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CONTEMPORARY ISSUE ON SEMINAR
Micro Finance- Financial Product for
Bottom of Pyramid Market
Session: 201012
Presented at
Submitted By: - Submitted To:-Brijesh Kumar Jat Mrs. Anju AgrawalMBA II Sem.
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AcknowledgementThe beatitude, bliss & euphoria that accompany successful completion any taskwould not be completed without the expression of appreciation of simple virtuesto the people who made it possible.So, I take my immense pleasure in expressing a whole hearted thanks to all thefaculty members who guided me all the way making this project successful.
It is my privilege to express a deep sense of gratitude and thanks toMrs.
ANUBHA for providing us various information directly related to project.
I extend my gratitude and thankfulness to Apex Institute of Management &Science.
Date:19-05-11 Submitted By:Place: Jaipur Brijesh Kumar Jat
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PrefaceThe underlying aim of the seminar on contemporary issue as an integral part ofMBA program is to provide the students with practical aspects of the organization
working environment.Such type of presentation helps a student to visualize and realize about thecongruencies between the theoretical learning in the premises of college and
actual followed by the organization. It gives the knowledge of application aspectof the theories learnt in the classroom.
The seminar project inMicro Finance- Financial Product forBottom of Pyramid Market is a complete experience in itself, whichprovide me with the understanding. This has become as inspirable of myknowledge of management being learned in MBA program.
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Table of Contents
1. Introduction
Elements of Microfinance
2. History of Microfinance in India
3. Need for Micro Financing
Who are client of microfinance?
How it helps the poor people?
Arent poor too poor to save?
When is microfinance NOT an appropriate tool
4. Types of Organizations and Composition of the Sector
Formal sector
Semi Formal sector
Informal sector
What are MFIs and SHGs?
5. Why do MFIs charge high interest rates to poor people?
6. Can Micro finance be profitable
7. Impact of microfinance over poverty
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8. Current Scenario of Micro - financing in India
Indian economy and microfinance
Recent trends in Micro finance
Govt. role in supporting Microfinance
Microfinance and capital requirement
Challenges in Indian context
9. Status of microfinance in Rajasthan
Background
Current situation of Micro finance & important issues
Voluntary organizations in Rajasthan
Major issues
10. Women & Micro Finance in india
Women can make Microfinance succeed in India
Rural finance for rural women
Rural women at a glance
Need credit to rural women
Loan facilities to rural women
Saving facilities to rural women
11. Conclusion
12. Bibilography
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1. Introduction
Micro financing is the provision of financial services to poor and low
income households without access to formal financial institutions.
As defined by the Asian Development Bank (ADB), it is - A provision of
a broad range of financial services such as deposits, loans, payment
services, money transfers, and insurance to poor and low-income
households and their micro-enterprises.
To most, microfinance means providing very poor families with very
small loans to help them engage in productive activities or grow their
very small businesses. Like us, many poor people need and use
financial services all the time. They save and borrow, invest in home
repairs and improvements and meet occasional and domestic expenses
such as food and school fees. However, there are some 500 million low
income entrepreneurs in the world and about 5% have access to
financial services. Indeed, the financial services available to the poor
often have serious limitations in terms of cost, risk and convenience.
As a result, over time, microfinance has come to include a broader
range of services (credit, savings, insurance, etc.) as the industry has
come to realize that the poor and the very poor that lack access to
traditional formal financial institutions require a variety of financial
products.
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Elements of Microfinance
is the extension of very small loans (microloans) to the unemployed,
to poor entrepreneurs and to others living in poverty who are not
considered bankable. These individuals lack collateral, steady
employment and a verifiable Microfinance refers to loans, savings,
insurance, transfer services and other financial products targeted at
low-income clients.
Micro credit refers to a small loan to a client made by a bank or other
institution. Micro credit can be offered, often without guarantee, to an
individual or through group lending.
Microcredit credit history and therefore cannot meet even the most
minimal qualifications to gain access to traditional credit. Microcredit is
a part of microfinance, which is the provision of a wider range of
financial services to the very poor.
Microcredit is a financial innovation which originated in Bangladesh
where it has successfully enabled extremely impoverished people to
engage in self-employment projects that allow them to generate an
income and, in many cases, begin to build wealth and exit poverty.
Due to the success of microcredit, many in the traditional banking
industry have begun to realize that these microcredit borrowers should
more correctly be categorized as pre-bankable; thus, microcredit is
increasingly gaining credibility in the mainstream finance industry and
many traditional large finance organizations are contemplating
microcredit projects as a source of future growth. Although almost
everyone in larger development organizations discounted the likelihood
of success of microcredit when it was begun in its modern incarnation
as pilot projects with ACCION and Muhammad Yunus in the mid-
http://en.wikipedia.org/wiki/Self-employmenthttp://en.wikipedia.org/wiki/Povertyhttp://en.wikipedia.org/wiki/Bankinghttp://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Accion_Internationalhttp://en.wikipedia.org/wiki/Muhammad_Yunushttp://en.wikipedia.org/wiki/Self-employmenthttp://en.wikipedia.org/wiki/Povertyhttp://en.wikipedia.org/wiki/Bankinghttp://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Accion_Internationalhttp://en.wikipedia.org/wiki/Muhammad_Yunus8/3/2019 Brijesh Kumar Jat - Micro Finance- Financial Product for Bottom of Pyramid Market
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1970s, the United Nations declared 2005 the International Year of
Microcredit.
Microsavings are deposit services that allow one to store small
amounts of money for future use. Often without minimum balance
requirements, savings accounts allow households to save in order to
meet unexpected expenses and plan for future investments.
Remittances are transfers of funds from people in one place to
people in another, usually across borders to family and friends.
Compared with other sources of capital that can fluctuate depending
on the political or economic climate, remittances are relatively steady
source of funds.
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 atypical risk-pooling and marketing arrangements, and
designed to service low-income peoples. Micro-insurance is insurance
with low premiums and low caps / coverage. In this definition, micro
refers to the small financial transaction that each insurance policy
generates. The Micro-insurance Regulations, issued in 2005 by the
Indian Insurance Regulatory and Development Authority (IRDA).
http://en.wikipedia.org/wiki/United_Nationshttp://en.wikipedia.org/wiki/2005http://en.wikipedia.org/wiki/International_Year_of_Microcredithttp://en.wikipedia.org/wiki/International_Year_of_Microcredithttp://en.wikipedia.org/wiki/Insurance_Regulatory_and_Development_Authorityhttp://en.wikipedia.org/wiki/United_Nationshttp://en.wikipedia.org/wiki/2005http://en.wikipedia.org/wiki/International_Year_of_Microcredithttp://en.wikipedia.org/wiki/International_Year_of_Microcredithttp://en.wikipedia.org/wiki/Insurance_Regulatory_and_Development_Authority8/3/2019 Brijesh Kumar Jat - Micro Finance- Financial Product for Bottom of Pyramid Market
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History of Microfinance in India
In India, institutional credit agencies (banks) made an entry in rural
areas initially to provide an alternative to the rural money lenders who
provided credit support, but not without exploiting the rural poor.
There are 3 main factors that count to the bringing up of
Microfinance as a Policy in India
1. The first of these pivotal events was Indira Gandhis bank
nationalization drive launched in 1969 which required commercial
banks to open rural branches resulting[3] in a 15.2% increase in rural
bank branches in India between 1973 and 1985. Today, India has over
32,000 rural branches of commercial banks and regional rural banks,
14,000 cooperative bank branches.
2. The second national policy that has had a significant impact on the
evolution of Indias banking and financial system is the Integrated
Rural Development Program (IRDP) introduced in 1978 and designed
to be a direct instrument for attacking Indias rural poverty. This
program is interesting to this study because it was a large program
whose main thrust was to alleviate poverty through the provision of
loans and it was considered a failure.
3. The last major event which impacted the financial and banking
system in
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India was the liberalization of Indias financial system in the 1990s
characterized by a series of structural adjustments and financial policy
reforms initiated by the Reserve Bank of India (RBI).
The systems and procedures of banking institutions was emphasizing
on complicated qualifying requirements, tangible collateral, margin,
etc., that resulted in a large section of the rural poor shying away from
the formal banking sector. The search for an alternative mechanism
for catering to the financial service needs of the poor was thus
becoming imperative.
Microfinance has b been in practice for ages (though informally).
Legal framework for establishing the co-operative movement set
up in 1904.
Reserve Bank of India Act, 1934 provided for the establishment
of the Agricultural Credit Department.
Nationalization of banks in 1969
Regional Rural Banks created in 1975.
NABARD established as an apex agency for rural finance in 1982.
Passing of Mutually Aided Co-op. Act in AP in 1995.
3. Need for Micro Financing
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Since independence, various governments in India have experimented
with a large number of grant and subsidy based poverty alleviation
programs. These programs were based on grant/subsidy and the credit
linkage was through commercial banks only. As a result, these
programs became unsustainable, perpetuated a dependant status on
the beneficiaries and depended ultimately on the govt. employees for
delivery. This not only led to misuse of both credit and subsidy but
banks never looked at it as a profitable and commercial activity as
well.
Hence was adopted the concept of micro-credit in India. Success
stories in neighboring countries, like Grameen Bank in Bangladesh,
Bank Rakiat in Indonesia, Commercial & Industrial Bank in Philippines
etc, gave further boost to the concept in India in the 1980s. India thus
adopted the similar model of extending credit to the poorest sector
and took a no. of steps to promote micro-financing in the country.
Who are the clients of microfinance?
The typical microfinance clients are low-income persons that do not
have access to formal financial institutions. Microfinance clients aretypically self-employed, often household-based entrepreneurs. In
rural areas, they are usually small farmers and others who are
engaged in small income -generating activities such as food processing
and petty trade. In urban areas, microfinance activities are more
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diverse and include shopkeepers, service providers, artisans, street
vendors, etc. Microfinance clients are poor and vulnerable non-poor
who have a relatively stable source of income.
Microfinance generally targets poor women because they have proven
to be reliable credit risks and when they have the financial means,
they invest that money back into their families, resulting in better
health and education, and stronger local economies. By providing
access to financial services - loans and responsibility for repayment,
maintaining savings accounts, providing insurance - microfinance
programs send a strong message to households and communities.
Studies have shown that women become more assertive and
confident, have increased mobility, are more visible in their
communities and play stronger roles in decision making.
For instance, micro credit might have a far more limited market scope
than, say, a more diversified range of financial services which includes
various types of savings products, payment and remittance services,
and various insurance products. For example, many very poor farmers
may not really wish to borrow, but rather, would like a safer place to
save the proceeds from their harvest as these are consumed over
several months by the requirements of daily living.
For example, many very poor farmers may not really wish to borrow,
but rather, would like a safer place to save the proceeds from their
harvest as these are consumed over several months by the
requirements of daily living.
How does microfinance help the poor?
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Microfinance brings the power of credit to the grassroots by way of
loans to the poor, without requirement of collateral or previous credit
record. Experience shows that microfinance can help the poor to
increase income, build viable businesses, and reduce their vulnerability
to external shocks.
Poverty is multi-dimensional. By providing access to financial services,
microfinance plays an important role in the fight against the many
aspects of poverty. For instance, income generation from a business
helps not only the business activity expand but also contributes to
household income and its attendant benefits on food security,
children's education, etc. Moreover, for women, who, in many
contexts, are secluded from public space, transacting with formal
institutions can also build confidence and empowerment.
Recent research has revealed the extent to which individuals around
the poverty line are vulnerable to shocks such as illness of a wage
earner, weather, theft, or other such events. These shocks produce a
huge claim on the limited financial resources of the family unit, and,absent effective financial services, can drive a family so much deeper
into poverty that it can take years to recover.
Aren't the poor too poor to save
The poor already save in ways that we may not consider as
"normal" savings--- investing in assets, for example, that can be
easily exchanged to cash in the future (gold jewelry, domestic
animals, building materials, etc.). After all, they face the same
series of sudden demands for cash we all face: illness, school
fees, need to expand the dwelling, burial, weddings.
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These informal ways that people save are not without their
problems. It is hard to cut off one leg of a goat that represents a
family's savings mechanism when the sudden need for a small
amount of cash arises. Or, if a poor woman has loaned her
"saved" funds to a family member in order to keep them safe
from theft (since the alternative would be to keep the funds
stored under her mattress), these may not be readily available
when the woman needs them. The poor need savings that are
both safe and liquid. They care less about the interest rates
that they can earn on the savings, since they are not used to
saving in financial instruments and they place such a high
premium on having savings readily available to meet emergency
needs and accumulate assets.
These savings services must be adapted to meet the Poors
particular demand and their cash flow been in practice for ages
(though informally).
Legal framework for establishing the co-operative movement setup in 1904.
Reserve Bank of India Act, 1934 provided for the establishment
of the Agricultural Credit Department.
Nationalization of banks in 1969
Regional Rural Banks created in 1975.
NABARD established as an apex agency for rural finance in 1982.
Passing of Mutually Aided Co-op. Act in AP in 1995.
When is microfinance an appropriate tool?
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It is hard to imagine that there would be any family in the world today
for which some type of formal financial service couldn't be designed
and made useful. But the fact of the matter is that in most people's
mind, "microfinance" still refers to micro credit.
Micro credit is only useful in certain situations, and with certain types
of clients. As we are finding out, a great number of poor, and
especially extremely poor, clients exclude themselves from micro
credit as it is currently designed. Extremely poor people who do not
have any stable incomesuch as the very destitute and the homeless
should not be microfinance clients, as they will only be pushed
further into debt and poverty by loans that they cannot repay. As
currently designed, micro credit requires sustained, regular, and often
significant payments from poor families.
Micro credit serves best those who have identified an economic
opportunity and who are in a position to capitalize on that opportunity
if they are provided with a small amount of ready cash. Thus, those
poor who work in stable or growing economies, who have
demonstrated an ability to undertake the proposed activities in an
entrepreneurial manner, and who have demonstrated a commitment
to repay their debts (instead of feeling that the credit represents some
form of social re-vindication), are the best candidates for micro credit.
The universe of potential clients expands exponentially however, once
we take into account the broader concept of microfinance.
4.Types of Organizations and Composition of
the Sector
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Microfinance providers in India can be classified under three broad
categories: formal, semiformal, and informal.
Formal Sector
The formal sector comprises of the banks such as NABARD, SIDBI and
other regional rural banks (RRBs).
They primarily provide credit for assistance in agriculture and micro-
enterprise development and primarily target the poor. Their deposits
at around Rs. 350billion and of that, around Rs. 250billion has been
given as advances. They charge an interest of 12-13.5% but if we
include the transaction costs (number of visits to banks, compulsory
savings and costs incurred for payments to animators/staff/local
leaders etc) they come out to be as high as 21-24%.
Semi - formal Sector
The majority of institutional microfinance providers in India are semi-
formal organizations broadly referred to as MFIs and SGHs. Registered
under a variety of legal acts; these organizations greatly differ in
philosophy, size, and capacity. There are over 500 non-government
organizations (NGOs) registered as societies, public trusts, or non-
profit companies.
Informal Sector
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In addition to friends and family, moneylenders, landlords, and traders
constitute the informal sector. While estimates of their importance
vary significantly, it is undeniable that they continue to play a
significant role in the financial lives of the poor.
What are MFIs and SGHs?
Quite simply, a microfinance institution is an organization that offers
financial services to low income populations. Almost all of these offer
microcredit and only take back small amounts of savings from their
own borrowers, not from the general public. Within the microfinance
industry, the term microfinance institution has come to refer to a wide
range of organizations dedicated to providing these services: NGOs,
credit unions, cooperatives, private commercial banks and non-bank
financial institutions (some that have transformed from NGOs into
regulated institutions) and parts of state-owned banks, for example.
The image most of us have when we refer to MFIs is of a financial
NGO, an NGO that is fully and virtually exclusively dedicated to
offering financial services; in most cases micro credit NGOs are not
allowed to capture savings deposits from the general public. These
groups of a few hundred NGOs have led the development of
microcredit, and subsequently microfinance, the world over.
A great many NGOs that offer microcredit, perhaps even a majority,
do many other non-financial development activities and would bristle
at the suggestion that they are essentially financial institutions. Yet,
from an industry perspective, since they are engaged in supplying
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financial services to the poor, we call them MFIs. The same sort of
situation exists with a small number of commercial banks that offer
microfinance services. For our purposes, we refer to them as MFIs,
even though only a small portion of their assets may actually be tied
up in financial services for the poor. In both cases, when people in the
industry refer to MFIs, they are referring only to that part of the
institution that offers microfinance.
There are other institutions, however, that consider themselves to be
in the business of microfinance and that will certainly play a role in a
reshaped and deepened financial sector. These are community-based
financial intermediaries. Some are membership based such as credit
unions and cooperative housing societies. Others are owned and
managed by local entrepreneurs or municipalities. These institutions
tend to have a broader client base than the financial NGOs and already
consider them to be part of the formal financial sector. It varies from
country to country, but many poor people do have some access to
these types of institutions, although they tend not to reach downmarket as far as the financial NGOs.
SELF HELP GROUPS (SHG) is group of rural poor who have
volunteered to organize themselves into a group for eradication of
poverty of the members. They agree to save regularly and convert
their savings into a Common Fund known as the Group corpus. The
members of the group agree to use this common fund and such other
funds that they may receive as a group through a common
management. The group formation will keep in view the following
broad guidelines:
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Generally a self-help group may consist of 10 to 20 persons.
However, in difficult areas like deserts, hills and areas with scattered
and sparse population and in case of minor irrigation and disabled
persons, this number may be from 5-20. Generally all members of the
group should belong to families below the poverty line. However, if
necessary, a maximum of 20% and in exceptional cases , where
essentially required, up to a maximum of 30% of the members in a
group may be taken from families marginally above the poverty line
living contiguously with BPL families and if they are acceptable to the
BPL members of the group. This will help the families of occupational
groups like agricultural laborers, marginal farmers and artisans
marginally above the poverty line, or who may have been excluded
from the BPL list to become members of the Self Help Group.
However, the APL members will not be eligible for the subsidy under
the scheme. The group shall not consist of more than one member
from the same family. A person should not be a member of more than
one group. The BPL families must actively participate in the
management and decision making, which should not ordinarily beentirely in the hands of APL families. Further, APL members of the Self
Help Group shall not become office bearers (Group Leader, Assistant
Group Leader or Treasurer) of the Group.
The group should devise a code of conduct (Group management
norms) to bind itself. This should be in the form of regular meetings
(weekly or fortnightly), functioning in a democratic manner, allowing
free exchange of views, participation by the members in the decision
making process.
The group should be able to draw up an agenda for each meeting and
take up discussions as per the agenda.
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The members should build their corpus through regular savings. The
group should be able to collect the minimum voluntary saving amount
from all the members regularly in the group meetings. The savings so
collected will be the group corpus fund.
The group corpus fund should be used to advance loans to the
members. The group should develop financial management norms
covering the loan sanction procedure, repayment schedule and interest
rates.
The members in the group meetings should take all the loaning
decisions through a participatory decision making process.
The group should maintain simple basic records such as Minutes book,
Attendance register, Loan ledger, General ledger, Cash book, Bank
passbook and individual passbooks. The sample Performa for
maintenance of above records by the group is in the Annexure II for
guidance. These could be used with necessary changes/ modifications
wherever required.
50% of the groups formed in each block should be exclusively for the
women. In the case of disabled persons, the groups formed should
ideally be disability-specific wherever possible, however, in case
sufficient number of people for formation of disability-specific groups
are not available, a group may comprise of persons with diverse
disabilities or a group may comprise of both disabled and non-disabled
persons below the poverty line.
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5. Why do MFIs charge such high interest rates
to poor people?
Providing financial services to poor people is quite expensive,
especially in relation to the size of the transactions involved. This is
one of the most important reasons why banks don't make small loans.
A $100 dollar loan, for example, requires the same personnel and
resources as a $2,000 one thus increasing per unit transaction costs.
Loan officers must visit the client's home or place of work, evaluate
creditworthiness on the basis of interviews with the client's family and
references, and in many cases, follow through with visits to reinforce
the repayment culture. It can easily cost US$25 to make a micro loan.
While that might not seem unreasonable in absolute terms, it might
represent 25% of the value of the loan amount, and force the
institution to charge a high rate of interest to cover its cost of loan
administration.
Evidence shows that clients willingly pay the higher interest rates
necessary to assure long term access to credit. They recognize that
their alternativeseven higher interest rates in the informal finance
sector (moneylenders, etc.) or simply no access to creditare much
less attractive for them. Interest rates in the informal sector can be as
high as 20 percent per day among some urban market vendors.
Moreover, the interest rate is only a small part of their overall
transaction cost of credit, and if microfinance institutions offer credit
on a more accessible basis, substantial costs in terms of time, travel,
paperwork, etc. can be reduced, thus benefiting the poor.
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6. Can microfinance be profitable?
Yes it can. Data from the Micro Banking Bulletin reports that 63 of the
world's top MFIs had an average rate of return, after adjusting for
inflation and after taking out subsidies programs might have received,
of about 2.5% of total assets. This compares favorably with returns in
the commercial banking sector and gives credence to the hope of
many that microfinance can be sufficiently attractive to mainstream
into the retail banking sector. Many feel that once microfinance
becomes mainstreamed, massive growth in the numbers of clients can
be achieved.
Others worry that an excessive concern about profit in microfinance
will lead MFIs up-market, to serve better off clients who can absorb
larger loan amounts. This is the crowding out effect. This may
happen; after all, there are a great number of very poor, poor, and
vulnerable non-poor who are not reached by the banking sector.
It is interesting to note that while the programs that reach out to the
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poorest clients perform less well as a group than those who reach out
to a somewhat better-off client segment, their performance is
improving rapidly and at the same pace as the programs serving a
broad-based client group did some years ago. More and more MFI
managers have come to understand that sustainability is a precursor
to reaching exponentially greater numbers of clients. Given this,
managers of leading MFIs are seeking ways to dramatically increase
operational efficiency. In short, we have every reason to expect that
programs that reach out to the very poorest micro clients can be
sustainable once they have matured, and if they commit to that path.
The evidence supports this position.
7. Impact of microfinance over poverty
There is increasing emphasis on the significance of the wider impacts
of microfinance those beyond the immediate financial and social
benefits for the individual. Yet, the wider impacts of microfinance are
notoriously difficult to identify or assess. Often, MFOs confident claims
to be having a wider impact and to be able to assess these impacts are
based on weak, circumstantial evidence. Here we consider ways in
which building evidence of wider impacts may be approached, which
reflects processes of microfinance more faithfully, including the
intended and unintended consequences of microfinance operations.
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Wider impacts may occur in the following ways:
through the labour market: poor people taken on by expanding
micro-finance borrowers may as a consequence be taken upward
across the poverty line;
through the capital market: the intervention of a micro-finance
institution may make existing lending institutions in the market,
such as private moneylenders, lower their interest rates to
compete, with beneficial effects on borrowers from institutions
other than the one being studied;
through the markets for goods consumed by poor people: ifmicro-finance induces an increase in supply, and hence a
cheapening in the price, of goods consumed by poor people,
households other than those of borrowers will benefit;
through production linkages: an expansion of livelihoods
(agricultural or otherwise) induced by micro-finance will support the
formation of rural industries and services, and help to bring about
income changes among non-borrower households;
9. Current Scenario of Micro - financing in India
Indian Economy and Micro Microfinance
Home to about 1.9 billion people as of 2008, India constitutes
approximately one sixth of the worlds total population. It is theworlds largest democracy and a key emerging market alongside China
and Brazil. The picture of growing GDP and rising foreign investments
shows an environment where wealth is increasing for the nation.
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Due to its large size and population of around 1000 million, India's
GDP ranks among the top 15 economies of the world. However,
around 300 million people or about 60 million households are living
below the poverty line. It is further estimated that of these
households, only about 20 percent have access to credit from the
formal sector. Additionally, the segment of the rural population above
the poverty line but not rich enough to be of interest to the formal
financial institutions also does not have good access to the formal
financial intermediary services, including savings services.
A group of micro-finance practitioners estimated the annualized credit
usage of all poor families (rural and urban) at over Rs 45,000 crores,
of which some 80 percent is met by informal sources. This figure has
been extrapolated using the numbers of rural and urban poor
households and their average annual credit usage (Rs 6000 and Rs
9000 pa respectively) assessed through various micro studies.
Estimated that 350 million people live Below Poverty Line
This translates to approximately 75 million households.
Annual credit demand by the poor in the country is estimated to
be about Rs. 60,000 crores.
Cumulative disbursements under all microfinance programs is
only about Rs. 5000 crores.(Mar. 04)
Total outstanding of all microfinance initiatives in India
estimated to be Rs. 1600 crores. (March 04)
Only about 5 % of rural poor have access to microfinance.
Though a cumulative of about 20 million families have accessed
microfinance to the extent of Rs. 5000 crores, the total
outstanding is estimated to be only about Rs. 1600 crores. The
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active borrowers are estimated to have a per capita outstanding
of only Rs. 2500.
With 75 million poor households potentially requiring financial services,
the microfinance market in India is among the largest in the world.
Estimates of household credit demand vary from a minimum of Rs.
2,000 to Rs. 6,000 in rural areas and Rs. 9,000 in urban settings.
Given that 80 percent of poor households are located in rural areas,
total credit demand ranges between Rs. 255 billion and Rs. 500 billion.
However, only Rs.18 billion of this amount has been generated so far.
The reason for this is that major portion for rural crediting has been
from the informal sector and this is at a very high interest rate, thus
reducing the volumes of such credits, and by far has been for
investment purposes (13%) and more for family emergencies (29%)
and social expenditures (19%).
There are a number of factors why rural crediting by the formal sector
has not taken pace so far.
High fiscal deficits have meant that Government is appropriating
a large share of financial savings for itself.
Persisting interest rate restrictions reduce the attractiveness of
lending, particularly to small, rural clients.
On the other hand, informal credits have been attractive although high
interest rates due to:
Flexible repayment options
Convenience and frequency with which such loans can be
accessed
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As on March31, 2007, 25.5 lac SHG has taken bank credit of Rs.14320crore across the company, bringing 4 crore families under the bankingumbrella. The journey was made possible with the long and enduringwork of the banking sector in rural India.
Growth in purchasing power of rural people
0
2000
4000
6000
8000
10000
89- 90 94- 95 7- Jun
Rural
Urban
Annual growth(%) keeping pace with urban growthUrban 2.4 3.2Rural 3.4 4.5
the growth in purchasing power of rural people is high compare tourban people it shows the future opportunity in rural market in India.
Credit source of poor people in India
The dependency of poor for credit on their family is 39% while only
2% out of total creditor is taken through SHGs. Moneylenderspercentage in total credit is 37% which show the dependency onmoneylender. Merely 2% share in total credit show the need toconcern about it.
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credit source of poor people
29
37
32
2
Moneylenderfamilymember
individual to bank
SHGs
Recent trends in micro finance
The scenario of microfinance sector facing drastically changes recently.The initial trademark of CSR (Corporate Social Responsibility) is nowchanges to profit earning sector. Many big corporate giant are mullingtowards the microfinance sector.
1. Retailers in micro finance
Now it is clear that microfinance is a large untapped market. Todaysretail industry are directly dependent on rural production, theyconsider microfinance as ally of their retail industry
Under these consideration Reliance Capital, the financial services armof Anil Dhirubhai Ambani Group, has funded two two microfinanceinstitutions in Gujarat - MAS Financial Services and Vardan Trust. Theyhavent disclosed the investments, but this is probably the first known
foray for Reliance Capital in this area.Reliance Capital plans to fund microfinance institutions initially inGujarat and Maharashtra, before spreading out on a national scale.
MAS Financial Services, with 61 branches across Gujarat, caters toover 2,50,000 customers in the urban, semi-urban and rural markets.Vardan Trust offers microfinance to farmers, small shopkeepers,
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artisans, small enterprise workers and individuals engaged in animalhusbandry. Indian microfinance space is getting hotter with MFIs likeSKS.
2. Money transfer
A new concept comes in micro finance is Dhan Sthanantran, throughthese scheme poor people can transfer their money to their relativethrough their SHGs account, which is living far from them. Forexample if a person living in Gujarat interested to send money totheirrelative living at rajasthan, he can deposit the money in gujarat to thename of the SHG in rajasthan and his relative can withdraw money
from rajasthan
3. Banks in microfinance
The rural banking market is still untapped because of tiny saving by
people, lack of infrastructure etc. now banks are penetrating ruralmarket through microfinance.
ICICI Bank has taken a stake of under 20 per cent in FinancialInformation Network and Operations Private Ltd (FINO), which waslaunched on 13th July 2007. FINO would provide technologicalsolutions as well as services to finance providers to reach theunderserved in the country. ICICI Bank is the lead facilitator in FINO.ICICI Bank expects to target 200 micro-finance institutions (MFIs) byMarch 2008.
YES Bank, also launching its microfinance division YES MicrofinanceIndia today, has signed an MoU for technical collaboration with Boston-based Accion International, a microfinance institution. YES Bank hasset apart Rs 10 crore for the next two years for the microfinancedivision. The division will offer credit, savings, insurance andremittances in phases to the urban and rural poor.
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International bank ABN AMRO also targeting to reaches 10 lachousehold by 2009 with maintaining a nil non performing assetsportfolio.
4. Individual investor
Now microfinance is not merely social services, individual investor canearn money through investing money in micro finance sector. Manyorganizations like Calvert Foundation, IIRM offering the investment inmicrofinance sector.
Terms of investment
Interest rate- 2.0 per yearMaturity- 12 monthSecurity issuer- Calvert Foundation, IIRM etc.
This security is not a mutual fund not FDIC or SIPC and has certainrisk.
5. Biometric ATM backed microfinance initiativeFor long, banks have been lenders to their rural customers. Now they
have announced some rather unique ways in micro financing to getthem to deposit savings,Citibank has launched the Pragati saving account for its micro financecustomers. This account is similar to a no frills account and does notrequire any minimum balance.
The bank will provide services through a biometric ATM that will alsospeak to customers in Hindi, Marathi, Tamil and Telugu.
"As the customers start saving, there will be ability to sweep this
money into deposits so that they earn better interest than theconventional saving account. As we start getting imprints of customersin terms of deposit behaviour we may be able to set them overdraftfacilities as opposed to convention loan," says PS Jay Kumar, BusinessManager - Global Consumer Group, Citigroup India.
Incidentally, ICICI Bank also has a micro saving product in Orissa forfarmers. Other banks like Andhra Bank and Bank of India also offer
http://news.moneycontrol.com/india/news/business/microfinancingatm/citibanksbiometricatmbackedmicrofinanceinitiative/20/44/article/254162http://news.moneycontrol.com/india/news/business/microfinancingatm/citibanksbiometricatmbackedmicrofinanceinitiative/20/44/article/254162http://news.moneycontrol.com/india/news/business/microfinancingatm/citibanksbiometricatmbackedmicrofinanceinitiative/20/44/article/254162http://news.moneycontrol.com/india/news/business/microfinancingatm/citibanksbiometricatmbackedmicrofinanceinitiative/20/44/article/254162http://news.moneycontrol.com/india/news/business/microfinancingatm/citibanksbiometricatmbackedmicrofinanceinitiative/20/44/article/254162http://news.moneycontrol.com/india/news/business/microfinancingatm/citibanksbiometricatmbackedmicrofinanceinitiative/20/44/article/2541628/3/2019 Brijesh Kumar Jat - Micro Finance- Financial Product for Bottom of Pyramid Market
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biometric ATM facility to their micro finance customers. In fact bankssee this untapped segment not as philanthropy but as sound business,at a time when cheap deposits are hard to come by.
What is the governments role in supporting
microfinance?
Governments have a complicated role when it comes to microfinance.
Until recently, governments generally felt that it was their
responsibility to generate development finance', including credit
programs for the disadvantaged. Twenty years of insightful critique of
rural credit programs revealed that governments do a very bad job of
lending to the poor. Short term political gain is just too tempting for
politically controlled lending organizations; they disburse too quickly
(and thoughtlessly) and they collect too infrequently (unwillingness to
be tough on defaulters). In urban areas, governments never really got
into the act, and subsidized micro enterprise credit is still relatively
rare when compare to its rural counterpart.
Now that microfinance has become quite popular, governments are
tempted to use savings banks, development banks, postal savings
banks, and agricultural banks to move microcredit. This is not
generally a good idea, unless the government has a clear acceptance
of the need to avoid the pitfalls of the past and a clear means to do so.
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Many governments have set up apex facilities that channel funds from
multilateral agencies to MFIs. Apex facilities can be quite complicated
and there are few successful examples in microfinance. Successful
apex organizations in microfinance tend to be built on the backs of
successful MFIs, not the other way around. Finally, governments can
also get involved in microfinance by concerning themselves with the
regulatory framework that impinges on the ability of a wide range of
financial actors to offer financial services to the very poor. This topic is
treated below.
Microfinance and Capital Requirement
The demand situation in the microfinance market can be gauged from
the Table:
At a Glance: Scale of Indian MicrofinancePopulation of India (estimate - June 08) 1,830 million
Microfinance Services - potential client outreach 600 million
Microfinance Services - current client outreach (Mar. 08) 60 million
Annual growth in Microfinance Services - 50%
Microfinance loan portfolio (Mar. 08) USD 25 billion
financing needs - 4 year estimate (Sept. 08) USD 250 billion
Table 2: Demand for micro-lending in Indian
Source: Microfinance India (MFI) 2008
Given these figures there is need for broad basing the reach of
financial services to the people falling in the low income category, help
them invest in and benefit from their skill sets and tide over the
impact of adverse shocks in the process. The intentions might sound
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quite philanthropic however microfinance is turning out to be a
profitable market for commercial banks which is quite evident from
their presence in this area. The new commercial banks do not have the
infrastructure to ensure the last mile connectivity and have to rely
heavily of microfinance institutions (MFI).
Challenges in the Indian context
Traditionally banks have usually not provided financial services to
clients with little or no cash income. Banks must incur substantial costs
to managing a client account, regardless of how small the sums of
money involved. For example, the total revenue from delivering one
hundred loans worth $1,000 each will not differ greatly from the
revenue that results from delivering one loan of $100,000. But it takes
nearly a hundred times as much work and cost to manage a hundred
loans as it does to manage one. A similar equation resists efforts to
deliver other financial services to poor people. There is a break-even point
in loan and deposit sizes below which banks lose money on each
transaction they make. Poor people usually fall below it.
In addition, most poor people have few assets that can be secured by
a bank as collateral. As documented extensively by Hernando de Soto and
others, even if they happen to own land in the developing world, they
may not have effective title to it. This means that the bank will have
little recourse against defaulting borrowers.
Seen from a broader perspective, it has long been accepted that the
development of a healthy national financial system is an important goal
and catalyst for the broader goal of national economic development.
http://en.wikipedia.org/wiki/Bankshttp://en.wikipedia.org/wiki/Costhttp://en.wikipedia.org/wiki/Breakevenhttp://en.wikipedia.org/wiki/Collateralhttp://en.wikipedia.org/wiki/Hernando_de_Soto_(economist)http://en.wikipedia.org/wiki/Titlehttp://en.wikipedia.org/wiki/Defaulthttp://en.wikipedia.org/wiki/Financial_systemhttp://en.wikipedia.org/wiki/Economic_developmenthttp://en.wikipedia.org/wiki/Bankshttp://en.wikipedia.org/wiki/Costhttp://en.wikipedia.org/wiki/Breakevenhttp://en.wikipedia.org/wiki/Collateralhttp://en.wikipedia.org/wiki/Hernando_de_Soto_(economist)http://en.wikipedia.org/wiki/Titlehttp://en.wikipedia.org/wiki/Defaulthttp://en.wikipedia.org/wiki/Financial_systemhttp://en.wikipedia.org/wiki/Economic_development8/3/2019 Brijesh Kumar Jat - Micro Finance- Financial Product for Bottom of Pyramid Market
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However, national planners and experts focus their attention mainly on
developing a commercial banking sector dealing in high-value transactions,
and often neglect the delivery of services to households of limited
means, even though these households comprise the large majority of
their populations.
Because of these difficulties, when poor people borrow they often visit
their relatives or the ubiquitous local moneylender. Moneylenders often
charge over 10% a month, or even a few percentage points 'a day' for
their money. While they often demonized and accused of usury, their
services are convenient and fast, and they can be very flexible when
borrowers run into problems. Hopes of quickly putting them out of
business have proven unrealistic, even in places where microfinance
institutions are very active.
In nations with lower population densities, meeting the operating costs
of a retail branch by serving nearby customers has proven
considerably more challenging.
Although much progress has been made, the problem has not been
solved yet, and the overwhelming majority of people who earn less
than $1 a day, especially in the rural areas, continue to have no
practical aspects to formal sector.
http://en.wikipedia.org/wiki/Commercial_bankhttp://en.wikipedia.org/wiki/Moneylenderhttp://en.wikipedia.org/wiki/Usuryhttp://en.wikipedia.org/wiki/Commercial_bankhttp://en.wikipedia.org/wiki/Moneylenderhttp://en.wikipedia.org/wiki/Usury8/3/2019 Brijesh Kumar Jat - Micro Finance- Financial Product for Bottom of Pyramid Market
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10. Status of microfinance in Rajasthan
Background
Rajasthan is the largest state in India and the peculiar natural, social
and economic features of Rajasthan define the need and scope for a
strong microfinance movement. The primary sector dominates the
essentially agrarian economy, with 2/3rd of the population dependent
on agriculture and allied activities for their livelihoods. As per the
Human Development Index, Rajasthan comes at 12th rank among 15
major states in India.
In terms of availability of credit from RFI the state is among the least
privileged states. This is reflected in the number of bank outlets per
lakh population, per capita bank deposits, per capita bank credit and,
over all credit deposit ratio. In all these respects Rajasthan is lagging.
For example, per capita bank deposit in Rajasthan is Rs 6151, as
against Rs. 12922 for the country as a whole; per capita bank credit in
Rajasthan is Rs. 3355, as against Rs. 7486 for the country. Overall
bank penetration is also low.
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Current Situation of Microfinance and important issues
In Rajasthan, microfinance is almost synonymous with Self Help
Groups. There is no other model of mF in the state. There are
approximately 1.5 lakh self help groups of women. Department of
women and child development has promoted about 50% of these
groups. Other government departments under developmental schemes
like SGSY, Watershed Development etc, have organized another 20-25% group. NGOs have promoted remaining 25-30% groups.
The Self Help Movement started more as social mobilization of women
for their better place in family and society rather than microfinance
movement in Rajasthan. Many voluntary organizations had been
working with poor organizing them in village development
committees. But participation of women in these VDCs was sub
optimal. So they started a separate group of women Mahila Smooh/ orMahila Mandals as subset of larger village institution purely with a
purpose of having increased participation of women in development.
Most development practitioners and policy makers realized that mere
women participation through MM/MS is not adequate and some direct
action in terms of improving economic status of women is needed. The
assumption was that if women have access to income/money, theirstatus in family and society would be better. Many voluntary
organizations and government (together and/or separately) started
organizing women in to groups to take up small business (IG
Activities) collectively. Most of these activities were Off Farm like
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sewing, dari, galicha, candle, chalk, agarbatti, achar, bidi, papad,
handicrafts, etc.
But due to lack of proper marketing networks and many other reasons,
there was mixed experience. Except some success stories at highly
micro level, no significant impact is seen. It is probably a case of
Double Fault First pushing poor to become entrepreneur and that too
in a collective way.
Yearly progress in SHG-Bank linkage(NABARD)
Year No. of SHGscredit linked
Annual loanamount in lac
Cumulative loanamount
March03 22742 2184 4685
March04 33846 2587 7213
March05 59906 6723 13936
March06 98219 9725 23661
March07 137837 12558 36219
Voluntary Organization in Rajasthan
In every district, there are about 5-10 voluntary organizations. That
are organizing SHGs either on their own or in collaboration with
government. Most of the voluntary agencies have promoted 50 to 100
SHGs. However there are a few agencies that have substantial number
(300 to 800 SHGs) of groups. For example:
PEDO in dungarpur,
Lupin Foundation in Bharatpur,
PRADAN in Dausa, Dholpur,
IBTADA in Alwar,
ASSEFA IN Baran and Banswara,
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URMUL in Bikaner,
Sewa Mandir in Udaipur,
Navyuvak Mandal in Bhoruka etc.
Need of financial services:
It has been well researched and documented that poor have
temporary surpluses and they are in need of services to keep their
savings safe. A poor family may get the payment for their labour or
they sell their small assets or crops etc. The money received from such
transactions would have small temporary surplus, which they would
use over next few days/ months. If they do not have access to a place
where they can save that safely, it might result in to expenses on less
critical items or even on things like drinking etc. It has been noticed
that due to lack of access to banks or SHGs, they keep the money in
cash and it does not earn any interest.
Financial needs and financial services.
In developing economies and particularly in the rural areas, many
activities that would be classified in the developed world as financial
are not monetized: that is, money is not used to carry them out.
Almost by definition, poor people have very little money. But
circumstances often arise in their lives in which they need money or
the things money can buy.
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In Stuart Rutherfords recent book The Poor and Their Money, he citesseveral types of needs:
Lifecycle Needs: such as weddings, funerals, childbirth, education, home-building, widowhood, and old age. Personal Emergencies: such as sickness, injury,
unemployment, theft, harassment or death.
Disasters:such as fires, floods, cyclones and man-made eventslike war or bulldozing of dwellings.
Investment Opportunities: expanding a business, buying landor equipment, improving housing, securing a job (which oftenrequires paying a large bribe), etc.
Poor people find creative and often collaborative ways to meet these
needs, primarily through creating and exchanging different forms of
non-cash value. Common substitutes for cash vary from country to
country but typically include livestock, grains, jewellery and preciousmetals.
Need of financial services:
It has been well researched and documented that poor havetemporary surpluses and they are in need of services to keep theirsaving safe. A poor family get the payment for their labour or they selltheir small assets or crops etc. the money received from suchtransaction would have small temporary surplus, which they would useover next few days/ months. If they do not have access to a placewhere they can save that safety, it might result in to expenses on lesscritical items or even on things like drinking etc. it has been noted thatdue to lack of access to banks or SHGs they keep the money in cashand it does not earn any interest.
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Category Description Credit For Loan Size Source of credit
VeryPoor
Landless,SC/ST, Singlewomen HHMigrants
Food, clothIllness, HHconsumption
Consumptionloans up toRs2000/-
Moneylenders,
Poor Small andMarginalFarmers,Traditonal servicestrades
Food, health,marriage andother socialobligations,equipments
Consumptionandproductiveloans up toRs10000/-
Moneylenders,SHGs,friends,relatives
Average Medium farmers,shopkeepers
Workingcapital, agriinputs, andsmall assets
Productiveloans up toRs25000/-
SHG, PACSBanks,moneylenders
Betteroff
Large farmer,permanent/semiprmanent job
holders,traders
Big assets-vehicle to payold loans,to
advance loans
More thanRs25,000
loans,may be uptoRs.2,00,000
Commercialbanks, coopbanks
The major issues that need to be addressed ar e:
1. Access of poor to formal financial institutions.
2. Quality of the existing Self Help Groups- only 30% SHGs have
been Able to take Loan from Banks.
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3. Spread of the movement: About 80% of SHGs are located in
30% of The districts.
4. Outreach: Large number of poor is still beyond the reach of
SHGs and Formal financial institutions.
5.Microfinance is limited to micro savings and credit.
6.Human resource challenge: Perspective and capacities of mf
promoters is very Limited, Numbers of skilled persons in
microfinance is very less.
7.Most mf products and services offered are pre determined and
they are not based On the needs of the clients.
8. There is double reporting (same group being reported by
different SHG Promoters), There are also cases where one person is
member of many groups.
9. Largely the SHGs are promoted to meet project requirements/
targets
10. Still there are many operational problems in SHG-Bank linkage
11. Inadequate financial support so far on SHG formation, it needsat least 3 years, and about Rs.8-10, 000/- per SHG for promoting a
good quality SHG.
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11 Women and micro finance
Although men, as well as women, face difficulties in establishing an
additional enterprise, women have barriers to overcome. Among them
are negative socio-cultural attitudes, legal barriers, practical external
barriers, lack of education and personal difficulties.
In spite of this, for women and especially for poor women,
microentreprise ownership has emerged as a strategy for economical
survival. One of the most essential factors contributing to success in
microentrepreneurship is access to capital and financial services. For
various reasons, women have had less access to these services than
men.
In this context, credit for microentreprise development has been a
crucial issue over the past two decades. Research has shown that
investing in women offers the most effective means to improve health,
nutrition, hygiene, and educational standards for families and
consequently for the whole of society. Thus, a special support for
women in both financial and non-financial services is necessary.
Regarding limited-access to financial services, women depend largely
on their own limited cash resources or, in some cases, loans from
extended family members for investment capital. Smaller amounts of
investment capital effectively limit women to a narrow range of low-
return activities which require minimal capital outlays, few tools and
equipment and rely on farm produce or inexpensive raw materials.
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In general, women need access to small loans (especially for working
capital), innovative forms of collateral, frequent repayment schedules
more appropriate to the cash flows of their enterprises, simpler
application procedures and improved access to saving accounts.
Surveys have shown that many elements contribute to make it more
difficult for women in small businesses to make a profit. These
elements are:
o Lack of knowledge of the market and potential profitability,
thus making the choice of business difficult.
o Inadequate bookkeeping.
o Employment of too many relatives which increases social
pressure to share benefits.
o Setting prices arbitrarily.
o Lack of capital.
o High interest rates.
o Inventory and inflation accounting is never undertaken.
o Credit policies that can gradually run their business (many
customers cannot pay cash; on the other hand, suppliers
are very harsh towards women).
Women can make micro-credit succeed in India:
'India has to understand that micro-finance is workable and
sustainable anywhere where there is poverty. And to make it
successful, it needs to emphasize and mobilize the role of women in
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each rural and poor household,' the chief architect of Bangladesh's
Grameen Bank told a conference organized by the Federation of Indian
Chambers of Commerce and Industry (FICCI). 'India and Bangladesh
have no major difference in poverty. If micro-finance or micro-credit is
successful in Bangladesh, it can be successful in India as well,' Yunus
emphasized. 'The Grameen Bank and the work that we do is not
something extraordinary and neither is it a model. It is a rather simple
way of solving the complex problems of poverty,' the 66-year-old
economist said.
'Bangladesh is very close to achieving the UN millennium development
goal of eradicating poverty. And we have been able to successfully
reach 80 percent poor households. India has a long way to go, but it
can come out with excellent results only if it catches the pace,' he
reiterated.
How to increase and support women's participation in
micro-finance activities?
Both governments and donors should explore ways of developing
innovative credit programs using intermediary channels or institutions
closer to the target groups such as co-operatives, women's group
associations and other grassroots organizations. Savings and credit
programs should be designed in a way not to exclude women fromparticipating.
Additionally, there is a need to examine the impact of structural
adjustment policies on men and women at the family level as well as
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within various sub-sectors of the labour market and within the small
enterprise sector itself.
In general terms, in order to facilitate the participation of women in
micro and small enterprise, donors should:
* Encourage micro enterprise programs to develop specific strategies
for recruiting women as clients, from within their existing target
groups.
* Encourage micro enterprise programs to expand their target groups
to include the sizes and types of enterprise activities in which women
engage and/or experiment with assistance strategies, business and
technical assistance needs of these types of enterprises.
* Consider expanding support to a broader range of organizations,
especially poverty-focused organizations active in rural areas. Support
for these organizations should include technical assistance and training
in programs planning, management and in developing teams of female
staff to assist clients in business planning and management.
Rural Finance for Rural Women
Poverty hits hardest at the female half of humankind. If woman living
in a rural area of a developing country, they are likely to be poorer
than a man, more vulnerable, own no land, be less educated and in
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poorer health. And you are unlikely to live as long. Struggling to
combine a 'double day' of low-paid work with care for the home, rural
women often have to cope with frequent pregnancies and child
mortality. For women, perhaps the cruelest reality of all is that they
have less chance than men to escape from poverty. A rural woman is
likely to have little or no say in the way the family spends its income.
Discrimination in education is the start of the vicious spiral of poverty.
A girl may be deprived of schooling and literacy for no other reason
than that she is female. Seventy per cent of poor women in India
cannot read or write. Illiteracy often excludes people from written
knowledge and decision-making. Some rural women have been
affected by trade liberalization they are unable to participate in the
marketing of export crops as they lack land rights and access to
essential farm inputs. On the other hand, some women have gained by
securing jobs in new export activities. Investment in rural women pays
off.
* Indian population is 48.1% women and 51.9% men
* Female illiteracy is 62% whereas the male illiteracy rate is 34%
* The labour force participation rate of women is 22.7%, less than half
of the men's rate of 51.6%
* In rural India, agriculture and allied industrial sectors employ as
much as 89.5% of the total female labour
* Women have extensive work loads with dual responsibility for farm
and household production
* Women's work is getting harder and more time-consuming due to
ecological degradation and changing agricultural technologies and
practices
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* Women have an active role and extensive involvement in livestock
production, forest resource use and fishery processing
* Women contribute considerably to household income through farm
and non farm activities as well as through work as landless agricultural
labourers
* Women's work as family labour is underestimated
* There are high degrees of inter-state and intra-state variations in
gender roles in agriculture, environment and rural production.
Rural Women at a glance
Rural women comprise more than one quarter of the total world
population. 500 million women live below the poverty line in rural
areas... Women perform 30 per cent of the agricultural work in
industrialized countries. Rural women the world over are an integral
and vital force in the development processes that are the key to socio-
economic progress. Rural women from the backbone of the agricultural
labour force across much of the developing world and produce 35-45%of Gross Domestic Product and well over 50% of the developing
world's food. Yet, half a billion rural women are poor and lack access
to resources and markets."
Need credit to rural women
Rural women play a fundamental role in daily management of
agricultural activities and of the family unit. They are however often
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confronted with numerous obstacles when applying for credit.
Consequently, they try to optimize their possibilities of accessing credit
from the various existing rural finance services:
The "unofficial" system (an alternative established by community
members)
The "official" system (banks and other official financial institutions),
and
Farmers' organizations which give loans to their members
Rural women fulfill multiple functions on a daily basis: they are
mothers providing for their family's well-being, farmers producing food
for the family, shopkeepers supplying indispensable additional income.
They are also in charge of natural resources management which
ensures future food security for their families.
Although rural women represent a fundamental pillar for survival and
management of the family unit, they are confronted with real
difficulties in accessing additional resources such as credit. Various
barriers arise when they try to undertake or develop any income-
generating production activities.
Loans facilitates to rural women
Loans play an important role in the economic, social and political
improvement of the situation of women throughout the world.
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Improving rural women's access to finance gives them a chance to
become autonomous. This can contribute to increase agricultural
productivity, development of income-generating activities alongside
their production activities, better control of production methods, and
improved natural resource management. As a result they will be able
to ensure food security for the future of which they are the guarantors.
Additional sources of finance can help in developing necessary
commercial agriculture within the national and international context,
whilst retaining subsistence farming for the community's daily needs.
By increasing their economic power, they will be able to organize
themselves more efficiently, to affirm their position as rural women
farmers, to participate in decision making processes and to draw up
policies which concern them; as well as defending their own interests
with public authorities and other relevant institutions.
Savings facilitate for rural women
Savings are seen as insurance against foreseeable future difficulties
(constituting a dowry, bridging a difficult period, etc) or completely
unpredictable (food shortages, natural weather phenomenon,
foodstuffs sold cheaply because of the death or accident of a member
of the family, etc). Rural women therefore insure themselves against
future risks by saving in the form of land, herds, trees, gold jewellery,
or by hoarding money, which also include risks such as theft, the
compulsory gift of a sum to a member of the family in difficulty, a
livestock epidemic, etc.
Access to safe and secure savings is an important part of addressing
short-term, medium-term and long-term unforeseen circumstances.
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These savings allow them to protect their own funds and, as a result,
to undertake other income-generating activities. Allowing them to
control their incomes and to be paid for these activities is to
participate in granting autonomy to rural women.
12. Conclusion
In concluding way microfinance is a good tool for combating to the
poverty and facilitates poor to the financial services.
Some valuable lessons can be drawn from the experience of successful
Microfinance operation. First of all, the poor repay their loans and are
willing to pay for higher interest rates than commercial banks provided
That access to credit is provided. The solidarity group pressure and
sequential lending provide strong repayment motivation and produce
extremely low default rates. Secondly, the poor save and hence
microfinance should provide both savings and loan facilities. These two
findings imply that banking on the poor can be a profitable business.
However, attaining financial viability and sustainability is the major
institutional challenge. Deposit mobilization is the major means for
Microfinance institutions to expand outreach by leveraging equity. In
order to be sustainable, microfinance lending should be grounded on
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market principles because large scale lending cannot be accomplished
through subsidies.
A main conclusion of this paper is that microfinance can contribute to
solving the problem of inadequate housing and urban services as an
integral part of poverty alleviation programs. The challenge lies in
finding the level of flexibility in the credit instrument that could make
it match the multiple credit requirements of the low income borrowers
without imposing unbearably high cost of monitoring its end-use upon
the lenders. A promising solution is to provide multi-purpose loans or
composite credit for income generation, housing improvement and
consumption support. Consumption loan is found to be especially
important during the gestation period between commencing a new
economic activity and deriving positive income. Careful research on
demand for financing and savings behavior of the potential borrowers
and their participation in determining the mix of multi-purpose loans
are essential in making the concept work.
Eventually it would be ideal to enhance the creditworthiness of the
poor and to make them more "bankable" to financial institutions and
enable them to qualify for long-term credit from the formal sector.
Microfinance institutions have a lot to contribute to this by building
financial discipline and educating borrowers about repayment
requirements.
13. Bibliography:
WEBSITES
1. www.microfinancegateway.org2. www.coolavenues.com
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3. www.wikipedia.com4. www.wikianswers.com5. www.indianmba.com6. www.wikipedia.org7. www.thehindubusinessline.com
8. www.hindu.com9. www.littleindia.com