Chapter 7

Asset –based Retail Financial Services

Financial Services and System

Sasidharan & Mathews
 Asset-based Retail Financial Services
 Personal Finance
 Consumer Finance
 Residential Mortgage Backed Securities
 Reverse Mortgage
 Educational Loan
 Automobile Loans
 Discounting/ Purchase of Cheques
 Mortgage Loans
 Certification Services
 Cash Management Services
 Venture Capital Finance
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 Personal Finance
 Banks and financial institutions extend personal loans to individual customers
for personal purposes such as:
 Purchase of shares of the company under ESOP Scheme,
 Housing
 Holiday Travel
 Purchase of car
 Education
 Purchase of property
 Loan to pensioners
 Loan against shares or debentures,
 Celebrating festivals
 Medical treatment
 Buying vehicles,
 Loan to teachers,
 Loan to persons working in the armed forces
 Renovation of house
 Marriage in the family
 Purchase of laptop, computer or other electronic equipments etc.

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 Personal Finance
 The scheme differs from bank to bank
 The amount of loan falls within the range of Rs.20000 to Rs.15 lakhs
depending on the salary income of the borrower
 The loan has to be repaid by Equated Monthly Installments (EMI).
 Interest rate varies from bank to bank
 The period of loan varies from 12 months to 60 months.
 The borrower should have sufficient monthly income to meet the EMI
 Generally, personal loans are unsecured except in cases where the
loans have been availed for acquisition of assets.

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 Personal Finance
 Banks insist collateral securities in the form of deposits, National
Savings Certificates, LIC Policy, land property etc.
 Banks also accept third party guarantees
 The guarantor/s should have monthly income sufficient to meet the
EMI
 Many banks now prefer co-obligants instead of guarantors.
 Co-obligants are treated as co-borrowers as such have equal
liability whereas in the case of guarantors, the liability falls on them
only if the borrower defaults.
 Banks are now availing the services of recovery agents for
collection of dues in respect of personal loans.

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 Consumer Finance

 Banks extend finance for purchasing consumer durables

such as TV, music system, washing machine etc.
 The borrower has to provide a margin of 10 to 25 per cent
 Cost of equipment is paid directly to the suppliers
 Repayment of loan in EMI
 Period of loan generally varies from 12 months to 48
months.
 Collateral security is generally in the form of co-obligant/
guarantor

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 Consumer Finance
 Interest rate is quoted as certain percentage above PLR
 Interest rate varies from bank to bank
 Loans are available at fixed rate as well as floating rate at the
option of the borrowers
 Some banks collect post-dated cheques to cover the
installments.
 Generally banks establish a tie up with the employing
organisations and extend loans under group guarantee
scheme in which case the EMI is deducted from the monthly
salary of the employee.
 Banks also require the borrower to insure the assets acquired
out of the borrowings.

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 Housing Finance
 Financial assistance is extended to purchase of land, construction of
house, purchase of constructed house, flat etc.
 Additional loans are given for repairing/ renovation as well as for
repayment of finance availed from other sources for construction/
acquisition of house.
 Commercial banks, housing finance companies, co-operative banks,
housing finance subsidiaries of banks etc. are extending housing finance.
 Since 1988, National Housing Bank (NHB) is regulating the housing finance
in India
 The financial institutions extending housing finance is required to register
with NHB and NHB refinances the housing finance extended by them

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 Housing Finance

 NHB also extend housing finance under the Home Loan account
scheme through financial institutions registered with them
 Under Home Loan account scheme, a borrower has to initially
open a savings account with the designated branch of a
commercial bank/co- operative bank and continue to remit in
this account up to a minimum period of 5 years
 The loan amount is fixed as 1.5 times of the amount remitted to
the account or Rs.2 lakhs which ever is higher.
 The amount remitted in the account constitutes the margin
towards the loan.

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 Housing Finance
 The borrower should be above 21 years of age and below 65 years.
Some banks permit even up to 70 years
 Amount of loan depends upon the repaying capacity of the borrower.
 Generally repayment period is fixed so as to liquidate the loan before
the borrower retires. However, if sufficient proof for regular income
is produced, period above 60 years is also considered on a case to
case basis.
 Repayment is by EMI.
 Some banks have entered into agreement with large companies for
granting housing loan to their employees under group guarantee
scheme in which case the company deducts the EMI from the salary
and remits to the bank

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 Housing Finance
 Security for the loan is the house property/flat purchased out of the loan.
 Generally, banks do not insist on collateral securities, but they insist on
the spouse joining as co-obligant.
 The interest rate can be fixed rate of floating rate at the option of the
borrower
 Banks insist on insuring the house against natural calamities like
earthquake, flood, fire etc.
 Considering the national priority on housing, banks have set apart a
portion of their funds to be deployed as housing loan.
 Banks and financial institutions extend housing finance to the people
belonging to poor and weaker sections under priority sector as a part of
their social commitment.

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Residential Mortgage Backed Securities (RMBS)

 RMBS is a process of securitisation of housing loan

installments introduced at the initiative of NHB.
 The primary lender (Originator) sells the pool of housing
loan mortgages to a Special Purpose Vehicle (SPV).
 SPV converts these mortgages into tradable financial
instruments known as Residential Mortgage Backed
Securities.
 NHB guarantees the RMBS.
 RMBS is a source for fee based income

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 Reverse Mortgage

 Reverse Mortgage is a facility introduced by the Government of India

to extend financial assistance to aged senior citizens who are in their
last leg of their life and do not have dependents to look after them.
 The scheme is offered to persons above 62 years owning residential
property and living alone.
 Under this scheme, the residential property is mortgaged to a bank
which releases funds to the borrower monthly.
 Unlike the mortgage loans, there is no monthly repayments, instead
the financial institution will pay the borrower monthly.
 The borrower and spouse can continue to stay in the house
 The maximum period of the loan is 15 years.

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 Reverse Mortgage
 If the borrower survives beyond 15 years, the bank will stop the monthly
payments, but will permit him/her to continue to stay in the house.
 The loan can also be availed in lump sum according to the financial
needs of the borrower
 In the event of the demise of the borrower, the bank will allow the
spouse to continue to stay in the house and the periodical payments
will be made to the spouse till the expiry of the maximum period or
death of the spouse whichever is earlier.
 After the death of the last survivor, the bank will sell the mortgaged
house and liquidate the loan. The balance if any will be given to the
legal heir.
 The borrower, if so desired, can prepay the loan without paying any
penal interest.

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 Reverse Mortgage
 NHB is extending refinance facility to Housing Finance Companies/banks against
the Reverse Mortgage
 NHB also guarantee the periodical payments to the senior citizens by the
banks/HFCs.
 The loan need be repaid only after the death of the last survivor or sale of the
borrower or the borrower moving out of the house permanently.
 The loan amount depends on the borrower’s age, value of the property and the
lending institution’s interest rate.
 The valuation of the mortgage property is done based on actuarial calculations and
revalued every 5 years.
 The property should be free from all encumbrances.
 Borrower can use the loan amount for repair/renovation of the house, medical
expenses etc.
 The borrower has to pay the insurance premium and property taxes.

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 Educational Loan

 The student should be an Indian National

 He/she should have secured admission to
professional/ technical courses through entrance
test or other selection processes or should have
secured admission to foreign universities
 He/she should have scored minimum of 60 per cent
mark (50 per cent for SC/ST) for the qualifying
examination.

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 Educational Loan
 Eligible courses in India are School education including plus 2 stages,
Graduation courses: BA, B.Com. B.Sc., etc., Post Graduation courses:
Masters & Ph.D, Professional courses: Engineering, Medical,
Agriculture, Veterinary, Law, Dental, Management, Computer etc.,
Computer certificate courses of reputed institutes accredited to Dep’t.
Of Electronics or institutes affiliated to university, Courses like ICWA,
CA, CFA etc., Courses conducted by IIM, IIT, IISc, XLRI, NIFT etc.
 The courses should be approved by UGC/ Government/ AICTE/
AIBMS/ICMR etc.
 Job oriented professional/technical courses and graduation courses
conducted by reputed universities abroad, post graduation like MCA,
MBA, MS etc. and courses offered by CIMA in London and CPA in USA
are also eligible for financial assistance.

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 Educational Loan

 The expenses considered for financial assistance include:

 Fee payable to college/school/hostel
 Examination /Library/Laboratory fee.
 Purchase of books/equipments/instruments/uniforms
 Caution deposit/building fund/refundable deposit supported by
institution bills/receipts
 Travel expenses/passage money for studies abroad
 Purchase of computers – essential for completion of the course.
 Any other expense required to complete the course – like study
tours, project work, thesis, etc.

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 Educational Loan
 Amount of finance depends on the course requirements and
repayment capacity of the parents/students subject to a
maximum of Rs.7.5 lakhs for study in India and Rs.15 lakhs for
study abroad.
 Up to Rs. 2 lakhs, no security is insisted whereas 100 per cent
collateral security is insisted in the case of loans above Rs. 2
lakhs.
 Collateral security can be in the form of third party guarantee
also.
 Banks charge PLR for loans up to Rs.2 lakhs and PLR + 1% for
loans above Rs.2 lakhs
 No margin for loans up to Rs. 2 lakhs and 15% margin for loans
above Rs.2 lakhs for study in India and 25% for study abroad.

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 Educational Loan
 Loans are sanctioned and disbursed from the branch nearest
to the place of domicile of the student
 Generally payment is made directly to the University/institute
by demand draft.
 The loan has to be repaid within a period of 5 to 7 years.
 The repayment starts one year after completion of the course
or 6 months after getting a job whichever is earlier.
 Extension of course period up to a maximum of 2 years is
permitted in deserving cases.
 The simple interest is debited to the loan account during the
moratorium period and penal interest at the rate of 2 per cent is
charged if the loan becomes overdue.

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 Educational Loan
 Parents can remit the interest during the moratorium period in
which case a concession of 1% to 2% is allowed in the interest
rate.
 The amount outstanding after the moratorium period is divided into
equal monthly installments which has to be remitted by the student
 Banks collect periodical progress reports from the
University/institute.
 No processing fee or charges are levied upfront.
 Banks also issue solvency certificate based on supporting
documentary evidence to the students in the case of study abroad
where the University/Institute stipulates such requirement.

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 Educational Loan

 Banks collect an affidavit/declaration in lieu of No

Due Certificate from other banks.
 As per the extant guidelines, applications for loans
up to Rs.25000 have to be disposed of with in 14
days and those above Rs.25000 have to be disposed
of with in a period of 8 to 9 weeks.
 Banks are empowered to relax norms regarding
eligibility, security, margin etc. in deserving cases.

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 Automobile Loans
 Banks extend loans to purchase of new/ second hand vehicles
less than 3 years old
 Loans are granted to persons above 18 years and employed in
central/state government, public sector undertakings, private
companies, reputed organisations, educational institutions
etc.
 The loan amount depends on the repayment capacity of the
borrower, but generally restricted to 3 times of the net income/
net salary or Rs.10 lakhs which ever is lower.
 A margin of 20 to 25 per cent for new vehicles and 50 per cent
for secondhand vehicles is insisted

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 Automobile Loans

 Loans granted for purchase of two wheelers and four

wheelers
 The repayment is by way of EMI
 Interest rate varies from bank to bank
 Banks also levy processing fee
 The dealer reimburses the processing fee in the case of four
wheelers where there is a tie-up arrangement with the bank.
 Primary security is the vehicle. Banks register their
hypothecation charges with the licensing authority who
note down the charges the vehicle licence

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 Automobile Loans
 Generally guarantee by the spouse is accepted as collateral
security. Where the borrower is unmarried, third party
guarantee is accepted.
 Banks also grant automobile loans against group guarantee
scheme under tie-up arrangements with reputed companies.
 The repayment period is 60 to 84 months in the case of four
wheelers and 36 to 60 months in the case of four wheelers.
 Many banks have entrusted the follow-up and recovery to
agents and there are complaints against these agents due
to the unfair practices resorted by them. RBI has now
warned the banks against any unfair practices, harassment
or use of muscle power for recovery.

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 Purchase/ Discounting of Cheque

 Banks purchase/ discounts outstation cheques deposited

by customers and credit the proceeds to the account
before the cheque is realised.
 Generally third party cheques only are discounted/
purchased. Banks discourage discounting/ purchase of
cheques drawn from the account of the customer.
 Banks collect interest for the period from the date of
advance to the date of realisation of the cheque and
postages
 Banks extend credit against the uncleared local cheques
to known customers.

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 Purchase/ Discounting of Cheque

 In view of the risk involved in purchase/ discounting

of cheques, certain precautionary measures are
followed by the banks:
 This facility is extended to only regular and known customers
 Generally, banks discourage opening of accounts with the
proceeds of cheques discounted unless the customer is well
known to them
 In the case of high value cheques the drawee branch is
contacted to confirm balance
 Discounting of self-cheques are generally discouraged.

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 Mortgage Loans
 Banks provide loan/overdraft facility against mortgage of
property at low rate of interest to people engaged in trade,
commerce and business and also to professionals and self
employed, proprietorship concerns, partnership firm,
companies, NRIs and individuals with high net worth including
salaried people, agriculturists and staff members.
 Rate of interest is generally at BPLR with monthly rests and
concession of 0.25% per annum is allowed to women
beneficiaries.
 Period of loan is generally 8 years. The repayment starts from
the next month of final disbursement of 6 months from the
date of first disbursement whichever is earlier

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 Mortgage Loans
 Loans are given to meet the following purposes:
 To meet the credit needs of trade, commercial activity, other
general business, profession as also for their bonafide
requirements,
 To meet marriage or medical or educational expenses of family
members including near relatives,
 To undertake repairs/renovation/extension to the
residence/commercial property, purchase of consumer durables,
 To purchase/construct house/flat, purchase of plot,
 To purchase 2/4 wheeler vehicles,
 For going on pilgrimage/tours/excursions, etc,
 Repayment of existing loans from other Banks/FIs.

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 Deposit Schemes
 Savings Bank Account
 Current Account
 Term Deposits
 Cumulative Term Deposits
 Cash key
 Recurring
 Non-resident Indian’s Accounts
 Non-resident External (NRE) Account
 Non-resident Ordinary (NRO) Account
 Foreign Currency Non-resident (FCNR) Account
 Resident Foreign Currency (RFC) Account
 Exchange Earners’ Foreign Currency (EEFC) Account
 Escrow Account

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 Deposit Schemes
 Foreign Currency Accounts of Airline/ Shipping Companies
 Foreign Currency Accounts of Overseas Companies executing
Projects in India
 Foreign Currency Accounts of Overseas Buyers
 Foreign Currency Accounts of Foreign
Embassies/Missions/Diplomats
 The opening and operations of Non-resident accounts and the
foreign currency accounts are subject to the rules and regulations
issued by Reserve Bank of India from time to time. These rules
and regulations are published in the Exchange Control Manual,
Volume No. I which is available in the website of RBI.

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Deposits under National Savings Schemes

 The governmental initiative in promoting savings was started in

1834 when the first savings bank was established in Calcutta.
 The Government Savings Act was passed in 1873
 The Post office Savings Bank Account came into existence in
1882
 The Government District Savings Bank Account was merged
with Post office Savings Bank Account in 1886
 The National Savings Organisation was created in 1948
 The Constitution of India adopted in 1949 contains a list of Post
Office Savings Bank in the Seventh Schedule

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Deposits under National Savings Schemes

 The Government Savings Certificates Act was passed in 1959

 The Public Provident Fund Act was passed in 1958
 The National Savings Fund was established in 1999
 NSO was subsequently changed into NSI which introduced
savings schemes such as:
 National Savings Certificates
 Kisan Vikas Patra
 Post Office Monthly Savings Account
 15 Year Public Provident Fund Account

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 Demat Accouts
 Banks open Demat accounts in the name of clients’ holding shares
 Only banks who are Depository Participants under the
Depositories Act can maintain Demat Accounts
 The shares are held with National Securities Depository Limited in
electronic form
 The banks issue a pass book to the client showing the number of
shares outstanding in his/her name.
 The client can draw cheque for transferring the shares to another
account upon sale of shares
 Dematerialisation enables the investors in shares to save the
stamp duty payable for transfer of shares
 Dematerialisation also eliminates bad deliveries.

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 Chitties and Nidhis

 Chitties and Nidhis are conducted by Miscellaneous Non-

banking Companies.
 A chitty is a rural form of pooling the savings of individuals and
lending
 The institution/ person organising/ promoting the chitty is
known as Foreman
 The period of a chitty ranges from 25 to 50 months.
 The monthly subscriptions are quoted in fixed denominations
ranging from Rs.500 to Rs.10000. High value chitties with
subscriptions of Rs.50000, Rs.1000000 etc. are offered very
rarely
 The members can subscribe to a full ticket or half ticket.

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 Chitties and Nidhis

 The aggregate value of subscriptions is known as Sala

 The members are known as Chittals
 Every month the pooled fund is put for auction or prized
subscriber is decided by lot. Some chitty companies have
auctions and bids in alternate months
 If more than one member bids for the same amount, the winner
will be decided by lot
 A winning subscriber will get the total funds pooled minus the
Foreman’s commission, fixed interest and other incidental
expenses.
 The winning subscriber has to provide securities in the form of
deposits, National Savings Certificate, LIC policy, property etc.
to cover the future liability

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 Chitties and Nidhis
 Personal guarantees of persons having the stipulated monthly
income also are accepted
 The subscriber can also deposit an amount equivalent to the future
liability out of the prize money and discharge the certificate in favour
of the Foreman.
 All chitties are to be registered with the Registrar of Chitties and
Kuries by filing an application known as Thala Variola and remitting
the prescribed fee.
 Nidhis are also a similar form of savings where individual savings
are pooled and the pooled fund is lent to the member who need it
through bidding/lot process.
 While larger firms are registered, small units functions in villages in
the unorganized sector and assist their members to meet their
financial requirements.

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 Mutual Funds

 Definition
 Types of Funds
 Organization & Procedures
 Asset Management Company
 SEBI Guidelines

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 Definition

 An institutional mechanism providing

opportunities to pool their funds and invest

in a wide range of securities and diversify

the risk and maximize the return

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 Types of Funds

 Asset-allocation fund -- Balanced fund in which changes

are made in the stock and bond percentage mix, based on the
outlook for each market

 Balanced funds -- Mutual funds that invest in both stocks

and bonds, typically in relatively equal proportions

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 Types of Funds

 Capital appreciation funds -- Mutual funds that strive

for maximum growth. Although these funds can earn the
greatest gains, they also can rack up the heaviest losses. Also
known as aggressive growth funds.

 Closed-end funds -- Funds whose shares are traded on

an exchange, similar to stocks. The price per share doesn't
typically equal the net asset value of a share.

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 Types of Funds

 Equity income funds -- Mutual funds that favor

investments in stocks that generate income over
growth. As a result, they can be less risky than other
types of stock funds.

•Fixed-income fund -- Another term for a mutual

bond fund. ...

•Front-end loads -- Sales commission paid to

purchase shares of mutual funds.

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 Types of Funds

 General purpose money funds -- Mutual funds that

invest largely in bank CDs and short-term corporation I.O.U.s
called commercial paper.

 Global funds -- Mutual funds that invest in both the U.S. and
foreign countries. Also known as world funds.

 Government-only money funds -- Mutual funds that

invest in treasury bills and short-term loans to the U.S.
government.'These are the least risky money funds because their
investments are backed by Uncle Sam.

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 Types of Funds

 Growth funds -- Mutual funds that invest in the stocks of

well-established firms that are expected to be profitable and

grow for years to come.

 Growth and income funds -- Mutual funds that own

primarily blue-chip stocks of well-established companies that
pay out a lot of dividends to their shareholders. These funds
generally develop stock portfolios that balance the potential for
appreciation with the potential for dividend income.

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 Types of Funds

 High-quality corporate bond funds -- Mutual funds

that buy bonds issued by the nation's financially strongest
companies.

 High-yield bond funds -- Risky bond mutual funds that

invest in high-yield bonds of companies with poor credit
ratings. The bonds are rated below triple B by Standard ST
Poor's and Moody's. Also known as junk bond funds.

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 Types of Funds

 Income funds -- Mutual funds that invest in higher-yielding

stocks, but may own some bonds. You get income first along with
some growth. These funds usually invest in utility, telephone, and
blue-chip stocks.

 Insured municipal bond funds -- Mutual funds that invest in

insured bonds issued by cities, towns, states, toll roads, schools,
water projects, and hospitals. The interest income is tax-free, and the
bonds are insured against default by large private insurance
companies, such as American Municipal Pond Assurance Corp.
(AMRAC) and Municipal Bond Insurance Association (MBIA).

46
 Types of Funds
 Intermediate-term bond funds -- Mutual funds that invest in
bonds that mature in about 5 to 10 years. International bonds Debt

instruments issued by foreign governments or corporations .

 International funds -- Mutual funds that invest in stocks or

bonds of worldwide companies.

 Junk bond funds -- Mutual funds that invest in bonds issued by

companies or governments that are rated below BBB by Standard

and Poor's or Moody's. Also know as high-yield bond funds.

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 Types of Funds

 Long-term bond funds -- Mutual funds that invest in

bonds that mature in more than 10 years

 Money market mutual fund -- Mutual fund that invests

typically in short-term government and company loans and CDs.
These tend to be lower-yielding, but less risky than most other
types of funds. Also known as money market funds or money
funds.

 Municipal bond funds -- Mutual funds that invest in tax-

exempt bonds is sued by states and local governments

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 Types of Funds

 No-load mutual fund -- Mutual fund that is sold without

sales commission

 Open-end funds -- Funds that permit ongoing purchase and

redemption of fund shares (mutual funds are open-end funds).

 Regional funds -- of Mutual funds that invest in one specific

region the globe

 Short-term bond funds -- Mutual funds that generally

invest in bonds that mature in less than three years.

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 Types of Funds

 Single-country funds -- Mutual funds or closed-end

funds that invest in one country.

 Single-estate municipal bond funds -- Mutual

funds that invest in the bonds of a single state so that
investors avoid paying both state and federal taxes on their
interest income.

 Small company stock funds -- Volatile mutual funds

that invest in younger companies whose stocks are
frequently traded on the over-the-counter stock market.

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 Types of Funds

 Socially responsible funds -- Mutual funds that

invest in companies that don't pollute the environment or
sell arms. They will not own tobacco or alcohol stocks, nor
invest in companies with poor employee relations.

 Specialty funds -- Funds that invest in one specific

industry or industry sector.

 Taxable bond funds -- Bond mutual fund in which

interest income is taxed by Uncle Sam

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 Types of Funds

 Tax-deferred investment -- An investment that is not taxed

until money is withdrawn, usually at retirement .

 Tax-free bond funds -- Tax-free mutual funds that invest in
municipal bonds issued by states, cities, and towns.

 Uninsured high-quality municipal bond funds --

Mutual funds that invest in the least risky municipal bonds. These

bonds are rated single A to triple A, but they are not insured.

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 Types of Funds

 Uninsured high-yield municipal bond funds --

Mutual funds that pay the highest tax-free yields but invest in

states or municipalities with lower credit ratings.

 U.S. government agency bonds -- Debt instruments

issued by federally sponsored agencies of the U.S.
government.

 U.S. Treasury bond funds -- Mutual funds that invest

in U.S. Treasury bonds and notes

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 Types of Funds

 U.S. Treasury-only money funds -- Funds that invest

in Treasury bills, or T-bills, which are short-term I.O.U.s to the
U.S. Treasury. These funds typically pay the lowest yields but
are considered the least risky money funds

 World funds -- Mutual funds that invest in both the U.S.

and foreign countries. Also known as global funds.

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 Organization and Procedures

 Organization
Sponsor
Trust
Asset Management Company
 Procedures
Sponsoring Organization
Forming Trust

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 Organization and Procedures

 Procedures (Contd…)
 Appointing Asset Management Company
 Registration of Scheme with SEBI
 Releasing Advertisement
 Pooling Funds
 Investment in Portfolios
 Calculation of NAV
 Distribution of Dividend (in the case of income funds)
 Repurchase formalities

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 Asset Management Company

 AMC is formed to manage the fund

 Responsible to file documents with SEBI
 Should have good track record
 Board of Directors consists of representatives of
sponsor also
 Should prepare annual accounts in respect of each
fund and publish
 Compliance of SEBI guidelines

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 Microfinance
 Friedrich Wilhelm Raiffeisen’s cooperative movement of self-
help in 1864 is considered to be the origin of microfinance
 Subsequently a similar movement was started by Alphonso
Desjardins together with his wife Dorimene in Quebec in
1900.
 In 1970 the scheme was relaunched with more innovations
 Dr. Akhtar Hameed Khan who was born in Agra and lived in
Karchi, Pakistan and Comilla, Bangladesh is considered to
be the pioneer in the new movement.
 Shore Bank founded in 1973 in Chicago is the first fully
incorporated microfinance and community development.

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 Microfinance
 Prof. Mohammed Yunus who got Nobel Prize in 2006 for
propagating the microfinance concept through his Gramin
Bank in Bangladesh is considered to be one of the pioneers in
microfinance
 In India NABARD pioneered the microfinance movement
 The microfinance is a women empowerment programme and is
implemented through Neighbourhood group or Self Help
Groups (SHG)
 SHGs are formed by women in a village to undertake gainful
activities through microenterprises.
 SHGs are constituted by 40 to 50 women in the village who
assemble in one of the houses weekly and discuss about the
development of their area.

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 Microfinance

 The SHGs pool funds from its members by mobilising their

savings which they invest in microenterprises.
 Microenterprises undertake activities like canteens, book
binding, horticulture, cleaning etc.
 SHGs are now taking active part in removing the waste and
reprocessing it.
 Commercial banks extend financial assistance to the SHGs
under their lending to priority sectors
 NABARD extends refinance facilities to the financing banks.
 SHGs now form a part of the decentralized planning and has
become a catalyst in rural development

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