MICRO BORROWING

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MICRO BORROWING[SMEs - ROLE OF MFIs ]

SUBMITTED TO : Dr. C. KISHAN RAODATE: 18/11/2009

SUBMITTED BY: GROUP 1

HIMA BINDU AGASTYA 08 PG 227MANIKANDAN C 08 PG 235PRINCE SURANA 08 PG 252RITU B 08 PG 260SALINI CHERAKULA 08 PG 119SATYA SWAROOPKOTA

08 PG 269

SESHU PINNAMANENI 08 PG 270SONAM JAGGA 08 PG 279


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INTRODUCTION

In the past two decades, India has been making sustained progresson a scale, size and pace that is unprecedented in its own history. Alow-income country with mass poverty at the time of Independencein 1947, India now has a diminishing pool of very poor people and ispoised to cross the threshold to join the ranks of the worlds middle-income countries. Over these past 62 years, the country has beensuccessful on a number of fronts but still as far as 2009 report isconcerned, India ranks at 134 in Human Development Index whichhas been dropped down by 2 rank compared to previous year and itstood at 89th as far as Below Poverty Line is concerned, in which25% of population today in country are still below poverty line.

So as far as Indias budget 2009-10 is concerned it has given moreimportance on rural development and inclusive growth. Financeminister have considered some of areas as key focus for inclusivegrowth and those were, reducing the BPL population by 50% by2014, increasing job opportunities for the poorer sections, improvinghousing facilities and better rural infrastructure has been read tomean a greater opportunity to put money into the hands of thehave-nots. But still even if they were provided with money it wontbe sufficient enough to raise standard of living. There should haveto be something done to improve them from lower economic stage.Many microfinance institutes, self help groups and govt of Indias

initiatives like NREGA, PMGSY, BHARAT NIRMAN, and NSAP etc wereinvolved in the process of supplying money to people to alleviatepoverty and raise the standard of living. But it is found that most ofMFIs were concentrated only in specific regions. So this also is notsufficient to cover entire population.

There is growing evidence all over the world that Small and MediumEnterprises (SMEs) play a significant role in the national economicdevelopment of any country. They provide majority of new jobs andproduce much of the creativity and innovation that fuels economic

progress. The extra growth over the past several years throughoutthe industrialized countries has been due to the growth of SMEs. InIndia, the Ministry of Micro, Small and Medium Enterprises (MSME) isimplementing the promotional schemes for the development ofmicro, small and medium enterprises. Microfinance institutions werefinancing these enterprises apart from other major financialinstitutions. But it is still found that financial assistance alone is notenough for growth of SMEs and it is much more beyond that theyneed knowledge i.e. information. In simple terms rather thanproviding them with subsidy or money, they just have to be loadedwith ways and means to generate sustainable livelihoods and there

information should have to be loaded among the masses. So this

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integration of MFIs and information system in SME to promote ruraldevelopment will be discussed in detail in the following part.

GOVERNMENT INITIATIVES:

The first and the primary focus should be to examine governmentpolicies impact on the human resource base of rural India. Has itenergised, mobilised, empowered, and delivered to Indias poorestand most marginalised rural people? Secondly, has it provided thosewho were not shining a measure of dignity, tangible economicbenefit, and a motivation to participate in local action?

NREGA:

Notwithstanding negative propaganda and the prominent reportageof corruption, NREGA stands apart from employment and povertyalleviation programmes in significant ways. It is the first nationalprogramme of consequence which has woven transparency andaccountability into the mundane fabric of daily interaction of peoplewith government. The cases of reported corruption have shockedthe intelligentsia. The rural worker might often be the victim but willstill offer critical support, not only because it has provided wage

income, but also for facilitating disclosure, which helps identify andfight pilferage. In fact, in many cases, scams have been exposed bythe workers themselves. NREGA gives an opportunity to break thefeudally enforced silence of its victims. Through transparency andsocial audit measures, it allows anyone, anywhere to be part of themonitoring of the delivery system. The other programmes appear tobe clean only because no one knows what goes on! The NREGAgives a further opportunity to realise the Constitutional sovereignty,the power of the people. What the political establishment would dowell to understand is that the vote was not a blind endorsement, but

the expression of a fragile hope of a rational participatoryrelationship with the government.

New claims

The NREGA has opened up a unique legal space for the poor, with aconsequent, legally-mandated obligation on the administration todeliver. In fact, implementation rests on the simple philosophy thatordinary people will go to great lengths to procure theirentitlements, given the space to do so. Apart from systemiccorruption, we are all aware of the chronic inefficiency,

unwillingness and incapacities of the bureaucratic system to deliverentitlements for the poor. The persistent argument was that in this

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context implementation would be impossible. The NREGA sought tocreate real opportunities and legal spaces, with the belief thatpeople will begin to push to overcome bureaucratic and politicalresistance.

The political class would do well to understand that the mostimportant solution is an assertion of its will to respond to peoplesvoices. The many wise, creative, and innovative initiatives emergingfrom theory and practice have a future only if they are owned by thepeople and implemented with justice. The NREGA can give peoplean opportunity to make the entire system truly transparent andaccountable. Properly supported, peoples struggles for basicentitlements can, in turn, become the strongest political initiative tostrengthen our democratic fabric.

PMGSY

The primary objective of the PMGSY is to provide Connectivity, byway of an All-weather Road (with necessary culverts and cross-drainage structures, which is operable throughout the year), to theeligible unconnected Habitations in the rural areas, in such a waythat all Unconnected Habitations with a population of 1000 personsand above are covered in three years (2000-2003) and allUnconnected Habitations with a population of 500 persons andabove by the end of the Tenth Plan Period (2007). In respect of theHill States (North-East, Sikkim, Himachal Pradesh, Jammu &

Kashmir, Uttaranchal) and the Desert Areas (as identified in theDesert Development Programme) as well as the Tribal (Schedule V)areas, the objective would be to connect Habitations with apopulation of 250 persons and above.

The PMGSY will permit the Upgradation (to prescribedstandards) of the existing roads in those Districts where all theeligible Habitations of the designated population size have beenprovided all-weather road connectivity. However, it must be notedthat Upgradation is not central to the Programme and cannotexceed 20% of the States allocation as long as eligibleUnconnected Habitations in the State still exist. In Upgradationworks, priority should be given to Through Routes of the Rural CoreNetwork, which carry more traffic

Bharat Nirman

Every village to be provided electricity: remaining 1,25,000villages to be covered by 2009 as well as connect 2.3 crorehouseholds

Every habitation over 1000 population and above (500 in hilly

and tribal areas) to be provided an all-weather road:remaining 66,802 habitations to be covered by 2009

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Every habitation to have a safe source of drinking water:55,067 uncovered habitations to be covered by 2009. Inaddition all habitations which have slipped back from fullcoverage to partial coverage due to failure of source andhabitations which have water quality problems to be

addressed Every village to be connected by telephone: remaining 66,822

villages to be covered by November 2007

10 million hectares (100 lakhs) of additional irrigation capacityto be created by 2009

60 lakh houses to be constructed for the rural poor by 2009While the agenda is not new, the effort here is to impart asense of urgency to these goals, make the programme time-bound, transparent and accountable. These investments inrural infrastructure will unlock the growth potential of rural

India.

NSAP

The National Social Assistance Programme l (NSAP) which came intoeffect from 15th August, 1995 represents a significant step towards

the fulfillment of the Directive Principles in Article 41 of theConstitution. The programme introduced a National Policy for SocialAssistance for the poor and aims at ensuring minimum nationalstandard for social assistance in addition to the benefits that statesare currently providing or might provide in future. NSAP at present,comprises of Indira Gandhi National Old Age Pension Scheme(IGNOAPS), Indira Gandhi National Widow Pension Scheme(IGNWPS), Indira Gandhi National Disability Pension Scheme(IGNDPS), National Family Benefit Scheme (NFBS) and Annapurna.CAPART works with the objective of improving the quality of life inthe rural areas, particularly the poor and socially disadvantaged

sections of society. Thus, people below the poverty line, peoplebelonging to the scheduled castes and tribes, bonded labour,women and people with disabilities are priority focus groups forCAPART.

CAPART

To support voluntary organizations in implementing projects

for sustainable development in rural areas.

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To act as a national nodal point for development andpromotion of appropriate rural technologies.

To promote and support voluntary action and people'sparticipation for rural development, through capacity-buildingfor voluntary organizations and rural communities.

To act as a data bank and clearing house for information onthe voluntary sector, rural technologies and ruraldevelopment.

Facilitating community action for development.

Building awareness on critical development issues.

Building and strengthening village-level people andorganizations.

Promoting the development and dissemination of appropriaterural technologies.

Strengthening the capacities of voluntary organizations inrural areas.

Creating employment opportunities and economic self-reliance.

Creation of community assets and fulfillment of basic needs.

Conservation and regeneration of the environment andnatural resources.

Enabling women, persons with disabilities and otherdisadvantaged groups to participate in development

In pursuit of these goals, CAPART provides financial and resourcesupport to voluntary organisations in conceptualising, developingand implementing a wide range of projects and developmentinterventions.

CAPART receives the bulk of its funds from the Government of India.We also have partnerships with international donors to facilitaterouting of funds to voluntary organizations working for ruraldevelopment.

INFORMATIONAL INITIATIVES

MySME News

MySME News is a pioneering service which aims to provide the poorin India with essential business news while also reaching operatingprofit within two years. It will exploit the rapid spread of mobilephones in Indias slums, as well as rely on traditional media to reacha broad customer base with individually tailored services. Internews

Europe, Mahiti and Plural India are launching the MySME News pilotin the Slums of Kolkata, West Bengal with 300,000 Micro-finance

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entrepreneurs. They have received funding from the EC, but seekco-financing to expand the power of the model. MySME News willblend the power of technology with existing realities and socialnetworks in India's slums and villages to build a 'Bottom of thePyramid' media business, and new models of pro-poor media

sustainable in the market place.

Highlights

Market News with wide-ranging delivery methods -mobile, newsletter handouts, radio.

For the first time ever,millions of poor people canreceive personally customized information tailored totheir needs.

Closing the information gap between the rich and the

poor with news you can use on prices, markets,business, health and livelyhood information, available inyour language - when and where you want.

Potentially broad reach, exploiting the explosion ofmobile ownership in India (300 million subscribers andcounting).

Mixture of Models, non-profit for training and set-up, for-profit revenue splits with telecom companies &advertising streams.

Traditional Media tie-ins, mobile-based individualsubscriptions cross-marketed on broadcast & printmedia outlets.

In the middle of the technology curve, although gearedto work on 'Any Handset Any Network', the project willalso position for JVs with the telecom, IT and mediaindustries to exploit tech advances fresh from the labs,including Bluetooth, 3G, Wi-Max, Smart Cards, VOIP andother voice technologies.

AIRTEL FIRST RURAL SERVICE

Aritels initiative was based on consumer insight highlightingdifferent behavioral patterns of customers in rural or emergingsmaller towns and villages. The centers are aimed at penetrationinto the remote villages, offering rural customers enhanced networkcoverage at affordable rates. The concept involves a combination ofdistribution and service and would serve as a one-stop shop for all

mobile-related queries and provide various value-added services tothose in the rural areas. The service centers will benefit those who

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are not tech-savvy or familiar with SMS. Consumer queries aredirectly routed to trained agents who will specifically address theirneeds. Identification and training of entrepreneurs who run multi-brand outlets in suitable locations with easy access, is an importantaspect of the initiative, he said. A typical service centre (iServe

model) is equipped with a multi-function printer and photocopiermachine, thus making documentation easier for a new mobilecustomer in a village.

SPOKEN WEB

In India and several other countries, the number of mobile phonesubscribers far exceeds the number of personal computer users,and continues to grow at a much faster pace (it has already crossedthe 450 million mark in India). We will present Spoken Web, an

attempt to create a new world wide web, accessible over thetelephone network, for the masses in these countries. The SpokenWeb is based on the concepts of Hyperspeech and HyperspeechTransfer Protocol that allow creation of VoiceSites and traversal ofVoiceLinks". We describe a simple voice-driven application, whichallows people, without any information technology background, tocreate, host, and access such VoiceSites, and traverse VoiceLinks,using a voice interface over the telephone. We present ourexperience from pilots conducted in villages in Andhra Pradesh andGujarat. These pilots demonstrate the ease with which a semi-literate and non-IT savvy population can create VoiceSites with

locally relevant content, including schedule of education/trainingclasses, agicultural information, and professional services, and theirstrong interest in accessing this information over the telephonenetwork.

SME SCENARIO

In India, the Micro and Small Enterprises (MSEs) sector plays apivotal role in the overall industrial economy of the country. It isestimated that in terms of value, the sector accounts for about 39%of the manufacturing output and around 33% of the total export ofthe country. Further, in recent years the MSE sector has consistentlyregistered higher growth rate compared to the overall industrialsector. The major advantage of the sector is its employmentpotential at low capital cost. As per available statistics, this sectoremploys an estimated 31 million persons spread over 12.8 millionenterprises and the labour intensity in the MSE sector is estimatedto be almost 4 times higher than the large enterprises, so fundingthese enterprises is a big task.

Micro financing institutions providing funds to SMEs include banks,

social investing institutions (NGO-MFIs), NBFCs which includecommercial MFIs e.g. Spandana, Basix etc. Micro financing literally

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are not just credit providers but should also assist in financialcounseling, savings and risk mitigation products. On the financialservices perspective the advantage for SME in case of bank MFI isthat it can get funds regularly and in case of non bank MFI is theability to understand and respond to the borrower. The criticism is

that most banks, being risk averse, have now shifted to lending toMFIs at not-so-competitive rates, who in turn, transfer some of thehigh interest costs to the end-borrowers as within the 40% target ofPriority Sector Lending for banks, there are no minimum targets forthe SSI/SME sector itself. So, there might be merit in the argumentthat micro-finance is tending to replace credit to SMEs.

Under the new budget, providing a special fund of Rs 4,000 croreout of Rural Infrastructure Development Fund (RIDF) to SmallIndustries Development Bank (SIDBI) has been proposed. This fundof Rs 4,000 crore will help banks and State Finance Corporations(SFCs) to lend to Micro and Small Enterprises (MSEs) by refinancing50 per cent of incremental lending to MSEs in 2009-2010

To make sure that the microfinancing institutions provide not onlyfinancial assistance but also provide them additional assistance,SMERA (Small Medium Enterprise Rating Agency) has launchedrating service for MFIs also. SMERA-MFI Rating is an independent,third party comprehensive assessment of various risks involved infinancial as well as social performance of a MFI. Which will boostMFIs to perform better in the future in desire to get good ratings.

MICRO BORROWING AND MFIs

The growth of microfinance is visible in many aspects. There aremore than 2000 NGOs involved in the NABARD SHG-Bank linkageprogram. Out of these, approximately 800 NGOs are involved insome form of financial intermediation. Further, there are 350 newgeneration co-operatives providing thrift and credit services.According to our estimate, the present total outstanding, includingSa-Dhan members and bank linkages is approximately Rs.700crores (Rs. 150 crores of Sa-Dhan members and another Rs. 550crores from the Banking system). The total client base is estimatedat 6-8 million as opposed to the Government of India (GOI) intentionto reach 25 million clients. The growth of community institutions hastaken place with the role to take social and financial intermediation.A numbers of community banks have come into existence at villageand block levels call ' Federation of Self Help Groups'.

The inadequacies of the formal financial system to cater to

the needs of the poor and the realization of the fact that thekey to success lies in the evolution and participation of

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community based organizations at the grassroots level led tothe emergence of new generation of MFIs.

One kind of MFI is an NGO engaged in promoting Self HelpGroups (SHGs) and their federations at a cluster level andlinking SHGs with Banks under the Scheme. Examples are

Myrada in Karnataka, which has promoted Sanghmitra, acompany of its village saving and credit sanghas, PRADANwhich has established a large number of SHGs and federatedthem under Damodar in Bihar, Sakhi Samiti in Rajasthan.

Another kind is NGO-MFI directly lending to the poorborrowers, who are either organized into SHGs or intoGrameen Bank type of groups after borrowing bulk funds fromSIDBI, RMK and FWWB. Examples in this category areRashtriya Gramin Vikas Nidhi (RGVN) which runs credit andsavings programme in Assam and Orissa on the lines ofGrameen Bank, Bangladesh. Also we have SHARE in AP, ASAin Tamil Nadu under this category.

There are MFIs which are specifically organized ascooperatives, such as over 500 Mutually Aided CooperativeThrift and Credit Socities (MACTS) in AP, promoted among

others by Cooperative Development Foundation (CDF) and theSEWA Bank in Gujarat which also runs federations of SHGs innine districts.

Then we have MFIs, which are organize as Non-BankingFinance Companies (NBFC) such as BASIX, CFTS Mirzapur,SHARE Microfin. Ltd and Sarvodaya Nanofinance Ltd.

DRAWBACKS

However there is a major gap in the services provided by the sectordue to regulatory restrictions, savings products have not beenoffered until now.

Transaction costs, defined as lending costs exclusive of cost offunds and default costs, currently contribute significantly to the highinterest rates charged to the borrowers while relatively small size of

loans and high frequency of transactions are inherent in micro

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finance, the challenge is to nonetheless lower transaction costssubstantially.

There is currently an absence of a robust database for themicrofinance sector, a gap which must be addressed if the potential

of this sector is to be realized, and for better public policies andregulation. It is estimated that there are around 800 MFIs in India.They cover 7.3 million households (about 30 million persons) ofwhich about half may be classified as poor. Direct and indirectlinkages between SHGs and banks under the SBLC cover around 22million households or over 100 million persons. The combineddisbursement of MFIs and the SBLC as on March 2006 was aroundRs. 200 billion (approximately US$ 5 billion, equivalent to only 0.6per cent of GDP). This is fairly low, suggesting, considerable scopefor developing the sector.

The current volume-driven approach of most MFIsespecially thewell established ones, who have been doubling or quadrupling clientnumbers in magical spans of timehas thrown up some worrisometrends. For example in Kolar, Mysore and Ramanagaram, a smalltown all in Karnataka there is a major mass default which wasbasically the result of over-lending by the MFIs, which further leadsto social tensions and fuels a cycle of indebtedness.

Although the demand for credit is widespread, MFIs are not evenlydistributed geographically. MFIs are clustered primarily in the south,

with two-thirds of all MF clients being in AP, TN and Karnataka. Thegrowth appears to be getting concentrated in certain geographiesand not covering newer or unlinked areas. The net result is that insome localities, a large number of poor people now owe money tomore than one agency, making repayment a burden and increasingthe chances of default. And this race for numbers might end in alarger number of perpetually debt-ridden people.

Lack of systems to check the loan-utilization is another main reasonfor failing to achieve the primary motive of MFIs. For instance,Ujjivan Financial Services has reported to have admitted that it is

well-known that loan clients lie about the purpose of the loan.

Recent trends in commercialization have given rise to theapprehension that social objectives of microfinance to provide ameans for poor to improve their livelihood through financialinclusion is diluted by targeting richer clients to increase profits,the so-called mission drift. This mission drift in MFIs from being asocial agency to becoming a primarily lending agency that wantsto maximize its profit is an effort to attract investors.

It has been observed that, MFIs are able to reach the pooreffectively mainly because they have designed products and

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channels, which are friendly and suitable to the need of the poor.However, MFIs outreach is limited in comparison with themainstream financial institutions because of the shortage offinancial and human resources. MFIS need grants to build their owncapacity as well as that of the borrowers or SHGs. A vast majority of

MFIs are NGOs registered under the Societies Act or Trust Act, andthey cannot mobilize large amount of lending funds due to theinappropriate legal and financial structure. A few MFIs which haveregistered as Non-Banking Finance Companies (NBFCs) are able tomobilize equity from development financial institutions and leveragethese with borrowing from commercial banks. However, theregulatory framework is not conducive for these MFIs.

Unfortunately, in India the dominant reform agenda of themainstream sector clouds the reform and attention that is requiredat the bottom end. The past few years though has seen anappreciable increase and support to this problem. The presenteconomic advisory team under the leadership of the Prime ministerthough (PMO) has brought increasing focus to this problem and agroup has been constituted to deal with these problems.

POSITIVE ASPECTS:

The RBI in its Annual Policy Statement for the year 2005-06, urged

all the banks in the country to review their existing practices to alignthem with the objective of financial inclusion.

The SHG-Bank linkage programme of NABARD has emerged as theprimary model for providing Micro Finance services in the country. Itis a proven tool for extending access to formal financial services tothe unbanked rural clientele.

Government is providing support to low income groups throughprogrammes like the National Rural Employment Guarantee Scheme(NREGS) for inclusive growth. Also, in recent budget it was declaredthat the Rashtriya Mahila Kosh, which has been working towards thefacilitation of credit support or microfinance to poor women and hasdeveloped a number of innovative schemes for their benefit, will berewarded with a corpus of Rs 500 crore from the present Rs 100crore.

Since many MFIs are funded and have built scale, venture firms andprivate equity funds are waiting to enter the industry. They providestartup capital to MFIs, help them build capital and asset base, andmake them ready for larger rounds with financial institutions and VC

firms. In July 2009, SKS Microfinance, the largest MFI in India,announced a $10 million strategic investment from general and life

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insurance firm Bajaj Allianz Life Insurance. The deal signals thesignificance of how the client network built by MFIs could serve as adistribution channel for products like micro-insurance besides credit.

VIABILITY:

Microfinance in rural areas by itself cannot eradicate poverty. Creditmay be a trigger for growth, but it requires a context of all-rounddevelopment to function. There is a need for self-regulation bysmaller microfinance institutions and NGOs. Over-regulation at atime when the entire microfinance sector is at a nascent stage ofgrowth could throttle the growth potentials of the SHGs.

FUTURE OUTLOOK

The positive shift in (turnover & order booking) the second quarterof 2009-2010 vis-a-vis the first quarter may be attributed to the"Trickle down affect" of the various measures announced as part ofthe stimulus packages announced by the Government of India & theReserve Bank of India, during the December 2008 & January 2009.

The positive sentiment built up in the second quarter of 2009 - 2010is expected to carry forward into the third & the fourth quarter of2009-2010.

As part of the MSME Outlook survey, an analysis of various factors

that inhibit the growth and development of MSMEs in India, revealedthat the Ten key issues, that entrepreneurs found as the majorimpediments to their growth, in order of decreasing priority areDelayed payments, High cost of credit, Lack of availability of credit,Absence of Government support for growth, Lack of availability ofrisk capital, Complex indirect tax structure & lack of understandingon the forthcoming GST, Norms for collateral/margin requirements,Infrastructure bottleneck, Absence of preference for being a part ofthe supply chain for the Government, Compliance with labour laws,Non transparent credit appraisal norms and Lack of usage ofInformation and Communication Technology (ICT).

The challenge to be addressed would be how to provide access tofinance on a universal basis with every individual having access to abasic set of essential financial services. To provide this access thefollowing steps appear to be necessary:

1. Development of a network of community based financialinstitutions, which have the ability to provide these financialservices. This network of institutions could comprise of MicroFinance Institutions, local bank branches, Non-Government

Organizations or cooperatives, as the case may be. The requirementis that these institutions are able to develop operating models that

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draw on local information and sufficiently low cost structures thatmake the business of serving the poor sustainable over a medium-term. Within India, the belief is that a network of 200 such entities,each with the capability to serve a million households, would beneeded.

2. The participation of one or more (but even one would suffice)main-stream financial institutions that are willing to partner withthese 200 entities to provide:

(a) Financial resources for on-lending. ICICI Bank has developed thepartnership model that uniquely leverages the local presence ofMicro Finance Institutions with the ability of the bank to diversifyrisk and provide wholesale lending funds in large quantum.

(b) Access to equity capital at both at the start-up stage as well asfor growth.

(c) Financial engineering (securitisation, take-out finance) andproduct development (health insurance, rainfall insurance,8 savings,risk management).

(d) Links with capital markets as the entities mature.

10) It expects an equally rapid growth in the provision of savings,insurance and risk management services.

CONCLUSION & SUGGESTIONS

In India the micro-finance institutions have some regulatoryrestrictions like they cannot accept deposits. This makes themdependent on the government loans and donations for their workingcapital. If they are allowed to accept deposits from their customersthen they will be able to generate their own sources of funds whichthey can disburse. This will enhance their lending capacity. Sinceborrowing is often riskier than saving for example, a woman couldsave or borrow to buy a sewing machine. If a child falls ill, savingscould be tapped to pay for medicine; debt repayment mightpreclude medical treatment. MFIs should include both savings andcredit products. The provision of savings products will enable MFIsto offer a more complete suite of products to low income groups.There is disproportionate reliance on group lending. The MFIs inparticular need to shift from group to individual-based lending. Thiswill require focus on development of appraisal skills and moremodern management information systems. Furthermore, althoughnot all people are creditworthy or want debt, all people are depositworthy and want assets.

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Another aspect is that the MFIs in India are not well regulated. Theproper regulation should be there since this market is nowdeveloping at rapid speed. There should alsobe self regulation.There should be collaborations between banks and MFIs which willhelp both, the banks and the MFIs. The banks will be able to lend to

priority sector described by RBI and the MFIs will get easy funding.With the loaning facilities other financial services should also begiven focus like micro-insurance, micro-deposits etc. The number ofpeople opting for micro-finance is increasing. So this can be aneffective tool for eradicating poverty. Microfinance is proved to be avery effective tool against the poverty. For MFIs the arrangement offunds is not the only problem but the human resource i.e. findingtraining attracting and retaining the staff is also a major concern.There should be more focus on the literacy of the borrowers to makethem more aware and also to make the proper use of the loantaken. The focus should not be only on rural segment but the urbanpeople who are BPL (Below Poverty Line) should also have access tothe micro-finance facility. The growth in SHGs is very good in Indiabut it is still not growing in comparatively underdeveloped stateslike Jharkhand, Himachal Pradesh, Uttar Pradesh and MadhyaPradesh than the states like Maharashtra, Bihar, Assam andRajasthan. These states with low growth but high need should begiven more priority. And this also shows that this is also related withliteracy. So more focus should also be given on education andawareness.

REFERENCES:

1.http://www.microfinancefocus.com/news/2009/07/06/indian-budget-bang-on-financial-inclusion-microfinance-tops-rural-agenda/

2. http://www.thehindu.com/2009/07/07/stories/2009070759720800.htm

3. http://www.boloji.com/opinion/0755.htm

4. http://www.financialexpress.com/news/inclusive-growth-and-smes-set-to-top-pranabs-agenda/479518/

5. http://www.rural.nic.in/

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http://www.microfinancefocus.com/news/2009/07/06/indian-budget-bang-on-financial-inclusion-microfinance-tops-rural-agenda/http://www.microfinancefocus.com/news/2009/07/06/indian-budget-bang-on-financial-inclusion-microfinance-tops-rural-agenda/http://www.microfinancefocus.com/news/2009/07/06/indian-budget-bang-on-financial-inclusion-microfinance-tops-rural-agenda/http://www.thehindu.com/2009/07/07/stories/2009070759720800.htmhttp://www.boloji.com/opinion/0755.htmhttp://www.financialexpress.com/news/inclusive-growth-and-smes-set-to-top-pranabs-agenda/479518/http://www.financialexpress.com/news/inclusive-growth-and-smes-set-to-top-pranabs-agenda/479518/http://www.rural.nic.in/http://www.microfinancefocus.com/news/2009/07/06/indian-budget-bang-on-financial-inclusion-microfinance-tops-rural-agenda/http://www.microfinancefocus.com/news/2009/07/06/indian-budget-bang-on-financial-inclusion-microfinance-tops-rural-agenda/http://www.thehindu.com/2009/07/07/stories/2009070759720800.htmhttp://www.boloji.com/opinion/0755.htmhttp://www.financialexpress.com/news/inclusive-growth-and-smes-set-to-top-pranabs-agenda/479518/http://www.financialexpress.com/news/inclusive-growth-and-smes-set-to-top-pranabs-agenda/479518/http://www.rural.nic.in/

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MICRO BORROWING