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the supply of loans, savings, and other basic financial service to the poor .
To most, micro finance means providing very poor families with very small loans (micro credit) to help them engage in productive activities or grow their tiny businesses. -> Financial Gateway
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SHG-MODEL-FEDERATION
A SHG is a group of about 10 to 20 people, usually women, from a similar class and region, who come together to form savings and credit organization. They pooled financial resources to make small interest bearing loans to their members. This process creates an ethic that focuses on savings first. The setting of terms and conditions and accounting of the loan are done in the group by designated members. 15 to 50 SHGs make up a Cluster / VO with either one or two representatives from each SHG. Depending on geography, several clusters or VOs come together to form an apex body or an SHG Federation.
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SHG-BANK LINKAGE
A most notable milestone in the SHG movement was when NABARD launched the pilot phase of the SHG Bank Linkage programme in February 1992. This was the first instance of mature SHGs that were directly financed by a commercial bank. The informal thrift and credit groups of poor were recognised as bankable clients. Soon after, the RBI advised commercial banks to consider lending to SHGs as part of their rural credit operations thus creating SHG Bank Linkage. The linking of SHGs with the financial sector was good for both sides. The banks were able to tap into a large market, namely the low-income households, transactions costs were low and repayment rates were high. The SHGs were able to scale up their operations with more financing and they had access to more credit products.
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SERVICE PROVIDERS
Major Providers
Advantages Understand each others financial circumstances Can offer very flexible, convenient and fast services.
Disadvantages
Services can also be costly Choice of financial products limited and very short-term. Services that involve savings are also risky; many people lose their money.
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Advantages
Regulated and supervised, Offer a wider range of financial services Control a branch network that can extend across the country and internationally.
Disadvantages
Little financial skill Can run into trouble when the economy turns down
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CHALLENGES
The challenges in building a sound microfinance industry include: Inappropriate donor subsidies Poor regulation and supervision of deposit-taking microfinance institutions(MFIs) Few MFIs that meet the needs for saving remittance or insurance Limited management capacity of MFIs Institutional inefficiencies Need for more dissemination and rural agricultural finance methodologies.
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SUGGESTIONS
strong and efficient microfinance institution financial infrastructure lower interest rate Government role RBI regulations A new category of NBFC should be created Special incentives All SHGs particularly in the backward regions should be consider under one umbrella
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FUTURE OUTLOOK
The Indian micro finance sector has expected to grow nearly ten times by 2012 by a size of about Rs 325 billion from the current market size Rs 27 billion, at a compounded annual growth rate of 76%, with out the people living below $1.25 day. The total demand of the micro credit in the country is Rs550 billion at an annual average loan size of Rs 6,000. Thus even 2012 only about 50% of the market demand may be covered
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FUTURE OUTLOOK
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CONCLUSION
Microcredit is provided not only to the poor countries but also the worlds richest countries . The success of microcredit model has been judged disproportionately from a lenders' perspective and not from the borrowers. When access to credit is combined with other services such as additional financial services, Enterprise development, and welfare related services are expected to diminish the adverse effect. Furthermore, the use of microcredit programmes in development should be limited to the nature of the potentially helpful tool that they are-for opening doors of economic opportunity for the poor in helping to alleviate the economic resources trap that they often face.
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