ON

Microfinance
In partial fulfillment of the requirements for the degree of Master of Business Administration (MBA) (2010-2012) of Punjab Technical University

CHANAKYA INSTITUTE OF MANAGEMENT GHARUAN (MOHALI) SUBMITTED TO: Ms. Geetika Sharma SUBMITTED BY: Gurdeep Singh MBA-IV (Finance)

TABLE OF CONTENTS

I. II. III. IV. V. VI. VII. VIII.

IX.

Executive summary Chapter1: Introduction Chapter 2:Review of Literature Chapter 3:Research Methodology Chapter 4: Data analysis & Interpretation Chapter 5: Findings (i)Suggestions (ii)Conclusion (iii)Bibliography

Chapter 1 Introduction

Meaning of Microfinance
Microfinance is a term used to refer to the activity of provision of financial services to clients who are excluded from the traditional financial systems on account of their lower economic status. These financial services will most commonly take the form of loans (see micro credit) & savings, through some microfinance institutions will offer other services such as insurance & payment services. The Microfinance is changing the landscape of banking across the world. It has changed the ivies of people & revitalized communities in the worlds poorest as well as richest countries. The microfinance is a better targeted financial help to a clientele that is poorer & vulnerable than rational bank clients. The broad classification of microfinance includes rural credit through specialized banks traditional informal microfinance like loans from friends & relatives money lenders etc.

How Many People Have Access to Microfinance

The consultative group to assist the poor (CGAP) estimates that of the three billion poor people of working age who could be making use of these services about 500 million-one sixth currently have access to formal financial services. If we are ever to reach the estimated three billion poor people who could use financial services, it will require a whole range of institutions, not just traditional NGO microfinance institutions to do it. Microfinance institutions have played a key role in the development of microfinance & they will continue to do so. But what is really needed-to reach both further & deeper-is a whole range of institutions that will jostle & compete with one another to serve poor people & to innovate to reach more & more poor people.

Universal Primary Education

Impact studies show that in poor households with access to financial services. Children are not sent to school in longer nos.-including girls-but they also stay in school longer. In Bangladesh, almost all girls in grimacer client households had some schooling, compared to 60% of nonclient house-holds.

Womens empowerment

The Indian School of Microfinance for Women, an organization based in Ahmedabad, is a unique initiative in the discipline of Microfinance. The School has been set up with the purpose of addressing the huge capacity building gap that exists in the Microfinance sector. Launched on 4th October 2003, The Schools aim is to strengthen and spread Microfinance as a strategy for poverty alleviation through development of knowledge and skilled human resources. It believes that microfinance is an effective tool for the alleviation of poverty and betterment of the lives of women. It looks to bring the realities of the lives of women to organizations and people working with microfinance to help them reach the women better in turn. Promoted by SEWA Bank, FWWB (I), and Coady International Institute, Canada, The School brings together the best of the indigenous knowledge and expertise from around the world to a common platform from where it could be disseminated and made utilitarian for the Microfinance sector.

Challenges Ahead
The real challenge facing the microfinance industry today is scaling up services to reach the estimated three billion people in developing countries will still lack access to formal financial services. Successful microfinance institutions have proven that providing financial services to the poor can be an effective means of poverty reduction & be a profitable business. A major bottleneck to the development of sustainable microfinance is limited institutional & managerial capacity at the level of retail microfinance institutions, as reflected in inadequate man information system, poor strategic planning, & high operating costs. This is also a marked storage of organizations that can provide safe saving facilities for the poor & that can sustainably mobilize these domestic savings for on-lending.

Chapter 2: Review of Literature

BANCOSOL: THE CHALLENGE OF GROWTH FOR MICROFINANCE ORGANIZATIONS

BancoSol shows outstanding success in terms of breadth, depth, and quality of outreach and in terms of sustainability. It is the microfinance organization with the largest number of clients in Latin America and it reaches poor clients who could never expect to gain access to conventional financial institutions. The paper discusses the incentive structure associated with a lending technology that has resulted in low loan arrears and the cost- effective supply of small loans. Success is explained by a strong concern with financial viability, development of a lending technology appropriate for the market niche, a long learning period, and upgrading into a formal intermediary. As it grew, BancoSol had to face a reduction of revenues as a proportion of productive assets and an increase in the average cost of funds, which combined reduced its operating margin by 13 percentage points. This challenge was fully met by reducing operating expenses as a proportion of productive assets.

David Hulme
This paper reviews the methodological options for the impact assessment (IA) of microfinance. Following a discussion of the varying objectives of IA it examines the choice of conceptual frameworks and presents three paradigms of impact assessment: the scientific method, the humanities tradition and participatory learning and action (PLA). Key issues and lessons in the practice of microfinance IAs are then explored and it is argued that the central issue in IA design is how to combine different methodological approaches so that a fit is achieved between IA objectives, program context and the constraints of IA costs, human resources and timing..

GARY M. WOLLER
Although the word of finance in the term of microfinance in core value & the core element of microfinance are those of the finance discipline has yet to break into the mainstream & entrepreneur finance literature. The purpose of this article is to introduce the finance academic community to the discipline of microfinance & microfinance institutions.

Chapter 3: Research Methodology

TYPE OF RESEARCH
The type of research that is being used in this report is the descriptive one as in this particular type of research the researcher doesnt have any control over the present scenario of the things that are being studied & we can only study the factors such as HOW,WHO,WHEN,WHAT etc.

DATA COLLECTION METHOD

Both the primary & secondary data will be used in this study.

TYPE OF DATA USED

Secondary data & Primary data.

SOURCE OF DATA COLLECTION

Following are the major sources of data collection that have been used

NABARD annual reports various issues. Report on currency & finance. RESERVE BANK OF INDIA annual report. Reports issued by the government. Research companies & trade directories. Report on trend & progress of Indian banking. Various issued of hand book of statistics.

Tools that have been used for data collection: Internet Newspaper Magazines Journals Publication

OBJECTIVES
To study the performance of microfinance in India. To know about the various institutions that are doing the job of promoting microfinance in India. To know the role of Microfinance in removing the poverty of the study.

Limitation of The study

Time Constraint:- This study has been carried out in the period of 2 months, so the results &
interpretation will only be valid till said period.

Lack of resources required:- Another major constraint of the study is that the resources
that had been required for its successful completion were not available at all the time when required.

Chapter 4: Data analysis & Interpretation

Q1- Are you aware about Microfinance.
S.No. 1 2 No. of respondent 88 12 percentage 88 12

Yes No

No. of respondent
1 Yes 2 No

12

88

Interpretation
From the above graph, we interpretate that 88% people aware about the microfinance & 12% people who unaware about the microfinance.

Q2- If yes, does Microfinance provides the better service than traditional bank

service.

S.No. 1 2

Yes No

No. of respondent 65 23

percentage 73.86 26.14

Is microfinance provides the better service

1 Yes 2 No

26%

74%

Interpretation
From the above graph, we interpretate that 73.86% people consider that microfinance provides the better service & 26.14% people consider the traditional system of bank service is better

Conclusion

The Current State of Microfinance

These are interesting time for these involved in the provisioning of financial services for the poor. The boundaries between microfinance and the formal financial sector are finally breaking down. In some areas, microfinance is now an inherent part of the financial system. In other areas, new & innovative financial delivery methods are being developed to overcome the barriers of sparse, population & large distance between settlement, as well as poor infrastructure. Technology can play an important role but we may have to accept that for the moment, some areas truly are unbankable. Many microfinance institutions, many whose origins were social, are professionalizing becoming sustainable & in some cases even profitable. Many of these institutions are have seeking commercial funding. To attract this type of funding, they must become transparent in their financial reporting. The microfinance Information Exchange (MIX) is an information exchange website where more than 600 MFIs and 75 funds post information on their organizations & their performance. At the same time, commercial institutions are also beginning to get involved in providing financial services to poorer clients. CGAP has identified over 200 domestic retail banks or consumer credit companies getting involved in microfinance, often driven by competition & technologies that promise to allow then to make small transactions more cost effectives. EBanking, smart cards & telephone are beginning to be used by microfinance providers to reduce transaction costs, a key to reaching poorer clients.

Bibliography
www.wikipedia.org www.rbi.com www.hdfc.com