MICROCREDIT IN INDIA

Area To Be Covered

1) How to reach poor people2) History of Microcredit3) What is microcredit4) Target Group5) Grameen Bank and Its Objective6) Mechanism of Microcredit7) Microcredit and Inclusive Growth8) Present scenario 9) Conclusion

Let’s say you are a very poor citizen.

You have the project to develop your texile plant with your colleagues.

How can you achieve it?

MUHAMMAD YUNUS

- Founder and Chairperson of GARMEEN BANK, a bank for poor.

- He received Noble Peace Prize for his achievements and actions undertaken to improve the life of the deprived people in world.

- It was particularly thanks to the creation of the Grameen Bank and the Microcredit.

Contd.- He granted his first loan of 27 USD from its own savings to 42

people.- A majority of them were women eager to create a small

business.

What Is Microcredit ?

- Small loans aiming at improving the lives of poor people and their families.

- Sustaining small-scale economics activities, granted to people not considered as creditworthy.

- Microcredit is only a kind of service provided within the global concept of microfinance

The Target Groups

* The poorest segments of society, living with less than one Dollar per Day.

* Little or no chance of getting a Bank Loan.

* Good operating skills in the area in which the potential clients are willing to work, but:

« Usually no financial resources »

* Working With Women (90%)

Grameen Bank :Objective

# It is first model of microcredit. Founded as a project in 1976.

# To extend the banking facilities to the poor men and women.

# To create opportunities for self employment.

# To bring the disadvantaged people within the framework of some organizational format.

Creation of Microcredit.

How Does Microcredit Work ?

1) Individual Lending Model

2) Group Lending Model

Microcredit and Inclusive Growth• The Eleventh Five Year Plan visualizes “faster and more inclusive

growth”. • This implies that we need to/ for –

• Shift the plan priorities towards the social sectors

• Put appropriate institutions and linkages in place to bring good to the common man

• The States to play a facilitating role in encouraging individual-institutional linkages

Government of India

Policy Actor Role Played

Government of India

-Cooperative Credit Societies

- Nationalization of Commercial banks

-integrated and sustainable rural income generating activity

- Social and Development banking - Establishment of Rashtriya Mahila Kosh

- “Portfolio Risk Fund”

Policy Actor Role Played

Reserve Bank of India

- Formulation and coordination - Priority sector lending target for NCBs.

- Issuing licenses

- Micro Finance Development and Equity fund (MFDEF).

Role Played Policy Actor

National Bank for Agriculture and Rural Development

- Contribution to MFDEF

- SHG – Bank linkage

Small Industries Development Bank of India Need based assistance

Policy Actor Role Played

Formal / Banking Sector

-commercial or cooperative banks

-Local area banks - Kisan Credit Cards

MFI

- Financial access

- promoting and fostering SHGs.

Example of success:

DAGAR FOUNDATION,BIHAR -Mrs.Sunita devi

Present Scenario

Contd.

Issues of Micro Finance in India

• Legal Issues– - Seventh schedule declares money lending as

State subject– - Doesn’t mention private money lending– - No model money lending act prepared by

center.• Gender Issues• Rate of Interest• Choice of productive assets.

Impact1) 76.8% of the clients experienced significant reduction in their poverty over the last four years of which;

• a) 38.4% moved from Very Poor to Moderate Poor• b) 17.6% moved from Very Poor to Not Poor• c) 20.8% moved from Moderate Poor to Not Poor

• 2) 38.4% are in the Non Poor category.

• 3) 80% witnessed increase in income levels.

• 4) Women actively participate in family decisions.

• 5) Most of the members’ children are being sent to schools.

• 6) 17 different combinations were used as paths out of poverty.

Conclusion: Future Challenges to Microcredit

• If wish to succeed in providing microfinance services to the poor on a large scale, further contributions are needed.

• Not only an issue of financing:– Regulators and governments need to develop:• legal and regulatory frameworks for microcredit• consumer protection• financial infrastructure.

Reference• IMF: Microfinance: A View from the Fund.

• Grameen Bank: http://www.grameen-info.org/.

• Economics Times of India (Date- 13/1/2011)

• www.indianngos.com/issue/microcredit/operationalissues.htm.

• www.google.com