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MICROFINANCE
INSTITUTIONS IN INDIA
Presented by,
Shivkumar Chaurasia, M. Sivaram, Susmita Layek,
Josephine Lotha, Vesuyi Tetseo, Vikrant Singh,
V. Quan
“Poor people
are like bonsai
trees. They
could have
grown into giant
trees if they had
been supported
by the right
environment for
growth”
-Muhammad Yunus
(Founder of Grameen Bank)
OUTLINE OF THE PRESENTATION
What is Microfinance? (vikrant)
Microfinance Institution: Overview (vexy)
The contribution to rural economy (siva)
Microfinance Institutions: Challenges
(chaurasia)
Potential solutions (susmita)
Conclusion (josephine)Please prepare the slides as per this division
MICROFINANCE“Microfinance is economic Development
approach that involves providing financial services through institutions to low income clients”
Microfinance is a tool against poverty by enabling the beneficiaries to:
Create sustainable activities to increase their income
Reduce external shocks Improve the living conditions of entrepreneurs
and of their families Empower people and mainly the women
PRESENT SCENARIO OF INDIA
India falls under low income class according to World
Bank
It is second populated country and 70% are in rural area
60% of population on depends on agriculture but low
contribution to GDP ( 8% ) while per capita income is
only $3262
Result absolute poverty
According to reserve Bank of India only 51% of the
people possess only 10% of the total asset of India
Rural People have very low access to institutionalized
credit in India (Commercial Bank)
MICROFINANCE INSTITUTIONS IN INDIAMicrofinance institutions (MFIs) are the organisations or
associations of individuals that provide financial services to the poor.
Institutional Arrangement for Microfinance Disbursement in India
Formal Institutions
Wholesale lenders like NABARD, SIDBI, RMK, HDFC,
FWWB, HUDCO Retail level Banks
-Commercial banks-Regional Rural banks-Cooperative Banks
SHGsIndividual
Informal Institutions
Lenders, Investors, Donors
MFIS-Non-Profit MFIs (NGOS)
-Co-operative MFIs-Profit Making MFIs (NBFC)
SHGs/JLGsIndividual
NON BANKING FINANCIAL COMPANY (NBFC)
A non-banking financial company (NBFC) is a company
registered under the Companies Act, 1956 and is
engaged in the business of loans and advances,
acquisition of shares/stock/bonds/debentures/securities
issued by government or local authority or other
securities of like marketable nature, leasing, hire-
purchase, insurance business, chit business, but does
not include any institution whose principal business is
that of agriculture activity, industrial activity,
sale/purchase/construction of immovable property.
DIFFERENCED BETWEEN NBFC & BANK
A NBFC cannot accept demand deposits
It is not a part of payment or settlement system
and thus cannot issue cheques to the customer
Deposit insurance facility of DICGC is not
available for NBFC depositors unlike in case of
banks
REGULATORY FRAMEWORK FOR MFIS
COMPARATIVE ANALYSIS OF MICRO
FINANCE SERVICES OFFERED TO THE
POOR:
THE PROBLEMS OF MAINSTREAM MFIS
Borrower Unfriendly Products and Procedures
Inflexibility and Delay
High Transaction Costs, both Legitimate and Illegal
Social Obligation and not a Business Opportunity
Financing to Alternative MFIs
Complexity in Legal and Regulatory Framework
TYPES OF RISKS FACED BY MICROFINANCE INSTITUTIONS
Credit Risk
Market Risk
Operational Risk
Strategic Risk
Financial Risk
Non – Financial Risk
POSSIBLE SOLUTIONS Greater legitimacy, accountability and transparency in MFIs There is a need to recognize a separate category of
Microfinance It should be specified that at least 80% of the assets of MF-
NBFCs should be in the form of microcredit of upto Rs. 50,000 for agriculture, allied and non farm activities and in case of housing, loans upto Rs. 1,50,000, per individual borrower.
MF-NBFCs as Business Correspondents (BCs) for a local feel.
Relaxation in FIPB guidelines and Unifying regulatory oversight
Tax Concessions and Accounting and Disclosure Norms. As micro-insurance agents
CONCLUSION India’s achievement of the MDG of having the population of
poor by 2015 as well as achieving a broad based economic
growth also hinges on a successful poverty alleviation strategy.
In this backdrop, the impressive gains made by SHG-Bank
linkage programme in coverage of rural population with
financial services offers a ray of hope.
Underlying Belief of Self Help Groups..............
“Give a man a fish and you feed him a day but teach him how
to fish and you feed him a lifetime”
Many little things done in many little places, by many little
people, will change the face of the world. - An old Chinese
saying