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f Refers
very small
to amounts to the poor in rural , semi urba
•small savings
•credit
•insurance services
In the Indian context terms
•small and marginal farmers
•rural artisans
•economically weaker sections
ORIGIN OF THE
CONCEPT
mmad Yunus, professor of economics, in Bangladesh
MICROthe
that allow SAVINGS
client to save small amounts of money without any require
ACTIVITIES IN MICROFINANCE
MICRO
siness INSURANCE
organizations take out policies carrying small amounts as premium to share
REMMITTANCES
transfer of funds by people from one place to another usually to family o
ACTIVITIES IN MICROFINANCE
MICROFINANCE INSTITUTES
“ Micro Finance
Institutions accesses
financial resources
from the Banks and
other mainstream
Financial
Institutions and
provide financial and
support services to
the poor.”
MICROFINANCE MODELS
•Predominant model in the Indian Micro finance
•Accounts for nearly 20 million clients
•Self Help Promoting Institution usually a NGO, helps groups of
15-20 individuals
•Individuals through an incubation period after which time
they are linked to banks.
•
•SHG formed and financed by banks
MODEL
•The 1 the dual role of promotion of SHGs and also provider of cre
banks play
•SHGs formed by formal agencies other than banks (NGOs and other), but directly fin
MODEL
•The NGOs 2 agencies have played the role of facilitator
and other
Co-operative Model
•Pioneered by ICICI Bank attempted to provide a
mechanism for banks to incentivize partner MFIs
continuously & deal with the inability of MFIs to
provide risk capital in large amounts
•
•MFI collects a ‘service charge’ from the borrowers to
cover its transaction costs and margins
•
•The lower the defaults, the better the earnings of
the MFI as it will not incur any penalty charges vis-
à-vis the guarantee it provides
Partnership Model
MICROFINANCE IN INDIA
erural India
still below the ‘Poverty
constitutes about three
Line’toearning less thanquarters
Rs 50 pe
2. RBI
an SHG is 10 •to 20 members
Savings have FUNCTIONS
to be a regular and continuous
ly, only one member
•‘Savings first – Credit later’ should be the motto of ev
sists of either only men or of only women
•Savings to be used
the same social and financial as loans to members
background
•Discuss and try to find solutions to the problem faced
3. SHG
4. Microfinance Institutions (MFIs)
5. Non Government Organizations (NGOs)
Regulatory Framework
Regulatory Acts governing the MFI
Framework
Recommendations- 2003
1. Structure and Sustainability
Issues
2. Funding Issues
3. Capacity Building Issues
Regulatory Issues
Regulatory Issues: SHGs
Regulatory issues: NGOs
Regulatory Issues : MICRO CREDIT
INSTITUTIONS
R e g u la to ry Issu e s : M IC R O
FIN A N C IA L INSTITUTIONS
Issues Related to Microfinance
•Repaying ability that ultimately led to defaults
•
•MFIs - moneylender, but a leveraged moneylender- Subprime Crisis
•
•SBI , ICICI Bank and Axis Bank lent Rs 16,000 crore to micro lenders.
ICICI’s lending is at Rs 2,000 crore, SBI’s at more than Rs 1,000
croreand SIDBI’s at Rs 4,000 crore
•
•Borrowed by poor people lack basic education or experience to
understand and manage business
•
•Nearly eight of 10 borrowers who borrowed money from Indian
Microfinance companies were in default
•
•Lack of due-diligence by banks while lending to microfinance
institutions
erest rates on micro lending and will leave self-help groups and small community servic
nterest rates, the regulatory body will advise the micro-finance institutions to keep rate
est that the break-even rate for micro-finance lending is 24 per cent owing to the small
ational Bank for Agriculture and Rural Development will become the regulatory body fo