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PICTURING MICRO FINANCE

PRIYANKA CHIBBERMEDHA GUPTAPRINCY JAINUTKARSHI

SWATI BAHRI ---- PRESENTORS



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Micro Finance is the supply of loans, savings,and other basic financial service to the poor .

-> CGAP

To most, micro finance means providing verypoor families with very small loans (microcredit) to help them engage in productiveactivities or grow their tiny businesses.

-> Financial Gateway

Source: Text

WHAT IS MICRO FINANCE ?



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Overview

Microfinance is the supply of loans, savings, and other basicfinancial services to the poor

In India it generally provided by SHG-Bank linkage, and by MFIsitself

SHG-Bank – 54 million members MFI – 22.6 million members

MFIs added 8.5 million new members in 2008-09

3732.33 crs. was disbursed to 581 Micro Finance Institutions

(MFIs) during 2008-09

Source: http://www.microsave.org/briefing_notes/india-focus-note-40-state-of-microfinance-in-india-201

http://www.microsave.org/briefing_notes/india-focus-note-40-state-of-microfinance-in-india-2010























Origin of Microfinance

The concept of micro finance originated in

the mid-1970s in Bangladesh through apioneering experiment by “Dr MuhammadYunus” then a Professor of Economics.



Origin of Microfinance

Dr. Mohammad Yunus EstablishedBangladesh Grameen Bank to:-

Providing financial services andentrepreneurship opportunities

It was an end to mistreatment bymoney lenders



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Grameen Bank

Established in 1976 in Jobra village in Bangladesh by ProfessorMuhammad Yunus

Provides credit to the poorest of the poor in rural Bangladeshwithout any collateral

By June 2010:

2,564 branches in 81,362 villages

8.28 million borrowers (90% are women)

Total equity:

90% - Borrowers

10% - Government

Source- http://www.grameen-info.org

http://www.grameen-info.org/






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Contd..Owned by the Poor

No Collateral, no legal instrument, no group-guarantee or joint liability

Over Tk 546 billion Disbursed in 2009-10

Loan recovery rate is 97.20 percent

Low Interest Rates- 20% - Income generating8% - Housing loans

5% - Students

Source- http://www.grameen-info.org







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Objectives

Extend banking facilities to poor people

Eliminate the exploitation of the poor people by moneylenders

Create opportunities for self-employment for unemployed

people in rural Bangladesh

Reverse vicious circle of "low income, low saving & lowinvestment", into virtuous circle of "low income, injection ofcredit, investment, more income, more savings, more

investment, more income"



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Micro finance refers to loans, savings,insurance, transfer services and otherfinancial products targeted at low-income clients.

Micro credit refers to a small loan to aclient made by a bank or otherinstitution. Micro credit can be offered,often without collateral, to an individual

or through group lending.

Source: Text

MICRO FINANCE AND MICROCREDIT



Process of Micro Loan distribution

A micro credit program givessmall loans to the poor so that

they can procure whatever theyneed to start a small local businessof their choice




In the absence of collateral, theloans are made to groups of five,

mostly women, who guaranteeeach others' loans.

Called Joint liability Group(JLG)




All persons who have paid back

a first loan, are automaticallyeligible for a second loan andeventually a third so theirbusinesses can grow.




At the same time from the

interest, the loan fund isgrowing, though slowly, andloans are available to morepersons.




If one does not pay back one'sloan, no one in the group willreceive a second loan




To guard against emergencies,such as one's cow dying and notbeing able to repay the loan, an

emergency fund is set up at thetime of the first loan. Thissimply means that a few coins,perhaps an additional



Social Impact of Microfinance

The empowerment of women

As the microfinance services

mostly offered to women; theyare now more financiallyliterate and confident





Building Economic citizenshipFinancial services foster Independence. Microfinance canhelp clients to grow more confident and with that economiccitizenship they can step out and become a part of mainstream of society.




To fight with povertyFinancial services give clientsto access to education,healthcare, and othernecessities that improves their

quality of life. i.e. school feeloan, health insurance andhome improvement loan.




Normally If a poor household loses a source ofincome he might have to withdraw a child fromschool or selling valuable assets or fall deep intopoverty.




protecting againstvulnerabilities

Financial services like saving,credits and insurance provide

sustainable and low cost copingstrategies.

They can re-build there assetsor alternate source of incomewithout falling in poverty



Scope of Microfinance

In India, Micro finance is growing faster than bankingand, if the experience in other developing countries is

mirrored here, microfinance “will reach moreindividuals than the banking sector,”

- Robert Annibale, global director Citigroup Inc.Microfinance



Scope of Microfinance

0

5

10

15

20

25

30

35

2008 2010 2015

Banking

Microfinance

N o s . o f C l i e n t s i n M i l l i o n s

*For 2015 the projection sourced from citigroup microfinance



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Key Players

SKS Microfinance Ltd.

Spandana Sphoorty Financial Limited

Share Microfin Limited

Bandhan

Asmitha Microfin Ltd.

Shri Kshetra Dharmasthala Rural Development

Project (SKDRDP)

BASIX



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www.sharemicrofin.com www.bandhanmf.com www.spandanaindia.com www.sksindia.com

http://www.sharemicrofin.com/

http://www.bandhanmf.com/

http://www.spandanaindia.com/

http://www.sksindia.com/











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Number of Clients(000) as on March 2010

6780

4164

3058 2772

0

1000

2000

30004000

5000

6000

7000

8000

SKS Spandana SHARE Bandhan

Company

N u m b e r o f c l i e n t s

Number of Clients(000)






















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0

5000

10000

15000

SKS SpandanaSHARE Bandhan

14000

3540.52234 1589

crores

company

Loan Disbursed (crores)

Loan Disbursed (crores)


Up to 2010






















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Commercialisation of Microfinance

“Down-scaling” of commercial banks to serve the poor, and the“transformation” of NGO-MFIs into commercial banks.

Link to commercial providers of capital.

Way of formalise and professionalise microfinance.

Sequoia made the first private equity (PE) investment in Indian

microfinance, buying shares in SKS for an investment of $11million.

Source:- http://www.microfinancegateway.org/p/site/m/template.rc/1.9.43770/

http://www.microfinancegateway.org/p/site/m/template.rc/1.9.43770/





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Contd….

Transformation of four large Indian MFIs into commercial

entities:-

SKS Microfinance

Spandana Spoorthy Financials Limited

Share Microfin LimitedAsmitha Microfin Limited

SKS Microfinance, India’s largest MFI, which serves about 5.5

million clients intends to raise $347 million in an initial publicoffering.

Source:- http://www.microfinancegateway.org/p/site/m/template.rc/1.9.43770/






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Commercialisation is Essential

Allowed a massive increase in outreach and expansion of credit tothe poor in India, at rates of interest that are relatively modest

To provide credit- require trillions of dollars

To provide safe and secure savings services



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Concerns

An opportunity to make money for commercial banksrather than worrying about what happens to the poor people

Organizations are becoming loan sharks themselves

Growth of an organisation erode its mission to tacklepoverty



Limitations

Micro Loans should never lends to individuals without firstproviding them with the expertise and training to build abusiness plan that is likely to succeed.



Limitations

Micro finance is mainly intended for social investment withthe focus on poverty reduction. The utilization of fundsdepends on the capacity of the poor clients productively use

it, at bottom level towards creating a sustainable socialimpact



Limitations

Another point in this regard is that mere flow of fundsalone in MF sector cannot bring desired level of social

impact unless other infrastructure is enough in the givenarea/region to absorb the funds



34Source: Text

MICRO FINANCE IN INDIA

Evolution of Micro finance in India

Micro finance has been in practice for ages ( though informally).

Legal framework for establishing the co-operative movement setup in 1904.

Reserve Bank of India Act, 1934 provided for the establishment

of the Agricultural Credit Department. Nationalization of banks in 1969

Regional Rural Banks created in 1975.

established as an apex agency for rural finance in 1982.

Passing of Mutually Aided Co-op. Act in AP in 1995.

THE PROFILE OF MICRO FINANCE IN



35Source: Text

THE PROFILE OF MICRO FINANCE ININDIA

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 micro finance programmes is only

about Rs. 5000 crores.(Mar. 04)

Total outstanding of all micro finance initiatives in India estimated tobe Rs. 1600 crores. (March 04)

Only about 5 % of rural poor have access to micro finance

THE STATUS OF MICRO FINANCE IN



36Source: Text

INDIA

Considerable gap between demand and supply for all financial services

Majority of poor are excluded from financial services. This is due to, inter-Alia, thefollowing reasons

Bankers feel that it is fraught with risks and uncertainties.

High transaction costs

Unfavourable policies like caps on interest rates which effectively limits the

viability of serving the poor.While MFIs have shown that serving the poor is not an unviable proposition there

are issues that have constrained MFIs while scaling up. These include

Lack of an appropriate legal vehicle

Limited access to equity

Difficulty in accessing low cost on-lending funds (as of now they are unable to offersavings services in a legitimate

FEATURES OF INDIAN MF



37Source: Text

FEATURES OF INDIAN MF

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 householdsNABARD’s bank linkage program has cumulatively reached atotal of 9.4 lakh SHGs with about 1.4 crore households.

CHECK LATEST FIGURES ITS 2004 DATA



38Source: Text

PROJECTIONS FOR THE FUTURE

Annual growth rate of about 20 % during the next five years.

75 % of the total poor households of 80 million (i.e. about 60million will be reached in the next five years.

The loan outstanding will consequently grow from the presentlevel of about 1600 crores to about 42000 crores

CHECK LATEST FIGURES ITS 2004 DATA

WHAT IS THE MICRO FINANCE DEVELOPMENT



39Source: Text

FUND ? Union Finance Minister in his budget speech for the year 2000-01, this Rs. 100 crore Fund

has been created in NABARD to support broadly the following activities:a) giving training and exposure to self-help group (SHG) members, partner NGOs, banks and

govt. agencies

(b) providing start-up funds to micro finance institutions and meeting their initial operational

deficits

c) meeting the cost of formation and nurturing of SHGs; (d) designing new delivery

mechanismse) promoting research, action research, management information systems and dissemination

of best practices in micro finance.

This Fund is thus expected to address institutional and delivery issues like institutional growth

and transformation, governance, accessing new sources of funding, building institutional

capacity and increasing volumes. RBI and NABARD have contributed Rs. 40 crore each to

this Fund. The balance Rs. 20 crore were contributed by 11 public sector banks.

CHALLENGES AHEAD



40Source: Text

CHALLENGES AHEAD

Appropriate legal structures for the structured growth of MF operations

Ability to access loan funds at reasonably low rates of interest.

Ability to attract and retain professional and committed human resources.

Design of apt MIS including user friendly software for tracking accounts and

operations.

Ability to innovate, adapt and grow.

Bring out a compendium of small and micro enterprises for the MF clients.

Identify and prepare a panel of locally available trainers.

Ability to train trainers.

Capacity to provide backward linkages or create support structures for

marketing



41Source: Text

“If You Are Uplifting

The Poor

Your UpliftingThe Nation”

- Mahatma Gandhi



42Source: Text

Source

DATA SOURCE

www.rbi.org.in/

www.microfinanceindia.org/ March 2007

CGAP

http://www.microfinanceindia.org/

http://www.microfinanceindia.org/



43Source: Text

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