Microfinance Capstone Mijjin Oommen

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FUTURE & SCOPE OF MICROFINANCE IN

INDIA

Report submitted in partial fulfilment of the requirement for the

degree of Post Graduate Diploma in Management inFinance

Under the Supervision of

Prof. Dr. Latha Shreeram

By

Mijjin OommenBatch: F2 Roll No: 256

ITM Business SchoolPlot No. 25/26, Institutional AreaSector-4 Kharghar Navi Mumbai


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ABSTRACT:-

The purpose of this study was to understand micro finance in India The main objective of thisresearch paper is analysis to the Microfinance in India as a powerful tool for poverty alleviation.There are many societies, companies, trusts and bodies corporate and such other institutions

which are engaged in providing micro finance services to the poor households as acomplementary to the banking system. There are two broad approaches that characterize themicrofinance sector in IndiaSHGbank linkage (SBL) and Microfinance Institutions (MFIs).SBL is a larger model than MFIs in India, contrary to the global practices of other MFIs.Microfinance total loan growth is estimated to have risen by around 30% year on year in fiscal2012/13 (April-March). The Central Government have felt that since these institutions lack aformal statutory framework for providing such micro finance services, The Micro FinanceInstitutions (Development and Regulation) Bill, 2012 has passed on 11 February, 2014to providea statutory framework for the promotion, development, regulation and orderly growth of suchMicro Finance Institutions (MFIs) and thereby facilitate financial inclusion.

INTRODUCTION:-

Micro-Finance refers to small savings, credit and insurance services extended to socially andeconomically disadvantaged segments of society, for enabling them to raise their income levelsand improve living standards. The main idea behind microfinance is that poor people, who canprovide no collateral, should have access to some sort of financial services.

Microfinance in Indianew dynamics India is today the world's third-largest economy(measured in terms of purchasing power) after the US and China. The economic potential of thiscountry, which has more than 1.2 billion Inhabitants, is, however, far from being exhausted. This

is because around half a billion Indians are still excluded from the formal financial sector. Thisenormous excess demand has driven the powerful expansion of the local microfinance sectoratleast until three years ago, when it was suddenly disrupted: In October 2010, the government ofthe state of Andhra Pradesh decided to prohibit the local microfinance business. This surprisingmove was ostensibly motivated by considerations relating to consumer protection. As a result,borrowers were urged by the government to refuse to repay their loans.The situation has since eased. The national microfinance sector has emerged from the crisisstronger than before. It now serves 25 million clients and has been growing by an impressive30% to 50% per yeara rate that appears to be sustainable. The effective measures taken in thewake of the crisis contributed to this rapid recovery. The sector is now overseen by the ReserveBank of India. In addition, well-functioning credit bureaus are providing greater transparency.Even the key market of India, which has hundreds of millions of vulnerable households, isexpected to grow by around 30%which is roughly the average for the whole region andrepresents a faster rate of growth than at any point since 2009 Furthermore, established MFIsappear to have successfully adapted their operations to the legally prescribed profit margin andinterest rate limits. They have managed to enhance their operational efficiency by taking stepssuch as significantly expanding their client base and increasing the average loan volume grantedper loan officer.


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Micro financing is not a new concept. Small microcredit operations have existed since the mid-1700. Although most modern microfinance institutions operate in developing countries, the rateof payment default for loans is surprisingly low - more than 90% of loans are repaid. It is not justa financing system, but a tool for social change, especially for women - it does not spring frommarket forces alone - it is potentially welfare enhancing - there is a public interest in promoting

the growth of micro finance - this is what makes it acceptable as a valid goal for public policy.Over the past few decades, this innovative scheme has attracted a range of non-governmental andState-sponsored institutions. Leading financial institutions are the Small Industries DevelopmentBank of India (SIDBI), the National Bank for Agriculture and Rural Development (NABARD)and the Rashtriya Mahila Kosh (RMK).

Microfinance is the provision of financial services to low -income clients, including consumersand these self-employed, who traditionally lack access to banking and related services. Morebroadly, it is a movement whose object is "a world in which as many poor and near-poorhouseholds as possible have permanent access to an appropriate range of high quality financialservices, including not just credit but also savings, insurance, and fund transfers." Those whopromote microfinance generally believe that such access will help poor people out of poverty.

In the global arena there is already the impression that microfinance is successful in reducingpoverty. Many policy makers are therefore engaged on how to make microfinance sustainableand available to many poor households in the future.

In the past few years, savings-led microfinance has gained recognition as an effective way tobring very poor families low-cost financial services. For example, in India, the National Bank forAgriculture and Rural Development (NABARD) finances more than 500 banks that on-lendfunds to self-help groups (SHGs). SHGs comprise twenty or fewer members, of whom themajorities are women from the poorest as tribes. Members save small amounts of money, as littleas a few rupees a month in a group fund. Members may borrow from the group fund for a varietyof purposes ranging from household emergencies to school fees. As SHGs prove capable ofmanaging their funds well, they may borrow from a local bank to invest in small business orfarm activities. Banks typically lend up to four rupees for every rupee in the group fund. Groupsgenerally pay interest rates that range from 30% to 70%APR, or 12% to 24% a year, based on theflat calculation method. Nearly 1.4 million SHGs comprising approximately 20 million womennow borrow from banks, which make the Indian SHG-Bank Linkage model the largestmicrofinance program in the world.

LITERATURE REVIEW:-

These literatures include books written on the subject by experts and also journals, manuals etc.Mark Schreiner (2003)

A Cost-Effectiveness Analysis of the Garmin Bank of Bangladesh. Reports of the success of theGarmin Bank of Bangladesh have led to rapid growth in funding for microfinance. But has theGarmin Bank been cost-effective? This article compares output with subsidy for the bank in apresent-value framework. For the timeframe 198397, subsidy per person-year of membership in


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Garmin was about $20, and subsidy per dollar-year borrowed was about $0.22. The Garmin Bankif not necessarily other micro lenderswas probably a worthwhile social investment.

Jonathan Morduch

Leading advocates for microfinance have put forward an enticing win -win proposition:

microfinance institutions that follow the principles of good banking will also be those that alleviatethe most poverty. This vision forms the core of widely-circulated best practices, but as a generalproposition the vision is fully supported neither by logic nor by the available empirical evidence.Recognizing the limits to the win-win proposition is an important step toward reaching a moreconstructive dialogue between microfinance advocates that privilege financial development andthose that privilege social impacts

GARY M. WOLLER

Although the word of finance in the term of microfinance in core value & the core element of

microfinance are those of the finance discipline has yet to break into the mainstream &entrepreneur finance literature. The purpose of this article is to introduce the finance academic

community to the discipline of microfinance & microfinance institutions.

Objectives Of the Study:-

To study the performance of microfinance in India.

To know about the various institutions that is doing the job of promoting microfinance in

India.

To know the role of Microfinance in removing the poverty of the study.

Research Methodology:-

The type of research that is being used in this report is the descriptive one as in this particular

type of research the researcher doesnt have any control over the present scenario of the things

that are being studied & we can only study the factors such as HOW,WHO,WHEN,WHAT etc.Data will be collected through Books and various websites and publications of recent research

papers available in different websites and magazines. Corporate finance Books, Newspapers,

Research Articles, Research Journals, E-Journals, RBI Report, Report of NABARD, The micro

finance institution (development and regulation) bill etc.

Documents

Microfinance Capstone Mijjin Oommen