8/8/2019 Micro Finance Ass

http://slidepdf.com/reader/full/micro-finance-ass 1/24

Content

SR.

NO.

Page

No.

1 Introduction

2 Definition

3 Origin

4 Concept

5 Silent features of micro finance

programme

5 Why it is require in India

6 Principles of micro fiancé

7 Current scale of micro fiancé

8 Micro finance institution in india

9 Present sinarion

10

11

12

13

14

15

16

17

18

19

8/8/2019 Micro Finance Ass

http://slidepdf.com/reader/full/micro-finance-ass 2/24

20

Introduction

Microfinance is an economic development approach that 

involves providing financial servicesthrough institutions to low income clients”.

he 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. Themanagement of money denotes

acquiring & using money. Micro Finance is buzzing word,

usedwhen financing for micro entrepreneurs. Concept of microfinance is emerged in need of meetingspecial goal to empower

under-privileged class of society, women, and poor,

downtrodden bynatural reasons or men made; caste, creed,

religion or otherwise. The principles of Micro Financeare

founded on the philosophy of cooperation and its central

values of equality, equity andmutual self-help. At the heart of 

these principles are the concept of human development andthebrotherhood of man expressed through people working

together to achieve a better life forthemselves and their

children.

 T r a d i t i o n a l l y m i c r o f i n a n c e w a s

f o c u s e d o n p r o v i d i n g a v e r y

s t a n d a r d i z e d c r e d i t p r o d u c t . T h e p o o r ,

 j u s t l i k e a n y o n e e l s e , ( i n f a c t n e e d

l i k e t h i r s t ) n e e d a d i v e r s e r a n g eo f f i n a n c i a l i n s t r u m e n t s t o b e a b l e t o

b u i l d a s s e t s , s t a b i l i z e c o n s u m p t i o n

a n d p r o t e c t t h e m s e l v e s a g a i n s t r i s k s .

 T h u s , w e s e e a b r o a d e n i n g o f t h e

c o n c e p t o f m i c r o f i n a n c e - - - o u r

8/8/2019 Micro Finance Ass

http://slidepdf.com/reader/full/micro-finance-ass 3/24

c u r r e n t c h a l l e n g e i s t o f i n d e f f i c i e n t

a n d r e l i a b l e w a y s o f p r o v i d i n g a

r i c h e r m e n u o f m i c r o f i n a n c e

p r o d u c t s . M i c r o F i n a n c e i s n o t m e r e l y

e x t e n d i n g c r e d i t , b u t e x t e n d i n gc r e d i t t o t h o s e w h o r e q u i r e m o s t f o r

t h e i r a n d f a m i l y ’ s s u r v i v a l . I t c a n n o t

b e m e a s u r e d i n t e r m o f q u a n t i t y , b u t

d u e w e i g h t a g e t o q u a l i t y m e a s u r e m e n t .

H o w c r e d i t a v a i l e d i s u s e d t o s u r v i v e

a n d g r o w w i t h l i m i t e d m e a n s .

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 poor in rural, semi-

urban or urban areas for enabling

them to raise their income levels and improve living

standards

Who are the clients of micro finance?

 The typical micro finance clients are low-income

persons that do not haveaccess to formal financial institutions.

Micro finance clients are typically self-employed,

oftenhousehold-based entrepreneurs. In rural areas, they are

usually small farmers and others who areengaged in small

income-generating activities such as food processing and petty

trade. In urbanareas, micro finance activities are more diverse

and include shopkeepers, service providers,artisans, street

vendors, etc. Micro finance clients are poor and vulnerablenon-poor who have arelatively 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

8/8/2019 Micro Finance Ass

http://slidepdf.com/reader/full/micro-finance-ass 4/24

hand, the chances are that, the poorer you are, the more

expensive or onerous informal financialarrangements.

Moreover, informal arrangements may not suitably meet

certain financial serviceneeds or may exclude you anyway.Individuals in this excluded and under-served marketsegment

are the clients of micro finance.

As we broaden the notion of the types of services

micro finance encompasses, thepotential market of micro

finance clients also expands. It depends on local conditions

andpolitical climate, activeness of cooperatives, SHG & NGOs

and support mechanism. Forinstance, micro credit might havea far more limited market scope than say a more

diversifiedrange of financial services, which includes various

types of savings products, payment andremittance services,

and various insurance products. For example, many very poor

farmers maynot really wish to borrow, but rather, would like a

safer place to save the proceeds from theirharvest as these are

consumed over several months by the requirements of daily

living. Centralgovernment in India has established a strong &

extensive link between NABARD (NationalBank 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.

•

8/8/2019 Micro Finance Ass

http://slidepdf.com/reader/full/micro-finance-ass 5/24

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 lessthan $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 theglobal efforts to alleviate

poverty and to achieve the Millennium Development Goal of 

halvingthe world’s poverty by 2015. Microfinance has been

present in India in one form or another sincethe 1970s and is

now widely accepted as an effective poverty alleviationstrategy. Over the lastfive years, the microfinance industry has

achieved significant growth in part due to theparticipation of 

commercial banks. Despite this growth, the poverty situation in

India continuesto be challenging.

Microfinance is the provision of financial services to low-

income clients or solidarity lending groups including consumersand the self-employed, who traditionally lack access

to banking and related services.

Microfinance typically refers to microcredit, savings, insurance,money transfers, and other financial products targeted at poorand low-income people.

Micro finance is defined as the financial service for poor and lowincome group people.

Microcredit refers to very small loans for unsalaried borrowers

with little or no collateral, provided by legally registered

institutions.

8/8/2019 Micro Finance Ass

http://slidepdf.com/reader/full/micro-finance-ass 6/24

 Traditionally, banks have not provided financial services, such as

loans, to clients with little or no cash income. Banks incur

substantial costs to manage a client account, regardless of how

small the sums of money involved. For example, although the

total gross revenue from delivering one hundred loans worth$1,000 each will not differ greatly from the revenue that results

from delivering one loan of $100,000, it takes nearly a hundred

times as much work and cost to manage a hundred loans as it

does to manage one. The fixed cost of processing loans of any

size is considerable as assessment of potential borrowers, their

repayment prospects and security; administration of outstanding

loans, collecting from delinquent borrowers, etc., has to be done

in all cases. There is a break-even point in providing loans or

deposits below which banks lose money on eachtransaction they

make. Poor people usually fall below that breakeven point. A

similar equation resists efforts to deliver other financial services

to poor people.

In addition, most poor people have few assets that can be secured

by a bank as collateral. As documented extensively by Hernando

de Soto and others, even if they happen to own land in

the developing world, they may not have effective title to it.[2] This

means that the bank will have little recourse

against defaulting borrowers.

Seen from a broader perspective, the development of a healthy

national financial system has long been viewed as a catalyst for

the broader goal of national economic development(see for

example Alexander Gerschenkron, Paul Rosenstein-Rodan, Joseph

Schumpeter, Anne Krueger ). However, the efforts of national

planners and experts to develop financial services for most people

have often failed in developing countries, for reasons summarizedwell by Adams, Graham & Von Pischke in their classic analysis

'Undermining Rural Development with Cheap Credit'.[3]

Because of these difficulties, when poor people borrow they often

rely on relatives or a local moneylender, whose interest rates can

be very high. An analysis of 28 studies of informal moneylending

8/8/2019 Micro Finance Ass

http://slidepdf.com/reader/full/micro-finance-ass 7/24

rates in 14 countries in Asia, Latin America and Africa concluded

that 76% of moneylender rates exceed 10% per month, including

22% that exceeded 100% per month. Moneylenders usually

charge higher rates to poorer borrowers than to less poor ones.

[4] While moneylenders are often demonized and accused of usury,their services are convenient and fast, and they can be very

flexible when borrowers run into problems. Hopes of quickly

putting them out of business have proven unrealistic, even in

places where microfinance institutions are active.[citation needed ]

Over the past centuries practical visionaries, from

the Franciscan monks who founded the community-

oriented pawnshops of the 15th century, to the founders of 

the Europeancredit union movement in the 19th century (suchas Friedrich Wilhelm Raiffeisen) and the founders of 

the microcredit movement in the 1970s (such as Muhammad

 Yunus) have tested practices and built institutions designed to

bring the kinds of opportunities and risk-management tools that

financial services can provide to the doorsteps of poor people.[5]While the success of the Grameen Bank (which now serves over

7 million poor Bangladeshi women) has inspired the world, it has

proved difficult to replicate this success. In nations with lower

population densities, meeting the operating costs of a retail

branch by serving nearby customers has proven considerably

more challenging. Hans Dieter Seibel, board member of the

European Microfinance Platform, is in favour of the group model.

 This particular model (used by many Microfinance institutions)

makes financial sense, he says, because it reduces transaction

costs. Microfinance programmes also need to be based on local

funds. Local Roots

Although much progress has been made, the problem has notbeen solved yet, and the overwhelming majority of people who

earn less than $1 a day, especially in the rural areas, continue to

have no practical access to formal sector finance. Microfinance

has been growing rapidly with $25 billion currently at work in

microfinance loans.[6] It is estimated that the industry needs $250

8/8/2019 Micro Finance Ass

http://slidepdf.com/reader/full/micro-finance-ass 8/24

billion to get capital to all the poor people who need it. [6] The

industry has been growing rapidly, and concerns have arisen that

the rate of capital flowing into microfinance is a potential risk

unless managed well.[7]

Current scale of microfinance operations

No systematic effort to map the distribution of microfinance has

yet been undertaken. A useful recent benchmark was established

by an analysis of 'alternative financial institutions' in the

developing world in 2004.[18] The authors counted approximately

665 million client accounts at over 3,000 institutions that are

serving people who are poorer than those served by thecommercial banks. Of these accounts, 120 million were with

institutions normally understood to practice microfinance.

Reflecting the diverse historical roots of the movement, however,

they also included postal savings banks (318 million accounts),

state agricultural and development banks (172 million accounts),

financialcooperatives and credit unions (35 million accounts) and

specialized rural banks (19 million accounts).

Regionally the highest concentration of these accounts wasin India (188 million accounts representing 18% of the total

national population). The lowest concentrations were inLatin

American and the Caribbean (14 million accounts representing 3%

of the total population) and Africa (27 million accounts

representing 4% of the total population, with the highest rate of 

penetration in West Africa, and the highest growth rate in Eastern

and Southern Africa [19] ). Considering that most bank clients in the

developed world need several active accounts to keep their affairs

in order, these figures indicate that the task the microfinance

movement has set for itself is still very far from finished.

By type of service "savings accounts in alternative finance

institutions outnumber loans by about four to one. This is a

worldwide pattern that does not vary much by region."[20]

8/8/2019 Micro Finance Ass

http://slidepdf.com/reader/full/micro-finance-ass 9/24

An important source of detailed data on selected microfinance

institutions is the MicroBanking Bulletin, which is published

by Microfinance Information Exchange. At the end of 2009 it was

tracking 1,084 MFIs that were serving 74 million borrowers ($38

billion in outstanding loans) and 67 million savers ($23 billion indeposits).[21]

As yet there are no studies that indicate the scale or distribution

of 'informal' microfinance organizations like ROSCA's and informal

associations that help people manage costs like weddings,

funerals and sickness. Numerous case studies have been

published however, indicating that these organizations, which are

generally designed and managed by poor people themselves with

little outside help, operate in most countries in the developingworld.[22]

Help can come in the form of more and better qualified staff, thus

higher education is needed for microfinance institutions. This has

begun in some universities, as Oliver Schmidt describes. Mind the

management gap

[edit]"Inclusive financial systems"

 The microcredit era that began in the 1970s has lost its

momentum, to be replaced by a 'financial systems' approach.

While microcredit achieved a great deal, especially in urban and

near-urban areas and with entrepreneurial families, its progress in

delivering financial services in less densely populated rural areas

has been slow.

 The new financial systems approach pragmatically acknowledges

the richness of centuries of microfinance history and the immense

diversity of institutions serving poor people in developing world

today. It is also rooted in an increasing awareness of diversity of 

the financial service needs of the world’s poorest people, and the

diverse settings in which they live and work.

Brigit Helms in her book 'Access for All: Building Inclusive

Financial Systems', distinguishes between four general categories

8/8/2019 Micro Finance Ass

http://slidepdf.com/reader/full/micro-finance-ass 10/24

of microfinance providers, and argues for a pro-active strategy of 

engagement with all of them to help them achieve the goals of 

the microfinance movement.[23]

Informal financial service providers

 These include moneylenders, pawnbrokers, savings

collectors, money-guards, ROSCAs, ASCAs and input supply

shops. Because they know each other well and live in the

same community, they understand each other’s financial

circumstances and can offer very flexible, convenient and

fast services. These services can also be costly and the

choice of financial products limited and very short-term.

Informal services that involve savings are also risky; many

people lose their money.Member-owned organizations

 These include self-help groups, credit unions, and a variety of 

hybrid organizations like 'financial service associations'

and CVECAs. Like their informal cousins, they are generally

small and local, which means they have access to good

knowledge about each others' financial circumstances and

can offer convenience and flexibility. Since they are

managed by poor people, their costs of operation are low.

However, these providers may have little financial skill and

can run into trouble when the economy turns down or their

operations become too complex. Unless they are effectively

regulated and supervised, they can be 'captured' by one or

two influential leaders, and the members can lose their

money.

NGOs

 The Microcredit Summit Campaign counted 3,316 of these

MFIs and NGOs lending to about 133 million clients by theend of 2006.[24] Led by Grameen

Bank and BRAC inBangladesh, Prodem in Bolivia, and FINCA

International, headquartered in Washington, DC, these NGOs

have spread around the developing world in the past three

decades; others, like the Gamelan Council, address larger

8/8/2019 Micro Finance Ass

http://slidepdf.com/reader/full/micro-finance-ass 11/24

regions. They have proven very innovative, pioneering

banking techniques like solidarity lending, village

banking and mobile banking that have overcome barriers to

serving poor populations. However, with boards that don’t

necessarily represent either their capital or their customers,their governance structures can be fragile, and they can

become overly dependent on external donors.

Formal financial institutions

In addition to commercial banks, these include state banks,

agricultural development banks, savings banks, rural banks

and non-bank financial institutions. They are regulated and

supervised, offer a wider range of financial services, and

control a branch network that can extend across the countryand internationally. However, they have proved reluctant to

adopt social missions, and due to their high costs of 

operation, often can't deliver services to poor or remote

populations. The increasing use of alternative data in credit

scoring, such as trade credit is increasing commercial banks'

interest in microfinance.[25]

With appropriate regulation and supervision, each of 

these institutional types can bring leverage to

solving the microfinance problem. For example,

efforts are being made to link self-help groups to

commercial banks, to network member-owned

organizations together to achieve economies of 

scale and scope, and to support efforts by

commercial banks to 'down-scale' by integrating

mobile banking and e-payment technologies into

their extensive branch networks.

Principles of micro finance

Poor people borrow from informal moneylenders and save with

informal collectors. They receive loans and grants from charities.

 They buy insurance from state-owned companies. They receive

8/8/2019 Micro Finance Ass

http://slidepdf.com/reader/full/micro-finance-ass 12/24

funds transfers through formal or informal remittance networks. It

is not easy to distinguish microfinance from similar activities. It

could be claimed that a government that orders state banks to

open deposit accounts for poor consumers, or a moneylender that

engages in usury, or a charity that runs a heifer pool are engagedin microfinance. Ensuring financial services to poor people is best

done by expanding the number of financial institutions available

to them, as well as by strengthening the capacity of those

institutions. In recent years there has also been increasing

emphasis on expanding the diversity of institutions, since different

institutions serve different needs.

Some principles that summarize a century and a half of 

development practice were encapsulated in 2004 by ConsultativeGroup to Assist the Poor (CGAP) and endorsed by theGroup of 

Eight leaders at the G8 Summit on June 10, 2004:[5]

1. Poor people need not just loans but also

savings, insurance and money transfer services.

2. Microfinance must be useful to poor households:

helping them raise income, build up assets and/or cushion

themselves against external shocks.

3. "Microfinance can pay for itself."[8] Subsidies fromdonors and government are scarce and uncertain, and so to

reach large numbers of poor people, microfinance must pay

for itself.

4. Microfinance means building permanent local

institutions.

5. Microfinance also means integrating the financial needs

of poor people into a country's mainstream financial system.

6. "The job of government is to enable financial services,not to provide them."[9]

7. "Donor funds should complement private capital, not

compete with it."[9]

8/8/2019 Micro Finance Ass

http://slidepdf.com/reader/full/micro-finance-ass 13/24

8. "The key bottleneck is the shortage of strong

institutions and managers."[9] Donors should focus on

capacity building.

9. Interest rate ceilings hurt poor people by preventing

microfinance institutions from covering their costs, whichchokes off the supply of credit.

10. Microfinance institutions should measure and disclose

their performance – both financially and socially.

Microfinance is considered as a tool for socio-economic

development,and can be clearly distinguished from charity.

Families who are destitute, or so poor they are unlikely to be able

to generate the cash flow required to repay a loan, should be

recipients of charity. Others are best served by financial

institutions.

8/8/2019 Micro Finance Ass

http://slidepdf.com/reader/full/micro-finance-ass 14/24

Salient features of Micro- Finance Programme

Under the Scheme of Micro-Finance Programme, thefollowing activities would be undertaken.

a. Arranging Fixed Deposits for MFIs/NGOs:

 The SIDBI is already running a Micro-Credit Programmewith a network of capacity assessed rated MFIs/NGOs.

 The scheme of Micro-Finance Programme has been tied-up with SIDBI by way of contributing towards securitydeposits required from the MFIs/NGOs to get loans from

SIDBI as per details given under:

i. The Government of India will provide funds forMicro-Finance Programme to SIDBI, which shall becalled ‘Portfolio Risk Fund’ (PRF). This fund wouldbe used for security deposit requirement of theloan amount from the MFIs/NGOs and to meet thecost of interest loss. At present, SIDBI takes fixed

deposit equal to 10% of the loan amount. Theshare of MFIs/NGOs would be 2.5% of the loanamount (i.e. 25% of security deposit) and balance7.5% (i.e. 75% of security deposit) would beadjusted from the funds provided by theGovernment of India. The MFIs/NGOs may avail theloan from the SIDBI for further on lending on thesupport of the security deposit.

ii. The Government would provide the needed fund infour years of the Xth Plan and release the fund onhalf-yearly basis based on demands for securitydeposit. By contributing an amount of Rs.6 croreduring the Xth Plan under Micro-Finance

8/8/2019 Micro Finance Ass

http://slidepdf.com/reader/full/micro-finance-ass 15/24

Programme, SIDBI can provide loan of Rs.80.00crore to MFIs/NGOs. This would benefitapproximately 1.60 lakhs beneficiaries, assumingan average loan of Rs. 5,000/- per beneficiary.

iii. The SIDBI will pay interest to the Govt. on the fixeddeposit made available by the Government at thesame rate as allowed to NGOs. Other terms andconditions will be fixed mutually by SIDBI and GOI.

iv. The recovery of loan/interests will be the soleresponsibility of the SIDBI. In case of non recoveryof loan, SIDBI would first adjust fixed deposit andinterest accrued thereon for 2.5% security depositof the loan pledged by the MFIs / NGOs andthereafter adjust 7.5% security deposit of the loanamount provided by the Government of India andthe interest accrued thereon with the approval of Committee of Govt. of India.

v. After full recovery of loan from the MFIs/NGOs, the7.5% security deposit of the loan amount providedby Govt. of India and interest accrued thereonwould be rotated further as a security deposit forMFIs/NGOs with the approval of Committee of theGovt. of India or the same will be returned to theGovt. of India.

vi. As SIDBI is already running the Micro-CreditProgramme, they will monitor the scheme. Theywould also provide the monthly/ quarterly progressreport along with details of beneficiaries, utilization

8/8/2019 Micro Finance Ass

http://slidepdf.com/reader/full/micro-finance-ass 16/24

of funds provided by Government of India and loansanctioned/ utilized by the beneficiaries.

vii. The activities covered under the scheme aremanufacturing, service sector and non-farmingactivities.

b. Training and Studies on Micro-FinanceProgramme: The Government of India would helpSIDBI in meeting the training needs of NGOs, SHGs,

intermediaries and entrepreneurs and also in enhancingawareness about the programme. This task would beperformed through National Level EntrepreneurshipDevelopment Institutes (EDIs) and Small IndustriesService Institutes (SISIs). The Research Studies wouldalso be arranged through reputed agencies.

c. Institution Building for ‘Intermediaries ’ for

identification of viable projects : The Governmentof India would help in institution building throughidentification and development of ‘intermediaryorganization’, which would help the NGOs/SHGs inidentification of product, preparation of project report,working out forward and backward linkages and infixing marketing/ technology tie-ups. The SISIs wouldhelp in the identification of such intermediaries indifferent areas.

3. Budgetary Provision for the Scheme during 10th Plan

 The Budgetary provision for the scheme in the Tenth Five Year Plan is Rs. 7 crore and the provision in the currentfinancial year 2003-04 is Rs. 0.25 crore. The entire amout of 

8/8/2019 Micro Finance Ass

http://slidepdf.com/reader/full/micro-finance-ass 17/24

Rs. 0.25 crore is to be provided to SIDBI as ‘Portfolio RiskFund’ (PRF) during the year 2003-04. Under the scheme,allocation of an amount of Rs. 1 crore is for studies, training,awareness, etc. and amount of Rs. 6 crore is for contributionto SIDBI as ‘Portfolio Risk Fund’ (PRF). Savings if any, underany activity would be utilized on other activity of the schemeso that the budget allocated may be fully utilized.

4. Administrative Arrangement

A Committee under the Chairmanship of Additional Secretary& Development Commissioner (MSME) is to be constituted.

Other members of the Committee would be AdditionalDevelopment Commissioner & EA, Director (IFW), Chairman-cum- Managing Director (SIDBI) and Director (EA). Any othermember can be co-opted by the Committee, if required. TheCommittee would review the progress made under thescheme, approve the adjustment of security provided by theGovernment of India and interest accrued thereon in case of non-recovery of loan by SIDBI, approve further rotation of funds provided by the Government of India and other relatedmatters.

Microfinance Institutions in India

CRISIL List of Top 50 Microfinance Institutions in India by

Loan Amount Outstanding for 2009

1. SKS Microfinance Ltd (SKSMPL)

2 Spandana Sphoorty Financial Ltd (SSFL)

3 Share Microfin Limited (SML)

4 Asmitha Microfin Ltd (AML)

5 Shri Kshetra Dharmasthala Rural Development Project(SKDRDP)

6 Bhartiya Samruddhi Finance Limited (BSFL)

7 Bandhan Society

8/8/2019 Micro Finance Ass

http://slidepdf.com/reader/full/micro-finance-ass 18/24

8 Cashpor Micro Credit (CMC)

9 Grama Vidiyal Micro Finance Pvt Ltd (GVMFL)

10 Grameen FinancialServices Pvt Ltd (GFSPL)

11 Madura Micro Finance Ltd (MMFL)

12 BSS Microfinance Bangalore Pvt Ltd (BMPL)

13 Equitas Micro Finance India P Ltd (Equitas)

14 Bandhan Financial Services Pvt Ltd (BFSPL)

15 Sarvodaya Nano Finance Ltd (SNFL)

16 BWDA Finance Limited (BFL)

17 Ujjivan FinancialServices Pvt Ltd (UFSPL)

18 Future Financial Services ChittoorLtd (FFSL)

19 ESAF Microfinance & Investments Pvt. Ltd (EMFIL)

20 S.M.I.L.E Microfinance Limited

21 SWAWS Credit Corporation India Pvt Ltd (SCCI)

22 Sanghamithra Rural Financial Services (SRFS)

23 Saadhana Microfin

24 Gram Utthan Kendrapara,

25 Rashtriya Seva Samithi (RASS)

26 Sahara Utsarga Welfare Society (SUWS)

27 Sonata Finance Pvt Ltd (Sonata)

28 Rashtriya Gramin Vikas Nidhi

29 Arohan Financial Services Ltd (AFSL)

30  Janalakshmi Financial Services Pvt Ltd (JFSPL)

8/8/2019 Micro Finance Ass

http://slidepdf.com/reader/full/micro-finance-ass 19/24

31 Annapurna Financial Services Pvt Ltd

32 Hand in Hand (HiH)

33 Payakaraopeta Women’s Mutually Aided Co-operative Thrift

and Credit Society (PWMACTS)

34 Aadarsha Welfare Society(AWS)

35 Adhikar

36 Village Financial Services Pvt Ltd (VFSPL)

37 Sahara Uttarayan

38 RORES Micro Entrepreneur Development Trust(RMEDT)

39 Centre for Rural Social Action (CReSA)

40 Indur Intideepam Federation Ltd (IIMF)

41 Welfare Organisation for Multipurpose Mass Awareness

Network (WOMAN)

42 Pragathi Mutually Aided Cooperative Credit and Marketing

Federation Ltd(PMACS)

43 Indian Association for Savings and Credit(IASC)

44 Sewa Mutually Aided Cooperative Thrift Societies Federation

Ltd (Sewa)

45 Initiatives for Development Bangalore, Foundation (IDF)

46 Gandhi Smaraka Grama Seva Kendram (GSGSK)

47 Swayamshree Micro Credit Services (SMCS)

48 ASOMI

49  Janodaya Trust

50 Community Development Centre (CDC)

8/8/2019 Micro Finance Ass

http://slidepdf.com/reader/full/micro-finance-ass 20/24

Here are just a few of the benefits of microfinance India.

• It isn't a hand out-As mentioned earlier, microfinance isn't about just giving out money to the poor. On the contrary, these aresmall loans that are paid back with interest. Of course, manypeople are skeptical when it comes to giving the poor financialloans. However, they are surprised to learn that of the over 100

million microfinance loans that have been given out, 97% of themhave been repaid. That's why you can't consider microfinance ahand out, but rather, it's a hand up.

• It allows the poor to receive a loan--Traditionally, the poor havebeen unable to receive loans. That's because they don't haveanything to offer as collateral. As a result, they get stuck in avicious cycle of poverty, living and working in poor, rural areas.Should adversity strike, they simply don't have the means to

combat it. Microfinance allows the poor to get the loans they needto save, invest, and create a sustainable lifestyle of financialindependence and growth. These loans are used productively bythe poor to create their own businesses, grow their assets, andget out of poverty once and for all.

• It empowers women-Many efforts of the microfinance industryare aimed at empowering women to create their own businesses.From microfinance India to microfinance in other developingcountries, small loans are given to those women who live on lessthan $1 per day. By giving these poor women loans, themicrofinance industry not only helps them pull themselves out of poverty, but it also promotes gender equality throughout theworld.

• It creates long-term financial independence-The most important

8/8/2019 Micro Finance Ass

http://slidepdf.com/reader/full/micro-finance-ass 21/24

benefit of microfinance in India is that it helps create long-termfinancial independence in these poverty-stricken areas. See, it'sone thing to send money, clothes, and other goods to the poor.It's a great gesture, but the results of this traditional style of charity are short-lived. Microfinance loans help create sustainedimpact by educating recipients on how to create their ownbusinesses and how to properly manage and grow their money.

Microfinance in India and several other countries received a majorboost recently thanks to Lingerie Miami. Created by Renata Black,Lingerie Miami is a philanthropic brand that raises money formicrofinance institutions through the use of fashion shows. Theconcept has been very successful, and it's spreading to New Yorkand other major cities throughout the world.

Micro Finance Scheme

 The people in North East India are predominantly in the farmingsector. For trading and production purposes, small borrowers stilldepend on the local moneylenders whose interest rates arenormally very high. It becomes rather heavy on the borrowerswho are poor, illiterate and do not understand the intricaciesinvolved in formal lending. Therefore, they do not approach banksdespite their needs.

With the help of Non Government Organisation (NGOs), individualscan be organised under Self Help Groups (SHGs) for the purposeof on-lending from financial institutions. Also, linkages can beestablished for networking with these SHGs with the formalbanking sector.

Despite the vast expansion of the formal credit system in thecountry, it has not been able to cover adequately the need of small loan requirement of the rural poor. The banks have not been

involved much in lending of this kind as it encompasses high risk& high transaction cost and too many small borrowers. Faced withsuch constraints, the unreached small borrowers can be helped byNEDFi through the provision of small loan through intermediaries.It will lead to creation of informal savings and help in inculcatingthe habit of borrowing and repaying.

8/8/2019 Micro Finance Ass

http://slidepdf.com/reader/full/micro-finance-ass 22/24

The Proposal:

 The approach would focus on identifying micro finance institute(MFI) as long tern partners and providing credit support for theirmicro credit initiatives. The MFIs may be well-organised NonGovernment Organisation (NGO) with good networks or othermicro finance organisations. The MFIs would be selected on thebasis of their credibility, track record, professional expertise andmanagement practices, credit rating, field visits etc.

Operational Strategy:

 The approach to assistance under NMFS will be different from thatof conventional lending under other programs of NEDFi in as much

lending decisions under NMFS will be governed by the trackrecord, capabilities of reach of MFIs rather than the securityoffered and promoter’s stake.

Operational Modalities:

 The operational modalities of the NMFS will be as follows:

Eligible Borrower

Well managed NGOs/VAs/Cooperative Societies, Village Councilsthat::

• are in existence for at least 3 years• have experience in developing SHG• have good track record• have proper system of book keeping• adequate financial management ability• well-organised SHGs engaged in income generating

activities.

Terms:

• Minimum amount that can be given to a SHG is Rs 20thousand and maximum up to Rs. 4 lakh.

8/8/2019 Micro Finance Ass

http://slidepdf.com/reader/full/micro-finance-ass 23/24

• NEDFi would lend the amount at Prime Lending Rate (PLR) +0.5 % (administrative charge).

• NGOs to lend it to the SHGs/individuals at a rate determinedby them after discussing with NEDFi. In no case more than4% above NEDFi’s PLR.

• Repayment period by the NGO would depend on the projects.Maximum period is 5 years including a reasonablemoratorium period. The repayment period by the ultimateborrower will be 1-3 years.

• Some feasibility study of the projects sent by the SHGsshould be done by the NGOs before being accepted byNEDFi. The individual projects would be prepared by theNGOs with details.

• NEDFi would help SHGs, NGOs in identifying activities and in

conducting seminars, trainings, workshops etc.• Before application, the NGO will submit information related

to operation in the application format. Click here for theformat.

• After information submitted to NEDFi, NGO will apply as perNEDFi application format.

• NGO's to please use checklist.

Activities to be financed:

• Income generation through agriculture (including farmimplements).

• Other farming activities mainly : Piggery, Poultry, Fishery,Dairy etc.

• Micro industries.• Service Sector including transportation etc.

Ultimate Target Group :

• Farmers - Petty Traders• Women - Youth• Capacity Building of NGOs

Documentation:

• Loan Agreement.

8/8/2019 Micro Finance Ass

http://slidepdf.com/reader/full/micro-finance-ass 24/24

• Deed of Hypothecation.• Promissory Note.• Resolution of executive body accepting the terms and

conditions for availing the loan.

Security:

• Hypothecation of all the movable assets of the NGO.• Promissory note from the NGO.