Basic structure of Microfinance in India

1. PROF.SHIVGANGA MAINDARGI
BVDU-BVAKIMSS-SOLAPUR
(MANAGEMENT STUDIES DEPT)
Microfinance In India

2. MICROFINANCE
Microfinance providers are “banks for poor”.
 A type of banking service different from the traditional
banking system
 Microfinance means the “provision of banking services to
lower income people especially to the poor and very poor.”
 Means of saving money, borrowing money and insurance.
 The goal: to give low income people an opportunity to
become self-sufficient by providing

3. KEY FEATURES OF MICROFINANCE
Key Features of Microfinance
Lend to
the poor
Do not
take
security
Prefer
saving
over
Borrowing
Small
short term
loans
Cost
covering
interest
rates
Group
appraisal
and
guarantee
Prefer
women
customers
over men

4. FEATURES OF MICROFINANCE
1) It is an essential part of rural finance.
2) It deals in small loans.
3) It basically caters to the poor households.
4) It is one of the most effective and warranted Poverty
Alleviation Strategies.
5) It supports women participation in electronic activity.
6) It provides an incentive to grab the self employment
opportunities.
7) It is more service-oriented and less profit oriented.
8) It is meant to assist small entrepreneur and producers.

5. PillarsofMicrofinanceinIndia

6. ADVANTAGES
 Increased self-employment opportunities especially for
women (Women are granted 75% of micro-credits)
 Micro entrepreneurs development :Small shopkeepers,
peddlers, craftsmen or farmers.
 to generate Employement opportunities &regular
income.
 Encourage Women Entrepreneurship

7. RoleofRBI,NABARDandSIDBI
• Support financial liberalization & create condition sustainable for
sector
• Support projects of microfinance
• Prudential regulation and supervision.
• Collecting data and advocacy
RBI – Central Bank
• Framing policy and guidelines for rural financial Institutions
• Providing credit facilities to issuing organizations
• Preparation of potential-linked credit plans for all districts
• Overseeing the linking programme of banks to SHGs and offers
refinance for it.
NABARD -
Regulator
• Lends to MFIs through SIDBI foundation for microcredit.SIDBI

8. Entities in MF
1. SHG :Self Help group
2. MFI : Micro financial institutions
3. GBM : Grameen Bank Model:
4. Co-operative Model

9. SHG-BankLinkageModels
MODEL-I
SHGs formed and financed by Banks – 20%
MODEL-II
NGOs act as Facilitators – SHGs financed directly – 74%
MODEL-III
SHGs financed by Banks using NGOs as Financial Intermediaries – 6%
Source: NABARD, Status of Microfinance in
India

10. MicroFinanceApproaches
SHG-Bank Linkage (Dominant Model)
 A homogeneous group of about 15 to 20
 Every member to save a small amount regularly. Pooled savings kept in a savings
bank account in SHG’s name
 SHG to use pooled thrift to give interest bearing loans to members – decisions
taken in group meetings
 Depending on the SHG’s maturity, bank gives loan to the SHG as a multiple of the
pooled savings. Bank loan added to the SHG kitty.
 Design Feature
 Self selection,
 Saving first and credit later,
 focus on women, market rate of interest

11. Industry Structure

12. Key Non-Financial Products and Services
 Financial counseling and training
 Commercial linkages
 Health and education
 Business advisory services
 Dealing with legal barrier

13. TheProfileofMicrofinancein India
The scenario
 Estimated that 350 million people live Below Poverty Line
 This translates to approximately 75 million households.
 Annual credit demand by the poor in the country is estimated to be
about Rs. 60,000 crores.
 Cumulative disbursements under all microfinance programs is only
about Rs. 5000 crores.
 Total outstanding of all microfinance initiatives in India estimated
to be Rs. 1600 crores.
 Only about 5 % of rural poor have access to microfinance.

14. FeaturesofIndianMF
 About 60 % of the MFIs are registered as societies.
 About 20 % are Trusts
 About 65 % of the MFIs follow the operating model of SHGs.
 Large concentration in South India
 600 MFI initiatives have a cumulative outreach of 1.25 crore poor
hoseholds
 NABARD’s bank linkage program has cumulatively reached a
total of 9.4 lakh SHGs with about 1.4 crore households.

15. Why Microfinance Can Change
the Way the World Works
500 million
poor
entrepreneurs
and producers,
mainly women
1. 4.3.2.
Microfinance:
•Lending
•Savings
•Insurance
•Housing
•Remittances
Increases:
• Income
• Assets
• Security
• Confidence in
future
Better:
Health
Population
Education
Community
participation
Banking for
the majority

16. Building Financial Services that
Respond to What Poor Women Want
What Poor
Women
Want
Asset Building, Risk
Mitigating Products
• Voluntary savings
• Health and life insurance
Variety of Products
• Housing loans
• Education loans
• Life cycle products
• Business development
services
Group Individual
Loans
Flexible Loans
• Small initial loan sizes
• Larger loans over time
• Longer terms
No Traditional
Collateral
Service
• Rapid, convenient
access
• Respect, connection
Source: WWB research

17. GRWOTH PERFORMANCE OF MICROFINANCE

18. PROBLEMS FACED BYMICROFINANCE
 Risk of lending to the poor (the loan may be misused
easily)
 High costs involved in small loan transactions
 Lack of awareness about sources
 The poor’s inability to offer marketable collateral for
loans
 Difficulty in measuring the social performance of MFIs

19. PROBLEMS FACED BY MICROFINANCE
 Mixing of charity with business by microfinance providers
 High interest rates of loans made to the poor
 Lack of customized microfinance models for the poor
 Inappropriate targeting of poor
 Lack of microfinance training for MFIs
 Poor distribution system to spread out loan facilities into rural areas
 Dual mission of MFIs to be financially sustainable as well as development
oriented

20. Private
Sector
WWB
Network
Members
Low Income
Women
Policy
Makers,
Donors
Mobilizing Key Actors to Focus on the Majority

21. LARGE
ENTERPRISES
Middle Class
Low-Income Entrepreneurs
and Households
Wealthy
Building Enterprise Systems thatTreat the Poor
as theTop Priority

22. “If we want to help poor people out, one way to do
that is to help them explore and use their own
capability.
Human being is full of capacity full of capability, is a
wonderful creation. But many people never get a
chance to explore that, never, no that she nor he has
that”
―Dr MuhammadYunus (Nobel prize winner)