mfs report
TRANSCRIPT
A RESEARCH PROJECT REPORT On “Impact of Micro Finance on Living
Standard Empowerment and Poverty Alleviation of Poor Women: A Case
Study of North India” Submitted to: Kurukshetra University, Kurukshetra in
partial fulfillment for the degree of Master of Business Administration
(Session -)Under the Supervision of: Submitted by:Ms. Shelly
SinghalFaculty MBA Uni. Roll. No.………..MAIMT MBA (F)MAHARAJA
AGRASEN INSTITUTE OF MANAGEMENT & TECHNOLOGY (ISO 9001-
2008),JAGADHRI-135003 (YAMUNA NAGAR), Approved by AICTE and
HRD Ministry, affiliated to Kurukshetra University, Kurukshetra 1
DECLARTIONI hereby declare that this research project report entitled
"Impact of Micro Finance onLiving Standard Empowerment and Poverty
Alleviation of Poor Women: A CaseStudy of North India” submitted by me
for the partial fulfillment of the degree ofMaster of Business Administration,
submitted to Kurukshetra University,Kurukshetra is an original work done
by me.I also hereby declare that this project report has not been submitted
at any time to anyother university or institute for the award of any Degree
or Diploma. (student name) 2
ACKNOWLEDGEMENTThe project on “Impact of Micro Finance on Living
Standard Empowerment andPoverty Alleviation of Poor Women: A Case
Study of North India’’ would not haveseen the light of the day without the
following people and their priceless support andcooperation. Hence I
extend my gratitude to all of them.As a student of MAHARAJA AGARSEN
INSTITUTE OF MGT & TECH,JAGADHRI. I would first of all like to express
my gratitude to Dr. Raj Kumar,Director, MAIMTfor granting me permission
to undertake the project report in theiresteemed organization.I would also
like to express my sincere thanks to Mr.AdarshAggarwal (H.O.D -
MBADepartment) for supporting me and being always there for me
whenever I needed.During the actual research work, Ms. Shelly Singhal
(Research Guide) and other officestaff who set the ball rolling for my
project. They had been a source of inspirationthrough their constant
guidance; personal interest; encouragement and help. I conveymy sincere
thanks to them. In spite of their busy schedule they always found time
toguide me throughout the project. I am also grateful to them for reposing
confidence inmy abilities and giving me the freedom to work on my project.
Without their invaluablehelp I would not have been able to do justice to the
project.I express my sincere thanks to Ms. Shelly Singhal, Faculty MBA,
MAIMT for thevaluable suggestion & making this project a real successful.
(Student name) PREFACE 3
MBA Students of Kurukshetra University are required to undergo Research
Project asan integral part of curriculum.To accomplish this project as
“Impact of Micro Financeon Living Standard Empowerment and Poverty
Alleviation of Poor Women: ACase Study of North India” there is need to
become familiar with the project.It can be possible through theoretical
inputs as well as practical exposure in which mypractical knowledge is
helpful acquired at the college. I have also done this study fromsecondary
sources. 4
CHAPTER 1INTRODUCTION 5
IntroductionMicrofinance is defined as any activity that includes the
provision of financial services such as credit,savings, and insurance to low
income individuals which fall just above the nationally defined povertyline,
and poor individuals which fall below that poverty line, with the goal of
creating social value. Thecreation of social value includes poverty
alleviation and the broader impact of improving livelihoodopportunities
through the provision of capital for micro enterprise, and insurance and
savings for riskmitigation and consumption smoothing. A large variety of
sectors provide microfinance in India, usinga range of microfinance
delivery methods. Since the ICICI Bank in India, various actors
haveendeavored to provide access to financial services to the poor in
creative ways. Governments also havepiloted national programs, NGOs
have undertaken the activity of raising donor funds for on-lending,and
some banks have partnered with public organizations or made small
inroads themselves inproviding such services. This has resulted in a rather
broad definition of microfinance as any activitythat targets poor and low-
income individuals for the provision of financial services. The range
ofactivities undertaken in microfinance include group lending, individual
lending, the provision ofsavings and insurance, capacity building, and
agricultural business development services. Whateverthe form of activity
however, the overarching goal that unifies all actors in the provision
ofmicrofinance is the creation of social value.Microfinance
DefinitionAccording to International Labor Organization (ILO),
“Microfinance is an economic developmentapproach that involves providing
financial services through institutions to low income clients”.In India,
Microfinance has been defined by “The National Microfinance Taskforce,
1999” as“provision of thrift, credit and other financial services and products
of very small amounts to the poorin rural, semi-urban or urban areas for
enabling them to raise their income levels and improve
livingstandards”."The poor stay poor, not because they are lazy but
because they have no access to capital."The dictionary meaning of
„finance‟ is management of money. The management of money
denotesacquiring & using money. Micro Finance is buzzing word, used
when financing for microentrepreneurs. Concept of micro finance is
emerged in need of meeting special goal to empower under-privileged
class of society, women, and poor, downtrodden by natural reasons or men
made; caste,creed, religion or otherwise. The principles of Micro Finance
are founded on the philosophy ofcooperation and its central values of
equality, equity and mutual self-help. At the heart of theseprinciples are the
concept of human development and the brotherhood of man expressed
throughpeople working together to achieve a better life for themselves and
their children. 6
Traditionally micro finance was focused on providing a very standardized
credit product. The poor,just like anyone else, (in fact need like thirst) need
a diverse range of financial instruments to be ableto build assets, stabilize
consumption and protect themselves against risks. Thus, we see a
broadeningof the concept of micro finance--- our current challenge is to find
efficient and reliable ways ofproviding a richer menu of micro finance
products. Micro Finance is not merely extending credit, butextending credit
to those who require most for their and family‟s survival. It cannot be
measured interm of quantity, but due weightage to quality measurement.
How credit availed is used to survive andgrow with limited means.Concept
and Features of Micro-finance: 1. It is a tool for empowerment of the
poorest. 2. Delivery is normally through Self Help Groups (SHGs). 3. It is
essentially for promoting self-employment, generally used for: (a) Direct
income generation (b) Rearrangement of assets and liabilities for the
household to participate in future opportunities and (c) Consumption
smoothing. 4. It is not just a financing system, but a tool for social change,
specially for women. 5. Because micro credit is aimed at the poorest,
micro-finance lending technology needs to mimic the informal lenders
rather than the formal sector lending. It has to: (a) Provide for seasonality
(b) Allow repayment flexibility (c) Fix a ceiling on loan sizes. 7
Microfinance approach is based on certain proven truths which are not
always recognized. These are: 1. That the poor are bankable; successful
initiatives in micro finance demonstrate that there need not be a tradeoff
between reaching the poor and profitability - micro finance constitutes a
statement that the borrowers are not „weaker sections‟ in need of charity,
but can be treated as responsible people on business terms for mutual
profit . 2. That almost all poor households need to save, have the inherent
capacity to save small amounts regularly and are willing to save provided
they are motivated and facilitated to do so. 3. That easy access to credit is
more important than cheap subsidized credit which involves lengthy
bureaucratic procedures - (some institutions in India are already lending to
groups or SHGs at higher rates - this may prevent the groups from
enjoying a sufficient margin and rapidly accumulating their own funds, but
members continue to borrow at these high rates, even those who can
borrow individually from banks). 4. Peer pressure in groups helps in
improving recoveries. 8
CHAPTER 2LITRATURE REVIEW 9
Mohammed AnisurRahaman (2007)Has examined that about microfinance
and to investigate the impact of microfinance on the poorpeople of the
society with the main focus on Bangladesh. We mainly concise our thesis
throughclient‟s (the poor people, who borrowed loan from microfinance
institutions) perspective and build upour research based on it. Therefore,
the objective of this study is to show how microfinance works, byusing
group lending methodology for reducing poverty and how it affects the
living standard (income,saving etc.) of the poor people in Bangladesh.
Microfinance has the positive impact on the standard ofliving of the poor
people and on their life style. It has not only helped the poor people to
come over thepoverty line, but has also helped them to empower
themselves.SusyCheston (2002)Has examined that Microfinance has the
potential to have a powerful impact on women‟sempowerment. Although
microfinance is not always empowering for all women, most women
doexperience some degree of empowerment as a result. Empowerment is
a complex process of changethat is experienced by all individuals
somewhat differently. Women need, want, and profit from creditand other
financial services. Strengthening women‟s financial base and economic
contribution to theirfamilies and communities plays a role in empowering
them. Product design and program planningshould take women‟s needs
and assets into account. By building an awareness of the potential
impactsof their programs, MFIs can design products, services, and service
delivery mechanisms that mitigatenegative impacts and enhance positive
ones.Linda Mayoux (Feb 2006)Has examined that Micro-finance
programmes not only give women and men access to savings andcredit,
but reach millions of people worldwide bringing them together regularly in
organized groups.Through their contribution to women‟s ability to earn an
income, micro-finance programmes canpotentially initiate a series of
„virtuous spirals‟ of economic empowerment, increased well-being
forwomen and their families and wider social and political empowerment
Banks generally use individualrather than group-based lending and may
not have scope for introducing non-financial services. Thismeans that they
cannot be expected to have the type of the focused empowerment
strategies whichNGOs haveEoinWrenn (2005)Has examined that
microfinance creates access to productive capital for the poor, which
together withhuman capital, addressed through education and training, and
social capital, achieved through localorganization building, enables people
to move out of poverty (1999). By providing material capital to a 10
poor person, their sense of dignity is strengthened and this can help to
empower the person toparticipate in the economy and society. The impact
of microfinance on poverty alleviation is a keenlydebated issue as we have
seen and it is generally accepted that it is not a silver bullet, it has not
livedup in general to its expectation (Hulmeand Mosley, 1996). However,
when implemented and managedcarefully, and when services are
designed to meet the needs of clients, microfinance has had
positiveimpacts, not just on clients, but on their families and on the wider
community.Cheston& Kuhn (2004)Has examined that in their study
concluded that micro-finance programmes have been very successfulin
reaching women. This gives micro-finance institutions an extraordinary
opportunity to actintentionally to empower poor women and to minimize the
potentially negative impacts some womenexperiences. We also found
increased respect from and better relationships with extended family andin-
laws. While there have been some reports of increased domestic violence,
Hashemi and Schulerfound a reduced incidence of violence among women
who were members of credit organizations thanamong the general
population.Dr. JyotishPrakashBasu (2006)Has examined that the two basic
research questions. First, the paper tries to attempt to study how
awoman‟s tendency to invest in safer investment projects can be linked to
her desire to raise herbargaining position in the households. Second, in
addition to the project choice, women empowermentis examined with
respect to control of savings, control of income, control over loans, control
overpurchasing capacity and family planning in some sample household in
Hooghly district of WestBengal. The empowerment depends on the choice
of investment of project. The choice of safe projectleads to more empower
of women than the choice of uncertain projects. The Commercial Banks
andRegional Rural banks played a crucial role in the formation of groups in
the SHGs -Bank LinkageProgram in Andhra Pradesh whiles the
Cooperative Banks in West Bengal.Chintamani Prasad Patnaik (March
2012)Has examined that microfinance seems to have generated a view
that microfinance development couldprovide an answer to the problems of
rural financial market development. While the development ofmicrofinance
is undoubtedly critical in improving access to finance for the unserved and
underservedpoor and low-income households and their enterprises, it is
inadequate to address issues of ruralfinancial market development. It is
envisaged that self-help groups will play a vital role in suchstrategy. But
there is a need for structural orientation of the groups to suit the
requirements of newbusiness. Microcredit movement has to be viewed
from a long-term perspective under SHG 11
framework, which underlines the need for a deliberate policy implication in
favour of assurance interms of technology back-up, product market and
human resource development.Hunt, J &Kasynathan (2002)Has examined
that poor women and men in the developing world need access to
microfinance anddonors should continue to facilitate this. Research
suggests that equity and efficiency arguments fortargeting credit to women
remain powerful: the whole family is more likely to benefit from
credittargeted to women, where they control income, than when it is
targeted to men. Microfinance mustalso be re-assessed in the light of
evidence that the poorest families and the poorest women are notable to
access credit. A range of microfinance packages is required to meet the
needs of the poorest,both women and men. Donors need to revisit
arguments about the sustainability of microfinanceprogrammes. Financial
sustainability must be balanced against the need to ensure that some
creditpackages are accessible to the poorest.R.Prabhavathy (2012)Has
examined that collective strategies beyond micro-credit to increase the
endowments of thepoor/women enhance their exchange outcomes the
family, markets, state and community, and socio-cultural and political
spaces are required for both poverty reduction and women empowerment.
Eventhough there were many benefits due to micro-finance towards
women empowerment and povertyalleviation, there are some concerns.
First, these are dependent on the programmatic and institutionalstrategies
adopted by the intermediaries, second, there are limits to how far micro-
credit interventionscan alone reach the ultra-poor, third the extent of
positive results varies across household headship,caste and religion and
fourth the regulation of both public and private infrastructure in the context
ofLPG to sustain the benefits of social service providers.Reginald Indon
(2007)Has examined that informal businesses represent a very large
cross-section of economic enterprisesoperating in the country. Informal
businesses may be classified as either the livelihood/ survival typeor the
entrepreneurial/ growth-oriented type. Livelihood enterprises are those
which show very limitedpotential for growth in both income and
employment generation. There are existing policies, programand services
that directly/ indirectly cover informal. Variety of support programs, services
andinformation are currently being offered by different institutions. These
programs and support servicesfail to reach or remain inaccessible to
informal business operators and owners. This is borne out of
andperpetuated by lopsided economic policies and poor governance that
inadvertently encumber informalbusinesses from accessing mainstream
resources and services. 12
Mallory A. Owen (2006)Has examined that microfinance has signaled a
paradigm shift in development ideology. Using myexperiences with
microfinance in a fishing village in Senegal, this study will address the
claims drivingthe microfinance movement, debate its pros and cons and
pose further questions about its validity andwidespread implementation.
Instead of lifting people out of poverty and empowering
women,microfinance may have regressive long term potential for
borrowers. How loans get used is a centraltheme of this essay. How
microfinance and the notion of the “entrepreneur” fit into the
rural,Senegalese cultural context is also addressed. Microfinance
programs should be implemented withcomplementary measures that
challenge the systematic causes of inequality examined in this article.The
microfinance model (group lending based on joint liability) uses the social
capital generated bygroup membership to ensure that loans get re-
financed. If one woman fails to pay back her loan, sheputs her entire loan
group at jeopardy. As a result, “Women‟s participation in microenterprise
does notshow any signs of creating the new forms of solidarity among
women that the advocates ofempowerment desire. Instead, women are
placed under enormous pressure to maintain existing modesof social
relationships, on which depends not only the high rates of loan repayments
but also thesurvival of families.”Jennifer Meehan (2004)Has examined that
it will need to do three things simultaneously. First, it will need to rapidly
scale up,in key markets, like India, home to high numbers of the world‟s
poor. Second, in this process, clearpriority is needed for philanthropic,
quasi-commercial and commercial financing for the business plansof MFIs
targeting the poorest segments of the population, especially women. Third,
microfinance willneed to realize its possibility as a broad platform and
movement, more than simply an intervention andindustry. The pioneering
financings completed by leading, poverty-focused MFIs have shown
theindustry what is possible – large amounts of financing that allows for
rapid expansion of financialservices to new poor customers. The MFIs offer
a model to others that are interested in tapping thefinancial markets. If
leading MFIs continue on their present course and adopt some or all of
thesuggestions offered, financial market interest – or more specifically,
debt capital market interest – inleading, poverty-focused MFIs is expected
to grow.Jacob Levitsky and Leny van Oyen (1999)Has examined that
micro-businesses to large corporations, located in large urban centres, in
rural areasand in the formal and informal sectors. Financing needs are
therefore of varying nature. In describingexperiences, a link is made
between size of enterprises, financing schemes/instruments and
typicaldelivery channels. When referring to enterprises in this paper, focus
is predominantly on businesses, 13
both existing and potential, in the manufacturing sector and related
services. It is clear from this paperthat increasing the volume of finance
available and the delivery of such funds in various appropriateforms, to
support enterprises in Africa, is a difficult challenge. Central banks have to
be given moreindependence, strengthened with qualified, experienced
personnel, able to fulfil adequately the role ofsupervising and monitoring
the performance of commercial banks in the provision of loans to
thoseenterprises able to make effective use of them. Formal financial
institutions such as commercial banksand, in a few cases, development
banks, have to be encouraged and pressed to make appropriate loansto
those who have proved themselves by paying off a number of loans they
have received from NGOsor from formal financial institutions. The
minimalist credit approach has clear limitations, and forcredit schemes to
be effective and have impact, complementary services are
needed.Marguerite S. Robinson (1995)Has examined that HIIDs role in the
formulation of the initial hypotheses and HIIDs contributions inplanning and
coordinating the underlying research, advising on the policies and
implementationstrategies that put concept into practice, analysing the
results, and disseminating the findings. Drawingon work in Asia, Africa, and
Latin America, the paper analyses the paradigm shift in microfinancefrom
government and donor-funded subsidized credit to sustainable financial
intermediation. This shifthas occurred because of the work of many people
in many countries. This paper, however, is limited toHIIDs contribution. The
policy implications of the new microfinance for governments, donors,
banks,and NGOs are explored. HIID is advising BRI on its program for
international visitors. In addition,HIID is analysing and teaching - in
universities, financial institutions, donor agencies, banksuperintendence‟s,
and NGOs - the principles and the results of the new microfinance
paradigm.Pillai (1995)Has examined that the emergence of liberalization
and globalization in early 1990s aggravated theproblem of women workers
in unorganized sectors from bad to worse as most of the women who
wereengaged in various self-employment activities have lost their
livelihood. Microfinance is emerging as apowerful instrument for poverty
alleviation in the new economy. In India, Microfinance scene isdominated
by Self Help Group (SHGs)-Bank Linkage Programme as a cost effective
mechanism forproviding financial services to the "Unreached Poor" which
has been successful not only in meetingfinancial needs of the rural poor
women but also in strengthening collective self-help capacities of thepoor
leading to their empowerment. Micro finance is necessary to overcome
exploitation, createconfidence for economic self-reliance of the rural poor,
particularly among rural women who aremostly invisible in the social
structure. Micro finance can contribute to solving the problems
ofinadequate housing and urban services as an integral part of poverty
alleviation programmes. Thechallenge lies in finding the level of flexibility in
the credit instrument that could make it match the 14
multiple credit requirements of the low income borrower without imposing
unbearably high cost ofmonitoring its end use upon the lenders.Crabb, P.
(2008)Has examined that the relationship between the success of
microfinance institutions and the degree ofeconomic freedom in their host
countries. Many microfinance institutions are currently not self-sustaining
and research suggests that the economic environment in which the
institution operates is animportant factor in the ability of the institution to
reach this goal, furthering its mission of outreach tothe poor. The
sustainability of the micro lending institutions is analyzed here using a large
cross-section of institutions and countries. The results show that
microfinance institutions operate primarilyin countries with a relatively low
degree of overall economic freedom and that various economicpolicy
factors are important to sustainability.Fehr, D. and G. Hishigsuren.
(2006)Has examined that microfinance institutions (MFIs) provide financial
services to the pooresthouseholds. To date, funding of MFI activities has
come primarily from outright donor grants,government subsidies, and often
debt capital, including debt with non-market terms favorable to theMFI.
These traditional sources of MFI financing may not be sufficient to allow
MFIs to providemaximum services. There is a subset of the pool of
mainstream equity investors who would considerinvesting in MFI
opportunities, even knowing that they would not expect to earn the full
economic rateof return that such investments would otherwise require.
However, as part of their investmentevaluation process, these investors
would ask: What would the market determine required expectedrate of
return for my MFI investment be? What return on investment (ROI) do I
expect to earn on myMFI investment? Is the difference in the above two
returns acceptable given my level of socialmotivation? How will I
"monetize" my investment and when? The purpose of this article is to
employmodern corporate finance techniques to address these
questions.Demirguc-Kunt, A. and Martinez, P.M.S. (2005)Has examined
that this paper (i) presents new indicators of banking sector penetration
across 99countries, based on a survey of bank regulatory authorities, (ii)
shows that these indicators predicthousehold and firm use of banking
services, (iii) explores the association between the outreachindicators and
measures of financial, institutional, and infrastructure development across
countries, and(iv) relates these banking outreach indicators to measures of
firms „financing constraints. In particular,we find that greater outreach is
correlated with standard measures of financial development, as well aswith
economic activity. Controlling for these factors, we find that better
communication and transport 15
infrastructure, and better governance are also associated with greater
outreach. Government ownershipof financial institutions translates into
lower access, while more concentrated banking systems areassociated
with greater outreach. Finally, firms in countries with higher branch and
ATM penetrationand higher use of loan services report lower financing
obstacles, thus linking banking sector outreachto the alleviation of firms‟
financing constraints.Srinivasan, Sunderasan (2007)Has examined that
micro banking facilities have helped large numbers of developing country
nationalsby supporting the establishment and growth of microenterprises.
And yet, the microfinance movementhas grown on the back of passive
replication and needs to be revitalised with new product offeringsand
innovative service delivery. Renewable Energy systems viz., solar home
systems, biogas digesters,etc., serve to improve indoor air quality, provide
superior light and extend working and study hours.Such applications are
not inherently income generating and returns on such investments accrue
fromcost avoidance, but should qualify for micro funding, as such quality of
life investments, reflectborrower maturity and simultaneously contribute to
MFI sustainability.Basu, P., Srivastava (2005)Has examined that the
current level and pattern of access to finance for Indias rural poor and
examinessome of the key microfinance approaches in India, taking a close
look at the most dominant amongthese, the Self Help Group (SHG) Bank
Linkage initiative. It empirically analyzes the success withwhich SHG Bank
Linkage has been able to reach the poor, examines the reasons behind
this, and thelessons learned. The analysis in the paper draws heavily on a
recent rural access to finance survey of6,000 households in India,
undertaken by the authors. The main findings and implications of the
paperare as follows: Indias rural poor currently have very little access to
finance from formal sources.Microfinance approaches have tried to fill the
gap. Among these, the growth of SHG Bank Linkagehas been particularly
remarkable, but outreach remains modest in terms of the proportion of
poorhouseholds served. The paper recommends that, if SHG Bank
Linkage is to be scaled-up to offer massaccess to finance for the rural
poor, then much more attention will need to be paid towards: thepromotion
of high quality SHGs that are sustainable, clear targeting of clients, and
ensuring that bankslinked to SHGs price loans at cost-covering levels. At
the same time, the paper argues that, in aneconomy as vast and varied as
Indias, there is scope for diverse microfinance approaches to
coexist.Private sector micro financiers need to acquire greater
professionalism, and the government, too, canhelp by creating a flexible
architecture for microfinance innovations, including through a moreenabling
policy, legal and regulatory framework. Finally, the paper argues that, while
microfinancecan, at minimum, serve as a quick way to deliver finance to
the poor, the medium-term strategy toscale-up access to finance for the
poor should be to graduate microfinance clients to formal financial 16
institutions. The paper offers some suggestions on what it would take to
reform these institutions withan eye to improving access for the
poor.Robinson, M. (2001)Has examined that the timing of this book is
excellent it has few close substitutes in terms of itssweeping overview of
the terrain, and the revolution is now so advanced that the time is right for
ahistory, or at least a retrospective. As with any revolution, however, splits
have emerged within themovement. On one side are those who argue that
the way forward is to require microfinanceinstitutions to meet the test of
financial sustainability essentially, requiring these institutions to covertheir
costs, even if this means that the very poorest of the poor remain under-
served. Against this, thepoverty lending approach emphasizes the
importance of outreach, especially to the very poorestborrowers, as a
poverty fighting approach.Gallardo, Joselito (1999)Has examined that the
Bank should maximize opportunities to expand the use of leasing as
anapproach to financial intermediation in Bank projects to promote the
development of small businessesand microenterprises. In most developing
countries, capital markets are relatively undeveloped andbanks are often
unable or unwilling to undertake term lending. Operations in
microenterprises andsmall businesses are cash-flow-oriented but rarely
have organized historical financial records or theassets needed for
collateral for conventional bank financing. Gallardo explores the potential of
leasingas an option to expand small businesses access to medium-term
financing for capital equipment andnew technology. In a lease-financing
contract, the lessor-financier retains ownership of the asset,
leasepayments can be tailored to fit the cash-flow generation patterns of
the lessee-borrowers business, andthe security deposit is smaller than the
equity stake required in conventional bank financing. Othersmall
businesses require medium-term financing to acquire the tools and
equipment needed to supportproduction growth and expansion. Gallardo
examines and compares the Banks experience: Leasefinancing was used
to promote the development of small businesses in Pakistan, as part of
amicroenterprise development loan project. For a Bank-supported
alternative-energy project inIndonesia, a variant of lease financing-the hire-
purchase contract-is being used in marketing anddistribution by private
distributors of photovoltaic solar home systems. Lease financing was used
byGrameen Trust in Bangladesh to finance the purchase of small tools and
equipment and in othercountries to promote the growth of alternative
energy systems. This paper-a product of theDevelopment Research
Group-is part of a larger effort in the group to identify appropriate policies
forenvironmental regulation in developing countries. The study was funded
by the Banks ResearchSupport Budget under the research project "The
Economics of Industrial Pollution Control inDeveloping Countries" 17
Muhammad Yunus (1998)Has examined that this approach to poverty
reduction at the macro-level is inadequate. The primarycauses of poverty
are not lack of human capital or lack of demand for labor. Lack of demand
for laboris only a symptom, not a cause, of poverty. Poverty is caused by
our inadequate understanding ofhuman capabilities and by our failure to
create enabling theoretical frameworks, concepts, institutionsand policies
to support those capabilities. My main argument is that economics as we
know it is notonly unhelpful in getting the poor out of poverty; it may even
be a hindrance. In this paper, I wouldlike to explore those institutions that
perpetuate poverty, share my experiences with an effectivepoverty
alleviation institution, and present my thoughts on the future of poverty
alleviation. Beforeaddressing these points, however, I would like to provide
a useful framework to define the concept of"the poor" more
concretely.Ashta, A. & De Selva, R. (2009)Hass examined that the
relationship between microfinance and religion, and provides future
researchdirections in this area. Religious institutions often play a crucial
role in establishing microfinancesystems, but interactions between
microfinance and religion have received little attention ofresearchers.
Some of the topics addressed by articles reviewed in this paper include the
impact of theGreat Irish Famine on Irish loan funds, indigenization within
support groups for chronically ill Haitianwomen, impact of religion on
borrowing patterns of Jordanian micro-entrepreneurs, Islamicmicrofinance
in Pakistan and Indonesia, spirituality as an asset in a Christian initiative
role of religiousleaders in identifying entrepreneurial talent, microfinance
and charity in Thailand and the Philippines,and extensive socio-economic
studies in Bangladesh and India.Ernest Aryeetey (2005)Has examined that
informal finance and microfinance suitable for financing growing small to
mediumsize enterprises (SMEs) in Sub-Saharan Africa? First, I present the
characteristics of informal finance,focusing on size, structure, and scope of
activities. Informal finance has not been very attractive for theprivate
sector. Indeed, the informal sector has considerable experience and
knowledge about dealingwith small borrowers, but there are significant
limitations to what it can lend to growingmicrobusinesses. Second, I
discuss some recent trends in microfinance. While externally
drivenmicrofinance projects have surfaced in Africa, their performance
relative to small business finance hasnot been as positive as in Asia and
Latin America. Third, I introduce some possible steps toward a newreform
agenda that will make informal and microfinance relevant to private sector
development,including focusing on links among formal, semi-formal and
informal finance and how these links canbe developed. 18
Yunus (2003)Has examined that count 130 McMaster School for
Advancing Humanity on women to spread theword to their neighbors and
friends about the success of these loans. The testimony is expected
toconvince others to seek out Grameen for help. Yunus also encourages
members to save some of theirmoney in case they fall on hard times, such
as natural disasters, or to use this money for otheropportunities. In 1977,
Yunus founded Grameen Bank after working for six months to get a loan
fromthe Janata Bank. Yunus realized that having groups of people take out
a loan was a better plan forsuccess than giving loans to individuals. He
describes the process by which Grameen Bank lendsmoney. Loan
repayments are to be made in very small amounts, and in the first project,
Yunus chose avillager to be in charge of collecting the
repayments.Monique Cohen (2002)Has examined that the ideas presented
in this paper are designed to direct the arena of discoursetowards a more
holistic market driven or client focused microfinance agenda. Currently, the
debate onmarket-driven microfinance is primarily framed by the „problems‟
of competition and dropouts amongestablished MFIs. The solutions to the
problems are defined in terms of more responsive products, thecreation of
new products, and the restructuring of existing ones. Appropriate products
will not onlybenefit the operations of an institution they will also have a
positive impact on the wellbeing of theclient, reducing the risk of borrowing
and the poor‟s vulnerability. In presenting current thinking on aclient-led
agenda, this paper finds itself in a precarious position in the midst of this
debate. Client-ledmodels are still in their infancy, and the fact that this topic
is the theme of this special edition of theJournal of Development Studies is
itself an important milestone. When this author began to focus onclients in
microfinance six years ago, the notion that clients deserved a voice in the
design and deliveryof services was dismissed out of hand.Shannon Doocy,
Dan Norell, ShimelesTeffera, and Gilbert Burnham (2005)Has examined
that Management decision making in MFIs is becoming increasingly tied to
collectinginformation about social performance. This paper examines the
impact of participation in an Ethiopianmicrofinance program on indicators
of socioeconomic status including wealth, income, and home orland
ownership. A survey assessing these outcomes was conducted in May
2003 in two predominantlyrural sites in Southern Ethiopia and included 819
households. The article discusses managementdecisions made as the
result of survey findings about socioeconomic status and food security
toincrease retention rates and to facilitate client savings. Additionally, the
management was prompted toincrease the number of female clients and
raise the proportion of female loan officers. This paperillustrates how data
from routine monitoring and evaluation can be linked to MFI management
19
decision making, which ultimately results in providing better microfinance
services. Household assetdata indicates that participation in the WISDOM
microfinance program did not result in increasedhousehold wealth.
Significant differences in household income were not observed between
participantgroups in either survey site and client status was not a
significant predictor of income in univariate ormultivariate regression
models.John A. Brett. (2006)Has examined that having borrowed money
from a microfinance organization to start a small business,many women in
El Alto, Bolivia are unable to generate sufficient income to repay their loans
and somust draw upon household resources. Working from the womens
experience and words, this articleexplores the range of factors that
condition and constrain their success as entrepreneurs. The centraltheme
is that while providing the poor access to credit is currently very popular in
development circles,the social and structural context within which some
women operate so strongly constrains theirproductive activity that they
realize a net income loss at the household level instead of the
promisedbenefits of entrepreneurship. This paper explores the social and
structural realities in which womenseek out and accept debt beyond their
capacity to repay from the proceeds of their business enterprise.By
examining some of the "hidden costs" of microfinance participation, this
paper argues for a shiftfrom evaluation on outcomes at the institutional
level to outcomes at the household level to identify theforces and factors
that condition womens success as micro-entrepreneurs. While there has
been muchdiscussion on the benefits of microcredit lending and increasing
critique of it on both ideological andsubstantive grounds, there have been
few ethnographically informed studies on consequences to
users.NidhiyaMenon (2006)Has examined that this paper studies the
benefits of participation in micro-finance programs, wherebenefits are
measured in terms of the ability to smooth the effect of seasonal shocks
that causeconsumption fluctuations. It is shown that although membership
in these programs is an effectiveinstrument in combating inter-seasonal
consumption differences, there is a threshold level of length ofparticipation
beyond which benefits begin to diminish. Returns from membership are
modelled usingan Euler equation approach. Fixed effects non-linear least
squares estimation of parameters using datafrom 24 villages of the
Grameen Bank suggests that returns to participation, as measured by the
abilityto smooth seasonal shocks, begin to decline after approximately two
years of membership. Thisimplies that membership alone no longer has a
mitigating marginal effect on seasonal shocks to percapita consumption
after four years of participation. Such patterns suggest that the ability to
smoothconsumption as a function of length of membership, need not
accrue indefinitely in a linear fashion.;Reprinted by permission of Frank
Cass & Co. Ltd. 20
CHAPTER 3INDUSTRY PROFILE 21
The Origin of MicrofinanceAlthough neither of the terms microcredit or
microfinance were used in the academic literature nor bydevelopment aid
practitioners before the 1980s or 1990s, respectively, the concept of
providingfinancial services to low income people is much older.While the
emergence of informal financial institutions in Nigeria dates back to the
15th century, theywere first established in Europe during the 18th century
as a response to the enormous increase inpoverty since the end of the
extended European wars (1618 – 1648). In 1720 the first loan
fundtargeting poor people was founded in Ireland by the author Jonathan
Swift. After a special law waspassed in 1823, which allowed charity
institutions to become formal financial intermediaries a loanfund board was
established in 1836 and a big boom was initiated. Their outreach peaked
just before thegovernment introduced a cap on interest rates in 1843. At
this time, they provided financial services toalmost 20% of Irish
households. The credit cooperatives created in Germany in 1847 by
FriedrichWilhelm Raiffeisen served 1.4 million people by 1910. He stated
that the main objectives of thesecooperatives “should be to control the use
made of money for economic improvements, and to improvethe moral and
physical values of people and also, their will to act by themselves.”In the
1880s the British controlled government of Madras in South India, tried to
use the Germanexperience to address poverty which resulted in more than
nine million poor Indians belonging tocredit cooperatives by 1946. During
this same time the Dutch colonial administrators constructed acooperative
rural banking system in Indonesia based on the Raiffeisen model which
eventually becameBank Rakyat Indonesia (BRI), now known as the largest
MFI in the world.EVOLUTION OF MICROFINANCE IN INDIA (1960 TO
TODAY)Microfinance in India emerged as an effort to reach out to the un-
banked, lower income segments ofthe population 1960 to 1980 1990 2000
Phase 1: Social Banking Phase 2: Financial Systems Phase 3: Financial
Inclusion Approach1.Nationalization of private 1.Peer-pressure 1.NGO-
MFIs and SHGs gainingcommercial banks more legitimacy2.Expansion of
rural branch 2.Establishment of 2.MFIs emerging as strategicnetwork
MFIs,typically of non-profit partners to diverse entities origins interested in
thelow-income segments3.Extension of subsidized credit 3.Consumer
finance emerged 22
ashighgrowth area4.Establishment of Rural 4.Increased policy
regulationRegional Banks5.Establishment of apex 5.Increasing
commercializationinstitutionssuch as NationalBank for Agricultureand
RuralDevelopment and SmallIndu-stries Development Bank ofIndia Table
3.1Phase 1: In the 1960‟s, the credit delivery system in rural India was
largely dominated by thecooperative segment. The period between 1960
and 1990, referred to as the “social banking” phase.This phase includes
nationalization of private commercial banks, expansion of rural branch
networks,extension of subsidized credit, establishment of Regional Rural
Banks (RRBs) and the establishmentof apex institutions such as the
National Bank for Agriculture and Rural Development (NABARD) andthe
Small scale Industries Development Board of India (SIDBI).Phase 2: After
1990, India witnessed the second phase “financial system approach” of
credit delivery.In this phase NABARD initiated the Self Help Group (SHG) -
Bank Linkage Bank Linkage program,which links informal womens groups
to formal banks. This concept held great appeal for non-government
organizations (NGOs) working with the poor, prompting many of them to
collaborate withNABARD in the program. This period also witnessed the
entry of Microfinance Institutions (MFIs),largely of non-profit origins, with
existing development programs.Phase 3: In 2000, the third phase in the
development of Indian microfinance began, marked by furtherchanges in
policies, operating formats, and stakeholder orientations in the financial
services space.This phase emphasizes on “inclusive growth” and “financial
inclusion.” This period also saw manyNGO-MFIs transform into regulated
legal formats such as Non-Banking Finance Companies
(NBFCs).Commercial banks adopted innovative ways of partnering with
NGO-MFIs and other ruralorganizations to extend their reach into rural
markets. MFIs have emerged as strategic partners toindividuals and
entities interested in reaching out to Indias low income client segments. 23
Policy Attention to Microfinance After 20001999 --- Official definition of
microfinance by RBIAugust 2000 --- Micro Credit/Rural Credit included in
the list of permitted non-banking financialcompany (NBFC) activities
considered for Foreign Direct Investment (FDI)2005 --- MFIs acknowledged
for the first time in the Budget Speech by the Finance Minister“Government
intends to promote MFIs in a big way. The way forward, I believe, is to
identify MFIs,classify and rate such institutions, and empower them to
intermediate between the lending banks andthe beneficiaries.”January
2006 --- Announcement of the business correspondent modelFebruary
2006 --- Budget Speech by the Finance Minister promises a formal
statutory framework forthe promotion, development and regulation of the
microfinance sectorMarch 2006 --- Comprehensive guidelines by RBI on
loan securitizationJuly 2006 --- RBI master circular allows NGOs involved
in microfinance to access ExternalCommercial Borrowings (ECB) up to
USD 5 million (INR 20.25 crores) during a year.March 2007 --- Finance
Minister introduces the “Micro Finance Sector Development and
RegulationBill 2007” in LokSabhaEntities in Micro Finance:-Indian
Microfinance dominated by two operational approaches: SHG Initiated
by NABARD through SHG Bank Linkage Program. Largest outreach to
microfinance clients in the world. MFIs Emerged in the late 1990s to
harness social and commercial funds. Today the number of Indian MFIs
has increased and crossed 1000.SHGs and MFIs disbursement till 2007-
USD 3.7 billionsSHGs comprise twenty or fewer members, of whom the
majority are women from the poorest castesand tribes. Members save
small amounts of money, as little as a few rupees a month in a group
fund.Members may borrow from the group fund for a variety of purposes
ranging from household 24
emergencies to school fees. Banks typically lend up to four rupees for
every rupee in the group fund.Groups pay a reasonable 12-24% annual
rate of interest. Nearly 1.4 million SHGs comprisingapproximately 20
million women now borrow from banks, which makes the Indian SHG-
BankLinkage model the largest microfinance program in the world.MFI is
an organization that offers financial services to low income populations.
Almost all of theseoffer microcredit and only take back small amounts of
savings from their own borrowers, not from thegeneral public. Term refers
to a wide range of organizations - NGOs, credit unions,
cooperatives,private commercial banks and non-bank financial
institutions.Microfinance TodayIn the 1970s a paradigm shift started to take
place. The failure of subsidized government or donordriven institutions to
meet the demand for financial services in developing countries let to
several newapproaches. Some of the most prominent ones are presented
below.Bank Dagan Bali (BDB) was established in September 1970 to serve
low income people in Indonesiawithout any subsidies and is now “well-
known as the earliest bank to institute commercialmicrofinance”. While this
is not true with regard to the achievements made in Europe during the
19thcentury, it still can be seen as a turning point with an ever increasing
impact on the view of politiciansand development aid practitioners
throughout the world. In 1973 ACCION International, a UnitedStates of
America (USA) based non-governmental organization (NGO) disbursed its
first loan inBrazil and in 1974 Professor Muhammad Yunus started what
later became known as the GrameenBank by lending a total of $27 to 42
people in Bangladesh. One year later the Self-EmployedWomen‟s
Association started to provide loans of about $1.5 to poor women in India.
Although thelatter examples still were subsidized projects, they used a
more business oriented approach and showedthe world that poor people
can be good credit risks with repayment rates exceeding 95%, even if
theinterest rate charged is higher than that of traditional banks. Another
milestone was the transformationof BRI starting in 1984. Once a loss
making institution channeling government subsidized credits toinhabitants
of rural Indonesia it is now the largest MFI in the world, being profitable
even during theAsian financial crisis of 1997 – 1998.In February 1997 more
than 2,900 policymakers, microfinance practitioners and representatives
ofvarious educational institutions and donor agencies from 137 different
countries gathered inWashington D.C. for the first Micro Credit Summit.
This was the start of a nine yearlong campaign toreach 100 million of the
world poorest households with credit for self-employment by
2005.According to the Microcredit Summit Campaign Report 67,606,080
clients have been reached through2527 MFIs by the end of 2002, with
41,594,778 of them being amongst the poorest before they tooktheir first
loan. Since the campaign started the average annual growth rate in
reaching clients has beenalmost 40 percent. If it has continued at that
speed more than 100 million people will have access to 25
microcredit by now and by the end of 2005 the goal of the microcredit
summit campaign would bereached. As the president of the World Bank
James Wolfensohn has pointed out, providing financialservices to 100
million of the poorest households means helping as many as 500 – 600
million poorpeople.Need for Micro-Finance: The gap between Demand and
SupplySince independence, various governments in India have
experimented with a large number of grantand subsidy based poverty
alleviation programmes. These programmes were based on
grant/subsidyand the credit linkage was through commercial banks
only.Hence was adopted the concept of micro-credit in India. Success
stories in neighboring countries, likeGrameen Bank in Bangladesh, Bank
Rakiat in Indonesia, Commercial & Industrial Bank in Philippinesetc, gave
further boost to the concept in India in the 1980s. India thus adopted the
similar model ofextending credit to the poorest sector and took a no. of
steps to promote micro-financing in thecountry. Since the 1950s, various
governments in India have experimented with a large number ofgrant and
subsidy based poverty alleviation programmes. Studies show that these
mandatory anddedicated subsidized financial programmes, implemented
through banking institutions, have not beenfully successful in meeting their
social and economic objectives:The common features of these
programmes were:- Target orientation Based on grant/subsidy, and Credit
linkage through commercial banks.These programmes:- Were often not
sustainable Perpetuated the dependent status of the beneficiaries
Depended ultimately on government employees for delivery Led to misuse
of both credit and subsidy and Were treated at best as poverty alleviation
interventions.Who are the clients of micro finance?The typical micro
finance clients are low-income persons that do not have access to formal
financialinstitutions. Micro finance clients are typically self-employed, often
household-based entrepreneurs. Inrural areas, they are usually small
farmers and others who are engaged in small income-generatingactivities
such as food processing and petty trade. In urban areas, micro finance
activities are more 26
diverse and include shopkeepers, service providers, artisans, street
vendors, etc. Micro finance clientsare poor and vulnerable non-poor who
have a relatively unstable source of income.Access to conventional formal
financial institutions, for many reasons, is inversely related to income:the
poorer you are the less likely that you have access. On the other hand, the
chances are that, thepoorer you are, the more expensive or onerous
informal financial arrangements. Moreover, informalarrangements may not
suitably meet certain financial service needs or may exclude you
anyway.Individuals in this excluded and under-served market segment are
the clients of micro finance.As we broaden the notion of the types of
services micro finance encompasses, the potential market ofmicro finance
clients also expands. It depends on local conditions and political climate,
activeness ofcooperatives, SHG & NGOs and support mechanism. For
instance, micro credit might have a far morelimited market scope than say
a more diversified range of financial services, which includes varioustypes
of savings products, payment and remittance services, and various
insurance products. Forexample, many very poor farmers may not really
wish to borrow, but rather, would like a safer place tosave the proceeds
from their harvest as these are consumed over several months by the
requirements ofdaily living. Central government in India has established a
strong & extensive link between NABARD(National Bank for Agriculture &
Rural Development), State Cooperative Bank, District CooperativeBanks,
Primary Agriculture & Marketing Societies at national, state, district and
village level.The Need in India:- India is said to be the home of one third of
the world‟s poor; official estimates range from 26 to 50 percent of the more
than one billion population. About 87 percent of the poorest households do
not have access to credit. The demand for microcredit has been estimated
at up to $30 billion; the supply is less than $2.2 billion combined by all
involved in the sector.Due to the sheer size of the population living in
poverty, India is strategically significant in the globalefforts to alleviate
poverty and to achieve the Millennium Development Goal of halving the
world‟spoverty by 2015. Microfinance has been present in India in one
form or another since the 1970s and isnow widely accepted as an effective
poverty alleviation strategy. Over the last five years, themicrofinance
industry has achieved significant growth in part due to the participation of
commercialbanks. Despite this growth, the poverty situation in India
continues to be challenging.Some principles that summarize a century and
a half of development practice were encapsulated in2004 by Consultative
Group to Assist the Poor (CGAP) and endorsed by the Group of Eight
leaders atthe G8 Summit on June 10, 2004: Poor people need not just
loans but also savings, insurance and money transfer services. 27
Microfinance must be useful to poor households: helping them raise
income, build up assets and/or cushion themselves against external
shocks. “Microfinance can pay for itself.”Subsidies from donors and
government are scarce and uncertain, and so to reach large numbers of
poor people, microfinance must pay for itself. Microfinance means building
permanent local institutions. Microfinance also means integrating the
financial needs of poor people into a country‟s mainstream financial
system. “The job of government is to enable financial services, not to
provide them.” “Donor funds should complement private capital, not
compete with it.” “The key bottleneck is the shortage of strong institutions
and managers.” Donors should focus on capacity building. Interest rate
ceilings hurt poor people by preventing microfinance institutions from
covering their costs, which chokes off the supply of credit. Microfinance
institutions should measure and disclose their performance – both
financially and socially.Microfinance can also be distinguished from charity.
It is better to provide grants to families who aredestitute, or so poor they
are unlikely to be able to generate the cash flow required to repay a loan.
Thissituation can occur for example, in a war zone or after a natural
disaster.Financial needs and Financial services:-In developing economies
and particularly in the rural areas, many activities that would be classified
inthe 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 livesin which they need
money or the things money can buy.In Stuart Rutherford‟s recent book The
Poor and Their Money, he cites several types of needs: Lifecycle Needs:
such as weddings, funerals, childbirth, education, homebuilding,
widowhood, old age. Personal Emergencies: such as sickness, injury,
unemployment, theft, harassment or death. Disasters: such as fires, floods,
cyclones and man-made events like war or bulldozing of dwellings.
Investment Opportunities: expanding a business, buying land or
equipment, improving housing, securing a job (which often requires paying
a large bribe), etc. 28
Poor people find creative and often collaborative ways to meet these
needs, primarily through creatingand exchanging different forms of non-
cash value. Common substitutes for cash vary from country tocountry but
typically include livestock, grains, jewellery and precious metals.As
Marguerite Robinson describes in The Microfinance Revolution, the 1980s
demonstrated that“microfinance could provide large-scale outreach
profitably,” and in the 1990s, “microfinance beganto develop as an
industry”. In the 2000s, the microfinance industry‟s objective is to satisfy
the unmetdemand on a much larger scale, and to play a role in reducing
poverty. While much progress has beenmade in developing a viable,
commercial microfinance sector in the last few decades, several
issuesremain that need to be addressed before the industry will be able to
satisfy massive worldwidedemand.The obstacles or challenges to building
a sound commercial microfinance industry include: Inappropriate donor
subsidies Poor regulation and supervision of deposit-taking MFIs Few MFIs
that mobilize savings Limited management capacity in MFIs Institutional
inefficiencies Need for more dissemination and adoption of rural,
agricultural microfinance methodologiesRole of Microfinance:-The micro
credit of microfinance progamme was first initiated in the year 1976 in
Bangladesh withpromise of providing credit to the poor without collateral ,
alleviating poverty and unleashing humancreativity and endeavor of the
poor people. Microfinance impact studies have demonstrated that 1.
Microfinance helps poor households meet basic needs and protects them
against risks. 2. The use of financial services by low-income households
leads to improvements in household economic welfare and enterprise
stability and growth. 3. By supporting women‟s economic participation,
microfinance empowers women, thereby promoting gender-equity and
improving household well-being. 4. The level of impact relates to the length
of time clients have had access to financial services.1.1 Strategic Policy
InitiativesSome of the most recent strategic policy initiatives in the area of
Microfinance taken by thegovernment and regulatory bodies in India are:
Working group on credit to the poor through SHGs, NGOs, NABARD, 1995
The National Microfinance Taskforce, 1999 Working Group on Financial
Flows to the Informal Sector (set up by PMO), 2002 29
Microfinance Development and Equity Fund, NABARD, 2005 Working
group on Financing NBFCs by Banks- RBI1.2 Activities in
MicrofinanceMicrocredit: It is a small amount of money loaned to a client by
a bank or other institution.Microcredit can be offered, often without
collateral, to an individual or through group lending.Micro savings: These
are deposit services that allow one to save small amounts of money for
futureuse. Often without minimum balance requirements, these savings
accounts allow households to save inorder to meet unexpected expenses
and plan for future expenses.Micro insurance: It is a system by which
people, businesses and other organizations make a paymentto share risk.
Access to insurance enables entrepreneurs to concentrate more on
developing theirbusinesses while mitigating other risks affecting property,
health or the ability to work.Remittances: These are transfer of funds from
people in one place to people in another, usually acrossborders to family
and friends. Compared with other sources of capital that can fluctuate
depending onthe political or economic climate, remittances are a relatively
steady source of funds.1.3 Legal RegulationsBanks in India are regulated
and supervised by the Reserve Bank of India (RBI) under the RBI Act
of1934, Banking Regulation Act, Regional Rural Banks Act, and the
Cooperative Societies Acts of therespective state governments for
cooperative banks.NBFCs are registered under the Companies Act, 1956
and are governed under the RBI Act. There isno specific law catering to
NGOs although they can be registered under the Societies Registration
Act,1860, the Indian Trust Act, 1882, or the relevant state acts. There has
been a strong reliance on self-regulation for NGO MFIs and as this applies
to NGO MFIs mobilizing deposits from clients who alsoborrow. This
tendency is a concern due to enforcement problems that tend to arise with
self-regulatoryorganizations. In January 2000, the RBI essentially created a
new legal form for providingmicrofinance services for NBFCs registered
under the Companies Act so that they are not subject toany capital or
liquidity requirements if they do not go into the deposit taking business.
Absence ofliquidity requirements is concern to the safety of the sector. 30
Development Process through Micro FinanceDonors and Banks Micro-
Finance Governmentand Banks Implementing Organisations Individual
Awareness/Promotional Work Individual Promotion and Formation of SHGs
Micro Enterprise Consolidation of SHGs Micro Enterprise
SavingsConsumption Needs Credit Delivery Production Needs Recovery
Follow-up Monitoring Income Generation Farm Related (Sustainable &
Growth Non-Farm Related Oriented) Self-Sustainability of SHGs Economic
Empowerment through use of Micro-Credit as an entry point for overall
Empowerment Figure 3.1 31
Micro-finance interventions through different organisations National
Government Funded Donors/Bilateral Financial Banks Programmes
Projects Institutions Implementing OrganisationsResource/Support
Indirectly Organisations engaged in Directly engaged in Micro-Finance
Micro-Finance Individuals SHGs Members Figure 3.2 32
Microfinance in IndiaAt present lending to the economically active poor
both rural and urban is pegged at around Rs.7000crores in the Indian
banks‟ credit outstanding. As against this, according to even the most
conservativeestimates, the total demand for credit requirements for this
part of Indian society is somewhere aroundRs.2,00,000
crores.Microfinance changing the face of poor IndiaMicro-Finance is
emerging as a powerful instrument for poverty alleviation in the new
economy. InIndia, micro-Finance scene is dominated by Self Help Groups
(SHGs) - Banks linkage Programme,aimed at providing a cost effective
mechanism for providing financial services to the unreached poor.In the
Indian context terms like "small and marginal farmers", " rural artisans" and
"economicallyweaker sections" have been used to broadly define micro-
finance customers. Research across the globehas shown that, over time,
microfinance clients increase their income and assets, increase the
numberof years of schooling their children receive, and improve the health
and nutrition of their families.A more refined model of micro-credit delivery
has evolved lately, which emphasizes the combineddelivery of financial
services along with technical assistance, and agricultural business
developmentservices. When compared to the wider SHG bank linkage
movement in India, private MFIs have hadlimited outreach. However, we
have seen a recent trend of larger microfinance institutionstransforming
into Non-Bank Financial Institutions (NBFCs). This changing face of
microfinance inIndia appears to be positive in terms of the ability of
microfinance to attract more funds and thereforeincrease outreach. In
terms of demand for micro-credit or micro-finance, there are three
segments, which demandfunds. They are: At the very bottom in terms of
income and assets, are those who are landless and engaged in agricultural
work on a seasonal basis, and manual labourers in forestry, mining,
household industries, construction and transport. This segment requires,
first and foremost, consumption credit during those months when they do
not get labour work, and for contingencies such as illness. They also need
credit for acquiring small productive assets, such as livestock, using which
they can generate additional income. The next market segment is small
and marginal farmers and rural artisans, weavers and those self-employed
in the urban informal sector as hawkers, vendors, and workers in
household micro-enterprises. This segment mainly needs credit for working
capital, a small part of which also serves consumption needs. This
segment also needs term credit for acquiring additional productive assets,
such as irrigation pumpsets, borewells and livestock in case of farmers,
and equipment (looms, machinery) and worksheds in case of non-farm
workers. 33
The third market segment is of small and medium farmers who have gone
in for commercial crops such as surplus paddy and wheat, cotton,
groundnut, and others engaged in dairying, poultry, fishery, etc. Among
non-farm activities, this segment includes those in villages and slums,
engaged in processing or manufacturing activity, running provision stores,
repair workshops, tea shops, and various service enterprises. These
persons are not always poor, though they live barely above the poverty line
and also suffer from inadequate access to formal credit.Well these are the
people who require money and with Microfinance it is possible. Right now
theproblem is that, it is SHGs which are doing this and efforts should be
made so that the big financialinstitutions also turn up and start supplying
funds to these people. This will lead to a better India andwill definitely fulfill
the dream of our late Prime Minister, Mrs. Indira Gandhi, i.e. Poverty.One
of the statements is really appropriate here, which is as:“Money, says the
proverb makes money. When you have got a little, it is often easy to get
more. Thegreat difficulty is to get that little.”Adams Smith.Today India is
facing major problem in reducing poverty. About 25 million people in India
are underbelow poverty line. With low per capita income, heavy population
pressure, prevalence of massiveunemployment and underemployment, low
rate of capital formation, misdistribution of wealth andassets , prevalence
of low technology and poor economics organization and instability of output
ofagriculture production and related sectors have made India one of the
poor countries of the world.Present Scenario of India:India falls under low
income class according to World Bank. It is second populated country in
theworld and around 70 % of its population lives in rural area. 60% of
people depend on agriculture, as aresult there is chronic underemployment
and per capita income is only $ 3262. This is not enough toprovide food to
more than one individual. The obvious result is abject poverty, low rate of
education,low sex ratio, exploitation. The major factor account for high
incidence of rural poverty is the lowasset base. According to Reserve Bank
of India, about 51 % of people house possess only 10% of thetotal asset of
India .This has resulted low production capacity both in agriculture (which
contributearound 22-25% of GDP) and Manufacturing sector. Rural people
have very low access toinstitutionalized credit (from commercial
bank).Poverty alleviation programmes and conceptualization of
Microfinance:There has been a continuous effort of planners of India in
addressing the poverty. They have come upwith development programmes
like Integrated Rural Development progamme (IRDP), National
RuralEmployment Programme (NREP), Rural Labour Employment
Guarantee Programme (RLEGP) etc. 34
But these progamme have not been able to create massive impact in
poverty alleviation. Theproduction oriented approach of planning without
altering the mode of production could not but resultof the gains of
development by owners of instrument of production. The mode of
production doesremain same as the owners of the instrument have low
access to credit which is the major factor ofproduction. Thus in Nineties
National bank for agriculture and rural development(NABARD)
launchespilot projects of Microfinance to bridge the gap between demand
and supply of funds in the lowerrungs of rural economy. Microfinance the
buzzing word of this decade was meant to cure the illness ofrural economy.
With this concept of Self Reliance, Self Sufficiency and Self Help gained
momentum.The Indian microfinance is dominated by Self Help Groups
(SHGs) and their linkage to Banks.Deprived of the basic banking facilities,
the rural and semi urban Indian masses are still relying oninformal
financing intermediaries like money lenders, family members, friends
etc.Distribution of Indebted Rural Households: Agency wiseCredit Agency
Percentage of Rural HouseholdsGovernment 6.1Cooperative Societies
21.6Commercial banks and RRBs 33.7Insurance 0.3Provident Fund
0.7Other Institutional Sources 1.6All Institutional Agencies 64.0Landlord
4.0Agricultural Moneylenders 7.0Professional Moneylenders 10.5Relatives
and Friends 5.5Others 9.0All Non Institutional Agencies 36.0All Agencies
100.0 Table 3.2Self Help Groups (SHGs)Self- help groups (SHGs) play
today a major role in poverty alleviation in rural India. A growingnumber of
poor people (mostly women) in various parts of India are members of
SHGs and activelyengage in savings and credit (S/C), as well as in other
activities (income generation, natural resourcesmanagement, literacy, child
care and nutrition, etc.). The S/C focus in the SHG is the most prominent
35
element and offers a chance to create some control over capital, albeit in
very small amounts. TheSHG system has proven to be very relevant and
effective in offering women the possibility to breakgradually away from
exploitation and isolation.How self-help groups workNABARD (1997)
defines SHGs as "small, economically homogenous affinity groups of rural
poor,voluntarily formed to save and mutually contribute to a common fund
to be lent to its members as perthe group members decision".Most SHGs
in India have 10 to 25 members, who can be either only men, or only
women, or onlyyouth, or a mix of these. As womens SHGs or sangha have
been promoted by a wide range ofgovernment and non- governmental
agencies, they now make up 90% of all SHGs.The rules and regulations of
SHGs vary according to the preferences of the members and
thosefacilitating their formation. A common characteristic of the groups is
that they meet regularly(typically once per week or once per fortnight) to
collect the savings from members, decide to whichmember to give a loan,
discuss joint activities (such as training, running of a communal business,
etc.),and to mitigate any conflicts that might arise. Most SHGs have an
elected chairperson, a deputy, atreasurer, and sometimes other office
holders.Most SHGs start without any external financial capital by saving
regular contributions by themembers. These contributions can be very
small (e.g. Rs.10 per week). After a period of consistentsavings (e.g. 6
months to one year) the SHGs start to give loans from savings in the form
of smallinternal loans for micro enterprise activities and consumption. Only
those SHGs that have utilized theirown funds well are assisted with
external funds through linkages with banks and other
financialintermediaries.Micro Finance Models 1. Micro Finance Institutions
(MFIs): MFIs are an extremely heterogeneous group comprising NBFCs,
societies, trusts and cooperatives. They are provided financial support from
external donors and apex institutions including the RashtriyaMahilaKosh
(RMK), SIDBI Foundation for micro-credit and NABARD and employ a
variety of ways for credit delivery. Since 2000, commercial banks including
Regional Rural Banks have been providing funds to MFIs for on lending to
poor clients. Though initially, only a handful of NGOs were “into” financial
intermediation using a variety of delivery methods, their numbers have
increased considerably today. While there is no published data on private
MFIs operating in the country, the number of MFIs is estimated to be
around 800. 36
Legal Forms of MFIs in India Types of MFIs Estimated Legal Acts under
which Registered Number* 1. Not for Profit MFIs 400 to 500 Societies
Registration Act, 1860 or similar Provincial Acts a.) NGO - MFIs Indian
Trust Act, 1882 b.) Non-profit Companies 10 Section 25 of the Companies
Act, 1956 2. Mutual Benefit MFIs 200 to 250 Mutually Aided Cooperative
Societies a.) Mutually Aided Cooperative Act enacted by State Government
Societies (MACS) and similarly set up institutions 3. For Profit MFIs 6
Indian Companies Act, 1956 a.) Non-Banking Financial Reserve Bank of
India Act, 1934 Companies (NBFCs) Total 700 – 800 Table 3.32. Bank
Partnership Model This model is an innovative way of financing MFIs. The
bank is the lender and the MFI acts as an agent for handling items of work
relating to credit monitoring, supervision and recovery. In other words, the
MFI acts as an agent and takes care of all relationships with the client,
from first contact to final repayment. The model has the potential to
significantly increase the amount of funding that MFIs can leverage on a
relatively small equity base. A sub - variation of this model is where the
MFI, as an NBFC, holds the individual loans on its books for a while before
securitizing them and selling them to the bank. Such refinancing through
securitization enables the MFI enlarged funding access. If the MFI fulfills
the “true sale” criteria, the exposure of the bank is treated as being to the
individual borrower and the prudential exposure norms do not then inhibit
such funding of MFIs by commercial banks through the securitization
structure.3. Banking Correspondents The proposal of “banking
correspondents” could take this model a step further extending it to
savings. It would allow MFIs to collect savings deposits from the poor on
behalf of the bank. It would use the ability of the MFI to get close to poor
clients while relying on the financial strength of the bank to safeguard the
deposits. This regulation evolved at a time when there were 37
genuine fears that fly-by-night agents purporting to act on behalf of banks
in which the people have confidence could mobilize savings of gullible
public and then vanish with them. It remains to be seen whether the
mechanics of such relationships can be worked out in a way that minimizes
the risk of misuse. 4. Service Company Model Under this model, the bank
forms its own MFI, perhaps as an NBFC, and then works hand in hand with
that MFI to extend loans and other services. On paper, the model is similar
to the partnership model: the MFI originates the loans and the bank books
them. But in fact, this model has two very different and interesting
operational features: The MFI uses the branch network of the bank as its
outlets to reach clients. This allows the client to be reached at lower cost
than in the case of a stand–alone MFI. In case of banks which have large
branch networks, it also allows rapid scale up. In the partnership model,
MFIs may contract with many banks in an arm‟s length relationship. In the
service company model, the MFI works specifically for the bank and
develops an intensive operational cooperation between them to their
mutual advantage. The Partnership model uses both the financial and
infrastructure strength of the bank to create lower cost and faster growth.
The Service Company Model has the potential to take the burden of
overseeing microfinance operations off the management of the bank and
put it in the hands of MFI managers who are focused on microfinance to
introduce additional products, such as individual loans for SHG graduates,
remittances and so on without disrupting bank operations and provide a
more advantageous cost structure for microfinance.Bank Led ModelThe
bank led model was derived from the SHG-Bank linkage program of
NABARD. Through thisprogram, banks financed Self Help Groups (SHGs)
which had been promoted by NGOs andgovernment agencies.ICICI Bank
drew up aggressive plans to penetrate rural areas through its SHG
program. However,rather than spending time in developing rural
infrastructure of its own, in 2000, ICICI Bank announcedmerger of Bank of
Madura (BoM), which had significant presence in the rural areas of South
India,especially Tamil Nadu, with a customer base of 1.9 million and 87
branches. Bank of Maduras SHGdevelopment program was initiated in
1995. Through this program, it had formed, trained and initiatedsmall
groups of women to undertake financial activities like banking, saving and
lending. By 2000, ithad created around 1200 SHGs across Tamil Nadu and
provided credit to them. 38
Partnership ModelsA model of microfinance has emerged in recent years
in which a microfinance institution (MFI)borrows from banks and on-lends
to clients; few MFIs have been able to grow beyond a certain point.Under
this model, MFIs are unable to provide risk capital in large quantities, which
limits the advancesfrom banks. In addition, the risk is being entirely borne
by the MFI, which limits its risk-taking.This model aimed at synergizing the
comparative advantages and financial strength of the bank withsocial
intermediation, mobilization power and infrastructure of MFIs and NGOs.
Through this model,ICICI Bank could save on the initial costs of developing
rural infrastructure and micro creditdistribution channels and could take
advantage of the expertise of these institutions in rural areas.Initially, ICICI
Bank started off by lending to MFIs and NGOs in order to provide the
necessaryfinancial support to their activities. Later, ICICI Bank came up
with a plan where the NGO/MFIcontinued to promote their microfinance
schemes, while the bank met the financial requirements of
theborrowers.TYPES OF ORGANIZATIONThese organizations are
classified in the following categories to indicate the functional aspects
coveredby them within the micro finance framework. The aim, however, is
not to "typecast" an organization,as these have many other activities within
their scope:Microfinance providers in India can be classified under three
broad categories: formal, semiformal,and informal. Formal Sector The
formal sector comprises of the bankssuch 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 deposit at around Rs.350 billion and of that, around Rs.250 billion
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. Registered under a variety of
legal acts, these organizations greatly differ in philosophy, size, and
capacity. There are over 500 non-government organizations 39
(NGOs) registered as societies, public trusts, or non-profit companies.
Organizations implementing micro-finance activities can be categorized
into three basic groups. I. Organizations which directly lend to specific
target groups and are carrying out all related activities like recovery,
monitoring, follow-up etc. II. Organizations who only promote and provide
linkages to SHGs and are not directly involved in micro lending operations.
III. Organizations which are dealing with SHGs and plan to start micro-
finance related activities. Informal Sector 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. These
are the organizations that provide support to implementing organizations.
The support may be in terms of resources or training for capacity building,
counseling, networking, etc. They operate at state/regional or national
level. They may or may not be directly involved in micro-finance activities
adopted by the associations/collectives to support implementing
Organizations.Grameen BankThe Grameen Model which was pioneered by
Prof MuhammedYunus of Grameen Bank is perhaps themost well-known,
admired and practiced model in the world. The model involves the
followingelements. 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 All loans repaid in 50 installmentsThe Grameen model follows a
fairly regimented routine. It is very cost intensive as it involves
buildingcapacity of the groups and the customers passing a test before the
lending could start. The groupmembers tend to be selected or at least
strongly vetted by the bank. One of the reasons for the highcost is that staff
members can conduct only two meetings a day and thus are occupied for
only a few 40
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 meetingintensive
which is fine as long as the members have no alternative use for their time
but can be aproblem as members go up the income ladder.The greatness
of the Grameen model is in the simplicity of design of products and
delivery. Theprocess 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
donorcommunity.However, the Grameen model works only under certain
assumptions. As all the loans are only forenterprise promotion, it assumes
that all the poor want to be self-employed. The repayment of loansstarts
the week after the loan is disbursed – the inherent assumption being that
the borrowers canservice their loan from the ex-ante income.SKS
Microfinance(CEO-VikramAkula)Many companies say they protect the
interests of their customers. Very few actually sit in dirt withthem, using
stones, flowers, sticks, and chalk powder to figure out if they will be able to
repay a $20loan at $1 a month. With this approach, this company has
created its own loyal gang of over 2 millioncustomers.Its borrowers include
agricultural laborers, mom-and-pop entrepreneurs, street vendors, home
basedartisans, and small scale producers, each living on less than $2 a
day. It works on a model that wouldallow micro-finance institutions to scale
up quickly so that they would never have to turn poor personaway.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 VinodKhosla. 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 41
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 LoyaltyInstead of asking illiterate villagers to describe their
seasonal pattern of cash flows, they encouragethem to use colored chalk
powder and flowers to map out the village on the ground and tell where
thepoorest people lived, what kind of financial products they needed, which
areas were lorded over bywhich loan sharks, etc. They set people‟s tiny
weekly repayments as low as $1 per week and healthand whole life
insurance premiums to be $10 a year and 25 cents per week respectively.
They alsooffer interest free emergency loans. The salaries of loan officers
are not tied to repayment rates andthey journey on mopeds to borrowers‟
villages and schedule loan meetings as early as 7.00 A.M. Deepcustomer
loyalty ultimately results in a repayment rate of 99.5%.Leveraging the SKS
brandIts payoff comes from high volumes. They are growing at 200%
annually, adding 50 branches and1,60,000 new customers a month. They
are also using their deep distribution channels for selling soap,clothes,
consumer electronics and other packaged goods.Marketing of Microfinance
Products:- 1. Contract Farming and Credit Bundling Banks and financial
institutions have been partners in contract farming schemes, set up to
enhance credit. Basically, this is a doable model. Under such an
arrangement, crop loans can be extended under tie-up arrangements with
corporate for production of high quality produce with stable marketing
arrangements provided – and only, provided – the price setting mechanism
for the farmer is appropriate and fair. 2. Agri Service Centre – Rabo India
Rabo India Finance Pvt. Ltd. has established agri-service centres in rural
areas in cooperation with a number of agri-input and farm services
companies. The services provided are similar to those in contract farming,
but with additional flexibility and a wider range of products including
inventory finance. Besides providing storage facilities, each centre rents
out farm 42
machinery, provides agricultural inputs and information to farmers,
arranges credit, sells other services and provides a forum for farmers to
market their products. 3. Non Traditional Markets Similarly, Mother Dairy
Foods Processing, a wholly owned subsidiary of National Dairy
Development Board (NDDB) has established auction markets for
horticulture producers in Bangalore. The operations and maintenance of
the market is done by NDDB. The project, with an outlay of Rs.15 lakh,
covers 200 horticultural farmers associations with 50,000 grower members
for wholesale marketing. Their produce is planned with production and
supply assurance and provides both growers and buyers a common
platform to negotiate better rates. 4. ApniMandi Another innovation is that
of The Punjab Mandi Board, which has experimented with a „farmers‟
market‟ to provide small farmers located in proximity to urban areas, direct
access to consumers by elimination of middlemen. This experiment known
as "ApniMandi" belongs to both farmers and consumers, who mutually help
each other. Under this arrangement a sum of Rs.5.2 lakh is spent for
providing plastic crates to 1000 farmers. Each farmer gets 5 crates at a
subsidized rate. At the mandi site, the Board provides basic infrastructure
facilities. At the farm level, extension services of different agencies are
pooled in. These include inputs subsidies, better quality seeds and loans
from Banks. ApniMandi scheme provides self-employment to producers
and has eliminated social inhibitions among them regarding the retail sale
of their produce.Commercial banksas Microfinance VehiclesCommercial
banks recently have stepped into the realm of microfinance. They have
taken tentative butvery important steps toward distributing Microfinance
loans to the poor. One advantage of theseinstitutions is that they bring in
the risks management practices that they regularly use in theircommercial
operations risk management practices that they regularly use in their
commercialoperations. The other important aspect they bring in is the
professional credit appraisal practices thatare used in their normal
operations. These important features combined with a mission to provide
thepoor entrepreneurs will enhance the social lives and they can run their
business effectively with properaccess to credit. In some cases, successful
microfinance NGOs have transformed themselves into forprofit commercial
banks (BancoSol of Bolivia is a prime example of a microfinance NGO that
hassuccessfully transformed itself into a for-profit commercial bank). This
transformation from a not-for-profit institution into for-profit organization has
increased the focus of these organizations on financialself-sufficiency. This
transformation has been possible because commercial banks have entered
thisarena bringing in key concepts like self-sufficiency, proper credit
appraisal and risk managementpractices. But there are some issues that
have to be dealt with by the banks before embarking on theMicrofinance
journey. 43
They are: 1. Banks Outreach 2. Clarity in objectivesBanks outreach is one
of the most crucial aspects that must be critically examined by them
beforeentering into microfinance sector. One reason for it is that most of
the commercial banks have little orno rural presence with rate exceptions
such as India, where rural banking was a priority and there is asignificant
presence of commercial banks in the rural areas. They have to decide
whether to start theirown branches in rural areas if they do not have any or
partner with other banks or other microfinanceinstitutions in order to get a
foothold in the rural finance sector. The other issue that has to be
resolvedis the clarity in the bank in dealing with its microfinance operations.
They have to decide whether itwill be completely independent operation or
it will be part of their existing rural banking framework.For example, ICICI
bank‟s microfinance operation is a completely independent operation and it
doesnot have any link with its commercial banking operation. Once these
major issues are sorted outcommercial banks will have enough leverage to
approach the microfinance sector with confidence.MICROFINANCE
INSTITUTIONSMicrofinance institutions are perhaps one of the most
important vehicles to reach the rural poor. Theseinstitutions can act as very
important tool to provide the rural entrepreneurs with micro-loans, whichwill
help them to start their own businesses and sustain them. One advantage
that these institutionshave over other financial services delivery vehicles is
the focus. While NGOs have to straddle withvarious non-financial and
financial services activities and commercial bank with other
operations.MFIs can solely focus on providing the financial service to the
poor since the very objective of startingthis kind of institution is to provide
financial services in the rural areas. There are many examples ofMFIs that
has done some stellar work in this area such as ACCION International,
BancoSol andGrameen Bank. These institutions have helped many people
in enhancing their lives and achieving adecent social status in the societies
that they are living in. The key advantages that they have over theother
forms of microfinance are: Focus is solely on providing financial services. It
can provide whole gamut of services from loans to insurance.However, it
has also some advantages like sustainability of these institutions. Most of
the MFIsincluding Grameen bank are still donor supported organization
and many of them still depend onoutside funds for their survival. Only
some have like BancoSol have made successful transition fromdonor
supported financially self-sustained organization. 44
Apart from these there are several other important mechanisms through
while microfinance is providedlike mutual community groups, regional
woman group like Development of Women and Child inRural Area
(DWCRA) and other local organizations. However, they have not played a
significant rolein the microfinance movement till now and they can play a
major role in providing rural financialservices in the long run.ICICI Bank
launches new initiative in micro-finance ICICI Bank has taken a stake of
under 20 per cent in Financial Information Network and Operations Private
Ltd (FINO), which was launched on Thursday, July 13, 2001. FINO
would provide technological solutions as well as services to finance
providers to reach the underserved in the country. ICICI Bank is the lead
facilitator. According to Mr. NachiketMor, Deputy Managing Director,
ICICI Bank, FINO is an independent entity. "We would reduce our stake in
the company when required," he said. ICICI Bank expects to target 200
micro-finance institutions (MFIs) by March 2007, he said, speaking on the
sidelines of the press conference to launch FINO. At present, the bank has
tie- ups with 100 MFIs. FINO is an initiative in the micro-finance sector. It
would target 300-400 million people who do not have access to basic
financial services, said Mr. Manish Khera, CEO, FINO. The company has
an authorized capital of Rs.50 crore. MFIs, NBFCs, RRBs, co-operative
banks, etc. would directly or indirectly tie up with FINO to use its services,
he said. FINO would charge Rs.25-30 per account every year.Core
banking productsFINO has partnered with IBM and i-flex to offer core
banking products. It would also provide creditbureau services, which
includes individual customer credit rating and analytics based on
transactionhistory. It also launched biometric cards for customers, which
would be a proof of identity and givecollateral to them. The card would also
offer multiple products including savings, loans, insurance,recurring
deposits, fixed deposits and remittances. The company would also build-up
customerdatabase, thus bringing them into mainstream banking."There
was a need for automated structured data system like FINO," said Mr. Mor.
"Essential pieces ofinfrastructure are missing in India. We lack credit-
tracking mechanism; therefore there was a need foran intervention like
FINO."The company expects to reach 25 million customers in five years
and two million customers by theend of 2007. 45
FINO aims bringing scale to "micro" business leading to lowering of costs
for the local financialinstitutions (LFIs) and act as an internal technology
department for the LFIs, said Mr. Khera.The company is working on
providing technological solutions in insurance, especially the
healthinsurance sector to the under-privileged," he said. It is interacting
with Nabard, SIDBI and other banksto give shape to what FINO does, said
Mr. Khera.ICICI Banks thrust on micro-financeCHENNAI, MARCH 9. ICICI
Bank has entered into partnerships with various microfinanceinstitutions
(MFI) and non-Government organizations (NGOs) to scale up its micro
lending business.Addressing presspersons here, today, NachiketMor,
Executive Director, ICICI Bank, said, thepartnership model would provide
assured source of funding to NGOs and MFIs. The bank hadextended
advances to the tune of Rs.150 crores as on February 29, this year, under
this scheme, Mr.Mor said.The bank had acquired a network of self-help
groups (SHGs) developed by the erstwhile Bank ofMadura after its merger
with ICICI Bank. Since then the SHG programme had grown substantially
and10,175 groups had been promoted reaching out to 2.03 lakh women
spread across 2,398 villages, theExecutive Director said.One of the micro
finance institutions, `Microcredit Foundation of India, established by K.
M.Thiagarajan, former Chairman of Bank of Madura in 2002, had initiated a
programme for microcreditthrough self-help groups.ICICI Bank has entered
into a memorandum of understanding with Microcredit Foundation
tooutsource SHG development, maintenance of groups, credit linkage and
recovery of loans.Financial Institutions and banksMicrofinance has been
attractive to the lending agencies because of demonstrated sustainability
and oflow costs of operation. Institutions like SIDBI and NABARD are hard-
nosed bankers and would notwork 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 istangible and it is easily understood by
the mainstream. This also seems to sound nice to thegovernment, which in
the post liberalization era is trying to explain the logic of every rupee
spent.That is the reason why microfinance has attracted mainstream
institutions like no other developmentalproject. 46
Perhaps the most important factor that got banks involved is what one
might call the policy push.Giventhat most of our banks are in the public
sector, public policy does have some influence on what theywill or will not
do. In this case, policy was followed by diligent, if meandering, promotional
work byNABARD. The policy change about a decade ago by RBI to allow
banks to lend to SHGs was initiallyfollowed by a seven-page memo by
NABARD to all bank chairmen, and later by sensitization andtraining
programmes for bank staff across the country. Several hundred such
programmes wereconducted by NGOs alone, each involving 15 to 20 bank
staff, all paid for by NABARD. The policypush was sweetened by the
NABARD refinance scheme that offers much more favorable terms
(100%refinance, wider spread) than for other rural lending by banks.
NABARD also did some system settingwork and banks lately have been
given targets. The canvassing, training, refinance and close follow upby
NABARD has resulted in widespread bank involvement.Moreover, for
banks the operating cost of microfinance is perhaps much less than for
pure MFIs. Thebanks already have a vast network of branches. To the
extent that an NGO has already promoted SHGsand the SHG portfolio is
performing better than the rest of the rural (if not the entire)
portfolio,microfinance via SHGs in the worst case would represent marginal
addition to cost and would oftenreduce marginal cost through better
capacity utilization. In the process the bank also earns browniepoints 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
millionpoor households of India, coupled with about the same number who
are technically above the povertyline but are severely under-served by the
financial sector, is a very large one. Moreover, as in anyemerging market,
though the perceived risks are higher, the spreads are much greater. The
traditionalcommercial markets of corporates, business, trade, and now
even housing and consumer finance arebeing 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,
fordeposits, insurance, remittances and eventually mutual funds. Since the
larger banks are offering allthese services now through their group
companies, it becomes imperative for them to expand theirdistribution
channels as far and deep as possible, in the hope of capturing the entire
financial servicesbusiness 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 haverealized the potential of this big
market and are actively using SHGs as entry points. Some amount offree-
riding is taking place here by companies, for they are using channels which
were built at asignificant cost to NGOs, funding agencies and/or the
government.On the whole, the economic attractiveness of microfinance as
a business is getting established and thisis a sure step towards
mainstreaming. We know that mainstreaming is a mixed blessing, and one
tendsto exchange scale at the cost of objectives. So it needs to be watched
carefully. 47
The RBI will now directly regulate microfinance sectorThe Reserve Bank of
India has now decided to bunch together the beleaguered microfinance
sector asa niche segment within the category of non-banking financial
companies (NBFC).This means it will now be the direct regulator of this
sector – in line with the recommendations of theMalegam Committee which
made recommendations in this regard after the Andhra
microfinancefiasco.Under guidelines issued on Friday, the RBI has directed
all existing microfinance institutions (MFIs)who can meet its new regulatory
norms to register as NBFC-MFIs by April 2012. Those who do notmeet the
norms cannot, henceforth, lend more than 10 percent of their total assets
to the sector.The conditions set for NBFC-MFIs include the following: They
must have minimum net owned funds of Rs.5 crore (Rs.2 crore if they
operate in the North-East). Their capital adequacy ratio (CAR) has to be 15
percent. This ratio is the measure of a bank‟s capital weighed against its
risk assets (loans). Since MFIs in Andhra are stuck up to their necks in bad
debts, the RBI has given them a one-year concession in capital adequacy.
MFIs with more than 25 percent exposure to Andhra Pradesh need to
maintain only 12 percent CAR in the first year. MFIs cannot lend at more
than 26 percent interest, and margins on borrowed funds cannot exceed 12
percent. This means if MFIs can borrow cheap – say at 10 percent – the
interest rate cap on lending is 22 percent, and not 26 percent. As far as
lending is concerned, not more than two MFIs can lend to the same
borrower while one borrower cannot be a member of two groups
simultaneously. The frequency of repayment installments can be decided
by the borrower. MFIs should have higher cutoffs for lending in urban and
semi-urban areas. MFIs have to start provisioning for defaults, and loans
that are not serviced for more than 90 days should be classified as non-
performing.The Reserve Bank has had to step in because states were
beginning to impose their own regulations.This is what happened in Andhra
Pradesh, where the state issued an ordinance last October whenreports of
borrower suicides and unfair debt collection methods were reported. The
MFI boomcollapsed immediately after the Andhra law was imposed.In its
recent report on “Trend and Progress of the Banking in India, 2011-12″, the
RBI had expressedconcern over states bringing in their own regulations.
This was queering the pitch for big MFIs withbusiness across several
states since they would have to follow different laws in different states. 48
The collapse of MFIs in Andhra Pradesh also sent a clear warning signal
those MFIs needed a singleregulatory environment – especially since
micro financing is seen as one way of improving financialinclusion.The
National Bank for Agriculture and Rural Development (Nabard) was one of
the choices forregulating MFIs, but since it has its own lending exposures
to rural areas, the mantle finally fell on theRBI itself.The MFI industry is
likely to welcome the new norms, barring the one capping interest rates. In
thecurrent high interest rate scenario and high default rates, the 26 percent
limit will squeeze theirmargins.MICROFINANCE AND WOMEN
EMPOWERMENTWomen as micro and small entrepreneurs have
increasingly become the key target group for microfinance programs.
Consequently, providing access to micro finance facilities is not only
considered apre-condition for poverty alleviation, but also considered as a
strategy for empowering women. Indeveloping countries like INDIA micro
finance is playing an important role, promoting genderequality and is
helping in empowering women so that they can live quality life with
dignity.The study conducted by FINCA Client Poverty Assessment
conducted in 2003 revealed that of theinterviewed clients 81 percent were
women, and it was found that food security was 15 percent higheramong
their village banking clients than non-clients. The report also showed
clients to have 11 percentmore of their children enrolled in school with an
18 percent increase in healthcare benefits. Clients‟housing security was
reported as 18 percent higher than non-clients. The assessment concluded
thatmicrofinance improved the wellbeing of women clients and their
families.Microfinance has a positive effect on the empowerment of women
by creating an “empowermentindicator”.These indicators can be based on
the following factors: Mobility. Economic security- enables poor women in
making them economic agents of change by increasing their income and
productivity. Ability to make small purchases. Ability to make larger
purchases. Involvement in major household decisions. Relative freedom
from domination within the family. Political and legal awareness.
Involvement in political campaigning and protests. 49
To access to markets and information. They become more confident. They
get a better control of the resources. They can confront systemic gender
inequalitiesBEIJING CONFERENCE 1995 HAD IDENTIFIED CERTAIN
INDICATORS OF WOMENEMPOWERMENTImportant among them are as
follows: Increase in self-esteem, individual and collective confidence
Increase in articulation, knowledge and awareness on health, nutrition
reproductive rights, law and literacy Increase an decrease in personal
leisure time and time for child care; Increase on decrease of workloads in
new programmes Change in roles and responsibility in family & community.
Visible increase on decrease in violence on women and girls; Responses
to, changes in social customs like child marriage, dowry, discrimination
against widows Visible changes in womens participation level attending
meeting, participating and demanding participation Increase in bargaining
and negotiating power at home, in community and the collective Increase
access to and ability to gather information Formation of women collectives
Positive changes in social attitudes Awareness and recognition of womens
economic contribution within and outside the household; Women‟s
decision-making over her work and incomeWOMEN’S EMPOWERMENT
AND MICRO FINANCE: DIFFERENT PARADIGMSConcern with women‟s
access to credit and assumptions about contributions to
women‟sempowerment are not new. From the early 1970s women‟s
movements in a number of countriesbecame increasingly interested in the
degree to which women were able to access poverty-focusedcredit
programmes and credit cooperatives. In India organizations like Self-
Employed Women‟sAssociation (SEWA) among others with origins and
affiliations in the Indian labour and women‟smovements identified credit as
a major constraint in their work with informal sector women workers. 50
a) Feminist Empowerment ParadigmThe feminist empowerment paradigm
did not originate as a Northern imposition, but is firmly rootedin the
development of some of the earliest micro-finance programmes in the
South, including SEWAin India. It currently underlies the gender policies of
many NGOs and the perspectives of some of theconsultants and
researchers looking at gender impact of micro-finance programmes (e.g.
Chen 1996,Johnson, 1997).Here the underlying concerns are gender
equality6 and women‟s human rights. Women‟sempowerment is seen as
an integral and inseparable part of a wider process of social
transformation.The main target group is poor women and women capable
of providing alternative female role modelsfor change. Increasing attention
has also been paid to mens role in challenging gender inequality.Micro-
finance is promoted as an entry point in the context of a wider strategy for
women‟s economicand socio-political empowerment which focuses on
gender awareness and feminist organization. Asdeveloped by Chen in her
proposals for a sub sector approach to micro credit, based partly on
SEWAsstrategy and promoted by UNIFEM, microfinance must be:Part of a
sectorial strategy for change which identifies opportunities, constraints and
bottlenecks withinindustries which if addressed can raise returns and
prospects for large numbers of women. Possiblestrategies include linking
women to existing services and infrastructure, developing new
technologysuch as labour-saving food processing, building information
networks, and shifting to new markets,policy level changes to overcome
legislative barriers and unionization.Based on participatory principles to
build up incremental knowledge of industries and enable womento develop
their strategies for change (Chen, 1996). Economic empowerment is
however defined inmore than individualist terms to include issues such as
property rights, changes intra-householdrelations and transformation of the
macro-economic context. Many organizations go further thaninterventions
at the industry level to include gender-specific strategies for social and
politicalempowerment. Some programmes have developed very effective
means for integrating genderawareness into programmes and for
organizing women and men to challenge and change genderdiscrimination.
Some also have legal rights support for women and engage in gender
advocacy. Theseinterventions to increase social and political
empowerment are seen as essential prerequisites foreconomic
empowerment.b) Poverty Reduction ParadigmThe poverty alleviation
paradigm underlies many NGO integrated poverty-targeted
communitydevelopment programmes. Poverty alleviation here is defined in
broader terms than market incomes toencompass increasing capacities
and choices and decreasing the vulnerability of poor people.The main
focus of programmes as a whole is on developing sustainable livelihoods,
communitydevelopment and social service provision like literacy,
healthcare and infrastructure development. 51
There is not only a concern with reaching the poor, but also the poorest.
Although term empowermentis frequently used in general terms, often
synonymous with a multi-dimensional definition of povertyalleviation, the
term womens empowerment is often considered best avoided as being
toocontroversial and political.c) Financial Sustainability ParadigmThe
financial self-sustainability paradigm (also referred to as the financial
systems approach orsustainability approach) underlies the models of
microfinance promoted since the mid-1990s by mostdonor agencies and
the Best Practice guidelines promoted in publications by USAID, World
Bank,UNDP and CGAP.The ultimate aim is large programmes which are
profitable and fully self-supporting in competitionwith other private sector
banking institutions and able to raise funds from international
financialmarkets rather than relying on funds from development agencies.
The main target group, despiteclaims to reach the poorest, is the „bankable
poor: small entrepreneurs and farmers. This emphasis onfinancial
sustainability is seen as necessary to create institutions which reach
significant numbers ofpoor people in the context of declining aid budgets
and opposition to welfare and redistribution inmacro-economic
policy.These paradigms do not correspond systematically to any one
organizational model of micro-finance.Micro-finance providers with the
same organizational form e.g. village bank, Grameen model orcooperative
model may have very different gender policies and/or emphases and
strategies for povertyalleviation. The three paradigms represent different
„discourses‟ each with its own relatively consistentinternal logic in relating
aims to policies, based on different underlying understandings
ofdevelopment. They are not only different, but often seen as „incompatible
discourses‟ in uneasytension and with continually contested degrees of
dominance. In many programmes and donoragencies there is considerable
disagreement, lack of communication and/or personal animosity
andpromoted by different stakeholders within organizations between staff
involved in micro-finance(generally firm followers of financial self-
sustainability), staff concerned with human development(generally with
more sympathy for the poverty alleviation paradigm and emphasizing
participation andintegrated development) gender lobbies (generally
incorporating at least some elements of the feministempowerment
paradigm). What is of concern in current debates is the way in which the
use ofapparently similar terminology of empowerment, participation and
sustainability conceals radicaldifferences in policy priorities. Although
women‟s empowerment may be a stated aim in the rhetoricof official
gender policy and program promotion, in practice it becomes subsumed in
and marginalizedby concerns of financial sustainability and/or poverty
alleviation. 52
Micro Credit and Womens EmpowermentBefore 1990s, credit schemes for
rural women were almost negligible. The concept of womens creditwas
born on the insistence by women oriented studies that highlighted the
discrimination and struggleof women in having access to credit. However,
there is a perceptible gap in financing genuine creditneeds of the poor
especially women in the rural sector.There are certain misconceptions
about the poor people that they need loan at subsidized rates ofinterest on
soft terms, they lack education, skills, capacity to save, credit-worthiness
and therefore arenot bankable. Nevertheless, the experiences of several
SHGs(self-help groups) reveal that rural poorare actually efficient
managers of credit and finance. Availability of timely and adequate credit
isessential for them to undertake any economic activity rather than credit
subsidy.The Government measures have attempted to help the poor by
implementing different povertyalleviation programmes but with little
success. Since most of them are target-based involving lengthyprocedures
for loan disbursements, high transaction costs, and lack of supervision and
monitoring.Banks often suffer from poor repayment leading to a high level
of non-performing assets NPAs (non-performing assets).Since the credit
requirements of the rural poor cannot be adopted on project lending
approach as it is inthe case of organized sector, there emerged the need
for an informal credit supply through SHGS. Therural poor with the
assistance from NGOs have demonstrated their potential for self-help to
secureeconomic and financial strength. Various case studies show that
there is a positive correlation betweencredit availability and womens
empowerment.Microfinance refers to the provision of financial services to
low-income clients, including consumersand the self-employed.
Microfinance programmes are currently being promoted as a key strategy
forsimultaneously addressing both poverty alleviation and womens
empowerment. Where financialservice provision leads to the setting up or
expansion of microenterprises there are a range of potentialimpacts
including: Increasing womens income levels and control over income
leading to greater levels of economic independence Access to networks
and markets giving wider experience of the world outside the home, access
to information and possibilities for development of other social and political
roles. Enhancing perceptions of womens contribution to household income
and family welfare, increasing womens participation in household decisions
about expenditure and other issues and leading to greater expenditure on
womens welfare.The term micro finance is of recent origin and is
commonly used in addressing issues related topoverty alleviation, financial
support to micro entrepreneurs, gender development etc. There is, 53
however, no statutory definition of micro finance. The taskforce on
supportative policy and RegulatoryFramework for Microfinance has defined
microfinance as “Provision of thrift, credit and otherfinancial services and
products of very small amounts to the poor in rural, semi-urban or urban
areasfor enabling them to raise their income levels and improve living
standards”. The term “Micro”literally means “small”. But the task force has
not defined any amount. However as per Micro CreditSpecial Cell of the
Reserve Bank Of India , the borrowal amounts up to the limit of Rs.25000/-
couldbe considered as micro credit products and this amount could be
gradually increased up to Rs.40000/-over a period of time which roughly
equals to $500 – a standard for South Asia as per internationalperceptions.
The term micro finance sometimes is used interchangeably with the term
micro credit.However while micro credit refers to purveyance of loans in
small quantities, the term microfinancehas a broader meaning covering in
its ambit other financial services like saving, insurance etc. as well.The
mantra “Microfinance” is banking through groups. The essential features of
the approach are toprovide financial services through the groups of
individuals, formed either in joint liability or co-obligation mode.The other
dimensions of the microfinance approach are:- Savings/Thrift precedes
credit Credit is linked with savings/thrift Absence of subsidies Group plays
an important role in credit appraisal, monitoring and
recovery.EMPOWERMENT: FOCUS ON POOR WOMENWomen have
been the vulnerable section of society and constitute a sizeable segment of
the poverty-struck population. Women face gender specific barriers to
access education health, employment etc.Micro finance deals with women
below the poverty line. Micro loans are available solely and entirelyto this
target group of women. There are several reason for this: Among the poor ,
the poor women aremost disadvantaged –they are characterized by lack of
education and access of resources, both ofwhich is required to help them
work their way out of poverty and for upward economic and socialmobility.
The problem is more acute for women in countries like India, despite the
fact that women‟slabor makes a critical contribution to the economy. This is
due to the low social status and lack ofaccess to key resources. Evidence
shows that groups of women are better customers than men, thebetter
managers of resources. If loans are routed through women benefits of
loans are spread wideramong the household. Since women‟s
empowerment is the key to socio economic development of thecommunity;
bringing women into the mainstream of national development has been a
major concern ofgovernment. The ministry of rural development has
special components for women in its programmes.Funds are earmarked as
“Women‟s component” to ensure flow of adequate resources for the same.
54
Besides SwarnagayantiGrameenSwarazgarYojona (SGSY), Ministry of
Rural Development isimplementing other scheme having women‟s
component .They are the Indira AwasYojona (IAJ),National Social
Assistance Programme (NSAP), Restructured Rural Sanitation
Programme,Accelerated Rural Water Supply programme (ARWSP) the
(erstwhile) Integrated Rural DevelopmentProgramme (IRDP), the
(erstwhile) Development of Women and Children in Rural Areas
(DWCRA)and the JowaharRozgarYojana (JRY).MICRO FINANCE
INSTRUMENT FOR WOMEN’S EMPOWERMENTMicro Finance is
emerging as a powerful instrument for poverty alleviation in the new
economy. InIndia, micro finance scene is dominated by Self Help Groups
(SHGs) – Bank Linkage Programme,aimed at providing a cost effective
mechanism for providing financial services to the “unreachedpoor”. Based
on the philosophy of peer pressure and group savings as collateral
substitute , the SHGprogramme has been successful in not only in meeting
peculiar needs of the rural poor, but also instrengthening collective self-
help capacities of the poor at the local level, leading to theirempowerment.
Micro Finance for the poor and women has received extensive recognition
as a strategyfor poverty reduction and for economic empowerment.
Increasingly in the last five years , there isquestioning of whether micro
credit is most effective approach to economic empowerment of poorestand,
among them, women in particular. Development practitioners in India and
developing countriesoften argue that the exaggerated focus on micro
finance as a solution for the poor has led to neglect bythe state and public
institutions in addressing employment and livelihood needs of the poor.
Credit forempowerment is about organizing people, particularly around
credit and building capacities to managemoney. The focus is on getting the
poor to mobilize their own funds, building their capacities andempowering
them to leverage external credit. Perception women is that learning to
manage money androtate funds builds women‟s capacities and confidence
to intervene in local governance beyond thelimited goals of ensuring
access to credit. Further, it combines the goals of financial sustainability
withthat of creating community owned institutions.Before 1990‟s, credit
schemes for rural women were almost negligible. The concept of women‟s
creditwas born on the insistence by women oriented studies that
highlighted the discrimination and struggleof women in having the access
of credit. However, there is a perceptible gap in financing genuinecredit
needs of the poor especially women in the rural sector. There are certain
misconception aboutthe poor people that they need loan at subsidized rate
of interest on soft terms, they lack education,skill, capacity to save, credit
worthiness and therefore are not bankable. Nevertheless, the experienceof
several SHGs reveals that rural poor are actually efficient managers of
credit and finance.Availability of timely and adequate credit is essential for
them to undertake any economic activityrather than credit subsidy. The
Government measures have attempted to help the poor by 55
implementing different poverty alleviation programmes but with little
success. Since most of them aretarget based involving lengthy procedures
for loan disbursement, high transaction costs, and lack ofsupervision and
monitoring. Since the credit requirements of the rural poor cannot be
adopted onproject lending app roach as it is in the case of organized
sector, there emerged the need for aninformal credit supply through SHGs.
The rural poor with the assistance from NGOs havedemonstrated their
potential for self-help to secure economic and financial strength. Various
casestudies show that there is a positive correlation between credit
availability and women‟s empowermentA real life Examples:-Lakshmi, a
22-year-old school dropout, lived in a remote village of Tamil Nadu. Instead
of gettingmarried and starting a family like any other village girl of her age
in India, she wanted to set up on herown business. Lakshmi started an
Internet kiosk in her village, offering services like e-mail, Internetchat and
tips on health and education. The kiosk was partially financed by ICICI
Bank and was set upin association with n-Logue Communications. Latha, a
29-year-old married woman with three childrenborrowed Rs.18000 to set
up a small provision store in Kothaipalli, a small village, in the north
ofAndhra Pradesh. Within a year, she started earning Rs.3500 a month
from the store. With this money,she was able to provide her children a
good education at a local private school. She was a part of a selfhelp group
in Andhra Pradesh which received financial assistance from ICICI Bank.
These are real-lifeexamples to illustrate how the micro-lending initiatives of
ICICI Bank affected the lives of poorwomen in India. 56
CHAPTER 4OBJECTIVES AND RESEARCH METHODOLOGY 57
INTRODUCTIONThis chapter focuses on the methodology & the
techniques used for the collection, classification &tabulation of data. It light
on the research problem, the objective of study & its
limitaions.OBJECTIVES OF THE STUDY: To study the impact of micro
finance in empowering the social economic status of women and
developing of social entrepreneurship. To know about relationship between
SHG‟s members, micro finance banks and entrepreneur‟s women. To
clarify the limitation of microfinance programmes as the tool for women‟s
empowerment and the type of support service necessary to maximize the
contribution of microfinance service. To study potential hurdles in the
development of women entrepreneurship.RESEARCH
METHODOLOGYResearch methodology is a way to systematically solve
the problem. It is a game plan for conductingresearch. In this we describe
various steps that are taken by the researcher.“All progress is born of
inquiry. Doubt is often better than overconfidence, for it leads to inquiry
andinquiry leads to invention.”Research in a common parlance is a search
for knowledge. Research is an art of scientific andsystematic investigation.
Thus research comprises defining and redefining problems,
formulatinghypothesis or suggested solutions; collecting, organizing and
evaluating data, making deductions andreaching conclusions. Research
methodology is the arrangement of condition for collection andanalysis of
data in a manner that aims to combine relevance to the research purpose
with economy inprocedure. Research Methodology is the conceptual
structure within which research is conducted. Itconstitutes the blueprint for
the collection measurement and analysis of the data.Research
methodology is a framework for the study and is used as a guide in
collecting and analyzingthe data. It is a strategy specifying which approach
will be used for gathering and analyzing the data. italso includes time and
cost budget since most studies are done under these two constraints.
Theresearch methodology includes overall research design, the sampling
procedure, the data collectionmethod and analysis procedure. 58
TYPE OF RESEARCH USED:-Descriptive ResearchIn the study
descriptive research design has been used. As descriptive research design
is thedescription of state of affairs, as it exists at present. In this type of
research the researcher has nocontrol over the variables; he can only
report what has happened or what is happeningDescriptive research
designs are those design which are concerned with describing the
characteristicsof particular individual or of the group. In descriptive and
diagnostic study the researcher must be ableto define clearly what he
wants to measure and must find adequate method for measuring
it.METHOD OF DATA COLLECTIONAfter the research problem has been
identified and selected the next step is to gather the requisite data.While
deciding about the method of data collection to be used for the researcher
should keep in mindtwo types of data i.e. primary and secondary. TYPES
OF DATA PRIMARY SECONDRY DATA DATA Figure 4.1Primary
DataThe primary data are those, which are collected afresh and for the first
time, and thus happened to beoriginal in character. We can obtain primary
data either through observation or through directcommunication with
respondent in one form or another or through personal interview. 59
PRIMARY DATA OBSERVATION INTERVIEW QUETIONAIRE
SCHEDULE METHOD METHIOD METHOD METHOD Figure
4.2Secondary DataThe secondary data on the other hand, are those which
have already been collected by someone elseand which have already been
passed through the statistical processes. When the researcher
utilizessecondary data then he has to look into various sources from where
he can obtain them. For e.g. books,magazine, newspaper, internet,
publications and reports.In this study data have been taken fromvarious
secondary sources like: Internet Books Magazines Newspapers Journals
60
CHAPTER 5 ANALYSIS ANDINTERPRETATION OF DATA 61
Objective 1:-To study the impact of micro finance in empowering the social
economic status ofwomen and developing of social
entrepreneurship.AmountInCrore/No. in Lakhs Particular Year Total SHGs
All Women SHGs % ofWomanGroups No. Amount No. Amount No.
Amount SHG Savingswith 2009-10 69.53 6198.71 53.10 4498.66 76.4 72.6
banks as on 31st March 2010-11 74.62 7016.30 60.98 5298.65 81.7 75.5
Loan disbursed to 2009-10 15.87 14453.3 12.94 12429.37 81.6 86 SHGs
during the 2010-11 11.96 14547.73 10.17 12622.33 85 86.8 year Loan
outstanding 2009-10 48.51 28038.28 38.98 23030.36 80.30 82.1 against
SHGs as on 2010-11 47.87 31221.17 39.84 26123.75 83.2 83.7 31st
March Table 5.1Total No. of Loan disbursed:- Particular 2009-10 2010-11
Total SHGs 15.87 11.96 All Women SHGs 12.94 10.17 Table 5.2 18 16 14
12 10 2009-10 8 2010-11 6 4 2 0 Total SHGs All Women SHGs Figure
5.1Total Amount of loan disbursed:- 62
Particular 2009-10 2010-11 Total SHGs 6198.71 7016.30 All Women
SHGs 4498.66 5298.65 Table 5.3 8000 7000 6000 5000 4000 2009-10
2010-11 3000 2000 1000 0 Total SHGs All Women SHGs Figure
5.2INTERPRETATION: - According to main objective to know the
economic and social developmentof women entrepreneurship. Above table
show the economic development of women. In 2009-10loansdisbursed
amount to women is 12429.37crore and 2010-11 is 12622.33crore. In
2009-10 SHG Savingsamount to women is 4498.66crore and 2010-11 is
5298.65crore and in 2009-10 loan outstandingamounts to women is
23030.36crore and 2010-11 is 26123.75crore. That shows the
economicdevelopment of women.Objective 2:-To know about relationship
between SHG‟s members, micro finance banks andentrepreneur‟s women.
63
Savings of SHGs with public sector commercial banks as on 31st March
2011 Amount Rs. Lakh Details of SHGs Saving linked Out Of Total SHGs-
ExclusiveSr. with Banks Women SHGs Name of The BankNo. No. Of No.
of Saving No. Of No. of Saving SHGs Members Amount SHGs Members
AmountDelhi 1 Allahabad Bank 30 320 14.00 30 320 14.00 2 Bank of
Baroda 383 3775 62.83 377 3685 60.96 3 Bank of India 35 552 6.73 35
552 6.73 4 Indian Bank 815 8956 43.59 789 8675 38.39 5 Central Bank of
India 8 80 0.30 8 80 0.30 6 Syndicate Bank 19 173 2.58 16 165 2.54 7
Punjab National Bank 760 7600 108.42 705 7050 103.99 8 State Bank of
India 751 9012 31.00 751 9012 31.00 Table 5.4 Amount Rs. Lakh 64
Details of SHGs Saving linked Out Of Total SHGs- ExclusiveSr. Name of
The Bank with Banks Women SHGsNo. No. Of No. of Saving No. Of No. of
Saving SHGs Members Amount SHGs Members AmountPunjab 1
Allahabad Bank 304 3040 9.40 95 950 2.94 2 Bank of Baroda 150 1200
50.30 142 710 24.50 3 Bank of India 374 4452 25.43 271 3253 18.76 4
Canara Bank 159 1936 9.53 137 1502 7.28 5 Central Bank of India 540
6022 64.42 354 4106 42.06 6 Punjab & Sind Bank 1113 11744 50.89 745
7911 31.08 7 Punjab National Bank 4315 46575 2041.77 2105 22073
183.38 8 State Bank of India 3944 47328 89.00 3156 37872 71.00 Table
5.5 Amount Rs. Lakh 65
Details of SHGs Saving linked Out Of Total SHGs- ExclusiveSr. with Banks
Women SHGs Name of The BankNo. No. Of No. of Saving No. Of No. of
SavingAmount SHGs Members Amount SHGs MembersHaryana1 Bank of
Baroda 152 725 16.00 129 350 2.602 Bank of India 139 1398 42.15 31 290
2.203 Canara Bank 453 4925 52.25 390 4052 37.59 Central Bank of4 482
5296 28.72 350 3844 19.14 India5 Indian Bank 114 1710 3.63 114 1710
3.63 Punjab & Sind6 704 7040 49.76 411 4110 28.57 Bank Punjab
National7 10703 109260 7002.82 8037 84148 4264.17 Bank8 State Bank
of India 4984 59808 207.00 4190 50280 170.00 Table 5.6 66
Amount Rs. Lakh Details of SHGs Saving linked Out of Total SHGs-
ExclusiveSr. with Banks Women SHGs Name of The BankNo. No. of No.
of Saving No. Of No. of Saving SHGs Members Amount SHGs Members
AmountHimachal Pradesh 1 Bank of India 46 465 11.50 0 0 0.00 2 Canara
Bank 118 1440 4.65 118 1440 4.65 3 Central Bank of India 412 4244 48.21
324 3382 33.68 4 Indian Bank 39 585 2.37 39 585 2.37 5 Punjab & Sind
Bank 92 920 11.62 53 530 6.73 6 Punjab National Bank 18049 182407
1127.80 12301 123010 946.24 7 State Bank of India 6794 81528 126.00
5436 65232 100.00 8 UCO Bank 993 11432 333.19 760 8680 259.91
Table 5.7INTERPRETATION:-There are four states which show the
relationship between Banks SHGs andwomen SHGs. According to above
table it show the total saving of women SHGs with total SHGs andtotal
saving of SHGs with banks. There are more % of women SHGs saving out
of total SHGs saving.In Delhi region 2010-11 highest SHG Savings amount
to women in Punjab national bank is 103.99lakh and lowest in Central
Bank of India is 0.30 lakh. In Punjab region 2010-11 highest SHG
Savingsamount to women in Punjab National Bank is 183.38 lakh and
Lowest in Allahabad Bank is 2.94lakh.In Haryana region 2010-11 highest
SHG Savings amount to women in Punjab National Bank is4264.17 lakh
and Lowest in Bank of India is 2.20 lakh. In Himachal Pradesh region
2010-11 highestSHG Savings amount to women in Punjab National Bank
is 946.24 lakh and Lowest in Bank of Indiais 0.00 Lakh. It shows the good
relationship of women SHGs with SHGs group and banks. 67
Objective 3:- To clarify the limitation of microfinance programmes as the
tool for women‟sempowerment and the type of support service necessary
to maximize the contribution of microfinanceservice. Figure
5.3CHALLENGES FACED BY THE WOMEN
ENTREPRENEURSChallenges are faced by the women entrepreneurs
due to many reasons. Some of the challenges facedby the women
entrepreneurs include- Intense competition from similar products, limited
knowledge, production and quality standards as well as low confidence and
morale. Many women started their own business due to the adverse
circumstances, such as loss of spouses, divorce or financial hardship. Lack
of follow up and holding support (i.e. Capital, market linkages, technical
information and marketing techniques) after receiving Entrepreneurship
development training. A risk averse mindset. Inadequate capital.
Networking problem (i.e. with raw supplier to buyer of products) Insufficient
management and marketing skills. Low level of motivation and courage.
Lack of support from male members (of the families) as well as banks 68
Large magnitude of the target group of poor people. Attitudinal rigidities.
Difficulty in creating awareness among people. Limited resources with the
NGOs. Large requirements of training and sensitization of issues. Limited
number of experienced intervention agencies. Diversities of situations due
to wide coverage.OVERCOMING THE CHALLENGESThe challenges
faced by the women entrepreneurs can be overcome with the help of the
followingmeasures- Creating the Importance of Entrepreneurship program
and skills training, and MF and support under single roof. Training
programme operating in several states helped NGOS-MFIs provide their
microfinance clients different set of skills for successfully running
enterprises. Provide micro credit for livelihood support and to micro
enterprises development. Encouraging women entrepreneur to utilize the
loans for productive purposes and have the potential to become
entrepreneur. Establishing a network of SHG to serve as a “self-help
community” for micro enterprises development activities. Social recognition
of women leading an enterprise. Developing female mentors, trainers and
advisors. Establishing sources of credit.Objective 4:-To study potential
hurdles in the developing of women entrepreneurship.Role of Microfinance
Services:-1. Do not restrict loan use: - Access to financial services provides
the poor with the opportunity toaccumulate assets, to reduce their
vulnerability to shocks (such as illness or death in the household,crop
failure, theft, dramatic price fluctuations, the payment of dowries) and to
invest in income-generation activities. It also enables them to improve the
quality of their lives through better education,health and housing. One of
the most important roles of access to credit is that it enables the poor
todiversify their incomes. Most poor households do not have one source of
income or livelihood. Insteadthey pursue a mix of activities, depending on
the season, prices, their health and other contingencies.This may include
growing their own food, working for others, running small production or
tradingbusinesses, hunting and gathering, and accessing loans. 69
What to do?Microfinance organizations should allow for the fact that
microentrepreneurs have a variety of uses forfunds, not only for the activity
for which a loan is formally given but also for household operations
andother family enterprises. It would be too risky for the poor, particularly
the poorest of the poor, toinvest all their income in a single activity. If the
single activity or enterprise failed, the consequencesof this would be much
greater than if they had several sources of income. Providers of quality
financialservices recognize this and place relatively few restrictions on loan
use. Most microfinanceorganizations do not monitor client loans to ensure
that the loan is being used for its stated purposebecause they recognize
that it is part of the survival strategy of poor clients to make an on-
goingstream of economic choices and decisions. The clients themselves
know how best to manage theirfunds.Example: Kamala Ranis diversified
activities (Bangladesh). Kamala Rani is an experienced borrower.She has
taken loans three times. She invested her small, first loan (1,000 taka) in
her husbandsbusiness. He trades in bamboo and sells bamboo products in
his shop. Kamala also provides labour tomake bamboo mats. When she
obtained her second loan (2,000 taka), she used it to make largecontainers
for storing crops and other products, which she sells fromhome to
wholesalers and villagers.Next she borrowed another 4,000 taka, primarily
to buy a cow. She can repay her loan from her profitsfrom selling milk and
from her investment in her husbands business. She still makes mats and
otherbamboo products, which she plans to sell at the end of the year, when
the price of the mats will go up.She can take advantage of this increase in
the price of the mats because she has other sources ofincome to make her
weekly loan instalment payments. Like other low- income clients, Kamala
Rani‟sdiversified activities enable her to maximize returns from
investment.2. Provide access to financial services, not subsidies:-For
microenterprises, the most common constraint is the lack of access to
working capital to grow theirbusiness. Low-income entrepreneurs want
rapid and continued access to financial services rather thansubsidies, and
they are able – and willing – to pay for these services from their profits.
Most microentrepreneurs borrow small amounts for short-term working
capital needs. The returns from theireconomic activities are normally
sufficient to pay high interest rates for loans and still make a profit.Micro
entrepreneurs value the opportunity to borrow and save with MFIs since
they provide servicesthat are cheaper than those that would normally be
available to poor clients or that would be entirelyunavailable to them.
Moneylenders charge very high interest rates, often many times the rate
chargedby MFIs, and the moneylenders terms may not be suited to the
borrower. Micro entrepreneurs haveconsistently demonstrated that they will
pay the full interest cost to have continued access to financialservices from
MFIs.What to do? 70
MFIs cannot afford to subsidize loans. If the organization is to provide
loans on an on-going basis, itmust charge interest rates that allow it to
cover its costs. These costs tend to be high because providingunsecured,
small loans costs significantly more than loans in traditional banking. The
costs to theinstitution include operating costs, the cost of obtaining the
funds for loans, and the cost of inflation.MFIs cannot rely on governments
and donors as long-term sources of funding. They must be able togenerate
their own income from revenues, including interest and other fees. Since
the poor seekcontinued and reliable access to financial services and are
able and willing to pay for it, it isadvantageous to both the institution and
the clients to charge interest rates that cover the cost of
theservicesExamples: Client demand as an indicator. If clients repay their
loans, pay full-cost interest rates andremain in a programme as borrowers
or savers, it is a very good indication that they value theseservices. A
detailed, independent review of the microfinance activities of the United
Nations CapitalDevelopment Fund (UNCDF) in Africa, Asia and Latin
America found evidence that poor clients werewilling to pay the interest
rates necessary to provide these services. “Even when they have to pay
thefull cost of those services, they use them and come back to use them
again and again.” Continued andreliable access to credit and savings
services is what is most needed. “Subsidized lending programsprovide a
limited volume of cheap loans. When these are scarce and desirable, the
loans tend to beallocated predominantly to a local elite with the influence to
obtain them, bypassing those who needsmaller loans.In addition, there is
substantial evidence from developing countries worldwide thatsubsidized
rural credit programs result in high arrears, generate losses both for the
financial institutionadministering the programs and for the government or
donor agencies, and depress institutional savingand, consequently, the
development of profitable, viable rural financial institutions."3. Financial
services contribute to women’s empowerment:-Women entrepreneurs have
attracted special interest from MFIs because they almost always make
upthe poorest segments of society, they have fewer economic
opportunities, and they are generallyresponsible for child-rearing, including
education, health and nutrition. Given their particularlyvulnerable position,
many MFIs seek to empower women by increasing their economic position
insociety. Experience shows that providing financial services directly to
women aids in this process.Women clients are also seen as beneficial to
the institution because they are seen as creditworthy.Women have
generally demonstrated high repayment and savings rates.What to do?
MFIs interested in serving women should understand the specific needs of
women clients and attractwomen as customers. Women often have fewer
economic opportunities than men. Women also facecultural barriers that
often restrict them to the home (for example, the institution of the veil, or
purdah),making it difficult for them to access finance services.Women have
more traditional roles in theeconomy and may be less able to operate a
business outside of their homes. Women also tend to have 71
disproportionally large household obligations. Loan sizes may need to be
smaller, given that women‟sbusinesses tend to be smaller than mens.
They tend to focus on trade, services and lightmanufacturing. Womens
businesses are often based in the home and frequently use family
labour.Loans to women should allow women to balance their household
and business activities, for example,by not requiring that too much time be
spent in meetings and holding meetings in convenient locations.The
gender of loan officers may also affect the level of female participation in
financial services,depending on the social context.Examples:Women and
empowerment. Regardless of culture or national context, impact
assessments have foundpositive results for women with access to financial
services. For instance, a study on the impact ofmicrofinance on poverty
alleviation in East Africa, conducted by the UNDP MicroSave-
Africaprogramme, found that participation in a microfinance institution
"typically strengthens the position ofthe woman in her family. Not only does
access to credit give the woman the opportunity to make alarger
contribution to the family business, but she can also deploy it to assist the
husbands businessand act as the familys banker - all of which increase her
prestige and influence within the household."Access to networks and
markets giving wider experience of the world outside the home, access
toinformation and possibilities for development of other social and political
roles Enhancing perceptions of womens contribution to household income
and family welfare, increasing womens participation in household decisions
about expenditure and other issues and leading to greater expenditure on
womens welfare More general improvements in attitudes to womens role in
the household and community Many programmes have had negative as
well as positive impacts on women. Where women have set up enterprises
this has often led to small increases in access to income at the cost of
heavier workloads and repayment pressures. Within schemes, impacts
often vary significantly between women. There are differences between
women in different productive activities and between women from different
backgrounds. Positive impact on non-participants cannot be assumed,
even where women participants are able to benefit. Women micro-
entrepreneurs are frequently in competition with each other and the
poorest micro-entrepreneurs may be disadvantaged if programmes do not
include them. 72
CHAPTER 6FINDINGS AND LIMITAIONS 73
FINDINGS Micro financial institutions play a very important role today to
provide the micro finance to the women entrepreneure. Mostly MFI provide
the assistance to the women entrepreneur through MFI- bank linkage
programme. SKS is the largest micro financial institute which providing the
micro finance through different ways. It also coming up with their IPO to get
the more capital to increase their functioning From the current situation we
can understand that today the main focus of micro finance industry is to
empower the woman that‟s why more loans are provided to woman and on
easy terms. From the total SHG more SHG are coming in which only
women are member because women can better run a business and his
family. Narega and SGSY Swaranjyanti Gram SwarojgarYojna are one of
the schemes which are introduced by the government to help the poor
people Schemes are provided by the government to poor people but there
is less people who avail the benefit from these schemes. There are many
challenges face by women to doing the business as entrepreneur like lack
of capital, networking problems etc. But these challenges can be
overcoming with the help of Provide micro credit for livelihood support and
to micro enterprises development, establishing sources of credit. With the
help of relationship data we can see that there are more percentage of
women SHGs out of total SHGs. So that is good indicator for women
entrepreneur. The loan distributed data show increase the % of loan
amount to women as compare to last year. This show the economic
development of women entrepreneur.LIMITATIONS TIME CONSTRAINT
Shortage of time was a very big constraint due to which some area of
micro finance has been included in the study. RESOURCE CONSTRAINT
Availability of data was a constraint due to which only secondary data is
considered, which is available, and also there are some MFIs whose data
was not available SECONDARY DATA 74
All the information available was from secondary sources and data was
very vastto analyze properly & accuratelyWIDE AREA TO STUDY Study
being conducted was very wide & analysis require expertise knowledge &
skills which was lackingNO DIRECT SOURCE OF INFORMATION
AVAILABLEThe information is collected from indirect sources so in some
information data is not availableFUTURE ANALYSISThe whole study was
based on historical data which was not much useful in analysis of
presentand prediction of future. 75
CHAPTER 7 CONCLUSION, IMPLICATIONS ANDRECOMMENDATIONS
76
ConclusionTraditionally women have been marginalized. A high
percentage of women are among the poorest ofthe poor. Microfinance
activities can give them a means to climb out of poverty. Microfinance
couldbe a solution to help them to extend their horizon and offer them
social recognition and empowerment.Numerous traditional and informal
system of credit that was already in existence before micro financecame
into vogue. Viability of micro finance needs to be understood from a
dimension that is farbroader- in looking at its long-term aspects too.A
conclusion that emerges from this account is that micro finance can
contribute to solving theproblems of inadequate housing and urban
services as an integral part of poverty alleviationprogrammes. The
challenge lies in finding the level of flexibility in the credit instrument that
couldmake it match the multiple credit requirements of the low income
borrower without imposingunbearably high cost of monitoring its end use
upon the lenders. A promising solution is to providemultipurpose lone or
composite credit for income generation, housing improvement and
consumptionsupport. Consumption loan is found to be especially important
during the gestation period betweencommencing a new economic activity
and deriving positive income.India is the country where a collaborative
model between banks, NGOs, MFIs and Women‟sorganizations is furthest
advanced. It therefore serves as a good starting point to look at what we
knowso far about „Best Practice‟ in relation to micro-finance for women‟s
empowerment and how differentinstitutions can work together.It is clear
that gender strategies in micro finance need to look beyond just increasing
women‟s accessto savings and credit and organizing self-help groups to
look strategically at how programmes canactively promote gender equality
and women‟s empowerment. On the other hand, thank to
womenscapabilities to combine productive and reproductive roles in
microfinance activities and society hasenabled them to produce a greater
impact as they will increase at the same time the quality of life ofthe
women micro-entrepreneur and also of her family.SUGGESTION Credit is
important for development but cannot by itself enable very poor women to
overcome their poverty. 77
Making credit available to women does not automatically mean they have
control over its use and over any income they might generate from micro
enterprises. In situations of chronic poverty it is more important to provide
saving services than to offer credit. A useful indicator of the tangible impact
of micro credit schemes is the number of additional proposals and
demands presented by local villagers to public authorities. Globalization
will not be allowed to expand the gap between the rich and the poor.
Affluent countries cannot continue to dump aid on needy nations;
developing countries must not be permitted to ignore the needs of their
impoverished population. As the poor are vulnerable it is not sufficient for
us just to provide micro credit, but to have a series of support systems
provided at the appropriate time.Government can contribute most
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