EMERGENCE AND FLOURISHMENT OF MICROFINANCE IN INDIA

Date of Submission : 26th March 2012

ON

Mrs.B.Ramya HariGanesan,M.F.C.,M.Phil, Research Scholar

IN
DEPARTMENT OF MANAGEMENT STUDIES SNS COLLEGE OF TECHNOLOGY COIMBATORE-35.

MAHATMA GANDHI SAYS,AS YOU ARE UPLIFTING THE POOR THEN YOU ARE

UPLIFTING THE NATION

MICRO FINANCE,TOOL TO ATTACK POVERTY

Source-www.rbi.org.in

Defined Provision of thrift, credit and other financial services and products of very small amounts to the poor in rural, semi-urban or urban areas, for enabling them to raise their

income levels and improve living standards

Source: Malegam Commitee Report on Micro Finance 2010

100,000,000 80,000,000 60,000,000 40,000,000 20,000,000 0 2001 2002 2003 2004 2005 Assets (sum)

ASSETS VALUE INR

2006 YEAR

2007

2008

2009

2010

Source:www.mixmarket.org/crossm arket-analysis

6000000 DEPOSITS VALUE INR 5000000 4000000 3000000 2000000 1000000 0 2001 2002 Deposits (sum)

2003

2004

2005

2006

2007

2008

2009

2010

Axis Title

Source:www.mixmarket.org/crossmar ket-analysis

In 1904, Microfinance has been in practice for ages (though informally).Legal framework for establishing the co-operative movement set up. In 1934, Reserve Bank of India Act provided for the establishment of the Agricultural Credit Department. In 1969, Nationalisation of banks. In 1975, Regional Rural Banks created. In 1976,Grameen Bank, Yunus In 1982, NABARD established as an apex agency for rural finance. In 1995, Passing of Mutually Aided Co-op. Act in AP.

NGO MFIs Registered under Societies Registration Act 1860 and / or Indian Trust Act 1880 Co-operative MFIs Registered under State Cooperative Societies Act or Mutually Aided Cooperative Societies Act (MACS) or Multi-State Co-op. Societies Act, 2002 NBFC MFIs under Section 25 of Companies Act, 1956 (Not for profit).NBFC MFIs incorporated under Companies Act,1956 & registered with RBI
Source: Malegam Commitee Report on Micro Finance 2010

Rating of Micro Finance Institutions (MFIs)

Revolving Fund Assistance (RFA) to MFIs

Capital / Equity Support to Micro

Finance Institutions (MFIs)

Source-Economic Times

Top five MFIs in Outreach.

Clients (Mn) 2008 2009 Growth rate % Loans (bn) 2008 2009 Growth rate %

SKS
Spandana

1.88
1.19

3.52
2.43

87
104

7.81
5.95

24.6
18.7

214
214

Share
Bandhan

1.29
0.76

1.50
1.45

16
91

7.28
2.78

12.2
5.3

67
91

Asmita

0.70

0.88

26

3.36

7.1

111

Source:CRISIL report 2010

NO OF PLAYERS IN THE MICROFINANCE INDUSTRY

Source-CRISIL Ratings India MFI Institutions 2010

Expansion of Consumer Base in Millions

Source: Malegam Commitee Report on Micro Finance 2010

Comparative growth in Loans in Top Five MFIs

Source: Malegam Commitee Report on Micro Finance 2010

Source-CRISIL Ratings India MFI Institutions.

The salient features of the Bill are as follows Entrust the function of development and regulation of the micro financial sector Define various entities engaged in the activity of micro finance Define various categories of beneficiaries of micro financial services Provide for extending micro financial services to eligible clients Provide for acceptance of thrift, i.e., savings eligible clients
Source-CRISIL Ratings India MFI Institutions.

Provide for constitution of Micro Finance Development Council to advise the National Bank Provide for registration of Micro Finance Organisations Provide for creating of a reserve fund and maintenance of accounts Provide for functions and powers of the National Bank Provide for constitution of Micro Finance Development and Equity Fund

Empower the National Bank to frame a scheme for appointment of one or more Micro Finance Ombudsman for settlement of disputes To provide for offences and penalties To empower the Central Government to prescribe Rules To empower the National Bank to make regulations with the previous approval of the Central Government for carrying out the purposes of the bill.

Ways to get Foreign Funds by Micro fiance:

Acceptance of Foreign Contribution:

Foreign Direct Investment

NBFCs can obtain foreign capital in the form

of equity subject to approval by the Foreign Investment Promotion Board (FIPB)

Private Equity(PE) Group Legatum and Aavishkaar Goodwell have invested $25 million capital in Share which is a MFI Sequoia and Unitus, the Seattle-based company that invests in MFIs, have ploughed $11.5 million into SKS Microfinance Morgan Stanley and Switzerland-based Blue Orchard raised $108 million from the issue of a securitized bond backed by MFI loans. The money will be invested in 21 MFIs in more than 10 countries including India.

Private Equity (PE) funding from foreign players has provided the much needed ease of funding for the MFI sector. Help Indian MFIs to improve upon their delivery system with the adaptation of good management practices brought about by foreign players

Too aggressive on giving out loans to the poor with proper due diligence.Y V Reddy, former Governor, RBI has compared this to the Sub Prime crisis lending of 2007-08 in the US. Pressure of repayment on individuals leading to suicide cases in Andhra Pradesh, the state having the largest number of MFIs Risk of Foreign Investors moving out with the slum in the MFI sector in 2010-11.

Reference: http://www.sadhan.net/Adls/Microfinance/Article/Publications/ExistingLegalRegulatoryFramework.pdf

The future role MFIs might play in serving the poor is not clear, particularly with regard to microfinance NGOs. It is difficult for NGOs to charge the same low interest rates as banks, yet it was pointed out that NGOs might be better placed to disburse loans quickly and to do doorstep lending, which reduces transaction costs for borrowers. Cap on Interest pricing to further limit the profitability of the sector Increase in defaults on loan will hamper the MFI sector in India. To the above it is highly disappointing that in this 2012-13 Union Budget no extra provision for IMEF Announced by our finance minister
Reference: RBI report on MFIs, Jan 2011.

"Microfinance is going to put poverty into the museum Muhammad Yunus, Nobel Prize Winner & Founder of Grameen Bank

Micro finance has crossed many miles from its birth and it is about to go many miles to achieve its goal of alleviating poverty not only in India but also all over the world. It can achieve its goal only when the way it goes through is bed of roses that is with proper legal framework let the announcement in Union Budget 2012-13 gives Micro finance Institutions a way with bed of roses for miles to go. How much of that is going to be true only time will tell, but one thing is certain where ever there will be poor people wanting loans, there will be lenders ready to oblige!

THANK YOU