Micro Finance Presentation

8/3/2019 Micro Finance Presentation

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Presented By:

Aakriti Bajaj

Ritesh Singh

Shalini Kumari

Shweta Singh


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Definition-

Microfinance 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 thenationally defined poverty line, and poor individuals which

fall below that poverty line, with the goal of creating social

value.

The World Bank estimates that there are more than 500 million

people who have directly or indirectly benefitedfrom microfinance-related operations.


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In the late 1970s the concept of microfinance had evolved. Although,

microfinance have a long history from the beginning of the 20th

century we will concentrate mainly on the period after 1960.

ACCION International, Sewa Bank, Grameen bank these financial

institutions has been pioneering the microfinance program after 1970.

Some of the microfinance institutions are:

Bandhan, Microcredit Foundation of India and SaadhanaMicrofinance Society, Grameen Koota (1, Sharada'sWomen's Association for Weaker Section , SKSMicrofinance Private Ltd ( and Asmitha Microfin Ltd ).


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Model 1: Associations

An association is formed by the poor in the target community to offermicrofinance services(micro savings, microcredit, micro-insurance, etc.) to

themselves. The association, which can form on the basis of gender,

religion, or political and cultural orientation of its members, then gathers

capital and intermediates between banks, MFIs and its members.

E.g.: Self Help Groups, SHGs (India) Model 2: Bank Guarantees

A donor or government agency guarantees microloans made by a

microfinance/commercial bank to an individual or group of borrowers.

Compulsory deposits by borrowers in such banks are also included in this

model.

E.g.:AfriCap Microfinance Fund (Mauritius), Latin America Bridge

Fund.


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Model 3: Community Banking/ Grameen Bank/ Village

Banking

Community Banks/Village Banks are formal versions of associations and

are created by members of a target community who wish to improve theirliving standards and to generate employment. By offering microfinance

services, these banks seek to develop their communities

E.g.: Grameen Bank (Bangladesh)

Model 4: Cooperatives

Cooperatives are very much like associations and Community Banks

except that their ownership structure does not include the poor. A group of

middle or upper class individuals may form a co-op to offer microfinance

services to the poor.

E.g.: Co-operative Bank (England), Cooperative Rural Bank of Bulacan(Philippines)


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Model 5: Credit Unions

E.g.: Vancity Credit Union (Canada)

Model 6: Non-Governmental Organizations (NGOs)

NGOs are external organizations and their activities rangefrom offering microfinance services (loans, insurance,savings, etc.) to improving credit rating of the poor, training,education and research. NGOs may also act as intermediariesbetween the poor and donor agencies (UN, ADB, World Bank)and operate locally, as well as globally (through a physical oronline presence)

E.g.: KIVA (Headquarters in USA)


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Model 7: For-profit Banks

Commercial Banks, as well as specialized Microfinance Banks offer

various financial services to the poor but the main purpose may be to

secure a high return on investment.

E.g.:Bank Compartamos (Mexico), Khushali Bank (Pakistan)

Model 8: Rotating Savings and Credit Associations(ROSCAs)

E.g.:A group of 10 women come together in Januaryand pitch in $7 each, making a total of $70, and this sumis given to Member A for the month. In February, another$70 is gathered and given to Member B, and the cyclecontinues for 10 months (10 members). No interest is

charged, and social collateral ensure the money isreturned.


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The process through which an issuer creates a financial assets

and then marketing different tiers of the repackaged

instruments to the investors. The process can encompass any

type of financial assets and promotes liquidity in the market

place. Example- Mortgage backed securities

Increasing number of MFIs are paying attention to develop

commercial source of funding to finance their growth.

In recent years a number ofMFIs have issued bonds in theirlocal capital market to raise funds for expanding microfinance

loan portfolio.


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Securitization helps the MFIS to:

To have an access to the capital markets. Improve liquidity.

Lend more money

Ability to raise finance at low cost.

Foreign exchange. To receive instant cash.


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Collaterals: Assets pledged by a borrower to secure

loan or other credit and subject to seizure in the

event of default, also called security.

MFIs take little or no collateral security for thecredit extended.

But now there are indications that majority of

microfinance banks are now accepting collaterals

because they feel that introduction of soft collateral assecurity on loans will forbid defaults.


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The Malegam committee of RBI had recommended an average

margin cap 'of10% on MFIs having a loan portfolio of Rs.

100 crore

12% for smaller MFIs and a cap of 24% for interest onindividuals loans.

Currently most MFIs are charging an interest rate over 24%.


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Provide access to funding.

Encourage self-sufficiency and entrepreneurship.

Manage risk. Empower Women.


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Improper regulation.

Increasing competition.

Perceive high risk of micro entrepreneurship and small

business. High cost involved in a small transactions.

Lack of debt and equity funds for MFIs to pass on to

the poor.

Difficulty in measuring the social performance ofMFIs.


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Micro Finance Presentation

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Transcript of Micro Finance Presentation