MFIs, SHGs and NGOs

1. Ag.Econ 509-Agricultural finance
and project management(2+1)

3. Meaning
Microfinance:
Microfinance is the supply of loans,
savings, and other basic financial services to
poor.
Micro finance institutions:
It is an organization that offer financial
services, ranging from small non profit
organisation to large commercial banks.

4. ORIGION
• The micro finance programme first initiated in the
year 1976 in Bangladesh.
• Microfinance combines the strengths of both
formal and informal systems of purveying credit.
• Informal system - chit funds - immemorial.
Formal system - cooperative movement in
India

5. • The positive aspects of formal financial system
are that under this system, micro-credit is
available at low rate of interest with easy and
periodical repayments and moratorium(Existing
only for period of time) period.
• The most important aspect of this type of credit
is that it is available for income generating
activities.

6. • The same time micro-credit from formal
financial system is not easily available,the
system requires collateral or security.
• It has complex, legal and operational
procedures, involving lot of paper work.
Since the process of credit disbursement is
time consuming, many times credit is not
available when required.

7. WHO REGULATES MFI’S IN INDIA
• MFI’S Primary representative body and self
regulatory organization(SRO) for Non banking
finance companies (NBFC)
• MFI’S regulated by RBI.

8. CONCEPT AND FEATUTES
 The microfinance is primarily based on the principles
of co-operation namely, mutual help, democratic
functioning.
 It is tool for empowerment of poorest.
 Delivery is through Self help groups.
 It is essentially for promoting self employment.
 Tool for social change, specially for women.

9.  The emergence of microfinance's prime objective is to
bridge the gap between demand and supply of funds in
the lower rungs of the rural economy.
 The formal sector took the initiative to develop a
supplementary credit delivery mechanism by
encouraging institutional arrangements outside the
financial system with the launching of NABARD's pilot
scheme.
 Microfinance to cure the illness of rural poverty
gained visibility on the India development landscape.

10. MFI’S –FORMAL SYSTEM
• The following are the major support institutions in
India.
 NABARD- National Bank for Agriculture and Rural
Development
 Rashtriya Mahila Kosh
 SIDBI - Small Industries Development Bank of India
 Tamil Nadu Women's Development Corporation

11. Rastriya Mahila Kosh(RMK)
 RMK established in march 1993 –Autonomous body
under MoWCD.
 RMK provide loan to NGOs- MFIs termed as
intermediate organization which on lend to SHGs on
women
Loan scheme for RMK:
1. Loan promotion scheme
2. Main loan scheme
3. Gold credit scheme
4. Housing loan scheme
5. Working capital term loan
6. Repeat loan scheme

12. Scheme Eligibility Total amount
Loan promotion scheme 6 months (Thrift & credit) Max 10 lacks
Main loan scheme Min 3 year 2 crore per state (3 state)
Gold credit scheme Bulk loan to NGOs Max 5 Crores
Housing loan scheme NGOs & IMOs Max 1 lacks
Working capital term loan Based on the purpose 50 lacks – no security
50 lacks to 1 crores - 10%of
margin to be fixed deposit
Repeat loan scheme NGOs / IMOs must have
repaid 80% of previous loan
without any break

13. Small Industry Development Bank of
India
• SIDBI established 2 April -1990,Luknow.
• It is primary Financial Institution for promoting
Developing and financing MSME(Micro,Small and
Medium Enterprises) sectors.
Financial Facilites Offered by SIDBI:
Direct Finance
Indirect Finance
Micro Finance

14. HOW TO APPLY FOR LOAN
• Recognized consultant prepare the Basic
Information Memorandum(BIM)
• Then submit BIM to SIDBI
• In case required, the proposal rated by rating
agency which is approved by RBI.
• Other cases application for the loan submitted to
PSB.SIDBI has MoU with PSBs.

15. GOAL FOR MFI’S
• To improve the quality of life of the poor by providing
access to financial and support services.
• To mobilize resource in order to provide financial and
support services to poor, particularly woman, for viable
productive income generation enterprises enabling
them to reduce their poverty.
• Learn and evaluate what helps people to move out of
poverty faster.

16. • To create opportunity for self employment.
• To train rural poor in simple skills and enable
them to utilize the available resources and
contribute to employment and income
generation in rural areas.

17. Self Help Groups(SHGs)
• SHGs is a small group of rural poor, who have
voluntarily come forward to form a group of
improvement of the social and economics status
of the members.
• SHGs also know as mutual help, mutual aid, and
support groups.
• SHGs function on the basis of co operative
principal.
• Every members to save small amounts regularly.

18. • SHGs have been able to mobilize small saving
either on weekly or monthly basis from
person who were not expected to have any
saving.
• They have been able to effectively recycle the
resources generated among the members for
meeting the emergent credit needs of
members of the group.

19. CONDITION
• Members should be between the age group
21-60 years.
• Members should be homogenous (same social
and financial background)
• From, one family one person become a
member member of an SHG.
• The group normally consist of either only men
or only women.
• Members should be rural poor.

20. NEED OF SHGs
• The very existence of SHGs highly relevant to
make the people of below poverty line
hopeful and self-relient.
• SHGs enable them to increase their Income,
standard of living and status in society.
• It act as the catalyst for bringing this section of
society to the main stream.

21. GOVERNMENT INITIATIVES
 In the year 1992, the National Bank for
Agriculture and Rural Development (NABARD)
introduced pilot project for linking 500 Self-Help
Groups (SHGs) with banks, after thorough
discussions with the RBI, commercial banks and
non-governmental organizations (NGOs).
During the ninth plan(1997-2000) emphasis
participation of women in the planning process
and promotion of self help groups.

22. • Among the various programmes SGSY is an
important one .this programme was launched on
1 April,1999 at 75:25 costs sharing between
central and state governments.
• The main objectives of the programme to bring
beneficiaries above the poverty line by providing
income generating assets to them through bank
credit and subsidy.
• SHGs are the major components of this scheme.

23. Three stages of evolution:
I. Group formation
II. Capital formation
III. Skill development and taking up economic
activity for income generation.

24. TYPES OF SHG-BANK LINKAGE MODEL
• Banks forms SHGs and finance them
• NGOs forms SHGs and bank finance them
• NGOs and other agencies, as financing
intermediaries between bank and SHGs.

25. NABARD gives 100 per cent refinance under SHG linkage
programme at an interest rate of 6.5 per cent to banks.
The interest rate structure stipulated by NABARD under
linkage programme is as
NABARD to banks (Refinance) : 6.5 % per annum
Bank to SHGs : 12 % p.a. + interest + tax
Bank to NGOs : 10.5 % p.a. + interest + tax
NGOs to SHGs : 12 % p.a. + interest + tax
SHG to members : As decided by SHG

26. Objectives
• To inculcate saving and banking habit among
members.
• To secure them from financial, technical and
moral strength.
• To enable availing of loan for productive
purposes.
• To gain economic prosperity through loan/credit.
• To gain from collective wisdom in organizing and
managing their own finance & distribute the
benefits among themselves.

27. • To create group feeling among women.
• To enhance confidence and capabilities of
women.
• To develop collective decision making among
women.
• To motivate women taking up social
responsibilities.
• Its act as a forum for members to provide
space and support to each others.

28. Non Governmental
Organisation(NGOs)
• NGOs or Voluntary Agencies or Voluntary
organisation committed for the uplifting of
poor.
• NGOs are flexible in their operation,
independent in its functioning, quick decision
making people concerned driven by social
value and humanitarian principles.

29. NGOs
• NGO also called NPO(Non Profit Organisation)
• The term NGO is first coined in 1945,when
the united nations was created.

30. Census
• The number of NGOs world wide estimated to
be 10 million.
• Russia had about 2,77,000 NGOs in 2008.
• India had around 2 million NGOs in 2009, just
over one NGO per 600 Indians.
• China - 4,44,000
• US - 1.5 million

31. Loan disbursement
NGO-MFI
G BANK
OTHERS
GOB
18%
38%
35%
9%

32. TYPES OF NGOs
Based on the orientation:
 Charitable
 Service
 Participatory
 Empowerment
Based on the level of cooperation:
 Community based
 City wide organization
 National
 International

33. ROLE OF NGOs
• To motivate rural people to organize
themselves and form into SHGs.
• To educate, train the group members
managing activities like maintenance of book
accounts, conducting meeting, etc
• To help SHGs in identifying raw materials and
local resources.

34. • To educate group members to upgrade their skills
and technology to make best use resources.
• To make available credit facilities and to act link
between rural poor and the bank.
• To work facilitator in the meeting of SHGs
• To act as a friend, philosopher, and guide to SHGs

35. By
Hemagandhi S(M.Sc-Agr Economics)