a ppt on micro finance by :- gaurav bhut
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A PRESENTATION ON MICRO FINANCE, PPT ON MICRO FINANCETRANSCRIPT
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Micro Finance in Micro Finance in IndiaIndia
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A PRESENTATION A PRESENTATION ONON
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Microfinance: what Microfinance: what is it?is it?
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Microfinance: what is it?Microfinance: what is it?
Micro-creditGroup lendingSocial/charitable
activity
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• Range of financial services
• Group and individual lending
• Profitable activity
What it often is What it really should be
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Providing financial services to the Providing financial services to the poor: . poor: . challenges challenges
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Providing financial services to the Providing financial services to the poor: challengespoor: challenges
Risk management challenges due to information asymmetry problems
Accessibility (geographic accessibility and easiness to deal with)
No collateral, Low value and cash intensive nature of the business
Staff training and motivation
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High transaction costs
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Information asymmetryInformation asymmetry
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Decision to take loanLoan usage loan repayment
Adverse selection
Moral hazard
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Adverse selection: incomplete Adverse selection: incomplete information problem (before the information problem (before the loan)loan)
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Don’t know Client’s type
Interest rate reflects proba of default
Safer clients drop outNeed to increase interest
rate
Providing credit can become
impossible
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Moral hazard: hidden action Moral hazard: hidden action problem (after loan)problem (after loan)
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Can not observe what client is doing
Bad loan usageStrategic unwillingness
To repay
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Clients profileClients profile75% population lives in rural
areas: geographical access difficult
Informal activities: need access at flexible times
Illiteracy: difficult to deal with traditional services
Low value of transactionsLack of collateral
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StaffStaffLack of trained staffLack of motivated staffDifficult to incentives staff
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Delivering financial services to the Delivering financial services to the poor in India: an overview poor in India: an overview
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Providing financial services to the Providing financial services to the poor: occupied Indiapoor: occupied India
Deccan, late 19th Century: peasant riots on account of coercive
alienation of land by moneylenders.
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Organization of cooperative societies as alternative institutions for providing crédit by british government
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ResultsResults
Access in terms of rural branches increased from 1,833 in 1969 to around 32,538 at present: 49% of all scheduled commercial bank branches are rural
The population per rural branch declined from 2,01,854 in 1969 to around 16,000 at present.
The proportion of borrowings of rural households from institutional sources increased from 7 per cent in 1951 to more than 60 per cent at present.
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Results (cont’d)Results (cont’d)31% (131.1 million) of the total
deposit accounts are in rural India
43%(22.4 million) of total credit accounts are in rural India
Positive impact on the poor (Rohini Pande/Burgess paper)
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Micro Finance: apparitionMicro Finance: apparitionThe financial sector reforms motivated policy
planners to search for products and strategies for delivering financial services to the poor – microFinance - in a sustainable manner consistent with high repayment rates.
NABARD: empirical observation that had been catalysed by NGOs that poors gather in informal groups
Create a formal interface of these informal arrangements of the poor with the banking system.
Bank-SHG Linkage Programme.Recent emergence of MFIs: professionally run
institutions specialiazed in delivering credit with low cost staff and local knowledge
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Despite all these efforts…large Despite all these efforts…large gaps remaingaps remain
Against rural population of 741.0 million, 500 million people un-served
Population per branch: 22,793Penetration of savings accounts is below 18%As against 104% in urban and semi-urban areasNumber of villages per branch: 19High dependence on informal sources
◦ 36% of rural credit from informal sources◦ Dependence even higher for lower income households:
78%
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Microfinance ahead: Microfinance ahead: challengeschallenges
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Gaps in demand and Gaps in demand and supplysupply
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Demand: Rs. 450 billion/y
60% in South…to cover all parts of India
Less than 2 million Households reached
500 million un-served poor
Disbursed: 39 billion
Need employment opportunities
Need protection
against all risks
Market constraints
Insurance under-delivered
Scaling up
Increase
impact
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TechnologyTechnology
Role of technology in microfinance:MISCash handlingData capture and subsequent
management
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Range of Microfinancial Range of Microfinancial services:services:Health insurance
◦Reimbursement model◦Cashless model◦How to identify illness? ◦How to avoid fraud?
Livestock insurance◦Recognize cause of death◦Identify animal (role of technology)
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Range of Microfinancial services:Range of Microfinancial services:
Weather insurance Index-based: index created by
assigning weights to critical time periods
Past weather data mapped to this index to arrive at normal treshhold index
If deviation: compensation Commodity price derivatives
NCDEX: offers price discovery services: offer farmers instruments to hedge pre and post harvest risks
Makes using commodity as collateral possible
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Range of Microfinancial services:Range of Microfinancial services:
Savings and investments products◦Could be offered through Money Market
Mutual Fund: MFI acts as agentRemittances
◦10 million seasonal and circular migrants (National Commission on Rural Labour)
◦Adhikar, Orissa◦ICICI: remittance product through
internet kiosks
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