micro finance and rural development
TRANSCRIPT
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Micro finance is the supply of loans, savings andother basic financial service to the poor.
To most micro finance means providing very poorfamilies with very small loans to help them engagein productive activities or grow their tiny businesses.
Micro credit refers to small loan to a client made bya bank which can be offered without collateral to anindividual or group.
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Micro finance has been practiced in India for ages.
Reserve bank of India Act, 1934 provided for theestablishment of the Agricultural Credit Department.
Regional rural banks was created in 1975.
Nationalization of banks was done in 1969.
Established an apex agency for rural finance in 1982.
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Shortage of Financial Capital Or Misallocation?
lack of awareness about sources of funds formicrofinance providers to pass on to the poor
high interest rates of loans made to the poor (to cover
various costs and risks)
inappropriate targeting of poor households bymicrofinance programs
lack of microfinance training for MFIs
poor distribution system of MFIs, i.e. a need to spread
out loan facilities into rural areas
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Institutions that offer microfinance can be NGO,
Credit Unions, Non banking financial intermediaries
and commercial banks These institutions operate under RBI guidelines
Main functions of these 4 groups :
Structure and sustainability
Funding
Regulations
Capacity building
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Transformation of four large Indian MFIs into commercialentities:-
SKS Microfinance
Spandana Spoorthy Financials Limited Share MicroFin Limited
Asmitha MicroFin Limited
Share Microfin has 990 branches, with a loan portfolio of Rs
8,945 crore as of March 31st 2010 Share Microfin Ltd and Asmitha Microfin Ltd in Hyderabad
are trying for a possible merger of their business
It is a regulated NBFC
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From traditional days women are facing
discrimination in terms of access to credit and otherfinancial services.
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a) Feminization of poverty
b) Financial services offer a unique opportunity forgreater empowerment of women
c) Overcome gender discrimination for enhanced
economic growth
d) Financial uplifts are widely distributed within
household and community.
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1. Decision making:. A study conducted on Womens
Empowerment shows that an average of 68 percent of women
in its program experienced an increase in their decision-
making roles in the areas of
y family planning,
y childrens marriage,
y buying and selling property, and
y sending their daughters to school
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2. Self Confidence: Any program of its nature will
bring a drastic change in terms of self-confidence and
self esteem. The increased result will show an
improved effect in the level of knowledge in
understanding the issues around themselves andbusiness knowledge that will improve the financial
conditions.
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Women Status and Gender Indiscrimination
Family relationship:
Women Involvement in the community
Political participation and Womens rights:
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y Both governments and donors should explore ways of
developing innovative credit.
y Savings and credit programmes should be designed in a
way not to exclude women from participating.y enterprise, donors should encourage microenterprise
programmes to develop specific strategies for recruiting
women
ySupport for these organisations should include technicalassistance and training in programme and in developing
teams of female staff to assist clients in business
planning and management.
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Bring the commercial system closer to the rural
client
Bring the commercial system closer to the financial
system
Link rural finance to non-financial activities
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Sustainable Development of Rural Finance requires:
Continual growth and diversification of ruraleconomy
Access of all segments of the population includingrural microentrepreneurs, farmers and the poor tosustainable financial services such as savings, credit
and insurance Provide self reliant, sustainable financial
institutions
In a conductive macroeconomic policy environment
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To be successful, rural finance must assist borrowersin total income generation, including marketing andimproving product.
Formal financial institutions have scale but findadministrative costs too high in rural finance. Micro-finance has reach, but cant break out of small scale.
Investment in human capital is key to empowering
the poor to break out of poverty. [Teach a man tofish, not to eat fish].
Substantial poverty reduction requires holisticapproach, not just finance.
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The following key innovative approaches are effective toolsfor addressing rural finance challenges:
a. Firm vision/mission to reach the poor increasingoutreach with the ultimate goal of reaching largenumber of clients and poverty reduction
b. Simple and innovative products, i.e. development of
demand driven financial products
c. Cost effective MFI for attaining operational &financial sustainability control over administrativeexpenses and effective use of resources
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d. Diversified funding sources
e. Standardized & Simple delivery procedures/ methodologyf. Linkage of MFIs & banks
g. Continuous institutional capacity of MFIs so as to address:
Good governance
Human resource development
Portfolio quality improvement
MIS strengthening
Loanable fund/savings mobilization
Quick information on repayment & default
h. Flexible loan terms & conditions, e.g. suitable loan repaymentschedule tailored to the clients cash flow
i. Close & frequent monitoring & follow up
j. Appropriate & standard criteria (ratios) for measuring MFIs
performance