Presentation given by S. Ghosh , C. Jha , G. Mahesh , R. Gougloth & MSSP

1. •.
.

2. What is Microfinance ?
According to famous economist Robinson, Microfinance
refers to small-scale financial services for both
credits and deposits - that are provided to unemployed
or low-income individuals or groups who would
otherwise have no other means of gaining financial
services . Ultimately, the goal of microfinance is to give
low income people an opportunity to become self-
sufficient by providing a means of saving
money, borrowing money and insurance.

3. What is the need of Microfinance ?
Traditionally , Macro-financial institutes like banks
have been reluctant to provide financial services to
clients with little or no cash income, because of
various reasons –
1. ‘Break Even Point‘ in providing loans.
2. Few assets to be secured as collateral.

4. What is the need of Microfinance ?
Lack of loan and other financial services from
banks and other institutes forces them to
rely heavily on relatives or local money
lenders at the time of need .
Usually interest rate of moneylenders are
very high . They are often accused of Usury .

5. What is the need of Microfinance ?
According to a 1995 World Bank
estimate, in most developing countries the
formal financial system reaches only the
top 25% of the economically active
population - the bottom 75% have no
access to financial services apart from
moneylenders .

6. How Microfinance helps the poor ?
1:It provides a long-term increase in income
and consumption of poor families.
2: Access to credit helps the poor to smooth
cash flows and avoid periods where access to
food, clothing, shelter, or education is lost.
3: Credit make it easier to manage shocks like
sickness of a wage earner, theft, or natural
disasters.

7. How Microfinance helps the poor ?
4: It provides support to Micro Enterprises .
Thus booster support to Entrepreneurship
among the jobless people .
5: Plays an important role in Women
Empowerment , particularly in Developing
countries like India.

8. Theorist Lysander Spooner wrote
middle of the 1800s about small credits , as a way of
getting the people out of poverty .
Marshall Plan was introduced for
End of World War II revival of post war economy . It gave
emphasize on micro finance .
Micro-Credit movement started in
1970’s countries like Bangladesh ( Grameen
Bank led by Muhammad Yunus) ,
Pakistan , Vietnam etc.
Declared as International year of
2005 Microcredit by The Economic and
Social Council of the United Nations

9. Microfinance Lending Models
1: Associations , Ex : Self Help Groups, SHGs (India)
2: Bank Guarantees , Ex : Latin America Bridge Fund
3: Community Banking , Ex: Grameen Bank (Ban.)
4: Cooperatives , Ex: Co-operative Bank (England)
5: Credit Unions
6: Non-Governmental Organizations , Ex: KIVA ,US
7: For-profit Banks , Ex: Khushali Bank (Pakistan)
8: Rotating Savings and Credit Associations (ROSCAs)

10. Major Features of MFI’s
Most of the major MFI’s (like SHGs
, Community banks ) follows certain methods (
developed over last 30 years ) to deliver very
small loans to unsalaried or poor borrowers.

11. Major Features of MFI’s
These include –
1. Negligible Amount of Collateral required.
2. Group lending and liability.
3. Pre-loan savings requirements.
4. Gradually increasing loan sizes &
guarantee of ready access to future loans if
present loans are repaid fully and promptly.

12. Major Features of MFI’s
Usually High Interest rates are charged
by the MFI’s for the following reasons :
1: The administrative cost of making tiny
loans is much higher in percentage terms
than the cost of making a large loan.
2: More Risk factor is involved in Micro-
credit than mainstream banking .

13. Microfinance in India
Major Microfinance activities followed in
India are –
1. Micro credits
2. Micro savings
3. Small scale Insurance

14. Role of NGOS in the microfinance
>What are NGOs?
>NGOs are voluntary social work organization who renders
help to government and society for improvement of quality
of life people
>Help in the formation of SHGs
>To reduce the smaller transaction NGOs help banks
>Over the last quarter century, a few organizations, outside
the purview of the public sector, have succeeded in effective
poverty alleviation through micro-credit
>Main objective is to draw attention about microfinance by
conduction meetings in rural areas

15. Role of NGOS in the microfinance
> Providing the minimum knowledge
related to the finance
> Helping people to improve their skills in
education
> Making contact between the SHGs and
banks
> How banks are benefited by NGOs???

16. Role of govt in microfinance
> Government interested in SHGs
> Rashtriya Mahila Kosh , Indira Mahila
Yojana, Swarnajayanti Gram Swarojgar
Yojana (SGSY) launched in 1999
> Swarnjayanti Gram Swarojgar Yojana
(SGSY) has emerged as a main anti-
poverty programme

17. Working of SHG
How it works??
> Formation of group with (10-20) members
> Monthly savings about 20-50 rs per each member
> Money lending from banks
> Money lending from SHG
> Interest rates
> Repayment of money

18. In Andhra Pradesh
> Initiative taken by govt of A.P to enhance the
profit of shg members
> Loans are at 2.5 % interest
> Achieved great response from poor
> Presently there are 1.15 lakh DWCRA groups
and 2.19 lakh SHG groups in Andhra Pradesh
with a membership of 46 lakh women having a
savings of Rs.300 crores.

19. In Orissa
> It is the state that have only microfinance as tool
eliminate the poor.
> In Orissa Mission shakti , a government driven
programme, formed in 2001 with a target to
organize 2 lakhs WSHGs(women self help group)
covering all revenue villages of the State. The main
aim is to provide supports to different stakeholders
working in the field of women empowerment such
as Banks, NGOs, MFIs and other institutions.

20. In Orissa
> In 2008 IDBI Fortis Life Insurance has tied up
with Regional Rural Development Centre
(RRDC) to offer rural consumers the protection
of Termsurance Grameen Suraksha in Orissa.
.

21. In Orissa
> There are around 35 MFIs registered in the
state out of which 8-10 are functional, with the
recovery rate of these institutions being around
95%..
>Micro-Finance Institutions (MFIs) operating in
Orissa have advanced loans worth Rs 1500 crore
in the past three to four years, reaching out to
more than two million customers in the state.

22. Disadvantages & Criticisms of Microfinance
Disadvantages to the Micro-lenders:
1. To the bank the borrowers are few for the
problem of reaching out to the people.
2. A main disadvantage to micro-finance is
that the deal is too small for the lender to
devote ample time and money to doing
proper due diligence.

23. Disadvantages & Criticisms of Microfinance
3.As the capital is low the profits are also low.
4 .Borrowers seldom if ever give lenders the full
story on their situation and with a small amount at
risk, it does not make sense for lenders to spend a
lot of money to check out the story. When lenders
get burned, they decide to stop lending and the
next round of lending must be done by greenhorns
who have no idea what they are getting into.

24. Disadvantages & Criticisms of Microfinance
5.In other words, to some extent microlending
depends on an ever-increasing number of lenders in
order to be successful

25. Disadvantages & Criticisms of Microfinance
6.The inability to reach the poorest of the poor is a
problem that plagues most poverty alleviation
programs. As Gresham’s law reminds us, if the
poor and non-poor are combined within a single
program, the non-poor will always drive out the
poor. To be effective, the delivery system must be
designed and operated exclusively for the poor.

26. Disadvantages & Criticisms of Microfinance
7.Some criticize that microfinance programs
benefit the moderately poor more than the
destitute, and thus impact can vary by income
group.
8. Most microfinance programs target women (due
to higher repayment rates), which may result in
men requiring wife to get loans for them.

27. Disadvantages & Criticisms of Microfinance
9.Vicious cycle of debt, microcredit
dependency, increased workloads, and domestic
violence associated with participation in
microfinance programs.
10. Low repayment rates in comparison with
traditional financial institutions.
11. Use of harsh and coercive methods to push for
repayment and excessive interest rates

28. Disadvantages & Criticisms of Microfinance
12.Concerns have been raised that the reliance on
microfinance programs to aid the poor may result in
a reduction of government and charitable assistance
(“privatization of public safety‐net programs”).

29. Conclusion
In Bangladesh microfinance has successfully
enabled extremely impoverished people to
engage in self-employment projects that allow
them to generate an income and, in many
cases, begin to build wealth and exit poverty.

30. Conclusion
> In India micro-finance has succeeded with
repayment rates upto 98% reported all
across the country ( from the states like AP,
Tamil Nadu, Karnataka, Kerala ,West Bengal
and Orissa etc. )
> This tells us that micro finance has
certainly has the capacity to reduce poverty
by a great margin .

31. Thank You