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micro finance report
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DISSERTATION REPORT
ON
MICROFINANCE IN INDIA
By:
Shanky GuptaA0101908611
MBA Class of 2010
Under the supervision of Prof. Akhil Swami
ProfessorDepartment of Finance
In partial fulfillment of Award of Master of Business Administration
AMITY BUSINESS SCHOOLAMITY UNIVERSITY UTTAR PRADESH
SECTOR 125, NOIDA - 201303, UTTAR PRADESH, INDIA2010
1
AMITY UNIVERSITY UTTAR PRADESH
AMITY BUSINESS SCHOOL
DECLARATION
I, Shanky Gupta student of Masters of Business Administration from Amity Business
School, Amity University Uttar Pradesh hereby declare that I have completed
Dissertation on
“MICROFINANCE IN INDIA”
as part of the course requirement .
I further declare that the information presented in this project is true and original to the
best of my knowledge.
Date: 15/03/10 Name: Shanky Gupta
Place: Noida Enroll. No: A0101908611
Program: MBA (G)
2
AMITY UNIVERSITY UTTAR PRADESH
AMITY BUSINESS SCHOOL
CERTIFICATE
I, Prof. Akhil Swami, hereby certify that Shanky Gupta, student of Masters of
Business Administration at Amity Business School, Amity University Uttar Pradesh has
completed dissertation on “MICROFINANCE IN INDIA”, under my guidance.
3
ACKNOWLEDGEMENT
.
I would also take this opportunity to thank Prof. Akhil Swami, Faculty, Amity Business
School, Noida for facilitating my understanding of concepts of Commercial banking and
Microfinance and giving me an opportunity to gather practical knowledge of banking
operations. I thank him for his support and guidance.
Shanky Gupta
4
ABSTRACT
Microfinance currently plays a modest role in India with significant variations among
MFIs across various states. Southern states account for a larger percentage of funds from
microfinance. It is estimated that Indian MFIs as a whole has one million borrowers.
According to an ICICI report, in 2003 it was estimated that the demand for credit in India
ranges from US$3 - $9 billion annually, the organized sector is able to provide only
US$200 million to US$300 million. The Small Industries Development Bank of India
(SIDBI) has been the largest lender to MFIs, while Friends of Women’s World Banking
India and the National Women’s fund have also played a significant role. It is worth
noting that only one MFI, Bharatiya Samruddhi Finance Ltd., has been successful in
raising capital from mainstream markets.
This has been the story of microfinance in the Indian economy so far, wherein 72.22% of
the total population is rural and dependent on agriculture and its allied activities for their
livelihood, and wherein the rural economy still accounts for 40% of India’s GDP. The
rural market share of consumer durables and non-durable products exceeds 40 – 50% for
most items and is growing every year.
Indian banks have become aware of the potential of microfinance and have started to
compete with MFIs, particularly in the case of lending to SHGs, which have experienced
significant growth since 1999.
Recently, new private sector banks such as ICICI Bank, UTI Bank and HDFC Bank have
begun to actively seek exposure in the microfinance sector. Key innovations include a
pilot scheme by ICICI Bank that uses MFIs or NGOs, traders or local brokers as
intermediaries for loans to groups of small farmers. Another approach is the Integrated
Agricultural Service Provider. ICICI Bank’s pilot, the ICICI Bank Farmer Service
Center, has had success reaching small farmers.
5
TABLE OF CONTENTS
DECLARATION
CERTIFICATE
ACKNOWLEDGEMENT
ABSTRACT
CHAPTER 1 INTRODUCTION 8WHAT IS MICROFINANCESERVICES INCLUDED UNDER MICRO FINANCEDOES MICRO FINANCE MAKE BUSINESS SENSECHAPTER 2 MODELS DEVELOPED FOR PROVISION OF MICRO FINANCE 17GRAMMEN BANKINGSELF HELP GROUPMICRO FINANCE INSTITUTIONIT INNOVATION FOR MICROFINANCECHAPTER 3 RATIONALE AND OBJECTIVE 25CHAPTER 4 RESEARCH METHDOLOGY 27CHAPTER 5 MICRO FINANCE IN INDIA 28INCLUSIVE GROWTH MEANING & CHALLENGESFINANCIAL INCLUSIONOBJECTIVE OF FINANCIAL INCLUSIONNEED FOR MICRO FINANCE IN INDIABACKGROUND FOR MICROFINANCE IN INDIACHAPTER 6 44MICRO FINANCE INSTITUTION IN INDIACHAPTER 7 52OTHER MICROFINANCE INSTITUTIONCHAPTER 8 58SUCCESS FACTORS OF MICRO FIANANCE IN INDIACHAPTER 9 62ISSUES IN MICROFINACECHAPTER 10 70ANALYSIS & INTERPRETATIONCHAPTER 11 77KEY FINDINGSCHAPTER 12 78RECOMMENDATIONS AND SUGGESTIONS
6
CHAPTER 13 80LIMITATIONCHAPTER 14 81CONCLUSIONS
7
CHAPTER 1
INTRODUCTION
WHAT IS MICRO FINANCE?
The broadest definition of Microfinance is the provision of financial services to poor or
low-income clients. The term has most often been confused with just lending to the poor.
However, calling it that would undermine the power that microfinance holds for the
economic development of an economy. Micro finance involves all those services that can
be provided so as to include people with lower incomes into the banking net. Services
include credit, insurance, facility for savings, fund transfers, transactions etc. Apart from
these, micro finance also involves providing sound financial advice to low income
individuals. This ensures not only the provision of financial resources but also the correct
use of those resources to promote long term development.
Microfinance services are provided by three types of sources:
Formal institutions, such as rural banks and cooperatives;
Semiformal institutions, such as non - government organizations; and
Informal sources such as money lenders and shopkeepers
BENEFITS PROVIDED BY MF
i. Poverty Alleviation: Microfinance can be a critical element of an effective
poverty reduction strategy. Improved access and efficient provision of savings,
credit, and insurance facilities in particular can enable the poor to smoothen their
consumption, manage their risks better, build their assets gradually, develop their
micro enterprises, enhance their income earning capacity, contribute to the
improvement of resource allocation, promotion of markets, and adoption of better
technology
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ii. Microfinance can provide an effective way to assist and empower poor women,
who make up a significant proportion of the poor and suffer disproportionately
from poverty.
iii. Trade Facilitation
iv. Education
v. Enables taking advantage of profitable investment opportunities
vi. Reduction of Social exclusion based on income
SERVICES INCLUDED UNDER MICROFINANCE
Apart from basic banking services such as remittance payment, fund transfers,
transaction services, micro finance includes three broad services.
MICRO – CREDIT
Microcredit is the extension of small loans to entrepreneurs too poor to qualify for
traditional bank loans. General characteristics of micro – credit are:
Size - loans are micro, or very small in size
Target users – Micro entrepreneurs and low-income households
Utilization - the use of funds - for income generation, and enterprise
development, but also for community use (health/education) etc.
Terms and conditions - most terms and conditions for microcredit loans are
flexible and easy to understand, and suited to the local conditions of the
community
Collateral – Loans are usually not based on any collateral but on ‘trust’
MICRO SAVINGS
Micro savings services are deposit services that allow one to save small amount of money
for future use. Savings are vital for the economic condition to improve. Micro savings
9
accounts, often with no minimum balance requirement, allow households to save in order
to meet unexpected expenses and plan for future investments. A study carried out by
Shahidur R. Khandker in 1998 revealed that micro credit not only increases involuntary
savings, but also induces voluntary savings.
MICRO INSURANCE
Micro-insurance is a term increasingly used to refer to insurance characterized by low
premium and low caps or low coverage limits, sold as part of a typical risk-pooling and
marketing arrangements, and designed to service low-income people and businesses not
served by typical social or commercial insurance schemes.
THE RATIONALE BEHIND MICROFINANCE:
The rationale is based on the available evidence and experience about the role of
microfinance in poverty alleviation and the continued large scale failure of both state and
market to meet the savings, credit and insurance needs of the poor.
At the core of microfinance is the idea of addressing the problem of poverty and
deprivation by enabling the poor to access financial capital hitherto denied to them. With
the help of loan, savings and insurance obtained from microfinance institutions (MFIs),
the poor are expected to take up on their own economic activities which would generate
incremental income and employment to cross the poverty line. Access to microfinance is
also expected to provide stability to the poor in times of shocks and fluctuations. Thus,
microfinance is expected to play both the promotional and protective role in poverty
alleviation.
There is fairly good evidence which suggests that microfinance interventions have not
only contributed significantly towards direct poverty alleviation of the participating
members but have even contributed indirectly in reducing overall poverty of villages or
areas in which they have been implemented (Hossain 1988, and Khandker 1998). It is
evident that contribution of microfinance to poverty alleviation takes place mainly
through improvements in the asset base, employment and income levels, reduced
10
dependence on moneylenders and even diversification of occupation. As a result of these
changes, the participants have experienced improvements in their living standards, which
is reflected in increased consumption levels, better housing, clothing and education, and
many other qualitative changes (ibid).
There is also the empowerment role of microfinance. Besides leading to reduction of
poverty in ways mentioned above, the increased access and control over financial
resources by women can itself become an empowering instrument. The available
evidence indicates that women are able to experience many positive changes as a result of
their participation in microfinance programmes. A major study about the impact of
microcredit programmes in Bangladesh concluded that, “Women have clearly benefited
from microcredit programmes. Programme participation has enhanced women’s
productive means by increasing their access to cash income generation from market-
oriented activities and by increasing their ownership of non-land assets. These
improvements should enhance women’s empowerment within the households,
influencing their own and their children’s consumption and other measures of welfare”
(Khandker 1998: 150). It is based on such evidence that an increased emphasis is being
given to expand the role of microfinance in order to achieve the twin goals of poverty
alleviation and empowerment.
At the level of developmental paradigm, microfinance has emerged as a response to the
failure of market and state to ensure for the poor a sustained access to capital. Market
failure occurs when formal agencies and programmes operating in the market fail to meet
the capital needs of the poor to take up productive investments. As a result of such
failure, not only the poor are unable to make investments for income and employment
generation but are also forced to depend upon informal sources of finance, which are
either exploitative or not fully reliable. The formal institutions like commercial banks and
cooperatives have failed to serve the poor for reasons like their focus on collateral based
lending, information asymmetry, small sized loans or savings leading to high cost of
transactions and attitudinal bias against the poor and women. There is another dimension
to this issue of market failure. As the formal financial institutions become inaccessible
the poor either try to avoid them or look towards alternative sources of credit, savings and
insurance. These alternatives are mostly informal agencies like private moneylenders,
11
traders, and commission agents who, using their monopolistic position, tend to exploit the
poor by charging exorbitant rates of interest or force the clients to take part in inter-linked
transactions for credit, labour and commodities in the pretext of giving collateral-less
loans. This is the case of typical market failure for the poor.
There is also the angle of failure of state in the rationale for microfinance. A
developmental state has a clear onus for poverty alleviation. The state under such a
situation has to ensure that capital needs of the poor are also adequately met. The failure
of state can occur when the state is either not able to make formal agencies respond to the
needs of the poor or unable to create any alternate mechanisms for the poor to access
savings, credit and insurance on a sustainable basis. The state in India has come out with
many policies including imposing certain obligations on formal agencies to devote part of
their resources to meet the credit needs of the weaker sections like small and marginal
farmers, agricultural labourers and rural artisans. Some of the initiatives of the state for
the poor include credit based self-employment programmes like Integrated Rural
Development Programme (IRDP) and Swarna Jayanthi Swarozgar Yojana (SGSY),
Differential Interest Rate (DRI) scheme, and creation of separate institutions like
Regional Rural Banks (RRBs).
The assessments of the initiatives taken by the state have revealed that despite these
programmes, the poor have not been able to avail regular services from the formal
agencies. Despite the good intention of the state in initiating these schemes, the outcomes
have not been favourable to the poor. Some of the major problems identified with these
programmes are:
• Target based approach focusing on achieving quantitative results in reaching the poor;
• linkage to subsidies resulting in large-scale leakage of the benefits to non-poor;
• high rate of failure of self-employment schemes due to poor project formulation and
implementation;
• high loan repayment problems both due to failure of projects and creation of wide
spread impression among the scheme participants about loan as non-returnable grant.
As a result the schemes have come to be perceived by the banks in general as risky,
making them reluctant to increase their lending to the poor. Overall, the state led
initiatives have not succeeded fully in creating sustainable financial services for the poor.
12
These failures get corroborated by some of the studies conducted to estimate debt and
investment position of rural households. As per the All-India Debt and Investment
Survey of 1991, only 15.6% of the rural households had borrowed from various formal
sources (NABARD, 2000). For the poor, this proportion was even lower. Further, though
the institutional agencies accounted for about 64% of the debt of all the households in
1991, for the households in the three lower asset value groups (less than Rs. 5,000, Rs.
5,000 to Rs. 10,000 and Rs. 10,000 to Rs. 20,000) it was the non-institutional agencies
which accounted for bulk (58%, 53% and 56% respectively) of their debt.
Even the recent situation also remains largely the same. This is corroborated by the recent
Rural Finance Access Survey (RFAS) of NCAER and World Bank in two major states of
India, Andhra Pradesh and Uttar Pradesh (Basu and Verma, 2003). The survey revealed
that while only about 21% of the rural households accessed formal loan, the proportion
was only 13% for the poor households who are landless or owning less than one acre of
land. In other words about 87% of poor were without any formal loan. However, about
48.2% of the poor households borrowed from informal sources as against about 44% for
all the households. This indicates the continued dependence of the poor on informal
sources for meeting their credit needs. Even with regard to savings and insurance, the
RFAS survey revealed that the access by the poor is still very limited. As per the survey
while about 58.8% of all the rural households had no deposit accounts, in the poor
category 70.4% of the households did not have any deposit account. Overall, only about
15% of the rural households had subscribed to insurance schemes.
The formal agencies thus, despite their growth, have not been able to meet the needs of
the poor adequately. It is because of this failure of the formal agencies, that the role of
microfinance interventions has assumed significance. The response of various
microfinance initiatives, especially in the Indian context, has been broadly on the
following two lines.
•Creation of alternative delivery mechanism for the poor: In many ways microfinance
can be considered as an attempt to create newer institutions or mechanisms for the poor
as an alternative to both the formal and informal agencies which have failed them. The
main aim of microfinance interventions in this regard is to help the poor to reduce the
difficulties they face with the banks or moneylenders by creating separate institutions
13
which can fully understand and appreciate their needs. The idea is to create pro-poor
agencies or institutions which can deliver financial services to the poor. Much of the
microfinance activities so far have been on these lines.
• Reforming the formal agencies: Looking at the success of NGO-led initiatives in
delivering savings and credit to the poor, the state and formal agencies are trying to make
amendments in their systems so that they are also able to reach out to the poor. The
reforms include adapting methods and innovations tried out by NGOs and other
microfinance agencies. The fast growing SHG-Bank Linkage Programme in India is one
such example of the response from the formal agencies in reforming their earlier systems.
DOES MICRO-FINANCE MAKE BUSINESS SENSE?
It is widely believed that micro finance is more of a CSR initiative rather than a viable
business alternative. Perhaps this is the reason for the low adoption rate by major
commercial banks across the globe, and especially in India. However, micro finance
serves as a profitable opportunity for banks and financial institutions. From a long term
point of view, customers of micro finance now, translate to regular customers in the
future. This gives ample opportunities to banks to provide a range of financial services as
the customers move up the income ladder. The chart below shows that globally
Microfinance follows the profitability model rather than only CSR and India ranks among
the Global Profitability rankings.
14
The interest charged by the non-institutional channels (money lenders etc.), on informal
loans, ranges from 24 per cent to 60 per cent. In some regions, it is reported to be as
high as 120 per cent per annum. In comparison, the interest charged by the institutional
channels (banks and MFIs) varies between 15 to 28 per cent. There is, as such, hardly
any competition between the two, and this clubbed with the high underserved customers
possesses a huge business opportunity for the commercial banks and microfinance
institutions. Despite this, the non-institutional channels continue to have a sway over
micro-credit in India. In a way, this is primarily due to the limited outreach of the
institutional sector in rural and remote areas.
Though the profitability of SHG lending is not yet fully established, indications are that
banks are able to do this business without losses even when interest rates are capped at
12.5 per cent. Indeed recently, the State Bank of India has announced its intention to
lend at lower rates. This is spurred by the fact that due to cut in deposit rates, the cost of
funds for banks is going down and at least so far the level defaults in SHG portfolio is
small. About transaction costs, banks have the view that they any way have a rural
branch network with all the fixed costs and there are little incremental costs for SHG
lending.
A few studies have examined lending to self-help groups by some commercial banks and
regional rural banks and found it to be profitable. For instance, Bank of Baroda, one of
the largest public banks most involved in lending to self-help groups, had a regular
15
repayment rate of nearly 100 per cent and reasonable transaction costs, so the total cost of
this lending was not higher than for large loans. Oriental Bank of Commerce, a small
public bank, has also developed profitable lending to self-help groups.
Bank of Madura, an old private commercial bank, has found the self-help program so
satisfactory that it has made it part of its strategy for achieving viability in its 104 rural
branches. Bank of Madura, now part of the large private ICICI Bank, highlights the
importance of finding innovative solutions to cut the costs associated with the program
and confirms the privileged role played by the private sector in innovating. Bank of
Madura expects its self-help group lending to become profitable even without using
NABARD refinancing.
These success stories could be circulated to encourage commercial banks to include self-
help group lending in their business strategies, and innovative strategies to cut the cost of
the program could be shared with other practitioners.
Moreover in India the regulations require a quota fulfilment of Priority sector lending.
Loans to Indian MFIs not only fulfil the priority sector lending requirements; but they
also fulfil the need for returns.
The MFIs in India have only grown bigger and bigger. Leading MFIs offer slim, but
positive margins, whereas according to a latest study, Indian local MFIs also lead the
global rankings on efficiency and profitability, with most of them being 33% less costlier
than the global average. This provides Indian MFIs the room to squeeze out some extra
margins.
16
CHAPTER 2
MODELS DEVELOPED FOR PROVISION OF MICRO
FINANCE
The inherent nature of this field is that it can be flexible in its conception and
implementation. There are a number of distinctive models of microfinance, reflecting the
fact that microfinance has evolved differently in different environments. Most formats are
tailor made according to the culture and social infrastructure of the country. Some
countries tend to rely on one particular model or method, while others exhibit
considerable diversity in the range of models used.
Leading models of microfinance :
Grameen banking, perhaps the most widespread, with characteristic forms of
small group organization and strict procedures
Self-help groups (SHGs), with larger and more autonomous groups and a mixture
of social and financial intermediation
Regulated financial institutions, usually small and operating in favourable
regulatory environments
Credit cooperatives, some of which, as in Sri Lanka, have made an effort to
include the poor.
GRAMEEN BANKING
This model, developed in Bangladesh, has thrived in a variety of physical, cultural, and
institutional settings and has a number of distinctive features. These include careful
targeting of the poor through a means test; the use of self-selected groups of borrowers,
generally consisting of five members, who guarantee each other’s loans; compulsory
savings mobilization, with generally little or no emphasis on voluntary savings; intensive
17
motivation and supervision of borrowers (including the use of weekly meetings); and
decentralized Operations.
SELF HELP GROUPS
These are larger (around 20 members) and much more autonomous than borrower groups
in the Grameen model. SHGs are based primarily on the principle of lending their
members’ savings but they also seek external funding to augment these resources. A
number of non government organizations (NGOs) specialize in promoting and motivating
SHGs, with an important distinction between NGOs which operate as financial
intermediaries and those which confine themselves to social intermediation. Variants of
these approaches also exist in a number of other countries, including Indonesia, Nepal,
Pakistan, and Sri Lanka.
Some of the principles underlying the model and the guidelines that were issued to the
implementing groups are listed below:
The SHGs are to use part of their funds (almost 60%) for lending to their
members and the rest for depositing in a bank to serve as the basis for refinancing
from the bank.
Savings are to come first: no credit will be granted by the SHG without savings
by the individual members of the SHG. These savings are to serve as partial
collateral for their loans.
The joint and several liabilities of the members are to serve as a substitute for
physical collateral for that part of loans to members in excess of their savings
deposits.
Credit decisions on lending to members are to be taken by the group collectively.
All the intermediaries (the Central Bank, banks, NGOs and SHGs) will charge an
interest margin to cover their costs.
Interest rates on savings and credit for members are to be market rates to be
determined locally by the participating institutions.
18
Instead of penalties for arrears, the banks may impose an extra incentive charge to
be refunded in the case of timely repayments.
The ratio of credit to savings will be contingent upon the creditworthiness of the
group and the viability of the projects to be implemented, and is to increase over
time with repayment performance.
SHGs may levy an extra charge on the interest rate for internal fund generation
(which would be self-imposed forced savings).
The chart on the following page shows the general model of micro lending.
Fig 2.1 Source: Building Sustainable Micro Finance System: A Growth Catalyst for the PoorLOGOTRI Research Study
19
MICRO FINANCE INSTITUTIONS
Fig 2.2
Indian MFIs range from Grameen-replicator NGOs to for-profit entrepreneurial ventures
to developmental NGOs which moved from SHG promotion to direct financial
intermediation. Based on asset sizes, MFIs can be divided into three categories:
Category 1: 5-6 institutions which have attracted commercial capital and scaled up
dramatically over last five years. These MFIs; which include SKS, SHARE and
Spandana; were initiated in the 1990s as NGOs promoting SHGs or Grameen-style
programs but after 2000, converted into for-profit, regulated entities, mostly Non-
Banking Finance Companies (NBFCs).
Category 2: Around 10-15 institutions with high growth rates, including both NGOs and
recently formed for-profit MFIs (mostly NBFCs). Many NGOs have transformed into
regulated, for-profit structures recently or are in process now, and seek commercial
equity investments. Examples include Grameen Koota, Bandhan and ESAF.
Category 3: The bulk of India's 1000 MFIs are NGOs struggling to achieve significant
growth. Most continue to offer multiple developmental activities in addition to
microfinance and have difficulty accessing growth funds.
MFI MAINSTREAMING AND COMMERCIALIZATION
While SHGs tend to have a multi-sectoral development approach and are challenged by
sustainability, Most MFIs focus on scaling up microcredit operations while creating a
sustainable legal structure and business model. The MFI approach is generally more
attractive to commercial capital and mainstream market players.
20
AMENABLE FINANCING ENVIRONMENT
Access to finance has played a critical role in helping Indian MFIs achieve such growth.
Donors including Cordaid and Ford Foundation have extended grants and quasi-equity to
support institutional capacity building and cover early-stage losses. Organizations such as
Grameen Foundation have extended guarantees to leverage additional loan funds. Apex
institutions like Small Industries Development Bank of India (SIDBI), Friends of
Women’s World Banking (FWWB) and Rashtriya Mahila Kosh (RMK) provided early
stage on lending capital.
Leveraging these resources, many MFIs accessed market-rate lending capital from
commercial banks such as ICICI Bank, ABN Amro Bank and HDFC Bank. Since 2006
commercial equity investments have entered the market, mostly into Category 1 MFI
capital structures. Between 2004 and 2007, the microfinance sector received an equity
infusion of almost USD43 million, USD38 million of which flowed in during the first
four months of 2007 (See Box 3).
This high growth period was also marked by new and innovative delivery channels. The
ICICI Bank Partnership Model allows MFIs to grow their client base and enjoy large
financial leveraging. SHARE and BASIX are selling their portfolios to mainstream banks
to fuel growth.
FROM CREDIT-ONLY TO DIVERSIFIED SERVICES
Though many MFIs formally mobilized client savings as NGOs, deposit mobilization is
prohibited once MFIs transform into for-profit legal entities. Proposed policy reforms on
the horizon, are expected to allow non-profit MFIs to function as business correspondents
for commercial banks and offer savings services to clients, but this is not an avenue open
to most of the scaled-up, for-profit MFIs.
NGO-MFIs are also partnering with mainstream insurance providers to offer insurance
services. Remittances are another emerging area of interest for Indian MFIs as well. For
example, Spandana has partnered with Western Union to provide remittance services to
its clients.
21
INCREASING OUTREACH
Many Indian MFIs are increasingly becoming national players. As of 2008, at least 12
MFIs operate in more than one state. There is an increased focus on urban market and a
new generation of MFIs, such as Ujjivan and Swadhaar, operate solely in urban areas.
METHODOLOGY FOLLOWED BY SKS MICROFINANCE
Before entering a village, SKS staff members conduct a comprehensive survey to
evaluate the local conditions and potential for operations. Some of the key factors
include total population, poverty level, road accessibility, political stability and
safety. After a village has been selected, SKS conducts a Projection Meeting with
the entire village to introduce SKS, its mission, methodology and services. After
the projection meeting, SKS holds a Mini-Projection Meeting to further explain
SKS to interested parties and appeal directly to those who may not have attended
the meeting because of religious, class, caste or gender barriers.
After SKS has selected a village and conducted informational sessions with its
residents, interested women form self-selected five member groups to serve as
guarantors for each other. This process is called Group Formation. Experience has
shown that a five-member group is small enough to effectively enforce group peer
pressure and, if necessary, large enough to cover repayments in case a member
needs assistance. Group members must be between the ages of 18 and 59, cannot
be related and must live close to one another.
Once a group is formed and meets the minimum requirements, it begins
Compulsory Group Training (CGT). CGT is a five day program consisting of
hour-long sessions designed to educate clients on the processes and procedures of
SKS and build a culture of credit discipline. Using innovative, visual and
participatory teaching methods, SKS staff introduces clients to SKS’ financial
products and delivery methods. In addition, CGT teaches clients the importance
of collective responsibility, how to elect group leaders, the SKS pledge and how
22
to sign their name. During the training period, SKS staff also collects quantitative
data on each client to make sure they qualify for the program and record base-line
information for future analysis. On the fifth day, clients take the Group
Recognition Test and are officially accepted as a SKS’ client after successfully
completing the test.
As additional groups are formed within a single village, a Sangam (Center)
emerges. During Sangam Formation, groups are combined to form a center of 4 to
12 groups or 20 to 60 clients. The Sangam is responsible for the repayment of all
groups, creating a dual joint liability system. If one group defaults the rest of the
Sangam must repay.
After the formation of a Sangam, a leader and deputy leader are appointed to help
facilitate meetings and ensure compliance with SKS procedures. Sangam
meetings are held on a weekly basis by SKS’ Field Assistants and all financial
transactions (also see Products & Services) are conducted during the meeting.
Meetings begin early in the morning so not to interfere with the daily activities of
the clients. In addition to financial transactions, clients use the weekly meetings to
discuss new loan applications, loan utilization and community issues. Sangam
meetings are conducted with rigid discipline in order to sustain an environment of
credit discipline created during CGT.
IT INNOVATIONS FOR MICROFINANCE
Microfinance’ primary objective is to increase the outreach to bottom of pyramid and
facilitate a creation of responsive two way channel.
Therefore Information technology is the basic tool to enable banks and Microfinance
institutions’ to reach end customer. Traditional microfinance models had an inherited lag
due to unavailability of technology and infrastructure in rural areas. The MFIs used to
get the payments pooled from the Customers (self help groups) and transfer it to the
banks typically by month’s end, but banking regulations in most of the countries asks the
banks and MFIs ( in many countries) to record the transaction as and when it is enabled,
therefore need of technology to record the transactions.
23
Further technology like Smart cards and ATMs are needed to authenticate the customers
and provide them additional facilities. The key challenges faced in such implementation
are the scale and awareness.
Microfinance has started reaching millions of customers around the globe therefore IT
systems are needed to be put in place to reach such large number of customers, and
further the customers and the staff have to be imparted with the knowledge of use of such
technology and equipments.
Following are some innovations done in Microfinance to streamline the flow of
information to rural sector
Pc kiosks in villages (India)
Operator is a secondary school graduate who pays ~US$ 1,300 to start up
Connectivity provided through wireless in local loop (WLL) technology
Services: e-governance, agriculture info, video message and health diagnosis
Banking and insurance services can be delivered through the operator
Pension “Trucks” (S. Africa)
300 vehicles with biometrics, smart cards, cash dispensers (1.7m clients)
Deliver US$ 150 million in pension and grant payments each month
Banking and insurance services can be delivered through the vehicles
Mobile Phones (Nigeria, Kenya, S. Africa, Zambia, etc.)
Anytime, anywhere using SMS – 38m mobile users in Africa by end-20031
Mid-to-large banks across Africa installing mobile banking applications
Balance inquiries, transactions, alerts, account service, promotions
24
CHAPTER 3
RATIONALE AND OBJECTIVE
RATIONALE OF THE STUDY:
There is a vast unmet gap in the provision of financial services to the poor. A very little
segment of the poor people is being served by the formal financial system for micro-
credit. Majority of the Indian population depends upon the informal financial system for
their credit needs. And it is this informal financial system, comprising of the money
lenders, big farmers, commission agents and friends/relatives who exploit the rural poor
and extract huge sums of money from them by charging exorbitantly high interest rates.
Hence, it is here that the organized financial sector sees immense potential for growth by
the provision of their financial services to the unbanked at easily affordable rates. These
services allow participants to smooth consumption across time and help them tide over
the impact of adverse shocks during their life cycle. Thus, microfinance has brought a
paradigm shift in the Indian economy and has grown to become not just philanthropy, but
also a long-term growth strategy for various financial institutions.
25
OBJECTIVE OF THE STUDY:
Detailed study of the evolution of microfinance concept in India.
To analyze the current market scenario of microfinance in India and a brief
introduction to it from the world perspective
To study the few players serving in this sector in India.
The future challenges prospects of microfinance in India
Conduct a research in order to know the awareness about the concept of
microfinance among the masses.
26
CHAPTER 4
RESEARCH METHODOLOGY
Method of the data collection
Two methods of data collection have been used i.e. Primary data and Secondary data.
Primary data
The study is conducted through questionnaires and interviews. The questionnaires and
interviews are the main data collection tools due to their nature of giving accurate results
to a problem from the selected sample frame. The questionnaire is easily customizable
and the manner of its construction is easy to follow which is only very practical in the
nature of the research. The questionnaires record the degree to which the employees are
satisfied
Secondary data
This was primarily done through secondary data collected from the internet, journals and
magazines. Henceforth, the focus shifted to the efforts which various banks have put in,
and the models and technological innovations which they have developed for the
provision of this service.
27
CHAPTER 5
MICRO FINANCE IN INDIA
This section examines the role of micro finance in the empowerment of people and the
realisation of financial inclusion in India. With increasing demand for rural finance, and
the inadequacies of formal sources, the MF has immense opportunities in the new avatar
of micro credit in India. However, in the light of recent experiences, and the need for
qualitative growth, it is of utmost importance that MF be managed with better scrutiny in
terms of finance and technology as well as social responsibility. Also, NGOs have played
a commendable role in promoting Self Help Groups by linking them with banks.
INTRODUCTION
Credit is one of the critical inputs for economic development. Its timely availability in the
right quantity and at an affordable cost goes a long way in contributing to the well-being
of the people especially in the lower rungs of society. It is one of the three main
challenges to input management in agriculture, the other two being physical and human
(Hans, 2006).
Thus access to finance, especially by the poor and vulnerable groups is a prerequisite for
employment, economic growth, poverty reduction and social cohesion. Further, access to
finance will empower the vulnerable groups by giving them an opportunity to have a
bank account, to save and invest, to insure their homes or to partake of credit, thereby
facilitating them to break the chain of poverty. But India is lagging behind in this respect
so it has become the matter of concern.
In India, moneylenders and other informal lenders meet more than 60 per cent of rural
credit needs. The share of banks in particular in rural areas hovers around about 30%. It
has been assessed that only 27 per cent of the total farm households are indebted to
formal sources; in other words 70 per cent of the farmhouses do not have access to formal
credit sources (Rangarajan, 2007).
28
Banking data reveals that credit exclusion is severe in 139 districts of the country. In
these districts, only 10 per cent or less out of 100 persons have access to credit from the
fact that the exclusion is large, there is also a wide variation across regions, social groups
and asset holdings. The poorer the group, the greater is the exclusion (Rangarajan, 2007).
Over the years there has been an increase in the percent of credit facilities extended by
the banks to rural areas but this increase is only marginal and not a significant one.
In spite of the large network of institutional credit system, it has not been able to
adequately penetrate the informal rural financial markets and the non-institutional sources
continue to play a dominant role in purveying the credit needs of the people residing in
rural areas.
Thus, an important challenge facing the banking sector is to extend financial services to
all sections of society. Like others, the poor need a range of financial services that are
convenient, flexible, and affordable and not just loans. Micro-finance can work as a
powerful tool to fight poverty in an effective manner and thus forms an indispensable part
of financial inclusion. With the new philosophy and policies pertaining to micro credit,
micro finance institutions (MFIs) such as Self Help Groups (SHGs) have emerged and
they now have a strong footing in India.
INCLUSIVE GROWTH- MEANING & CHALLENGES
The banking industry has shown tremendous growth in volume and complexity during
the last few decades. Despite making significant improvements in all the areas relating to
financial viability, profitability and competitiveness, there are concerns that banks have
not been able to include vast segment of the population, especially the underprivileged
sections of the society, into the fold of basic banking services (Thorat, 2007a). This lead
to the emergence of Financial Inclusion as a strategy to bring so called excluded people
into the mainstream.
29
FINANCIAL INCLUSION
It is the delivery of banking services at an affordable cost to the vast sections of
disadvantaged and low-income groups. As banking services are in the nature of public
good, it is essential that availability of banking and payment services to the entire
population without discrimination is the prime objective of the public policy. Although
credit is the most important component, financial inclusion covers various financial
services such as savings insurance, payments and remittance facilities by the formal
financial system to those who tend to be excluded (Mahendra S, 2006).
Approaches of Financial Inclusion: Based on the studies published by various experts
in this field we can safely say that there are six approaches in the system of Financial
Inclusion which are relevant in the Indian context. They are as follows:
1. Credit to the farmer households: Ensuring availability of credit to the marginal
and sub marginal farmers as well as other small borrowers is the need of the hour.
2. Advisory Role: Rural branches must go beyond providing credit and extend a
helping hand in terms of advice on a wide variety of matters relating to
agriculture.
3. Greater Accessibility: In district where population per branch is much higher than
the national average commercial banks should encouraged to open branches.
4. Easy Loans: There is need for the simplification of the procedures in relation to
granting of loans to small borrowers.
5. Strengthening SHG’s: The further strengthening the SHG-Bank Linkage
Programme (BLP) is required as it has proved to be an effective way of providing
credit to very small borrowers.
6. Effective Implementation: The business facilitator and correspondent model needs
to be effectively implemented.
30
INDIAN PERSPECTIVE
In India, the drive for financial inclusion, initiated by the Reserve Bank of India, has thus
far involved ensuring access to at least one zero minimum-balance ‘no frills’ savings
bank account to every household. In this context, at least one district in each state has
been brought under the purview of this drive with public sector banks in the region taking
the lead to open at least one bank account per family in the district.
OBJECTIVES OF FINANCIAL INCLUSION
The broad objective of Financial Inclusion (FI) is to widen the span of activities of the
organized financial system to include within its ambit people with low incomes. Through
graduated credit, the attempt is to lift the poor from one level to another so that they come
out of poverty. Inclusive growth encompasses ideas related to basic needs and equity. It
focuses on broad – based growth so that all strata of society benefits out of it. It seeks to
bridge the divide that fragments the society into the classes of rich and poor. Reduction in
poverty and equality of income such that everyone enjoys a basic minimum standard of
living are the objective of inclusive growth. Thus, access to finance by the poor and
vulnerable groups has been recognized as a pre requisite for poverty reduction and social
cohesion. In fact, providing access to finance is a form of empowerment of the weaker
sections.
SOLVING THE PROBLEM OF LIMITED ACCESS TO CREDIT
Limited access to affordable financial services such as savings, loan, remittance and
insurance services by the vast majority of the population in the rural areas and
unorganized sector is believed to be acting as a constraint to the growth impetus in these
sectors.
Access to affordable financial services - especially credit and insurance - enlarges
livelihood opportunities and empowers the poor to take charge of their lives. Such
31
empowerment aids social and political stability. Apart from these benefits, FI imparts
formal identity, provides access to the payments system and to savings safety net like
deposit insurance. Hence FI is considered to be critical for achieving inclusive growth;
which itself is required for ensuring overall sustainable overall growth in the country. The
financially excluded sections largely comprise marginal farmers, landless labourers, oral
lessees, self employed and unorganized sector enterprises, urban slum dwellers, migrants,
ethnic minorities and socially excluded groups, senior citizens and women (Thorat,
2007b).
NEED FOR MICRO-FINANCE IN INDIA
Micro-Finance allows broader access to financial services and can lead to faster and more
equitable growth. It is the delivery of banking services at an affordable cost to the vast
sections of disadvantaged and low-income groups. Such a system of money for the poor
allows poor households to save and manage their money securely, decreases their
vulnerability to economic shocks and allows them to contribute more actively to their
development. Increasingly, with the proliferation of micro finance initiatives, there is
evidence that such initiatives can empower poor households socially as well.
In the context of India becoming one of the largest micro finance markets in the world
especially in the growth of women’s savings and credit groups such as Self Help Groups
(SHGs) and the sustaining success of such institutions which has been demonstrated by
the success of SEWA bank in Gujarat, low cost banking is not necessarily an unviable
intention.
However the situation still remains grim for most of the households in the rural sector.
For instance, out of 203 million households in the country, 147 million are in rural areas,
89 million are farmer households. 51.4 per cent of farm households have no access to
formal or informal sources of credit while 73 per cent have no access to formal sources of
credit (Jayasheela, 2008)
32
BACKGROUND TO THE GROWTH OF MICRO-FINANCE IN
INDIA
The financial sector developed in India by the late 1980s and was criticized as being
target and supply driven. High default rates, corruption and high degree of suspicion
among bankers about the credit worthiness of poor people were the major pitfalls.
The situation was bleak with the formal financial sector remaining unsuccessful to
recognize the divergence between the hierarchies of credit needs and credit availability.
This led to an adverse use of credit available. Till date majority of the rural houses fund
their needs for credit through informal sources at high cost. Another major flaw was that
usually credit was available for setting up new enterprises and not for meeting personal
requirements like marriage expenses, medical treatment of family etc.
FINANCIAL COSTS TO BANKS AND SHGS
Under the Bank-SHG linkage the banks make funds available to SHGs at around their
prime lending rate (PLR) that may range between 11-12 per cent. The SHGs on-lend the
funds to their members at rates ranging from 12% to 60%. However, generally, the rate
charged by SHGs to members is around 24%.
A few studies have examined lending to self-help groups by some commercial banks and
regional rural banks and found it to be profitable. For instance, Bank of Baroda, one of
the largest public banks most involved in lending to self-help groups, had a regular
repayment rate of nearly 100 per cent and reasonable transaction costs, so the total cost of
this lending was not higher than for large loans. Oriental Bank of Commerce, a small
public bank, has also developed profitable lending to self-help groups
Bank of Madura, an old private commercial bank, has found the self-help program so
satisfactory that it has made it part of its strategy for achieving viability in its 104 rural
branches. Bank of Madura, now part of the large private ICICI Bank, highlights the
33
importance of finding innovative solutions to cut the costs associated with the program
and confirms the privileged role played by the private sector in innovating. Bank of
Madura expects its self-help group lending to become profitable even without using
NABARD refinancing.
These success stories could be circulated to encourage commercial banks to include self-
help group lending in their business strategies, and innovative strategies to cut the cost of
the program could be shared with other practitioners
OPERATING COSTS OF MICRO-CREDIT
The operating cost of servicing micro-finance/micro-credit is higher than normal (bank)
finance, however. This holds good for commercial banks (including RRBs), MFIs and
credit co-operatives. Salaries to staff, travelling expenses, commissions not classified
under financial costs, expenses on promotion of groups, staff welfare expenses;
amortization and depreciation, rent on hired buildings and other overheads-all constitute
the operating cost. These costs are critical to the operations of the formal banking sector.
Taking cognizance of these costs, results in a far higher calculation than taking the
(above) view that the overhead costs need not be allocated to the SHG-bank linkage
programme since it is being incurred by the bank anyway.
The data shows that the entire bank branches, irrespective of SHG promotion
mechanisms, are making substantial losses in lending to SHGs due to pricing of SHG
loans below cost. These loans carry the lowest interest rates of all products in all the
sample banks (12.5-13 per cent per annum), and this does not allow the banks to earn a
spread even with the most efficient operating system. The five RRBs studied in the
sample showed that the cost of SHG lending varied from 22-30 per cent (even if one
excluded an RRB where it cost over 48 per cent, as an outlier). Thus, unless banks
increase their interest rates on SHG lending to the range of 24 per cent, it is unlikely that
they will make any profits. However, efficiency improvement in operations of RRBs as
34
also economies of scale with more SHG lending may also reduce the breakeven pricing to
perhaps 21 per cent’
The net effect of ignoring overhead costs is to lower the apparent cost of banks lending to
SHGs but it means that such lending can then take place at each branch individually only
to the point where the existing “slack” in the overhead is fully taken up. Lending to
SHGs beyond this point will require the bank to incur further overhead costs and, at this
point, the full cost of lending to SHGs would have to be taken into account. In this
context, it is worth noting that the above study found that even in the case of individual
RRBs in south India (where the SHG-bank linkage is very much in vogue) the SHG
portfolio did not exceed 11% of advances in the best of branches. Overall, the
outstanding of the entire banking sector to SHGs does not exceed 0.5% of their total
advances.
COSTS TO MFIS
The costs incurred by any financial institution in making loans is made up of three main
components (i) Financial Costs (or costs of raising money for making loans), (ii)
Operating Expenses (or staff, travel and other administrative costs of servicing the loans)
and Risk Costs (or costs of covering for the risk of losing capital on account of the
inability of the institution to recover loans whether or not default is wilful).
Financial Cost
The other credit lending institutions like the credit co-operatives and the MFIs may not
have sufficient deposits, as the commercial banks (& LABs) to undertake credit activity
on their own. They are, therefore, dependent either on refinancing facility from
agencies, such as, the NABARD, the SIDBI, the Rashtriya Mahila Kosh or borrowings
from the commercial banks (including the RRBs). The respective financial cost involved
under each category may be seen from Table 2 below:
35
Table 3.2: Financial Cost to MFI
(On a one year loan)
Institution Rate of Interest
(on declining balance)
I NABARD 8-9
SIDBI 8-9
RMK 8
II Commercial Banks
a. Public Sector 12
b. Private Sector 14
Funding may be made available to MFIs by the development agencies
(SIDBI/NABARD) also by way of subordinated debts, as promoter’s/member’s capital
(or equity/quasi equity) as well as grants from donors. In view of the high set up cost, the
development institutions may charge a lower rate of interest to the MFIs in the initial
years, which may be raised subsequently once the MFI has matured. Equity other than
‘grants’ is, obviously, the cheapest of all funds as there is no interest liability and
payment of dividend is to be made only when profits have been earned. The financial
cost to the MFI will, thus, be the weighted average of all the different kinds of funds.
Operating Cost
Salaries, moreover, account for the major cost of these institutions. The sustainability of
micro-finance at low interest charges thus depends greatly on staff efficiency. In simple
terms, efficiency depends on how many clients a staff member is able to deal with. By
and large, MFIs in India are able to service some 150-250 clients per staff member. The
larger institutions are able to service more borrowers per staff member as some
economies of scale take effect. The leading ten MFIs in India service some 239 clients
36
per staff member. This amounts to the operating expense ratio (OER) of these
institutions declining as the size of portfolio increases.
The table/figure below gives some idea of start up costs – the first three years and a
portfolio size of Rs1 crore are crucial. Beyond this level operating expenses decline to
20% and after about Rs.2.5 crore to 14-15% of outstanding portfolio. The really large
MFIs are able to achieve 10-12% OERs.
Table 3.3 Operating expenses and portfolio yield by age of MFI
Age (years) OER
Yield
<3 46.0% 19.0%
3-5 19.0% 17.0%
5-7 14.0% 20%
>7 15.0% 19.0%
M-CRIL India18.5% 19.1%
Top 10 12.3% 24.8%
MBB 20.2% 38.1%
THE IMPACT OF MICRO FINANCE
MFIs have been playing an important role in substituting moneylenders and reducing the
burden on the formal financial institutions. It is a proven method of financial inclusion,
37
46%
19%
19.0% 17.0% 15%14%
20.0% 19.0%
0%
10%
20%
30%
40%
50%
<3 3-5 5-7 >7
Years of Experience
OER Yield
providing un-banked rural clientele with access to formal financial services from the
existing banking infrastructure. To study the impact of these initiatives we begin by
analysing the number of SHG’s that have been linked with the banks.
Increasing Number of SHG’s: During the year 6, 86,408 new SHGs were credit linked
with banks as against 6, 20,109 during 2005-06, taking the cumulative number of credit
linked SHGs to 29, 24,973. Considering that many groups now operate to promote the
idea of MF it is important to have a peek into the number of households that have
benefited from such groups.
Households Served: The phenomenal outreach of the programme has enabled an
estimated 409.5 lakh poor households to gain access to MF from the formal banking
system as on 31 March 2007, registering a growth of 24.2 per cent over the previous year
(NABARD, 2007). These initiatives, which were started as an outreach programme, not
only aimed to promote thrift and credit but made immense contribution towards
empowerment of rural women.
Huge Potential For Growth: Micro finance still plays a modest role in India. At the All
India Level less than 5 per cent of poor rural households have access to micro finance (as
compared to 65 per cent in Bangladesh) with significant variation exists across the states
(Basu and Srivastava, 2005).
Balanced Regional Development: There is skewed growth of SHGs across the regions.
The year 2006-07 witnessed the spread of the MF programme in resource-poor regions of
the country indicating a marked shift from its initial concentration in the southern region.
The cumulative share of non southern regions rose from 29 per cent as on March 2001 to
48 per cent as on March 2007. This is mainly because of presence of large number of
NGOs operating in South Region
Promoting Overall Development: While estimating the impact of micro finance on
savings and borrowings it has been found that micro credit not only increases involuntary
savings, but also induces voluntary savings (Khandker, 1998). Apart from financial
services Micro finance Institutions (MFIs) provide training and impart knowledge to the
target groups. Thus micro finance today is being treated as a developmental tool and not
just a financial service (Ledgerwood Jonna, 2000).
38
Empowering Women: The formation of SHGs in rural areas through NGOs has kindled
new hope of change and development in the status and role of women folk who were
otherwise considered as powerless and marginalized members of the society.
Increasingly, they have been able to grow economically and socially because now
members have also accepted the changed role of their women folk and most of the time
they are supportive to the efforts they make (Patil, 2006).
CURRENT STATUS OF MICROFINANCE IN INDIA
An attempt is made in this section to highlight the current status of the microfinance
sector in India in terms of potential demand for microfinance services, current level
outreach and supply in relation to the potential, and extent of involvement of various
types of institutions.
There are no clear and systematic estimates available regarding the actual as well as
potential demand and supply of microfinance in the country. Regarding the estimation of
target groups for MF services, one can base it on the official estimation of the number of
poor in the country as indicative of the total potential, given the fact that microfinance is
meant for the poor. The estimated size of the below poverty line (BPL) population gives
some idea about the potential client base of the sector.
Taking the official estimation of BPL population of 260 million during 1990-2000
(Government of India, 2002) and the average household size, we find that there are about
52.04 million households who are in the BPL category. The number of BPL households
in rural areas comes to 38.6 million; the same in urban areas comes to about 13.4 million.
There are, however, arguments whether the entire BPL households should be considered
for the purpose of providing microfinance. But given the fact that even very poor
households need service like savings and insurance, if not credit always, one can safely
consider almost all the households below BPL as potential client base of microfinance.
Adjusting for changes like population growth and households crossing poverty line
during the interval, one can say about 50 million households in the country presently
constitute the basic target group of the MF sector.
39
As regards the demand, based on the available estimates in the Task Force of NABARD
on microfinance it was indicated that the potential annual credit requirement could be in
the range of Rs. 150 billion to Rs. 500 billion per year (NABARD, 2000). A recent
unofficial estimate puts the total credit demand by the poor households in the order of
Rs.150 billion to Rs. 450 billion (Mahajan and Ramola, 2003). These estimates are based
on the actual credit usage as reported by various studies and not the potential demand.
Due to variations in the average household credit use as estimated by different studies,
there is a wide gap in the total estimated range of credit demand.
Again, there are no clear estimates about savings and insurance demand by the poor. The
same unofficial study (ibid), based on the assumption that the poor can save up to five to
10% of their annual income and can pay insurance premium equivalent to three to five
percent of their income, puts the annual demand for savings products in the range of Rs.
50 billion to Rs. 100 billion, and demand for insurance premium in the range of Rs. 30
billion to Rs. 50 billion. Taking together the estimated demand for credit, savings and
insurance, the annual total demand for microfinance by the poor households has been put
in the range of Rs. 230 billion to Rs. 600 billion in the country.
Given such a demand potential, the actual coverage of the target group and the extent of
supply of microcredit by various agencies indicate that there is a big gap in the demand
and supply of microfinance in the country. Since there are no clear figures available on
the actual supply of microfinance, here we look at the level of lending and outreach of the
target group attained by the major apex level microfinance institutions in the country. The
following table gives some macro level details about the lending and outreach
performance of the major apex level microfinance institutions or schemes in the country
based on 2003 and 2004 data. It is possible that there may be some overlaps in the
coverage of these agencies as some of the MFIs and NGOs may be simultaneously
getting assistance from more than one agency. There may be also some MFIs,
40
NGOs or government-sponsored microfinance programmes like SGSY which may not be
fully covered under these apex level programmes. Hence, one needs to take the figures in
Table 1 only as indicative of the total actual outreach and supply.
In terms of the actual number of agencies or institutions involved at the grass root or
retail level, from Table 1 one can make out that about 1,752 institutions of different types
were involved in delivering microfinance during 2003-2004. Under the SHG-Bank
Linkage Programme of NABARD, about 560 financial institutions, cooperatives, RRBs
and Commercial Banks have participated across the country. Under the SHG-Bank
Linkage Programme, the financial institutions have financed about 1,080,000 SHGs
which are promoted either directly by them or by the NGOs. NABARD provides
refinance to these financial institutions for on-lending to SHGs. Besides these financial
institutions, a large number of NGOs and microfinance institutions are also involved in
delivering microfinance.
41
About 1,192 NGO/MFIs had received loan assistance from various apex institutions like
SFMC, RMK, FWWB and NABARD for their on-lending programme. These 1,192
NGOs/MFIs have approached the apex agencies for getting various types of loan
assistance for on-lending to their groups or members. Cumulatively, these NGOs/MFIs
have reached out to over 1.56 million households and have received about Rs. 2,942
million loan assistance from apex agencies for on-lending. In addition to these 1,192
NGO/MFIs, it is estimated that another about 500 NGOs with an outreach of 0.32 million
households are also involved in delivering microfinance in the country. These are mostly
smaller NGOs which are managing their microfinance programmes either using donor
funds or with savings mobilised by their SHGs. Taking even these NGOs into account,
one can say that as of 2003-2004, about 1,700 NGOs/ MFIs are involved in delivering
microfinance in the country, apart from the 560 mainstream financial institutions
involved under the SHG-Bank Linkage Programme.
Taken together, the microfinance agencies in the country have reached about 17.87
million households, which accounts for little over one-third of the estimated number of
poor households in the country. The MF agencies hence still have a long way to go in
reaching the ultimate potential. If we look at the credit needs being met, the gap in the
demand and supply is even more glaring. Cumulatively, from 1989 till 2004 the major
microfinance agencies have disbursed about Rs. 41.98 billion loans. Even this cumulative
loan figure of 15 years accounts for only about 28% of an estimated annual credit
demand on the lower side (Rs. 150 billion) or only about 9.3% of the estimated credit
demand on the higher side (Rs. 450 billion).
Instead of cumulative loan disbursement, if one were to take the actual annual loan
disbursement of these agencies, then the gap would be even bigger. The gap probably
could be even bigger if we were to take the total potential demand and not one based on
the actual credit use. As regards savings and insurance, again there are no clear macro
level statistics available. But going by the fact that the microfinance agencies in the
country so far have focused their attention mainly on credit, and also that many local
microfinance institutions are not able to mobilise savings in a full fledged way due to
legal restrictions, the extent of gap in the demand and supply for these services would be
42
definitely much higher than the credit. Thus, given the need and their current level of
achievements, the MFIs and other agencies have still a long way to go in meeting the
needs of the poor.
43
Chapter -6
Microfinance institutions in India
SIDBI
Mission
SIDBI Foundation for Micro Credit (SFMC) was launched by the Bank in January 1999
for channelising funds to the poor in line with the success of pilot phase of Micro Credit
Scheme. SFMC’s mission is to create a national network of strong, viable and sustainable
Micro Finance Institutions (MFIs) from the informal and formal financial sector to
provide micro finance services to the poor, especially women.
Approach
SFMC is the apex wholesaler for micro finance in India providing a complete range of
financial and non-financial services such as loan funds, grant support, equity and
institution building support to the retailing Micro Finance Institutions (MFIs) so as to
facilitate their development into financially sustainable entities, besides developing a
network of service providers for the sector. SFMC is also playing significant role in
advocating appropriate policies and regulations and to act as a platform for exchange of
information across the sector. The launch of SFMC by SIDBI has been with a clear focus
and strategy to make it as the main purveyor of micro finance in the country. Operations
of SFMC in the next few years, is not only expected to contribute significantly towards
development of a more formal, extensive and effective micro finance sector serving the
poor in India but also ensure sustainability at all levels viz. at the apex level (SFMC), at
the MFI level and at the client level to ensure continuance of such arrangement. Most
importantly, SFMC has strived to create a mechanism in which there should be no
44
barriers to growth. Under the dispensation, there is a focus on innovation and action
research.
On lending
In keeping with its mission, SIDBI Foundation identifies, nurtures and develops select
potential MFIs as long term partners and provides credit support for their micro credit
initiatives. The eligible partner institutions of SIDBI Foundation, therefore, comprise
large and medium scale MFIs having minimum fund requirement of Rs. 10 lakh per
annum. In all, around 100-125 MFIs are planned to be developed as long term partners
over the next 4 years. Large and medium scale MFIs having considerable experience in
managing micro credit programmes, high growth potential, good track record,
professional expertise and committed to viability are provided financial assistance for on-
lending. Under the present dispensation, annual need based assistance is provided to
enable MFIs to expand their scale of operations and achieve self sufficiency at the
earliest. Lending is based strictly on an intensive in-house appraisal supplemented with
the capacity assessment rating by an independent professional agency. Relaxed security
norms have also been adopted to reduce procedural bottlenecks as well as to facilitate
easy disbursements.
STATE BANK OF INDIA
SHG MOVEMENT – A MISSION:
SBI has taken up SHG movement as a mission. A noble mission to reach those families
who were hitherto having no access to the credit by any formal financial institution and,
therefore, were depending on informal sources and moneylenders.
MICRO FINANCE – DEEP ROOTS IN SBI:
Micro finance is not new to State Bank of India. Bank’s association with non-government
organizations (NGOs) or voluntary agencies in extending financial help can be traced as
45
far back as 1976 well before NABARD introduced SHG-Bank Credit Linkage
Programme as a pilot project in 1992.
STEADY GROWTH IN SHG-BANK CREDIT LINKAGE PROGRAMME:
SBI has actively participated in SHG-Bank Credit Linkage programme since its inception
in 1992 as a pilot project of NABARD. Since then the Bank has made a steady progress
in financing SHGs. As on March 2006, SBI’s branches spread throughout the length and
breadth of the country have opened 6,30,067 Savings Bank account of SHGs out of
which more than 5.41 lacs SHGs have been provided with credit facilities thus benefiting
more than 75 lacs poor people. Majority of these SHGs are women SHGs . The year-wise
cumulative position of SHGs-Bank Linkage programme for the last 4 years is as under:
Year March ‘03 March ‘04 March ‘05 March ‘06
SHGs linked (financed) 1,07,553 1,74,666 3,43,691 5,40,481
No. of beneficiaries 12,33,660 21,50,752 48,11,674 75,68,842
Amount disbursed 324.84 cr. 614.87 cr. 1311.45 cr. 2262.95 cr.
Amount outstanding 269.43 cr. 462.77 cr. 872.08 cr. 1459.89 cr.
No. of SHGs maintaining
Savings a/c in the Bank
2,79,466 3,69,568 5,08,396 6,36,067
Amount in Savings a/c
(Amt. in Rs.)
261.36 cr. 348.31 cr. 411.82 cr. 434.07 cr.
SBI – LEADER IN SHG-BANK CREDIT LINKAGE:
SBI is maintaining its position as a leader among Commercial Banks in credit linking of
SHGs and is a prime driver for the movement. As at the end of March 2006, SBI with a
share of approximately 47% of total SHGs financed by Commercial Banks is far ahead of
others.
46
INNOVATIONS & INITIATIVES:
Bank has successfully initiated various measures toward widening its SHG network. To
list a few examples:
o Sensitization of staff: Bank’s aim is to sensitize the entire staff from
Manager to Messenger working in rural and semi-urban branches towards
the programme.
o Special training programmes in SHGs are being conducted at 54
training centres of the Bank in the country apart from State Bank Institute
of Rural Development, Hyderabad.
o Close liaison with NGOs: Operating functionaries at branch level and
region level are in close contact with NGOs in their area to take the
movement ahead. For the purpose, regular meetings are arranged with the
NGOs and their support is solicited.
o SHG cells: Special SHG cells have been opened at major branches.
o Lending to NGOs / Federations of SHGs: Lending to credible NGOs/
Federations of SHGs on selective basis for on lending to SHGs is being
encouraged.
o Sahayog Niwas: SBI has launched its Housing Loan product ‘SAHAYOG
NIWAS’ meant for SHG members. Under the scheme formulated keeping
the socio economic conditions of villages insight, housing loans are given
to the SHG members without any mortgage of house / land. Response to
this product is very encouraging.
o SBI Life- Shakti: SBI Life, our insurance subsidiary, is the first to
introduce a life insurance scheme, especially designed for SHG members.
Special feature of the scheme is that entire premium amount paid by the
member is refunded after maturity, i.e., 10 years.
47
o Rural training institutes: To help the rural youth to stand on their feet,
two RUDSETI type training institutes have been established at Gulbarga
and Gadag in Karnataka State, to impart training in self employment to
youth free of cost.
o SBI staff as SHPI: The main role of formation and nurturing of SHGs
have been played by NGOs who, apart from their fundamental role of
social service, also aim to make the poor economically self sufficient. But
in SBI, our committed work force is not lagging behind and a number of
committed staff members have worked hard to form and nurture SHGs on
their own.
o Appreciation by Government: A number of our branches / Circles have
also received commendation and appreciation from various State
Governments for doing excellent job in SHG-Bank Credit Linkage
programme.
ICICI
OVERVIEW
ICICI Bank, India's second largest bank, is finding innovative and profitable ways to
extend financial services to the rural poor. Prompted in part by regulation that requires all
banks to serve the rural market, ICICI Bank is developing multiple channels to deliver
microfinance. It proposes to finance a network of village internet kiosks, partner with
microfinance institutions (MFIs) who will act as loan service agents, and collaborate with
social entrepreneurs to establish Greenfield MFIs. If it succeeds, ICICI Bank will have
built a US$ 10 billion plus microfinance loan portfolio by 2010 and created a network
that could eventually distribute a range of financial services throughout rural India. Its
insurance subsidiaries have already begun selling life, personal accident and weather
insurance (index-based rainfall insurance) policies through MFIs in rural areas.
48
ICICI Bank is India's second-largest bank with total assets of over Rs.100, 000 crore
(about US$ 20 billion) and a network of 450 branches and offices and over 1,700 ATMs.
The bank has an approximate 30 percent market share in the retail segment, and was one
of the first commercial banks in India to realize the potential of the microfinance sector.
The Reserve Bank of India (RBI) requires all private sector banks in India to allocate at
least 18 percent of their net bank credit to the agricultural sector, although agri-lending
can also fulfil banks’ this requirement, the officials contacted at ICICI bank revealed that
bank takes rural finance as a full fledged profitable business model. ICICI Bank is
aggressively focusing on microfinance to expand its portfolio size. In agriculture, during
the last three years ICICI Bank has built a portfolio of over Rs. 2,000 crore (about US$
400 million) with a presence in the following states: Punjab, Maharashtra, Tamil Nadu,
Andhra Pradesh and Uttar Pradesh. The Bank hopes to significantly increase its
involvement in the agricultural sector with the asset base growing over time to over Rs.
10,000 crore (about US$ 2 billion). ICICI Bank's challenge is to reach this target without
the benefit of a wide branch network or brand presence in rural India. (By comparison,
the public sector State Bank of India has over 6,600 rural and semi-urban branches). Its
strategy is multi-pronged:
1. Enter into strategic partnerships with NGOs/MFIs that serve the rural poor.
2. Build rural outreach through low-cost technology networks
3. Create a franchise for social entrepreneurs to start up MFIs.
ICICI Bank and Microfinance
ICICI Bank entered the micro-finance market in 2002. Among the reasons for entering
the market is its goal to lead in every field of Indian banking. Other includes:
The reverse merger meant that ICICI Limited’s portfolio was aggregated with
that of ICICI Bank for the purposes of calculating the Bank’s priority sector
lending quota. This created urgent need for additional qualifying assets, since the
returns on compensating ‘penalty loans’ to institutions such as NABARD and
SIDBI were likely to be lower than ICICI Bank’s average cost of funds.
49
ICICI Bank had purchased the privately owned Bank of Madura, in Southern
India, in the year 2001. The Bank of Madura had a substantial portfolio of loans
to 600 SHGs, and ICICI Bank had somehow to integrate these accounts into its
business model.
The Bank of Madura’s experience showed that micro-finance loans were of
high quality, and that the market would pay relatively high interest rates for good
quality service. ICICI Bank’s management believe that their model of offering
services through specialized intermediaries, such as car loans through vehicle
dealers, housing finance through builders, or micro-credit through micro-finance
institutions, can offer better quality service than banks can through their multi-
purpose branch networks.
ICICI Bank’s management believe that their micro finance clients will migrate
into mainstream banking, and micro finance is a form of customer development.
The Bank is highly visible, and has a obvious branch presence in the richer parts
of Mumbai, Delhi and micro-finance offers a way to demonstrate the Bank’s
commitment to social as well as economic and financial goals. ICICI Bank started
its micro-finance activities under its Social Initiatives Group (SIG). This Group is
half-way between the corporate responsibility area and the for-profit business.
The SIG is responsible for strategic sector-wide developments, and it success has
already led to competition from other banks, learning from the pioneering work of
SIG. The bulk of the micro-finance activity has now been transferred to
mainstream business. The five-member micro-finance team is located in the rural
and micro-banking and agri-business group, within the wholesale banking
division. They have also set up a specialised centre for practical action-directed
research in micro-finance, which is located in Chennai, in an existing staff
training centre of the Bank. As a private sector bank, ICICI Bank feels that it
should focus on improving individuals’ capacity to access formal financial
services, rather than working at the community level. The Bank therefore
endeavours to deal direct with individuals or with their SHGs when they are
organized in this way. They sometimes work through community SHG
50
federations or similar bodies, but the emphasis is on developing individual
customer relationships whenever possible.
By early 2005 ICICI had a portfolio of about $66 million through 27 partner MFIs, and
loans through a further 11 institutions were under negotiation. Indian micro-finance has
grown rapidly but inequitably; Bihar and Uttar Pradesh, which are home to 37 percent of
India’s poorest people, only have 9 percent of the over one million SHGs. ICICI Bank is
attempting to reverse this trend, and a number of its partner MFIs, including Cashpor, one
of the largest, are located in the poorer Northern States.
The Bank aims to increase its micro-finance portfolio to $4 billion dollars, working
through 200 MFIs. There are some 1600 MFIs in India, but only about a dozen of these
are presently of sufficient size or strength to be suitable partners for ICICI Bank. The
Bank is trying to develop their capacity, through practical training, and also through a
programme of mentoring whereby senior staff of the Bank, not from the micro-finance
team, make regular visits to assist MFIs to improve their systems and to adopt some
elements of a banking culture. This programme is thought to be of great benefit not only
to the MFIs but also to the mentors, who may previously have had little or no exposure to
the realities of poverty in their own country. The Bank is also collaborating with the
CARE CASHE project to develop second-tier MFIs (see section 6). ICICI Bank is
packaging and selling on its micro-finance loans, to for instance UTI Bank, one of the
larger private banks. In this way ICICI can enhance the quality and price of these assets.
It may eventually be possible to create an international secondary market in microfinance
debt, such as already exists for many other securitised assets, but the priority sector
eligibility of the Bank’s loans to MFIs means that they are presently more attractive to
Indian banks.
51
CHAPTER 7
SOME OTHER MICRO-FINANCE INSTITUTIONS
BANDHAN
(Ranked 2nd by Forbes Magazine in December 2007)
Bandhan is working towards the twin objective of poverty alleviation and women
empowerment. It started as a Capacity Building Institution (CBI) in November 2000
under the leadership of Mr. Chandra Shekhar Ghosh. During such time, it was giving
capacity building support to local microfinance institutions working in West Bengal.
Bandhan opened its first microfinance branch at Bagnan in Howrah district of West
Bengal in July 2002. Bandhan started with 2 branches in the year 2002-03 only in the
state of West Bengal and today it has grown as strong as 412 branches across 6 states of
the country! The organization had recorded a growth rate of 500% in the year 2003-04
and 611% in the year 2004-05. Till date, it has disbursed a total of Rs. 587 crores among
almost 7 lakh poor women. Loan outstanding stands at Rs. 221 crores. The repayment
rate is recorded at 99.99%. Bandhan has staff strength of more than 2130 employees.
As on July 2008
No. of states : 8
52
No. of branches
No. of members
No. of staff
Cumulative loan disbursed
Loan outstanding
: 528
: 1,182,741
: 3,191
: Rs.1,249 crores
: Rs. 417 crores
Operational Methodology
Bandhan follows a group formation, individual lending approach. A group of 10-25
members are formed. The clients have to attend the group meetings for 2 successive
weeks. 2 weeks hence, they are entitled to receive loans. The loans are disbursed
individually and directly to the members.
Economic and Social Background of Clients
Landless and asset less women
Family of 5 members with monthly income less than Rs. 2,500 in rural
and Rs. 3,500 in urban
Those who do not own more than 50 decimal (1/2acre) of land or capital
of its equivalent value
Loan Size
The first loan is between Rs. 1,000 – Rs. 7,000 for the rural areas and between Rs. 1,000
– Rs. 10,000 for the urban areas. After the repayment, they are entitled to receive a
subsequent loan which is Rs 1,000 - 5,000 more than the previous loan.
Service Charge
Bandhan charges a service charge of 12.50% flat on loan amount. Bandhan initially
charged 17.50%. However from 1st July 2005, it has slashed down its lending rate to
15.00%. Then it was further reduced to 12.50% in May 2006. The reason is obvious. As
53
overall productivity increased, operational costs decreased. Bandhan, being a non profit
organization wanted the benefit of low costs to ultimately trickle down to the poor.
Monitoring System
The various features of the monitoring system are:
A 3 tier monitoring system – Region, Division and Head Office
Easy reporting system with a prescribed checklist format
Accountability at all levels post monitoring phase
Cross- checking at all the levels
The management team of Bandhan spends 90.00% of time at the field
Liability structure for Loans
When a member wants to join Bandhan, she at first has to get inducted into a group. After
she gets inducted into the group, the entire group proposes her name for a loan in the
Resolution Book. Two members of the group along with the member’s husband have to
sign as guarantors in her loan application form. If she fails to pay her weekly installment,
the group inserts peer pressure on her. The sole purpose of the above structure is simply
to create peer pressure.
GRAMEEN BANK
The Grameen Model which was pioneered by Prof Muhammed Yunus of Grameen Bank
is perhaps the most well known, admired and practised model in the world. The model
involves the following elements.
! Homogeneous affinity group of five
! Eight groups form a Centre
! Centre meets every week
! Regular savings by all members
! Loan proposals approved at Centre meeting
! Loan disbursed directly to individuals
54
! All loans repaid in 50 instalments
The Grameen model follows a fairly regimented routine. It is very cost intensive as it
involves building capacity of the groups and the customers passing a test before the
lending could start. The group members tend to be selected or at least strongly vetted by
the bank. One of the reasons for the high cost is that staff members can conduct only two
meetings a day and thus are occupied for only a few hours, usually early morning or late
in the evening. They were used additionally for accounting work, but that can now be
done more cost effectively using computers. The model is also rather meeting intensive
which is fine as long as the members have no alternative use for their time but can be a
problem as members go up the income ladder.
The greatness of the Grameen model is in the simplicity of design of products and
delivery. The process of delivery is scalable and the model could be replicated widely.
The focus on the poorest, which is a value attribute of Grameen, has also made the model
a favourite among the donor community.
However, the Grameen model works only under certain assumptions. As all the loans are
only for enterprise promotion, it assumes that all the poor want to be self-employed. The
repayment of loans starts the week after the loan is disbursed – the inherent assumption
being that the borrowers can service their loan from the ex-ante income.
SKS MICROFINANCE (CEO-VIKRAM AKULA)
Many companies say they protect the interests of their customers. Very few actually sit in
dirt with them, using stones, flowers, sticks, and chalk powder to figure out if they will be
able to repay a $20 loan at $1 a month. With this approach, this company has created its
own loyal gang of over 2 million customers.
Its borrowers include agricultural labourers, mom-and-pop entrepreneurs, street vendors,
home based artisans, and small scale producers, each living on less than $2 a day. It
55
works on a model that would allow micro-finance institutions to scale up quickly so that
they would never have to turn poor person away.
Its model is based on 3 principles-
1. Adopt a profit-oriented approach in order to access commercial capital-
Starting with the pitch that there is a high entrepreneurial spirit amongst the poor
to raise the funds, SKS converted itself to for-profit status as soon as it got break
even and got philanthropist Ravi Reddy to be a founding investor. Then it secured
money from parties such as Unitus, a Seattle based NGO that helps promote
micro-finance; SIDBI; and technology entrepreneur Vinod Khosla. Later, it was
able to attract multimillion dollar lines of credit from Citibank, ABN Amro, and
others.
2. Standardize products, training, and other processes in order to boost
capacity- They collect standard repayments in round numbers of 25 or 30 rupees.
Internally, they have factory style training models. They enroll about 500 loan
officers every month. They participate in theory classes on Saturdays and practice
what they have learned in the field during the week. They have shortened the
training time for a loan officer to 2 months though the average time taken by other
industry players is 4-6 months.
3. Use Technology to reduce costs and limit errors- It could not find the software
that suited its requirements, so it they built their own simple and user friendly
applications that a computer-illiterate loan officer with a 12th grade education can
easily understand. The system is also internet enabled. Given that electricity is
unreliable in many areas they have installed car batteries or gas powered
generators as back-ups in many areas.
Scaling up Customer Loyalty
Instead of asking illiterate villagers to describe their seasonal pattern of cash flows,
they encourage them to use colored chalk powder and flowers to map out the village
on the ground and tell where the poorest people lived, what kind of financial products
56
they needed, which areas were lorded over by which loan sharks, etc. They set
people’s tiny weekly repayments as low as $1 per week and health and whole life
insurance premiums to be $10 a year and 25 cents per week respectively. They also
offer interest free emergency loans. The salaries of loan officers are not tied to
repayment rates and they journey on mopeds to borrowers’ villages and schedule loan
meetings as early as 7.00 A.M. Deep customer loyalty ultimately results in a
repayment rate of 99.5%.
Leveraging the SKS brand
Its payoff comes from high volumes. They are growing at 200% annually, adding 50
branches and 1,60,000 new customers a month. They are also using their deep
distribution channels for selling soap, clothes, consumer electronics and other
packaged goods.
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CHAPTER 8
SUCCESS FACTORS OF MICRO-FINANCE IN INDIA
Over the last ten years, successful experiences in providing finance to small entrepreneur
and producers demonstrate that poor people, when given access to responsive and timely
financial services at market rates, repay their loans and use the proceeds to increase their
income and assets. This is not surprising since the only realistic alternative for them is to
borrow from informal market at an interest much higher than market rates. Community
banks, NGOs and grass root savings and credit groups around the world have shown that
these micro enterprise loans can be profitable for borrowers and for the lenders, making
microfinance one of the most effective poverty reducing strategies.
FOR NGOS
1. The field of development itself expands and shifts emphasis with the pull of ideas,
and NGOs perhaps more readily adopt new ideas, especially if the resources
required are small, entry and exit are easy, tasks are (perceived to be) simple and
people’s acceptance is high – all characteristics (real or presumed) of
microfinance.
2. Canvassing by various actors, including the National Bank for Agriculture and
Rural Development (NABARD), Small Industries Development Bank of India
(SIDBI), Friends of Women’s World Banking (FWWB), Rashtriya Mahila Kosh
(RMK), Council for Advancement of People’s Action and Rural Technologies
(CAPART), Rashtriya Gramin Vikas Nidhi (RGVN), various donor funded
58
programmes especially by the International Fund for Agricultural Development
(IFAD), United Nations Development Programme (UNDP), World Bank and
Department for International Development, UK (DFID)], and lately commercial
banks, has greatly added to the idea pull. Induced by the worldwide focus on
microfinance, donor NGOs too have been funding microfinance projects. One
might call it the supply push.
3. All kinds of things from khadi spinning to Nadep compost to balwadis do not
produce such concrete results and sustained interest among beneficiaries as
microfinance. Most NGO-led microfinance is with poor women, for whom access
to small loans to meet dire emergencies is a valued outcome. Thus, quick and high
‘customer satisfaction’ is the USP that has attracted NGOs to this trade.
4. The idea appears simple to implement. The most common route followed by
NGOs is promotion of SHGs. It is implicitly assumed that no ‘technical skill’ is
involved. Besides, external resources are not needed as SHGs begin with their
own savings. Those NGOs that have access to revolving funds from donors do not
have to worry about financial performance any way. The chickens will eventually
come home to roost but in the first flush, it seems all so easy.
5. For many NGOs the idea of ‘organising’ – forming a samuha – has inherent
appeal. Groups connote empowerment and organising women is a double bonus.
6. Finally, to many NGOs, microfinance is a way to financial sustainability.
Especially for the medium-to-large NGOs that are able to access bulk funds for
on-lending, for example from SIDBI, the interest rate spread could be an
attractive source of revenue than an uncertain, highly competitive and
increasingly difficult-to-raise donor funding.
59
FOR FINANCIAL INSTITUTIONS AND BANKS
Microfinance has been attractive to the lending agencies because of demonstrated
sustainability and of low costs of operation. Institutions like SIDBI and NABARD are
hard nosed bankers and would not work with the idea if they did not see a long term
engagement – which only comes out of sustainability (that is economic attractiveness).
On the supply side, it is also true that it has all the trappings of a business enterprise, its
output is tangible and it is easily understood by the mainstream. This also seems to sound
nice to the government, which in the post liberalisation era is trying to explain the logic
of every rupee spent. That is the reason why microfinance has attracted mainstream
institutions like no other developmental project.
Perhaps the most important factor that got banks involved is what one might call the
policy push.
Given that most of our banks are in the public sector, public policy does have some
influence on what they will or will not do. In this case, policy was followed by diligent, if
meandering, promotional work by NABARD. The policy change about a decade ago by
RBI to allow banks to lend to SHGs was initially followed by a seven-page memo by
NABARD to all bank chairmen, and later by sensitisation and training programmes for
bank staff across the country. Several hundred such programmes were conducted by
NGOs alone, each involving 15 to 20 bank staff, all paid for by NABARD. The policy
push was sweetened by the NABARD refinance scheme that offers much more
favourable terms (100% refinance, wider spread) than for other rural lending by banks.
NABARD also did some system setting work and banks lately have been given targets.
The canvassing, training, refinance and close follow up by NABARD has resulted in
widespread bank involvement.
Moreover, for banks the operating cost of microfinance is perhaps much less than for
pure MFIs. The banks already have a vast network of branches. To the extent that an
NGO has already promoted SHGs and the SHG portfolio is performing better than the
60
rest of the rural (if not the entire) portfolio, microfinance via SHGs in the worst case
would represent marginal addition to cost and would often reduce marginal cost through
better capacity utilisation. In the process the bank also earns brownie points with policy
makers and meets its priority sector targets.
It does not take much analysis to figure out that the market for financial services for the
50-60 million poor households of India, coupled with about the same number who are
technically above the poverty line but are severely under-served by the financial sector, is
a very large one. Moreover, as in any emerging market, though the perceived risks are
higher, the spreads are much greater. The traditional commercial markets of corporate,
business, trade, and now even housing and consumer finance are being sought by all the
banks, leading to price competition and wafer thin spreads.
Further, bank-groups are motivated by a number of cross-selling opportunities in the
market, for deposits, insurance, remittances and eventually mutual funds. Since the larger
banks are offering all these services now through their group companies, it becomes
imperative for them to expand their distribution channels as far and deep as possible, in
the hope of capturing the entire financial services business of a household.
Finally, both agri-input and processing companies such as EID Parry, fast-moving
consumer goods (FMCG) companies such as Hindustan Levers, and consumer durable
companies such as Philips have realised the potential of this big market and are actively
using SHGs as entry points. Some amount of free-riding is taking place here by
companies, for they are using channels which were built at a significant cost to NGOs,
funding agencies and/or the government.
On the whole, the economic attractiveness of microfinance as a business is getting
established and this is a sure step towards mainstreaming. We know that mainstreaming
is a mixed blessing, and one tends to exchange scale at the cost of objectives. So it needs
to be watched carefully.
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CHAPTER 9
ISSUES IN MICROFINANCE
MICRO FINANCE- ISSUES AND CONCERNS
Microfinance has drawn attention to an entire sector of borrowers who had been
previously poorly served by the formal financial sector. MF has successfully
demonstrated how to make lending to this sector a viable proposition. But there still
remain areas of concerns that have been raised by the critics time and again. There is now
a need to address these issues appropriately so that MF continues being seen as the
solution to unending problems of the poorest sections of our society. The areas of
concern identified are as follows:
Higher Rates of Interest: The rates of interest charged are quite high, typically 12 to 30
per cent, mainly on account of the high transaction cost for the average loan size that can
be quite small. Compared to the informal sector, perhaps the rates are lower, but issues
are raised whether these rates are affordable - in the sense whether they would leave any
surplus in the hands of the borrowers and lead to higher levels of living. For commercial
banks, the lower cost of funding, advantages of size and scale gives scope for cross
subsidization and their interest rates are more competitive compared to the MFIs, but they
have not been as successful in dealing with the last mile issue.
The Extent of Reach of SHG’s: The financial inclusion attained through SHGs is
sustainable and scalable on account of its various positive features. One of the distinctive
features of the SHGBLP has been the high recovery rate. However the spread of SHGs is
62
very uneven and is more concentrated in southern states. This regional imbalance needs
to be corrected and special efforts in this regard may have to be made by NABARD.
TABLE 2: REGION-WISE SPREAD OS SHG’s
SOURCE: NABARD Annual Report, 2007
Limited Role of SHGs: Another point of contention is that SHG’s have to graduate from
mere providers of credit for non-productive purposes to promoting micro enterprises.
There have been several institutional innovations in financial services by including civil
society. Followed by the success of SHG- BLP and Bangladeshi Grameen model, many
of the NGO’s have taken to financial intermediation by adopting innovative delivery
approaches.
Unfair Practices: Although the impact of MF has been positive on our society as a
whole what we should not forget is that these SHG’s and other bodies must be reviewed
periodically to ensure fairness. One has to be very cautious about the attempts being
made by the vested interest groups to substitute the need for expansion of formal banking
structure to the hitherto un-banked areas with SHGs and NGOs. The complaints of high
interest rates charged from ultimate borrowers and examples of coercion are not too
insignificant (Mitra, 2007). In absence of strict control there is a possibility that such
instances can increase thereby defeating the whole purpose of the MF system.
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Huge Demand-Supply Gap: The Reserve Bank of India has identified large gap in the
demand and supply of credit to the poor and suggests the urgent need to widen the scope,
outreach and scale of financial services to cover the un-reached populace. Estimates
reveal that the credit support for poor households in India is of the order of Rs.450, 000
crore. Some micro level studies show that the poor still continue to depend on informal
sources of credit to up to 60 per cent of the household demand.
1. SUSTAINABILITY
The first challenge relates to sustainability. MFI model is comparatively costlier in
terms of delivery of financial services. An analysis of 36 leading MFIs by Jindal &
Sharma shows that 89% MFIs sample were subsidy dependent and only 9 were able
to cover more than 80% of their costs. This is partly explained by the fact that while
the cost of supervision of credit is high, the loan volumes and loan size is low. It has
also been commented that MFIs pass on the higher cost of credit to their clients who
are ‘interest insensitive’ for small loans but may not be so as loan sizes increase. It is,
therefore, necessary for MFIs to develop strategies for increasing the range and
volume of their financial services.
2. LACK OF CAPITAL
The second area of concern for MFIs, which are on the growth path, is that they face
a paucity of owned funds. This is a critical constraint in their being able to scale up.
Many of the MFIs are socially oriented institutions and do not have adequate access
to financial capital. As a result they have high debt equity ratios. Presently, there is no
reliable mechanism in the country for meeting the equity requirements of MFIs.
The IPO issue by Mexico based ‘Compartamos’ was not accepted by purists as they
thought it defied the mission of an MFI. The IPO also brought forth the issue of
valuation of an MFI.
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The book value multiple is currently the dominant valuation methodology in
microfinance investments. In the case of start up MFIs, using a book value multiple
does not do justice to the underlying value of the business. Typically, start ups are
loss making and hence the book value continually reduces over time until they hit
break even point. A book value multiplier to value start ups would decrease the value
as the organization uses up capital to build its business, thus accentuating the negative
rather than the positive.
3. FINANCIAL SERVICE DELIVERY
Another challenge faced by MFIs is the inability to access supply chain. This
challenge can be overcome by exploring synergies between microfinance institutions
with expertise in credit delivery and community mobilization and businesses
operating with production supply chains such as agriculture. The latter players who
bring with them an understanding of similar client segments, ability to create micro
enterprise opportunities and willingness to nurture them, would be keen on directing
microfinance to such opportunities. This enables MFIs to increase their client base at
no additional costs.
Those businesses that procure from rural India such as agriculture and dairy often
identify finance as a constraint to value creation. Such businesses may find
complementarities between an MFI’s skills in management of credit processes and
their own strengths in supply chain management.
ITC Limited, with its strong supply chain logistics, rural presence and an innovative
transaction platform, the “E-choupal”, has started exploring synergies with financial
service providers including MFIs through pilots with vegetable vendors and farmers.
Similarly, large FIs such as Spandana foresee a larger role for themselves in the rural
economy ably supported by value creating partnerships with players such as
Mahindra and Western Union Money Transfer.
ITC has initiated a pilot project called ‘pushcarts scheme’ along with BASIX (a
microfinance organization in Hyderabad). Under this pilot, it works with twenty
women head load vendors selling vegetables of around 10- 15 kgs per day. BASIX
65
extends working capital loans of Rs.10,000/- , capacity building and business
development support to the women. ITC provides support through supply chain
innovations by:
1. Making the Choupal Fresh stores available to the vendors, this avoids the hassle
of bargaining and unreliability at the traditional mandis (local vegetable markets).
The women are able to replenish the stock from the stores as many times in the
day as required. This has positive implications for quality of the produce sold to
the end consumer.
2. Continuously experimenting to increase efficiency, augmenting incomes and
reducing energy usage across the value chain. For instance, it has forged a
partnership with National Institute of Design (NID), a pioneer in the field of
design education and research, to design user-friendly pushcarts that can reduce
the physical burden.
3. Taking lessons from the pharmaceutical and telecom sector to identify
technologies that can save energy and ensure temperature control in push carts in
order to maintain quality of the vegetables throughout the day. The model
augments the incomes of the vendors from around Rs.30-40 per day to an average
of Rs.150 per day. From an environmental point of view, push carts are much
more energy efficient as opposed to fixed format retail outlets.
4. LACK OF CONDUCIVE REGULATORY FRAMEWORK
Despite having proved its mettle as a sound financial intervention for the poor,
microfinance today stands in a state where the future path of its growth in the
country, especially in terms of the institutional form it will take, still remains
uncertain. MF has enabled the policy makers and planners to discover a potential
tool for poverty alleviation but the enabling environment for its own growth looks
elusive (Shylendra, 2003). It is recognised that successful scaling up of MF
intervention for a larger impact requires promoting strong network of institutions
delivering microfinance with sound practices. However, the MF sector is faced
with many problems in this regard.
66
Excluding the formal financial institutions, the sector consists of a large number
of unregulated NGOs dealing with the poor and other small clients (Satish, 2005).
Much of the MF intervention by the NGO sector is in the form of a project,
lacking the much needed organisational form and capacity. As estimated above,
there are over 1,700 NGO-MFIs involved in microfinance. A large number of
these NGOs are either trying to promote or even transform themselves into full-
fledged microfinance institutions (Shylendra and Saini, 2003). The NGOs, having
crossed the stage of infancy in microfinance activity more under an informal
framework, are now looking forward to a conducive and an appropriate regulatory
environment to grow further. Lack of suitable legal and regulatory framework
which clearly recognises the role of NGOs in microfinance and enables them to
scale up their operations or transform themselves as financial intermediaries is
identified as one of the major hurdles being faced by the NGOs. Such a scenario
is also leading to many distortions in the sector. In the absence of a suitable
regulatory framework, many NGOs are either stagnating in the delivery of
microfinance or able to deliver only a fragmented service (Shylendra, 2003).
Without a clear formal recognition, the status of microfinance activity of the
NGOs, especially savings mobilisation, has remained vague and even illegal.
Since the entry point and other prudential norms are so rigid or high under
existing framework, many NGOs, despite good past record, have decided to
remain small and local in delivering microfinance. While some have decided to
set up non-banking financial companies (NBFC) providing only partial service,
others are forced to run two institutions with additional cost. Even formation of a
regulated MFI is taking a very long time, given many legal hurdles faced
(Fernandez, 2004). Those which are registered as societies or cooperatives have to
put up with the problem of interference of politicians or bureaucracy to the
detriment of their much needed autonomy. Only a very few states have enacted
acts for autonomous or self-reliant cooperatives under which full fledged MFIs
could be formed.
5. HR ISSUES
67
Recruitment and retention is the major challenge faced by MFIs as they strive to
reach more clients and expand their geographical scope. Attracting the right talent
proves difficult because candidates must have, as a prerequisite, a mindset that fits
with the organization’s mission.
Many mainstream commercial banks are now entering microfinance, who are
poaching staff from MFIs and MFIs are unable to retain them for other job
opportunities.
85% of the poorest clients served by microfinance are women. However, women
make up less than half of all microfinance staff members, and fill even fewer of the
senior management roles. The challenge in most countries stems from cultural notions
of women’s roles, for example, while women are single there might be a greater
willingness on the part of women’s families to let them work as front line staff, but as
soon as they marry and certainly once they start having children, it becomes
unacceptable. Long distances and long hours away from the family are difficult for
women to accommodate and for their families to understand.
6. MICROINSURANCE
First big issue in the micro insurance sector is developing products that really respond
to the needs of clients and in a way that is commercially viable.
Secondly, there is strong need to enhance delivery channels. These delivery channels
have been relatively weak so far. Micro insurance companies offer minimal products
and do not want to go forward and offer complex products that may respond better.
Micro insurance needs a delivery channel that has easy access to the low-income
market, and preferably one that has been engaged in financial transactions so that they
have controls for managing cash and the ability to track different individuals.
Thirdly, there is a need for market education. People either have no information about
micro insurance or they have a negative attitude towards it. We have to counter that.
We have to somehow get people - without having to sit down at a table - to
68
understand what insurance is, and why it benefits them. That will help to demystify
micro insurance so that when agents come, people are willing to engage with them.
7. ADVERSE SELECTION AND MORAL HAZARD
The joint liability mechanism has been relied upon to overcome the twin issues of
adverse selection and moral hazard. The group lending models are contingent on the
availability of skilled resources for group promotion and entail a gestation period of
six months to one year. However, there is not sufficient understanding of the drivers
of default and credit risk at the level of the individual. This has constrained the
development of individual models of micro finance. The group model was an
innovation to overcome the specific issue of the quality of the portfolio, given the
inability of the poor to offer collateral. However, from the perspective of scaling up
micro financial services, it is important to proactively discover models that will
enable direct finance to individuals.
69
CHAPTER 10
DATA ANALYSIS
AND
INTERPRETATION
70
ANALYSIS
Q.1.) To which state do you belong?
Distribution across the states
05
1015202530354045
Andhra Pradesh Bihar Haryana Uttar Pradesh West Bengal
States
No.o
f res
pond
ents
The graph below shows the state-wise distribution of the sample size indicating that the
maximum no. of respondents is from “Haryana”.
Q.2.) What is your age?
71
Age wise distribution
10%
23%
55%
12%
18-25
25-35
35-45
Above 45
The graph below shows the age wise distribution of the sample, showing maximum no. of
respondents being from the age group of “35-45” years.
Q.3.) What is your occupation?
Occupation wise distribution
0
5
10
15
20
25
30
35
Farmer Housewife Service Small business Others
Occupation
No.o
f res
pond
ents
The figure below shows the occupation wise distribution of the sample size taken. It
shows that the maximum no. of respondents belong to “Service” category.
Q.4.) Have you ever taken a loan from any of the following institutions?
72
No.of respondents with financial institutions
05
1015202530354045
Bank MFI Moneylender SHG N.A
Financial institutions
No.o
f res
pond
ents
The figure above shows the no. of respondents taking finance from the different
microfinance institutions with “Moneylender’s” leading the pack among the financial
institutions.
Q 5)
Awareness about the banks among the respondents
0
10
20
30
40
50
60
Central bank ICICI SBI Others None
Banks
No.o
f res
pond
ents
The above figure shows that maximum no of respondents are aware about others banks.
Q6)
73
Financial needs
0 5 10 15 20 25 30 35 40 45 50
1-3 times
3-5 times
5-6 times
None
Fina
ncia
l nee
d
No.of respondents
The figure above indicates the frequency with which the people avail to the financing
needs within a span of 2-3 years with maximum people availing the facility of
microfinance 1-3 times within a span of 2-3 years .
Q7)
Duration of the loan taken
15%
29%
3%
35%
18%
6-12 months
12-18 months
18-24 months
2 or more years
None
The bar graph shown above shows the duration for which the people avail the amount
of loan taken from different financial institutions with the maximum percentage being
of the people taking loan for duration of “more than 2 years”.
Q8)
74
Distribution of amount taken and rate of interest paid
0
1
2
3
4
5
6
10-20% 20-30 30-40 Above 40
Rate of interest
No.o
f res
pond
ents
0
5
10
15
20
25
30
35
40
No.o
f res
pond
ents
5,000-20,000
20,000-30,000
30,000-50,000
Above 50,000
The figure above shows that the frequency of the amount of loan taken up and the rate
of interest paid by the sample population. The most amount of loan taken up is
“Rs.50, 000 or over” and the interest rate paid up by these people is “10-20%”.
Q9)
Financial needs
0 5 10 15 20 25 30 35 40 45 50
1-3 times
3-5 times
5-6 times
None
Fina
ncia
l nee
d
No.of respondents
The figure above indicates the frequency with which the people avail to the financing
needs within a span of 2-3 years with maximum people availing the facility of
microfinance 1-3 times within a span of 2-3 years.
75
Q10)
Interest rate paid across occupations
0 2 4 6 8 10 12 14 16
Farmer
Housewife
Small business
Service
OthersO
ccup
atio
n
No.of respondents
N.A
Above 40
30-40
20-30
10-20%
The following graph shows the distribution of people belonging to different occupations
and the interest rate paid by them for availing the microfinance facility with the farmer’s
and the servicemen paying a interest of 10-20% and the people belonging to others
paying a interest of around 30-40%.
76
CHAPTER 11
KEY FINDINGS
1. With a population of 70 million people, which is almost 70% of the Indian
villages, majority of them, do not even own a bank account. This itself represents
the scope of micro-finance in the Indian economy, and the growth possibilities of
the same.
2. The analysis of the above data gathered through the research conducted indicates
that among the people availing to the finance at this level have the knowledge
about the commercial banks providing this facility at much cheaper rate of
interests as compared to the Self-help groups, SEWA bank, Micro-finance
institutions, Money lender’s, etc.
3. The apex financial institutions in the country have also recognized the importance
of micro-finance and have been taking measures to encourage this. However, their
77
efforts are still incomplete and more defined and stringent regulatory measures
are called for.
4. The technological innovations in microfinance have been indeed remarkable.
However, there exists a further need for innovating low-cost lending technologies
so that the provision of such services can be achieved economically and
affordably.
5. Foreign banks have also begun to identify the potential in this untapped sector and
have to be encouraged to venture into this – that too with commercial
justifications.
6. The commercial banks within the country also should be encouraged to extend the
reach of their services to the rural poor and provide them with services which
nurture a ‘voluntary savings’ culture at affordable rates.
CHAPTER 12
RECOMMENDATIONS AND SUGGESTIONS
1. Most of the efforts of the apex financial institutions have been directed at the
promotion of micro-credit, and not micro-finance. This bias has not only ignored
the need of other financial services for the rural poor, but has also been counter-
productive.
2. Increase the supply of financial services to the unbanked by developing more such
institutions, lowering the transaction costs, increasing the marketing of such
services etc.
3. Design and develop new innovative models for the provision of such services and
low-cost technological offerings so as to increase their access to formal loans and
other financial services.
78
4. There is also an urgent need for the existing banks to revamp their practices and
redesign their banking operations, so as to incorporate microfinance as a long-
term growth strategy.
5. The formal documentation procedure for procuring loans can also be made more
user-friendly to the illiterate and uneducated poor, who will be accessing these
loans.
6. The apex organization can play not just the role of an intermediary, but also a
‘market development’ role, wherein it can transform funds from government and
donors into MFI structures, transfer of technology, training of staff members etc.
7. Educate and emphasize on a “repayment”, “no-default” and “voluntary savings”
culture amongst the rural poor.
8. Expand the institutional structure in terms of commercial bank branch expansion,
setting up of more RRB’s and MFI’s, special credit programs for channelizing
subsidized credit to the rural sector, allocate compulsory sectors under RBI
guidelines, namely the “priority sector lending”, encourage foreign banks to
venture into microfinance by showing them the commercial point of view.
Commercial banks can also be encouraged to become involved in microfinance to
ensure an appropriate regulatory and prudential framework. The elements of an
optimal policy context are:
sound macroeconomic policies and basic infrastructure to ensure a growing
economy (especially increasing complexity in the financial sector)
minimal restrictions to profitable lending, particularly no interest rate caps
enhanced ability to establish a small commercial bank which can focus on this
sector (such as a low minimum capital requirement)
appropriate prudential regulations for this market including capital adequacy
ratios, asset quality indicators and unsecured loan limits.
79
CHAPTER 13
LIMITATIONS
1. The study is limited to a very few people only, since in-depth interviews were
conducted, and hence the development and efforts put in by various commercial
banks towards microfinance in India cannot be effectively measured.
2. Since no structured questionnaires were used, the study can be subject to
perceptual biases of the interviewee and there can be changes in the answers or
opinions, of both, the interviewer and interviewee.
80
CHAPTER 14
CONCLUSION
It is becoming increasingly apparent that addressing financial exclusion will require a
holistic approach in creating awareness about financial products, education, advice on
money management, debt counselling, savings and affordable credit.
The Role of Banks: The banks must evolve specific strategies to expand the outreach of
their services in order to promote financial inclusion. One of the ways in which this can
be achieved in a cost-effective manner is through forging linkages with microfinance
institutions and local communities. Banks should give wide publicity to the facility of no
frills account.
Widespread Use of Technology: Technology plays a major role in providing access to
banking products in remote areas. According to Prof. M.S. Swaminanthan, the noted
agricultural scientist, “SHGs, will however, become sustainable only if they have
backward linkages with technology and credit and forward linkages with processing and
marketing organisations.” ATMs cash dispensing machines can be modified suitably to
81
make them user friendly for people who are illiterate, less educated or do not know
English.
The Role of NGO’s & SHG’s: Banks need to redesign their business strategies to
incorporate specific plans to promote financial inclusion of low income group treating it
both a business opportunity as well as a corporate social responsibility. For an initiative
of such high magnitude it is essential that they make use of all available resources
including technology and expertise available with them as well as the MFIs and NGOs.
NGOs have played a commendable role in promoting SHGs and linking them with banks.
NGOs, being local initiators with their low resources, are finding it difficult to expand in
other areas and regions. There is, therefore, a need to evolve an incentive package which
should motivate these NGOs to diversify into other backward areas.
Efficient Delivery of Services: In dealing with the needs of rural enterprises and of small
and medium enterprises in urban areas, new delivery mechanisms need to be developed.
The objective is to economize on transaction costs and provide better access to the
currently under-served. To serve new rural credit needs, innovative channels for credit
delivery will have to be found.
Developing a Regulatory Framework: In view of the rising micro-finance activities in
the country, a need has been felt to regulate the unregulated business in this sector and
also provide legal framework to facilitate the credit flow in rural areas (Tiwari, 2006).
The Micro Financial Sector (Development and Regulation) Bill 2007 has been tabled in
the Parliament (The Hindu Business Line, March 2007). MFIs fear that regulation might
stifle growth, but analysts say that it is important to put them under scanning.
Escalating Micro-Insurance: Micro-insurance is a key element in the financial services
package for people at the bottom of the pyramid. The poor face more risks than the well
off. It is becoming increasingly clear that micro-insurance needs a further push and
guidance from the Regulator as well as the Government.
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REFERENCES
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2. Thorat, Usha (2007a), Taking Banking Services to the Common Man – Financial Inclusion, Deputy Governor, Reserve Bank of India at the HMT-DFID Financial Inclusion Conference 2007, Whitehall Place, London, UK, June 19; http://www.rbi.org.in/scripts/BS_SpeechesView.aspx?Id=218
3. Mahendra Dev S, Financial Inclusion: Issues and Challenges, Economic and Political Weekly, Vol. 41;No. 41 October 14-October 20, 2006
4. Hans, V. Basil, Towards a Vibrant Indian Agriculture, Kisan World, Vol. 33, No.2, February, pp. 18-20, 2008
5. Jayasheela, Dinesha P.T and V. Basil Hans: Financial Inclusion and Microfinance in India: An Overview, 2008; papers.ssrn.com/sol3/papers.cfm?abstract_id=1089680
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7. Sa–Dhan Micro finance Resource Centre (2004), Indian Experience of Micro Finance: A Sustainable Banking Solution to the Poor; http://www.sa-dhan.net/ResourcePatrika.htm
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8. Karmakar, K.G. (2002) Micro finance revisited, Financing Agriculture, Vol.34, No.2, April-June 2002.
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10. Mahendra Dev S, Financial Inclusion: Issues and Challenges, Economic and Political Weekly, Vol. 41;No. 41 October 14-October 20, 2006
11. Nadarajan S. and R. Ponmurugan (2006), Self Help Groups: Bank Linkage Programme, Kisan World, Vol. 33.
12. NABARD Annual Report 200713. Priya Basu, Pradeep Srivastava; Exploring Possibilities Microfinance and Rural
Credit Access for the Poor in India, Economic and Political Weekly, Vol. 40 No. 17 April 23 - April 29, 2005.
14. Shahidur R. Khandker, (1998), Fighting poverty with micro credit: Experience in Bangladesh, Oxford University Press, New York; http://www-wds.worldbank.org/servlet/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&entityID=000094946_99030406225421
15. Ledger wood Joanna, (2000) Microfinance: Sustainable Banking with the Poor, The World Bank Washington D C 2000.
16. Patil, Shobhadevi R. (2006), Role of self help groups in sustainable development: an NGO experience, Participative Development, Vol. 5, No 1, Jan-Mar, 2006, pp 55-64.
17. Tiwari, Ravish (2006), Micro-finance Bill referred to GoM after objections, The Indian Express, Dec 16. Available at http://www.indianexpress.com/story/18680.html.
18. The Hindu Business Line (2007), Micro-finance Bill tabled, March 20. Available at http://www.thehindubusinessline.com/2007/03/21/stories/2007032105170600.htm (accessed January 30, 2008).
19. GOI(2008), Report on the Committee on the Financial Inclusion, January 200820. Commercial Banks and Microfinance: Evolving Models of Success; By Jennifer
Isern, Lead Microfinance Specialist, CGAP and David Porteous, Consultant; UNITED NATIONS CAPITAL DEVELOPMENT FUND Newsletter; Issue 17 / October2005; http://www.uncdf.org/english/microfinance/pubs/newsletter/pages/2005_10/news_banks.php
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24. CONCEPT PAPER: Microfinance Institutions in India; Piyush Tiwari and S.M. Fahad,
25. Chatterjee. Arup; From exclusion to Inclusion; Finance for the Poor, June 2008, Vol. 9 ; No.2
26. ICICI bank Annual Report 200727. Impact assessment of microfinance; EDA Rural systems pvt, ltd. July 200328. Robert W. Herdt; Learning from Experience: Agriculture Credit and Microcredit;
December, 200629. R Srinivasan and M S Sriram; Microfinance: An Introduction; IIMB Management
review; Vol. 15; No. 230. Microfinance development strategy; Asian development bank; 200031. Todd j. Markson, Michael hokenson; What works ICICI bank Innovations in
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http://www.gdrc.org/icm/conceptpaper-india.html35. Transparency and performance in Indian microfinance36. http://www.microfinancegateway.org/content/article/detail/1344637. http://www.cgap.org/p/site/c/38. http://www.m-cril.com/
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ANNEXURE-I
QUESTIONNAIRE
NAME: STATE:
Q.1.) In which of the following options does your age falls?
a.)18-25 b.)25-35 c.)35-45 d.) 45 or above
Q.2.) What is your occupation?
a.)Own a small business b.)Farmer c.)Service d.)Housewife
e.)Others
86
Q.3.)Are you aware about all microfinance options available in India?
a.)Yes b.) No
Q.4.) Have you ever taken a loan from any of the following institutions?
a.) Self-help groups b.) Micro finance Institutions c.)Money lender
d.) Commercial banks e.) Not applicable
Q.5.) Of how much amount have you taken up the loan?
a.)5,000-20,000 b.)20,000-30,000 c.)30,000-50,000 d.)50,000 or above
e.) Not applicable
Q.6.) How much interest are you paying/had paid on a loan?
a.)10-20% b.)20-30% c.)30-40% d.) Above 40
e.) Not applicable
Q.7.) About which of the following banks have you heard of providing this facility?
a.) State bank of India b.)Central bank c.)Standard Chartered bank d.) Others e.) None
Q.8.) When somebody tells you about it, then would you go for taking up a loan from a commercial bank?
a.)Yes b.)No
Q.9.) How frequently you go for financing your personal needs in about 2-3 years?
a.) 1-3 times b.) 4-5 times c.) 6-8 times d.) 8 or more times
87
e.) None
Q.10.) When not able to pay loan on time, do you face any problems in getting a loan for the next time?
a.)Yes b.)No c.)Not applicable
Q.11.) For how much duration do you generally take up a loan?
a.) 6-12 months b.)12-18 months c.)18-24 months d.)Greater than 2 years
e.) Not applicable
88