Microfinance
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PERFORMANCE OF MICROFINANCE INSTITUTIONS IN INDIA AND ITS CHALLENGES BY NAGENDRA RAWAT N.NANDHINI P.NANDHINI
“Microfinance is an economic development tool whose objective is to assist the poor to work their way out of poverty. It covers a range of services which include, in addition to the provision of credit, many other services such as savings, insurance, money transfers, counselling, etc.” – Reserve Bank of India In other words, Microfinance serves as a tool for providing financial services to the low-income population., which do not have access to the mainstream financial services.
Microfinance is a tool against poverty by enabling the beneficiaries to: Create sustainable activities to increase their incomes Reduce external shocks Improve the living conditions of the entrepreneurs and of their families Empower people and mainly the women
Beneficiaries are from low income group. Loans are of small amount. Short duration loans Loans are offered without collateral. High frequency of payment Loans are generally taken for income generation Purposes.
India ‘s poverty estimates range from 26% to 50%.Out of these, 87% do not have access to credit. Only 5% people in rural India has access to microfinance. Even deposit account facility is out of reach by 70% of rural poor. Less than 15% of people have access Healthcare access is negligible.
to insurance.
1974 – Establishment of Self-Employed Association Womens (SEWA) in Gujarat. Sep 26, 1975 – Rural bank Ordinance was passed. Oct 02, 1975 – Prathama bank (first RRB) came into existence. 1976 – Ordinance was replaced by Regional Rural Bank Act. July 12, 1982 – NABARD was established on the recommendations of Shivaraman Committee, by an act of Parliament to implement the National Bank for Agriculture and Rural Development Act 1981.
Apr 02, 1990 – SIDBI was established through Small Industries Development Bank of India Act 1989. 1992 – NABARD launched SHGs-Bank Linkage program. 1999 – SIDBI created Microcredit (SFMC) to create a national network of strong, viable and sustainable Microfinance Institutions from the informal and formal financial sector to provide microfinance services to the poor, especially women 2006 – NABARD launched the MicroEnterprise Development Programme‟ (MEDP) for skill development.
• A Microfinance institution is an organization that offers financial services to low income populations. • Almost all give loans to their members, and many offer insurance, deposit and other services. • MFIs are financial institutions working towards the upliftment of the needy and underprivileged section of the society by providing short-term loans. • Microfinance institutions apart from giving financial help also educate people about the current market trends and help them compete in the present market.
These financial institutions usually do not take any guarantee or ask for any kind of collateral from the borrower to lend money.
These organisations not only take the risk of funding them, but also work with them to ensure that the offered money gets utilised appropriately.
They contribute in every possible way to uplift the underbanked section and make them financially independent.
• To improve the quality of life of the poor by providing access to financial
and support services; • To be a viable financial institution developing sustainable communities; • To mobilize resources in order to provide financial and support services to
the poor, particularly women, for viable productive income generation enterprises enabling them to reduce their poverty; • Learn and evaluate what helps people to move out of poverty faster; • To create opportunities for self employment for the underprivileged; • To train rural poor in simple skills and enable them to utilize the available resources and contribute to employment and income generation in rural areas.
Various types of MFIs in India: • JLG or Joint Liability Group • SHG or Self Help Group • The Grameen Bank Model • Rural Cooperatives
1. Bharat Financial Inclusion Limited
2. Spandana Sphoorty Financial Ltd
3. Share Microfin Limited
4. Asmitha Microfin Ltd
5. Shri Kshetra Dharmasthala Rural Development Project
5. Shri Kshetra Dharmasthala Rural Development Project
7. Bandhan Financial Services Pvt Ltd
8. Cashpor Micro Credit (CMC)
9. Grama Vidiyal Micro Finance Pvt Ltd (GVMFL)
10. Grameen Koota Financial Services Pvt Ltd (GFSPL)
Microfinance institutions in India are registered as one of the following five entities: Non Government Organizations engaged in microfinance (NGO-MFIs),comprised of Societies and Trusts Cooperatives registered under the conventional state-level cooperative acts,the national level multi-state Cooperative Legislation Act (MSCA 2002), or under the new state-level Mutually Aided Cooperative acts (MACS Act) Section 25 Companies (not-for-profit) For-profit Non-Banking Financial Companies (NBFCs) NBFC-MFIs
Under the NBFC model, NBFCs encourage villagers to form Joint Liability Groups (JLG) and give loans to the individual members of the JLG. The individual loans are jointly and severally guaranteed by the other members of the Group. Many of the NBFCs operating this model started off as non-profit entities providing microcredit and other services to the poor. However, as they found themselves unable to raise adequate resources for a rapid growth of the activity, they converted themselves into for-profit NBFCs. Others entered the field directly as for-profit NBFCs seeing this as a viable business proposition. Significant amounts of private equity funds have consequently been attracted to this sector.
For-profit institutions that qualify for priority sector lending funds are registered as NBFC-MFIs. This NBFC sub- category was created by RBI in May 2011 as a way to classify NBFCs operating as microfinance institutions which meet certain requirements..
A SHG is a group of 15 to 20 members from very low income families, usually women, which mobilises savings from members and uses the pooled funds to give loans to those members who need them, with the interest rates on deposits and loans being determined entirely by members. Reserve Bank of India
JLG is an informal group of individuals coming together for the purpose of availing of bank loan either singly or through the group mechanism against mutual guarantee in order to engage in similar type of economic activities.
Reserve Bank of India
The SHG would normally consist of 10 to 20 members whereas a JLG would normally have between 4 and 10 members. The maximum amount of loan to SHGs should not exceed four times of the savings of the group. The limit may be exceeded in case of well managed SHGs subject to a ceiling of ten times of savings of the group. JLGs are not obliged to keep deposits with the bank and hence the amount of loan granted to JLGs would be based on the credit needs of the JLG and the bank's assessment of the credit requirement.
In case of a SHG the individual carries the responsibilities whereas in case of JLG all members share responsibility and stand as guarantee for each other.
The state of Andhra Pradesh experienced a impressive expansion of microfinance operations from the 1990s into the 2000s, becoming known as the „Mecca of Microfinance‟ in India. In October of that year a media storm blew up over the suicides of close to 50 microcredit clients whom, it was claimed, had taken their lives under the duress of crippling debt burdens and coercive repayment tactics initiated by microfinance employees. Considerable anger was vented at microfinance institutions that were seen to be accumulating riches at the expense of the poor. .
In response, the Andhra Pradesh government clamped down on MFIs. The government passed and ordinance and later Andhra Pradesh Microfinance Institutions (Regulation of Money Lending) Act 2010, effectively shutting down all private sector microfinance operations. key restriction posed by the act were:
Every MFI has to register before the Registering Authority of the district.
No member of an SHG can be a member of more than one SHG. All loans by MFIs have to be without collateral. All MFIs have to display the rates of interest in their premises. The recovery towards interest cannot exceed the principal amount. No MFI can give a further loan to a SHG or its member without the approval of the registering authority where there is an outstanding bank loan. Every MFI has to give to the borrower a statement of his account and acknowledgements for all payments received from him.
Over indebtedness due to multiple borrowings and lack of risk management. High rate of interest as compared to mainstream banks.(12-30percent) Over dependence on banking system for funding. Lack of awareness of financial services. Problem in identification of appropriate model
Dropouts and migration of group members. Inability to generate sufficient funds.
THANK YOU
“Microfinance is an economic development tool whose objective is to assist the poor to work their way out of poverty. It covers a range of services which include, in addition to the provision of credit, many other services such as savings, insurance, money transfers, counselling, etc.” – Reserve Bank of India In other words, Microfinance serves as a tool for providing financial services to the low-income population., which do not have access to the mainstream financial services.
Microfinance is a tool against poverty by enabling the beneficiaries to: Create sustainable activities to increase their incomes Reduce external shocks Improve the living conditions of the entrepreneurs and of their families Empower people and mainly the women
Beneficiaries are from low income group. Loans are of small amount. Short duration loans Loans are offered without collateral. High frequency of payment Loans are generally taken for income generation Purposes.
India ‘s poverty estimates range from 26% to 50%.Out of these, 87% do not have access to credit. Only 5% people in rural India has access to microfinance. Even deposit account facility is out of reach by 70% of rural poor. Less than 15% of people have access Healthcare access is negligible.
to insurance.
1974 – Establishment of Self-Employed Association Womens (SEWA) in Gujarat. Sep 26, 1975 – Rural bank Ordinance was passed. Oct 02, 1975 – Prathama bank (first RRB) came into existence. 1976 – Ordinance was replaced by Regional Rural Bank Act. July 12, 1982 – NABARD was established on the recommendations of Shivaraman Committee, by an act of Parliament to implement the National Bank for Agriculture and Rural Development Act 1981.
Apr 02, 1990 – SIDBI was established through Small Industries Development Bank of India Act 1989. 1992 – NABARD launched SHGs-Bank Linkage program. 1999 – SIDBI created Microcredit (SFMC) to create a national network of strong, viable and sustainable Microfinance Institutions from the informal and formal financial sector to provide microfinance services to the poor, especially women 2006 – NABARD launched the MicroEnterprise Development Programme‟ (MEDP) for skill development.
• A Microfinance institution is an organization that offers financial services to low income populations. • Almost all give loans to their members, and many offer insurance, deposit and other services. • MFIs are financial institutions working towards the upliftment of the needy and underprivileged section of the society by providing short-term loans. • Microfinance institutions apart from giving financial help also educate people about the current market trends and help them compete in the present market.
These financial institutions usually do not take any guarantee or ask for any kind of collateral from the borrower to lend money.
These organisations not only take the risk of funding them, but also work with them to ensure that the offered money gets utilised appropriately.
They contribute in every possible way to uplift the underbanked section and make them financially independent.
• To improve the quality of life of the poor by providing access to financial
and support services; • To be a viable financial institution developing sustainable communities; • To mobilize resources in order to provide financial and support services to
the poor, particularly women, for viable productive income generation enterprises enabling them to reduce their poverty; • Learn and evaluate what helps people to move out of poverty faster; • To create opportunities for self employment for the underprivileged; • To train rural poor in simple skills and enable them to utilize the available resources and contribute to employment and income generation in rural areas.
Various types of MFIs in India: • JLG or Joint Liability Group • SHG or Self Help Group • The Grameen Bank Model • Rural Cooperatives
1. Bharat Financial Inclusion Limited
2. Spandana Sphoorty Financial Ltd
3. Share Microfin Limited
4. Asmitha Microfin Ltd
5. Shri Kshetra Dharmasthala Rural Development Project
5. Shri Kshetra Dharmasthala Rural Development Project
7. Bandhan Financial Services Pvt Ltd
8. Cashpor Micro Credit (CMC)
9. Grama Vidiyal Micro Finance Pvt Ltd (GVMFL)
10. Grameen Koota Financial Services Pvt Ltd (GFSPL)
Microfinance institutions in India are registered as one of the following five entities: Non Government Organizations engaged in microfinance (NGO-MFIs),comprised of Societies and Trusts Cooperatives registered under the conventional state-level cooperative acts,the national level multi-state Cooperative Legislation Act (MSCA 2002), or under the new state-level Mutually Aided Cooperative acts (MACS Act) Section 25 Companies (not-for-profit) For-profit Non-Banking Financial Companies (NBFCs) NBFC-MFIs
Under the NBFC model, NBFCs encourage villagers to form Joint Liability Groups (JLG) and give loans to the individual members of the JLG. The individual loans are jointly and severally guaranteed by the other members of the Group. Many of the NBFCs operating this model started off as non-profit entities providing microcredit and other services to the poor. However, as they found themselves unable to raise adequate resources for a rapid growth of the activity, they converted themselves into for-profit NBFCs. Others entered the field directly as for-profit NBFCs seeing this as a viable business proposition. Significant amounts of private equity funds have consequently been attracted to this sector.
For-profit institutions that qualify for priority sector lending funds are registered as NBFC-MFIs. This NBFC sub- category was created by RBI in May 2011 as a way to classify NBFCs operating as microfinance institutions which meet certain requirements..
A SHG is a group of 15 to 20 members from very low income families, usually women, which mobilises savings from members and uses the pooled funds to give loans to those members who need them, with the interest rates on deposits and loans being determined entirely by members. Reserve Bank of India
JLG is an informal group of individuals coming together for the purpose of availing of bank loan either singly or through the group mechanism against mutual guarantee in order to engage in similar type of economic activities.
Reserve Bank of India
The SHG would normally consist of 10 to 20 members whereas a JLG would normally have between 4 and 10 members. The maximum amount of loan to SHGs should not exceed four times of the savings of the group. The limit may be exceeded in case of well managed SHGs subject to a ceiling of ten times of savings of the group. JLGs are not obliged to keep deposits with the bank and hence the amount of loan granted to JLGs would be based on the credit needs of the JLG and the bank's assessment of the credit requirement.
In case of a SHG the individual carries the responsibilities whereas in case of JLG all members share responsibility and stand as guarantee for each other.
The state of Andhra Pradesh experienced a impressive expansion of microfinance operations from the 1990s into the 2000s, becoming known as the „Mecca of Microfinance‟ in India. In October of that year a media storm blew up over the suicides of close to 50 microcredit clients whom, it was claimed, had taken their lives under the duress of crippling debt burdens and coercive repayment tactics initiated by microfinance employees. Considerable anger was vented at microfinance institutions that were seen to be accumulating riches at the expense of the poor. .
In response, the Andhra Pradesh government clamped down on MFIs. The government passed and ordinance and later Andhra Pradesh Microfinance Institutions (Regulation of Money Lending) Act 2010, effectively shutting down all private sector microfinance operations. key restriction posed by the act were:
Every MFI has to register before the Registering Authority of the district.
No member of an SHG can be a member of more than one SHG. All loans by MFIs have to be without collateral. All MFIs have to display the rates of interest in their premises. The recovery towards interest cannot exceed the principal amount. No MFI can give a further loan to a SHG or its member without the approval of the registering authority where there is an outstanding bank loan. Every MFI has to give to the borrower a statement of his account and acknowledgements for all payments received from him.
Over indebtedness due to multiple borrowings and lack of risk management. High rate of interest as compared to mainstream banks.(12-30percent) Over dependence on banking system for funding. Lack of awareness of financial services. Problem in identification of appropriate model
Dropouts and migration of group members. Inability to generate sufficient funds.
THANK YOU
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