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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
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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.
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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
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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
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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
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Process of Micro Loan distribution
In the absence of collateral, theloans are made to groups of five,
mostly women, who guaranteeeach others' loans.
Called Joint liability Group(JLG)
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Process of Micro Loan distribution
All persons who have paid back
a first loan, are automaticallyeligible for a second loan andeventually a third so theirbusinesses can grow.
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Process of Micro Loan distribution
At the same time from the
interest, the loan fund isgrowing, though slowly, andloans are available to morepersons.
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Process of Micro Loan distribution
If one does not pay back one'sloan, no one in the group willreceive a second loan
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Process of Micro Loan distribution
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
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Social Impact of Microfinance
The empowerment of women
As the microfinance services
mostly offered to women; theyare now more financiallyliterate and confident
Social Impact of Microfinance
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Social Impact of Microfinance
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.
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Social Impact of Microfinance
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.
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Social Impact of Microfinance
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.
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Social Impact of Microfinance
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
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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
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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
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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)
www.sharemicrofin.com www.bandhanmf.com www.spandanaindia.com www.sksindia.com
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0
5000
10000
15000
SKS SpandanaSHARE Bandhan
14000
3540.52234 1589
crores
company
Loan Disbursed (crores)
Loan Disbursed (crores)
www.sharemicrofin.com www.bandhanmf.com www.spandanaindia.com www.sksindia.com
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/
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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
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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.
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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
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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
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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
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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
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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
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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
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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
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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
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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
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“If You Are Uplifting
The Poor
Your UpliftingThe Nation”
- Mahatma Gandhi
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Source
DATA SOURCE
www.rbi.org.in/
www.microfinanceindia.org/ March 2007
CGAP
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