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6.

MICRO FINANCE & SHGS


Microfinance

is the provision of financial services to lowincome clients, including consumers and the selfemployed, who traditionally lack access to banking and related services.

INTRODUCTION
Traditionally banks and Lending Institutions do not lend money to low income Individuals The reasons being Lack of Information about Individuals. Collateral. High Transaction cost of processing Microfinance provides a solution for the above problem. MICROFINANCE The goals are Eradicate Extreme Poverty & Hunger. Achieve Universal Education. Promote Gender Equality & Womens Empowerment. Reduce Child Mortality Combat Diseases Developing Entrepreneurial Sprit

Micro finance cycle

ROLE OF MICRO FINANCE IN ECONOMIC


DEVELOPMENT

Major reasons to poverty alleviation and rapid economic growth in developing countries are the lack of capital resources, especially in rural areas. A vicious cycle of low capital, low productivity, low incomes, low savings and consequently weak capital base is clearly operating. This results in a permanent poverty syndrome.

Micro Finance is the provision of a broad range of financial services such as: Deposits, loans, payment services, money transfers, insurance to poor and low-income Households, their micro enterprises etc. Micro Finance services are provided by three types of sources: Formal Institutions, such as Rural Banks and Cooperatives Semi formal Institutions, such as Non Government Organizations Informal sources such as moneylenders and shopkeepers.

Creation

Of Employment:

Micro finance is instrumental in generating employment. Micro credit and other services are made available to small entrepreneurs, village artisans, SHGs etc. The beneficiaries of micro finances set up small business units, there by generating employment.
Responsible

for skill development:

Micro finance is indirectly responsible for development of skills. Due to micro finance, SHGs encourage its members to set up small business units either jointly or individually. The small entrepreneurs may also learn leaderships skills which may be useful for village community as a whole, as specially in rural areas.

Facilitates women employment and social welfare:


Micro

finance facilitates women empowerment. Normaly,50% of the SHGs are formed by women. The women of a village come together to form SHGs. After formation of group, they get micro finance facilities from the banking sector.
Micro

finance may lead to social welfare. Due to employment, the income level of the people increases. Therefore, people may go for better education, family welfare, health and so on

PERFORMANCE OF MICRO FINANCE


Microfinance

emerged as a noble substitute for informal credit and an


effective

and powerful instrument for poverty reduction among people who are
economically

active but financially constrained and vulnerable in various countries


It

covers a broad range of

financial

services including loans, deposits and payment services, and insurance to the
poor

and low-income households and their micro-enterprises. Convincing research


evidence

exists showing significant role of MFIs in improving the lives of the


deprived

communities in various countries.

There were less than a half million beneficiaries of the microfinance institution during the financial year 2003. They distributed more than 87 million dollars to the poor people. The Khushhali Bank remains on the top position by serving approximately 168,105 active borrowers with gross loan portfolio of about 23.54 million US dollars. The sources of finance of these MFIs include grants, loans, share capital and savings.

The microfinance revolution started with the recognition that poor people needed access to loans and that they could use these funds productively. It has also changed the perception that poor people are not credit worthy. Records have shown that, instead, they are a good risk, with higher repayment rates than the conventional borrowers. It has been observed that the recovery rate in this sector has been as high as 99.5%

Microfinance Distribution Can Eradicate Poverty In India?

Yes! The microfinance help in poverty reduction, because


It helps more to established business then new businesses. Increased savings and credit. Promotes employment. SHGs has been to a greater extent mainly helped women. Increased standard of living.