MICROFINANCE

Contents
Case study Definition of Microfinance Stakeholders Scope of Microfinance Process of micro-credit Social Impact of Microfinance Problems faced by micro lenders Micro entrepreneur Micro enterprise Benefits of enterprises Problems faced by micro entrepreneurs SKS Microfinance

Case study
Mrs. Sujata, 48 years old

Unemployed husband 4 children No savings Good cook

Mrs. Sujata decides to start a small catering service at home Mrs.Sujata goes to the bank and makes a demand for a loan at her bank

MRS. SUJATAS DEMAND IS REJECTED

Why are people excluded from certain financial services?

Lack collateral or guarantors A bad credit history Gap in communication / lack of confidence in the banks Doubt of the bank of the repayment capacity Lack of access to financial infrastructure and services in remote areas WHAT IS THE ALTERNATIVE? MICROFINANCE !!

Mrs. Sujata needs Rs 8,000

1 Visit

of Mrs. Sujata to the MFI Meeting wit the Loan Officer Convinced, reception of a loan of Rs 8,000 (+ Rs 1000 interest)

2 Purchase of the

ingredients Start of cooking & sale (Daily benefits amount Rs 850)

Regular contact and follow up between the MFI and the client
4 Final

Repayment 12 weeks later. Demand for a 2nd loan over Rs 9000 to buy a fridge

3 Weekly

Repayment ( Rs 750) Remaining money is used to buy food

What is microfinance cntd

Microfinance is the offer of financial & non-financial services to people excluded from the traditional banking system. The services are adapted to the needs of the target populations

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 entrepreneurs and of their families Empower people and mainly the women

What is microfinance?
MICRO FINANCE

Micro-entrepreneurs Self-employed Low income populations Excluded populations

Business & educational loans Savings Micro-insurances Remittances

Micro-entrepreneur training Coaching & workshops on health, hygiene, etc.

How did all start?

On the field Prof. Yunus saw that Even poor people and women need loans They can have an activity and repay

Set up financial institutions with Prof. Muhammed Yunus a social mission Founder of the Grameen Bank, Bangladesh Listen to the needs and constraints of the excluded & offer them adapted financial tools to empower themselves Spirit: SUSTAINABILITY

Yunus idea

The Grameen Model

Introduction The Grameen Bank started in 1976 by the Nobel Laureate, Professor Muhammad Yunus in Bangladesh. Grameen today has some 2468 branches in Bangladesh, with a staff of 24,703 people serving 7.34 million borrowers from 80257 villages. Grameens methods are applied in 58 countries including the United States. Grameen Bank borrowers own 94% of the bank. The remaining 6% are owned by the government.

Working Model of Grameen Bank

Holding regular and usually weekly meetings which are supervised by a MFI worker who maintains the records, where savings and repayments are collected and handed over to the MFI worker, Organising contributions to one or a number of group savings funds, which can be used by the group for a number of purposes, usually only with the agreement of the MFI which maintains the group fund accounts, Guaranteeing loans to their individual members, by accepting joint and several liability, by raising group emergency funds and by accepting that no members of a Group will be able to take a new loan if any members are in arrears, Arising from the above, appraising fellow-members loan applications, and ensuring that their fellow-members maintain their regular savings contributions and loan repayments.

Evolution of Microfinance in India

1904 Microfinance has been in practice for ages ( though informally).

Legal framework for establishing the co-operative movement set up. Reserve Bank of India Act provided for the establishment of the 1934 Agricultural Credit Department.
1969 Nationalization of banks. 1975 Regional Rural Banks created. 1976 Grameen Bank, Yunus 1982 NABARD established as an apex agency for rural finance. 1995 Passing of Mutually Aided Co-op. Act in AP in 1995.

Stakeholders
COMMERCIAL BANKS & INVESTMENT FUNDS
FOUNDATIONS & DONORS (incl. enterprises)

GOVERNMENT & LOCAL BODIES

MICROFINANCE INSTITUTIONS (MFIs)

(NGO, ASSOCIATIONS & BANKS)

SUPPORT ORANIZATIONS (e.g. PF Pulmonary

Fibrosis Foundation)

BENEFICIARIES

Services included
Credit Savings/Deposits Insurance Plans Money Transfer

Process of Micro Loan distribution

Homogeneous groups of 5 members are formed at village level The field worker facilitates the process of group forming All the group members undergo a 7 day compulsory training Some groups undergo the group recognition test The centre meets every week at a defined time and a bank assistant attends the meetings.

Social impact of microfinance

The empowerment of women Building Economic citizenship To fight against poverty

Top microfinance cos. in India

SKS Microfinance Ltd. Basics Microfinance Ltd. Share Microfin Limited Spandana Sphoorty Financial Ltd (SSFL) Asmitha Microfin Ltd Bandhan

Scope of Microfinance
35 30 25
No. of clients in millions

20 15 10 5 0 2008 2010 2015

Banking Microfinance

In India, Micro finance is growing faster than banking

For 2015 the projection sourced from citigroup microfinance

Problems faced by micro lenders

Perceived High Risk of Micro Entrepreneurship and Small Businesses High Costs Involved in Small Transactions/Micro lending Lack of Debt and Equity Funds for MFIs to Pass on to the Poor Difficulty in Measuring the Social Performance of MFIs

 Mixing Charity With Business Lack of Customized Solutions for the Poor Lack of microfinance training for Human Resource in Microfinance Institutions Poor Distribution System of Microfinance Institutions and lack of information about microfinance investment opportunities Dual mission of Microfinance Institutions to be Financially Sustainable as well as Development Oriented

Challenges in the Indian context

Size Growth in geographic area Growth in portfolio/client size Diversity of Services MFOs wanting to offer Savings MFOs wanting to offer Risk Products

Challenges in the Indian context

Financial Sustainability Internal growth Access to funds

Focus Other Developmental activities V/s mF Degree of specialization needed for mF

Challenges in the Indian context

Tax Status For-profit mF activity V/s not-for-profit NGO activities Tax status of donor money

Entrepreneur
A person who has possession of a new enterprise, venture or idea and is accountable for the inherent risks and the outcome. A person who is willing to launch a new venture or enterprise and accept full responsibility for the outcome.

Micro entrepreneur
The owners of small businesses that have fewer than five employees. A micro entrepreneur is an owner, whether single proprietorship, partnership, cooperative, or corporation of small business activity/enterprise engaged in industry, agribusiness/services that have 1 to 9 employees whose total assets, inclusive of those arising from loans but exclusive of the land on which the particular business entitys office, plant and equipment are situated.

Women entrepreneur
A"woman entrepreneur" is any woman who organizes and manages any enterprise, esp. a business, usually with considerable initiative and risk. An enterprise owned and controlled by one or more women having a minimum financial holding of 51% or more, giving 51% or more employment to women.

Schemes for women entrepreneurs

1. Seed capital scheme 2. National equity fund 3. Prime ministers employment guarantee scheme 4. Single window scheme 5. DIC scheme 6. KVIC scheme 7. Bank schemes for women entrepreneurs 8. Mahila Arthik Vikas Mahamandal (MAVIM) 9. Mahila Udyog Nidhi and Mahila Vikas Nidhi 10.Priyadarshan Yojana

Women Entrepreneurship in India

States No of Units Registered No. of Women Entrepreneurs Percenta ge

Tamil Nadu
Uttar Pradesh Kerala Punjab Maharastra Gujrat Karnatka Madhya Pradesh
Other States & UTS

9618
7980 5487 4791 4339 3872 3822 2967 14576 57,452

2930
3180 2135 1618 1394 1538 1026 842 4185 18,848

30.36
39.84 38.91 33.77 32.12 39.72 26.84 28.38 28.71 32.82

Total

Microenterprise
Microenterprise is a type of small business that is often unregistered and run by a poor individual. The terms Micro-enterprise and Micro-business have the same meaning, though traditionally when referring to a small business financed by micro credit the term microenterprise is used.

Some microenterprises
Candle Making Fruit and vegetable shop A bangles shop Home made food items Farming & Dairy Condiments like masalas, pickles & jams Paper bags & Envelopes Small garments manufacturing unit Pottery

Micro Entrepreneurs from Micro Finance Clients

In the absence of definite details it is assumed that normally micro finance is used by about 35% of clients for consumption and 65% of clients for enterprises, a majority for agro related business and a slim minority for nontraditional enterprises.

Benefits of Micro Enterprises

Help low income earning poor to escape poverty. Create Job opportunities as Micro enterprises encourage self, family and peer employment. No division of labour as means are meager and all roles have to be played by one

Problems faced by micro entrepreneurs

The poors inability to offer marketable collateral for loans Poor institutional viability of micro enterprises

Lack of knowledge about microfinance services

 Inability to exploit growth opportunities

Few organizational resources and poor governance

Low bargaining power Vulnerability to economic shocks

Why Microfinance Can Change the Way the World Works

1. 2. 3.
Better: Health Microfinance: Lending Savings Insurance Housing Remittances Increases: Income Assets Security Confidence in future Population Education Community participation Banking for the majority

4.

500 million poor entrepreneurs

SKS Microfinance
Empowering the Poorest of the Poor to Become SelfReliant Founded June 1998 Mission Vision To eradicate poverty by providing financial services to the poor and by using providing goods and services that the poor need. To serve 50 million households across India and other parts of the world and also to create a commercial microfinance model that delivers high value to our customers.

Achievements Since 1998

4 branches 314 village centers 10,123 customers $1.4 million disbursement $680,000 loan outstanding 99.9% repayment

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