICI Bank, Bandhan, Grameen Bank and SKS Microfinance. The report also examines the marketing of microfinance products, success factors, and issues facing the industry in India. Overall, the report provides a comprehensive overview of the microfinance landscape in India through analyzing historical development, current practices and challenges.
micro finance institution analysis in indiarohitsethi69
The document is a presentation on microfinance in India. It discusses the definition of microfinance and provides statistics on microfinance initiatives in India, including the number of districts and clients served. It also notes trends in loan amounts and growth rates. The presentation outlines some of the key issues and challenges faced by microfinance institutions, such as rapid growth and commercialization leading to lower quality services. It concludes by recommending strategies for microfinance institutions to manage risks and maintain proper systems.
Microfinance Institutions (MFIs) has proven to be an important liberating force in societies where grassroot people in particular have to struggle against repressive social and economic conditions, who are otherwise excluded from the formal channel of credit.
There are many innovative initiatives have been undertaken by Indian MFIs over the past five to seven years and they have expanded manifold to provide financial services to low-income clients with the objectives of providing financial services to large numbers of low-income clients, and ensuring long-term sustainability.
Poor people cannot access banking services due to their meagre income and inability to handle banking procedures and documentation. It is through micro-finance that a wide range of financial services such as deposits, loans, payment services, money transfers and insurance can be provided to the poor and low-income households and their micro-enterprises.
Microfinance in India provides small loans and other financial services to low-income households through microfinance institutions (MFIs), which are mostly non-banking finance companies. There is large unmet demand as only 10% of the estimated $74 billion in demand has been met. The microfinance business model has been proven successful over the last decade, with MFIs growing over 100% annually. However, continued growth will require a large inflow of debt and equity capital totaling around $200 million annually for the top MFIs. The industry is concentrated in southern India but has room to expand to northern and central regions. Common MFI practices include group lending through joint liability groups. Microfinance aims to foster both
Micro finance in India: legal and regulatory frameworkNishant Pahad
This document discusses the different legal forms that microfinance institutions (MFIs) can take in India and the associated regulatory frameworks. It outlines not-for-profit entities like societies, trusts, and Section 25 companies; for-profit entities such as non-banking financial companies (NBFCs) and local area banks; and mutual benefit entities like cooperatives and cooperative banks. For each type of legal entity, the document covers aspects such as ownership structure, capital requirements, ability to mobilize deposits and access funding sources, applicable regulatory authorities, and tax implications.
SKS Microfinance Limited is a non-banking finance company regulated by the Reserve Bank of India that provides small loans ranging from Rs. 2,000 to Rs. 12,000 to poor women in India so they can start or expand small businesses and increase their incomes, with the goal of reducing poverty and spreading economic opportunity. SKS's mission is to provide financial services to low-income households across India and other parts of the world through a commercial microfinance model.
Why microfinance failed to take off in India?Vaibhav Gahlot
This document proposes policy recommendations to address issues in India's microfinance sector. It summarizes that while microfinance in Bangladesh has been successful in alleviating poverty, it has failed to have the same effect in India due to cut-throat competition between MFIs over a small area. This has led to problems like multiple lending, over-indebtedness, lack of transparency and coercive loan recovery practices. The document then outlines specific policy recommendations to address issues like multiple lending, coercive collection practices, improving transparency and flexible repayment cycles.
This project report provides a critical analysis of microfinance in India. It begins with an introduction that defines microfinance and outlines the various actors and regulatory environment involved. It then discusses the growth and models of microfinance in India, focusing on self-help groups and analyzing examples like ICICI Bank, Bandhan, Grameen Bank and SKS Microfinance. The report also examines the marketing of microfinance products, success factors, and issues facing the industry in India. Overall, the report provides a comprehensive overview of the microfinance landscape in India through analyzing historical development, current practices and challenges.
micro finance institution analysis in indiarohitsethi69
The document is a presentation on microfinance in India. It discusses the definition of microfinance and provides statistics on microfinance initiatives in India, including the number of districts and clients served. It also notes trends in loan amounts and growth rates. The presentation outlines some of the key issues and challenges faced by microfinance institutions, such as rapid growth and commercialization leading to lower quality services. It concludes by recommending strategies for microfinance institutions to manage risks and maintain proper systems.
Microfinance Institutions (MFIs) has proven to be an important liberating force in societies where grassroot people in particular have to struggle against repressive social and economic conditions, who are otherwise excluded from the formal channel of credit.
There are many innovative initiatives have been undertaken by Indian MFIs over the past five to seven years and they have expanded manifold to provide financial services to low-income clients with the objectives of providing financial services to large numbers of low-income clients, and ensuring long-term sustainability.
Poor people cannot access banking services due to their meagre income and inability to handle banking procedures and documentation. It is through micro-finance that a wide range of financial services such as deposits, loans, payment services, money transfers and insurance can be provided to the poor and low-income households and their micro-enterprises.
Microfinance in India provides small loans and other financial services to low-income households through microfinance institutions (MFIs), which are mostly non-banking finance companies. There is large unmet demand as only 10% of the estimated $74 billion in demand has been met. The microfinance business model has been proven successful over the last decade, with MFIs growing over 100% annually. However, continued growth will require a large inflow of debt and equity capital totaling around $200 million annually for the top MFIs. The industry is concentrated in southern India but has room to expand to northern and central regions. Common MFI practices include group lending through joint liability groups. Microfinance aims to foster both
Micro finance in India: legal and regulatory frameworkNishant Pahad
This document discusses the different legal forms that microfinance institutions (MFIs) can take in India and the associated regulatory frameworks. It outlines not-for-profit entities like societies, trusts, and Section 25 companies; for-profit entities such as non-banking financial companies (NBFCs) and local area banks; and mutual benefit entities like cooperatives and cooperative banks. For each type of legal entity, the document covers aspects such as ownership structure, capital requirements, ability to mobilize deposits and access funding sources, applicable regulatory authorities, and tax implications.
SKS Microfinance Limited is a non-banking finance company regulated by the Reserve Bank of India that provides small loans ranging from Rs. 2,000 to Rs. 12,000 to poor women in India so they can start or expand small businesses and increase their incomes, with the goal of reducing poverty and spreading economic opportunity. SKS's mission is to provide financial services to low-income households across India and other parts of the world through a commercial microfinance model.
Financial inclusion – objectives - Micro finance as a Development Tool - The Indian Experience - Evolution and Character of micro finance in India - Micro finance Delivery Methodologies and models- Legal and Regulatory Framework- Impact of Micro finance - Revenue Models of Micro finance- Profitability, Efficiency and Productivity Emerging issues
The document discusses the evolution of microfinance from microcredit to broader financial inclusion services like savings and insurance products. It also discusses key challenges in microfinance, such as evolving reporting standards, increased demand for external assurance, and difficulties with valuation of investments given limited market data in developing markets. The document positions EY as an expert provider of services to microfinance institutions and investment vehicles, including audit, valuation, transaction advisory, and other services that can help clients address these challenges through EY's global expertise and experience in the microfinance industry.
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 service.
The document provides an overview of SKS Microfinance, including its business model, valuation process, and regulatory environment. SKS pioneered the joint liability group lending model and grew rapidly before facing difficulties in 2010. It valued itself using a branch-level valuation model that projected earnings and growth rates. Key recommendations from the Malegam Committee established regulations for the microfinance sector, including categorizing qualified NBFCs as NBFC-MFIs and capping interest rates.
The microfinance sector in India is at a crossroads after facing a crisis in 2010 in Andhra Pradesh that highlighted issues with some profit-seeking microfinance organizations. While microfinance has benefited many rural women, representatives at a recent forum discussed problems in the system and the need for responsible, ethical practices. Some key points discussed included the complementary but different roles of self-help groups and microfinance institutions, the need to design women-centered financial products, and ensuring microfinance integration with wider development efforts to truly empower women economically.
This document summarizes the results of a study on the role of microcredit in reducing women's poverty in Ethiopia through three microfinance institutions. The study found that:
1) The microfinance institutions did not adequately target poor women, as average loan balances were above 20% of per capita income.
2) Loan sizes were small and repayment schedules were too frequent, limiting their impact.
3) Women predominantly used loans for consumption and low-return businesses like food preparation, rather than higher-return investments.
4) While some positive impacts like increased consumption were found, microcredit did not significantly increase women's income, employment, or savings overall. The document recommends that microfinance institutions in Ethiop
This document provides a synopsis for a thesis that will examine the socio-economic development of women in self-help groups (SHGs) operated by four charitable non-governmental organizations (NGOs) in four villages across Tamil Nadu, India. The study aims to compare the performance of SHGs and identify factors for their success or challenges. A sample of 400 SHG women will be surveyed across the villages of Vannar Pettai, Manonjapatty, Palaa Vedu, and Samiyar Thottam, which are served by NGOs in Trichy, Thanjavur, Thiruvallur, and Chennai districts, respectively. Statistical tests will analyze the impact of SH
A Little World: Facilitating Safe and Efficient M-Banking in Rural IndiaAshley Metz
The initiative is led by a private sector organization, A Little World (ALW) and its sister entity, a non-profit organization, ZERO Microfinance and Savings Support Foundation (ZMF). ALW and ZMF act as intermediaries between rural communities at one end, and mainstream financial institutions and the government at the other end. ALW offers a secure, low‐cost technology driven delivery platform for financial services through special mobile phones that store and help manage a vast amount of customer bank account data, authenticates account holders through photo and biometric identification and allows access to the bank accounts as Point of Service terminals. Since its pilot project in 2006, ALW and ZMF have rapidly grown and are now present in 22 states, with over four million rural customers, 8,314 points of presence and an average of 25,000 new account openings every day.
Alternative Sources of Funding for Micro EnterprisesMd. Ashraful Alam
This document discusses alternative sources of funding for micro enterprises. It defines micro enterprises as very small businesses with fewer than 6 employees. While banks provide some funding, micro enterprises often rely on alternative sources due to their small size and risk. The document lists various alternative funding options around the world such as microloans, credit unions, leasing, factoring, and government programs. It also discusses Bangladesh's experience, noting that over 90% of micro enterprise funding comes from alternatives like microfinance institutions, credit cooperatives, and trade financing. The main challenges with alternative funding are lack of regulation, high interest rates, and risks like adverse selection and moral hazard.
“Financial Inclusion in SHG-bank Linkage Model under SGSY with special refere...iosrjce
Financial Inclusion is a very big challenge to banking sector. Till now most of the banking facilities
are not reaching to deprive. Micro financing through SHGs is a vital weapon for poverty eradication. But due to
lack of uniformity it is not complete its target efficiently. In this paper try to focus on the financial inclusion in
SHGs-Bank Linkage Programme under SGSY scheme in Jhansi district. SBLP is the banking link with poors to
uplift their socio-economoc, health, nutrition, insurance, saving, education aspects. It is an attempt to clarify
how much this programme reach to beneficiaries of SHGs.
The present study differs from previous studies as it is focused its basic cause for reduction in quality numbers
of SHGs come out after complete all stages. Further, this paper tries to access the grass root issues relating to
SHGs and the normal course in decrease the number of SHGs at last stage in the study area. The study is
undertaken in four development blocks of jhansi Districts of Uttar Pradesh during 2009-13. It is observed that
due to fast growing of the SHG-bank linkage programme, quality credit linked SHG has not cover all stages of
the programme.. Some of the factors affecting the decline of SHGs are the target oriented approach of the
government in preparing group, inadequate incentive to NGO’s for nurturing their groups etc.
A research proposal on the Impacts of Microfinance in KenyaFred Mmbololo
This document outlines a proposed research study on microfinance awareness and impact in Nairobi County, Kenya. The study aims to determine the level of awareness of microfinance services among Nairobi residents and assess the impacts of microfinance on economic and social development. The researcher plans to survey Nairobi residents on their familiarity with local microfinance institutions and perceptions of how microfinance has affected areas like income, assets, education, and empowerment. The results could provide insight for microfinance institutions, government, and academics on the reach of services and viability of continued support for microfinance in Kenya.
This document is a research project submitted by Kennedy Nyabwala to Maseno University in partial fulfillment of a Bachelor of Business Administration degree. The research examines the impact of microfinancing on the performance of small and medium enterprises in Kisumu Central Business District, Kenya. It includes an introduction providing background on microfinancing concepts and the microfinance industry in Kenya. The study aims to determine if local SMEs have obtained loans from microfinance institutions, if loan recipients have repaid as required, and if financing has helped SMEs grow. The significance of the research is recognizing the importance of microfinancing for SME development.
Self help group (shg) bank linkage model - a viable tool for financial incl...Alexander Decker
This document discusses the Self Help Group (SHG) - Bank Linkage model as a tool for promoting financial inclusion in India. It begins with an abstract that introduces financial inclusion as a means to eliminate poverty and promote empowerment. It then provides background on the extent of financial exclusion in rural India and the role of microfinance in addressing this issue. The main body of the document defines the SHG-Bank Linkage model and discusses its role in expanding banking outreach to promote greater financial inclusion. It examines the current status of the SHG Bank Linkage Model and concludes that it has played a critical role in the expansion of banking services and promoting greater access to financial resources for rural populations.
Bandhan Bank provides microfinance services focused on empowering disadvantaged women. It was founded in 2001 and is headquartered in Kolkata, India. Bandhan Bank offers savings accounts, term deposits, current accounts, and microloans for small businesses, agriculture, retail, and more. It operates primarily through the self-help group and joint liability group models. Bandhan Bank became a universal bank in 2014 and has over 2,000 branches across India serving over 6.6 million borrowers. The bank aims to alleviate poverty through expanding access to financial services.
Microfinance in Bangladesh: Red and Green LightsS Badruddoza
Microfinance in Bangladesh has evolved significantly since the 1970s. Pioneering organizations like Grameen Bank and BRAC began providing collateral-free loans and other financial services to the poor. Over time, the microfinance sector has expanded greatly, with over 35 million active borrowers by 2009. Quantitative studies have found that microfinance generally increases household incomes and expenditures, with impact estimates ranging from 10-50% increases compared to non-participant households. However, some criticisms argue that microfinance has not alleviated poverty and even led to over-indebtedness in some cases. Overall, microfinance has made important contributions but also faces ongoing challenges in achieving social and financial sustainability.
Financial Inclusion: Landscape and ChallengesJohnnyRizq
There are 2.5 billion unbanked adults around the world, mainly in developing economies. Financial inclusion is important because the lack of access to formal financial services limits the ability of poor communities to thrive economically, and also entails greater risks of fraud and theft. This presentation gives an overview of the status of financial inclusion, what it means, and how new technologies such as mobile money services could help give poor people in remote areas better access to reliable financial services.
The Indian banking sector consists of 26 public sector banks, 25 private sector banks, 43 foreign banks, 56 regional rural banks, 1,589 urban cooperative banks and 93,550 rural cooperative banks. Public sector banks control around 80% of the market. The document discusses the structure, market size, areas of banking (such as retail, corporate, microfinance), and provides a SWOT analysis of the Indian banking sector. It notes strengths like employment, GDP growth, and diversified services, as well as weaknesses like high non-performing assets and inability to reach underpenetrated markets.
This document discusses microfinance and building a sustainable microfinance sector in India. It begins by defining microfinance and outlining its current reach in India. It then discusses challenges like high operating costs due to low transaction values, geographic spread, and lack of infrastructure. The document proposes a three-track approach using existing financial institutions, new microfinance institutions, and community-based organizations. It examines multiple dimensions of sustainability and suggests legal and regulatory changes to promote sustainable microfinance institutions in India.
Microfinance has grown significantly in India, with over 92 million borrowers and a gross loan portfolio of $65.2 billion. However, a microcredit crisis emerged in 2010 in the Indian state of Andhra Pradesh, where suicide incidents among microcredit users fueled allegations against microfinance institutions. Andhra Pradesh has a large government-backed self-help group program as well as many private microfinance institutions, leading to over-indebtedness among some borrowers from taking on multiple loans. In response, the Andhra Pradesh government halted microfinance operations through an ordinance, though experts argue this could restrict access to financing and push borrowers to more expensive moneylenders instead of solving over-indebtedness through measures
The document discusses the history and current state of microfinance in India. It begins with an overview of what microfinance aims to be by providing small loans to impoverished individuals. It then discusses the rise and fall of microfinance institutions (MFIs) in India, from early growth in the 1980s-2000s to over-lending issues and client suicide crises in 2010-2011. The document analyzes factors that contributed to the MFI crisis in India, including exorbitant interest rates, client coercion, a focus on high growth over responsible lending, and multiple overlapping loans leading to over-indebtedness. It concludes by discussing regulatory options and the need for sustainable microfinance models going forward.
The document is a report from the Sub-Committee of the Central Board of Directors of Reserve Bank of India that studied issues in the microfinance sector. Some key points:
1) It recommends creating a separate category of NBFCs called NBFC-MFIs to specifically regulate microfinance institutions.
2) It proposes a definition for NBFC-MFIs as non-banking companies that provide small, short-term, unsecured loans predominantly to low-income borrowers.
3) It suggests various regulations for NBFC-MFIs regarding loan size, duration, collateral, and restricting loans to income-generating activities in order to protect vulnerable borrowers.
Financial inclusion – objectives - Micro finance as a Development Tool - The Indian Experience - Evolution and Character of micro finance in India - Micro finance Delivery Methodologies and models- Legal and Regulatory Framework- Impact of Micro finance - Revenue Models of Micro finance- Profitability, Efficiency and Productivity Emerging issues
The document discusses the evolution of microfinance from microcredit to broader financial inclusion services like savings and insurance products. It also discusses key challenges in microfinance, such as evolving reporting standards, increased demand for external assurance, and difficulties with valuation of investments given limited market data in developing markets. The document positions EY as an expert provider of services to microfinance institutions and investment vehicles, including audit, valuation, transaction advisory, and other services that can help clients address these challenges through EY's global expertise and experience in the microfinance industry.
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 service.
The document provides an overview of SKS Microfinance, including its business model, valuation process, and regulatory environment. SKS pioneered the joint liability group lending model and grew rapidly before facing difficulties in 2010. It valued itself using a branch-level valuation model that projected earnings and growth rates. Key recommendations from the Malegam Committee established regulations for the microfinance sector, including categorizing qualified NBFCs as NBFC-MFIs and capping interest rates.
The microfinance sector in India is at a crossroads after facing a crisis in 2010 in Andhra Pradesh that highlighted issues with some profit-seeking microfinance organizations. While microfinance has benefited many rural women, representatives at a recent forum discussed problems in the system and the need for responsible, ethical practices. Some key points discussed included the complementary but different roles of self-help groups and microfinance institutions, the need to design women-centered financial products, and ensuring microfinance integration with wider development efforts to truly empower women economically.
This document summarizes the results of a study on the role of microcredit in reducing women's poverty in Ethiopia through three microfinance institutions. The study found that:
1) The microfinance institutions did not adequately target poor women, as average loan balances were above 20% of per capita income.
2) Loan sizes were small and repayment schedules were too frequent, limiting their impact.
3) Women predominantly used loans for consumption and low-return businesses like food preparation, rather than higher-return investments.
4) While some positive impacts like increased consumption were found, microcredit did not significantly increase women's income, employment, or savings overall. The document recommends that microfinance institutions in Ethiop
This document provides a synopsis for a thesis that will examine the socio-economic development of women in self-help groups (SHGs) operated by four charitable non-governmental organizations (NGOs) in four villages across Tamil Nadu, India. The study aims to compare the performance of SHGs and identify factors for their success or challenges. A sample of 400 SHG women will be surveyed across the villages of Vannar Pettai, Manonjapatty, Palaa Vedu, and Samiyar Thottam, which are served by NGOs in Trichy, Thanjavur, Thiruvallur, and Chennai districts, respectively. Statistical tests will analyze the impact of SH
A Little World: Facilitating Safe and Efficient M-Banking in Rural IndiaAshley Metz
The initiative is led by a private sector organization, A Little World (ALW) and its sister entity, a non-profit organization, ZERO Microfinance and Savings Support Foundation (ZMF). ALW and ZMF act as intermediaries between rural communities at one end, and mainstream financial institutions and the government at the other end. ALW offers a secure, low‐cost technology driven delivery platform for financial services through special mobile phones that store and help manage a vast amount of customer bank account data, authenticates account holders through photo and biometric identification and allows access to the bank accounts as Point of Service terminals. Since its pilot project in 2006, ALW and ZMF have rapidly grown and are now present in 22 states, with over four million rural customers, 8,314 points of presence and an average of 25,000 new account openings every day.
Alternative Sources of Funding for Micro EnterprisesMd. Ashraful Alam
This document discusses alternative sources of funding for micro enterprises. It defines micro enterprises as very small businesses with fewer than 6 employees. While banks provide some funding, micro enterprises often rely on alternative sources due to their small size and risk. The document lists various alternative funding options around the world such as microloans, credit unions, leasing, factoring, and government programs. It also discusses Bangladesh's experience, noting that over 90% of micro enterprise funding comes from alternatives like microfinance institutions, credit cooperatives, and trade financing. The main challenges with alternative funding are lack of regulation, high interest rates, and risks like adverse selection and moral hazard.
“Financial Inclusion in SHG-bank Linkage Model under SGSY with special refere...iosrjce
Financial Inclusion is a very big challenge to banking sector. Till now most of the banking facilities
are not reaching to deprive. Micro financing through SHGs is a vital weapon for poverty eradication. But due to
lack of uniformity it is not complete its target efficiently. In this paper try to focus on the financial inclusion in
SHGs-Bank Linkage Programme under SGSY scheme in Jhansi district. SBLP is the banking link with poors to
uplift their socio-economoc, health, nutrition, insurance, saving, education aspects. It is an attempt to clarify
how much this programme reach to beneficiaries of SHGs.
The present study differs from previous studies as it is focused its basic cause for reduction in quality numbers
of SHGs come out after complete all stages. Further, this paper tries to access the grass root issues relating to
SHGs and the normal course in decrease the number of SHGs at last stage in the study area. The study is
undertaken in four development blocks of jhansi Districts of Uttar Pradesh during 2009-13. It is observed that
due to fast growing of the SHG-bank linkage programme, quality credit linked SHG has not cover all stages of
the programme.. Some of the factors affecting the decline of SHGs are the target oriented approach of the
government in preparing group, inadequate incentive to NGO’s for nurturing their groups etc.
A research proposal on the Impacts of Microfinance in KenyaFred Mmbololo
This document outlines a proposed research study on microfinance awareness and impact in Nairobi County, Kenya. The study aims to determine the level of awareness of microfinance services among Nairobi residents and assess the impacts of microfinance on economic and social development. The researcher plans to survey Nairobi residents on their familiarity with local microfinance institutions and perceptions of how microfinance has affected areas like income, assets, education, and empowerment. The results could provide insight for microfinance institutions, government, and academics on the reach of services and viability of continued support for microfinance in Kenya.
This document is a research project submitted by Kennedy Nyabwala to Maseno University in partial fulfillment of a Bachelor of Business Administration degree. The research examines the impact of microfinancing on the performance of small and medium enterprises in Kisumu Central Business District, Kenya. It includes an introduction providing background on microfinancing concepts and the microfinance industry in Kenya. The study aims to determine if local SMEs have obtained loans from microfinance institutions, if loan recipients have repaid as required, and if financing has helped SMEs grow. The significance of the research is recognizing the importance of microfinancing for SME development.
Self help group (shg) bank linkage model - a viable tool for financial incl...Alexander Decker
This document discusses the Self Help Group (SHG) - Bank Linkage model as a tool for promoting financial inclusion in India. It begins with an abstract that introduces financial inclusion as a means to eliminate poverty and promote empowerment. It then provides background on the extent of financial exclusion in rural India and the role of microfinance in addressing this issue. The main body of the document defines the SHG-Bank Linkage model and discusses its role in expanding banking outreach to promote greater financial inclusion. It examines the current status of the SHG Bank Linkage Model and concludes that it has played a critical role in the expansion of banking services and promoting greater access to financial resources for rural populations.
Bandhan Bank provides microfinance services focused on empowering disadvantaged women. It was founded in 2001 and is headquartered in Kolkata, India. Bandhan Bank offers savings accounts, term deposits, current accounts, and microloans for small businesses, agriculture, retail, and more. It operates primarily through the self-help group and joint liability group models. Bandhan Bank became a universal bank in 2014 and has over 2,000 branches across India serving over 6.6 million borrowers. The bank aims to alleviate poverty through expanding access to financial services.
Microfinance in Bangladesh: Red and Green LightsS Badruddoza
Microfinance in Bangladesh has evolved significantly since the 1970s. Pioneering organizations like Grameen Bank and BRAC began providing collateral-free loans and other financial services to the poor. Over time, the microfinance sector has expanded greatly, with over 35 million active borrowers by 2009. Quantitative studies have found that microfinance generally increases household incomes and expenditures, with impact estimates ranging from 10-50% increases compared to non-participant households. However, some criticisms argue that microfinance has not alleviated poverty and even led to over-indebtedness in some cases. Overall, microfinance has made important contributions but also faces ongoing challenges in achieving social and financial sustainability.
Financial Inclusion: Landscape and ChallengesJohnnyRizq
There are 2.5 billion unbanked adults around the world, mainly in developing economies. Financial inclusion is important because the lack of access to formal financial services limits the ability of poor communities to thrive economically, and also entails greater risks of fraud and theft. This presentation gives an overview of the status of financial inclusion, what it means, and how new technologies such as mobile money services could help give poor people in remote areas better access to reliable financial services.
The Indian banking sector consists of 26 public sector banks, 25 private sector banks, 43 foreign banks, 56 regional rural banks, 1,589 urban cooperative banks and 93,550 rural cooperative banks. Public sector banks control around 80% of the market. The document discusses the structure, market size, areas of banking (such as retail, corporate, microfinance), and provides a SWOT analysis of the Indian banking sector. It notes strengths like employment, GDP growth, and diversified services, as well as weaknesses like high non-performing assets and inability to reach underpenetrated markets.
This document discusses microfinance and building a sustainable microfinance sector in India. It begins by defining microfinance and outlining its current reach in India. It then discusses challenges like high operating costs due to low transaction values, geographic spread, and lack of infrastructure. The document proposes a three-track approach using existing financial institutions, new microfinance institutions, and community-based organizations. It examines multiple dimensions of sustainability and suggests legal and regulatory changes to promote sustainable microfinance institutions in India.
Microfinance has grown significantly in India, with over 92 million borrowers and a gross loan portfolio of $65.2 billion. However, a microcredit crisis emerged in 2010 in the Indian state of Andhra Pradesh, where suicide incidents among microcredit users fueled allegations against microfinance institutions. Andhra Pradesh has a large government-backed self-help group program as well as many private microfinance institutions, leading to over-indebtedness among some borrowers from taking on multiple loans. In response, the Andhra Pradesh government halted microfinance operations through an ordinance, though experts argue this could restrict access to financing and push borrowers to more expensive moneylenders instead of solving over-indebtedness through measures
The document discusses the history and current state of microfinance in India. It begins with an overview of what microfinance aims to be by providing small loans to impoverished individuals. It then discusses the rise and fall of microfinance institutions (MFIs) in India, from early growth in the 1980s-2000s to over-lending issues and client suicide crises in 2010-2011. The document analyzes factors that contributed to the MFI crisis in India, including exorbitant interest rates, client coercion, a focus on high growth over responsible lending, and multiple overlapping loans leading to over-indebtedness. It concludes by discussing regulatory options and the need for sustainable microfinance models going forward.
The document is a report from the Sub-Committee of the Central Board of Directors of Reserve Bank of India that studied issues in the microfinance sector. Some key points:
1) It recommends creating a separate category of NBFCs called NBFC-MFIs to specifically regulate microfinance institutions.
2) It proposes a definition for NBFC-MFIs as non-banking companies that provide small, short-term, unsecured loans predominantly to low-income borrowers.
3) It suggests various regulations for NBFC-MFIs regarding loan size, duration, collateral, and restricting loans to income-generating activities in order to protect vulnerable borrowers.
Microfinance aims to provide financial services like credit, savings, insurance and money transfers to low-income households and micro-entrepreneurs. It is delivered by microfinance institutions (MFIs) through small loans with group lending. Shortcomings include overdependence on donors, high interest rates, lack of regulations and difficulty reaching remote areas. The State Bank of Pakistan has launched various initiatives like credit guarantee facilities, funding programs and partnerships to strengthen the microfinance sector and promote financial inclusion.
Constraints to the Development of Microfinance Sector in PakistanAyesha Majid
The Growth rate of Pakistan’s Microfinance Sector is not as high as expected. The anticipation was rise in sector growth once it enters the growth stage from the introductory stage but this has failed to happen. The paper aims to look at the reasons because of which the formal sector has growth rate lower then what international agencies like ADB and the federal government expected. For this 10 year data of the sector has been analysed from start of growth period in 2007 to 2016. The main constraints faced by the sector are access, sustainability, innovation, efficiency and risk management.
This study examines the current environment of financial market in Pakistan against the contextual history of sustained fundamental limitations that refrain the sector’s growth.
Microfinance in India provides small loans, savings, and insurance to low-income individuals who lack access to traditional financial services. Common microfinance models in India include self-help groups and programs based on the Grameen Bank in Bangladesh. The microfinance sector has grown substantially over the past decade but still reaches only a small portion of the rural poor. Ongoing challenges include expanding access to remote areas, developing new products, and attracting long-term financing for continued growth.
P2P lending –a “financial intermediary in social democracy” – indian scenarioPrashanth Ravada
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This document summarizes the state of the microfinance sector in India in 2011. It discusses key events like the crisis in Andhra Pradesh in 2010 where unethical loan collection practices by MFIs led to borrower suicides, resulting in new regulation. It also outlines recommendations to reform the sector through the Malegam Committee, the features of the new National Rural Livelihood Mission, ongoing challenges, trends in the global and investment climate for microfinance in India, and the future outlook. The conclusion is that 2010 was a difficult year for the sector due to the AP crisis but there is hope it can recover through reform.
The document discusses the future of microfinance in India. It notes that microfinance has expanded rapidly in recent years, with membership in associations growing and loan amounts outstanding increasing significantly from 2001-2004 and 2001-2005 for various microfinance programs and institutions. It also discusses the growing partnership models between banks and MFIs, and innovations in how banks provide funding to MFIs. Going forward, it emphasizes the need for greater financial literacy, product differentiation, and ensuring client empowerment through education on loan terms and conditions.
M. Nagappa is a fruit vendor in Bangalore who supports his family of 6 back in Tamil Nadu. He borrows Rs. 8,500 from his uncle every 3 months to fund his pushcart business, repaying Rs. 100 daily at an annual interest rate of 120%. His daily expenses include Rs. 2 for using the bathroom, Rs. 3 for washing his face, Rs. 50 for food, and bundled services of Rs. 10 for bathing and Rs. 15 for washed and ironed clothes every 3 days.
Financial inclusions a pavement towards the future growthTapasya123
This document discusses financial inclusion in India and its importance for future growth. It summarizes various committees established by the Reserve Bank of India to promote financial inclusion. Key recommendations include expanding access to banking services in rural areas through business correspondents, developing differentiated banking licenses, and setting targets to provide universal access to bank accounts. However, progress on financial inclusion has been mixed as many rural villages and small businesses still lack access to formal financial services. More work is needed to make financial inclusion programs sustainable and ensure the unbanked population can benefit from banking.
This study analyzed the factors affecting loan repayment performances in Microfinance Institutions (MFIs) with
a case study of (Promotion of Rural Initiatives and Development Enterprises) PRIDE Arusha, Tanzania. The
study used both quantitative and qualitative techniques to investigate factors affecting loan repayment
performances. The findings show that clients’ characteristics (age, household size, gender and level of
education), nature of business (business type, business stability and income level) and loan characteristics
(repayment period, repayment mode, and repayment amount) were among the factors that influenced borrowers
in repaying their loans. Lack of business knowledge was another factor mentioned by clients which leads to low
productivity hence failure to have enough fund to repay their loans.
The study further revealed that there was a significant relationship between loan repayment performances with
clients’ businesses challenges, loan diversification to other non-income activities, and other outside factors such
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The document provides an industry profile of microfinance institutions (MFIs) in India. It discusses that MFIs provide small loans and other financial services to low-income groups. The microfinance industry in India has experienced rapid growth in recent years, reaching over 200 million customers. However, there remains significant unmet demand as many parts of India remain underserved by MFIs. The industry is fragmented with over 3000 MFIs, though the top 10 companies account for around three-quarters of the total loan portfolio. Continued growth is expected, but regulations and competition will impact the future trajectory of MFIs in India.
Microfinance has existed informally in India for ages, but the legal framework and institutions to support it have developed over time, starting in the early 20th century. Currently, an estimated 350 million people live below the poverty line in India, but formal microfinance has only reached around 5% of the rural poor. There remains a large unmet demand for financial services among the poor. While microfinance institutions have grown, challenges remain in achieving sufficient scale, access to low-cost funding, developing appropriate legal structures, and balancing financial sustainability with an inclusive development agenda.
The document summarizes a study on loan recovery procedures used by selected microfinance institutions in Dar es Salaam, Tanzania. It provides background on the genesis of microfinance institutions in Tanzania. It then discusses the key legal aspects around loan recovery procedures in Tanzania as established in the Microfinance Policy of 2017, Microfinance Act of 2018, and Microfinance Regulations of 2019. These laws aim to protect borrowers' rights while also outlining formal procedures for loan recovery and debt collection. The study examined the specific procedures used by three microfinance institutions in Dar es Salaam for recovering loans from borrowers, such as direct contact, reminders, and issuing demand notices.
This document discusses microfinance and strategies for building a sustainable microfinance sector in India. It begins by defining microfinance and outlining its current reach in India. It then examines challenges like high operating costs due to low transaction values and lack of infrastructure. The document proposes a three-track approach using mainstream financial institutions, new microfinance institutions, and community-based organizations. It also discusses the multiple dimensions of sustainability and makes recommendations to strengthen the legal and regulatory framework to promote sustainable microfinance institutions in India.
The document discusses trends in the microfinance industry globally and in India. Key points:
- Microfinance institutions (MFIs) have played a large role in addressing financial inclusion, though 2 billion people still lack access to financial services.
- Growth has been uneven globally, with some regions slowing down due to economic factors while Asia/Africa are growing. However, significant potential remains as financial exclusion is still widespread.
- In India, while inclusion has increased, banks have traditionally not focused on lower income groups. MFIs emerged to address this need, though their role in the ecosystem has changed over time.
World Investor Week is a global campaign held each October to raise awareness about the importance of investor education and protection. It is organized by IOSCO, the international body that groups together securities regulators. During WIW, IOSCO members in over six continents conduct activities such as launching communications, promoting contests, organizing workshops and conferences, and running local campaigns focused on investor education and protection. WIW brings together investor education stakeholders at both the local and international levels. It aims to empower investors and build financial resilience.
The document discusses reforms needed for India's financial system. It notes that India's financial system is underdeveloped but its economy has made progress. Key steps discussed to mobilize funds more effectively include: increasing bank penetration in India by reducing dormant accounts and encouraging debit card usage; reducing the cost of bank intermediation by improving property rights and contract enforcement; lowering the fiscal deficit by cutting government spending or increasing taxes; and developing capital markets through investor education, innovative products, and encouraging domestic institutional investment. Overall the recommendations are for India to capture more savings, privatize industries, reduce subsidies, improve tax collection, and create a more organized business environment to strengthen its financial system.
Commercial banks are beginning to recognize microfinance as a viable market and offer financial services like loans, deposits, and money transfers to low-income households and small businesses. While banks have advantages over non-bank microfinance institutions like established infrastructure and access to deposit funding, they also face challenges in adapting traditional banking practices to the needs of poor clients. The document discusses various approaches banks can take to engage in microfinance, such as direct lending, creating a microfinance subsidiary, or partnering with existing microfinance organizations.
Similar to Microfinance in India: The way forward (20)
1. 1
MICROFINANCE IN INDIA: THE WAY FORWARD
Analysis of non-ideal conditions for competition between MFIs in India
ABSTRACT:
Amidst immense optimism, microfinance industry in India saw a meteoric rise in past
decades, with the number of MFIs increasing from 2 in 1995 to as many as 121 in 2009.
Microfinance was lauded as a silver bullet for both eradicating poverty and for bringing
people under the folds of financial inclusion. Though after a shocking report by Associated
Press linking over 200 suicides to coercive loan recovery practices used by leading MFI SKS
microfinance, state government of Andra Pradesh waived off about $1.5 billion of loans,
bringing microfinance in micro lending “hub” of India to a standstill. This was attributed as a
direct result of the fierce competition between MFIs in India, which stem from lack of
necessary regulatory framework. The following essay focuses on the conditions leading up to
this predicament, and recommends regulations that would promote cohesion and coexistence
rather than cut throat competition and promotes interest for greater good.
INTRODUCTION:
Grameen Bank, taking wings from small project undertaken by Prof. Yunus of Chittagong
University in 1976 Bangladesh, has now grown into a noble prize winning organization with
branches in over 83,000 bangladeshi villages. Success of Grameen Bank in Bangladesh has
attracted a lot of attention in recent years towards microfinance, of policy makers and
academics alike. Advocates of microfinance argue that access to finance can substancially
reduce poverty (Dunford, 2006; Littlefield, Morduch and Hashemi, 2003).
Microfinance had been lauded as a silver bullet to eradicate poverty in developing nations.
With India being home to 1/3rd
of the world’s poor, microfinance was touted as the next big
thing for poor borrowers and investors alike. Given that banks have as low as 7% penetration
in rural India, microfinance institutions were also envisioned as a promising conduit to bring
the unbanked section of the society under the folds of financial inclusion, which is a prime
national objective of recent times. When SKS microfinance, then India’s biggest
microfinance institution (MFI), went public in 2010, its IPO was oversubscribed 13 times,
which indicates the positive investor sentiment.
2. 2
Leading up to fall of 2010, microfinance institutions were experiencing a large influx of
equity and debt investment. Some institutions were doubling their size each year, aiming to
reach more customers and serve more areas.
But there was a darker side to this picture. The MF industry was plagued with numerous
issues, largely stemming from lack of governing regulatory framework, which has lead to far
from ideal conditions for competition. MFIs are forbidden from raising funds by collecting
deposits, which leads to MFIs converting to for-profit organizations and going public, which
puts greater strain to cut corners and achieve greater profits. As institutions scaled up quickly,
hiring and training processes were less thorough, resulting in employees who engaged in
inappropriate collection practices and lending models that led to customer over-indebtedness.
Microfinance suffered a huge blow in late-2010s when state government of Andra Pradesh
waived off nearly 1.5 billion worth of loans spread across over 9 million borrowers,
following a report by Associated Press that directly linked over 200 suicides in the state to
the coercive practices used by SKS to recover loans (Andra Pradesh Microfinance Ordinance,
20101
). Andra Pradesh being the state of most extensive microfinance industry, this move
crippled the industry to a great extent. The industry is yet to recover from this decree, which
many believe to be politically motivated. Banks are, to date, still apprehensive about
providing loans to MFIs. SKS microfinance faced the worst of it, with its current stock price
being around Rs. 140, down from well over a thousand in 2010.
This entire debacle woke regulators from their stupor and a made them realize the need for
regulations in microfinance industry. Setting up of Malegam committee and tabling of
Microfinance Institutions Bill in 2011, are some major steps taken in this direction.
ISSUES WITH CORRESPONDING RECOMMENDATIONS AND REGULATIONS:
1. Collection Practices
As noted from the SKS experience, despite all the success of microfinance, there is
still lot of skepticism around it. Any reports and candid interview stating use of
abusive practices to collect loan results in dire consequence for the firm in question.
Therefore, collection practices needs to restructured, so as to avoid any such thing
from happening in the future. Some recommendations are:
• Sanctioning and disbursement of loans should be held at a central location.
• Collection of loans should be done in groups, rather than individually.
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• Agents should be forbidden to visit borrower at his place of residence.
• More than one individual should be responsible for sanctioning and
disbursement.
• MFIs and the management teams should be severely penalized if coercive
methods of recovery are used.
2. Documentation and Transparency
MFIs, in order to make their products look less expensive and more attractive, are
disguising their actual/effective interest rates (better known as the Annualized
Percentage Rates – APR) by including other charges like service charge, processing
fee etc. This limits the bargaining power of the barely literate borrowers and often
borrowers end up borrowing more than they can pay back, resulting in greater number
of defaults, which eventually hurt balance sheets of the MFIs itself. Steps that can be
taken in this regard include:
• Chalking out a standard loan agreement.
• Effective rate of interest should be displayed in all offices and relevant
literature.
• Borrowers should be provided with a loan card, containing information related
to the loans, acknowledgement of recent payments, and information to unique
identify the borrower.
3. Multiple lending and Defaults:
Presence of multiple MFIs, all eager to attain stronghold in an increasingly saturated
market, leads to a single borrower procuring loans from multiple source. In absence of
any collateral or legal instrument, this leads to a greater number of defaults (R
Shrinivasan, 20072
). At times a single institution is responsible of issuing multiple
loans. Possible measures that can be taken in this regard include:
• Setting up of Credit Information Bureau and MIS, with mandatory
membership of the all MFIs. This would help MFIs to easily identify potential
defaulter, by looking into his/her credit history and pending loans.
• Based on credit history and current ability of paying back, maximum amount
of loan that can be disbursed to an individual must be capped.
4. Cluster formation (Margin and interest rate cap)
MFIs in India have very less penetration in rural India, which can be attributed to the
high initial costs of entering a new district. This not only leads to fierce competition
4. 4
within these districts, but also results in majority of districts not getting the benefits of
microfinance. This phenomenon is termed as Cluster formation. To make matters
worse, margin and interest rate cap are uniform. It further results in the reduction of
financial services in various areas and populations where returns do not justify the
operating costs. Following measures can mitigate this scenario:
• Logistical support and financial incentives in form of subsidies should be
provided to the MFIs for entering new districts.
• Margin and Interest rate cap should be vary with respect to the area and
specific section of the population.
5. Accepting deposits:
Primarily collecting deposits has funded many of the successful MFIs all around the
world. Government of India forbids Indian MFIs from doing so unless they obtain an
investment grade rating. Since, uncollateralized loans are considered risky by the
rating agencies, MFIs very rarely get this rating. This step was taken to ensure that
citizens deposit their savings only in those institutions that are considered as stable
and reliable i.e. the banks. This law was not formed keeping MFIs in mind, and thus
is clearly outdated. Therefore, MFIs should be allowed to collect deposits.
Furthermore, there is a cap on the maximum FDI on basis of capitalization of the
firm. And to make matters worse, Banks are very skeptical about lending to these
institutions.
6. Financial Education Training
Access to financial services is not the only component of financial inclusion. It also
entails person’s ability to read and interpret term and conditions of the loans before
signing a loan document. Many MFIs claim to have their own educational and
training programs, in many of these person is only taught to sign his/her name apart
from few other basic details. Therefore, these steps should be undertaken:
• Development of standard training modules designed to equip an illiterate
borrower with ability to choose optimum loan arrangement.
• Strong enforcement of these training standards.
7. Flexible payment cycles:
Currently, payments are collected in small and regular installments. It would make
much more sense if the payment cycle were made flexible according to the purpose of
loans. For example, in case of farmers it would make more sense to collect payments
5. 5
at the end of cropping season.
8. Hiring and Training processes
India has a huge potential market of MFIs to flourish. This is the prime reason of the
meteoric rise of MFIs in past decade. Even after being jolted in 2010, microfinance
institutions showed over 17% growth in number of borrowers in year 2010-2011. In
midst of such rapid growth, focus on hiring and training process in often lost. This is
undesirable because people at all level of the organization need to be fully aware of
the quantitative and qualitative performance objectives that clearly defines the
behavior expected such as honesty, respect, transparency etc.
This calls for rethinking more extensive and thorough training process for new
recruits, which stresses on social over financial returns.
CONCLUSION:
Learning from past experience, we observe that the neo-liberal theory of free markets fails in
microfinance, at least to some extent. Hence, to is essential to rethink how the market forces
and incentives structure for various stakeholders are structured. The industry is confined to
certain established markets, with firms engaging in cutthroat competition. Microfinance are
set up with primary objective to bring about social benefit, rather than financial benefit.
Though in current Indian scenario, turbulent grow and lack of regulations make it hard to
keep track of their objective. Therefore, it is incumbent to chalk out regulations to reap full
potential benefits of microfinance and to promote cohesion between different MFIs for
greater social good.
References:
1. C.P. Chandrashekher, “Whatever happened to microfinance?” The Business Line,
September 17, 2010, http://www.thehindubusinessline.com/opinion/columns/c-p-
chandrasekhar/article3907679.ece?homepage=true.
2. Status of Microfinance in India, 2012, NABARD,
http://www.nabard.org/departments/pdf/Status%20of%20Microfinance%202011-
12%20full%20book2.pdf.
3. Kenny Kline and Santadarshan Sadhu, “Microfinance in India: A New Regulatory
Structure”, http://www.centre-for-microfinance.org/wp-
content/uploads/attachments/csy/1602/IIM%20Regulation%20V11.pdf.
6. 6
4. Vishal Vivek Jacob, “Microfinance: Current status and Growing Concerns in India”,
Avant Garde, October 1, 2011,
http://www.iitk.ac.in/ime/MBA_IITK/avantgarde/?p=475.
5. Peg Ross, “Learning from the Indian Microfinance Crisis” CGAP, December 15,
2010, http://www.cgap.org/blog/learning-indian-microfinance-crisis.
6. R Srinivasan, “Measuring Delinquency and Defaults in Microfinance Institutions”
March, 2007, http://www.iimb.ernet.in/microfinance/Docs/MFIDelinquencyWP.pdf
7. State Government of Andra Pradesh, “Andhra Pradesh Ordinance 2010”, October,
2010. http://indiamicrofinance.com/wp-content/uploads/2010/10/Andhra-MFI-
Ordinance.pdf.
8. Vijay Mahajan, “Rebuilding a Stronger Microfinance Sector in India”, July 26, 2010,
http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4696
9. Elizabeth Rhyne, “On Microfinance: Who's to Blame for the Crisis in Andhra
Pradesh?”, February 23, 2013, http://www.huffingtonpost.com/elisabeth-rhyne/on-
microfinance-whos-to-b_b_777911.html
10. Margeriti Stancati, “A new beginning for microfinance in India?”, December 14,
2011, http://blogs.wsj.com/indiarealtime/2011/12/14/a-new-beginning-for-
microfinance-in-india/