Microfinance in India

Introduction:
The Concept was originated by Dr. Muhammad Yunus, around 1976 in Bangladesh began to extend tiny loans to group of poor women to invest in micro investment. By lending to the groups of women where every member of the group guaranteed the repayment of all members, these micro credit programs challenged the prevailing conventional wisdom and proved that poor people without collateral could be credit worthy. When offered the opportunity , they would repay loans with interest.

 Microfinance is the provision of financial services for low-income or poor people , who have lack access of banking related services. Microfinance is financially self-sustained model for empowering the world's poorest people.

Microloans enable poor people to leverage their skills toward their own profitable businesses and lift themselves out of poverty.

Difference Between Microfinance and Micro Credit

Micro finance refers to loans, savings , insurance , transfer service and other financial product targeted at low-income people. Micro credit refers to a small loan to a client made by bank or financial institution. It is offered , often without collateral , to individual or group.

Microfinance : What is it?

What it Often is Micro- Credit Group Lending Social/ Charitable activity
What it really should be Range of Financial Services Group and individual lending Profitable activity

Impact of Microfinance
Microfinance helps to increase the household income. Through microfinance, people can diversify their income sources and enhance the enterprise growth. It provides access to financial services to the poor people which enables them to establish and change their assets. Microfinancial services enable the poor people to minimize the risks and take greater advantage of upcoming opportunities.

cont...
In India, through microfinance the government have created many job opportunities in the rural areas. For the women, microfinance offers greater control over the available resources to them. The clients of microfinance can increase their savings' level than the non-clients. In some country, the introduction of microfinance leads to an increase in the enterprise revenue.

Principle of Microfinance
The poor need a variety of financial services, not just loans. Microfinance is a powerful instrument against poverty. Microfinance means building financial systems that serve the poor. Financial sustainability is necessary to reach significant numbers of poor people. Microfinance is about building permanent local financial institutions

Forms of Microfinance
SHG Bank linkage model accounting for about 58% of outstanding loan portfolio. Non- Banking Finance Companies accounting for about 34% of outstanding loan portfolio. Others include trust, societies, etc. accounting for about 8% of outstanding loan portfolio

SHG
Group of micro-entrepreneurs having homogenous economic background may be registered or unregistered. Voluntarily coming together to save small amounts regularly. Mutually agree to contribute to a common fund and to meet their emergency needs on mutual help basis. The group members use corrective wisdom to make proper end-use of

Advantages of SHG
Poor individual gain strength as part o f a group. Financing through SHGs reduces tr ansaction costs for both lenders and borrowers Less expenses as they use single account and less workings Peer pressure has been recognized as an effective substitute for collaterals .

Funding Sources for MFI

Savings Deposits in microfinance Commercial Debt Capital in Microfinance
Soft Loans and Grants in Microfinance Equity Capital in Microfinance

Developing Entrepreneurship in rural areas

Credit Delivery Boosting Small Scale Enterprises/Agriculture Employment Generation Improvement in Skill Acquisition Facilitates Poverty Alleviation

Challenges Adverse selection Accessibility No collateral securities Clients profile Staff

The Current State of Microfinance

In some areas, microfinance is now an inherent part of the financial system. Many microfinance institutions, whose origins were social, are professionalizing, becoming sustainable and in some cases even profitable. The Microfinance Information Exchange (MIX) is an information exchange website where more than 600 MFIs and 75 funds post information on their organizations and their performance.

Shortcomings of Microfinance
Interest rate ceilings can damage poor peoples access to financial services. The governments role is as an enabler, not as a direct provider of financial services. The lack of institutional and human capacity is the key constraint. Donor subsidies should complement, not compete with private sector capital.

Micro Finance Gap

Unwillingness of some MFIs to provide finance services to a greater number of poor clients. Perception of risks, high transaction costs and low profitability of dealing with poor clients and certain external factors such as infrastructure, peace and order problems, hinder the outreach and portfolio expansion plans of MFIs.

Microfinance Institutions:
Association for Sarva Seva Farms (ASSEFA) Mitrabharati - The Indian microfinance Information Hub Mysore Resettlement and Development Agency (MYRADA) SADHAN - The Association of Community Development Finance Institutions SEWA: Self-help Women's Association SKS India - Swayam Krishi Sangam Streedhan - Banking with Rural Women Working Women's Forum, Madras, India

Operations in microfiance

Trnsformation from NGO to MFI

Transformation is done mainly due to its anticipated benefits such as :
access to private sources of capital improvement in governance and transparency to improve customer service

with an ultimate goal to reach significant scale and financial sustainability.

Implications of Transformation
On ownership For governance On organisational development On loan methodology On social intermediation

Various NGOs in India For Microfinance

CDF (Co-operative Development Foundation) in Andhra Pradesh. LHWRF (Lupin Human Welfare Research Foundation) in Rajasthan. UPLDC (Uttar Pradesh Land Development Corporation) in Uttar Pradesh. Group Enterprise Development Project of EDI (Entrepreneurship Development Institute of India) in Nagaland.

SKS Microfinance
SKS Microfinance Limited (SKS) is a non-banking finance company (NBFC), regulated by the Reserve Bank of India. SKS claims its mission is to eradicate poverty by providing financial services to the poor. The company operates across 19 states of India. According to a CRISIL Report on Top 50 Indian Microfinance Institutions (MFIs), SKS Microfinance is the largest MFI in India in terms of number of borrowers, number of branches and total loans as of September 30, 2008.Founded in 1997 by Vikram Akula, SKS as of December 31, 2010, has 7.7 million clients (2010) in 2,403 branches in the 19 states across India. SKS charges an annual effective interest rate between 26.7% and 31.4% for core loan products. At the end of 2010's financial year on 31 March 2011, the company listed a gross loan portfolio of US$925,844,433 with 6,242,266 female active borrowers.

SKS Microfinance
SKS Microfinance offers 8 financial products and services to its clients - Income Generation Loans, Mid-Term Loans, Mobile Loans, Sangam Store Loans, Housing Loans, Funeral Assistance, Gold Loan, and Life Insurance. The company lists some of the social benefits of its financial product and service offerings as "providing self-employed women financial assistance to support their business enterprises, such as raising livestock, running local retail shops called kirana stores, providing tailoring and other assorted trade and services. On July 28, 2010, SKS Microfinance, India's biggest Microfinance Institution (MFI), made its debut on the Bombay Stock Exchange, offering its shares to the general public.

SKS Microfinance -Suicide link allegation

An independent investigation commissioned by the company linked SKS employees to at least seven suicides, according to a report by the Associated Press. A second investigation commissioned by an industry umbrella group that probed the role of many microfinance companies did not draw conclusions but pointed to SKS involvement in two more cases that ended in suicide. According to the Associated Press report, "More than 200 poor, debtridden residents of Andhra Pradesh killed themselves in late 2010, according to media reports compiled by the government of the south Indian state. The state blamed microfinance companies which give small loans intended to lift up the very poor for fueling a frenzy of over indebtedness and then pressuring borrowers so relentlessly that some took their own lives."

Remedies Interest rate ceilings should be at lower rate. RBI should deeply involve in the activities of the Micro finance companies. Separate governing body should be there to control the activities of the Micro finance companies in each state. Supreme court should pass a law against Micro finance companies who harass the public.

ThanQ
Annu Kumari Krishan V.N Praveen kumar G Praveen Jain Praveen V Venu Vas M