Global Business - Final Ppt

8/2/2019 Global Business - Final Ppt

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MICROFINANCE INDUSTRYAND INDIAN ECONOMY &BANGLADESH ECONOMY

PRESENTED BY:-NAROTTAM KUMAR R. No. 33NAVEEN RANA R. No. 34NAVNEET KAUR R. No. 35NAYEEM SAIKIA R. No.36PINTU KUMAR R. No. 37


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BANKING

MICROFINANCE


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What is microfinance ?

Micro finance is the

provision of financial

services - To those who

are excluded fromconventional

commercial financial

services. Because they

are too poor to offermuch - or anything - in

the way of collateral .


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Cont..

It presents a series ofexciting possibilitiesfor:

It just not credit butalso savings, insurance,and fund transfers.

Extending markets.

reducing poverty and Fostering social

change.


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Origin of Microfinance

The concept of microfinance originated inthe mid-1970s inBangladesh through apioneering experimentby Dr. MuhammadYunus, then a Professorof Economics.

Muhammad Yunus wasawarded the 2006Nobel Peace Prize.


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Cont.

Dr. Mohammad Yunus Established

Bangladesh Grameen Bank

Providing financial services andentrepreneurship opportunities to poor.

So they could produce, manage and maintaintheir own finances.

It was an end to mistreatment by moneylenders.


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Objectives

Extend banking facilities to poor people.

Eliminate the exploitation of the poor people bymoney lenders.

Create opportunities for self-employment forunemployed people in rural Bangladesh.

Reverse vicious circle of "low income, low saving& low investment", into virtuous circle of "lowincome, injection of credit, investment, moreincome, more savings, more investment, moreincome".


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Microfinance Products Micro savings A possibility to save money

without no minimum balance. Allows people toretain money for future use Members mayborrow from the group fund for a variety ofpurposes ranging from household emergencies

to school fees

Micro insurance The different types ofinsurance services are life insurance , propertyinsurance, health insurance and disabilityinsurance.


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Cont

Micro leasing For entrepreneurs or small businesseswho cant afford buy at full cost they can insteadlease equipment, agricultural machinery or vehicles.

Money transfer A service for transferring money,overseas to family or friends. Money transferswithout opening current accounts are performed by anumber of commercial banks through international

money transfer systems such as Western Union ,Money Gram, and Anelik.


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Types of Microfinance Institutions

Non Profit MFIS/NGO MFIS: These are societies under the SocietiesRegistration Act, 1860. they carry out both non financial & financialactivities apart from financial intermediation as they are prohibitedfrom carrying out financial activities For Profit MFIs: They include NBFCs registered under CompaniesAct, 1956 & banks which provide microfinance apart from otherbanking services. Mutual Benefit MFIs: This category includes state credit co-operatives, national credit cooperatives & mutually aidedcooperative societies (MACS) During 1980s & 1990s, several NGOs entered the microfinancesector providing micro loans. NABARD & Small Industries Development Bank of India(SIDBI)became intermediaries b/w the poor borrowers & the banks. During the late 1990s there was a growing trend of NGOstransforming into microfinance organizations. Banks were not willing to lend to the MFIs as they were not sure oftheir credit worthiness. Thus M-CRIL(Micro Credit Ratings International Limited) waslaunched.


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Process of Micro Loan distribution

A micro credit program gives small loans tothe poor so that they can procure whateverthey need to start a small local business oftheir choice.


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Cont.

A micro loan of

Rs.5000 - 20000 at 1

or 1.5% interest per

month, can empower

people to start theirown business

By that money they

can start business

of:


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Cont.

Kirana store Bangles shop


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Buy a cow or buffalo to sell milk


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Candle Making


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Small garments manufacturing unit


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Fruit and vegetable shop


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Process of Micro Loan distribution

In the absence of

collateral, the loans

are made to groups of

five, mostly women,who guarantee each

others' loans.

Called Joint liability

Group (JLG).


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Cont.

If a woman wants to receive aloan and if her idea for abusiness is accepted, she isencouraged to find four otherwomen and form a group

Then, the first two women aregiven loans and the others areencouraged to help them maketheir enterprise a success.After about 6 weeks, if the first

two are making their paymentson time, the next two womenget their loans and six weekslater the last one.


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Cont.

All persons who havepaid back a first loan,are automaticallyeligible for a second loanand eventually a third sotheir businesses cangrow. At the same time fromthe interest, the loanfund is growing, thoughslowly, and loans areavailable to morepersons.


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Cont.

If one does not payback one's loan, noone in the group willreceive a secondloan. To guard againstemergencies, suchas one's cow dyingand not being able

to repay the loan, anemergency fund isset up at the time ofthe first loan.


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Need of microfinance

1) Banks have not providedfinancial services, such asloans, to clients with littleor no cash income.

2) Banks incur substantial

costs to manage a clientaccount, regardless of howsmall the sums of moneyinvolved.

3) For example : Although the

total gross revenue fromdelivering one hundredloans worth $1,000 eachwill not differ greatly fromthe revenue that results

from delivering one loan of$100,000.


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Cont

4) Money lenders usually charge higherrates to poorer borrowers than to lesspoor ones.

5) when poor people borrow they often relyon relatives or a local moneylender.

6) An analysis of 28 studies of informalmoney lending rates in 14 countries in

Asia, Latin America and Africa concludedthat 76% of moneylender rates exceed10% per month.


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Social Impact of Microfinance

The empowerment of

women.

As the microfinanceservices mostly offered

to women, they are

now more financially

literate and confident.


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Building Economiccitizenship

Financial services foster Independence.

Microfinance can help clients to grow moreconfident and with that economic citizenship

they can step out and become economical.

sound.


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To fight with poverty

Normally If a poor household loses a sourceof income he might have to withdraw a child

from school or selling valuable assets or fall

deep into poverty.


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Financial services give

clients to access to

education, healthcare,

and other necessitiesthat improves their

quality of life. i.e.

school fee loan, health

insurance and homeimprovement loan.


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Dark side of Microfinance Micro Loans should never lends to

individuals without first providingthem with the expertise andtraining to build a business planthat is likely to succeed.

Another point in this regard is thatmere flow of funds alone in MFsector cannot bring desired levelof social impact unless otherinfrastructure is enough in the

given area/region to absorb thefunds.


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Multiple lending and over-

indebtedness: It is not unusual that

poor households borrowfrom more than onesource, formal as well asinformal.

statistic with an average4 loans per family, in AP.

credit, to ill-informedclients and by poorly

trained staff driven byperverse incentives oftenleads to disasters.


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Microfinance Interest rates

It has been reported in

the media that MFIs

charge between 26-

60% p.a.


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Coercive collection practices

Serious irregularities and arm-twistingmethods for recovery of money that MFIsadopt.

As many as 30 rural borrowers havecommitted suicide in Andhra Pradesh in last

year following their inability to pay backloans taken from microfinance institutions atexorbitant interest rates.


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Indian economy

The Economy of India is

the eleventh largest in

the world by nominal

GDP.

The fourth largest by

purchasing power parity.

Economists predict that

by 2020, India will beamong the leading

economies of the world.


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Service sector

Since 1960s, there has been asteady decline in thecontribution of agricultureand primary sector to GrossDomestic Product (GDP),and its place has been takenby service based enterprises.

Thus, service sectorencompasses the major areasof trade, finance, insurance,

communications, publicutilities, transportation,health care, education,business and personalservices.


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Cont.

1) India is 13th in

services output. The

services sector

provides employmentto 34% of the work

force.

2) It has the largest

share in the GDP with55.3%


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Agriculture

1) India ranks secondworldwide in farm output.Agriculture and alliedsectors like forestry,logging and fishingaccounted for 16.1% ofthe GDP.

2) It employed 52.1% of thetotal workforce.

3) India is the largestproducer in the world of

milk, jute and pulses, andalso has the world'ssecond largest cattlepopulation with 175 millionanimals in 2008.


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Cont.

It is the second largest

producer of rice, wheat,

sugarcane, cotton and

groundnuts, as well asthe second largest fruit

and vegetable producer,

accounting for 10.9%

and 8.6% of the worldfruit and vegetable

production respectively.

Growth Expected in India


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GDP USD 590 billion

GDP growth rate 9 %

Services contribution 54 %

FDI limit not 100 percent in majorindustry sectors such as Telecom,

Semiconductors, Automobiles, etc.

Balance of Trade USD (-)46.2 billion

Investment goal USD 250 billion

2006

GDP growth rate 9.5%

Services contribution 60 %

FDI limit is expected to be close to

100 percent in major industry sectors

such as Telecom, Semiconductors,

Automobiles, etc.

Balance of Trade Should increase

with surging exports as compared

with imports

2015 GDP growth rate 13%

Services contribution 65-70%

FDI limit is expected to be 100

percent in major industry sectors

such as Telecom, Semiconductors,

Automobiles, etc.

Balance of Trade Should be positive

with increased level of exports as

compared with imports

2020

Growth Expected in India


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Microfinance in India

Magazine ForbesIn its firstever list of World's Top 50Microfinance Institutions whichhas named seven such entitiesin the list of world's top 50 --highest for a country.

Bandhan at the secondposition Microcredit Foundation of India

(ranked 13th) and Saadhana Microfin

Society (15th)

Grameen Koota (19th), Sharada's Women's

Association for WeakerSection (23rd)

SKS Microfinance Private Ltd(44th) and

Asmitha Microfin Ltd (29th).


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Concentration More in South India


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Key Reasons

The origination of the bank SHG linkage program inKarnataka largely through the initiatives of thenongovernment organization (NGO) MYRADA and theconsequent greater participation of Karnataka-basedbanks, such as the Syndicate and Canara Banks, in the

program

More vibrant local economies in the southern statescompared to the less developed states in the north andeast

Higher literacy and participation rates of women in thelocal economy making them more suitable clients forMFIs.


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Key Players

SKS Microfinance Ltd. Spandana Sphoorty Financial

Limited Share Microfin Limited Bandhan

Asmitha Microfin Ltd. Shri Kshetra DharmasthalaRural Development Project(SKDRDP)

BASIX Microcredit Foundation of

India Grameen Koota


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Number of branches as on March'2010

1627

1533

1056

1550

SKS

Spandana

SHARE

Bandhan

Number of branches


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CONT..

In India, Micro finance is growing faster thanbanking and, if the experience in other

developing countries is mirrored here,microfinance will reach more individuals than

the banking sector,

- Robert Annibale, global director Citigroup Inc.

Microfinance


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0

5

10

15

20

25

30

35

2008 2010 2015

Banking

Microfinance

Nos.

ofClientsinMillions

*For 2015 the projection sourced from citigroup microfinance


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Microfinance in Andhra Pradesh

Why do poor need financial services?A study in Andhra Pradesh revealed that for the poor, about 50% of allrisky events were characterized as health-related and another 28%were nature-related.

Responses to these risks -

1

st

preference of the rural poor is borrowing (money lenders havevery high interest rates, subject to exploitation),

Followed by mortgaging/selling assets (often under difficultconditions that limits the value received for such assets).

Why don't they just go to a bank?The poor rarely have access to the formal financial sector No money to open a savings account

No collateral or credit record to secure a loan

Illiterateso cant do paperwork


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Bangladesh economy

1) The economy ofBangladesh is adeveloping market-based economy

2) Bangladesh ranked asthe 48th largesteconomy in the world

3) The economy has grownat the rate of 6-7% p.a.

over the past few year4) Currency of Bangladesh

is taka.


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CONT..

More than half of the GDP belongs to the servicesector, nearly half of Bangladeshis are employed inthe agriculture sector, with RMG, fish, vegetables,leather and leather goods, ceramics, rice as otherimportant produce.

Contribution in GDP (est.)

1) Agriculture: (18.6%),2) Industrie: (28.6%),

3) services: (52.8%)

A i l f B l d h


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Agriculture of Bangladesh

Bangladesh's labor-intensive agriculture has achievedsteady increases in food grain production despite theoften unfavourable weather conditions

Most Bangladeshis earn their living from agriculture.

Although rice and jute are the primary crops, maizeand vegetables are assuming greater importance.

rice can be grown and harvested three times a year inmany areas.

Tea is grown in the northeast.

M f t i & I d t


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Manufacturing & Industry

Main industries cotton textiles, jute, garments, teaprocessing, paper newsprint, cement, chemical fertilizer,light engineering, sugar.

Many new jobs - mostly for women - have been createdby the country's dynamic private ready-made garmentindustry,

which grew at double-digit rates. mostly women, were employed in the garments sector as

well as Leather products specially Footwear(Shoemanufacturing unit).

Bangladesh has overtaken India in apparel exports in

2009, Other industries which have shown very strong growth

include the chemical industry, steel industry, miningindustry and the paper and pulp industry.


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CONT..

textile products, is the

nation's number one

export earner.

Bangladesh is 3rd inworld textile exports.

Export $ 16.7 billion in

2009-10.


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Investment

The stock market capitalization of the Dhaka

Stock Exchange in Bangladesh is 5649.645.

Major investment from foreign investorshave led to a massive building boom in Dhaka

and Chittagong.


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Grameen Bank

Established in 1976 in Jobra village inBangladesh by Professor Muhammad Yunus .

It provides credit to the poorest of the poor inrural Bangladesh without any collateral.

By June 2010:-2,564 branches in 81,362 villages

-8.28 million borrowers (90% are women).

Total equity:-90% - Borrowers

-10% - Government


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Economy of United States

The economyof the UnitedStates is the world's largestnational economy.

Its nominal GDP wasestimated to be nearly $14.7

trillion in 2010.

GDP growth 2.9% (2010)

GDP by sector agriculture:(1.2%), industry: (21.9%),services: (76.9%).

Inflation (CPI) 1.6% (2011)

GDP per capita $47,132(2010)


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Microfinance in the United States

Idea of Microfinancewas born inBangladesh andmigrated to U.S.

Microfinance Emergedat a time of aParadigm shift.

Commitments to:1. Fiscal Discipline.

2. Deregulation.3. Interest rates.4. Market-Oriented

approaches.

Characteristics of Microfinance in the


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Characteristics of Microfinance in the

U.S

First Programs is modeled after Grameen Bankand Group Lending Concept.

Shift to Individual Lending.

Emphasis on Training and Skills Development. Goals of Microfinance in U.S.:

1. Job Creation and Income Generation.

2. Individual and Community Empowerment.3. Relationship Building and Community

Development.


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Major U.S Microfinance Programs

ACCION U.S.1. Focus on Lending and

loans.2. CREDIT BUILDER3. Lent $100 million to

10000 people in 33communities.

4. 80% of borrowers areminorities 50% arewomen.

5. Lends to persons with aproven track record.

6. Awards and achievements.


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Microfinance Programs in U.S

Southern Good Faith Fund(SGFF) :

1. Nonprofit affiliate ofSouthern Bancorp.

2. Originally modeled after

Grameen Bank but has shiftedfocus overtime.

3. Three Primary Areas of

focus:

a) Asset Builders program.

b) Business Development

center.

c) Career Pathways

program.


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Economy of Tanzania

Currency Tanzanian shilling(TZS)

GDP : $57.5 billion (2009)

GDP growth: 6.4% (2010)

GDP per capita $1,500(2010)

GDP by sector: Agriculture(26.6%), Industry (22.6%),Services (50.8%)

Inflation :12.10% (2010)


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Microfinance in Tanzania

Microfinance is still, arelatively new concept inTanzania

It was mainly linked towomen and povertyalleviation.

The National MicrofinanceBank is an institutionalprovider of microfinanceservices.

It plans to add 16 morebranches and offices that

can offer microfinanceservices. NMB encourages and

expands microfinance inthree ways:


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CONT

Loans to micro and small enterprises for the

purchase and inventory and supply of goods.

Collection and payment services to large

corporate clients to/from micro and smallenterprises.

Add-on services such as money transfers and

payroll services to both the large corporateclients and micro and small enterprises.


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Microfinance in Bolivia

Microfinance has beendeveloping in Bolivia foralmost twenty years andits evolution can bedivided into distinct

stages. The first stage is when a

number of what latercame to be the leadingMFIs were founded in(1986) and operated asmicrocredit NGOs for anumber of years.


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CONT

The second stage was the transformation of theleading NGOs into regulated financialintermediaries, a process that began in 1992.

During this period the Bolivian bankingauthorities generated the special non-banklicense for finance companies (FFP).

The third stage of microfinance development in

Bolivia began in 1999 with a generalizedmacroeconomic crisis that seriously affected thesector.


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CONT.

Lately, the microfinance sector seems to have

finally consolidated after the crisis, and

growth rates in terms of both clients and

volume of operations on both sides of thebalance sheet.


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Microfinance in Brazil

The story of microfinancein Brazil has mostly beenone of the unfulfilledpromise. There are

approximately 10 to 15million households in theinformal sector in thecountry yet.

The microcredit industryhas reached fewer than300,000 of thesehouseholds.


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CONT.

In Brazil, there are roughly four types of

institutions offering microfinance services.

Only one of these organizations is offering

anything besides credit services State-owned development bank

Public Interest Civil Society (OSCIPs)

Microenterprise Credit Society (SCMs)

Commercial banks


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CONT

It is significant, however, that these types ofinstitutions only offer credit services to poorhouseholds and micro entrepreneurs.

The Brazilian government began to recognize the

bottleneck this created and in recent years haspromoted a number of regulatory amendments thathave pushed commercial banks into the market.

to increase access to financial services on the part

of the general population, especially lower incomesectors. Banks were allowed to establish Banking

Correspondents .


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Microfinance in Indonesia

Indonesia has a century-long history inmicrofinance that datesback to Dutch colonialtimes at the close of the19th century.

There are many varietiesof formal, semi-formaland informal financialinstitutions, as well assubsidized governmentprograms offering loanslinked to sectordevelopment or povertyalleviation.


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CONT.

The total number of MFIs are 60,760 or around 7times the number of branches of commercialbanks. These MFIs collectively served more than18.6 million people (8% of the population).

Commercial Banks (including Bank RakyatIndonesia BRI):- established originally toimplement a government-subsidized agriculturalcredit program. They were subsequently re-

organized to offer commercial microfinance atscale, and they handle the largest portion ofmicrofinance in Indonesia.


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