1. MICRO - FINANCE Microfinance is the provision of financial services to low-income clients or solidarity lending groups who traditionally lack access to banking and related services. “Business must be for Profit, but Profit must also be for Purpose”
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3. They don’t have a stable income or a verifiable credit history
4. They fall below the break-even point.*Collateral : the security for repayment a bank asks before giving loan
9. Following up on non-repayment.There is a break-even point in providing loans or deposits below which banks lose money on each transaction they make. Poor people usually fall below that breakeven point.
10. Due to all these reasons, the poor cannot meet even the most minimal qualifications to gain access to traditional financial services And here comes the need for “MICROFINANCE” The poor are Bankable
11. What are the financial services that need to be provided ? Appropriate financial services needs Before answering this question, let us see what are the needs of the poor people ?
35. They did not always see lower interest rates as adequate compensation for : The costs of attending meetings. Attending training courses to qualify for disbursements. Making monthly collateral contributions.
36. The most important principle of Microfinance !!! “Access to Financial services are a constraint for the poor and not the interest rates”
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38. Ideas relating to microcredit were mentioned in portions of the Marshall Plan at the end of World War II.
44. Different models for Microfinance Sec 3 Joint Liability Group (JLG) Model Self Help Group (SHG) – Bank linkage Model Peer to Peer Lending Model orIndividual Lending (considered to be the future of Microfinance.)
51. Training sessions : hierarchy of organization, way of working, centers and groups, rules and regulations, various services, interests, book keeping skills.
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54. After there are sufficient funds in the group, the group is ‘linked’ to banks such as NABARD through NGOs for the delivery of microcredit . NGOs act as intermediary between Banks and SHGs – Bank formalities, provide training, etc.The group has a savings account in the bank.
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56. The development of theP2P lending was further boosted by the global economical crisis in 2007-2010 at the time when banks and other traditional financial institutions were having fiscal difficulties.
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58. Microfinance in India Sec. 4 List of Major Microfinance Institutions in India : SKSMicrofinance Limited (SKSMPL) – Secunderabad (A.P) - private limited SpandanaSphoorty Financial Ltd (SSFL) – Hydereabd (A.P) – public limited Share Microfin Limited (SML) – Hyderabad (A.P) – public limited AsmithaMicrofin Ltd (AML) – Hyderabad (A.P) – public limited ShriKshetraDharmasthala Rural Development Project (SKDRDP) – Karnataka – public limited
64. Number of depositors = 2.0 millionOnly 20% of the market has been reached yet !!!
65. Financial Profile for SKS : Gross loan portfolio = USD 960.8 million Number of active borrowers = 5.8 million Average loan balance per borrower = USD 165.8 Total assets = USD 897.9 million Financial Profile for SpandanaSphoorty: Gross loan portfolio = USD 787.3 million Number of active borrowers = 3.7 million Average loan balance per borrower USD = 214.9 Total assets = USD 647.3 million
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67. The MFIs should specify the area of their operations, the rate of interest, the system of operation and recovery
68. The ordinance makes it clear that the amount of interest should not be in excess of the principal amount.
69. Also, the MFI should not extend a second loan unless the first loan is cleared.
72. With new tools such as Poverty Progress Index of Grameen Foundation, it has become very easy to measure client satisfaction and to serve them better.
73. But just now i.e. 2011 is not the right time (entrepreneur magazine)
74. More NGOs are likely to incorporate microfinance as one of their programs. International NGOs and agencies will develop microfinance programs in areas where MF is not popular.(e.g. developed countries.
For example, although the total gross revenue from delivering one hundred loans worth Rs1,000 each will not differ greatly from the revenue that results from delivering one loan of Rs100,000, it takes nearly a hundred times as much work and cost to manage a hundred loans as it does to manage one.
Since there is a fixed cost associated with each loan delivered, a bank that bundles individual loans together and permits a group to manage individual relationships can realize substantial savings in administrative and management costs.