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7/31/2019 Microfinancial Analysis of j&k Grameen Bank2
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A project report on
“MICROFINANCIAL ANALYSIS”
OF J&K GRAMEEN BANK
Submitted in partial fulfilment for the degree of
Masters in Business Administration-Financial Management
PROJECT COORDINATOR SUBMITTED BY: Rahul Rangotra Aijaz Ahmad Bhat
Asstt. Professor 05_MBAFM-10
DEPTT. OF MANAGEMENT STUDIES, Session 2010-2012
BABA GHULAM SHAH BADSHAH UNIVERSITY
RAJOURI
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CERTIFICATE BY THE GUIDE
Certified that this project report is based on original study
conducted by Mr.Aijaz Ahmad Bhat under my guidance. He has
attended all the required guidance sessions held.
This project report has not formed a basis for the award of any
other degree\ diploma of any University or institution.
Signature of the Guide
Rahul Rangotra
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STUDENT DECLARATION
I hereby declare that this project report titled “MICROFINANCIAL
ANALYSIS BY J&K GRAMEEN BANK ” has been written by me in the year
2011-2012 under the valuable guidance of my guide and the lecturers of the
university in partial fulfilment for the award of the degree of Masters in
Business Administration-Financial Management from Baba Ghulam Shah
Badshah University..
I also declare that this project is the result of my own effort and has
not been submitted in part or full towards any other degree or diploma or
fellowship.
Date:
Place: RAJOURI
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ACKNOWLEDGEMENT
It is a privilege that I had been given the opportunity to complete a project
report on micro financial analysis of J&K Grameen Bank -A study conducted
with particular reference to Kashmir valley as a part of our syllabus for the
fulfilment of Masters in Business Administration-Financial Management course
conducted by Baba Ghulam Shah Badshah University. I would like to thank my
Dean Prof. Dost Mohammad who has given me the opportunity to do the
project.
I also take this opportunity to thank my Rahul Rangotra and all the other
faculty members of the Dept. of Management Studies, Baba Ghulam Shah
Badshah University for their valuable support, advice, encouragement,
assistance and guidance in the completion of this project report.
I express my immense thanks and gratitude to other faculty members, my
parents, my friends and my classmates for their moral support. I express my
gratitude towards all those silent benefactors who have supported and backed
me all the way in the preparation of this project
Aijaz Ahmad Bhat
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1. To objective of the research is to understand concept of Microfinance.
2. To find out existing Structure of Microfinance in World and in India 3. .To understand Policies adopted by different bank
4. The main objective of the research is to find out Potential of Microfinance in Jammu
& Kashmir
5. To understand Microfinance structure in J&K Bank and to Find out Flaws if any.
Primary Source:
Through Structured questions.
Face to face interview.
Secondary Source:
Records maintained by Bank.
Websites.
The Economic Times.
Times of India.
The study pertains to detailed understanding of
concept of Microfinance, its need, Supply and regulatory methods adopted by various
agencies. An exploratory research design was adopted to conducted research, method of
selecting sample was convenience sampling. Field survey was carried out to collect the
necessary data.
Both Primary and Secondary Data were used. Websites, Departmentalvisits, newspapers, Survey magazines, Statistical digest etc were used to collect data.
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Table of Contents:
(1)CHAPTER 1
(A)Company profile……………………………………………………………………………………….........8
(B)Introduction to grameen bank…………….………………………………………………………………...9
(C) Chairman’s message…………..………………..………………………………………………………….10
(D)Board of directors….……………………………………………………………………………………….16(E) Banking sector in India…….…….….…………………………………………………………………….17
(F)Composition of Indian banking system….….……......………………………………………………….18
CHAPTER 2……………………..........................
(A)Introduction To Microfinance……………………………………..…………………….21
(B)Orgin Of Microfinance……………..……………………………………….……………………………22
(C) Microcredit System……………………………………………………………..………………………..24
(D)Microcredit Lending Modals ……………………….……………………….………………………….26
(F)Reduction Of Poverty……………………………………………………………………………………31
(E)Requirement Of Microfinance…………………………………………………………………………35
(G)Microcredit And Grameen Bank………………………………………….……………………………39
(H)Microfinance In India …………………………………………………………………………………...47
CHAPTER 3
(A)Microfinance In J&K………………………………………………………………………………….…60
(B)Role Of J&K Grameen Bank……………………………………………………………………………60
(C)Schemes’ Provided By J&K Bank………………………………………………………………………62
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(D)Current Scenario Of Microfinance In J&K……………………………………..……………………..67
CHAPTER 4
(A)DATA INTERPRETATION……………………………………………………..……………………….76
SUGESSTIONS…………………………………………………………..……………………………………94
CONLUSION………………………………………………….……………………………………………….97
BIBLOGRAPHY
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CHAPTER 1
COMPANY PROFILE
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TO
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Chairman’s message
It gives me immense pleasure in heading the family of J&K Grameen Bank,sponsored by J&K Bank, comprising a team of dedicated, hardworking, andhighly aspiring employees. The J&K Grameen Bank is one of the PremierBanks in the state of Jammu & Kashmir with a network of 174 branches. Thearea of operation of the bank is spanned across all three regions of the state.
The success of J&K Grameen Bank can be attributed to our ability tocontinually identify, evolve and respond to the changing demands across thestate of J&K and reach out to the far flung/remotest corners for providingvarious banking services to the unbanked areas, thereby fulfilling ourcommitment of Corporate Social Responsibility.
Our values of respect, service and involvement remain consistent. These valuesare embraced by our staff members who have played a major role in our successso far. These values will continue to do so in going forward.
The track record of consistent growth of the Bank is indeed a satisfying
achievement for any organization. Still there is enough untapped potentialavailable waiting to be exploited. Bank is required to broad base its clientelethrough expanding reach and spread by way of Financial Inclusion of unbanked/underprivileged population. Our special emphasis and effort arewarranted to give a big boost to our CD Ratio. Technological advancement inthe form of 100% coverage under CBS will also provide us ample opportunitiesto offer class services to our customers. I wish every member of this family aprosperous life.
Our slogan for 2010-11 „ BANKING THE UNBANKED‟
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HISTORY OF J&K GRAMEEN BANK
Two Regional Rural Banks sponsored by J&K Bank in J&K State namely Kamraz Rural
Bank and Jammu Rural Bank have been amalgamated and will now operate under a single
new, Regional Rural Bank-―J&K Grameen Bank‖ from July 1, 2009. The area of operation of
J&K Grameen Bank shall be located at Jammu.
After a three year wait for Union finance ministry‘s nod, J&K‘s two regional rural banks
(RRBs) merged to become J&K Grameen Bank. The new entity that will be headquartered at
Jammu will have a network of 172 branches across the state.
Unlike Jammu Rural Bank (JRB) that has its network in the length and breadth of Jammu, the
Karmraz Rural Bank (KRB) is restricted to the north Kashmir district of Baramulla, Kupwara
and Bandipora. A new set up may help it extend services to hitherto ‗out of bound belts‘.
JRB and KRB are sponsored by the J&K Bank that holds 15 percent of their shares. The
remaining equity of the twin entities is with central and state governments at 50 and 35
percent respectively.
―The proposal (of merger) came a bit late. But it is a good development,‖ Dr HaseebDrabu,
chairman and chief executive of the J&K Bank said. It was during his stint as economic
adviser to J&K government that state government approved disinvestment in the two RRBs
and assigned its equity to the JK Bank (otherwise owned by it to the tune of 53 percent) to
pave way for the merger.
―J&K Grameen Bank will revolutionise mainstay of our economy and will have its main
focus on agriculture lending and rural lending. There will be deepening of financial inclusion
in the rural sector and enlarging outreach for empowering rural population with variety of
banking services. The new formation will ensure much needed credit delivery to promote
agriculture production and other productive and employment generating enterprises in the
state,‖ said Drabu.
Apart from reach, the new bank has huge deposit base as well. Together, the two banks have
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Rs 1090.61 crores of deposits against which their joint loan book is only Rs 359.73 crores. If
the two banks get a proper micro-finance business model, the two have the capacity of
changing the fate of thousands of people from underprivileged and ‗un- bankable‘ class of
population given their reach.
Interestingly, there was resistance for merger from inside both banks. JRB officials said that
their bank was performing better and earning profit, and that its prospects would get marred
as the losses of KRB would add up. For the sake of argument, the KRB for the first time in
last 28 years has showed profit, though not that big. KRB officials were averse to the idea
saying the merger would impose a JRB bureaucracy over them as the new bank would be
headquartered at Jammu. J&K Bank is yet to send a CEO to the new bank and insiders say it
may take some time.
―The personnel running these banks need to be trained in better
management of the micro-credit schemes and the political interventions must end to permit
them prosper,‖ said an executive of JK Bank who has experience in the micro-credit. He said
the bank has drafted a plan to run the new entity on professional lines.
After the notification was issued by the federal finance ministry, undertaking of the two
banks stand transferred to the new entity. These include assets, rights, powers, authorities and
privileges and all property movable and immovable, cash balance, reserve funds, and
investments. However, the services of all the employees of the two RRBs – over 800 – shall
continue at the same remuneration and on the same terms and conditions of service, which
they were getting or, as the case may be, by which they were governed immediately before
the effective date of amalgamation. J&K Bank has already released the new entity‘s logo.
RRBs were created in 1975. Over the last three decades, more then 90 of 196 RRBs with
14,446 branches across India are running in losses with some of them having their capital
base eroded totally. A number of committees have reviewed their performance and made
recommendations. It was one such committee that recommended the merger of RRBs at state
level on basis of sponsor banks. Apart from bringing in efficiency and transparency, the idea
is aimed at helping these small entities to grow in size and have economies of scale that
eventually would help them to compete. In the next stage, RRBs sponsored by different banks
would be merged at the state level.
J&K has three RRBs of which two are sponsored by JKB and one by SBI. The state is
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interested in merging all small banks – both rural and cooperative banks – to create a chain
that would specifically serve agricultural and marginal section of the society under the JK
Bank, so far state‘s lone success story on banking front.
J&K Grameen formed: Notification of amalgamation of kamraz rural
bank and Jammu Rural Bank
A pioneering initiative by J&K Bank today facilitated the state‘s maiden banking sector
merger culminating into the establishment of J&K Grameen Bank.
Two Regional Rural Banks sponsored by J&K Bank in J&K State namely Kamraz Rural
Bank and Jammu Rural Bank have been amalgamated and will now operate under as single
new Regional Rural Bank - ―J&K Grameen Bank‖ from July 1, 2009. The area of operation
of J&K Grameen Bank shall be the combined area of operation of amalgamated RRBs. The
head office of the bank shall be located at Jammu.
A notification to this effect was issued today by GOI Ministry of Finance, Department of
Financial Services, Government of India while exercising the powers conferred by sub-
section (1) of section23A of the Regional Rural Banks Act, 1976 (21 of 1976) (hereafter
referred to as ―the Act‖). According to the notification, from the effective date of amalgamation, the transferor RRBs viz. Kamraz Rural Bank and Jammu Rural Bank shall
cease to carry on the business and the transferee RRB i.e. J&K Grameen Bank shall come
into existence and commence its business w.e.f. from the date of publication of the
notification.
While commenting on the amalgamation of KRB and JRB, Dr.Haseeb A. Drabu, Chairman
and Chief Executive of J&K Bank said that the consolidated new strong RRB in the State
(J&K Grameen Bank) would pave way for enhancing economic development in the State.
―J&K Grameen Bank will revolutionize mainstay of our economy and will have its main
focus on agriculture lending and rural lending. There will be deepening of financial
inclusion in the rural sector and enlarging outreach for empowering rural population with
variety of banking services. The new formation will ensure much needed credit delivery to
promote agriculture production and other productive and employment generating
enterprises in the state,‖ said Dr.Haseeb A Drabu.
Introducing an entirely new financial architecture in the State, Grameen Bank would
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function on the same technological platform as is available to the customers of the J& K
Bank with state-of-the-art business transaction facilities,‖ told J& K Bank Chairman Dr
HaseebDrabu, who piloted the landmark move. According to Drabu, J& K Grameen Bank
would pave the way for speeding up inclusive economic development in the State withfocus on micro lending. ― The J&K Grameen Bank will revolutionize mainstay of the
State‘s economy with focus on micro- lending in agriculture, horticulture and handicraft
sectors,‖ he said and added there will be deepening of financial inclusion in the rural sector
and enlarging outreach for empowering rural population with variety of banking services.
The new formation will ensure much needed credit delivery to promote agriculture
production and other productive and employment generating enterprises,‖ Dr Drabu said.
Meanwhile, following the amalgamation, the undertakings of the Kamraz Rural Bank and
Jammu Rural Bank shall stand transferred to and shall vest to the ‗J&K Grameen Bank‘.
The undertakings shall include assets, rights, powers, authorities and privileges and all
property movable and immovable, cash balance, reserve funds, investments and all other
rights and interests in or arising out of such property, as are immediately before the
commencement of the notification.
If, on the effective date of amalgamation, any suit, appeal or other proceedings of
whatsoever nature in relation to any business of the transferor Regional Rural Banks are
pending by, or against to, the transferor Regional Rural Banks, the same shall not abate, be
discontinued or be, in any way, prejudicially affected by reason of the transfer of the
undertaking of the transferor Regional Rural Banks or of anything contained in the
notification but the suit, appeal or other proceedings may be continued, prosecuted and
enforced by, or against, the transferee Regional Rural Bank.
According to the notification, in respect of every savings banks account or current account
or any other deposit account including a fixed deposit, cash certificate, monthly deposit,
deposit payable at call or short notice or any other deposits by whatever name called with
the transferor Regional Rural Bank, the transferee Regional Bank shall open with itself on
the effective date of amalgamation a corresponding and similar account in the name of
respective holder(s) thereof crediting thereto full amount including interest by the extent
payable.
All contracts, deeds, bonds, agreements, guarantees, powers of attorney, grants of legal
representation and other instruments of whatsoever nature subsisting or having effect
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immediately before the commencement of this notification and to which the transferor
Regional Rural Banks are a party or which are in favour of the transferor Regional Banks
shall be in full force and effect against or in favour of the transferee Regional Rural Bank
(J&K Grameen Bank) and may be enforced or acted upon fully and effectively, says thenotification.
The services of all the employees of the transferor Regional Banks (excepting such of them
as not being workmen within the meaning of the Industrial Disputes Act, 1947) shall
continue in the transferee Regional Rural Bank at the same remuneration and on the same
terms and conditions of service, which they were getting or, as the case may be, by which
they were governed immediately before the effective date of amalgamation.
Background of Grameen Bank
J&K Grameen Bank (JKGB), was established on 30th June 2009 after amalgamation of two
erstwhile RRBs viz. JRB and KRB in accordance with GOI Notification dated 30th June
2009 issued under sub- section (1) of section 23A of the RRB Act, 1976 (21 of 1976). The
area of operation of the back is extended to 11 Districts, besides some parts of District
Srinagar and Ganderbal of J&K State with its office situated at Jammu.The network of the
bank consist of two Regional Offices, Six Area Offices and 176 branches with 7 extension
counters. The main objective of the Bank is to improve the economy of rural, semi-urban &
urban centers.
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BOARD OF DIRECTORS
S.No NameDesignation/ Address
1 Mr.Raja Abdul Lateef Chairman
2 Mr.C. SahooAsstt. Gen.Manager
RPCD R.B.I. Jammu
3 Mr.G.H. Khidir Dy. General ManagerNABARD, Jammu
4 Mr.Shafiq Ahmad Raina
Special Secretary
Agriculture Department
Govt. of J&K
5 Mr.MushtaqSidiqui
Special Secretary
Finance DepartmentGovt. of J&K
6 Mr.S.S. Nathyal
Vice President (S&C)
J&K Bank Ltd.
Zonal Office
Gurgaon, Haryana
7 Mr.B.A. Lone
Vice President
J&K Bank Ltd.
Corporate Headquarters
M.A. Road, Srinagar
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The Banking Sector in India
The Banking system in India is significantly different from that of other Asian nations
because of the country‘s unique geographic, social, and economic characteristics. India has a
large population and land size, a diverse culture, and extreme disparities in income, which are
marked among its regions. There are high levels of illiteracy among a large percentage of its
population but, at the same time, the country has a large reservoir of managerial and
technologically advanced talents. Between about 30 and 35 percent of the population resides
in metro and urban cities and the rest is spread in several semi-urban and urban Centres. The
country‘s economic policy framework combines socialistic and capitalistic features with a
heavy bias towards public sector investment. India has followed the path of growth-led
exports rather than the ―exported growth‖ of other Asian economies, with emphasis on self -
reliance through import substitution. These features are reflected in the structure, size and
diversity of the country‘s banking and financial sector. The banking system has had to serve
the goals of economic policies enunciated in successive five year development plans,
particularly concerning equitable income distribution, balanced regional economic growth,
and the reduction of elimination of private sector monopolies in trade and industry. In order
for the banking industry to serve as an instrument of state policy, it was subjected to various
nationalization schemes in different phases (1955, 1969, and 1980). As a result, banking
remained internationally isolated (few Indian banks had presence abroad in international
financial centres) because of preoccupations with domestic priorities, especially massive
branch expansion and attracting more people to the system. Moreover, the sector has been
assigned the role of providing support to other economic sectors such as agriculture, small-
scale industries, exports and banking activities in the developed commercial centres (i.e.,
metro, urban, and a limited number of semi-urban centres). The banking system‘s
international isolation was also due to strict branch licensing controls on foreign banksalready operating in the country as well as entry restrictions facing new foreign banks. A
criterion of reciprocity is required for any Indian bank to open an office aboard. These
features have left the Indian banking sector with weakness and strengths. A big challenge
facing Indian banks is how, under the current ownership structure, to attain operational
efficiency suitable for modern financial intermediation. On the other hand, it has been
relatively easy for the public sector banks to recapitalize, given the increases in
nonperforming assets (NPA‘s), as their Government dominated ownership structure has
reduced the conflicts of interest that private banks would face.
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COMPOSITION OF THE INDIAN BANKING SYSTEM IN INDIA
At present, the number of nationalized bank is 20. Several foreign banks were allowed to
operate as per the guidelines of RBI. At present the banking system can be classified in
following categories:
Public Sector Banks:
RBI
SBI and its 7 associate bank
Nationalized bank (20 in No.)
RRB‘s sponsored by public sector banks.
Local area banks.
Non scheduled banks.
Cooperative Sector Banks:
State Cooperative banks.
Central Cooperative banks.
Primary agriculture credit societies.
Land development banks.
Urban Cooperative banks.
State land development banks.
Scheduled Cooperative banks.
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Development banks:
Industrial finance cooperation of India (IFCI).
Industrial development bank of India.(IDBI).
Industrial credit and investment cooperation of India (ICICI)
Industrial investment bank of India. (IIBI)
Small industries development bank of India (SIDBI).
National bank of agriculture and rural development (NABARD).
Export import bank of India.
Private Sector Banks:
Old generation private banks.
New generation private banks.
Foreign banks in India.
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CHAPTER 2
INTRODUCTION TO MICROFINANCE
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MICROFINANCE
Microfinance refers to the provision of financial services to low-income clients,
including the self-employed. The term also refers to the practice of sustainably
delivering those services.
More broadly, it refers to a movement that envisions ―a world in which as many poor
and near-poor households as possible have permanent access to an appropriate range
of high quality financial services, including not just credit but also savings, insurance,
and fund transfers.
Theoretically, microfinance encompasses any financial service used by poor people,
including those they access in the informal economy, such as loans from a village
moneylender. In practice however, the term is usually only used to refer to institutions
and enterprises whose goals include both profitability and reducing the poverty of their
clients. Micro financial services are needed everywhere, including the developed
world. However, in developed economies intense competition within the financial
sector, combined with a diverse mix of different types of financial institutions with
different missions, ensures that most people have access to some financial services.
Efforts to transfer microfinance innovations such as solidarity lending from developing
countries to developed ones have met with little success. Microfinance can also be
distinguished from charity. It is better to provide grants to families who are destitute,
or so poor they are unlikely to be able to generate the cash flow required to repay a
loan. This situation can occur for example, in war zone or after a natural disaster.
There are various sources by which microfinance outreaches the final
customer. The flow of Microfinance can be shown as follows:
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Origin of Microfinance
The origin of microfinance is often dated as late as the 1970s. Over the past centuries
practical visionaries from the Franciscan monks who founded the community-oriented
pawnshops of the fifteenth century, to the founder of the credit union movement in the
nineteenth century (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 livelihood opportunities and risk management tools
that financial services provide to the doorsteps of poor people. While the success of Grameen
Bank (which now serves over 7 million poor Bangladeshi women) has inspired the world, it
has proved difficult to replicate this success in practice. In nations with lower population
densities, meeting the operating costs of a retail branch by serving nearby customers has
proven considerably more challenging. Microcredit came to prominence in the 1980s,
although subsidized credit programs to targeted communities date back to the 1950s and early
experiments in Bangladesh, Brazil and a few other countries began in the 1970s. The
important difference of microcredit was that it avoided the pitfalls of an earlier generation of
targeted development lending, by insisting on repayment, by charging interest rates that could
cover the costs of credit delivery and by focusing on client groups whose alternative source
of credit was the informal sector.
In February 1997, RESULTS Educational Fund convened the first Microcredit Summit . More
than 2,900 delegates from 137 countries attended the Summit, held in Washington, D.C., and
launched a nine-year campaign to reach 100 million of the world‘s poorest families,
especially the women of those families, with credit for self-employment and other financial
and business services by the end of 2005.
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Four approaches to establishingMicrofinance services – adopted to the specific financial sector deficiencies
„Down- scaling“ Supporting commercial
banks to serve the
micro segment
„Up- grading“
Transformation of acredit NGO into a fully-
fledged micro bank
„Linking“
Connect MicrofinanceInstitutions with the
national or international
capital market
„Greenfielding “ Foundation of a new
Microfinance Institution
(MFI)
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Microcredit System:
The four pillars of microfinance credit system (Fig. 1) are supply, demand for finance,
intermediation and regulation. Whatever may the model of the intermediary
institution, the end situation is accessibility of finance to poor. The following tables
indicate the existing and desired situation for each component.
DEMAND
Existing Situation Desired Situation
fragmented
Undifferentiated
Addicted, corrupted by capital& subsidies
Communities not aware of rights and responsibilities
Organized
Differentiated (forconsumption,housing)
Deaddicted fromcapital & subsidies
Aware of rights and
responsibilities
SUPPLY
Existing Situation Desired Situation
Grant based(Foreign/GOI)
Directed Credit -unwilling andcorrupt
Not linked withmainstream
Mainly focussed forcredit
Dominated
Regular fund sources(borrowings/deposits)
Demand responsive
Part of mainstream (banks/FIs)
Add savings and insurance
Reduce dominance of informal, unregulated suppliers
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INTERMEDIATION
Existing Situation Desired Situation
Non specialized
Not oriented to financialanalysis
Non profit capital
Not linked to mainstreamFIs
Not organized
Specialized in financialservices
Thorough in financialanalysis
For profit
Link up to FIs
Self regulating
REGULATION
Existing Situation Desired Situation
Focussed on formal serviceproviders (informal not regulated)
regulating the wrong things e.g.
interest rates Multiple and conflicting (FCRA,
RBI, IT, ROC, MOF/FIPB,ROS/Commerce)
Negatively oriented
include/informalrecognise e.g.SHGs
Regulate rules of
game Coherence and
coordinationacross regulators
Enablingenvironment
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Microfinance Lending Models (Types of MFIs)
Microfinance itself is a credit lending model, and within this lending model exist severalsubcategories, i.e. microfinance lending models, which differ in terms of where their funds
are sources from, and how the money is governed. This post briefly mentions each lending
model (explained in detail at GDRC‘s website) and lists microfinance providers that follow
these models.
Microfinance Lending Model 1: Associations
An association is formed by the poor in the target community to offer microfinance services
(micro-savings, micro-credit, 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.
Example: Self Help Groups, SHGs (India)
Microfinance Lending Model 2: Bank Guarantees
A donor or government agency guarantees micro loans 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.
Examples: Africap Microfinance Fund (Mauritius), Bellwether Microfinance Fund (India),
Latin America Bridge Fund, Microfinance Credit Guarantee Facility (Pakistan)
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Microfinance Lending 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 their living standards and to generate
employment. By offering microfinance services, these banks seek to develop their
communities.
Guarantees are provided by social collateral (peer-pressure) as services are distributed
through 5-member groups where each member‘s eligibility for loans is based on his/her
peer‘s performance.
Examples: Grameen Bank (Bangladesh), MuCoBa (Tanzania)
Microfinance Lending 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.
Examples: Co-operative Bank (England), Cooperative Rural Bank of Bulacan (Philippines)
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Microfinance lending Model 5: Credit Unions
In a Credit Union, members of a target community gather their money and make loans to one
another at low interest rates. Compared to community banks, credit unions are smaller and
non-profit oriented, charging interest rates that merely allow sustainability (read 10
determinants of interest rates in microfinance).
The role of Grameen Bank is not limited to any one sectors of the society or economy
in the Kashmir region, but the Grameen Banks are playing a vital role in over all
development of the Rural economy of the region to improve the life style and standard of the
common masses. Grameen Banks are providing financial assistance to every sector of thesociety throughout the region through their various organized schemes most importantly
through Govt. sponsored schemes, specifically developed by the Govt. of India, Reserve
Bank of India and National Bank for agriculture and Rural Development, besides various
schemes of the Banks developed at their own level. The implementation of these schemes is
being supervised and regulated by Govt. of India and NABARD through the lead Band
Department and the assessment of implementation of these schemes is being done through
BLBC‘s, DLRC‘s and SLBC‘s.
Since we have analysed and evaluated the business portfolio of J&K Grameen Bank,
which has its Headquarter in Jammu and Regional Headquarter of Kashmir region at Sopore
Barramulla. We reproduce the business portfolio most importantly the lending portfolio of
J&K Grameen Bank, Regional Office Sopore, which it has implemented and provided
assistance to the Rural masses of the Kashmir region through its various financial schemes.
The figures seems to be very impressive and are given in Annexure-I
Since during the current financial scenario the Govt. of India is very forcefully being
supervising the implementation of microfinance schemes in the down trodden and under
privileged segments of the society, the Bank under reference has also put in their reasonable
part of the lending into this sector. The Bank is further taking very impressive steps to speed
up the financial inclusion schemes of the Govt. through the issuance of small segment credit
cards popularly known as General Credit Cards, Kissan Credit Cards. Bothe these schemes
have played a very vital role in improving the financial position of the Rural finance schemes
the Bank is issuing GCCs to all the individual families with an initial credit limit of Rs.25000/- to meet out their domestic expenses either or spent the money for purchase of inputs
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for cash crop growing, besides the Bank is issuing KCCs to the same segment of people with
a credit limit ranging from Rs. 5000/- to Rs. 3,00,000/- to be used by the farmers for purchase
of seeds, fertilizers, pesticides and other agriculture equipments required as per necessity for
growing crops, agriculture and other domestic requirements in both the cases the funds so
allocated rather financed to the borrowers or being utilized as revolving funds which a
borrower can regularly withdraw and deposit during a particular period of time as would be
decided by the Bank with a minimum ceiling of 6 months i.e. single crop or one year i.e.
double crop depending upon the seasonality of the crops. As said earlier here in above the
Bank has done very impressive work under the schemes and the data of microfinance
portfolio so analysed is reproduced here under, the figures belong to ending March, 2011.
Microfinance Lending Model 6: Non-Governmental Organizations (NGOs)
Unlike community-based models, NGOs are ‗external organizations‘ and their activities
range from offering microfinance services (loans, insurance, savings, etc.) to improving
credit rating of the poor, training, education and research. NGOs may also act as
intermediaries between the poor and donor agencies (UN, ADB, World Bank) and operate
locally, as well as globally (through a physical or online presence).
Examples: ACCION international (Headquarters in USA), KIVA (Headquarters in USA),
Kashf Foundation (Pakistan)
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Microfinance Lending 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.
Unlike other models, the aim is social development as well as financial progress, beyond
institutional sustainability. Read about a bank that exploited the poor under the guise of
microfinance.
Examples: Bank Compartamos (Mexico), Khushali Bank (Pakistan)
Microfinance Lending Model 8: ROSCAs Rotating Savings and Credit Associations
(ROSCAs)
ROSCAs are small groups, typically composed of women, where each member makes
‗regular cyclical contributions into a common fund‖, which is given entirely to one member
at the start of each cycle (weekly, monthly, quarterly). The benefit of this model is the
matching of a client‘s cash flows with the loan, the ability to structure the deal without
interest rates, and the absence of over-head costs.
Examples: Say, a groups of 10 women come together in January and pitch in S7 each,
making a total of S70, and this sum is given to Member A for the month. In February, another
S70 is gathered and given to Member B, and the cycle continues for 10 months (10
Members). No interest is charged, and social collateral ensure
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Breaking the vicious cycle of poverty through
microcredit
The Grameen Bank is based on the voluntary formation of small groups of five people to
provide mutual, morally binding group guarantees in lieu of the collateral required by
conventional banks. At first only two members of a group are allowed to apply for a loan.
Depending on their performance in repayment the next two borrowers can then apply and,
subsequently, the fifth member as well.
The assumption is that if individual borrowers are given access to credit, they will be able to
identify and engage in viable income-generating activities - simple processing such as paddy
husking, lime-making, manufacturing such as pottery, weaving, and garment sewing, storage
and marketing and transport services. Women were initially given equal access to the
schemes, and proved not only reliable borrowers but astute entrepreneurs. As a result, they
have raised their status, lessened their dependency on their husbands and improved their
homes and the nutritional standards of their children. Today over 90 percent of borrowers are
women.
Intensive discipline, supervision, and servicing characterize the operations of the Grameen
Bank, which are carried out by "Bicycle bankers" in branch units with considerable delegated
authority. The rigorous selection of borrowers and their projects by these bank workers, the
powerful peer pressure exerted on these individuals by the groups, and the repayment scheme
based on 50 weekly instalments, contribute to operational viability to the rural banking
system designed for the poor. Savings have also been encouraged. Under the scheme, there is
provision for 5 percent of loans to be credited to a group find and Tk 5 is credited every week
to the fund.
The success of this approach shows that a number of objections to lending to the poor can be
overcome if careful supervision and management are provided. For example, it had earlier
been thought that the poor would not be able to find remunerative occupations. In fact,
Grameen borrowers have successfully done so. It was thought that the poor would not be able
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to repay; in fact, repayment rates reached 97 percent. It was thought that poor rural women in
particular were not bankable; in fact, they accounted for 94 percent of borrowers in early
1992. It was also thought that the poor cannot save; in fact, group savings have proven as
successful as group lending. It was thought that rural power structures would make sure thatsuch a bank failed; but the Grameen Bank has been able to expand rapidly. Indeed, from
fewer than 15,000 borrowers in 1980, the membership had grown to nearly 100,000 by mid-
1984. By the end of 1998, the number of branches in operation was 1128, with 2.34 million
members (2.24 million of them women) in 38,957 villages. There are 66,581 centres of
groups, of which 33,126 are women. Group savings have reached 7,853 million taka
(approximately USD 162 million), out of which 7300 million taka (approximately USD 152
million) are saved by women.
It is estimated that the average household income of Grameen Bank members is about 50
percent higher than the target group in the control village, and 25 percent higher than the
target group non-members in Grameen Bank villages. The landless have benefited most,
followed by marginal landowners. This has resulted in a sharp reduction in the number of
Grameen Bank members living below the poverty line, 20 percent compared to 56 percent for
comparable non-Grameen Bank members. There has also been a shift from agricultural wage
labour (considered to be socially inferior) to self-employment in petty trading. Such a shift in
occupational patterns has an indirect positive effect on the employment and wages of other
agricultural waged labourers. What started as an innovative local initiative, "a small bubble of
hope", has thus grown to the point where it has made an impact on poverty alleviation at the
national level ".
Most poor people manage to mobilize resources to develop their enterprises and their
dwellings slowly over time. Financial services could enable the poor to leverage their
initiative, accelerating the process of building incomes, assets and economic security.
However, conventional finance institutions seldom lend down-market to serve the needs of
low-income families and women-headed households. They are very often denied access to
credit for any purpose, making the discussion of the level of interest rate and other terms of
finance irrelevant. Therefore the fundamental problem is not so much of unaffordable terms
of loan as the lack of access to credit itself.
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THE VICIOUS CYCLE OF POVERTY
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Promise to poor
MICROFINANCE
Unlocking household labour that had been locked up due to liquidity constraints
High
ProductivityHigh
Incomes
Household demand for
goods and services
Improved
Nutrition
Better
HealthcareBetter
Education
Escape from Poverty
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Requirement of Microfinance:
The lack of access to credit for the poor is attributable to practical difficulties arising from the
discrepancy between the mode of operation followed by financial institutions and the
economic characteristics and financing needs of low-income households. For example,
commercial lending institutions require that borrowers have a stable source of income out of
which principal and interest can be paid back according to the agreed terms. However, the
income of many self employed households is not stable, regardless of its size. A large number
of small loans are needed to serve the poor, but lenders prefer dealing with large loans in
small numbers to minimize administration costs. They also look for collateral with a clear
title - which many low-income households do not have. In addition bankers tend to consider
low income households a bad risk imposing exceedingly high information monitoring costson operation.
Emphasis shifted from rapid disbursement of subsidized loans to prop up targeted sectors
towards the building up of local, sustainable institutions to serve the poor. Microcredit has
largely been a private (non-profit) sector initiative that avoided becoming overtly political,
and as a consequence, has outperformed virtually all other forms of development lending.
Indeed, since the 1980s, microfinance programs have improved upon original methodologies
and extended beyond conventional thinking. First, microfinance demonstrated that poor
people, and especially women, had excellent repayment rates (and often, rates that performed
better than those in formal financial sectors). And second, that the poor were willing and able
to pay interest rates that would allow the microfinance institutions (MFIs) to cover costs.
Traditionally microfinance was focused on providing a very standardized credit product. The
poor, just like anyone else, need a diverse range of financial instruments to be able to build
assets, stabilize consumption and protect themselves against risks. Indeed, in manydeveloping countries, self-employment through microenterprise is often the only way to
provide for families and the local environment. Thus, we see a broadening of the concept of
microfinance---our current challenge is to find efficient and reliable ways of providing a
richer menu of microfinance products.
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The clients of microfinance:
The typical microfinance clients are low-income persons that do not have access to formal
financial institutions. Their "microenterprises" represent an estimated 80% of the total
enterprises in the world, 50% of urban enterprises and 20% of the GNP of their countries.
Microfinance clients are typically self-employed, 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, microfinance
activities are more diverse and include shopkeepers, service providers, artisans, street
vendors, etc. Microfinance clients are poor and vulnerable non-poor who have a relatively
stable 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. The poor often obtain
financial services from informal financial relationships - credit can be available from
commercial and non-commercial lenders, but often at very high interest rates; saving services
can be available through savings clubs, credit associations and the like. As a result, 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 microfinance.
Microfinance generally targets poor women because they have proven to be reliable credit
risks and when they have the financial means, they invest that money back into their families,
resulting in better health and education, and stronger local economies. By providing access to
financial services - loans and responsibility for repayment, maintaining savings accounts,providing insurance - microfinance programs send a strong message to households and
communities. Studies have shown that women become more assertive and confident, have
increased mobility, are more visible in their communities and play stronger roles in decision
making.
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How does microfinance help the poor?
Microfinance brings the power of credit to the grassroots by way of loans to the poor, without
requirement of collateral or previous credit record. Experience shows that microfinance can
help the poor to increase income, build viable businesses, and reduce their vulnerability to
external shocks. It can also be a powerful instrument for self-empowerment by enabling the
poor, especially women, to become economic agents of change.
Poverty is multi-dimensional, and by providing access to financial services, microfinance
plays an important role in the fight against the many aspects of poverty. Access to credit
allows poor people to take advantage of economic opportunities - for their homes, their
domestic environments and their communities. For instance, income generation from a
business helps not only the business activity expand but also contributes to household incomeand its attendant benefits on food security, children's education, etc. Moreover, for women
who, in many contexts, are secluded from public space, transacting with formal institutions
can also build confidence and empowerment.
Recent research has revealed the extent to which individuals around the poverty line are
vulnerable to shocks such as illness of a wage earner, weather, theft, or other such events.
These shocks produce a huge claim on the limited financial resources of the family unit, and,
absent effective financial services, can drive a family so much deeper into poverty that it cantake years to recover.
Microfinance services are provided by three types of sources:
Formal institutions
Semi-formal institutions such as NGOs
Informal sources such as money lenders and shopkeeper .
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Microcredit and Grameen Bank
The word "microcredit" did not exist before the seventies. Now it has become a buzz-word
among the development practitioners. In the process, the word has been imputed to mean
everything to everybody. No one now gets shocked if somebody uses the term "microcredit"
to mean agricultural credit, or rural credit, or cooperative credit, or consumer credit, credit
from the savings and loan associations, or from credit unions, or from money lenders. When
someone claims microcredit has a thousand year history, or a hundred year history, nobody
finds it as an exciting piece of historical information. I think this is creating a lot of
misunderstanding and confusion in the discussion about microcredit. We really don't know
who is talking about what. I am proposing that we put labels to various types of microcredit
so that we can clarify at the beginning of our discussion which microcredit we are talking
about. This is very important for arriving at clear conclusions, formulating right policies,
designing appropriate institutions and methodologies. Instead of just saying "microcredit" we
should specify which category of microcredit.
A broad classification of microcredit:
A)Traditional informal microcredit (such as, moneylender's credit, pawn shops, loans from
friends and relatives, consumer credit in informal market, etc.)
B) Microcredit based on traditional informal groups (such as, Tontin, Susu, ROSCA, etc.)
C) Activity-based microcredit through conventional or specialised banks (such as,
agricultural credit, livestock credit, fisheries credit, handloom credit, etc.)
D) Rural credit through specialised banks.
E)Cooperative microcredit (cooperative credit, credit union, savings and loan associations,
savings banks, etc.)
F) Consumer microcredit.
G) Bank-NGO partnership based microcredit.
H) Grameen type microcredit or Grameen credit
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. I) other types of NGO microcredit.
J) Other types of non-NGO non-collateralized microcredit.
This is a very quick attempt at classification of microcredit just to make a point. The point is
— every time we use the word "microcredit" we should make it clear which type (or cluster
of types) of microcredit we are talking about. Otherwise we'll continue to create endless
confusion in our discussion. Needless to say that the classification I have suggested is only
tentative. We can refine this to allow better understanding and better policy decisions.
Classification can also be made in the context of the issue under discussion. I am arguing that
we must discontinue using the term "microcredit" or "microfinance" without identifying its
category. Microcredit data are compiled and published by different organizations. We findthem useful. I propose that while publishing these data we identify the category or categories
of microcredit each organization provides. Then we can prepare another set of important
information — number of poor borrowers, and their gender composition, loan disbursed, loan
outstanding, balance of savings, etc. under each of these categories, country wise, region
wise, and globally.
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General features of Grameen credit are :
a) It promotes credit as a human right.
b) Its mission is to help the poor families to help themselves to overcome poverty. It is
targeted to the poor, particularly poor women.
c) Most distinctive feature of inistutional microcredit is that it is not based on any collateral,
or legally enforceable contracts. It is based on "trust", not on legal procedures and system.
D )It is offered for creating self-employment for income-generating activities and housing for
the poor, as opposed to consumption.
e) It was initiated as a challenge to the conventional banking which rejected the poor by
classifying them to be "not creditworthy". As a result it rejected the basic methodology of the
conventional banking and created its own methodology.
f) It provides service at the door-step of the poor based on the principle that the people should
not go to the bank, bank should go to the people.
g) In order to obtain loans a borrower must join a group of borrowers.
h) Loans can be received in a continuous sequence. New loan becomes available to a
borrower if her previous loan is repaid.
i) All loans are to be paid back in instalments (weekly, or bi-weekly).
j) Simultaneously more than one loan can be received by a borrower.
k) It comes with both obligatory and voluntary savings programmes for the borrowers.
Generally these loans are given through non-profit organizations or through institutions
owned primarily by the borrowers. If it is done through for-profit institutions not owned by
the borrowers, efforts are made to keep the interest rate at a level which is close to a level
commensurate with sustainability of the programme rather than bringing attractive return for
the investors. Grameen credit's thumb-rule is to keep the interest rate as close to the market
rate, prevailing in the commercial banking sector, as possible, without sacrificing sustain-
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ability. In fixing the interest rate market interest rate is taken as the reference rate, rather than
the moneylenders' rate. Reaching the poor is its non-negotiable mission. Reaching
sustainability is a directional goal. It must reach sustainability as soon as possible, so that it
can expand its outreach without fund constraints. Grameen credit gives high priority on
building social capital. It is promoted through formation of groups and centres, developing
leadership quality through annual election of group and centre leaders, electing board
members when the institution is owned by the borrowers. To develop a social agenda owned
by the borrowers, something similar to the "sixteen decisions", it undertakes a process of
intensive discussion among the borrowers, and encourages them to take these decisions
seriously and implement them. It gives special emphasis on the formation of human capital
and concern for protecting environment. It monitors children's education; provide
scholarships and student loans for higher education. For formation of human capital it makes
efforts to bring technology, like mobile phones, solar power, and promote mechanical power
to replace manual power. Grameen credit is based on the premise that the poor have skills
which remain unutilised or under-utilised. It is definitely not the lack of skills which make
poor people poor. Grameen believes that the poverty is not created by the poor; it is created
by the institutions and policies which surround them. In order to eliminate poverty all we
need to do is to make appropriate changes in the institutions and policies, and/or create new
ones. Grameen believes that charity is not an answer to poverty. It only helps poverty to
continue. It creates dependency and takes away individual's initiative to break through the
wall of poverty. Unleashing of energy and creativity in each human being is the answer to
poverty. Grameen brought credit to the poor, women, the illiterate, the people who pleaded
that they did not know how to invest money and earn an income. Grameen created a
methodology and an institution around the financial needs of the poor, and created access to
credit on reasonable term enabling the poor to build on their existing skill to earn a better
income in each cycle of loans. If donors can frame category wise micro credit policies they
may overcome some of their discomforts. General policy for microcredit in its wider sense, is
bound to be devoid of focus and sharpness
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Credit Delivery System
Grameen Bank Credit Delivery means taking credit to the very poor in their villages by
means of the essential elements of the Grameen credit delivery system. Grameen Bank credit
delivery system has the following features:
1)There is an exclusive focus on the poorest of the poor. Exclusivity is ensured by: i)
establishing clearly the eligibility criteria for selection of targeted clientele and adopting
practical measures to screen out those who do not meet them
ii) In delivering credit, priority has been increasingly assigned to women
iii) The delivery system is geared to meet the diverse socio-economic development needs of
the poor
2) Borrowers are organized into small homogeneous groups. Such characteristics facilitate
group solidarity as well as participatory interaction. Organizing the primary groups of five
members and federating them into centres has been the foundation of Grameen Bank's
system. The emphasis from the very outset is to organisationally strengthen the Grameen
clientele, so that they can acquire the capacity for planning and implementing micro leveldevelopment decisions. The Centres are functionally linked to the Grameen Bank, whose
field workers have to attend Centre meetings every week.
3) Special loan conditionality‘s which are particularly suitable for the poor. These include:
i) Very small loans given without any collateral
ii) Loans repayable in weekly instalments spread over a year
iii) Eligibility for a subsequent loan depends upon repayment of first loan
iv) Individual, self chosen, quick income generating activities which employ the skills that
borrowers already posses
v) Close supervision of credit by the group as well as the bank staff
vi) Stress on credit discipline and collective borrower responsibility or peer pressure
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vii) Special safeguards through compulsory and voluntary savings to minimise the risks that
the poor confront
viii) Transparency in all bank transactions most of which take place at centre meetings.
(4) Simultaneous undertaking of a social development agenda addressing basic needs of the
clientele. This is reflected in the "sixteen decisions" adopted by Grameen borrowers. This
helps to:
i) Raise the social and political consciousness of the newly organized groups
ii) Focus increasingly on women from the poorest households, whose urge for survival has
a far greater bearing on the development of the family
iii) Encourage their monitoring of social and physical infrastructure projects - housing,
sanitation, drinking water, education, family planning, etc.
5: Design and development of organization and management systems capable of
delivering programme resources to targeted clientele.
The system has evolved gradually through a structured learning process that involves trials,
errors and continuous adjustments. A major requirement to operationalize the system is the
special training needed for development of a highly motivated staff, so that the decision
making and operational authority is gradually decentralized and administrative functions are
delegated at the zonal levels downwards.
6: Expansion of loan portfolio to meet diverse development needs of the poor.
As the general credit programme gathers momentum and the borrowers become familiar
with credit discipline, other loan programmes are introduced to meet growing social and
economic development needs of the clientele. Besides housing, such programmes include:
i) Credit for building sanitary latrines
ii) Credit for installation of tube wells that supply drinking water and irrigation for kitchen
gardens
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iii) Credit for seasonal cultivation to buy agricultural inputs
iv) Loan for leasing equipment / machinery, ie., cell phones purchased by Grameen Bank
members
v) Finance projects undertaken by the entire family of a seasoned borrower.
The underlying premise of Grameen is that, in order to emerge from poverty and remove
themselves from the clutches of usurers and middlemen, landless peasants need access to
credit, without which they cannot be expected to launch their own enterprises, however small
these may be. In defiance of the traditional rural banking postulate whereby "no collateral (in
this case, land) means no credit", the Grameen Bank experiment set out to prove -
successfully - that lending to the poor is not an impossible proposition; on the contrary, it
gives landless peasants the opportunity to purchase their own tools, equipment, or other
necessary means of production and embark on income-generating ventures which will allow
them escape from the vicious cycle of "low income, low savings, low investment, low
income". In other words, the banker's confidence rests upon the will and capacity of the
borrowers to succeed in their undertakings. The mode of operation of Grameen Bank is as
follows. A bank branch is set up with a branch manager and a number of centre managers and
covers an area of about 15 to 22 villages. The manager and the workers start by visiting
villages to familiarise themselves with the local milieu in which they will be operating and
identify the prospective clientele, as well as explain the purpose, the functions, and the mode
of operation of the bank to the local population are small, but sufficient to finance the micro-
enterprises undertaken by borrowers: rice-husking, machine repairing, purchase of rickshaws,
buying of milk cows, goats, cloth, pottery etc. The interest rate on all loans is 16 percent. The
repayment rate on loans is currently - 95 per cent - due to group pressure and self-interest, as
well as the motivation of borrowers. Although mobilization of savings is also being pursued
alongside the lending activities of the Grameen Bank, most of the latter's loanable funds are
increasingly obtained on commercial terms from the central bank, other financial institutions,
the money market, and from bilateral and multilateral aid organization. Groups of five
prospective borrowers are formed; in the first stage, only two of them are eligible for, and
receive, a loan. The group is observed for a month to see if the members are conforming to
the rules of the bank. Only if the first two borrowers begin to repay the principal plus interest
over a period of six weeks, do the other members of the group become eligible themselves for
a loan.
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Microfinance in India:
“ Money, says the proverb makes money. When you have got a little, it is often easy to get
more. The great diff iculty is to get that little.”Adams Smith.
Today India is facing major problem in reducing poverty. About 250 million people in India
are under below poverty line. With low per capita income, heavy population pressure,
prevalence of massive unemployment and underemployment, low rate of capital formation,
misdistribution of wealth and assets , prevalence of low technology and poor economics
organization and instability of output of agriculture production and related sectors have made
India one of the poor countries of the world.
Some 30 million women have formed 2.2 million small businesses and another 400,000 are
expected to be in place by March, 2007, according to the National Bank of Agriculture and
Rural Development. About $2.48 billion has been extended to these groups, which
predominantly run by women, over the last decade (source Economic times)
Present Scenario of India:
India falls under low income class according to World Bank. It is second populated country
in the world and around 70 % of its population lives in rural area. 60% of people depend on
agriculture, as a result there is chronic underemployment and per capita income is only $
326.2. This is not enough to provide food to more than one individual. The obvious result is
abject poverty, low rate of education, low sex ratio, and exploitation. The major factor
account for high incidence of rural poverty is the low asset base. According to Reserve Bank
of India, about 51 % of people house possess only 10% of the total asset of India .This has
resulted low production capacity both in agriculture (which contribute around 22-25% of
GDP) and Manufacturing sector. Rural people have very low access to institutionalized credit
(from commercial bank).
According to World Bank, out of the world‘s total population of 6 billion, a total of 1.2
billion people, live on wages less than $1 (INR 60) per day; of which, the majority live in
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Asia. Almost 40% of the population of the South Asia region is poverty stricken. Further to
this, India alone is said to host about one third of the world‘s poor.
The estimates from Government of India show that over 250 million people are left without
proper access to credit despite a network of 33000 rural and semi urban branches of
commercial banks, 14000 branches of Regional Rural Banks and 92000 outlets of
cooperatives. The poorest people very often do not comply with the norms that banks lay
down for credit seekers. They neither have salary certificates or the required collateral to
show as security against the loan. Under such circumstances, the poorest citizens access
credit mostly from informal finance providers who charge very high rate of interest. Non
payment of principal or interest by the credit seekers invites various kind of exploitation for
him and his family.
To date in India, only an estimated 5 million poor people (mostly rural women) benefit from
microfinance services, leaving a vast unmet demand for developing credit, savings and
insurance activities which is termed as microfinance services targeted a sector referred to as
non-bankable even till date.
Source: GOI Survey, September 1998
Around 75% of all micro credit activity in the country is concentrated in the four southern
states of Andhra Pradesh, Karnataka, Kerala and Tamil Nadu
Source: Government of India Survey 2006
As designed by NABARD, the women who benefit from microfinance are able to access themicrofinance services by forming groups of 5 to 20 women, called self-help groups
("SHGs"). The group is intended to act as a semi-guarantor by making sure that each member
repays her loan in the stipulated time thereby positively contributing to the group‘s credit-
worthiness. SHGs are either linked to NGOs or to local banks. From the banks they can
access funds @ 2-3% a month and through NGOs providing micro-credit @ 15 to 20 % per
annum. There is a possibility of generating a credit demand of 25 billion Indian Rupees from
savings from the poor in the short term.
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Poverty alleviation programmes and conceptualization of Microfinance
India has supported social banking for a long time. Policy directions to rapidly expand rural
branches, mandate credit allocations for priority sectors (including agriculture), deliver large
subsidy oriented credit programmes to serve marginal communities and poor households and
control interest rates have been tried for over 35 years.
The new generation microfinance was slow in coming to India. Low levels of grants to
microfinance institutions, an unfavourable policy environment, substantial traditional banking
infrastructure and a search for context specific solutions has constrained rapid scale up. The
first breakthrough emerged from policy support to enable informal self help groups of 15-20
members (mainly women) to transact with commercial banks. These groups build up and
rotate savings amongst themselves, open bank accounts and take responsibility for lending
and recovering money financed by banks. With the missionary zeal of the National Bank for
Agriculture and Rural Development (NABARD), insights gained by NGOs, the increasing
enthusiasm of bankers and politicians and emerging successes in repayment and social
impacts, this national movement now encompasses 1.4 million such groups (over 20 million
members).
At a time when many questioned the need for specialised microfinance institutions (MFIs) in
India, the Small Industries Development Bank of India (SIDBI) recognized the opportunity
and started implementation of an ambitious national programme. Providing loan and capacity
building support to MFIs and capacity building and rating support for sector development,
this programme already supports 70 MFIs and has disbursed US$46 million.
Microfinance has been perceived as an alternative tool of providing financial services to poor
Clientele in India. SEWA (Self Employed Women Association) Bank is the oldest
microfinance organisation in the country. The Community Based Organisations (CBOs) and
Non
Governmental Organizations (NGOs) initiated the microfinance movement and the formal
Financial Sector joined in at a later stage. The popular mode of delivering microfinance in
India
is Self Help Groups (SHGs) . Initially, NGO-MFIs motivated poor to form SHGs and
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Supported them to manage their savings and internal lending activities within the SHG. In the
Year 1992, NABARD initiated a pilot project on SHG-Bank Linkage programme in India.
For
this pilot project, Southern States in India were chosen. NABARD took up this programme
on a
Full-fledged manner in 1998 after experiencing an immense success of the pilot project. Now
SHG-Bank Linkage Programme is the largest microfinance programme in the world. Within
a
span of 15 years, the outreach of this programme had increased to 2.24 million credit linked
SHGs in the year 2006 from 255 credit linked SHGs in the year 1992. In the present Indian
Microfinance sector, Commercial Banks, Regional Rural Banks, Cooperative Banks, Non
Banking Financial Companies (NBFCs) and NGOs are involved in offering microfinance
services to the poor.
Microfinance movement in India can be divided into two phases. In the first phase of this
Movement, it was found that NGOs and CBOs took the initiative of group formation. They
Nurtured these SHGs and provided micro-credit. In this phase most of the programmes were
sponsored by national and international donor agencies. In the second phase, Micro-Credit
Movement transformed to a broader level of intervention and came to be recognised as
Microfinance movement. Formal financial Institutions have joined this movement along with
NGOs and CBOs. Apart from credit, the provision of other financial products like insurance
and
Micro savings is also carried out. It is important to note that that in the nascent stage it the
movement was considered as a poverty lending exercise and now in the present stage it has
transformed into a profit earning financial business
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Features Of Indian Microfinance:
A Task Force on Microfinance recognised in 1999 that microfinance is much more than
microcredit, stating: "Provision of thrift, credit and other financial services and products of
very small amounts to the poor in rural, semi-urban and or urban areas for enabling them to
raise their income levels and improve living standards". The Self Help Group promoters
emphasize that mobilising savings is the first building block of financial services.
For many years, the national budget and other policy documents have almost equated
microfinance with promoting SHG links to the banks. The central bank notification that
lending to MFIs would count towards meeting the priority sector lending targets for Banks
offered the first signs of policy flexibility towards MFIs. One could argue that MFIs are small
and insignificant, so why bother. The larger point is about policy space for innovation and
diversity of approaches to meet large unmet demand. The insurance sector was partially
opened to private and foreign investments during 2000. Over 20 insurance companies are
already active and experimenting with new products, delivery methodologies and strategic
partnerships.
Microfinance programmes have rapidly expanded in recent years. Some examples are:
Membership of Sa-Dhan (a leading association) has expanded from 43 to 96
Community Development Finance Institutions during 2001-04. During the same
period, loans outstanding of these member MFIs have gone up from US$15 million to
US$101 million.
The CARE CASHE Programme took on the challenge of working with small NGO-
MFIs and community owned-managed microfinance organisations. Outreach has
expanded from 39,000 to around 300,000 women members over 2001-05, Many of
the 26 CASHE partners and another 136 community organisations these NGO-MFIs
work with, represent the next level of emerging MFIs and some of these are already
dealing with ICICI Bank and ABN Amro.
In addition to the dominant SHG methodology, the portfolios of Grameen replicators
have also grown dramatically. The outreach of SHARE Microfin Limited, for
instance, grew from 1,875 to 86,905 members between 2000 and 2005 and its loan
portfolio has grown from US$0.47 million to US$40 million.
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Since banks face substantial priority sector targets and microfinance is beginning to be
recognised as a profitable opportunity (high risk adjusted returns),[1] a variety of partnership
models between banks and MFIs have been tested. All varieties of banks - domestic and
international, national and regional - have become involved, and ICICI Bank has been at the
forefront of some of the following innovations:
Lending wholesale loan funds.
Assessing and buying out microfinance debt (securitisation).
Testing and rolling out specific retail products such as the Kissan (Farmer) Credit
Card.
Engaging microfinance institutions as agents, which are paid for loan origination andrecovery, with loans being held on the books of banks.
Equity investments into newly emerging MFIs.
Banks and NGOs jointly promoting MFIs.
The 2005 national budget has further strengthened this policy perspective and the Finance
Minister Mr P. Chidambaram announced "Government intends to promote MFIs in a big
way. The way forward, I believe, is to identify MFIs, classify and rate such institutions, and
empower them to intermediate between the lending banks and the beneficiaries."
Savings services are needed by many more customers and as frequently as access to phone
services. Many poor households value access to savings services and find new providers and
arrangements, despite hearing of unreliable savings collectors or even occasionally falling
prey to such arrangements. Many customers are rich, literate and lucky to have banks
working for them. But many others lack access to safe, secure and accessible savings services
for the short, medium and long terms. In the past, many banks sent collectors to gather these
savings but problems with monitoring, inability to tackle misappropriation and the rising
aspiration of collectors to become permanent staff of public sector banks killed a useful
service. The central bank has strictly forbidden commercial banks from using agents in
collection of savings services. This is unfortunate as:
Effective microfinance delivery is about managing transaction costs for providers and
customers.
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A combination of agents and technology can play a powerful role in rightly aligning
incentives for the collector and customers, while keeping transaction costs
manageable for everyone.
The banks can only open so many branches, and fixed and operating costs are high,
apart from approvals still needed from the central bank to open new branches or close
existing ones. The appointment of agents can keep costs manageable and offer greater
flexibility to Banks.
Banking service may not be able to defy the commercial logic pursued by most other
sectors where a variety of retailers provide services to customers, while companies
focus on customer needs, product design, quality control, branding, logistics and
distribution.
Fortunately, the 2005 Budget opened a small window in this area and the central bank annual
policy recently confirmed discussions on this: "As a follow-up to the Budget proposals,
modalities for allowing banks to adopt the agency model by using the infrastructure of civil
society organisations, rural kiosks and village knowledge centres for providing credit support
to rural and farm sectors and appointment of micro-finance institutions (MFIs) as banking
correspondents are being worked out." But readers may note that between the budget and the
annual policy statement, "credit" has again crept in as the key perceived need.
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New Entries
In the middle of all this, what is interesting about India is that its biggest commercial lenders
such as ICICI, HDFC, SBI, UTI etc. to name a few have diverted their funds and attention to
this sector in a big way. MNCs like ABN Amro, Standard Chartered, HSBC and the
Citigroup are also moving into this sector.
Clearly what drives these institutions is not social responsibility alone. There is a bigger gain
involved. What attracts them is a huge market opportunity here with 30% of India‘s 1
Billion+ population still living below the Poverty Line and these banks realize that lending tocredit worthy rural borrowers is a lucrative business proposition.
As per Ranjan Ghosh, who heads Financial Institutions for India and South Asia at Standard
Chartered Bank, "With fewer defaulters in this sector, clearly the risk return rate is acceptable
to the banks. We look at it as an investment."
And may be that is why NachiketMor of ICICI spends so much of time in India's
economically depressed rural hinterland looking for prospective borrowers.
So all in all it‘s a good business for Indian banks, given the diminishing market for lending to
companies and consumers in cities.
ICICI Bank is one bank that has developed a very clear strategy to expand the provision of
financial products and services to the poor in India as a profitable activity.
ICICI Bank's micro credit initiatives involve provision of basic banking services like savings
and withdrawal along with micro-investment products like mutual funds and insurance. This
provides poor people with safer avenues for saving with little volatility or risk.
Its structures also include buying the microfinance portfolios of MFIs either on a selective
basis or buying the complete loans of a branch or a particular area along with partnership
arrangements with MFIs. This helps leveraging the operational strength of NGO/MFI with
the financial strength of ICICI Bank. In the world's largest securitization deal, ICICI Bank
purchased a portfolio of 42500 loans worth US$ 4.3 million from Share Microfin Limited in
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2004.
In the Public Sector SBI is doing a commendable job in this area with its innovative products
like Project Uptech, SBI Life ‗Shakti‘, SahayogNiwas, Agri SBU, Contract Farming and
Kisan Credit Cards.
As has been mentioned earlier Indian Microfinance Industry is increasingly attracting the
global attention. Unitus is a case in point. Started in early 2000 by a group of friends with a
common mission of poverty alleviation, it is based in Redmond, Washington, with an office
in Bangalore. Unitus works in Latin America and Southern Africa, but with one third of the
world's population in India, its focus has naturally turned to India.
The structure that Unitus is using is based on what it calls its "accelerator" model, which
basically implies acceleration of outreach. To address gaps, Unitus uses three different capital
instruments, namely Grant, Debt and finally Equity. Working typically with MFIs, which are
NGOs or have originally been NGOs, Unitus first uses grant funds to build the infrastructure
in the MFI.
Unitus Equity Fund, along with SIDBI, VinodKhosla and other social venture capitalists
made a Rs 11 crore (Rs 110 million) investment in SKS Microfinance in India. The money
would be used to access commercial debt and scale outreach from SKS's current 200,000
clients to 700,000 clients by 2006-07.
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In short what the bigger institutions do is partner with microfinance specialists across India
who has knowledge of the local villages and can identify worthy borrowers.
Another very interesting phenomenon that is associated with this industry is the creation of a
secondary market over time. Under this the Micro loans would be bundled together into
larger Bond issues which will be tradable among the Indian and the Global Investors taking
Micro lending to a higher level.
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The Challenges
All this sounds like a nice combination of corporate interests, fulfilment of social needs and a
panacea for India‘s balanced development. But this system is not free of complications and
challenges.
There have been allegations time and again that microlenders structure their loans with
hidden costs to exploit borrowers. The suicides of about a dozen women caught in this kind
of a debt trap in Andhra Pradesh illustrate this point. The Government Inspectors had also
pointed out four Organizations namely Spandana, Asmita, UmdamaPottuPedatha and Share
Micro fin of charging interest rates as high as 40% to 50 %.
On the one hand, the industry is trying to grapple with problems of sudden growth, while, on
the other, global social venture funds think that impact needs to be maximized and that
institutions with the right professional leadership, governance, and systems need to be
supported.
The biggest challenge is to develop a systematic growth mode which can cater to the
accelerating demand. In this scenario the two main hindrances to the growth of MFIs are
‗lack of capital‘ and ‗lack of capacity‘.
Most MFIs are unregulated non-profit organisations, which prevents them from building an
equity base. Through a combination of grants, equity and debt, it is possible to transform
them into regulated financial institutions with an equity base that then allows MFIs to bolster
their balance sheet and access local capital markets. Lack of capacity can be attributed to a
variety of factors such as weak corporate governance, lack of management depth, absence of
management and strategic planning systems and insufficient business infrastructure.
Another very inherent issue is that the focus of bigger funding organizations is always on
mature MFIs, forcing young and mid-tier MFIs to look for capital from local sources,
primarily grants. This focus on mature MFIs may be stalling industry growth as only a small
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percentage (1-2%) of MFIs is sustainable. So provisions have to be made to absorb some
initial risk while the MFI develops a track record, relationships and credibility. Along with
this what is required is upfront, longer-term involvement. And finally, there is a need for
MFIs to work with policymakers on current regulations that limit options for MFIs and
investors. Like in India, most MFIs are still NGOs and so they can accept local debt but not
equity, and at the same time foreign investors have limited opportunities for investment.
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Chapter 3
Microfinance in Jammu and Kashmir:
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Microfinance in J&K
Jammu and Kashmir is the North Western State of India. The state endowed with natural
resources and competitive advantage with geographical area 222236.Sq.Kms including an
area of 120847.Sq.Kms under unlawful occupation of China and Pakistan, leaving thereby an
area of 101387.Sq.Kms. on this side of country accounting for 3.20% of country‘s area and
19th populous state with10143700 population as per census 2001 .The main occupation of
people of Kashmir is mainly dependent on agriculture and on cottage industries hence the
people are associated occupations like tourism,agriculture,horticulture ,fisheries ,carpet
weaving, paper machie ,chain stitch ,crewel furnishings ,saffron almonds,serviculture,etc
Role of J&K Grameen Bank
The role of Grameen Bank is not limited to anyone sectors of the society or economy in
the Kashmir region, but the Grameen Banks are playing a vital role in the overall
development of the rural economy of the region to improve the life style and standard of
the comman masses. Grameen Banks are providing financial assistance to every sector of
the society throughout the regionthrough their various organised schemes most
importantly through Govt.Sponsered schemes, specifically developed by the govt of India,
Reserve Bank of India, National Bank for Agriculture and Rural Development, besides
various schemes of the banks developed at their own level. The implementation of these
schemes is being supervised and regulated by Govt.of India and NABARD through the
lead Bank Department and assessment of implementation of these schemes is being done
through BLBC‘s,DLRC‘s and SLBC‘s.
Since during the current financial scenario the Govt of India is very forcefully being
supervising the implementation of Micro Finance Schemes in the down trodden and under
privileged segments of the society, the bank under reference has also put in their
reasonable Part of the lending into this sector. The Bank is further taking very impressive
steps to speed up the financial inclusion Schemes of the Govt through the issuance of
small segment credit cards popularly known as General Credit Cards, Kissan Credit Cards,
Both these schemes have played a very vital role in improving the financial position of the
rural people at grass root level. Under the Micro Finance schemes the Bank is issuing
GCC,s to all the individual families with an initial credit limit of Rs 25000 to meet out
their domestic expenses either or spent the money for purchase of inputs for cash crop
growing, besides the bank is issuing KCC;s to the same segment of people with a credit
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limit ranging from Rs5000 to Rs 30000, to be used by the farmers for purchase of seeds,
fertilizers, pesticides and other agricultural equipments required as per necessity for
growing crops agriculture and other domestic requirements. In both the cases the funds so
allocated rather financed to the borrowers or being utilized as revolving funds which a
borrower can regularly withdraw and deposit during a particular period of time as would
be decided by the bank with a minimum ceiling of 6 months i.e Single Crop Season or one
year i.e double crop depending upon the seasonality of the crops.
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Loans Schemes provided by J&K Grameen Bank for General Public
(1) PRIORITY SECTOR ADVANCES
Agriculture
a)ST(CropLoan)
b)KCC
c)Thrashers
d)Bullocks
e)Pump set
f)Tractor
Allied Agriculture
a)Dairy
b)Sheep
c)Goat
d)Horse Cart
e)Bullock Cart
f)Pack Animal
g)Piggery
h)Bee Keeping
i)poultry
j)Fishery
k)Sericulture
l)Mashroom
m)Small Road Transport (Agriculture)
n)Rice Mill/ Flour Mill
Total Agri& Allied Activities(1+2)
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a)Loans to Rural Artison/Village
& Cottage/Tiny Industries
b)Loan to SSI
c)Housing Loan General Public
d)Loan to SHG/NGO
e)Small Road Transport(Non-Agriculture)
f)Retail trade/small Business
g)Loans to Professisonal/Self Emp.
h)Cash Credit Limit
i)Secured OverDraft SOD j)Education loans
k)General Credit Card(GCC)
(2)NON PRIORITY SECTOR.
a)Term Loan to Agri. & Allied
Act.
b)Trade /Small business
c)Cash Credit Limit
d)Secured Over Draft
e)Consumer Loan to G.Public
f)Car Loan
g)Personal Loan
h)Conveyance/M.cycle Loan
i)Mortgage Loan
i)Bank Building Loan
(3)Loan Against Deposits
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Staff Loans
a)Personal Loans
b)Car Loans
c)Conveyance Loan
d)Housing Loan
e)Mortgage Loan
f)Bridging Loan
g)Consumer Loans
Agriculture:
Agriculture is the vital component of primary sector, therefore, occupies an important place
in every economy especially in Agrarian economies. The performance of Agriculture forms
the basis of growth and development of an economy since it has multiplier effect across the
economy. The J&K State is basically agrarian in nature.
As per census 2001, 18.38 lakh person comprising 15.92 lakh cultivators and 2.46
lakh agricultural labourer depend directly on agriculture for subsistence forming 49% of the
total work force. The agriculture and allied sectors contribute about 27% to Gross State
Domestic Product estimated at constant price as per advance estimate for the year 2004-
2005.
The various types of agricultural practices done in J&K is as:
(a) Farmining.
(b) Horticulture.
(c) Apple growers, walnut growers & other dry fruit growers.
(d) Sericulture.
(e) Mushroom culture.
(f) Pisiculture.
(g) Apiculture etc..
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Land use pattern in J&K State
Use of Land (source Economic Survey J&K)
Horticulture:
As per horticulture census conducted in 1999-200, 84804.159 hectares of area is under all
fruits, 54.97% of area is under Apple and 22.14% under walnut.
8.24 lakh metric tones of fruits (both dry and fresh) were exported from J&K to
outside state in2005-06 which has slowed down by 7.79% against the figures for 2004-05. As
per estimates of horticulture department around 20 lakh people are directly or indirectly
employed in this sector.
0
10
20
30
40
50
60
70
Area under
forest
Area not
available for
cultivation
Other
uncultivable
Land
Follow Land Net area
Sown
2003-04
2004-05
2005-06
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Fisheries:
The total fisherman population in state is around 31000 having a length of 27781 Km of
river/streams which facilitate the farming of more than 40 million tones of fish. Out of total
27781 Km under fisheries the state has only 0.07 hectares under reservoir area
Industries
The contribution of industries sector to the State‘s Economy stands meager at 6%. TheJammu and Kashmir is lacking large scale industries and industrial scenario is occupied by
small scale and cottage industries. The SSI unit in the state has increased from 42808 in 2001
to 48224 in 2006 and employment generated through these units has increased from 1.9 lakh
in 2001-02 to 2.19 lakh in 2006
Tourism Industry:
Tourism is one of the most important industries in J&K especially we have a specially won
recognition for Pilgrim Boards. About 450 thousand Yatries visit state every year and 600
other tourists visit valley every year
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CURRENT SCENARIO OF MICROFINANCE IN J&K
The J&K State is 19th populous state of Country .However stands second last in case of
literacy positioned after Bihar. We also stand in the bottom four in case of employment. Still
only 3.8% of our population is below poverty line, which shows that people here are skilled
in various craftsmanship and so self made which again depict huge potential for micro
enterprises in J&K.
According to one survey we have 27 Handicraft Federation in J&K with around 270 SHG‘s
and 2700 members
Bank launches microfinance in Jammu
Under its microfinance programme, Jammu and Kashmir
Bank has started an ambitious programme to provide hasslefree financial assistance to small businesses, like artisans,
agri-business activities and others at cheaper rates.
Deputy Governor Reserve Bank of India, Ms.UshaThorat,
appreciated the role of J&K Bank in reaching out to masses
with financial solutions under its microfinance programme.
She was speaking on the launching ceremony of the J&K
Bank‘s microfinance programme in Jammu today.
The chief guest on the occasion, Ms Throat, disbursed loans
with a ticket size of Rs. 2,000 to Rs. One lakh to 42 vegetable and fruit vendors on the spot.
Overall loan disbursement to the tune of Rs.23.24 lakh was made on the occasion.
J&K Bank chairman, Dr.Haseeb A. Drabu, while speaking on the occasion said that the Bank
shall be putting every effort to bring unbanked people in the ambit of banking through its
‗Reaching Out to All Programme‘.
Microfinance is in
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―We have been developing customized products for small businesses, artisans and people
carving out their livelihood from agri-business activities and offer these products to them at
cheaper rates. In the first stage, we launched the financial inclusion programme in R S Pura in
Jammu and Ganderbal in Srinagar where we have opened accounts of people even with small
means through our no-frill account – S/B Ujala Scheme. Through our focused attention on
J&K State, this programme shall be extended to other parts in phases,‖ said Dr.HaseebDrabu.
He further stated that the Banks shall be extending hassle free small loans to these segments
of people through tailor-made products at cheaper rates.
Ms.Thorat, RBI Deputy Governor, in her speech lauded the bank‘s efforts in reaching to
unbanked people and appreciated the model of microfinance programme of the bank. Whilespeaking about the benefits of this programme, Ms.Thorat asked the beneficiaries to utilize
the loan amount for the purpose it has been granted.
She said, ―The beneficiaries should take full advantage of the bank‘s microfinance scheme to
enhance their income generation capacity. But at the same time, they must repay the loan
within the stipulated time and help the bank to make it purposeful for others.‖
She also appreciated the IT solutions adopted by the bank for the benefits of its customers.
Ms.Thorat later visited the beneficiaries‘ units and took stock of activities related to their
day-to-day business.
Awareness programme by J&K Grameen bank
With the objective of providing greater Financial Inclusion to the unbanked people, J&K
Grameen Bank has organized one day Awareness programme at village (cluster level for
village Sarwal and GurahManhasan) block Khour, with NABARD Financial assistance and
support.
Rohit Mishra Deputy General Manager NABARD Jammu, who was the chief guest on the
occasion, inaugurated the Awareness programme.
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While speaking on the occasion, he congratulated General Manager JKGB for taking keen
interest in Financial Inclusion programme and also in rural development through Institutional
credit.
He stressed that reaching out to un-reached segment of the population and providing basic
financial services is the need of the hour.
He also highlighted the policies and programmes of NABARD for facilitating Financial
Inclusion programme.
Mohit Kumar Vij, General Manager J&K Grameen Bank, while speaking on the occasion, he
impressed upon the gathering to come forward to open the accounts in JKGB and avail
benefits from the various schemes of the bank so that the large chunk of population living
below the poverty line can join the main stream.
He outlined the Financial Inclusion concept and said that bank is regularly organizing such
type of programmes for imparting education to the general masses more particularly to the
financially excluded peoples.Earlier H.S Sambyal Area Manager Jammu formally welcomes
the guests and participant to the programme. He also apprised the gathering about the policies
and programmes of the bank .
JK Grameen Bank organises Kissan credit fair
The J&K Grameen Bank organized a Kissan Credit Fair. The Bank on the occasion
distributed loan among farmers at Kralgund in north Kashmir‘s Kupwara district, it said in a
statement. Giving details it said Rs 60 lakh were disbursed among 70 consumers under
different schemes of central government meant for weaker sections of society and financially
weak farmers for earning livelihood. General Manager, Grameen Bank Muhammed,
Altaf Bhat asked the farmers to avail benefits of these schemes. Area manager GB,
Khursheed Ahmed Shah apprised people about these schemes.
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J&K Grameen Bank, NABARD launch Lord Krishna
Farmers’ Club
4J&K Grameen Bank, Branch Office, Rajbagh, with the assistance of NABARD launched a
Farmers Club namely Lord Krishna Farmers' Club at village KarandiKalan in Kathua district
today. The club is charged to arrange hassle free credit for the villagers by maintaining better
borrowing relationship and shall function as a bridge between the farmers and the bank. The
function was chaired by S L Sukhdevya Chief General Manager NABARD, AmanKalsotra
DDM NABARD Kathua. M K Viz General Manager J&K Grameen Bank, M L Sharma Area
Manager J&K Grameen Bank, Area Office Kathua and other representatives of the Banks andGovernment Departments like Agriculture, Animal husbandry, and Rural Development also
graced the occasion.M.KViz General Manager of the Grameen Bank explained the farmers
about the loan scheme of the bank. He also informed the gathering that these farmer clubs are
generally formed in the service area of the bank under Farmers' Club Programme of
NABARD for creating a suitable climate in the village for proper use of loans, recycling of
funds and bringing about improvements in their day to day life. It was disclosed that the club
shall arrange interface with subject matter specialists in various fields of agriculture for
technical know-how for improving agricultural productivity. It would also undertake the
development activities like community works, education, health, environment and natural
resources management in the area and all other activities. About 50 farmers participated in
the function. Chief General Manager NABARD also distributed Kissan Credit Cards to the
farmers of the village. The representatives of the line department informed the villagers about
their respective schemes and assured them to extend every support and help for their
development.
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J&K Grameen Bank inaugurates Farmers’ Club
The J&K Grameen Bank inaugurated a Farmers‘ Club at Tragbal in Varmul. The club has
been named after a spiritual personality of the area Baba Hamidullah.
The club was inaugurated by Chairman Grameen Bank, Raja Abdul Lateef in presence of a
well attended gathering comprising locals of the area. General Manger, Muhammad
AltafBhat and Abid Ahmad Area Manager of Grameen Bank, were present at the function.
Lateef in his address stressed the need for creation of such clubs. ―The farmers‘ clubs serve
as informal forums at grassroots. They are organized by rural branches of banks throughout
the country to provide package of initiatives helping transfer of technology, improving input
use efficiency and promoting investments in agriculture both in private and in public sectors
and creating a favourable and enabling economic environment,‖ he said.
He said the clubs were organized with the support and financial assistance of NABARD for
the mutual benefit of the banks concerned and rural people.
He said opening of today‘s club was a beginning towards bringing in benefits to ―our farmers
which their counterparts in other states are already enjoying.‖
―More such clubs will be established and organized in near future,‖ he assured. Bhat said the development in rural areas through credit, technology transfer, awareness and
capacity building was the main focus of the farmers‘ club.
He said the farmers‘ club programme was the appropriate and most suitable strategy initiated
by NABARD under which location specific skill and knowledge based technologies to
promote greater value addition to agriculture produce and forge new partnerships between
public institutions, technology users and the corporate sector was envisaged and adhered to.
He said the Grameen Bank was committed to economic uplift and prosperity of the farmers
who had been facing problems in absence of such clubs while dealing with the financial
institutions and banks
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Introduction to Srinagar District
Srinagar district is situated in the centre of Kashmir Valley, is surrounded by five districts. In
the north it is flanked by Kargil,in the South by Pulwama,in the north-west by Budgam. The
capital city of Srinagar is located 1730 metres above sea level. The district with a population of
around 9,00,000 souls(1991- census), is sperad over an area of 2228 Sq.Kms.It comprises three
tehsils/ towns viz Srinagar, Ganderbal and Kangan, four blocks (Srinagar, Ganderbal, Kangan
and Leh), besides 175 villages.The population density in the district Srinagar is 401 per Square
Kilometer which is highest in the state. The literacy rate of the district was 33.80%in 1981.
According to a popular legend which is mentioned in Kalhana'sRajtaringini Kashmir valley
was a vast lake. Kashyap Rishi drained out the water and made it habitable. It is said that
originally Yakshas and Pisacas tribes inhabited the valley at the higher reaches and did not
allow the inhabitants of the valley to live in peace. King Ashok brought Budhism to Kashmir
which was strengthened by Kanishka. In 6th century Huns came to rule the valley and Mihirkul
was one of the infamous Hun ruler. The area attained freedom in 530 AD which was
shortlived.
According to Sir Aurel Stein the famous interpretor of Kalhana the chronicler of Kashmir the
city of Srinagar had big market and mansions made of wood touching the clouds. Hieun-tsang
the famous Chinese traveler visited Srinagar and has described it his memoirs.
At a Glance
Educational
Institutions 955
Colleges/polytechnics 10
universities 2
Road length 1296 Kms
Area 2228 sq. kms
Population 9,00,000 (1991)
Population Density Km
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Villages 175(7 uninhabited)
Tehsil 3
Towns 3
Panchayats 93
Blocks 4
Live-Stock
Population 2.50 lakhs
Gross Area sown 0.24 lakh hect.
Forests 660.50 sqkm
Villages electrified 168
Villages with
drinking water 168
Literacy rate 33.31
TOTAL IDENTIFIED CLUSTERS IN KASHMIR VALLEY
S.No IDENTIFIED
CLUSTER
NUMBER
OF
PEOPLE
INVOLED
VOLUME OF
BUSINESS
GENERATED
AREA OF
CONCENTRATION
1 BAT CLUSTER AWANTIPUR2 LEATHERCLUSTER
450ARTISANS
DOWNTOWN AREA
3 FOOD PARK 19 UNITS KHANMOH
4 CARPETS 12000FAMILIES
5 PAPER MACHIE 9300ARTISANS
DARGAH &DOWNTOWN
6 SOZNIEMBODIERY
14750ARTISANS
ZAZUN,BADAMPORA, UP-TOWN
7 CREWEL EMB 8500ARTISANS
1.50 CRORE DOWNTOWN
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8 AARI EMB 20000FAMILIES
DOWNTOWN &UPTOWN
9 WILLOW WORK 300FAMILIES
GANDERBAL,DARGAH
10 ZARI EMB 400
FAMILIES11 WOOD CARVING 215
FAMILIESDOWNTOWN
12 KANI SHAWL 500ARTISANS
DOWNTOWN
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Chapter 4
DATA INTERPRETATION
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Statement of Scheme Wise Loans And Advances Disbursed /Outstanding’s
Viz a Viz NPA And Provisioning There Of As On: 31-03-2011.
J&K Grameen Bank Branch Office Tilgam Baramulla
Loans disbursed2010-2011
Advancesoutstanding31-03-2011
NPA
S.No Scheme /Sector No. Of Accounts
Amount No. Of Accounts
Amount Amountof NPA
Amount Of NPAProvision
TotalProvision OnAdvances
1 ST CropLoan(KCC) 188 29115 119 14359 497 149 184
2 T?L ForAgriculture&AlliedActivities
xxx xxx 20 5361 480 480 487
3 Rural Artisan /SSI/ villageindustries
12 527 54 2121 57 57 62
4 Transport 1 324 9 2496 xxx xxx 06
5 Retail Trade /SmallBusinesss
8 820 57 5731 153 46 68
6 General CreditCard (GCC)
xxx xxx 3 23 xxx xxx xxx
7 Self HelpGroup(SHG)
xxx xxx xxx xxx xxx xxx xxx
8 Others(non prioritysectors)
48 3735 90 6338 43 43 68
Total 257 34521 352 36429 3377 775 857
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0
5000
10000
15000
20000
25000
30000
35000
0
20
40
60
80
100
120
140
160
180
200
No. Of Accounts
Column1
Amount
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ADVANCES OUTSTANDING AS ON 31-03-2011
NPA PROVISIONS
119
20
54
9
57
3 0
90
0
2000
4000
6000
8000
10000
12000
14000
16000
0
20
40
60
80
100
120
140
No. Of Accounts
Amount
0
100
200
300
400
500
600
0
100
200
300
400
500
600
Amount of NPA
Amount Of NPA Provision
Total Provision On Advances
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Asset Classification And Provisioning
.
s.no ASSETS %age of provision
1 STANDARD ASSET 0.65
2 SUBSSTANDARD ASSET 10
3 DOUBTFUL ASSET UPTO 1 YEAR 20
4 DOUBTFUL ASSET UPTO 2 year 30
5 DOUBTFUL ASSET UPTO 3 year 100
6 UNSECURED PORTION 100
7 LOSS ASSET 100
0.6510
2030
100
100
100
Assets & Thier %age of provision
STANDARD ASSET
SUBSSTANDARD
ASSETDOUBTFUL ASSET
UPTO 1 YEARDOUBTFUL ASSET
UPTO 2 yearDOUBTFUL ASSET
UPTO 3 yearUNSECURED
PORTIONLOSS ASSET
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Comprative Business Profile Of Last Five Years.
J&K GRAMEEN BANK
B/O:Tangmarg(Baramulla)
S no particulars Year
2006_07
Year 2007-
_08
Year
2008_09
Year
2009_10
Year
2010_11
1 deposits 335 401 433 470 520
2 Advances outstanding 46 106 162 183 254
3 C.D ratio 26 26 37 39 49
4 Disbursement target 115 174 156 229 294
5 Disbursement made 17 54 85 82 121
6 NPA (gross) 0.28 1.04 xxx 2.30 10.76
7 Recovery in NPA xxx 0.28 1.04 xxx 0.61
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Chart Showing Comprative Business Profile of Last Five Years.
335
4626
115
170.28 0
401
106
26
174
54
1.04 0.28
433
162
37
156
85
0 1.040
50
100
150
200
250
300
350
400
450
500
deposits Advances
outstanding
C.D ratio Disbursement
target
Disbursement
made
NPA (gross) Recovery in
NPA
Year 2006_07
Year 2007_08
Year 2008_09
470
183
39
229
82
2.3 0
520
254
49
294
121
10.76 0.610
100
200
300
400
500
600
Year 2009_10
Year 2010_11
Series 3
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Statement of Scheme Wise Loans And Advances Disbursed /Outstanding’s
Viz a Viz NPA And Provisioning There Of As On: 31-03-2011.
J&K GrameenBank Branch Office Tangmarg (Baramulla)
Loans disbursed2010-2011
Advancesoutstanding31-03-2011
NPA
S.No Scheme /Sector No. Of Accounts
Amount No. Of Accounts
Amount Amountof NPA
Amount Of NPAProvision
TotalProvision OnAdvances
1 ST CropLoan(KCC) 107 5340 90 4370 xxx xxx 11
2 T?L ForAgriculture&AlliedActivities
1 30 5 1230 xxx xxx 03
3 Rural Artisan /SSI/ villageindustries
6 220 25 757 xxx xxx 02
4 Transport 3 935 16 2969 324 32 39
5 Retail Trade /SmallBusinesss
13 2200 85 10345 752 75 113
6 General CreditCard (GCC)
xxx xxx xxx xxx xxx xxx xxx
7 Self HelpGroup(SHG)
xxx xxx xxx xxx xxx xxx xxx
8 Others(non prioritysectors)
20 3366 62 5597 xxx xxx 22
Total 152 12091 283 25358 1076 1076 190
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Statement of Scheme Wise Loans And Advances Disbursed /Outstanding’s
Viz a Viz NPA And Provisioning There Of As On: 31-03-2011.
0
2000
4000
6000
8000
10000
12000
0
10
20
30
40
50
60
70
80
90
100
No. Of Accounts
Column1
Amount
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LOANS DISBURSED IN 2010-2011
90
5
25
16
85
0 0
62
0
2000
4000
6000
8000
10000
12000
0
10
20
30
40
50
60
70
80
90
100
No. Of Accounts
Column1
Amount
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Asset Classification And Provisioning
.
s.no ASSETS %age of provision
1 STANDARD ASSET 0.65
2 SUBSSTANDARD ASSET 10
3 DOUBTFUL ASSET UPTO 1 YEAR 20
4 DOUBTFUL ASSET UPTO 2 year 30
5 DOUBTFUL ASSET UPTO 3 year 100
6 UNSECURED PORTION 100
7 LOSS ASSET 100
Comprative Business Profile Of Last Five Years.
0.65
10
20
30
100
100
100
Assets & Thier %age of provision
STANDARD ASSET
SUBSSTANDARD ASSET
DOUBTFUL ASSET UPTO
1 YEARDOUBTFUL ASSET UPTO
2 year
DOUBTFUL ASSET UPTO
3 year
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J&K GRAMEEN BANK
B/O:N.C SOPORE (Baramullla)
S no particulars Year
2006_07
Year 2007-
_08
Year
2008_09
Year
2009_10
Year
2010_11
1 deposits 434 505 491 618 675
2 Advances outstanding 184 239 297 476 736
3 C.D ratio 42 47 60 77 109
4 Disbursement target 75 124 144 232 305
5 Disbursement made 113 146 152 291 351
6 NPA (gross) 1.73 2.08 13.65 15.60 22.81
7 Recovery in NPA 0.39 0.46 0.67 1.17 1.84
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Graph Showing Comprative Business Profile For Year 2006-2008
Graph Showing Comprative Business Profile For Year 2009-2010
434
184
4275
113
1.73 0.39
505491
297
60
144 152
13.65 0.670
100
200
300
400
500
600
Year 2006_07
Year 2007_08
Year 2008_09
618
476
77
232
291
15.6 1.17
675
736
109
305351
22.81 1.840
100
200
300
400
500
600
700
800
Year 2009_10
Year 2010_11
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Statement of Scheme Wise Loans And Advances Disbursed /Outstanding’s Viz a Viz
NPA And Provisioning There Of As On: 31-03-2011.
J&K GrameenBank Branch Office New Colony (Sopore)
Loans disbursed2010-2011
Advancesoutstanding31-03-2011
NPA
S.No Scheme /Sector No. Of Accounts
Amount No. Of Accounts
Amount Amountof NPA
Amount Of NPAProvision
TotalProvision OnAdvances
1 ST CropLoan(KCC) 32 12100 45 14817 131 13 50
2 T?L ForAgriculture&AlliedActivities
5 263 8 488 25 05 06
3 Rural Artisan /SSI/ villageindustries
1 160 7 214 77 08 09
4 Transport 7 1945 27 5720 308 31 45
5 Retail Trade /SmallBusinesss
32 7200 100 22524 1523 228 312
6 General CreditCard (GCC) xxx xxx 12 139 38 38 39
7 Self HelpGroup(SHG)
xxx xxx xxx xxx xxx xxx xxx
8 Others(non prioritysectors)
63 13401 148 29717 29717 36 154
Total 140 35069 347 73619 73619 359 615
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Loans disbursed 2010- 2011
Advances outstanding31-03-2011
32
5
1
7
32
0 0
63
0
2000
4000
6000
8000
10000
12000
14000
16000
0
10
20
30
40
50
60
70
No. Of
Accounts
Column1
Amount
45
8 7
27
100
12
0
148
0
5000
10000
15000
20000
25000
30000
35000
0
20
40
60
80
100
120
140
160
No. Of Accounts
Column1
Amount
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NPA Provision And Advances
0
5000
10000
15000
20000
25000
30000
35000
0
50
100
150
200
250
300
350
Amount Of NPA Provision
Total Provision On Advances
Amount of NPA
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Asset Classification And Provisioning
.
s.no ASSETS %age of provision
1 STANDARD ASSET 0.65
2 SUBSSTANDARD ASSET 10
3 DOUBTFUL ASSET UPTO 1 YEAR 20
4 DOUBTFUL ASSET UPTO 2 year 30
5 DOUBTFUL ASSET UPTO 3 year 100
6 UNSECURED PORTION 100
7 LOSS ASSET 100
0.65
1020
30
100 100 100
0
20
40
60
80
100
120Assets & Thier %age of provision
%age of provision
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Comprative Business Profile Of Last Five Years.
0
100
200
300
400
500
600
700
800
Year 2006_07
Year 2007_08
Year 2008_09
Year 2009_10
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Suggestions
Suggestions 1:
People need to be informed about various options of accessing credit and benefits of savings
through MFI‘S and methods of availing these funds i.e. marketing is required. Outreach to
the low income group is required. This May require some microfinance awareness programs
which may involve skilled and dedicated staff. A Replica of Grameen Bank with some added
features such as micro Saving and micro Insurance is must to bring poor out of this poverty
trap.
Suggestions II:
Other possible is to increase the flow of funds to informal lenders to supplement their
own funds. The formal sector will take advantage of the lower transaction costs and risk
premia of the informal sector so as to reach the low income group borrowers beyond the
profitable reach of the formal sector. As for the beneficiaries, inspite of the transaction
cost of the formal and the informal sector being transferred on to them, the cost of
borrowing will remain low as compared to what exists through money lenders.
In addition, access to the formal sector funds could promote competition within the
informal sector and check the exhorbitant profits being made in this sector. It also
promotes allocative efficiency by offering a broader choice for the productive use of
savings by beneficiaries, irrespective of which sector they are mobilised by.
In the process, the intermediaries would also charge additional fees to borrowers to cover
their costs. It would also aid them in strengthening themselves. However, it would be
aimed to make the funds reach the beneficiaries at applicable rates of the two institutions.
The intermediaries would accept the savings from groups as collaterals and would
transfer the same to the formal sector for getting the deposits serviced better. Thus the
two way flow of funds would benefit both the formal and informal sector.
The beneficiaries would benefit as the cost of borrowing would be low for them and their
savings would be safe and would be serviced better.
An analysis of community-based finance systems highlights the high establishment costs
of NGOs. They suggest that loan service costs are lower amongst co-operative societies,
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as compared to NGO-linked CBFIs, because of decentralized loan administration and
availability of voluntary staff. The NGO-linked CBFI operations are generally supported
by grants from national and international donor agencies.
NGO-linked CBFIs must aim at an adequate scale of operation and while it may besupported by grants to meet establishment costs in the initial period, dependency on such
grants should be reduced over time. An adequate interest rate spread must be available to
meet the transactions costs. CBFIs should be able to recover all costs through its financial
operations, by building up their capacity for financial management, through training and
interaction with the Formal sector institutions.
SUGGESTIONIII:
Since it is now being felt that the existing structures are inadequate to meet the housing and
economic credit needs of the participating community, an Institution that would combine the
strengths of an NGO and the expertise of a financial institution, with participation from the
community will be appropriate.
Thus, the concept of Development Association for Savings and Credit (DASC) could be
utilised to address the issue of providing better access to housing finance and economic
loans for the participating community in the project area. The DASC is built on the
strength of the informal groups to create and improve access to skills, resources and
markets. These Groups mobilize savings from their constituent members and other
formal/informal sources. The funds mobilized are thus used for meeting the credit needs
of the members.
The DASC will be initiated with the objective to create an alternate, self-sustainable,
community based financial organization appropriate to meet the shelter development and
livelihood needs of the weaker section belonging to the rural community.
The long term goal of DASC may include:
Establishment of a resource centre for shelter and livelihood
development for the weaker sections of the society.
Demonstration of a viable community based credit system inoperation where the communities have access to and control over
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financial resources based on their own strength.
Developing group based approach as a sustainable development
paradigm for community development.
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Conclusion
Some valuable lessons can be drawn from the experience of successful Microfinance
operation. First of all, the poor repay their loans and are willing to pay for higher interest
rates than commercial banks provided that access to credit is provided. The solidarity
group pressure and sequential lending provide strong repayment motivation and produce
extremely low default rates. Secondly, the poor save and hence microfinance should
provide both savings and loan facilities. These two findings imply that banking on the
poor can be a profitable business. However, attaining financial viability and sustainability
is the major institutional challenge. Deposit mobilization is the major means for
microfinance institutions to expand outreach by leveraging equity (Sacay et al 1996). In
order to be sustainable, microfinance lending should be grounded on market principles
because large scale lending cannot be accomplished through subsidies.
The absence of savings has unfortunately been one of the distinguishing features of Indian
microfinance and prevents it from providing a financial service to the poor which is as
valuable to them as microcredit,‖ the report outlines.There are strong synergies between
microinsurance and microcredit. Insurance offers safeguards to assets created under
microcredit programmes. It also protects savings from being wiped out by shocks arising out
of sickness, death, accidents or droughts
A main conclusion of this project is that microfinance can contribute to solving the
problem of inadequate housing and urban services as an integral part of poverty
alleviation programmes. The challenge lies in finding the level of flexibility in the credit
instrument that could make it match the multiple credit requirements of the low income
borrowers without imposing unbearably high cost of monitoring its end-use upon the
lenders. A promising solution is to provide multi-purpose loans or composite credit for
income generation, housing improvement and consumption support. Consumption loan is
found to be especially important during the gestation period between commencing a new
economic activity and deriving positive income. Careful research on demand for
financing and savings behavior of the potential borrowers and their participation in
determining the mix of multi-purpose loans are essential in making the concept work (tall
1996).
Eventually it would be ideal to enhance the creditworthiness of the poor and to make
them more "bankable" to financial institutions and enable them to qualify for long-term
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credit from the formal sector. Microfinance institutions have a lot to contribute to this by
building financial discipline and educating borrowers about repayment requirements.
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BIBLIOGRAPHY:
ARTICLES/JOURNALS/BOOKS
Annual report of J& Grameen Bank 2010-2011
Articles from Greater Kashmir (Daily Newspaper).
Business line.
Business today.
Economic times.
Articles from Rising Kashmir (Daily Newspaper).
WEBSITES
www.jkgb.net
www.google.com
www.khoj.com
www.rbi.org