1. Microfinance An Introduction Kabare Piyush Madhukar M.B.B.

S
(Mumbai), PGPM (Indian Institute of Manaement, Indore) Assistant
Manaer, !idarbha "#uster In$"hare Microfinance, %&'$%&( )*+ &inance
)imited
2. Inde, (1-.) Introduction / 0hat is Microfinance / 'efinition
Industry Pre1ie2 / G#oba# 'e1e#o3ments in Microfinance / Ma4or
"hanes in Microfinance Scenario in South 5ast Asia / 'e1e#o3ments
in Microfinance in India / Pi##ars of Microfinance in India
Microfinance Industry Structure / %o#e of %BI ("entra# Bank) and
6ABA%' (%eu#ator) / Ma4or P#ayers in the Industry / &inancin
Mode# ada3ted by Banks in Microfinance Industry / Microfinance
'e#i1ery Mode# Microfinance )endin Process / "#ient "haracteristic
Microfinance Ser1ices / )endin Process in Microfinance Business
Stratey / Business Strateies of Microfinance Institutions /
Business Strateies of Pri1ate Banks-"ommercia# Banks / Gro2th
'ri1ers for Sector
3. Inde, (.-.) Key "ha##enes / 7ih +ransaction and Ser1ice "ost
/ "redit %isk / 8ther %isks %ecommendations / %eu#ations and
Po#icies / 83erationa# Im3ro1ement &uture 8ut#ook / &uture Gro2th
8ut#ook / 5ntry of 6e2 P#ayers / Sustainabi#ity of Microfinance /
%o#e of Pri1ate Sector In1estment S3ecia# Issues / %easons for
&ai#ure to fu#fi## the desired ob4ecti1e / (rban Microfinance /
%atin of Microfinance Institutions Anne,ure / Abbre1iations /
%eferences
4. 0hat is Microfinance 'efinition I6+%8'("+I86
9. Introduction: 0hat is Microfinance; +he scenario of su33#y of
forma# financia# Access to financia# ser1ices are ser1ices 2ithin
India constraint for the 3oor and not interest rates. +he 3oor can
sa1e and can indeed use a An estimated demand for credit ranin from
2ide rane of financia# ser1ices. <= to <> bi##ion annua##y +he
forma# sector is bare#y ab#e to 3ro1ide <.?? to <=?? mi##ion, Poor
3eo3#e use not on#y credit but a#so sa1in ser1ice, insurance and
affordab#e remittance systems to manae assets, enerate income and
im3ro1e their A tota# of o1er @??,??? 1i##aes #i1es. Bare#y =?,???
bank branches &or most of us, microfinance means 3ro1idin 1ery 3oor
fami#ies 2ith 1ery !arious Insurance, In1estment and Sa1in sma##
#oans (micro$credit) to he#3 them Products for Poor section enae in
3roducti1e acti1ities Basic financia# ser1ices remain out of reach.
Microfinance is an co##ecti1e term used for financia# intermediation
ser1ices to #o2 income rou3 and 3oor customers. Ser1ices offered are
"redit faci#ity, Sa1in accounts, Money transfers, %emittances,
Insurance and e1en In1estment.
@. 'efinition Microfinance refers to sma##$sca#e financia#
ser1ices inc#udin both credits and de3osits 3ro1ided to 3eo3#e 2ho
farm or fish or herdA o3erate sma## or microenter3rises 2here oods
are 3roduced, recyc#ed, re3aired, or tradedA 3ro1ide ser1icesA 2ork
for 2aes or commissionsA ain income from rentin out sma## amounts
of #and, 1ehic#es, draft anima#s, or machinery and too#sA in both
rura# and urban areas. Key &eatures of Microfinance "ost Grou3 Prefer
'o not Prefer Sma## )end to the co1erin a33raisa# 2omen take sa1in
o1er short$term 3oor interest and customers Security borro2in #oans
rates uarantee o1er men Microfinance means the 3ro1ision of bankin
ser1ices to #o2er$income 3eo3#e, es3ecia##y the 3oor and the 1ery
3oor.
B. 'e1e#o3ments in Microfinance C G#oba# 'e1e#o3ments in
Microfinance C South 5ast Asia 'e1e#o3ments in Microfinance C India
Pi##ars of Microfinance in India I6'(S+%D P%5!I50
E. 'e1e#o3ments in Microfinance C G#oba# +he Grameen Bank has
Since 1>B@, the Grameen been du3#icated in Bo#i1ia, Bank has ro2n to
inc#ude "hi#e, "hina, 5thio3ia, Microfinance has s3read more than 9.9
mi##ion 7onduras, India, Ma#aysia, to co1er fi1e continents members
2ith more than Ma#i, Phi#i33ines, Sri and numerous countries. (S<9..
bi##ion in disbursed )anka, +anFania, +hai#and, #oans. (nited States,
and !ietnam. M&Is ha1e become more As M&Is became better Microfinance
Institutions efficientA increased their 1ersed in the (M&Is) ha1e
a#so beun to c#ient base and e,3andin microfinance markets, seek
out 3ub#ic and their ser1ices throuh they a33#ied their
internationa# financin, different 3roduct such as inno1ations in a##
increasin their 2orkin micro$sa1ins, f#e,ib#e 3rocesses from
#endin to ca3ita# and e,3andin the #oan re3ayment, and the
co##ection of de3osits. sco3e of their o3erations. insurance. 8n an
o1era## 3ers3ecti1e Microfinance has immense 3otentia#ity 2ith three
bi##ion 3eo3#e i.e. ha#f the 2or#dGs 3o3u#ation #i1in #ess than
(S<. 3er day, unab#e to meet their basic human needs
>. 'e1e#o3ments in Microfinance C South 5ast Asia Grameen Bank
discarded H)G mode# of Micro$credit / +he ne2 a33roach that is
Grameen II in 2hich a## sa1ins are on an indi1idua# basis and there
is no rou3 #iabi#ity, offers f#e,ib#e #oan arranements for terms of
= months to = years and 1ariab#e re3ayment schedu#es to a1oid
seasona# difficu#ties. +he e,3ansion of sco3e of ser1ices beyond
credit. / Ser1ices offered are "redit faci#ity, Sa1in accounts,
Money transfers, %emittances, Insurance and e1en In1estment. +he
emerence of 3rofit$makin Microfinance Institution (M&Is). /
"urrent#y, 3rofitab#e M&IGs are 3resent in most countries re3ortin
hue returns on assets (%8As) and returns on eIuity (%85s) in
com3arison to con1entiona# bankin institutions. / +he M&Is in South
Asia ha1e reached 3rofitabi#ity throuh cost efficiency 2hi#e those
in 5ast Asia seem to ha1e re#ied more on re#ati1e#y hih interest
rates. 5merence of "ommercia# Microfinance / Sma## core rou3 of
hih#y commercia# and 3rofessiona#, market$oriented institutions ha1e
emered but not yet become fu##y interated into the broader
mainstream commercia# financia# systems. South Asia has a#so
distinuished itse#f by forin successfu# 3artnershi3s for
microfinance bet2een o1ernments, 6G8s, ci1i# society, 3ri1ate
sector, and communities.
1?. 'e1e#o3ments in Microfinance C India Micro finance in India
has started to e1o#1e in ear#y 1>E?Gs 2ith an effort of formin
informa# Sma## 7e#3 Grou3 (S7G) to 3ro1ide access of financia#
ser1ices to needy. India is .nd most 3o3u#ous country behind "hina
2ith a #are number of un$financed 3oor 3eo3#e $ Main c#ients for
M&Is M&Is are estimated to ha1e B.>J mi##ion borro2ers as of March
.??E 2ith "AG% of EE.J.K o1er the #ast fi1e years and cumu#ati1e
outstandin #oan 3ortfo#io of (S<E.J mi##ion. S7G has #oan
outstandin of (S<=9@.J9 mi##ion as of March .??E. It sho2s a "AG%
ro2th of BE..1K from &D?=$ &D?E. M&Is are increasin their share in
Indian microfinance su33#y as of com3arison to S7Gs 2here their share
has one do2n to 9=K in March .??E, from B.K in the year March .??=.
6ationa# Bank for Aricu#ture and %ura# +he strenth of microfinance
sector #ies in the 'e1e#o3ment (6ABA%') and Sma## Industries
di1ersity of mode#s, it has ado3ted inc#udin 'e1e#o3ment Bank of
India (SI'BI) are de1otin home ro2n mode#s #ike M&I and S7G to
other their financia# resources and time to2ards the #earnt mode#s
from 1arious countries #ike de1e#o3ment of microfinance. Ban#adesh,
+hai#and and Bu#aria.
11. Pi##ars of Microfinance in India 6iche$Market / Such as
S3andana, S7A%5 Microfin )td, and SKS Microfinance ha1e a#so M&Is in
India sca#ed u3 their micro$credit outreach dramatica##y in recent
years. / 5,3andin its financia# ser1ices to 3oor househo#ds throuh
a mu#ti$ Pri1ate Bank #ike I"I"I Bank 3roned a33roachL'irect#y
3ro1idin credit faci#ities to S7G, and Pro1idin 2ho#esa#e credit
faci#ities to microfinance 6G8s and 6B&"s. State 82ned- / +he
Syndicate Bank, Andhra Bank, "anara Bank, and Indian Bank, ha1e
"ommercia# Banks entered this market. / +hrouh its Microfinance
'e1e#o3ment Stratey, aims to ensure A'B 3ermanent access to
institutiona# financia# ser1ices for the reionMs 3oor 3eo3#e and
their sma## businesses. / Started to eye the #o2$3rofi#e M&Is, as
they foresee hue 3otentia#ity in Pri1ate 5Iuity &irms terms of
returns from this sector. e.. HM &inancia# ha1e in1estments from 8#d
)ane Partners and 'e#hi based )ok "a3ita# / 6ABA%' and SI'BI are
3erformin reu#atory and 3romotiona# ro#e, 6ABA%' * SI'BI 3ro1idin
financia# resources as credit * eIuity and enhancin techno#oy kno2$
ho2 of M&Is
1.. %o#e of %BI ("entra# Bank) and 6ABA%' (%eu#ator) Ma4or
P#ayers in the Industry &inancin Mode# ada3ted by Banks in
Microfinance Industry Microfinance 'e#i1ery Mode# MI"%8&I6A6"5
I6'(S+%D S+%("+(%5
1=. %o#e of %BI ("entra# Bank) and 6ABA%' (%eu#ator) / Su33ort
financia# #ibera#iFation * create conditions sustainab#e for Sector
%o#e of %BI / Prudentia# reu#ation and su3er1ision ("entra# /
Su33ortin the 3i#ot 3ro4ects of microfinance Banks) / "o##ectin
data and 3ub#ication / +rainin and ad1ocacy / &ramin 3o#icy and
uide#ines for rura# financia# institutions %o#e of +he / Pro1idin
credit faci#ities to issuin oraniFations 6ABA%' / Pre3aration of
3otentia#$#inked credit 3#ans annua##y for a## districts for
(%eu#ator) identification of credit 3otentia# / Monitorin the f#o2
of round #e1e# rura# credit 'i1ision of %es3onsibi#ity in
Microfinance 6ABA%' SI'BI 81ersees the #inkin 3roramme of banks to
)ends to M&Is throuh SI'BI &oundation for S7Gs and offers refinance
for it micro$credit.
1J. Ma4or P#ayers in the %ura# &inance Market Pub#ic Sector Banks
%eiona# Pri1ate Banks %ura# Banks Pri1ate &undin %ura# Schedu#e
"ommercia# Institution Banks Market P#ayers "oo3erati1e 6G8 Banks
M&Is S7G
19. Microfinance 'e#i1ery Mode# Se#f 7e#3 Grou3s M&I-Grameen )ea#
&orms of M&Is / 7ome ro2n, co$ %e3#ica / 6G8 M&Is (Societies
o3erati1e / Grou3 )endin and %eistration Act, 1E@? or / Sa1ins
based - #ed %eimented Pro1incia# Acts and-or / Meetin di1erse
needs / &ocused on se#f$ Indian +rust Act, 1EE.) / Promoted by
6ABA%', sufficiency / 6on$3rofit "om3anies PS( Banks, 6G8s / 6G8$
M&I and 6B&"$ (Section .9 of the / Performance Cmi,ed M&I "om3anies
Act, 1>9@) / Pace of ro2th $ cause / &inancia# "or3orations $ for
concern S3ecia#iFed entities focusin on s3ecific sements #ike
S"-S+, Minorities Grameen II 0ho#esome / Mutua##y Aided "redit
Society (MA"S) $ / Indi1idua# #endin Microfinance community o2ned *
$ / 6B&"$M&I Ser1ices 3o3u#ar in Andhra Pradesh / "oo3erati1e M&Is
/ Proressi1e )oan / %eu#ation ("oo3erati1e Societies Acts focused
on / S3ecia#iFed acti1ities of the State * "entra# enter3rise /
"ost is ma4or factor Go1ernments) / &uture of / 'istant dream /
6on$Bankin &inancia# Microfinance "om3anies (6B&"s) (Indian
"om3anies Act, 1>9@, %BI Act, 1>=J)
1@. &inancin Mode# ada3ted by Banks in Microfinance Industry Bank
"#ient "redit 6G8 (&aci#itator) Promotion * +rainin S7G "#ient
Member 'irect &inancin Mode# S7G$Bank )inkae Mode# / Most M&Is use
rou3s as intermediaries / 6G8 to act as faci#itator-financia# for
financia# transactions, but there are intermediaries bet2een bank and
S7G to different 2ays of 2orkin 2ith rou3s. initiate micro sa1ins
throuh an account / +he 6G8 3romotes, im3arts trainin, / +he
intermediation cost cou#d be around forms rou3s and a#so i1es
credit to @K of the #oan amount. them. / %isk #ies 2ith the banks as
ad1ances to / (nder this mode# either S7Gs are formed the S7Gs are
ref#ected in bank 3ortfo#ios. by banks or by 6G8s and forma# aencies
/ Banks bear risk as it in1o#1e a #ot of but are financed by banks.
transaction costs.
1B. "#ient "haracteristic Microfinance Ser1ices )endin Process in
Micro$&inance MI"%8&I6A6"5 )56'I6G P%8"5SS
1E. "#ient "haracteristic Microfinance Ser1ices Acti1ity %o5 %oI"
6et Annua# "#assification of Acti1ities $ %eturn in (S< Micro$credit
)oan +rade !eetab#e !endin 9? 9B 1J= +rade Production )i1e Stock
Genera# Store 1J .> 1JJ Ser1ice Aricu#ture 8ther S2eet Makin Sho3
1J9 1JB 1?1? Ice "ream Makin 1= .> =?9 =K @K Aricu#ture )easin
mano trees 1EJ 1E9 911 ==K )easin irriated farm #and 1@? 1@1 @@B
.9K Ser1ices 83eratin a &#our Mi## 9. 9> J?> +ai#orin 1.1 1.= =?B
1?K .=K %oadside Micro$diner .J9 .J@ 19.E )i1estock Goat rearin 9E
@9 J? Buffa#o rearin @> BJ .J@ Production Pottery .=9 .=@ 9.?
Microfinance c#ients are 3oor 2ith Acti1ities in rura# areas are
farmin, food 3rocessin, 3etty trade, re#ati1e#y stab#e source of
income. #i1estock, 1endin, and 3roduction #ike basket 2ea1in.
"#ients of microfinance are e,c#uded by Acti1ities in urban areas are
sho3s, ser1ices, artisans, street forma# financia# institutions.
1endors * ne2 ae businesses (beauty 3ar#or to 3hotora3hy). 0omen
make u3 the 1ast ma4ority of Ma4ority of the 3o3u#ation borro2 for
tradin, 2orkin ca3ita# borro2ers, es3ecia##y in Asia (>>K).
reIuirements for e,istin business or for settin u3 ne2 one.
1>. )endin Process in Micro$&inance Geo$5conomic / Based on the
eo$economic information about his reion (ty3ica##y a district or
Sur1ey of %eion manda#) and 1arious to2ns and 1i##aes, M&I a33roach
fa1orab#e 1i##aes. / +hen M&I 1isits the 1i##ae *tries to ather
first hand information about the 3o3u#ation !i##ae A33raisa# of that
1i##ae, their re#iion, cast, ty3e of trades, ski##s, financia#
states, their needs. / "onducts a sur1ey to e1a#uate 3otentia#ity
for the o3erations in the 1i##ae, some key Se#ection of !i##ae
3arameters are tota# 3o3u#ation, 3o1erty #e1e#, accessibi#ity,
3o#itica# stabi#ity * safety. / After se#ection of 1i##ae,
interested 2omen form se#f se#ected four to si, member Grou3
&ormation rou3s to ser1e as uarantors for each other. +his 3rocess
is ca##ed Grou3 &ormation. / 0hen formed rou3 meets the minimum
reIuirements, it beins "om3u#sory Grou3 +rainin of +rainin 3roram
desined to educate c#ients on the 3rocesses and 3rocedures of
Borro2ers microfinance #oans and bui#d a cu#ture of credit
disci3#ine. Scrutiny and / "ustomer detai#s, their business and
their earnin ca3acity are scrutiniFed and 4uded (nder2ritin to
access re3ayin ca3acity. &inancia# / "o##ection meetins are he#d
on a 2eek#y-month#y basis by &ie#d Assistants to conduct +ransactions
a## financia# transactions. In addition, c#ients use the 2eek#y
meetins to discuss ne2 #oan a33#ications, #oan uti#iFation and
community issues. 6ear Mandatory / Insurance 3roducts are so#d to
co1er death, accident or hea#th of rou3 member, Insurance memberGs
s3ouse and-or chi#dren.
.?. Business Strateies of Microfinance Institutions Business
Strateies of Pri1ate Banks-"ommercia# Banks Gro2th 'ri1ers for
Sector B(SI65SS S+%A+5GD
.1. Business Stratey of Microfinance Institutions Socia# Ser1ices
and Initiati1es: Inc#ude +echno#oy: +o In1estment in nutrition,
)e1erain &inance: +he o1ercome its transaction hea#th, education,
and 6G8 #e1eraes #i1e#ihood costs, increase the s3eed 1ocationa#
trainin, in1estments by #inkin of transaction, reduce Aricu#tura#
and Business the rura# 3oor to redundancies and de1e#o3ment ser1ices.
o1ernment 3rorams better contro# and banks. mechanism. 7uman
%esource )earnin Best Practices "a3acity Bui#din: from the Business
2orksho3s, s3ecia# 0or#d: )ike standardiFed 3rorams, trainins and
distribution 3rocess e,3osure 1isits of the used by Mc'ona#d staff
and c#ients. Geora3hica# 5,3ansion Business "om3#ete BouIuet of and
!ertica# 5,3ansion: Increasin the indi1idua# Stratey &inancia#
Ser1ices: #ike Sa1ins, "redit , #oan 3ortfo#io by of M&Is Insurance
for the #i1es 3ro1idin Micro and #i1e#ihoods of the 5nter3rise )oan,
bier 3oor, Infrastructure than H)G #oans. finance
... Business Strateies of Pri1ate Banks-"ommercia# Banks / M&Is
identify, train * 3romote microfinance c#ients. Bank finances
Partnershi3 Mode# c#ients direct#y on the recommendation of the M&I.
"ustomer and 3ortfo#io resides in the bankGs book. / Bank buys out
3ortfo#ios from M&Is. M&I continues to ser1ice the Securitisation of
c#ients and acts as the co##ection aent. M&I shares the credit risk
Portfo#ios of M&Is 2ith the bank. / Ado3tin a M"ore Bankin SystemM
for manain the #oan 3ortfo#io +echno#oy enerated under the
3artnershi3 mode#. "redit to / A 2ho#esa#e #inkae mode# 2hich
im3#ies e,tendin a bu#k #oan to M&Is-6G8s the M&Is for #endin to
3oor 2omen Systems and )oan / Acti1e in1o#1ement in 3ro1idin
mentorin ser1ices to c#ients, Portfo#io 51a#uation inc#udin in the
areas of o1ernance and credit disci3#ine. )iaisons 2ith the /
83eratin di1isions at reiona# and branch #e1e# are in c#ose 6G8s
connection 2ith 6G8s in #oca# area to take the mo1ement ahead. 7ih
transaction cost, 3oor reach and una1ai#abi#ity Iua#ity man3o2er, has
ob#ied Banks to ada3t 1arious a33roaches throuh Microfinance to
fu#fi## 3riority sector #endin norms
.=. Gro2th 'ri1ers for Sector / )ack of #endin from Banks due to
#ack of co##atera# and e,3#oitation from 6eed for "redit by money
#enders has e,em3#ified the 3otentia# demand for microfinance
(n3ri1i#eed "#ass ser1ices and the ro2th 3ros3ects of the industry.
/ +hese inc#ude commercia# debt and eIuity, form of rants and
donations Increase in the and P5 inc#udin !" fundin. +his has
chaned ca3ita# structure of this sources of finance industry for
better / Inno1ation in di1ersifyin #ender base, conso#idatin
interna# contro# systems Inno1ation and strenthen 3o#icies on human
resources, disc#osure, and oranisationa# 3rocesses. Go1ernment
Po#icy / Microfinance Bi## * 3ro3osed reu#ator 6ABA%' 2i## reu#ate
* 3romote and Su33ort ro2th of this sector in #ine 2ith im3ortance
attached by o1ernment to this sector. "onso#idation in the /
Increase in the number of 3artners in the commercia# s3ace 2i##
enab#e Industry them to introduce ne2 3roducts in insurance,
remittance etc. Gro2in Miration / 7iher a1erae #oan siFe and
reater use of techno#oy such as smart cards and (rbaniFation and
3oint$of$sa#e de1ices 2ith 2ire#ess connecti1ity. in the urban areas
2i## increase urban micro$financin. 7uman %esource / Microfinance
is attractin hih Iua#ity, ta#ented manaers. Peo3#e 2ith ski##s
"a3acities in s3ecia#iFed 7% needs such as #oca# recruitments and
cu#tura# and #inuistic interationA StandardiFin the o3eratin
3rocess and systems
.J. 7ih +ransaction and Ser1ice "ost "redit %isk 8ther %isks K5D
"7A))56G5S
.9. 7ih +ransaction and Ser1ice "ost %easons / A1erae
microfinance #oan siFe is sma##, hence the transaction cost on a
3ercentae basis for a microfinance #oan is hiher. / )endin #are
siFe #oan may reIuire e1a#uatin the c#ient, aain increasin cost
+he most 3o3u#ar form of #endin in / !ery hih o3erationa# costs,
es3ecia##y at India is H)G mode# 2hich incurs #oan oriination *
durin monitorin is 3ecu#iar costs such as rou3 formation because
of doorste3 ser1ice and #itt#e or no costs, cost of trainin the
borro2ers de3#oyment of techno#oy so#utions. 2ith res3ect to the
3rocedures to be / Intense monitorin and re3eated fo##o2ed, hiher
deree of interaction. su3er1ision, as 2e## as hiher / Increased
com3etition 2i## #ead to better freIuency of insta##ment 3ayments.
Iua#ity in ser1ices, #o2er #oan siFes, #o2er M&Is face the cha##ene
of findin rate of interests, di1ersification of 3roducts and use of
techno#oy as 2e## to reduce the 2ays to reduce #endin costs.
transaction cost and cost of #endin. +echno#oy inno1ation, im3ro1ed
rura# infrastructure, borro2er education and urban microfinance are
fe2 2ays to mitiate hih transaction cost
.@. "redit %isk Irreu#ar &#o2 of / Seasona#ity of aricu#tura#
acti1ities * uniIue reIuirements of Income due to financin such
acti1ities (3ayback of #oans can on#y take 3#ace Seasona#ity after
3roduction) / +raditiona# farmin 3ractices, hea1y de3endence on
monsoon, 7ih 'e3endence on hea1y de3endence on the seasona# income,
makin it difficu#t to Monsoon assess borro2erGs re3ayment ca3acity.
(ncertainty of / %isk arises because of the nature of uncertainty
in1o#1ed 2ith Market "onditions aricu#tura# out3ut L in terms of
yie#d and 3rice. )ack of Ski##s #eadin / 'ue to #ack of 3ro3er
education and 1ocationa# ski##s, their to (n$em3#oyabi#ity
em3#oyabi#ity in non$farmin 4obs is 1ery #o2. )ack of +anib#e /
Absence of #and deed, no records #ike I+ returns irreu#ar f#o2 of
Proof for Assessment income due to seasona#ity constitutes #ack of
tanib#e income of Income 3roof. 6eed for Information / Ad1erse
se#ection, o1er$indebtedness of c#ients and mora# haFard Sharin *
Better due to )ack of information about credit$2orthiness of
3otentia# +echno#oy c#ients.
.B. 8ther %isks 83erationa# %isk / InadeIuate or fai#ed interna#
3rocess due to 3eo3#e, system or e,terna# e1ents. / %ura# 3eo3#e do
not ha1e credit history backround. Business Promotion / M&Is need
ski##s in business manaement, such as marketin , finance and 7%. /
'e#i1ery of these ski##s is 3endin issue for most of them )iteracy *
Ski## )e1e#s of "#iente#e / )o2 #e1e#s of #iteracy, re#ati1e#y
undi1ersified economies, hih de3endence on aricu#ture / %ura#
economic acti1ities ha1e #o2 3rofitabi#ity and 3rone to hih risk
'i1ersion of &unds to (n3roducti1e Acti1ities / (se of #oans for
un3roducti1e acti1ities instead of 3ur3ose stated to the #ender / It
is 1ery difficu#t to assess 2here he-she is oin to uti#iFe the
money. %eu#atory Issues / Sti## unreu#ated and not su3er1ised by
any dedicated body. / M&Is are ro2in fast * they reIuire
reu#atory authority to faci#itate the ro2th.
.E. %eu#ations and Po#icies 83erationa# Im3ro1ement
%5"8MM56'A+I86S
.>. %eu#ations and Po#icies / 'efinition of M&I: 5ncom3ass and
a##o2 M&Is to ser1e 3oor not on#y as #ender but as fu## financia#
ser1ice 3ro1ider 2ithout increasin risk for 3oor customer and M&I
itse#f. / %econition of M&I as s3ecia#iFed acti1ity on 3ar 2ith
#easin or housin finance and creation of a s3ecia#iFed cateory of
6B&" NAmendment to the %BI ActO / 5asin of entry norms for P#oans
on#y com3aniesQ. As these com3anies 2i## not acce3t sa1ins or offer
financia# ser1ices, they carry #ess risk of defau#t (6eed a %BI
notification) / Mechanism to raduate to Microcredit R Ser1ice by
a##o2 for #imited and #addered 3ro1isions for stron com3anies to
mor3h into bank. (Ma4or 3o#icy * #ea# chane) / 5nsure that
commercia# acti1ities #ike microfinance are carried out in commercia#
forms of oraniFations 2hen they reach sca#e. +rusts-Societies are
not desined to do so. / M&I can be best reu#ated on P(suriousQ
interest and ethica# 3ractices by un#eashin co$ o3erati1e and the
bankin sector to 3ro1ide effecti1e com3etition. / State shou#d not
interfere in the commerce of the sector by offerin )oan 2ai1ers or
bad 3o#icy inter1entions #ike Interest rate ca3s (e1en informa#
ca3s).
=?. 83erationa# Im3ro1ement &ocus on (rban Microfinance %ura#
Infrastructure / 7ih customer density #eads to decrease / 8ffer
financia# ser1ices 2ith a su3erior transaction cost. desin and
con1enience to the c#ient. / Increased reach 2ith cost s3read and
ra3id / "onnecti1ity at the 1i##ae #e1e# enab#in ro2th A+Ms and
other 3ayment de1ices. (niIue identifier "redit Bureau / Basis for
initiati1es #ike credit history / "redit information trackin and
sharin trackin and taretin for ser1ices such as enab#es #enders
to 3ro1ide incenti1es to hea#th insurance those 2ith ood credit
history and / Best done by the Go1ernment or aencies 3ro1ides a
stron deterrent to 2i##fu# such as 6(IA. defau#t. Information
Sharin +echno#oica# inno1ations / Inde3endent ser1ice 3ro1ider
2i## take care / As smart cards, biometric I's, and rura# of M&I
a33rehensions on borro2er info$ kiosks sharin / 7e#3 in reducin
the transaction costs and / It reIuires ski##ed 3ersonne#A
techno#oica# ra3id ro2th. ad1ancements.
=1. &uture Gro2th 8ut#ook 5ntry of 6e2 P#ayers Sustainabi#ity of
Microfinance %o#e of Pri1ate Sector In1estment &(+(%5 8(+)88K
=.. &uture Gro2th 8ut#ook SiFe and Gro2th: / "urrent#y G#oba#
microfinance sector has estimated #oan 3ortfo#io of (S<.9 bi##ions.
/ It is ab#e to ser1e on#y fraction (S1?? mi##ion) of the 3otentia#
1 bi##ion micro borro2ers in .??B. / 0ithin ne,t J years )oan siFe
in Indian market is e,3ected to ro2 to a siFe of about %s.9? bi##ion
from the current market siFe of %s.B bi##ion at a com3ounded annua#
ro2th rate of B@K and to J??$mi##ion c#ient base as aainst current
19 mi##ion. / Greater deree of ca3ita# market in1o#1ement /
&a1orab#e attitude from Go1ernment of India and %BI Sca#abi#ity of
Microfinance in &uture / Inf#e,ib#e #oan 3roducts and una1ai#abi#ity
of sa1ins and insurance ser1ices due to reu#atory barriers are bi
hindrance for ro2th. / Insufficient data e,ists on c#ient$#e1e#
im3act, thouh ne2 too#s such as the Po1erty Proress Inde, of
Grameen &oundation and the 2ork of Sa$'han (Indian M&Is Association)
on measurin c#ient satisfaction are addressin this a3. / +he
market, and not the state, shou#d decide interest rates. / 5nsure
trans3arency and fu## disc#osure of rates inc#udin fees / 6e2
+echno#oies
==. 5ntry of 6e2 P#ayers 6e2 P#ayer / 6e2 3#ayers may o3t for
rou3 or indi1idua# #endin, 1i##ae bankin or any other form of
#endin that they find suitab#e. / +heir 3artici3ation 2i## de3end
on their ca3acity and commitment, #eadershi3, enab#in en1ironment,
and access to financia# ca3ita#. 6on$Go1ernmenta# 8raniFations /
More 6G8s are e,3ected to incor3orate microfinance as one of their
3rorams. / Internationa# 6G8s and aencies 2i## de1e#o3
microfinance 3rorams in areas 2here microfinancin is not a fami#iar
conce3t in reducin 3o1erty. / "ommunity$based oraniFations may et
in1o#1ed in microfinance ser1ices. Go1ernment "hanne#s / Go1ernment
channe#s at the rassroots #e1e# may be used to ser1e the 3oor 2ith
microfinance 2here there are no microfinance institutions, the /
Posta# sa1ins banks may 3artici3ate more 1iorous#y not on#y in
mobi#iFin de3osits but a#so in 3ro1idin #oans to the 3oor and on$
#endin funds to the M&Is. &orma# &inance Sector /
"oo3erati1es-"redit (nions may be more acti1e in 3ro1idin financia#
ser1ices to the 3oor. / More commercia# banks may 3artici3ate both
in microfinance 2ho#esa#e and retai#in. +hey may ha1e se3arate staff
and 2indo2s to ser1e the 3oor.
=J. Sustainabi#ity of Microfinance "onduci1e Po#icy %eform
5n1ironment / Interest rate reforms for microcredit and sa1ins /
&#e,ib#e 5n1ironment to accommodate a 2ide array of microfinance
ser1ice 3ro1iders to meet di1erse demand / %edefinin the ro#e of
the state in microfinance de1e#o3ment to faci#itate the 3artici3ation
of 3ri1ate sector / 6on$financia# 3o#icies #ike aricu#tura# 3ricin
and ta,ation of micro$enter3rises 'e1e#o3in !iab#e Microfinance
Institutions / 82nershi3 and o1ernance, Manaement information
systems and accountin 3o#icies and 3ractices / 'i1ersified 3roducts
and ser1ices / Manaement of 3ortfo#io Iua#ity and ro2th /
Systems, 3rocedures and financia# techno#oy for reducin transaction
costs and +rainin faci#ities Socia# Intermediation / A2areness$
bui#din 3rorams on a broad rane of microfinance ser1icesA /
Information dissemination amon ser1ice 3ro1iders / Basic #iteracy,
numeracy and ski##s trainin for 2omen, ethnic minorities and other
disad1antaed rou3s / Socia# mobi#iFation for the formation of
community$based oraniFations and so#idarity rou3s
=9. %o#e of Pri1ate Sector In1estment M&I fundin a3 in India /
&undin a3 for microfinance in India is hue. It simi#ar to #oba#
#e1e#s. / An increasin in1o#1ement of 3ri1ate sector in1estors is
therefore a key medium$ term 3riority to sca#e u3 microfinance. /
+ota# forein M&I fundin of both I&Is and 3ri1ate sector in1estors
is e,3ected to increase to (S<.9 bi##ion by .?19, I&I accountin for
(S<9 bi##ion or .?K of tota#. +he main dri1ers of in1estment /
Increasin institutiona# and retai# in1estor demand / %eu#atory
chanes * enhanced ca3abi#ity of M&Is to absorb commercia# fundin.
"ore assum3tions under#inin the forecast / Increased attracti1eness
for Pri1ate In1estor to M&S, either due to the dua# nature of
microfinance or so#e#y their attracti1e risk$return 3rofi#e /
"ontinued shar3 rise in socia##y res3onsib#e in1estments 3ro1idin
e,tra ro2th im3etus. / "hanes in the reu#atory frame2ork 2i##
increasin#y attract retai# in1estors / Increased number of 4oint
in1estment acti1ities of 3ub#ic and 3ri1ate in1estors, 2ith 3ub#ic
in1estments idea##y actin as mu#ti3#ier for 3ri1ate sector
in1estments / (se of structured debt instruments 2i## a##o2
in1o#1ement of risk$a1erse commercia# in1estors / Increased
attracti1eness to institutiona# in1estors such as 3ension funds,
insurance com3anies or trusts as su33#ement to their 3ortfo#ios
=@. %easons for &ai#ure to fu#fi## the desired ob4ecti1e (rban
Microfinance %atin of Microfinance Institutions SP5"IA) ISS(5S
=B. %easons for &ai#ure to fu#fi## the desired ob4ecti1e
A1ai#abi#ity of #ess risky and more re2ardin customers / M&Is are
fundin ha2kers and traders branded as 3oor in urban and semi$urban
and e1en in 1i##aes as 3ayin ca3acity of these customer is ood /
&armers are a1oided due to seasona# and un3redictab#e income source.
833ortunity to become intermediaries of commercia# banks / Banks
a1oid such #endin but are under com3u#sion of o1ernments and
reu#ators to shore u3 mandatory reIuirement 3ercentaes . / &orein
banks 3ro1ide faci#ities to securitiFe these #oans 2ith some
discounts to ease the burden of statutory as 2e## as cor3orate socia#
res3onsibi#ity. Pro1idin short term #oans based on cash tradin
transactions / +hese transactions enera##y et 3aid and hence no
defau#t or #east number of defau#t arisesA / Such short term
transactions he#3 creation of rou3 #endin and rou3 uarantee both
informa##y and forma##y 2ithout much 3ersuasion. %esistant to #oan
&armers / &armin is not yet become 1iab#e due to de3endence on
monsoon, inadeIuate irriation faci#ities and #ack of moderniFin
farmin / )ack of kno2#ede of shift in techno#oy in cro33in
3attern and irriation as 2e## as soi# maintenance and de1e#o3ment.
0ron M&I assessment too#s / M&Is are sti## assessed on the basis of
their co1erae, 3rofitabi#ity and hih #e1e# of re3ayment inde, /
+hey shou#d be assessed on success in achie1in their 3rimary oa#s
3o1erty a##e1iations and inc#usi1e ro2th.
=E. (rban Microfinance / 7ih 3ro3ortion of 2ae earner amon
urban 3oor / A1erae fami#y siFe is 9 2ith a month#y e,3enditure of
%s9???. / @BK of the househo#d #i1e in their o2n house and .>K in
the house they rent. "#ients / =1K of the househo#d run at #east one
business. / @>K of the househo#ds ha1e at #east one outstandin
#oan. / )oans are taken from money#enders (J>K), fami#y members
(1=K), and friends or neihbors (.EK). %are#y commercia# source /
Tuicker sca#e u3 and Tuicker breake1en / 7iher #oan siFes -
enter3rise #oans / Indi1idua# #endin 3ossib#e in urban areas
833ortunities / +echno#oy can be better harnessed to 3ro1ide
financia# ser1ices / Greater economic o33ortunities - markets /
Microfinance has a ro#e to 3#ay in a##e1iatin the housin shortaes
that create s#ums in the first 3#ace. / 6o dedicated fund for
ca3acity bui#din, technica# assistance to su33ort ro2th of urban
microfinance / 'oes not ha1e 6ABA%', as it is readi#y a1ai#ab#e for
rura# microfinance. "ha##enes / Poor in the urban ha1e access to
sa1ins but they do not ha1e access to #oans. / 8n#y bi M&Is can
bein o3eration as #oan siFe * start u3 cost 2i## be hiher in cities
/ 7ih#y com3etiti1e because of the 3resence of the financia# ma4or
3#ayers
=>. %atin of Microfinance Institutions 6eed for %atin / 5nab#e
its c#ients to set 3rofessiona# benchmarks and standards / 5,terna#
commercia# fundin #ike P5, !", securitiFation and IP8 / 'esin
3rorams that he#3s dee3en the rura# financia# markets Micro$"redit
%atins Internationa# )td. (M$"%I)) / S3ecia#iFed ratin and
microfinance research aency that has 3ioneered and successfu##y
introduced the ratin of Microfinance Institutions (M&Is) in Asia. /
M$"%I) undertakes ratins on credit2orthiness and oraniFationa#
assessments)and a#so 3ro3rietary sectora# research Indicators for
ratin / Go1ernance and stratey: +he assessment de3ends on the
Iua#ity and a33ro3riateness of the board com3osition, its ro#e and
o1era## oraniFationa# stratey. / Manaement systems: are rated on
the Iua#ity of human resources, the strenth of critica# systems #ike
accountin and manaement information, staff 3roducti1ity and
ensurin com3#iance / &inancia# 3erformance: e1a#uation reIuires the
ratin team to construct financia# statements, based on
internationa##y acce3ted 3rudentia# norms, to 3resent a fair 3icture
of the o3erations. / M&Is financia# strenth based on as3ects #ike
re3ayment 3erformance, asset Iua#ity, #iIuidity, Asset )iabi#ity
Manaement (A)M) and 3rofitabi#ity.
J?. Abbre1iations %eferences A665U(%5
J1. Abbre1iations Abbre1iation Meanin M&I Microfinance
Institutions 6G8 6on$Go1ernmenta# 8ranisation S7G Sma## 7e#3 Grou3
6ABA%' 6ationa# Bank for Aricu#ture and %ura# 'e1e#o3ment SI'BI
Sma## Industria# 'e1e#o3ment Bank of India A'B Asian 'e1e#o3ment Bank
%BI %eser1e Bank of India PS( Pub#ic Sector (nit 6B&" 6on$Bankin
&inancia# "om3any H)G Hoint )iabi#ity Grou3 P5 Pri1ate 5Iuity !"
!enture "a3ita# I+ Income +a,
J.. %eferences (1-9) / AB6 AM%8 (.??B). Presentation reardin
"ommunity 5naement and Microfinance Initiati1es in India, he#d on
@th of Hu#y, .??B, Amsterdam. / A##ianF AG. (Auust .??@).
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I"I"I Bank 3artnershi3 mode#. Sma## 5nter3rise 'e1e#o3ment. !o#. 1@,
33. 9B$@9. 0ar2ickshire: Practica# Action Pub#ishin. / B %
Bhattachar4ee, S. S. (.??J). 5merin Scenarios for Microfinance
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JB. +hank Dou
1. Microfinance An Introduction Kabare Piyush Madhukar M.B.B.S
(Mumbai), PGPM (Indian Institute of Manaement, Indore) Assistant
Manaer, !idarbha "#uster In$"hare Microfinance, %&'$%&( )*+ &inance
)imited
2. Inde, (1-.) Introduction / 0hat is Microfinance / 'efinition
Industry Pre1ie2 / G#oba# 'e1e#o3ments in Microfinance / Ma4or
"hanes in Microfinance Scenario in South 5ast Asia / 'e1e#o3ments
in Microfinance in India / Pi##ars of Microfinance in India
Microfinance Industry Structure / %o#e of %BI ("entra# Bank) and
6ABA%' (%eu#ator) / Ma4or P#ayers in the Industry / &inancin
Mode# ada3ted by Banks in Microfinance Industry / Microfinance
'e#i1ery Mode# Microfinance )endin Process / "#ient "haracteristic
Microfinance Ser1ices / )endin Process in Microfinance Business
Stratey / Business Strateies of Microfinance Institutions /
Business Strateies of Pri1ate Banks-"ommercia# Banks / Gro2th
'ri1ers for Sector
3. Inde, (.-.) Key "ha##enes / 7ih +ransaction and Ser1ice "ost
/ "redit %isk / 8ther %isks %ecommendations / %eu#ations and
Po#icies / 83erationa# Im3ro1ement &uture 8ut#ook / &uture Gro2th
8ut#ook / 5ntry of 6e2 P#ayers / Sustainabi#ity of Microfinance /
%o#e of Pri1ate Sector In1estment S3ecia# Issues / %easons for
&ai#ure to fu#fi## the desired ob4ecti1e / (rban Microfinance /
%atin of Microfinance Institutions Anne,ure / Abbre1iations /
%eferences
4. 0hat is Microfinance 'efinition I6+%8'("+I86
9. Introduction: 0hat is Microfinance; +he scenario of su33#y of
forma# financia# Access to financia# ser1ices are ser1ices 2ithin
India constraint for the 3oor and not interest rates. +he 3oor can
sa1e and can indeed use a An estimated demand for credit ranin from
2ide rane of financia# ser1ices. <= to <> bi##ion annua##y +he
forma# sector is bare#y ab#e to 3ro1ide <.?? to <=?? mi##ion, Poor
3eo3#e use not on#y credit but a#so sa1in ser1ice, insurance and
affordab#e remittance systems to manae assets, enerate income and
im3ro1e their A tota# of o1er @??,??? 1i##aes #i1es. Bare#y =?,???
bank branches &or most of us, microfinance means 3ro1idin 1ery 3oor
fami#ies 2ith 1ery !arious Insurance, In1estment and Sa1in sma##
#oans (micro$credit) to he#3 them Products for Poor section enae in
3roducti1e acti1ities Basic financia# ser1ices remain out of reach.
Microfinance is an co##ecti1e term used for financia# intermediation
ser1ices to #o2 income rou3 and 3oor customers. Ser1ices offered are
"redit faci#ity, Sa1in accounts, Money transfers, %emittances,
Insurance and e1en In1estment.
@. 'efinition Microfinance refers to sma##$sca#e financia#
ser1ices inc#udin both credits and de3osits 3ro1ided to 3eo3#e 2ho
farm or fish or herdA o3erate sma## or microenter3rises 2here oods
are 3roduced, recyc#ed, re3aired, or tradedA 3ro1ide ser1icesA 2ork
for 2aes or commissionsA ain income from rentin out sma## amounts
of #and, 1ehic#es, draft anima#s, or machinery and too#sA in both
rura# and urban areas. Key &eatures of Microfinance "ost Grou3 Prefer
'o not Prefer Sma## )end to the co1erin a33raisa# 2omen take sa1in
o1er short$term 3oor interest and customers Security borro2in #oans
rates uarantee o1er men Microfinance means the 3ro1ision of bankin
ser1ices to #o2er$income 3eo3#e, es3ecia##y the 3oor and the 1ery
3oor.
B. 'e1e#o3ments in Microfinance C G#oba# 'e1e#o3ments in
Microfinance C South 5ast Asia 'e1e#o3ments in Microfinance C India
Pi##ars of Microfinance in India I6'(S+%D P%5!I50
E. 'e1e#o3ments in Microfinance C G#oba# +he Grameen Bank has
Since 1>B@, the Grameen been du3#icated in Bo#i1ia, Bank has ro2n to
inc#ude "hi#e, "hina, 5thio3ia, Microfinance has s3read more than 9.9
mi##ion 7onduras, India, Ma#aysia, to co1er fi1e continents members
2ith more than Ma#i, Phi#i33ines, Sri and numerous countries. (S<9..
bi##ion in disbursed )anka, +anFania, +hai#and, #oans. (nited States,
and !ietnam. M&Is ha1e become more As M&Is became better Microfinance
Institutions efficientA increased their 1ersed in the (M&Is) ha1e
a#so beun to c#ient base and e,3andin microfinance markets, seek
out 3ub#ic and their ser1ices throuh they a33#ied their
internationa# financin, different 3roduct such as inno1ations in a##
increasin their 2orkin micro$sa1ins, f#e,ib#e 3rocesses from
#endin to ca3ita# and e,3andin the #oan re3ayment, and the
co##ection of de3osits. sco3e of their o3erations. insurance. 8n an
o1era## 3ers3ecti1e Microfinance has immense 3otentia#ity 2ith three
bi##ion 3eo3#e i.e. ha#f the 2or#dGs 3o3u#ation #i1in #ess than
(S<. 3er day, unab#e to meet their basic human needs
>. 'e1e#o3ments in Microfinance C South 5ast Asia Grameen Bank
discarded H)G mode# of Micro$credit / +he ne2 a33roach that is
Grameen II in 2hich a## sa1ins are on an indi1idua# basis and there
is no rou3 #iabi#ity, offers f#e,ib#e #oan arranements for terms of
= months to = years and 1ariab#e re3ayment schedu#es to a1oid
seasona# difficu#ties. +he e,3ansion of sco3e of ser1ices beyond
credit. / Ser1ices offered are "redit faci#ity, Sa1in accounts,
Money transfers, %emittances, Insurance and e1en In1estment. +he
emerence of 3rofit$makin Microfinance Institution (M&Is). /
"urrent#y, 3rofitab#e M&IGs are 3resent in most countries re3ortin
hue returns on assets (%8As) and returns on eIuity (%85s) in
com3arison to con1entiona# bankin institutions. / +he M&Is in South
Asia ha1e reached 3rofitabi#ity throuh cost efficiency 2hi#e those
in 5ast Asia seem to ha1e re#ied more on re#ati1e#y hih interest
rates. 5merence of "ommercia# Microfinance / Sma## core rou3 of
hih#y commercia# and 3rofessiona#, market$oriented institutions ha1e
emered but not yet become fu##y interated into the broader
mainstream commercia# financia# systems. South Asia has a#so
distinuished itse#f by forin successfu# 3artnershi3s for
microfinance bet2een o1ernments, 6G8s, ci1i# society, 3ri1ate
sector, and communities.
1?. 'e1e#o3ments in Microfinance C India Micro finance in India
has started to e1o#1e in ear#y 1>E?Gs 2ith an effort of formin
informa# Sma## 7e#3 Grou3 (S7G) to 3ro1ide access of financia#
ser1ices to needy. India is .nd most 3o3u#ous country behind "hina
2ith a #are number of un$financed 3oor 3eo3#e $ Main c#ients for
M&Is M&Is are estimated to ha1e B.>J mi##ion borro2ers as of March
.??E 2ith "AG% of EE.J.K o1er the #ast fi1e years and cumu#ati1e
outstandin #oan 3ortfo#io of (S<E.J mi##ion. S7G has #oan
outstandin of (S<=9@.J9 mi##ion as of March .??E. It sho2s a "AG%
ro2th of BE..1K from &D?=$ &D?E. M&Is are increasin their share in
Indian microfinance su33#y as of com3arison to S7Gs 2here their share
has one do2n to 9=K in March .??E, from B.K in the year March .??=.
6ationa# Bank for Aricu#ture and %ura# +he strenth of microfinance
sector #ies in the 'e1e#o3ment (6ABA%') and Sma## Industries
di1ersity of mode#s, it has ado3ted inc#udin 'e1e#o3ment Bank of
India (SI'BI) are de1otin home ro2n mode#s #ike M&I and S7G to
other their financia# resources and time to2ards the #earnt mode#s
from 1arious countries #ike de1e#o3ment of microfinance. Ban#adesh,
+hai#and and Bu#aria.
11. Pi##ars of Microfinance in India 6iche$Market / Such as
S3andana, S7A%5 Microfin )td, and SKS Microfinance ha1e a#so M&Is in
India sca#ed u3 their micro$credit outreach dramatica##y in recent
years. / 5,3andin its financia# ser1ices to 3oor househo#ds throuh
a mu#ti$ Pri1ate Bank #ike I"I"I Bank 3roned a33roachL'irect#y
3ro1idin credit faci#ities to S7G, and Pro1idin 2ho#esa#e credit
faci#ities to microfinance 6G8s and 6B&"s. State 82ned- / +he
Syndicate Bank, Andhra Bank, "anara Bank, and Indian Bank, ha1e
"ommercia# Banks entered this market. / +hrouh its Microfinance
'e1e#o3ment Stratey, aims to ensure A'B 3ermanent access to
institutiona# financia# ser1ices for the reionMs 3oor 3eo3#e and
their sma## businesses. / Started to eye the #o2$3rofi#e M&Is, as
they foresee hue 3otentia#ity in Pri1ate 5Iuity &irms terms of
returns from this sector. e.. HM &inancia# ha1e in1estments from 8#d
)ane Partners and 'e#hi based )ok "a3ita# / 6ABA%' and SI'BI are
3erformin reu#atory and 3romotiona# ro#e, 6ABA%' * SI'BI 3ro1idin
financia# resources as credit * eIuity and enhancin techno#oy kno2$
ho2 of M&Is
1.. %o#e of %BI ("entra# Bank) and 6ABA%' (%eu#ator) Ma4or
P#ayers in the Industry &inancin Mode# ada3ted by Banks in
Microfinance Industry Microfinance 'e#i1ery Mode# MI"%8&I6A6"5
I6'(S+%D S+%("+(%5
1=. %o#e of %BI ("entra# Bank) and 6ABA%' (%eu#ator) / Su33ort
financia# #ibera#iFation * create conditions sustainab#e for Sector
%o#e of %BI / Prudentia# reu#ation and su3er1ision ("entra# /
Su33ortin the 3i#ot 3ro4ects of microfinance Banks) / "o##ectin
data and 3ub#ication / +rainin and ad1ocacy / &ramin 3o#icy and
uide#ines for rura# financia# institutions %o#e of +he / Pro1idin
credit faci#ities to issuin oraniFations 6ABA%' / Pre3aration of
3otentia#$#inked credit 3#ans annua##y for a## districts for
(%eu#ator) identification of credit 3otentia# / Monitorin the f#o2
of round #e1e# rura# credit 'i1ision of %es3onsibi#ity in
Microfinance 6ABA%' SI'BI 81ersees the #inkin 3roramme of banks to
)ends to M&Is throuh SI'BI &oundation for S7Gs and offers refinance
for it micro$credit.
1J. Ma4or P#ayers in the %ura# &inance Market Pub#ic Sector Banks
%eiona# Pri1ate Banks %ura# Banks Pri1ate &undin %ura# Schedu#e
"ommercia# Institution Banks Market P#ayers "oo3erati1e 6G8 Banks
M&Is S7G
19. Microfinance 'e#i1ery Mode# Se#f 7e#3 Grou3s M&I-Grameen )ea#
&orms of M&Is / 7ome ro2n, co$ %e3#ica / 6G8 M&Is (Societies
o3erati1e / Grou3 )endin and %eistration Act, 1E@? or / Sa1ins
based - #ed %eimented Pro1incia# Acts and-or / Meetin di1erse
needs / &ocused on se#f$ Indian +rust Act, 1EE.) / Promoted by
6ABA%', sufficiency / 6on$3rofit "om3anies PS( Banks, 6G8s / 6G8$
M&I and 6B&"$ (Section .9 of the / Performance Cmi,ed M&I "om3anies
Act, 1>9@) / Pace of ro2th $ cause / &inancia# "or3orations $ for
concern S3ecia#iFed entities focusin on s3ecific sements #ike
S"-S+, Minorities Grameen II 0ho#esome / Mutua##y Aided "redit
Society (MA"S) $ / Indi1idua# #endin Microfinance community o2ned *
$ / 6B&"$M&I Ser1ices 3o3u#ar in Andhra Pradesh / "oo3erati1e M&Is
/ Proressi1e )oan / %eu#ation ("oo3erati1e Societies Acts focused
on / S3ecia#iFed acti1ities of the State * "entra# enter3rise /
"ost is ma4or factor Go1ernments) / &uture of / 'istant dream /
6on$Bankin &inancia# Microfinance "om3anies (6B&"s) (Indian
"om3anies Act, 1>9@, %BI Act, 1>=J)
1@. &inancin Mode# ada3ted by Banks in Microfinance Industry Bank
"#ient "redit 6G8 (&aci#itator) Promotion * +rainin S7G "#ient
Member 'irect &inancin Mode# S7G$Bank )inkae Mode# / Most M&Is use
rou3s as intermediaries / 6G8 to act as faci#itator-financia# for
financia# transactions, but there are intermediaries bet2een bank and
S7G to different 2ays of 2orkin 2ith rou3s. initiate micro sa1ins
throuh an account / +he 6G8 3romotes, im3arts trainin, / +he
intermediation cost cou#d be around forms rou3s and a#so i1es
credit to @K of the #oan amount. them. / %isk #ies 2ith the banks as
ad1ances to / (nder this mode# either S7Gs are formed the S7Gs are
ref#ected in bank 3ortfo#ios. by banks or by 6G8s and forma# aencies
/ Banks bear risk as it in1o#1e a #ot of but are financed by banks.
transaction costs.
1B. "#ient "haracteristic Microfinance Ser1ices )endin Process in
Micro$&inance MI"%8&I6A6"5 )56'I6G P%8"5SS
1E. "#ient "haracteristic Microfinance Ser1ices Acti1ity %o5 %oI"
6et Annua# "#assification of Acti1ities $ %eturn in (S< Micro$credit
)oan +rade !eetab#e !endin 9? 9B 1J= +rade Production )i1e Stock
Genera# Store 1J .> 1JJ Ser1ice Aricu#ture 8ther S2eet Makin Sho3
1J9 1JB 1?1? Ice "ream Makin 1= .> =?9 =K @K Aricu#ture )easin
mano trees 1EJ 1E9 911 ==K )easin irriated farm #and 1@? 1@1 @@B
.9K Ser1ices 83eratin a &#our Mi## 9. 9> J?> +ai#orin 1.1 1.= =?B
1?K .=K %oadside Micro$diner .J9 .J@ 19.E )i1estock Goat rearin 9E
@9 J? Buffa#o rearin @> BJ .J@ Production Pottery .=9 .=@ 9.?
Microfinance c#ients are 3oor 2ith Acti1ities in rura# areas are
farmin, food 3rocessin, 3etty trade, re#ati1e#y stab#e source of
income. #i1estock, 1endin, and 3roduction #ike basket 2ea1in.
"#ients of microfinance are e,c#uded by Acti1ities in urban areas are
sho3s, ser1ices, artisans, street forma# financia# institutions.
1endors * ne2 ae businesses (beauty 3ar#or to 3hotora3hy). 0omen
make u3 the 1ast ma4ority of Ma4ority of the 3o3u#ation borro2 for
tradin, 2orkin ca3ita# borro2ers, es3ecia##y in Asia (>>K).
reIuirements for e,istin business or for settin u3 ne2 one.
1>. )endin Process in Micro$&inance Geo$5conomic / Based on the
eo$economic information about his reion (ty3ica##y a district or
Sur1ey of %eion manda#) and 1arious to2ns and 1i##aes, M&I a33roach
fa1orab#e 1i##aes. / +hen M&I 1isits the 1i##ae *tries to ather
first hand information about the 3o3u#ation !i##ae A33raisa# of that
1i##ae, their re#iion, cast, ty3e of trades, ski##s, financia#
states, their needs. / "onducts a sur1ey to e1a#uate 3otentia#ity
for the o3erations in the 1i##ae, some key Se#ection of !i##ae
3arameters are tota# 3o3u#ation, 3o1erty #e1e#, accessibi#ity,
3o#itica# stabi#ity * safety. / After se#ection of 1i##ae,
interested 2omen form se#f se#ected four to si, member Grou3
&ormation rou3s to ser1e as uarantors for each other. +his 3rocess
is ca##ed Grou3 &ormation. / 0hen formed rou3 meets the minimum
reIuirements, it beins "om3u#sory Grou3 +rainin of +rainin 3roram
desined to educate c#ients on the 3rocesses and 3rocedures of
Borro2ers microfinance #oans and bui#d a cu#ture of credit
disci3#ine. Scrutiny and / "ustomer detai#s, their business and
their earnin ca3acity are scrutiniFed and 4uded (nder2ritin to
access re3ayin ca3acity. &inancia# / "o##ection meetins are he#d
on a 2eek#y-month#y basis by &ie#d Assistants to conduct +ransactions
a## financia# transactions. In addition, c#ients use the 2eek#y
meetins to discuss ne2 #oan a33#ications, #oan uti#iFation and
community issues. 6ear Mandatory / Insurance 3roducts are so#d to
co1er death, accident or hea#th of rou3 member, Insurance memberGs
s3ouse and-or chi#dren.
.?. Business Strateies of Microfinance Institutions Business
Strateies of Pri1ate Banks-"ommercia# Banks Gro2th 'ri1ers for
Sector B(SI65SS S+%A+5GD
.1. Business Stratey of Microfinance Institutions Socia# Ser1ices
and Initiati1es: Inc#ude +echno#oy: +o In1estment in nutrition,
)e1erain &inance: +he o1ercome its transaction hea#th, education,
and 6G8 #e1eraes #i1e#ihood costs, increase the s3eed 1ocationa#
trainin, in1estments by #inkin of transaction, reduce Aricu#tura#
and Business the rura# 3oor to redundancies and de1e#o3ment ser1ices.
o1ernment 3rorams better contro# and banks. mechanism. 7uman
%esource )earnin Best Practices "a3acity Bui#din: from the Business
2orksho3s, s3ecia# 0or#d: )ike standardiFed 3rorams, trainins and
distribution 3rocess e,3osure 1isits of the used by Mc'ona#d staff
and c#ients. Geora3hica# 5,3ansion Business "om3#ete BouIuet of and
!ertica# 5,3ansion: Increasin the indi1idua# Stratey &inancia#
Ser1ices: #ike Sa1ins, "redit , #oan 3ortfo#io by of M&Is Insurance
for the #i1es 3ro1idin Micro and #i1e#ihoods of the 5nter3rise )oan,
bier 3oor, Infrastructure than H)G #oans. finance
... Business Strateies of Pri1ate Banks-"ommercia# Banks / M&Is
identify, train * 3romote microfinance c#ients. Bank finances
Partnershi3 Mode# c#ients direct#y on the recommendation of the M&I.
"ustomer and 3ortfo#io resides in the bankGs book. / Bank buys out
3ortfo#ios from M&Is. M&I continues to ser1ice the Securitisation of
c#ients and acts as the co##ection aent. M&I shares the credit risk
Portfo#ios of M&Is 2ith the bank. / Ado3tin a M"ore Bankin SystemM
for manain the #oan 3ortfo#io +echno#oy enerated under the
3artnershi3 mode#. "redit to / A 2ho#esa#e #inkae mode# 2hich
im3#ies e,tendin a bu#k #oan to M&Is-6G8s the M&Is for #endin to
3oor 2omen Systems and )oan / Acti1e in1o#1ement in 3ro1idin
mentorin ser1ices to c#ients, Portfo#io 51a#uation inc#udin in the
areas of o1ernance and credit disci3#ine. )iaisons 2ith the /
83eratin di1isions at reiona# and branch #e1e# are in c#ose 6G8s
connection 2ith 6G8s in #oca# area to take the mo1ement ahead. 7ih
transaction cost, 3oor reach and una1ai#abi#ity Iua#ity man3o2er, has
ob#ied Banks to ada3t 1arious a33roaches throuh Microfinance to
fu#fi## 3riority sector #endin norms
.=. Gro2th 'ri1ers for Sector / )ack of #endin from Banks due to
#ack of co##atera# and e,3#oitation from 6eed for "redit by money
#enders has e,em3#ified the 3otentia# demand for microfinance
(n3ri1i#eed "#ass ser1ices and the ro2th 3ros3ects of the industry.
/ +hese inc#ude commercia# debt and eIuity, form of rants and
donations Increase in the and P5 inc#udin !" fundin. +his has
chaned ca3ita# structure of this sources of finance industry for
better / Inno1ation in di1ersifyin #ender base, conso#idatin
interna# contro# systems Inno1ation and strenthen 3o#icies on human
resources, disc#osure, and oranisationa# 3rocesses. Go1ernment
Po#icy / Microfinance Bi## * 3ro3osed reu#ator 6ABA%' 2i## reu#ate
* 3romote and Su33ort ro2th of this sector in #ine 2ith im3ortance
attached by o1ernment to this sector. "onso#idation in the /
Increase in the number of 3artners in the commercia# s3ace 2i##
enab#e Industry them to introduce ne2 3roducts in insurance,
remittance etc. Gro2in Miration / 7iher a1erae #oan siFe and
reater use of techno#oy such as smart cards and (rbaniFation and
3oint$of$sa#e de1ices 2ith 2ire#ess connecti1ity. in the urban areas
2i## increase urban micro$financin. 7uman %esource / Microfinance
is attractin hih Iua#ity, ta#ented manaers. Peo3#e 2ith ski##s
"a3acities in s3ecia#iFed 7% needs such as #oca# recruitments and
cu#tura# and #inuistic interationA StandardiFin the o3eratin
3rocess and systems
.J. 7ih +ransaction and Ser1ice "ost "redit %isk 8ther %isks K5D
"7A))56G5S
.9. 7ih +ransaction and Ser1ice "ost %easons / A1erae
microfinance #oan siFe is sma##, hence the transaction cost on a
3ercentae basis for a microfinance #oan is hiher. / )endin #are
siFe #oan may reIuire e1a#uatin the c#ient, aain increasin cost
+he most 3o3u#ar form of #endin in / !ery hih o3erationa# costs,
es3ecia##y at India is H)G mode# 2hich incurs #oan oriination *
durin monitorin is 3ecu#iar costs such as rou3 formation because
of doorste3 ser1ice and #itt#e or no costs, cost of trainin the
borro2ers de3#oyment of techno#oy so#utions. 2ith res3ect to the
3rocedures to be / Intense monitorin and re3eated fo##o2ed, hiher
deree of interaction. su3er1ision, as 2e## as hiher / Increased
com3etition 2i## #ead to better freIuency of insta##ment 3ayments.
Iua#ity in ser1ices, #o2er #oan siFes, #o2er M&Is face the cha##ene
of findin rate of interests, di1ersification of 3roducts and use of
techno#oy as 2e## to reduce the 2ays to reduce #endin costs.
transaction cost and cost of #endin. +echno#oy inno1ation, im3ro1ed
rura# infrastructure, borro2er education and urban microfinance are
fe2 2ays to mitiate hih transaction cost
.@. "redit %isk Irreu#ar &#o2 of / Seasona#ity of aricu#tura#
acti1ities * uniIue reIuirements of Income due to financin such
acti1ities (3ayback of #oans can on#y take 3#ace Seasona#ity after
3roduction) / +raditiona# farmin 3ractices, hea1y de3endence on
monsoon, 7ih 'e3endence on hea1y de3endence on the seasona# income,
makin it difficu#t to Monsoon assess borro2erGs re3ayment ca3acity.
(ncertainty of / %isk arises because of the nature of uncertainty
in1o#1ed 2ith Market "onditions aricu#tura# out3ut L in terms of
yie#d and 3rice. )ack of Ski##s #eadin / 'ue to #ack of 3ro3er
education and 1ocationa# ski##s, their to (n$em3#oyabi#ity
em3#oyabi#ity in non$farmin 4obs is 1ery #o2. )ack of +anib#e /
Absence of #and deed, no records #ike I+ returns irreu#ar f#o2 of
Proof for Assessment income due to seasona#ity constitutes #ack of
tanib#e income of Income 3roof. 6eed for Information / Ad1erse
se#ection, o1er$indebtedness of c#ients and mora# haFard Sharin *
Better due to )ack of information about credit$2orthiness of
3otentia# +echno#oy c#ients.
.B. 8ther %isks 83erationa# %isk / InadeIuate or fai#ed interna#
3rocess due to 3eo3#e, system or e,terna# e1ents. / %ura# 3eo3#e do
not ha1e credit history backround. Business Promotion / M&Is need
ski##s in business manaement, such as marketin , finance and 7%. /
'e#i1ery of these ski##s is 3endin issue for most of them )iteracy *
Ski## )e1e#s of "#iente#e / )o2 #e1e#s of #iteracy, re#ati1e#y
undi1ersified economies, hih de3endence on aricu#ture / %ura#
economic acti1ities ha1e #o2 3rofitabi#ity and 3rone to hih risk
'i1ersion of &unds to (n3roducti1e Acti1ities / (se of #oans for
un3roducti1e acti1ities instead of 3ur3ose stated to the #ender / It
is 1ery difficu#t to assess 2here he-she is oin to uti#iFe the
money. %eu#atory Issues / Sti## unreu#ated and not su3er1ised by
any dedicated body. / M&Is are ro2in fast * they reIuire
reu#atory authority to faci#itate the ro2th.
.E. %eu#ations and Po#icies 83erationa# Im3ro1ement
%5"8MM56'A+I86S
.>. %eu#ations and Po#icies / 'efinition of M&I: 5ncom3ass and
a##o2 M&Is to ser1e 3oor not on#y as #ender but as fu## financia#
ser1ice 3ro1ider 2ithout increasin risk for 3oor customer and M&I
itse#f. / %econition of M&I as s3ecia#iFed acti1ity on 3ar 2ith
#easin or housin finance and creation of a s3ecia#iFed cateory of
6B&" NAmendment to the %BI ActO / 5asin of entry norms for P#oans
on#y com3aniesQ. As these com3anies 2i## not acce3t sa1ins or offer
financia# ser1ices, they carry #ess risk of defau#t (6eed a %BI
notification) / Mechanism to raduate to Microcredit R Ser1ice by
a##o2 for #imited and #addered 3ro1isions for stron com3anies to
mor3h into bank. (Ma4or 3o#icy * #ea# chane) / 5nsure that
commercia# acti1ities #ike microfinance are carried out in commercia#
forms of oraniFations 2hen they reach sca#e. +rusts-Societies are
not desined to do so. / M&I can be best reu#ated on P(suriousQ
interest and ethica# 3ractices by un#eashin co$ o3erati1e and the
bankin sector to 3ro1ide effecti1e com3etition. / State shou#d not
interfere in the commerce of the sector by offerin )oan 2ai1ers or
bad 3o#icy inter1entions #ike Interest rate ca3s (e1en informa#
ca3s).
=?. 83erationa# Im3ro1ement &ocus on (rban Microfinance %ura#
Infrastructure / 7ih customer density #eads to decrease / 8ffer
financia# ser1ices 2ith a su3erior transaction cost. desin and
con1enience to the c#ient. / Increased reach 2ith cost s3read and
ra3id / "onnecti1ity at the 1i##ae #e1e# enab#in ro2th A+Ms and
other 3ayment de1ices. (niIue identifier "redit Bureau / Basis for
initiati1es #ike credit history / "redit information trackin and
sharin trackin and taretin for ser1ices such as enab#es #enders
to 3ro1ide incenti1es to hea#th insurance those 2ith ood credit
history and / Best done by the Go1ernment or aencies 3ro1ides a
stron deterrent to 2i##fu# such as 6(IA. defau#t. Information
Sharin +echno#oica# inno1ations / Inde3endent ser1ice 3ro1ider
2i## take care / As smart cards, biometric I's, and rura# of M&I
a33rehensions on borro2er info$ kiosks sharin / 7e#3 in reducin
the transaction costs and / It reIuires ski##ed 3ersonne#A
techno#oica# ra3id ro2th. ad1ancements.
=1. &uture Gro2th 8ut#ook 5ntry of 6e2 P#ayers Sustainabi#ity of
Microfinance %o#e of Pri1ate Sector In1estment &(+(%5 8(+)88K
=.. &uture Gro2th 8ut#ook SiFe and Gro2th: / "urrent#y G#oba#
microfinance sector has estimated #oan 3ortfo#io of (S<.9 bi##ions.
/ It is ab#e to ser1e on#y fraction (S1?? mi##ion) of the 3otentia#
1 bi##ion micro borro2ers in .??B. / 0ithin ne,t J years )oan siFe
in Indian market is e,3ected to ro2 to a siFe of about %s.9? bi##ion
from the current market siFe of %s.B bi##ion at a com3ounded annua#
ro2th rate of B@K and to J??$mi##ion c#ient base as aainst current
19 mi##ion. / Greater deree of ca3ita# market in1o#1ement /
&a1orab#e attitude from Go1ernment of India and %BI Sca#abi#ity of
Microfinance in &uture / Inf#e,ib#e #oan 3roducts and una1ai#abi#ity
of sa1ins and insurance ser1ices due to reu#atory barriers are bi
hindrance for ro2th. / Insufficient data e,ists on c#ient$#e1e#
im3act, thouh ne2 too#s such as the Po1erty Proress Inde, of
Grameen &oundation and the 2ork of Sa$'han (Indian M&Is Association)
on measurin c#ient satisfaction are addressin this a3. / +he
market, and not the state, shou#d decide interest rates. / 5nsure
trans3arency and fu## disc#osure of rates inc#udin fees / 6e2
+echno#oies
==. 5ntry of 6e2 P#ayers 6e2 P#ayer / 6e2 3#ayers may o3t for
rou3 or indi1idua# #endin, 1i##ae bankin or any other form of
#endin that they find suitab#e. / +heir 3artici3ation 2i## de3end
on their ca3acity and commitment, #eadershi3, enab#in en1ironment,
and access to financia# ca3ita#. 6on$Go1ernmenta# 8raniFations /
More 6G8s are e,3ected to incor3orate microfinance as one of their
3rorams. / Internationa# 6G8s and aencies 2i## de1e#o3
microfinance 3rorams in areas 2here microfinancin is not a fami#iar
conce3t in reducin 3o1erty. / "ommunity$based oraniFations may et
in1o#1ed in microfinance ser1ices. Go1ernment "hanne#s / Go1ernment
channe#s at the rassroots #e1e# may be used to ser1e the 3oor 2ith
microfinance 2here there are no microfinance institutions, the /
Posta# sa1ins banks may 3artici3ate more 1iorous#y not on#y in
mobi#iFin de3osits but a#so in 3ro1idin #oans to the 3oor and on$
#endin funds to the M&Is. &orma# &inance Sector /
"oo3erati1es-"redit (nions may be more acti1e in 3ro1idin financia#
ser1ices to the 3oor. / More commercia# banks may 3artici3ate both
in microfinance 2ho#esa#e and retai#in. +hey may ha1e se3arate staff
and 2indo2s to ser1e the 3oor.
=J. Sustainabi#ity of Microfinance "onduci1e Po#icy %eform
5n1ironment / Interest rate reforms for microcredit and sa1ins /
&#e,ib#e 5n1ironment to accommodate a 2ide array of microfinance
ser1ice 3ro1iders to meet di1erse demand / %edefinin the ro#e of
the state in microfinance de1e#o3ment to faci#itate the 3artici3ation
of 3ri1ate sector / 6on$financia# 3o#icies #ike aricu#tura# 3ricin
and ta,ation of micro$enter3rises 'e1e#o3in !iab#e Microfinance
Institutions / 82nershi3 and o1ernance, Manaement information
systems and accountin 3o#icies and 3ractices / 'i1ersified 3roducts
and ser1ices / Manaement of 3ortfo#io Iua#ity and ro2th /
Systems, 3rocedures and financia# techno#oy for reducin transaction
costs and +rainin faci#ities Socia# Intermediation / A2areness$
bui#din 3rorams on a broad rane of microfinance ser1icesA /
Information dissemination amon ser1ice 3ro1iders / Basic #iteracy,
numeracy and ski##s trainin for 2omen, ethnic minorities and other
disad1antaed rou3s / Socia# mobi#iFation for the formation of
community$based oraniFations and so#idarity rou3s
=9. %o#e of Pri1ate Sector In1estment M&I fundin a3 in India /
&undin a3 for microfinance in India is hue. It simi#ar to #oba#
#e1e#s. / An increasin in1o#1ement of 3ri1ate sector in1estors is
therefore a key medium$ term 3riority to sca#e u3 microfinance. /
+ota# forein M&I fundin of both I&Is and 3ri1ate sector in1estors
is e,3ected to increase to (S<.9 bi##ion by .?19, I&I accountin for
(S<9 bi##ion or .?K of tota#. +he main dri1ers of in1estment /
Increasin institutiona# and retai# in1estor demand / %eu#atory
chanes * enhanced ca3abi#ity of M&Is to absorb commercia# fundin.
"ore assum3tions under#inin the forecast / Increased attracti1eness
for Pri1ate In1estor to M&S, either due to the dua# nature of
microfinance or so#e#y their attracti1e risk$return 3rofi#e /
"ontinued shar3 rise in socia##y res3onsib#e in1estments 3ro1idin
e,tra ro2th im3etus. / "hanes in the reu#atory frame2ork 2i##
increasin#y attract retai# in1estors / Increased number of 4oint
in1estment acti1ities of 3ub#ic and 3ri1ate in1estors, 2ith 3ub#ic
in1estments idea##y actin as mu#ti3#ier for 3ri1ate sector
in1estments / (se of structured debt instruments 2i## a##o2
in1o#1ement of risk$a1erse commercia# in1estors / Increased
attracti1eness to institutiona# in1estors such as 3ension funds,
insurance com3anies or trusts as su33#ement to their 3ortfo#ios
=@. %easons for &ai#ure to fu#fi## the desired ob4ecti1e (rban
Microfinance %atin of Microfinance Institutions SP5"IA) ISS(5S
=B. %easons for &ai#ure to fu#fi## the desired ob4ecti1e
A1ai#abi#ity of #ess risky and more re2ardin customers / M&Is are
fundin ha2kers and traders branded as 3oor in urban and semi$urban
and e1en in 1i##aes as 3ayin ca3acity of these customer is ood /
&armers are a1oided due to seasona# and un3redictab#e income source.
833ortunity to become intermediaries of commercia# banks / Banks
a1oid such #endin but are under com3u#sion of o1ernments and
reu#ators to shore u3 mandatory reIuirement 3ercentaes . / &orein
banks 3ro1ide faci#ities to securitiFe these #oans 2ith some
discounts to ease the burden of statutory as 2e## as cor3orate socia#
res3onsibi#ity. Pro1idin short term #oans based on cash tradin
transactions / +hese transactions enera##y et 3aid and hence no
defau#t or #east number of defau#t arisesA / Such short term
transactions he#3 creation of rou3 #endin and rou3 uarantee both
informa##y and forma##y 2ithout much 3ersuasion. %esistant to #oan
&armers / &armin is not yet become 1iab#e due to de3endence on
monsoon, inadeIuate irriation faci#ities and #ack of moderniFin
farmin / )ack of kno2#ede of shift in techno#oy in cro33in
3attern and irriation as 2e## as soi# maintenance and de1e#o3ment.
0ron M&I assessment too#s / M&Is are sti## assessed on the basis of
their co1erae, 3rofitabi#ity and hih #e1e# of re3ayment inde, /
+hey shou#d be assessed on success in achie1in their 3rimary oa#s
3o1erty a##e1iations and inc#usi1e ro2th.
=E. (rban Microfinance / 7ih 3ro3ortion of 2ae earner amon
urban 3oor / A1erae fami#y siFe is 9 2ith a month#y e,3enditure of
%s9???. / @BK of the househo#d #i1e in their o2n house and .>K in
the house they rent. "#ients / =1K of the househo#d run at #east one
business. / @>K of the househo#ds ha1e at #east one outstandin
#oan. / )oans are taken from money#enders (J>K), fami#y members
(1=K), and friends or neihbors (.EK). %are#y commercia# source /
Tuicker sca#e u3 and Tuicker breake1en / 7iher #oan siFes -
enter3rise #oans / Indi1idua# #endin 3ossib#e in urban areas
833ortunities / +echno#oy can be better harnessed to 3ro1ide
financia# ser1ices / Greater economic o33ortunities - markets /
Microfinance has a ro#e to 3#ay in a##e1iatin the housin shortaes
that create s#ums in the first 3#ace. / 6o dedicated fund for
ca3acity bui#din, technica# assistance to su33ort ro2th of urban
microfinance / 'oes not ha1e 6ABA%', as it is readi#y a1ai#ab#e for
rura# microfinance. "ha##enes / Poor in the urban ha1e access to
sa1ins but they do not ha1e access to #oans. / 8n#y bi M&Is can
bein o3eration as #oan siFe * start u3 cost 2i## be hiher in cities
/ 7ih#y com3etiti1e because of the 3resence of the financia# ma4or
3#ayers
=>. %atin of Microfinance Institutions 6eed for %atin / 5nab#e
its c#ients to set 3rofessiona# benchmarks and standards / 5,terna#
commercia# fundin #ike P5, !", securitiFation and IP8 / 'esin
3rorams that he#3s dee3en the rura# financia# markets Micro$"redit
%atins Internationa# )td. (M$"%I)) / S3ecia#iFed ratin and
microfinance research aency that has 3ioneered and successfu##y
introduced the ratin of Microfinance Institutions (M&Is) in Asia. /
M$"%I) undertakes ratins on credit2orthiness and oraniFationa#
assessments)and a#so 3ro3rietary sectora# research Indicators for
ratin / Go1ernance and stratey: +he assessment de3ends on the
Iua#ity and a33ro3riateness of the board com3osition, its ro#e and
o1era## oraniFationa# stratey. / Manaement systems: are rated on
the Iua#ity of human resources, the strenth of critica# systems #ike
accountin and manaement information, staff 3roducti1ity and
ensurin com3#iance / &inancia# 3erformance: e1a#uation reIuires the
ratin team to construct financia# statements, based on
internationa##y acce3ted 3rudentia# norms, to 3resent a fair 3icture
of the o3erations. / M&Is financia# strenth based on as3ects #ike
re3ayment 3erformance, asset Iua#ity, #iIuidity, Asset )iabi#ity
Manaement (A)M) and 3rofitabi#ity.
J?. Abbre1iations %eferences A665U(%5
J1. Abbre1iations Abbre1iation Meanin M&I Microfinance
Institutions 6G8 6on$Go1ernmenta# 8ranisation S7G Sma## 7e#3 Grou3
6ABA%' 6ationa# Bank for Aricu#ture and %ura# 'e1e#o3ment SI'BI
Sma## Industria# 'e1e#o3ment Bank of India A'B Asian 'e1e#o3ment Bank
%BI %eser1e Bank of India PS( Pub#ic Sector (nit 6B&" 6on$Bankin
&inancia# "om3any H)G Hoint )iabi#ity Grou3 P5 Pri1ate 5Iuity !"
!enture "a3ita# I+ Income +a,
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JB. +hank Dou