Micro Finance Project

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Transcript of Micro Finance Project


Microfinance Industry in India and SKS Microfinance Ltd

The Report Submitted In Partial Fulfillment of the Requirements For The Award of the Degree of

MASTER OF BUSINESS ADMINISTRATION(Collaborative program of M.S. Ramaiah Management Institute with PRIST University) BY

Mani Shankar Sonkushre Reg. no. CM2091860039Under the guidance of

Prof Kumuda PR


M S Ramaiah Management Institute

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I hereby declare that the Project Report conducted on Microfinance Industry in India and SKS Microfinance Limited under the guidance of Prof Kumuda PR Submitted in Partial fulfillment of the requirements for the Degree of MASTER OF BUSINESS ADMINISTRATIONCollaborative program with PRIST University

TO M.S.RAMAIAH MANAGEMENT INSTITUTE It is my original work and the same has not been submitted for the award of any other Degree/Diploma/Fellowship or other similar titles or prizes

Place: Bangalore

STUDENT NAME : Mani Shankar Sonkushre


Reg. No : CM2091860039

M S Ramaiah Management Institute

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This is to certify that the Project Report on Microfinance Industry in India and SKS Microfinance Ltd Submitted in partial fulfillment of the requirements for


Is a record of bonafide Training carried out by (Mani Shankar Sonkushre, CM2091860039) under my supervision and guidance and that no part of this report has been submitted for the award of any other degree / diploma / fellowship or similar titles or prizes.


Signature :


: Kumuda PR

M S Ramaiah Management Institute

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Guidance, help and encouragement are the essential requirements for successful completion of any project. I owe my gratitude to all those who have helped me in the preparation of this project report. I extend my special gratitude to our beloved director Shri ANANDARAM, Our DEAN & our Co-coordinator Dr Muralidharan H. for inspiring me to take up this project. I wish to acknowledge my sincere gratitude and indebtedness to my project guide Prof Kumuda PR of M.S. RAMAIAH MANAGEMENT INSTITUTE Bangalore for his valuable guidance and constructive suggestions in the preparation of project report. .

Mani Shankar Sonkushre MBA IV Semester M. S. Ramaiah institute of Management Bangalore

M S Ramaiah Management Institute

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Content1. Executive summary a) Introduction to Micro Finance Industry b) Role of Microfinance a. Activities in Micro Finance c) Microfinance in India d) Microfinance Models e) Legal Regulations f) Success Factors of Microfinance in India g) Issues related to Microfinance in India 2. Research Design 3. SKS Microfinance a) Company Profile b) Operational Highlights c) Product structure d) Risk and Mitigation 4. Calculation and Analysis 5. Finding and Conclusions 6. Bibliography

M S Ramaiah Management Institute

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Executive summary :This project reports gives an insight to the Microfinance industry in India. It covers the Scope, Problems, Risks, Improvement and Benefits of Microfinance Industry in India. Based on Various Data collected from different sources the working of microfinance industry and its process is dealt with a due consideration to all legal and social aspect of country. This report consists of detailed study of Indias largest microfinance company SKS Microfinance. In the report, the valuation of SKS microfinance is done on the basis of financial calculation and ratios. This report shows the working methodology, product structure and Risks mitigation of the company and based on the research and calculation some findings and conclusion is arrived at. Microfinance offers poor people access to basic financial services such as loans, savings, money transfer services and micro insurance, according to the Consultative Group to Assist the Poor, or CGAP(Consultative Group to assist the poor), an independent policy and research organization. The industry emerged to alleviate poverty on the premise that poor people, like everyone else, need a diverse range of financial services to run their business, build assets and reduce vulnerability to fluctuations in their income. Their needs for financial services have been traditionally met through a variety of financial relationships, mostly informal. In the past two decades, different types of financial services providers for poor people have emerged, including non-government organizations, or NGOs; cooperatives; community-based development institutions like Self Help Groups, or SHGs, and credit unions; commercial and state banks and microfinance institutions, or MFIs, offering new possibilities

M S Ramaiah Management Institute

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IntroductionMicrofinance 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 the nationally defined poverty line, and poor individuals which fall below that poverty line, with the goal of creating social value. The creation of social value includes poverty alleviation and the broader impact of improving livelihood opportunities through the provision of capital for micro enterprise, and insurance and savings for risk mitigation and consumption smoothing. A large variety of actors provide microfinance in India, using a range of microfinance delivery methods. Since the ICICI Bank in India, various actors have endeavored to provide access to financial services to the poor in creative ways. Governments also have piloted national programs, NGOs have undertaken the activity of raising donor funds for onlending, and some banks have partnered with public organizations or made small inroads themselves in providing such services. This has resulted in a rather broad definition of microfinance as any activity that targets poor and low-income individuals for the provision of financial services. The range of activities undertaken in microfinance include group lending, individual lending, the provision of savings and insurance, capacity building, and agricultural business development services.

Microfinance DefinitionAccording to International Labor Organization (ILO), Microfinance is an economic development approach that involves providing financial services through institutions to low income clients. In India, Microfinance has been defined by The National Microfinance Taskforce, 1999 as provision of thrift, credit and other financial services and products of M S Ramaiah Management InstitutePage 7

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. "The 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. The management of money denotes acquiring & using money. Micro Finance is buzzing word, used when financing for micro entrepreneurs. Concept of micro finance is emerged in need of meeting special goal to empower under-privileged class of society, women, and poor, downtrodden by natural reasons or men made; caste, creed, religion or otherwise. The principles of Micro Finance are founded on the philosophy of cooperation and its central values of equality, equity and mutual self-help. At the heart of these principles are the concept of human development and the brotherhood of man expressed through people working together to achieve a better life for themselves and their children. Traditionally micro finance was focused on providing a very standardized credit product. The poor, just like anyone else, (in fact need like thirst) need a diverse range of financial instruments to be able to build assets, stabilize consumption and protect themselves against risks. Thus, we see a broadening of the concept of micro finance--- our current challenge is to find efficient and reliable ways of providing a richer menu of micro finance products. Micro Finance is not merely extending credit, but extending credit to those who require most for their and familys survival. It cannot be measured in term of quantity, but due weightage to quality measurement. How credit availed is used to survive and grow with limited means.

M S Ramaiah Management Institute

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Who are the clients of micro finance?The typical micro finance clients are low-income persons that do not have access to formal financial institutions. Micro finance clients are typically selfemployed, often household-based entrepreneurs. In rural areas, they are usually small farmers and others who are engaged in small income-generating activities such as food processing and petty trade. In urban areas, micro finance activities are more diverse and include shopkeepers, service providers, artisans, street vendors, etc. Micro finance clients are poor and vulnerable non-poor who have a relatively 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 hand, the chances are that, the poorer you are, the more expensive or onerous informal financial arrangements. Moreover, informal arrangements may not suitably meet certain financial service needs or may exclude you anyway. Individuals in this excluded and under-served market segment are the clients of micro finance. As we broaden the notion of the types of services micro finance encompasses, the potential market of micro finance clients also expands. It depends o