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    BANKS AND MICRO FINANCE

    1

    A

    Report on

    BANKS AND MICROFINANCE

    A DISSERTATION SUBMITTED IN PARTIAL FULFILLMENT

    OF

    THE REQUIREMENTS FOR THE AWARD OF MBA DEGREE OF

    BANGALORE UNIVERSITY.

    Submitted By

    K.PAVITRA

    Reg.No-03XQCM6069

    UNDER THE GUIDANCE OF

    Dr.T.V.Narasimha Rao

    INTERNAL GUIDE

    M.P.BIRLA INSTITUTE OF MANAGEMENT

    ASSOCIATE BHARTIYA VIDYA BHAVAN

    43, RACE COURSE ROAD,

    BANGALORE-560001

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    BANKS AND MICRO FINANCE

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    2003-2005

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    DECLARATION

    I hereby declare that the research work embodied in this

    dissertation entitled BANKS AND MICROFINANCE , has been

    carried out by me under the guidance and supervision of

    Dr.T.V.Narasimha.Rao, M.P.Birla Institute of Management,

    Bangalore (Internal Guide).

    I also declare that this dissertation has not been

    submitted to any other University/Institution for the award ofany Degree/Diploma.

    Place: Bangalore K.PAVITRA

    Date: 17th

    June 2005 Reg

    No.03XQCM6069

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    PRINCIPALS CERTIFICATE

    I hereby certify that this dissertation is an offshoot of the

    research work undertaken and completed by Ms.K.PAVITRA.

    under the guidance of Dr.T.V.NarasmihaRao, MPBIM,

    Bangalore.

    Place: Bangalore (Dr. N.S.

    Malavalli)

    Date: 17th

    June 2005.

    Principal

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    ACKNOWLEDGEMENT

    It gives me an immense pleasure to express my deep sense of

    gratitude to my internal guide Prof. T.V.Narsmiha Rao for his

    enormous guidance and assistance. He has been my mentor and

    guide, his continuous encouragement and valuable suggestions

    helped me at every stage of this project.

    I would like to express my thanks to Dr. N.S Malavalli,

    Principal M.P.Birla Institute of Management Bangalore.

    I would like to express my thanks to Mr.A.S.Srikanth, (I.A.S),

    M.D, Karnataka Land Army Corporation Ltd., for his guidance.

    Finally, I would like to thank my family and friends for their

    overwhelming

    support and encouragement

    K.PAVITRA

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    Table of contents

    Abstract...01

    Chapter 1: Introduction

    Background.05

    Problem Statement..07

    Research objectives.07

    Chapter 2: Theoretical Framework..08

    Chapter 3: Review of Literature

    Methodology and findings..42

    Chapter 4: Research Methodology

    Methodology....44

    Type of Research.44

    Collection of Data44

    Research Limitations45

    Chapter 5: Analysis and DiscussionInterpretation46

    Chapter 6: Conclusion

    Conclusions.53

    References54

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    LIST OF TABLES

    Table

    no.

    Name Page

    no.

    1 Rating of SHG 19

    2 SHGs linked by Commercial banks in

    Karnataka

    45

    3 SHGs linked by RRB in Karnataka 46

    4 SHGs linked by Co-operative banks in

    Karnataka

    47

    5 District wise break up of SHGs in Karnataka

    (03-04)

    48

    6 Performance of public sector and private sectorbanks

    49

    7 New SHGs formed and loan disbursed by

    banks in India

    51

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    ABSTRACT

    Post nationalization in India, commercial banks have been participating

    actively

    in implementation of poverty alleviation programmes of the Government

    like the

    Integrated Rural Development Programme (IRDP), Small Farmers

    Development Agency

    (SFDA) for the marginal farmers and agricultural laborers and the

    Drought Prone Area

    Programme (DPAP). Experimenting with subsidized credit for the poor

    through these

    programmes has resulted in one unpleasant and tangible outcome

    increased Non

    Performing Assets . Group based micro finance was introduced in the

    country in the early 1970s, but has not picked up momentum until

    recent times. Banks, over time have begun adopting models that havebeen tried and tested by Non Government Organizations (NGOs) and

    Micro Finance Institutions (MFI). These institutions had the clear vision

    to disprove the intuition of the formal bankers that banking with the

    poor was a risky affair. They have proved beyond doubt that banking

    with the poor is most certainly a profitable business. They have also

    popularized the concept of group lending through the formation and

    grooming of Self Help Groups (SHGs).

    The objective of this research is to study the growth of microfinance sector in Karnataka.

    The analysis has been based on the secondary data obtained from

    NABARD and other published articles.

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    .

    INTRODUCTION

    The important finding of last three decades in the finance field is poor can save, can

    borrow and and certainly repay loans. This is world of microfinance.

    A good definition of microfinance as provided by Robinson is, Microfinance refers to

    small-scale financial services for both credits and deposits that are provided to people

    who farm or fish or herd; operate small or micro enterprises where goods are produced,

    recycled, repaired, or traded; provide services; work for wages or commissions; gain

    income from renting out small amounts of land, vehicles, draft animals, or machinery and

    tools; and to other individuals and local groups in developing countries, in both ruraland urban areas.

    In the Indian context terms like "small and marginal farmers", rural

    artisans"

    And "economically weaker sections" have been used to broadly define

    micro-finance

    customers. The recent Task Force on Micro Finance has defined it as

    "provision of thrift,

    credit and other financial services and products of very small amounts to

    the poor in

    rural, semi urban or urban areas, for enabling them to raise their income

    levels and

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    improve living standards".

    Microfinance services are provided by formal institutions such as rural

    banks and

    Cooperatives; semiformal institutions such as non-government

    organizations; and

    Informal sources such as moneylenders and shopkeepers. Institutional

    microfinance is

    defined to include microfinance services provided by both formal and

    semiformal

    institutions. Microfinance institutions are defined as institutions whose

    major business is

    the provision of microfinance services. At present, a large part of micro

    finance activity is

    confined to credit only. Women constitute a vast majority of users of

    micro-credit and

    savings services.

    Self-help group (SHG) is an association of people belonging to similar

    socioeconomic

    characteristics, residing in the locality. The SHG concept is most

    appropriate

    and can succeed in our country only if and when a holistic approach is

    imbibed in the

    Promotion of SHGs as self-sustaining local organizations. However bank

    linkages for

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    SHGs are at present driven more by annual targets than as a system. A

    SHG has an average size of about 15 people from a homogenous class.

    They come together for addressing their common problems. They are

    encouraged to make voluntary thrift on a regular basis. They use this

    pooled resources to make small interest bearing loans to their members.

    The process helps them imbibe the essentials of financial intermediation

    including prioritization of needs, setting terms and conditions, and

    accounts keeping.

    MICROFINANCE INSTITUTIONS IN INDIA

    A range of institutions in public sector as well as private sector offers

    micro

    finance services in India. They can be broadly categorized into two

    categories namely,

    1. Formal institutions

    2. Informal institutions.

    The former category comprises Apex Development Financial Institutions,

    Commercial Banks, Regional Rural Banks, and Cooperative Banks that

    provide micro finance services in addition to their general banking

    activities and are referred to as micro finance service providers.

    On the other hand, the informal institutions that undertake micro

    finance services as their main activity are generally referred to as micro

    Finance Institutions (MFIs). While both private and public ownership are

    found in the case of formal financial institutions offering microfinance

    services, the MFIs are mainly in the private sector.

    The micro finance service providers include apex institutions like

    National Bank for Agriculture and Rural Development (NABARD), Small

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    Industries Development Bank of India (SIDBI), and, Rashtriya Mahila

    Kosh (RMK).

    The micro finance initiative in private sector can be traced to th