MFIs & Financial Inclusion

Group: 6
Summary
Micro Finance Institutions
 Financial Inclusion
“the process of ensuring access to financial services and timely and


adequate credit where needed by vulnerable groups such as

weaker sections and low income groups at an affordable cost”
These services are:


 (i) a no-frills banking account for making and receiving

payments,
 (ii) a savings product suited to the pattern of cash flows of
a poor household,
 (iii) money transfer facilities,
 (iv) small loans and overdrafts for productive, personal
and other purposes,
 (v) micro-insurance (life and non-life)
•
•
 C Rangarajan Committee on Financial
Inclusion

• There is a need to recognize a separate category of Microfinance

– Non Banking Finance Companies (MF–NBFCs)
• Opening of specialised microfinance branches / cells in potential
urban centers for exclusively catering to microfinance and
SHG - bank linkages requirements of the urban poor.
• An enabling provision be made in the NABARD Act, 1981
permitting NABARD to provide micro finance services to the
urban poor .
•
Functioning of Micro Financial
Institutions
 Regulatory framework of Micro Financial
Institutions

•
• Current estimates of the number of NGOs
engaged in providing microfinance services
to the poor exceed 1,000 organisations


• More than 1000 MFIs are there in India today,

among which 400-500 continue to operate in
the form of registered societies or trusts,300-
400 MFIs operate as cooperatives
•
 Role of MFI’s in MSME’s

• MFI’s offer micro credit to

borrowers
•
• MFI’s lend to MSME’s
•
• 7% contribution by MFI’s
•
 CURRENT SCENARIO

• 3 Million MSME( 50% of Industrial

Output & 42% of Total Exports)


• 1000 MFI
•
• Micro lenders increased to 60% in
2008-2009

• SMERA MFI Rating

Problems faced by MFIs
• Lack of funds
• Financial exclusion
• Unable to meet the needs of
clients
• Interest rates
• Service taxes
• Not able to access tax refunds
• Lack of trained labor and
mobilization of resources
•
 Suggestions
Building sustainable MFIs in India:


• NBFC status – Allows MFIs to be regulated by RBI

• Bigger is better
• Flexibility
• Tax concessions
• Use of MIS
• Permitting MFIs to take deposits from members/borrowers
• Simplify foreign investment regulations to enable MFIs to
raise foreign equity


Emerging trends in MFIs in relation to HRM:



• Separation of HRM as a key function

• Recruiting professionals
• Focus on induction and orientation
• Training and grooming field staff
• Incentive-based salaries
•
 Suggestions Contd…
 Financial sustainability can be
achieved through:


• Controlling Costs
 - Reducing Average Cost of
Funds
 - Reducing Cost of Operations
 - Reducing Cost of Bad Debts
• Increasing Volumes
• Increasing Services – Savings and
Insurance

Thank You