Product & services of MicrofinanceF i n a n c i a l S e r v i c e s O t h e r F i n a n c i a l S e r v i c e s N o n F i n a n c i a l S e r v i c e s 1. Credit Services-i Small Credit,Small Business Credit.2.

Deposit Services - VoluntariSavings Services, Manda torySavings.Micro-insurance, Life Insurance ,Health Insurance , Loan for Housing, Education, Health.Family Health and SanitationEducation, Financial Education,Micro-entrepreneur Training. G. The micro-credits model: *The model is fairly straightforward and simple.*Focus on jump-starting selfemployment, providing the capital for poor women to use their innate "survivalskills" to pull themselves out of poverty.*Lend to women in small groups (credit circles), say of five or seven.* Make loans of small amounts to two out of five.* The three who have not received loans will be eligible only when this first round of loans has been repaid.* Draw up a weekly or bi-weekly repayment schedule.* In case any member defaults the entire circle is denied access to credit.* Banks have been given freedom to formulate their own lending norms keeping in view ground realities. Theyhave been asked to devise appropriate loan and savings products and the related terms and conditionsincluding size of the loan, unit cost, unit size, maturity period, grace period, margins, etc. 4. Governments role supporting microfinanceGovernments most important role is not provision of retail credit services, for reasons mentioned inGovernment can contribute most effectively by:*Setting sound macroeconomic policy that provides stability and low inflation.*Avoiding interest rate ceilings - when governments set interest rate limits, political factors usually result inlimits that are too low to permit sustainable delivery of credit that involves high administrative costssuch astiny loans for poor people. Such ceilings often have the announced intention of protecting the poor, but aremore likely to choke off the supply of credit.*Adjusting bank regulation to facilitate deposit taking by solid MFIs, once the country has experience withsustainable microfinance delivery.*Creating government wholesale funds to support retail MFIs if funds can be insulated from politics, and theycan hire and protect strong technical management and avoid disbursement pressure that force fund to supportunpromising MFIs. *Promote microfinance as a key vehicle in tackling poverty, and as vital part of the financial system.*Create policies, regulations and legal structures that *encourage responsive, sustainable microfinance.*Encourage a range of regulated and unregulated institutions that meet performance standards. | P a g e 12

*Encourage competition, capacity building and innovation to lower costs and interest rates in microfinance. * Support autonomous, wholesale structures. RBI data shows that informal sources provide a significant part of the total credit needs of the rural population.The magnitude of the dependence of the rural poor on informal sources of credit can be observed from thefindings of the All India Debt and Investment Survey, 1992, which shows that the share of the Noninstitutionalagencies (informal sector) in the outstanding cash dues of the rural households were 36 percent. However, thedependence of rural households on such informal sources had reduced of their total outstanding dues steadilyfrom 83.7 percent in 1961 to 36 percent in 1991. 5 . M i c r o f i n a n c e S o c i a l As p e c t s Micro financing institutions significantly contributed to gender equality and womens empowerment as well aspoor development and civil society strengthening. Contribution to womens ability to earn an income led to their economic empowerment, increased well being of women and their families and wider social and politicalempowerment.Microfinance programs targeting women became a major plank of poverty alleviation and gender strategies inthe 1990s. Increasing evidence of the centrality of gender equality to poverty reduction and womens higher credit repayment rates led to a general consensus on the desirability of targeting women. Self Help Groups (SHGs): Self- help groups (SHGs) play today a major role in poverty alleviation in ruralIndia. A growing number of poor people (mostly women) in various parts of India are members of SHGs andactively engage in savings and credit (S/C), as well as in other activities (income generation, natural resourcesmanagement, literacy, child care and nutrition, etc.). The S/C focus in the SHG is the most prominent elementand offers a chance to create some control over capital, albeit in very small amounts.The SHG system has proven to be very relevant and effective in offering women the possibility to breakgradually away from exploitation and isolation. Savings services help poor people: Savings has been called the forgotten half of microfinance. Most poor people now use informal mechanisms to save because they lack access to good formal deposit services,. Theymay tuck cash under the mattress; buy animals or jewelry that can be sold off later, or stockpile inventory or building materials.These savings methods tend to be riskycash can be stolen, animals can get sick, and neighbors can run off.Often they are illiquid as well one cannot sell just the cows leg when one needs a small amount of cash.Poor people want secure, convenient deposit services that allow for small balances and easy access to funds.MFIs that offer good savings services usually attract far more savers than borrowers. Womens indicators of empowerment through microfinance:

*Ability to save and access loans*Opportunity to undertake an economic activity *Mobility-Opportunity to visit nearby towns*Awareness- local issues, MFI procedures, banking transactions*Skills for income generation | P a g e 13

*Decision making within the household* Group mobilization in support of individual clients- action on. 6. The Need in India India is said to be the home of one third of the worlds poor; official estimates range from 26 to 50 percent of the more than one billion population. About 87 percent of the poorest households do not have access to credit. The demand for micro credit has been estimated at up to $30 billion; the supply is less than $2.2 billioncombined by all involved in the sector. Due to the sheer size of the population living in poverty, India isstrategically significant in the global efforts to alleviate poverty and to achieve the Millennium DevelopmentGoal of halving the worlds poverty by 2015.Microfinance can also be distinguished from charity. It is better to provide grants to families who are destitute,or so poor they are unlikely to be able to generate the cash flow required to repay a loan. This situation canoccur for example, in a war zone or after a natural disaster.W h i l e India is one of the fastest growing economies in the world, poverty runs deep throughout country. A b o u t t w o t h i r d s o f Indias more than 1billion people live in rural areas and a l m o s t 1 7 0 m i l l i o n o f t h e m a r e p o o r . For more than 21 percent of them, poverty is a chronic condition. Three out of f o u r o f I n d i a s p o o r l i v e i n r u r a l a r e a s o f t h e c o u n t r y. P o v e r t y i s d e e p e s t a m o n g s c h e d u l e d c a s t e s a n d t r i b e s i n t h e c o u n t r y s rurala r e a s . T h e m i c r o - f i n a n c e s c e n e i n I n d i a i s d o m i n a t e d by Self Help Groups (SHGs) - Banks linkage program for over a decade now. As the formal banking system a l r e a d y h a s a v a s t b r a n c h n e t w o r k i n r u r a l a r e a s , i t was perhaps wise to find wa ys and m eans to improve the access of rural poor to the existing bankingnetwork. This was tried by r o u t i n g f i n a n c i a l . Indian microfinance is poised for continued growth and high valuation but faces pressing challenges andopportunities thatleft unaddressed could negatively impact the long-term future of the industry.The industry needs to move past a single-minded focus on scale, expand the depth and breadth of productsand services offered, and focus on the double bottom line and over indebtedness to effectively address therisks facing the industry. 7.Micro-Financing Regulation in India Advantage of Regulation: Following are the advantages and benefits of regulation and supervision of /MFIs: i. Protects the interest of the depositors;i i . P u t i n p l a c e p r u d e n t i a l n o r m s , s t a n d a r d s a n d p r a c t i c e s ; iii. Provides sufficient information about the true risks faced by the b a n k s / M F I s ; i v . P r o m o t e r s s ys t e m i c s t a b i l i t y a n d t h e r e b y sustains public confidence in the banks/MFIs;v. Prevents a banks/MFIs failure/potential dangers through timely interventions;vi. Penalizes the violations, misconducts, non-

compliance to the norms of behavior;vii. Provides invaluable advisory inputs for problem-solving and overall improvement of the banks/MFIs;viii. Promoters safe, strong and sound banking/MF system and effective banking/MF policy and | P a g e 14

ix. Promotes and enhances orderly economic growth and development. A. U n i f i e d R e g u l a t i o n S y s t e m : 8.18 at present, all the regulatory aspects of microfinance arenot centralized. For example, while the Rural Planning and Credit Department (RPCD) in RBI looksafter Rural lending, MFNBFCs are under the control of the Department of Non-Banking Supervision( D N B S ) a n d E x t e r n a l C o m m e r c i a l B o r r o w i n g s a r e l o o k e d a f t e r b y t h e F o r e i g n E x c h a n g e D e p a r t m e n t . The Committee feels that RBI may consider bringing all regulatory aspects of microfinance under as i n g l e , m e c h a n i s m . F u r t h e r , supervision Of MF-NBFCs could be delegated to NABARD by RBI