MF Study on Awareness in Ahmedabad

N. R. Institute of Business Management (NRIBM-PGDM)
Project
On
“A study on the awareness of microfinance institutions in
Ahmedabad.”
Banking & Insurance
Submitted To
Prof. Devarshi Upadhyay
Submitted By
Sachin Dubey P 1817
Term: VI Batch -2018-20

1.1 Introduction
In ancient origins in India there existed a concept of Microcredit, small loans to poor.
The traders and moneylenders have provided credit to poor rural people at high rate of interest,
which led to exploitation of poor and resulted in undesirable and illegal practices like bounded
labour or acquisition of properties. But in today’s modern world what we mean by microfinance
does not include such negative and exploitative practices but rather helps the poor to get loans
and other financial benefits at a reasonable rate.
India that has the largest population of poor in the world has been experimenting with
microfinance as tool for poverty alleviation. The main objective behind microfinance is that
the urban and rural poor should be able to get access to financial services even in absence of
any collateral securities. Microfinance started off with microcredit- small loans to poor to help
them in uplifting their standard of living through engaging them in productive and self-
sustaining activities. The outstanding success of Grameen Bank in the neighboring country
Bangladesh had inspired many financial institutions in India to adopt microfinance.
In India microfinance movement have received overwhelming response in western and
southern region of the country when compared to other parts. The Small Industries
Development Bank of India (SIDBI) and National Bank of Agriculture and Rural Development
(NABARD) are leading institutions in India promoting microfinance.
Over the years the there had been an unmatched growth in rural banking sector where
the priority of these banks were lending to poor. India has been growing unparallel in networks
of rural banks in the world. There are 56 RRB and 525 districts with a network of 14,494
branches. In spite of such a wide coverage these banks had a minimum impact on microfinance
or lending to poor.
The Regional rural banks came into existence as the cooperative and other commercial
banks in rural India were being dominated by some rich wealthy rural people. The first two
decades of RRB’s existence was featured with accumulated losses of Rs.3000 Crs. But due to
reforms made in mid 90’s on the recommendation of the Narsimhan Committee report, the
RRB’s started functioning in a better way thereby easing the interest rates and investing in the
money market. Though the financial situation is better now as 80% of RRB are doing well but

their impact has not been much on poor people of rural areas. Thus there has been always a
struggle between balancing the objectives of outreach and financial performance.
In case of commercial banks the lending portfolio has slowly shifted from urban to rural
areas as the overall low cost segments (loans to poor ) performed better than the other financial
products. Thus Microfinance provides a balance between the rural outreach and cost of lending.
HISTORY
The history of microfinance in the world some of the most important factors for
economic growth and development are the financial and human resources. All of the potential
human capital even poor people could have serious role in the economic growth if they have
the initial required capital to create job and produce goods and services. So the idea of financing
the poor people is shaped for decades. In this part of the article, the history of microfinance is
presented by introducing some of the important Microfinance.
Institutions one of the earlier and longer-lived micro credit organizations providing
small loans to rural poor with no collateral was the Irish Loan Fund system, initiated in the
early 1700s by the author and nationalist Jonathan Swift. Swift's idea began slowly but by the
1840s had become a widespread institution of about 300 funds all over Ireland. Their principal
purpose was making small loans with interest for short periods. At their peak they were making
loans to 20% of all Irish households annually.
the 1800s, various types of larger and more formal savings and credit institutions began
to emerge in Europe, organized primarily among the rural and urban poor. These institutions
were known as People's Banks, Credit Unions, and Savings and Credit Co-operatives. The
concept of the credit union was developed by Friedrich Wilhelm Raiffeisen and his supporters.
Their altruistic action was motivated by concern to assist the rural population to break out of
their dependence on moneylenders and to improve their welfare. From 1870, the unions
expanded rapidly over a large sector of the Rhine Province and other regions of the German
States. The cooperative movement quickly spread to other countries in Europe and North
America, and eventually, supported by the cooperative movement in developed countries and
donors, also to developing countries.

In Indonesia, the Indonesian People's Credit Banks (BPR) or the Bank Perkreditan
Rakyat opened in 1895. The BPR became the largest microfinance system in Indonesia with
close to 9,000 units. In the early 1900s, various adaptations of these models began to appear in
parts of rural Latin America. While the goal of such rural finance interventions was usually
defined in terms of modernizing the agricultural sector, they usually had two specific
objectives: increased Commercialization of the rural sector, by mobilizing "idle" savings and
increasing investment through credit, and reducing oppressive feudal relations that were
enforced through indebtedness.
Starting in the 1970s, experimental programs in Bangladesh, Brazil, and a few other
countries extended tiny loans to groups of poor women to invest in micro-businesses. This type
of microenterprise credit was based on solidarity group lending in which every member of a
group guaranteed the repayment of all members. In 1971, Opportunity International, founded
by Whittaker and David Bussau, lend to Micro Entrepreneurs in Indonesia and Columbia. In
1979 they expand across Southeast Asia and South America. In 1972 the Self Employed
Women's Association (SEWA) was registered as a trade union in Gujarat (India), with the main
objective of "strengthening its members' bargaining power to improve income, employment
and access to social security." In 1973, to address their lack of access to financial services, the
members of SEWA decided to found "a bank of their own". Four thousand women contributed
share capital to establish the Mahila SEWA Co-operative Bank. Since then it has been
providing banking services to poor, illiterate, Self-employed women and has become a viable
financial venture with today around 30,000 active clients Prof. Yunus creates Grameen Bank
in 1983. To date, Grameen has lent more than $6 billion (to 7.4 million Bangladeshis). Its
methods have become the basis for modern microfinance that includes group focused, and good
repayment rates lending, women- focused, and good repayment rates.

MICROFINANCE IN INDIA
Microfinance sector has grown rapidly over the past few decades. Nobel laureate
Muhammad Yunus is credited with laying the foundation of the modern MFIs with
establishment of grammen bank, Bangladesh in 1976.today it has evolved into a vibrant
industry exhibiting a variety of business models. Microfinance banking
Financial companies (NBFCs).commercial banks, regional rural banks (RRBs), cooperative
societies and other large lenders has played an important role in providing re inance facility to

MFIs. Banks have also leveraged the self help group (SHGs) channel to provide direct credit
to group borrowers.
With financial inclusion emerging as a major policy objective in the country,
microfinance has occupied centre stage as promising conduit for extending financial services
to unbanked sections of population the same time, practice followed by certain lenders have
subjected the sector to greater scrutiny and need for stricter regulation. Micro finance is a novel
approach to ‘banking with the poor’ and this system attempts to combine lower transaction
costs and high degree of repayments. According to recent survey (Parida and Bandhu: 2012)
More than One billion poor people have no access to basic financial facilities, which are
essential for them to manage their precarious lives. (Uttam Paul, 2014)
According to Kofi Annan (former Secretary General of the UNO) states that
“Microcredit is a critical anti-poverty tool a wise investment in human capital. When
the poorest, especially women, receive credit, they become economic actors with power.
Power to improve not only their own lives but, in a widening circle of impact, the lives of their
families, their communities, and their nations." Uttam Paul, 2014.
Types of Micro financial Institutions in India
Olive Types of MFI’s Number Legal Registration
Profit
Motive
Non-Banking
Financial
Companies(NBFC’s)
45 Indian companies
Act ,1956,RBI Act 1934
Non Profit
Motive
NGOs 400-500 Society Registration Act
,1860 Indian
Trust Act 1882
Non Profit
Companies
20 Section 25 of Indian
Companies Act,1956
Mutual
Benefits
MFI’s
Mutual Benefit MFI-
Mutually Aided
Cooperative Societies
(MACS)
200-250 Mutually Aided Co-
operative Societies
,Act Enacted by State
Governments
sources: Adapted from the Report of the Task Force on Supportive Policy and
Regulatory Framework for Microfinance (NABARD 2012)

1.2 Major Players
1. SKS Microfinance Ltd (SKSMPL)
2. Spandana Sphoorty Financial Ltd (SSFL)
3. Share Microfin Limited (SML)
4. Asmitha Microfine Ltd (AML)

5. Shri Kshetra Dharmasthala Rural Development
Project(SKDRDP)
6. Bhartiya Samruddhi Finance Limited (BSFL)
7. Bandhan Society
8. Cashpor Micro Credit (CMC)
9. Grama Vidiyal Micro Finance Pvt Ltd (GVMFL)

10. Grameen Financial Services Pvt Ltd (GFSPL)
Source: https://indiamicrofinance.com/top-50-microfinance-institutions-india.html
1.3 Contribution towards the GDP
As a testament to this trend, in recent times, while the financial sector in general and
more specifically non-banking finance companies experienced tight liquidity conditions,
figures released by MFIN, the association of microfinance providers revealed that the
microfinance industry saw robust loan disbursement. Predominantly issuing small ticket loans,
the micro finance sector saw a 43 per cent increase in the grown of credit as of December 2018,
compared to the same period in 2017. This was on the back of a 51 per cent year-on-year growth
in the second quarter of FY 2018-19, ended December 2018, as well. The growth in micro-
finance disbursement becomes more impressive when seen against the backdrop of some MFIs
transforming into banks while others have been acquired in recent quarters.
With these sterling numbers, it’s not surprising then that the volumes of funding to the sector
have been increasing; in December, Fusion microfinance saw an infusion of Rs 520 crore from
Warburg Pincus, while Satya microfinance received an investment of Rs 43 crore from a
Japanese investor while a number of MFIs are also coming to the market with IPOs.
A recent study by Yes Bank reveals that while over 60% of MSME respondents are
digital users, only 5% have fully embraced digital technology; this highlights the potential for
their further development.
Today, the MSME sector is a crucial segment of the economy, with a significant
contribution to GDP, exports, industrial output and employment generation. The Central

Government confirmed that by 2018 there were around 50 million MSMEs, both registered and
unregistered, employing 120 million, second only to agriculture. A survey by the industry body
CII revealed that the MSME sector created 13.5 million to 14.9 million new jobs over the past
four years, registering a job growth rate of 13.9%. MSMEs also contributed 6.11% of
manufacturing GDP, 24.6% of services GDP and 40% of exports.
Source: https://www.outlookindia.com/outlookmoney/talking-money/micro-and-small-
enterprises-to-drive-indias-fortunes-2922
1.4 Growth of the industry
1. The micro-finance industry saw a 38 per cent growth in its gross loan portfolio at Rs
1.87 lakh crore in the 2018-19 fiscal, says a report.
2. Gross loan portfolio of the sector was Rs 1.35 lakh crore in FY2017-18.
3. Total number of micro-finance accounts stood at 9.33 crore as on March 31, 2019,
registering a growth of 21.9 per cent over FY18, according to a report launched by
Microfinance Institutions Networks (MFIN).
4. MFIN, an RBI recognized self-regulatory organization and industry association,
constitutes 53 NBFC-MFIs as members.
5. The members collectively disbursed 3.25 crore loans worth Rs 82,928 crore in FY19.
6. "In 2018-19, microfinance industry showed its resilience by growing steadily in spite
of liquidity squeeze that all NBFCs faced in the third quarter and natural disasters like
cyclones and drought," MFIN's chief executive officer Harsh Shrivastava said.
7. NBFC-MFIs hold the largest share of portfolio in micro-credit with total loan
outstanding of Rs 68,868 crore, which is 36.8 per cent of total micro-credit universe.
8. As on March 31, 2019, aggregated total loan portfolio of NBFC-MFIs stood at Rs
68,207 crore, showing a growth of 47 per cent year-on-year basis.
9. Apart from the growth in loan size and loan accounts, the staff of NBFC-MFIs grew at
34 per cent, totaling to 1,04,973 people.
10. In FY19, NBFC-MFIs received a total of Rs 35,759 crore in debt funding from banks
and other financial institutions, representing a growth of 63 per cent compared to FY18.
11. Total equity in FY19 grew by 42 per cent at Rs 14,206 crore.

12. In terms of regional distribution of portfolio, East and North East accounts for 38 per
cent of the total NBFC MFI portfolio, South 24 per cent, North 14 per cent, West 15
per cent and Central contributes 9 per cent.
13. As of March 31, 2019, the banks had a micro-finance portfolio of Rs 61,046 crore,
depicting a growth of 36 per cent over last one year while small finance banks (SFBs)
showed a growth of around 25 per cent.
Source: https://www.ibef.org/news/microfinance-industry-posts-38-growth-in-fy19-mfin
1.5 Trends in the industry
 Diversification of Microfinance Institutions: microfinance providers are beginning to
broaden the range of services offered under the microfinance umbrella which started
with loans, but now includes insurance, savings and money transfer facilities as well.
 Specialization of Microfinance Institutions: microfinance providers are beginning to
focus on certain livelihoods such as crop insurance, loans for handicraft businesses, or
loans for fisheries, etc. As microfinance institutions study each business model, they
can design loan products that are aligned with the unique cash flow cycles or the
varying demand patters of the client’s business.
 Turnkey Solutions: some microfinance institutions are beginning to provide services
other than loans and savings,tosupport their clients’businesses.Such services include
assisting clients with supply chain management, or sharing ‘marketing infrastructure
to enhance these micro-businesses’
 New channels: clients no longer have to visit physical offices of microfinance
institutions in order to repay loans or acquire a new credit line. Franchise-based
business models and branchless banking are becoming effective ways of reaching
potential clients who often live in disparate rural areas. An example of this is Kiva’s
API platform called Build Kiva

 Microfinance, Macro Trends: The macro crisis in the microfinance sector may not get
resolved anytime soon. But it is a symptom of a much larger trend moving through the
country. The Indian microfinance model developed differently from that in its original
home in Bangladesh. It took root with self-help groups (SHGs) set up in Karnataka by
Myrada, with NABARD's support, back in the early 1980s.These affinitygroups created
a social glue among poor women which allowed them not only to offer their mutual
guarantee as collateral against their borrowings, but enabled them to work
collectively for other causes in their communities. There are hundreds of documented
stories of how the SHG movement has generated social change and political
empowerment, in addition to accessing more finance for the poor than ever before in
independent India.
 Microlending: Current Industry Trends: In the Indian context, microfinance is no
longer the purview of development institutions. While the rhetoric of development
has been retained, banks have embraced it as an extremely profitable business, for
two reasons. First, Indian banks are required to lend a certain percentage (currently
40%) into priority areas “ called priority sector lending” which includes agriculture,
SMEs, and government securities. Compared to returns on government bonds of 6-
7%, MFI lending provides returns of 10-14%. Banks, therefore, have expanded
investments in these areas. Second, microfinance lending – as it is currently practiced
– is simply not very risky. In the absence of individual credit assessments, MFIs lend to
groups or through referral, leading to repayment rates of 95% or more. Banks then
get the best of both worlds – higher rates of return with very low risk. The result is
massive expansion in microlending. ICICI Bank, the largest private bank in India, had
1.2 million microfinance clients in 2005 and a portfolio of $227 million. A year later,
ICICI has multiple partnerships and 3 million clients, targeting 25 million in 3 years.
Other banks, such as ABN Amro, and YES Bank have smaller but still sizable operations
that generate goodwill benefits for their entire operations (both featured on FT’s
sustainable banking awards last year).Public sector banks usually operate as
integrated microlenders, creating self-help groups (SHG) to which they disburse loans
directly rather than through an intermediary. Private sector banks, by contrast,

operate through a partnership model, contracting with existing MFIs to function as
the banks retail arm to acquire and manage micro-clients. In return, MFIs retain a
percentage of the interest earned on loans. Many MFIs are now financially
independent of such funds, but high effective rates (of over 30%) have also led to a
regulatory backlash.
 The term “transformation,” or commercialization, of a microfinance institution (MFI)
refers to a change in legal status from an unregulated nonprofit or non-governmental
organization (NGO) into a regulated, for-profit institution. Regulated, transformed
organizations differ from nonprofits in that they are held to performance and capital
adequacy standards and are supervised by a financial authority, typically the central
bank of the country where they are registered. A transformed MFI also attracts equity
investors. The equity investors want to ensure that the values of their investments are
maintained or enhanced and elect Board members who share a common vision for
the new for-profit institution. Among transformed MFIs, varying classifications of
regulated institutions exist, the strictest being banks — rural banks and thrift banks —
followed by non-bank financial institutions. Different countries have varied names for
these regulated MFIs.
 An increasing number of microfinance institutions (MFIs) are seeking non-banking
financial company (NBFC) status from the Reserve Bank of India (RBI) to get wide
access to funding, including bank finance. In the last couple of months, the central
bank has granted fresh licenses to around 10 such organizations. MFIs such as Biswa
in the East, Grameen Koota in Bangalore, Bandhan in West Bengal have already
received NBFC licences from the RBI, while start-up institutions like Ujivan in
Bangalore and Opportunity International in Chennai have also been granted
approvals.
Source:https://www.scribd.com/doc/95119075/Current-Trends-and-Challenges-of-
Micro-Finance-in-India-1

1.6 SWOT and PESTEL Study
STRENGTH OF MICROFINANCE INSTITUTIONS:
 Alleviation of Poverty:
Over the last few years, Microfinance institutions have been successful in effective poverty
alleviation through micro credit. The major motive of micro finance is to provide loans to the
individuals below poverty line and who cannot access to commercial banks. MFI’s provide
small loans to poor people there by reducing the poverty. Self Employed women’s Association
(SEWA) in Gujarat are pioneers in this effort. In 1990’s many NGO’s made their entry into this
segment. These NGO’shad previously performed various developmental roles for poor people
and now added micro credit to their service list.
 Self Help Groups;
Self Help Groups among poor mostly women is growing phenomenon in rural India. The
major advantage of this SHG is their joint liability and continuous peer pressure of member
borrowers. In association with MFI’s they try to reduce the transaction and monitoring cost.
 Government involvement:
The government involvement in microfinance sector is blessing in disguise. There had been
a big problem about the politicizing of the subsidy allotment amongst the SHG. The
government subsidies are easily approachable to the panchayat members. These age old
problems of government initiatives in poverty reduction can harm the movement by eroding
the fundamental precepts of self help and empowerment of the poor.
WEAKNESS OF MICROFINANCE INSTITUTIONS:
 Availability of less risky and more rewarding customers:
MFI’s are funding hawkers and traders branded as poor in urban and semi urban and even
in villages as their paying capacity is good. The farmers are avoided due to season l and
unpredictable income sources.

 Resistant to loan Farmers:
Farming is not yet become viable due to dependence on monsoon, inadequate irrigation
facilities and lack of modernizing farming.
 Wrong MFI assessment tools:
MFI’s are still assessed on the basis of their coverage, profitability and high level of
repayment index. They should be assessed on success in achieving their primary goals poverty
alleviations and inclusive growth.
 High Transaction and service cost:
As the average microfinance loan size is small the transaction cost on a percentage basis
for a micro finance loan is higher. The operational cost is also too high as the loan origination
and monitoring is done at the client doorstep with no deployment of technology.
OPPORTUNITIES OF MICROFINANCE INSTITUTIONS:
 Currently global microfinance sector is estimated loan portfolio of US $ 25 billions.
 In next 4 years the loan size of Indian market is expected to grow to a size of about
Rs.250 billion from current market size of Rs.27 billion.
 There is a greater degree of capital market involvement.
 The attitude of Government of India and RBI is favorable towards MFI’s
 Innovation in diversifying lender base, consolidating internal control system and
strengthen policies on human resources, and disclosure of organizational process.
 There is growing migration and urbanization, which leads to higher average loan size
and greater use of technology such as smart cards and point of sale devices with
wireless connectivity. This would result in increasing urban microfinance.
THREATS OF MICROFINANCE INSTITUTIONS:
 Literacy & Skill levels of Clientele:
Low levels of literacy, relatively undiversified economies and high dependence on

agriculture.
 Irregular flow of income due to seasonality:
Due to seasonality of agricultural activities and unique requirement of financing such
activities the repayment of loans can take place only after production.
 Lack of Tangible proof for Assessment of Income:
Due to absence of land deed , no records like IT returns ,irregular flow of income due to
seasonality constitutes lack of tangible income proof.
 Need for Information sharing & Better Technology:
Due to lack of information about credit worthiness of potential clients there is adverse
selection and over- indebtedness of clients, which is hazardous to microfinance institutions.

CHAPTER 2
Theoretical Framework and Concepts

2.1 Details of theory and concept
Microfinance is the provision of broad range of financial services such as deposits, loans,
payment services, money transfers and insurance to poor people and low income households
and their micro enterprises. It is an effective tool for making the banking services accessible to
the rural unbanked areas. Improved access and efficient provision of savings, credit and
insurance facilities would enable the poor to set up micro enterprise, build up economic assets,
manage the risks better and enhance income earning capacity and resultantly improve their
standard of living.
India is a country of villages even today but on account of lack of infrastructure resulting
in lack of opportunities for the population migration of youth continues unabated. The urban
centers are getting flooded with masses. To stop this migration we have to provide
opportunities to under privileged people of rural areas. Microfinance is a major tool available
to create opportunities and help people to raise their quality of life. Although this fact is well
established and understood the approach taken to achieve is yet to prove itself and hence despite
huge money being made available for these projects success is nowhere visible. The business
correspondent and business facilitator model envisioned by RBI and commercial banks needs
major revamp.
In the development paradigm, micro-finance has evolved as a need-based policy and
programme to cater to the so far neglected target groups (women, poor, rural, deprived, etc.).
Its evolution is based on the concern of all developing countries for empowerment of the poor
and the alleviation of poverty. Development organizations and policy makers have included
access to credit for poor people as a major aspect of many poverty alleviation programmes.
Micro-finance programmes have, in the recent past, become one of the most promising
ways to use scarce development funds to achieve the objectives of poverty alleviation.
Furthermore, certain micro-finance programmes have gained prominence in the development
field and beyond. The basic idea of micro-finance is simple: if poor people are provided access
to financial services, including credit, they may very well be able to start or expand a micro-
enterprise that will allow them to break out of poverty. Thus, micro-finance has become one of
the most effective interventions for economic empowerment of the poor.

2.2 Literature and Related articles
Kumar Vipin et. al. (2015) study concluded that the SHG’s and MFI’s are playing a vital role
in delivery of microfinance services which leads development of poor and low income people
in India. However, slow progress of graduation of SHG members, poor quality of group
functioning, dropout of members from groups etc., have also been reported various study
findings in different parts of the country, which need to be taken into account while designing
the road map for the next phase of the SHG programme.
Nikita (2014) study concludes that first time in the year 2012-13 after the launch of SHGs BLP
there is a decline in the number of SHGs who’s saving linked with banks. The study also finds
out there was growth in the loan outstanding of SHG and which was responsible for increases
in NPAs. At last it is found out that the major share belongs to commercial banks when the
agency wise loan issued to MFI. He suggested that steps should be taken to improve the
performances of programs launched under Microfinance time to time.
Dr. Prasann Kumar Das (2014) “Microfinance - A Tool for Socio – Economic Development
in Rural India” Microfinance stands as one of the most promising and cost effective tools which
fight against global poverty. The findings from this study suggests that there is rise in the
history and perspectives of rural credit in India in form of microfinance and there is need for
improved governance to manage challenges for future so that socioeconomic growth is
possible. The present paper discusses conceptual framework, development process, growth of
SHG linked microfinance programme, types of micro finance services and developmental role
of these institutions in rural India. It also focuses on the status of microfinance and provides
some policy framework to meet the challenges faced by Indian microfinance. The article traces
that the evolution of the microfinance revolution in India as a powerful tool for socio-economic
development in rural India.
Panda, S. & Panda, B.K. & Das, A.P.. (2013). Indian economy is characterized by low rate
of growth, dominance of rural population, heavy dependency on agriculture, adverse land mass
ratio, highly skewed distribution of income and wealth beside, high incidence of poverty and
unemployment. The last two factors poverty and unemployment pose major challenges to the
growth and prosperity of the country. To overcome this problem, some newly developed
sectors like micro finance are playing a vital role. Microfinance has been considered a powerful

tool to fight poverty through the provision of basic financial services including savings,
insurance, credit and transfer of funds. The objective of microfinance institutions is to serve
poor people and enable them to access credit and fight poverty. Against such improvements,
the present study has been carried out to study of review literature in microns sector.
Vipin kumar, Monu chauhan, Ritesh kumar (2013) ―An overview of microfinance in
India” In a country like India where 70 percent of its population lives in rural area and 60
percent depend on agriculture (according to the World Bank reports), micro-finance can play
a vital role in providing financial services to the poor and low income individuals. Microfinance
is the form of a broad range of financial services such as deposits, loans, payment services,
money transfers, insurance, savings, micro-credit etc. to the poor and low income individuals.
The importance of micro-finance in the developing economies like India cannot be
undermined, where a large size of population is living under poverty and large number of
people does not have an access to formal banking facilities. The taskforce on Supportive Policy
and Regulatory Framework for Microfinance constituted by NABARD defined microfinance
as ― the provision of thrift, saving, credit and financial services and products of very small
amount to the poor’s in rural, semi urban and urban areas for enabling them to raise their
income level and improve their standard of living.‖ (Sen, 2008) Micro-finance is regarded as a
useful tool for socio-economic up-liftmen in a developing country like India. It is expected to
play a significant role in poverty alleviation and development. There are two broad approaches
that characterize the microfinance sector in India is Self Help Groups (SHGs)-Bank linkage
programme and Microfinance Institution (MFIs). In India microfinance is dominated by Self
Help Groups (SHGs)-Bank linkage programme aimed at providing a cost effective mechanism
for providing financial services to the unreached poor. The present paper aims at identifying
the current status and role of microfinance in the development of India.
2.3 Background information
Microfinance started in Bangladesh and parts of Latin America in the mid-1970s to provide
credit to the poor, who were generally excluded from formal financial services. The model
gained popularity and has since been replicated in low- and high-income countries.

Over time, financial service providers have developed a better understanding of the wide range
of financial needs of low-income people in both urban and rural areas. These needs might
include asset building, managing irregular income flows, and coping with crises, such as
sickness, death, natural disasters, and conflict. Many financial service providers now offer a
wide range of products beyond credit, such as savings, insurance, and money transfers, to help
poor people manage their financial lives.
New technologies continue to create opportunities to broaden the reach and lower the cost of
delivering financial services to poor people. Financial services are now available in many
markets to anyone with a mobile phone, with innovation driving both improved product design
and delivery.
Today, microfinance is increasingly seen as one component of the broader financial inclusion
system, comprised of various players with the common objective of delivering high-quality
financial services to low-income people.
2.4 Importance of concept/theory
1. Microfinance is a tool for the empowerment of poor women;
2. Loans under microfinance programmes are very small;
3. Microfinance targets the poor rural and urban households;
4. Credit under microfinance follows thrift i.e. mobilize savings and lend the same;
5. Low transaction cost due to group lending’s;
6. Transparencies in operation;
7. Short repayment period;
8. Simple procedure for reviewing, processing and approving loan applications and
delivery credit;
9. Chances of misutilization are rare and there is assured repayment;
10. Peer pressure act as the collateral security required for loans;
11. Need based loan disbursement;
12. Prompt repayment;
13. There is no ceiling from the RBI in respect of minimum and maximum amounts.

The following are the main features of microfinance services provided by Rastriya Mahila
Kosh (RMK) (i) It is a tool for the empowerment of the poorest. (ii) The higher the income and
better the asset position of the borrower, the lower the incremental benefit from further equal
doses of micro-credit is likely to be. (iii) Delivery is normally through Self Help Groups
(SHGs). (iv) It is essentially for providing self-employment. The opportunities of wage
employment are limited in developing countries - microfinance increases the productivity of
self-employment in the informal sector of the economy - generally used for (a) direct income
generation (b) rearrangement of assets and liabilities for the households to participate in future
opportunities and (c) consumption smoothing.11 Microfinance is not a financing system but a
tool for social change, especially for women. It does not spring from market forces along - it is
potentially welfare enchaining there is public interest in promoting the growth of microfinance
- this is what makes it acceptable as valid goal for public policy.
2.5 Significance of the concept
At least in Ahmedabad , there does not seem to be any working model of analysing the financial
awareness and thereby sustaining of microfinance institutions. This problem is compounded
by the lack of a committed legislation on working and management of microfinance
institutions. The lack of a regulatory mechanism for financial disclosures by microfinance
institutions also abets the problem. The present study is an attempt to study the importance of
microfinance and to analyse the awareness of microfinance institutions operating in
Ahmedabad. It assumes significance because it is imperative that these institutions be run
efficiently given the fact that they are users of marginal and scarce capital and the intended
beneficiaries are the marginalized sections of society. MFIs must be able to sustain themselves
financially in order to continue pursuing their lofty objectives, through good financial
awareness.
2.6 Future scope and impact of the concept
Nobel Laureate Muhammad Yunus is credited with laying the foundation of the modern MFIs
with establishment of Grameen Bank, Bangladesh in 1976. Microfinance in India started in the
early 1980s with small efforts at forming informal self-help groups (SHG) to provide access to

much-needed savings and credit services to the marginal population more importantly in rural
areas.
From this small beginning, the microfinance sector has grown significantly in the past decades.
National bodies like the Small Industries Development Bank of India (SIDBI) and the National
Bank for Agriculture and Rural Development (NABARD) are devoting significant time and
financial resources to Microfinance sector.
The World Bank has called South Asia the “cradle of microfinance.” Statistics indicate that
some 45% of all the people in the world who use microfinance services are living in South
Asia. However, the overall percentage of the poor and vulnerable people with access to
financial services remains small, amounting to less than 20 % of poor households in India.
With financial inclusion emerging as a major policy objective in the country, Microfinance has
occupied centre stage as a promising conduit for extending financial services to unbanked
sections of population The microfinance sector has emerged as one of the most promising tool
for ameliorating poverty in India. The microfinance in India involves forming self help groups,
usually a group of 5 to 20 persons and providing them credit through bank linkage. Therefore
in India, it is often called as SHG Bank linkage programme.
NGOs in microfinance sector, also called as microfinance institution provide that linkage
between banks and self help groups. With the help of credit and guidance from NGOs, the
SHGs strive to come out of the quagmire of poverty. Another advantage found in Indian SHG
movement is that most of the beneficiaries are women and thus it is becoming an important
instrument of bridging the gulf of gender inequality.
With the growth of microfinance industry many small and large Microfinance Institutions
(MFI) had emerged in India and the largest MFI is SKS Microfinance Ltd which is also listed
in the stock market, only such institution in India.
The microfinance sector is having a healthy growth rate and it is currently a Rs.20,000 Cr.
industry. The SHG-Bank Linkage Programme and the Microfinance Institutions put together
achieved a growth in their customer base by about 10.8 percent. The combined borrowing
customer base increased to 93.9 million from 86.3million in the previous year.

On a national level there has been a spate of actions taken to strengthen the regulation of MF
sector including, enactment of microfinance regulation bill by the Government of Andhra
Pradesh, implementation of sector-specific regulation by Reserve Bank of India and most
recently, release of Draft Microfinance Institutions (development and regulation) Bill.RBI
credit policy capped household income at Rs. 120000/- and credit limit at Rs. 50000 for all
MFI customers. This is to better target the beneficiary population to the bottom quartile
population.
Major challenges faced by microfinance in India are challenges related to access to finance,
governance and management, demand for low interest rates and managing competition. It
further adds that:
 The single biggest challenge for microfinance lies in the area of training and capacity
development;
 On the supply side, there is a lack of service providers and comprehensive, integrated
and relevant training modules
 Limited reach in the northern and eastern parts of the country
 Range of products tends to be limited to simple credit offerings
 On the demand side, not enough attention is being paid to training for senior
management
 Absence of social audit in many cases
For the improvement of MF in India, Malegam Committee recommended measures to improve
functioning of MFIs regarding the prevalent practices of MFIs in regard to interest rates,
lending and recovery practices to identify trends that impinge on borrowers’ interests, to
delineate the objectives and scope of regulation of NBFCs undertaking microfinance by the
Reserve Bank and the regulatory framework needed to achieve those objectives. Few
recommendations were accepted by the government but more reforms are needed in the sector
to assure sustainable and pro-poor growth of the industry.
International Finance Corporation has itself launched an MFI namely Utkarsh in Uttar Pradesh
and Bihar for the development of the MF in two of the most poor states in India. It is poised to
to increase access to finance and microfinance services in relatively under-served areas. With
IFC’s support, Utkarsh is working to diversify its products, develop sound internal systems and

processes, and introduce a system of social audit. The company aims to reach an estimated
250,000 women borrowers by June 2013.
The potential of microfinance to ensure financial inclusion and thereby inclusive development
is not hidden from anybody and therefore aforesaid challenges must be redressed on urgent
basis. a better understanding of the diversity of women’s livelihood and a better understanding
of the range of constraints, motivations, skills and capabilities of women through the livelihood
framework might help in better operation of microfinance services.
Source:https://www.mbarendezvous.com/general-awareness/scope-and-growth-of-
microfinance-in-india/
2.7 Past few years of Data and statistics of the concept
Growth and outreach of microfinance in India In India,
MFIs currently operate in 28 States, 5 Union Territories and 561 districts. At present,
155 MFIs with a branch network of 11,687 have reached out to an all-time high of 33 million
clients with an outstanding loan portfolio of Rs.33,517 crore. This includes a managed portfolio
of Rs.4,075 crore. The average loan outstanding per borrower stood at Rs.10,079 and 80% of
loans were used for income generation purposes. Outreach grew by 20% and loan outstanding
grew by 30% over the previous year. The Southern region continues to have the highest share
of both outreach and loans outstanding, followed by East. However, growth rates are higher in
the Western and Eastern regions. Outreach proportion of urban clientele is increasing year on
year (44% for 2013-14) as against the rural population. Women borrowers constitute 97% of
the total clientele of MFIs; SC/ST borrowers constitute 19% and other minorities 14%. Of the
total, NBFC-MFIs contribute to 82% of both clients outreach and outstanding portfolio, while
NGO MFIs contribute to the remaining. MFIs with portfolio size of more than Rs.500 crore
contribute significantly to the total outreach (74%) and loan outstanding (76%) of the sector.
Year-wise Outstanding Loan, Loan Disbursed and Client Outreach of Overall Banks

Year Outstanding loan
(in crore)
Loan Disbursed
(in crore)
Client outreach
(in lakhs)
2009-10 22544 29330 267
2010-11 24332 35176 317
2011-12 24607 22635 275
2012-13 25699 25635 275
2013-14 33517 24017 330
2014-15 48882 30334 371
2015-16 63853 37286 399
Source: Compiled from various reports of Bharat Microfinance Reports, Sa-Dhan.
The data for the year 2015-16 indicates to an outstanding loan portfolio of Rs.63,853
crores as on 31 March 2016. Of this amount, the 8 SFB licensees account for a portfolio of
Rs.23,553 crore. This implies that on a standstill basis the MFI sector portfolio would reduce
to Rs.44,943 crore once all these eight institutions become SFBs, indicating a contraction of
nearly 35 %. The provisional estimate of clients served by MFIs for the year ending March
2016 was 476 lakhs, out of which nearly 135 lakhs are being served by would-be SFBs.
While the lending philosophy and methodology of each of the SFBs would be for them
to decide upon, few of them would be able to continue with the present systems of unsecured
group lending. Opportunity also opens up for not-for profit MFIs, i.e. NGO- MFIs,
Mutual/Cooperatives and Section 8 Companies. The trajectory of growth of MFI sector since
2010 is an indication of the absorption capacity and potential for such type of lending. This
potential opportunity calls for a vigorous role to be played by the development finance
institutions. It may be recalled that in the initial years of setting up of MFIs in their NGO-MFI
form it was NABARD which assisted them with grant support and Revolving Fund Assistance
(RFA). Later NABARD helped a number of MFIs with quasi-equity and subordinated debt
instruments from Micro Finance Development and Equity Fund (MFDEF).
Similarly, SIDBI supported the growth story of MFIs through its SIDBI Foundation for
Micro Credit (SFMC).The India Microfinance Equity Fund (IMEF) later supported MFIs,
especially the medium and smaller ones with equity and quasi-equity. Such pioneering roles
may be required to be played again in nurturing a newer set of institutions to take their places

in the space vacated by the SFBs. Of course MUDRA with its total focus on microenterprise
has to hand-hold and facilitate the development process of smaller MFIs and not-for profit
MFIs as they are the ones who operate in remoter locations and with the more underserved
populations. The establishment of Small Finance Banks also opens up another window of
opportunity for reinvigorating the SHG-Bank Linkage Programme. We are aware that there is
greater enthusiasm for SBLP from smaller institutions like RRBs, DCCBs and smaller banks
than from bigger banks. This phenomenon would apply to SFBs also. Moreover, as eight of
them (nine, if you include Capital) are from the microfinance stable, they would be more
positively inclined for SHG linkage. While all of them operated on the JLG methodology, some
of them worked on the SHG model also. Strategic partnerships with them for SHG-Bank
Linkage Programmes have the potential to take SBLP to greater heights in the next couple of
years. The setting up of Payment Banks would also give a further fillip to the microfinance
sector. Partnerships between.
MFIs and Payment Banks can ensure that MFIs’ clients can avail of financial products
other than credit from the latter. Additionally, the cash and remittance management services of
FIs can be taken care of by the Payments Banks. RBI’s discussion paper on Peer to Peer (P2P)
lending also opens up a window for some MFIs with technology wherewithal to transform
themselves into P2P players for the microfinance segment. Institutions like Kiva and Rang-De
are already working in this area, but there is a scope for a number of other institutions to enter
this niche.
The transition of microfinance industry into a mature industry could strengthen the
financial inclusion pattern in a much better fashion. Structured financing and SHG linked bank
financing can make MFIs more appealing to the achieving of financial stability (Karmakar,
2009). As per Status in Microfinance Report, 2013, big NBFC MFIs have gained lot of
momentum in terms of opening more accounts and disbursing loans to the poor. Big NBFC
MFIs have regained market confidence and picked momentum in client outreach and loans
outstanding. Bank credit eased for MFIs and SHGs as well. However, rising NPAs pose as the
serious challenges for the bigger MFIs. The gross loan portfolio of microfinance institutions
(MFIs), registered with the Reserve Bank of India as non- banking financial companies
(NBFCs), can cross Rs 1 lakh crore by March 31, 2018(2). Medium MFIs are, however, facing
with the rising challenges in some key states such as

U.P and Bihar, where people especially women take loan for consumption purposes
rather than the income generation activities. Increasing suicide rates among poor people and
inadequate regulation have also added woes to the financial capability of MFIs(3). Differences
in terms of taking loans and using for other purposes often have marred the basic aim of the
MFIs.
Growth of SHG and MFI
The chart describes that approximately 107.29 million people were provided with
microfinance under SHG- BLM and 33 million under the MFI model up to March 2015. The
perusal portrays the focus of the programme mainly concentrating in the southern region.
Approximately 48 percent and 55 percent of the people who were provided with microfinance
under these two models belonged to the Southern Region of India (NABARD, 2015). However
the spread of the programme is limited in the North and North-Eastern Region. Over all, the
microfinance outreach in India is approximately five percent and three percent and these clients
belonged to the north and north-eastern regions respectively.
Microfinance lending methodologies in India: Bank Linkage Model
In India, the microfinance penetrates in different ways and the most popular channels
are: MFI-Bank Linkage Program (MFIBL) and SHG-Bank Linkage Program (SHGBL). The
SHG-BL program is spearhead program in rural financial service launched by NABARD in the
year 1992, is most popular and spread across six different regions of India, i.e. Northern, North-
Eastern, Eastern, Central, Western and Southern Regions. The Northern region comprises of
76,6
54
48,06 47,1
0,04
65,662,5
74,29
2007‐08 2008‐09 2009‐10 2010‐11 2011‐12 2012‐13 2013‐14
SHG MFI Total
120
NoofMembers(inMillion)

the states of Punjab, Haryana, Himachal Pradesh, Jammu and Kashmir and Rajasthan. The
North-Eastern region encompasses Assam, Sikkim, Tripura, Meghalaya, Arunachal Pradesh,
Mizoram and Nagaland states. The Eastern region takes in Bihar, West Bengal, Jharkhand,
Orissa, and Andaman and Nicobar Islands. The Central region includes Madhya Pradesh,
Chhattisgarh, Uttaranchal and Uttar Pradesh. Western region includes Goa, Gujarat and
Maharashtra states. The Southern region incorporates Andhra Pradesh, Karnataka, Kerala,
Tamil Nadu and U.T. of Pondicherry.
Initially, till 1999, there was a slow progress in the programme as only 32,995 groups
were credit linked. Later on, the programme began to grow rapidly. Table 2 exposes the total
figure of SHGs credit linked with banks and the bank loan disbursed to these groups between
the periods1992-93 and 2007-08. It, furthermore, shows that 255 SHGs were given Rs.2.9
million of bank loans during the period 1992-93. In 1999-2000 the number increased to Rs.1,
14,775 with bank loans of Rs.1,929.8 million. This cumulative number of credit linked SHGs
has increased to about Rs.34.78 lakh and the amount of bank loan given to these groups
increased to Rs.2, 22,680 million up to March 2008. The microfinance through SHGs has
reached such a position in India that it is acknowledged as the biggest microfinance programme
in the world. The data reveals that though the cumulative number of SHGs provided with the
bank loans increases, the rate of intensification is relatively slow as compared to the previous
years. The table also shows that the rate of expansion of SHGs and the bank loans disbursed to
them is unenthusiastic during the year 2007-08. One of the reasons for the rapid escalation of
the programme in the southern states of India might be because it has reached a saturation point
in some other parts of these states. The provisional data available from NABARD for the year
2010-11 shows that the banks has disbursed loan amounting to Rs.14.7 billion to 1.2 billion
groups during the year. The average loan disbursed per group is amounted to Rs.122,700 which
are higher than the comparable levels of last year. Compared to the last year’s growth rate, the
SBLP has underperformed during the year.

Progress of SHG-Bank linkage in India (in Billion)
Year SHGs financed by banks Bank loans
Number Growth Cumulative Number Growth Cumulative
1993-1994 610 - - 0.01 - -
1994-1995 1502 146.23 2122 0.02 100.00 0.02
1995-1996 2635 75.43 4757 0.04 100.00 0.06
1996-1997 3841 45.77 8598 0.06 50.00 0.12
1997-1998 5719 48.89 14317 0.12 100.00 0.24
1998-1999 18678 226.60 32995 0.33 175.00 0.57
1999-2000 81780 337.84 114775 1.36 312.12 1.93
2000-2001 149050 82.26 263825 2.88 111.76 4.81
2001-2002 197653 32.61 461478 5.45 89.24 10.26
2002-2003 255882 29.46 717360 10.22 87.52 20.49
2003-2004 361731 41.37 1079091 18.56 81.60 39.04
2004-2005 539365 49.11 1618456 29.94 61.31 68.98
2005-2006 620109 14.97 2238565 44.99 50.27 113.97
2006-2007 1105749 78.32 3344314 65.7 46.03 179.67
2007-2008 1227770 11.04 4572084 88.49 34.69 268.16
2008-2009 1609586 31.10 6181670 122.54 38.48 390.70
2009-2010 1586822 -1.41 7768492 144.53 17.95 535.23
2010-2011 1196134 -24.62 8964626 145.48 0.66 680.71

2011-2012 1147878 -4.03 10112504 165.35 13.66 846.06
2012-2013 1219821 6.27 11332325 205.85 24.49 1051.91
2013-2014 1366421 12.02 12698746 240.17 16.67 1292.08
2014-2015 1626238 19.01 14324984 275.82 14.84 1567.9
2015-2016 1832323 12.67 16157307 372.87 35.19 1940.77
Source: Compiled from various issues of Status of Microfinance in India,
NABARD.
The NABARD’s Status of Microfinance in India reports clearly states that Southern
region’s principal focus was on SHGs. It was on account of the prevalence of the voluntary
organizations being in the wide spread for the linkage banking program. The largest MFIs of
India, such as SHARE, Spandana, CDF, MYRADA, SKS and PREM have also given attention
to the Southern regions. The spread of microfinance programme was almost negligible in the
North-Eastern States. The share of Southern States in the number of groups linked to the banks
was declining, while the share of the other regions was improving (NABARD, 2016).
Loan Disbursement to SHGs
Various public and private sector banks such as commercial banks, RRBs and
cooperative banks involved in providing microfinance to the SHGs. Table 7 exhibits the shares
of these agencies in the total credit linked SHGs and in the total loans disbursed.
Loan Disbursement to SHGs as per various types of banks
Year CB Coop RRB Total
2007 391894.32 59871.43 205273.10 657038.85
2008 540390.35 79351.75 265184.14 884926.24
2009 806053.10 99949.28 319349.01 1225351.39

2010 977521.00 232504.00 33320.06 1243345.06
2011 972455.27 162556.33 319761.59 1454773.19
2012 994204.49 156667.23 502605.15 1653476.87
2013 1338500.70 157383.52 562652.22 2058536.44
2014 1603749.35 169173.14 628813.35 2401735.84
2015 1733412.66 252296.21 772522.19 2758231.06
2016 2518497.23 293699.98 916492.88 3728690.09
Mean 1187667.8 166345.3 452597.4 1806610.5
SD 631627.38 75640.28 272988.2 942278.49
CV 53.182157 45.47185 60.3159 52.157258
CAGR 18.74238 23.89924 26.01253 20.961931
t' value 8.3 4.24 5.58 9.66
Note: Values in ( ) shows growth rate, ** denotes significant at 0.05 level.
Source: Compiled and Computed from various issues of Status of Microfinance in India,
NABARD.
The table explains that as on March 2007, 55 per cent of the total credit linked SHGs
received the loans from the commercial banks, 31 per cent from RRBs and the remaining 14
per cent from the co-operative banks. The Commercial banks contributed 63 per cent of the
total amount of the loans disbursed to the SHGs, while RRBs and co-operative banks shared
approximately 28 per cent and 9 per cent of the total loan amount. The SHG bank linkage
became a part of business for all the 27 public sector and 20 private sector commercial banks.
NABARD data of SHG-BLP up to March 2006 reveals that the State Bank of India credit

linked the highest number of SHGs (3,92,494), followed by the Andhra Bank (1,13,466) and
the Indian Bank (96,460). The regional rural banks also financed SHGs in significantly
Loan Disbursement Trend by types of Banks
All the 159 RRBs in the country have been participating in the SHG-BLP. The
Maximum number of SHGs has been linked to Pandiyan Grameen Banks in Tamil Nadu and
Pondicherry (45,672) followed by Srivishakha Grameen Bank (35,875) and Nagarjuna
Grameen Bank (27,879) in Andhra Pradesh. Up to March 2006, as many as 337 central co-
operative banks were involved in SHG-BLP. The Maximum number of SHGs has been linked
to Hooghly Cooperative Bank (18,015) in West Bengal followed by South Canara Co-operative
Bank (10,851) and Hassan Co-operative Bank (10,389) in Karnataka.
Non-Performing Assets
Rising NPAs are the serious problems posing towards MFI refinancing. Over the years,
refinancing facilities have taken a backstage due to the increasing reluctance of banks in
financing the MFIs. NABARD Report (2012) has noticed a 4% decline in refinancing facilities
across all categories of banks owing to the 4.72% rise in NPAs during this period. However,
fresh loan issued by banks towards MFIs have been increasing sharply in order to drive up the
financial inclusion and small entrepreneurship movements.
10
CB
Loan Disbursement byBanks

The probability of repayment has not been so encouraging due to the mismanagement
and lack of effective monitoring of utilization of loans and grants(8). Korankye (2014) has
studied such a trend of defaulting of MFI loans and increasing NPA problems in Ghana. His
study has pointed out that factors like poor appraisal, poor management, improper client
selection and inadequate loan size have resulted in terms of failure of loan repayment and rising
NPAs of banks. If we look at the table below, we can find the detailed trend of non-performing
assets of three bank categories. Among these three banks, RRBs have the highest concentration
of NPAs coming out of the MFI and SHG loan financing. However, the co-operative banks
have been to certain extent been able to control the bad loan aspects of MFIs through various
innovative financial schemes and less stringent repayment norms.
NPAs across banks arising from SHG financing
Year CB Coop RRB Total
2008 21370.74 3594.89 17326.65 42292.28
2009 38710.10 6097.48 17779.20 62586.78
2010 53746.41 6703.99 21853.74 82304.14
2011 106698.90 27281.73 27281.73 161262.36
2012 165541.60 13097.44 42634.18 221273.22
2013 217598.70 18006.00 43088.27 278692.97
2014 202492.00 21585.20 69189.23 293266.43
2015 246686.47 28230.20 106553.96 381470.63
2016 232139.69 30053.72 106429.49 368622.90
Mean 142776.07 17183.41 50237.383 210196.86
SD 88926.05 10269.88 35823.254 129846.2
CV 62.283582 59.76629 71.307961 61.773617
CAGR 11.999785 15.14452 19.918048 14.593482
‘t’ value 9.39 4.39 6.92 14.96
Note: Values in ( ) shows growth rate, ** denotes significant at 0.05 level.

Source: Compiled and Computed from various issues of Status of Microfinance in India,
NABARD.
Rising NPAs have already posed as the serious challenges for the Indian banking
system. Rising non-performing assets from the sides, SHG loans are being piled up day by day
leading to the bankruptcy conditions of the public sector banks. In 2012 Status of Microfinance
in India report, NABARD has raised serious concerns regarding the growing NPAs particularly
from the public sector banks. As per NABARD report, the non-performing assets from SHG
loans have been increased by 1.3% within 2011-12 periods. Fresh lending approach and
effectiveness in handling the loan disbursement channels have become the failure in case of
self help groups leading to which, the loan to SHGs has not been recovered fully by bank.
Except some handful states of Karnataka,
H.P and Pondicherry, all of the states have been facing severe challenges in forms of
recovering SHG based loan given by PSBs(9). Das (2013) has found the successful adoption
of SHG linked lending approach across the country notably in southern states. However, his
study has found greater disparity in terms of SHG based financing to the women household in
North-East Indian states. In order to contain with the problem of NPA problems of MFIs, the
government of India, in 2015-16 budget, has offered tax break for MFIs to deal with the
situation. Furthermore, the budget 2016-17 had proposed that non-banking finance companies
(NBFCs) will be allowed to claim tax deductions on the provisions for NPAs up to 5 per cent
of total income(10).

2.8 RBI report of past few years of the concept
The Microfinance sector
1. Microfinance is an economic development tool whose objective is to assist the poor to
work their way out of poverty. It covers a range of services which include, in addition
to the provision of credit, many other services such as savings, insurance, money
transfers, counseling, etc.
2. For the purposes of this report, the Sub-Committee has confined itself to only one aspect
of Microfinance, namely, the provision of credit to low-income groups.
3. The provision of credit to the Microfinance sector is based on the following postulates:
 It addresses the concerns of poverty alleviation by enabling the poor to work their way
out of poverty.
 It provides credit to that section of society that is unable to obtain credit at reasonable
rates from traditional sources.
 It enables women’s empowerment by routing credit directly to women, thereby
enhancing their status within their families, the community and society at large.
 Easy access to credit is more important for the poor than cheaper credit which might
involve lengthy bureaucratic procedures and delays.
 The poor are often not in a position to offer collateral to secure the credit.
 Given the imperfect market in which the sector operates and the small size of individual
loans, high transaction costs are unavoidable. However, when communities set up their
own institutions, such as SHG federations and cooperatives the transaction costs are
lower.
 Transaction costs, can be reduced through economies of scale. However, increases in
scale cannot be achieved, both for individual operations and for the sector as a whole
in the absence of cost recovery and profit incentive.
4. Giventhe above considerations,the essential featuresof creditforMicrofinance whichhave
evolved are as under : -

 The borrowers are low-income groups.
 The loans are for small amounts.
 The loans are without collateral.
 The loans are generally taken for income-generating activities, although loans are also
provided for consumption, housing and other purposes.
 The tenure of the loans is short.
 The frequency of repayments is greater than for traditional commercial loans.
5. The players in the Microfinance sector can be classified as falling into three main groups
 The SHG-Bank linkage Model accounting for about 58% of the outstanding loan
portfolio
 Non-Banking Finance Companies accounting for about 34% of the outstanding loan
portfolio
 Others including trusts, societies, etc, accounting for the balance 8% of the outstanding
loan portfolio. Primary Agricultural Co-operative Societies numbering 95,663,
covering every village in the country, with a combined membership of over 13 crores
and loans outstanding of over `64, 044 crores as on 31.03.09 have a much longer history
and are under a different regulatory framework. Thrift and credit co-operatives are
scattered across the country and there is no centralized information available about
them.
6. The SHG-Bank Linkage Model was pioneered by NABARD in 1992. Under this model,
women in a village are encouraged to form a Self help Group (SHG) and members of
the Group regularly contribute small savings to the Group. These savings which form
an ever growing nucleus are lent by the group to members, and are later supplemented
by loans provided by banks for income-generating activities and other purposes for
sustainable livelihood promotion. The Group has weekly/ monthly meetings at which
new savings come in, and recoveries are made from members towards their loans from
the SHGs, their federations, and banks. NABARD provides grants, training and
capacity building assistance to Self Help Promoting Institutions (SHPI), which in turn
act as facilitators/ intermediaries for the formation and credit linkage of the SHGs.

7. Under the NBFC model, NBFCs encourage villagers to form Joint Liability Groups
(JLG) and give loans to the individual members of the JLG. The individual loans are
jointly and severally guaranteed by the other members of the Group. Many of the
NBFCs operating this model started off as non-profit entities providing micro-credit
and other services to the poor. However, as they found themselves unable to raise
adequate resources for a rapid growth of the activity, they converted themselves into
for-profit NBFCs. Others entered the field directly as for-profit NBFCs seeing this as a
viable business proposition. Significant amounts of private equity funds have
consequently been attracted to this sector.
Funding of MFIs
1. It has been suggested that the entry of private equity in the microfinance sector has
resulted in a demand for higher profits by MFIs with consequent high interest rates and
the emergence of some of the areas of concern which have been discussed earlier.
2. Without expressing any opinion on the matter, it is necessary to understand the
circumstances in which private equity has entered the sector. On the one hand, there
was a huge unsatisfied demand for microfinance credit and on the other, there was a
limitation on the capacity of not-for-profit entities to meet this demand. When for-profit
entities emerged, microfinance was seen as a high-risk entity but venture capital funds
are not allowed to invest in MFIs and private equity rushed in to fill this vacuum.
3. We believe it is necessary to widen the base from which MFIs are funded in respect of
the Net Owned Funds needed for Capital Adequacy and for that purpose the following
need to be examined.
 It has been suggested that a “Domestic Social Capital Fund” may be permitted to be
established. This fund will be targeted towards “Social Investors” who are willing to
accept “muted” returns, say, 10% to 12%. This fund could then invest in MFIs which
satisfy social performance norms laid down by the Fund and measured in accordance
with internationally recognized measurement tools.
 MFIs should be encouraged to issue preference capital which carries a coupon rate not
exceeding 10% to 12% and this can be considered as Tier II capital in accordance with
norms applicable to banks.

4. We would, therefore, recommend that :
 The creation of one or more “Domestic Social Capital Funds” may be examined
in consultation with SEBI.
 MFIs should be encouraged to issue preference capital with a ceiling on the coupon
rate and this can be treated as part of Tier II capital subject to capital adequacy
norms.

CHAPTER 3
Research Methodology

3.1Type of Research
It is non-probability convenience sampling method was used for the purpose of this study. Data
were collected from Public.
3.2 Objectives of research
This study will focus on the awareness level of at ahmedabad citizen level microfinance. That
is whether people have heard about microfinance, if yes, from where, and whether they are
already a member of microfinance.
3.3 Implication of research
Data were collected from Public.
Research design: Descriptive Research
Sample Population: Ahmedabad
Sample Size: 100
Research approach: Survey Method
Research instrument: Questionnaire
.
3.4 data collection
Primary data
 Questionnaire
Secondarydata
 Journal
 Case Study
 Website

3.5 Data Analysis and Interpretation
1. Gender
Interpretation:
While selecting the sample size 72% respondents are male and 28% female.
2. Age
Interpretation:
As per above pie chart shows that 40% respondents age between 26 to 33 years, 32%
respondents age between 34 to 41 years and 20% respondents age is above 41 years.

3. Your monthly income
Interpretation:
As per the survey 40% respondents income between above 9000, 28% respondents income
between 7001 to 9000 and 24% respondents 5000 to 7000.
4. Are you aware of microfinance
Interpretation:
Out of the 50 respondents 70% respondents are not aware of microfinance and 30%
respondents are known about microfinance.

5. Source of awareness of microfinance
Interpretation:
Out of the 30% respondents awareness of microfinance source is SHG members/ group
leader, bank representatives and friends/ relatives/ neighbour.
6. What is the reason for not aware of microfinance
Interpretation:
Out of the 70% respondents not aware of microfinance because reason is 40% respondents
are not knowing what is microfinance, 22.9% respondents are not knowing what is
microfinance institutions and 20% respondents are not knowing the benefit of the
microfinance.

3.6 Questionnaire designing
1. Name:
2. Gender:
o Male
o Female
3. Age:
o 18 - 25 years
o 26 - 33 years
o 34 - 41 years
o Above 41 years
4. Your monthly income
o 0 to 5000
o 5001 to 7000
o 7001 to 9000
o Above 9000
5. Are you aware of microfinance ?
o Yes
o No
6. Source of awareness of microfinance ?
o Advertisement in TV/radio/newspaper
o Friends/relatives/neighbor
o Posters/banners/hoardings
o Bank representatives
o SHG members/group leaders
o NGO representatives
7. What is the reason for not aware of microfinance? (single tick)
o Not knowing what is microfinance

o Not knowing what is microfinance institutions
o Not knowing the benefit of the microfinance
o Not seeing any advertisement related microfinance

Findings of the study
 While selecting the sample size 72% respondents are male and 28% female.
 As per the survey 40% respondents age between 26 to 33 years, 32% respondents age
between 34 to 41 years and 20% respondents age is above 41 years.
 As per the survey 40% respondents income between above 9000, 28% respondents
income between 7001 to 9000 and 24% respondents 5000 to 7000.
 Out of the 50 respondents 70% respondents are not aware of microfinance and 30%
respondents are known about microfinance.
 Out of the 30% respondents awareness of microfinance source is SHG members/ group
leader, bank representatives and friends/ relatives/ neighbor.
 Out of the 70% respondents not aware of microfinance because reason is 40%
respondents are not knowing what is microfinance, 22.9% respondents are not knowing
what is microfinance institutions and 20% respondents are not knowing the benefit of
the microfinance.

CHAPTER 5
RECOMMENDATIONS AND
CONCLUSION

Recommendations of study
Majority of people not aware of what is microfinance who have small business like labours,
vegetables and fruits business person and any other daily basis small business persons so
government and microfinance institutions need to do microfinance awareness camps activity
and proper advertisement. And also giving them proper knowledge about benefits of
microfinance. So people can known what is microfinance and how its important to taking loan
on small interest. Because it is approved by RBI so it is trustworthy and it is for business
purpose loan. And SHG leader also focuses on awareness activity so people know what is
microfinance.
Conclusion of study
As per the research the data has clearly indicated that majority of respondents are not knowing
what is microfinance and its benefits because MFIs advertisement reach is limited on
televisions, newspaper and radio so people not aware about it.
And MFIs need to focuses on young age persons and guide them for microfinance loan so they
know and taking loan from MFIs for business when they need investment and earn maximum
profit. And MFIs marketing is limited not reach to this types of small business.

Bibliography
Kumar vipin, Chauhan Monu and Kumar Ritesh (2015) An Overview of Microfinance in India,
Abhinav National Monthly Refereed Journal of Research in Commerce & Management,
Volume 4, Issue 10, pp. 19-26.
Nikita (2014) An Analysis of Performance of Micro Finance in India, International Journal of
Management Research & Review Volume 4, Issue 7, pp. 715-721.
Dr. Prasann Kumar Das “Microfinance - A Tool for Socio – Economic Development in Rural
India” April 2014 International Journal of Emerging Research in Management &Technology
ISSN: 2278-9359 (Volume-3, Issue-4)
Source:https://www.researchgate.net/scientific-contributions/2094501718_BK_Panda
Websites
https://indiamicrofinance.com/top-50-microfinance-institutions-india.html
https://www.outlookindia.com/outlookmoney/talking-money/micro-and-small-enterprises-to-
drive-indias-fortunes-2922
https://www.ibef.org/news/microfinance-industry-posts-38-growth-in-fy19-mfin
https://www.scribd.com/doc/95119075/Current-Trends-and-Challenges-of-Micro-Finance-in-
India-1
http://indianresearchjournals.com/pdf/IJSSIR/2013/March/12.pdf
https://shodhganga.inflibnet.ac.in/bitstream/10603/5387/10/10_chapter3.pdf
https://www.mbarendezvous.com/general-awareness/scope-and-growth-of-microfinance-in-
india/
https://www.researchgate.net/publication/316923492_Growth_and_distribution_of_microfina
nce_in_India_A_panel_data_analysis
https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&ID=608#L21

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