“Impact of Micro-Finance Lending on Self Help Groups with reference to Dhanlaxmi Bank ” Project Report

Submitted to

RAJAGIRI COLLEGE OF SOCIAL SCIENCES (AUTONOMOUS)

(Affiliated to Mahatma Gandhi University, KOTTAYAM)

In partial fulfilment of the requirement for the award Of

MASTER OF BUSINESS ADMINISTRATION (MBA)

(2014– 2016)

BY

AAKASH ASOKAN

Reg. No: 1421003

RAJAGIRI COLLEGE OF SOCIAL SCIENCES (AUTONOMOUS) RAJAGIRI VALLEY P.O

KOCHI-682039

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DECLARATION

I, AAKASH ASOKAN, hereby declare that this project entitled “Impact of

Micro finance lending on SHG’s is a bona fide record of the project work done

by me at “Dhanlaxmi Bank”. The report is submitted to Mahatma Gandhi

University, Kottayam in the partial fulfillment of the requirement of Master of

Business Administration.

All the information in this document has been obtained to use only for my

academic purpose and is presented in accordance with academic rules and conduct

under the guidance of Dr.Rakesh Krishnan (faculty), Rajagiri College of Social

Sciences (Autonomous).

I further declare that any part of this project has not been submitted

elsewhere for award of any degree.

Place: AAKASH ASOKAN

Date:

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ACKNOWLEDGEMENT

If words are considered as symbol and token of acknowledgement, then let the

following words play the heralding role of expressing my gratitude.

I express my sincere gratitude to Dr. Binoy Joseph, Principal, Rajagiri College

of Social Sciences (Autonomous), Kakkanad for showing his overwhelming

support and interest shown in the work.

I hereby solemnly submit my earnest and humble thanks to Dr. Rakesh Krishnan

Faculty, Rajagiri College of Social Sciences (Autonomous) for his guidance,

valuable and timely suggestions throughout the completion of the project work. I

would remiss if I don’t mention Mr. Rajesh Alex (Senior Manager, Micro&Agri

Business).

My special thanks to all my colleagues and the field officer-Microfinance who co-

operated with me for the Project. I extend my sincere thanks to my family

members and friends who gave me encouragement throughout the tenure of my

project.

Above all, I thank God Almighty for his immense love and grace which enabled

me to complete this project.

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Contents BANKING INDUSTRY ........................................................................................... 5

GROWTH OF THE INDUSTRY ........................................................................... 5

EVOLUTION OF BANKING INDUSTRY .......................................................... 5

STRUCTURE OF THE ORGANISED BANKING INDUSTRY ....................... 7

TECHNOLOGY IN BANKING INDUSTRY ....................................................... 9

PESTLE ANALYSIS OF BANKING INDUSTRY ............................................ 10

INCEPTION OF DHANLAXMI BANK ............................................................. 11

HISTORY ............................................................................................................... 11

PRODUCTS AND SERVICES ............................................................................. 13

ORGANIZATIONAL STRUCTURE .................................................................. 17

PROBLEM FORMULATION ............................................................................. 20

RESEARCH PROCESS ........................................................................................ 23

PRESENTATION AND ANALYSIS OF DATA ................................................ 36

IMPACT OF MICRO FINANCE FROM THE BANKS PERSPECTIVE ..... 62

SUGGESTIONS / RECOMMENDATIONS ....................................................... 65

BIBLIOGRAPHY .................................................................................................. 67

ANNEXURE ........................................................................................................... 68

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BANKING INDUSTRY Banking Industry in India has grown exceptionally since last decade. Banking Industry in India is governed by the central bank in India called Reserve Bank of India. Reserve Bank of India were headed by great governors since 1935. Currently RBI is governed by RaghuramRajan. There was a significant changes since he got into power. He took charges as RBI Governor on

4th September 2013. In India banking industry is divided into Banks and Financial Institutions which is governed by RBI. Banks are divided into two types scheduled commercial banks and scheduled co-operative

banks. There are about 293 banks in which 43 are foreign banks, 25 Public sector, 13 Old Private

sector and 7 New Private Sector Banks. The Banking Industry is very important sector as it comprises 90% of the total financial sector

services. The banking industry changed since the structural reforms of 1990s.The banking sector

has tremendously evolved from a state directed banking to competitive banking system. It has

improved both in the terms of technology as well as in terms of size. It has grown from counter

based banking to internet banking. Earlier days banking was limited to day banking till

Saturdays, currently banking sector has evolved to 24hours banking facility. GROWTH OF THE INDUSTRY The purpose of the Banking Sector is to mobilize the Savings in order to lend for productive

investments. Earlier the model that was used to evaluate the economic growth the country was

Capital, Land, Labour and Technology, this can be called as the Function of Land. Today they

use the Savings Function that is the Rate, Return on Investment and Cost of Intermediation. Banks together constitutes the Financial Sector of India. The Financial sector is evaluated with through the maturity, liquidity and risk transformation.

EVOLUTION OF BANKING INDUSTRY Banking Industry in India set foot during the 18th century. Way before the banking industry came into existence in India, there were traders who provided finance to the people this is called

zamindari system. It existed before the independence. This system was developed with the help

of the Presidency Banks, which later transformed the Imperial Bank of India to State Bank of

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India. There were four phases of evolution in the Indian Banking Industry. They are as follows: Phase 1: Pre Nationalization Phase. Phase 2: Era of Nationalization and Consolidation. Phase 3: Introduction of Indian Financial & Banking Sector Reforms and Partial Liberalization. Phase 4: Period of Increased Liberalization. Phase 1: Pre Nationalization Phase: The Pre Nationalization Phase was the beginning of institutional banking in India. This was done

with the help of three joint stock banks namely Union Bank of Bengal, Bank of Bombay and

Bank of Madras. Union Bank of Bengal was incorporated during the Colonial rule of the British

of 2ndJune 1806. Bank of Bombay was established in the 15th April 1840, it is reported the oldest

joint stock bank in India. The third bank was Bank of Madras, it was established in the 1st July

1843. During this period there were tremendous changes it was period during which the joint

stock banking was born. These banks were the major three Joint Stock Banks. They were called

Presidency Banks. During this period deposit banking and bank branches were introduced. The

presidency banks and the other banks set foundation for modern banking system. These

Presidency Banks merged to incorporate the Imperial Bank of India. Phase 2: Era of Nationalization and Consolidation: During this period Imperial Bank of India and 20 other scheduled banks were nationalized. The outcome of this were great. The Imperial bank of India was christened as the State Bank of India on 30th April 1955. Other 20 scheduled commercial banks were also nationalized during this period. During this period credit programmes of the banks rose. It was basically the phase of introduction of social banking. Phase 3: Introduction of Indian Financial & Banking Sector Reforms and PartialLiberalisation: During the year 1990s LPG (Liberalisation, Privatisation and Globalisation) was introduced by

the Narasimha Rao Committee. It was headed Prime Minister P.V Narasimha Rao along with

Finance Minister Manmohan Singh. They introduced new economic model called LPG. The

main objective of this reform was to help the Indian economy to grow faster and faster in order

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to match up with the world economic scenario. Reforms took place in the major sectors of

finance, manufacturing, business and other major industries. In this committee many

recommendations were accepted one of the major recommendation were introduction of security

regulation and the SEBI Act 1992 which gave powers to the Securities Exchange Board of India.

This was done to record and control all the mediators in the capital market. Under the

recommendation, National Stock Exchange was launched in the year 1994 and many more were

taken. The major changes took place during that period. There were major changes in the

prudential regulations. The interest rates were deregulated during that period. The Statutory pre-

emption of resources eased more private sector players who later strengthened the system as

whole. During that time the government tried to up bring the banking system in India. They gave

license to many small Private Banks. They were know New Generation Banks. Some of the

banks that were included in this were UTI, ICICI Bank. Later UTI renamed themselves to Axis

Bank. Phase 4: Period of Increased Liberalisation During the period of Increased Liberalisation there was hike in the Foreign Direct Investment

(FDI) ceiling for banking sector and it also declared the roadmap for Liberalisation. During this

period major changes took place. The FDI ceiling for banking sector increased from 49% to

74%. During this period of increased Liberalisation it was decided to include foreign banks into

the Industry. Later more liberal branch licensing policy were followed. Period of Liberalisation

still continues and more is expected.

STRUCTURE OF THE ORGANISED BANKING INDUSTRY The structure consists of both Scheduled Banks and Unscheduled Banks. Further the Scheduled banks are divided into Scheduled Commercial Banks and Co-operative Banks. Schedule

Commercial Banks is divided into four Public Sector Banks, Private Sector Banks, Foreign

Banks and Regional Rural Banks.

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Indian Banking

Industry

Scheduled

Unscheduled

Banks Banks

Scheduled Scheduled Co-

Commercial

operative Banks

Banks

Urban Co-

Rural Co-

Public Sector Private operative operative

Banks Sector Banks Banks Banks

Foreign Banks Regional Rural

Banks

Figure 1.1: Structure of the Organized Banking Industry Scheduled Banks In India, a Scheduled Bank refers to a bank which is listed in the 2nd schedule of the Reserve Bank of India Act 1934. All the private, foreign, and nationalized banks in India belongs to this category. A Scheduled Bank is eligible to get loan from the RBI at the Bank Rate. Scheduled Commercial Banks Scheduled Commercial Banks are a part of Scheduled Bank in India. It is segregated on the basis of its operations and ownership. The Scheduled Commercial Banks is divided into four Public Sector Banks, Private Sector Banks, Foreign Banks and Regional Rural Banks. There are about

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25 Public Sector Banks in India which includes the State Banks and it Associates, Private Sector Banks are about 13 old private banks and 7 new private banks in number till to date. On 2nd April 2014 two more banks were given the title as Private Sector Banks by the Reserve Bank of India. They were IDFC and Bandhan Financial Services. Scheduled Co-operative Banks Co-operative Banks or Scheduled Co-operative Banks are retail and commercial banks which is

organized to be the Co-operative Banks. They are divided into two known as Rural Co-operative

Bank and Urban Co-operative Banks. Urban Cooperative Banks in most of states are further

divided into three primary, district and state where as the Rural Co-operative Banks take both

long term and short term borrowings. TECHNOLOGY IN BANKING INDUSTRY Technology has played an important role in the growth of the Indian Banking Industry. Earlier banking was done once the customer comes to the banks and does the banking function. Now-a-days banking can be done with a touch. In the earlier banking system the accounts of the banks were not computerized it was handwritten journals, ledgers, balance sheet etc. which were used to analyses the bank’s financial position. With the introduction of computers this system changed. Today financial position of the banks can be interpreted by the computers. Computers were introduced to banking industry in the late 1980s to have efficient and effective banking system. During the banking industry had slow mechanism and computerization was felt to be important. RBI first introduced the computerization to the industry. After the introduction of the computers to the banking industry, the next technological advance was ATM (Automated Teller Machine). ATMs were introduced to fit the anytime banking system. They were introduced in the 1990s. This system helped customer to bank at any time that is 24X7 Banking. This helped the customer to reach out the banks easily. The latest technologies were introduction of internet banking and mobile banking. Internet Banking set foot in India in the early 2000s. With the help of internet banking customers found it easy to deposit and transfer funds from one bank account to another. Mobile Banking is a recent affair introduced by the banking industry. This technological advance helped the customer to bank anywhere at any time. They had many more technological advances like Cheque Truncation System, Electronic Fund Transfers, and RTGS.

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PESTLE ANALYSIS OF BANKING INDUSTRY The pestle analysis is done on the basis various criteria such as Political factors, Economic factors, Social factors, Technological factors, Legal factors and Environmental factors.

a) Political Factors: The major political factors that affect the banking industry is

thechange in government, the new laws abided by the new govt., the policy framed by the

govt. affect the banking industry to an extent. The other major factor that affect the

banking industry is the budget that is prepared by the new govt. for the new financial

year. As per the new budget 2015-2016 the govt. the banks were asked to keep a CRR of

4% and SLR 22%. Currently the govt. launched a policy for the AamAdmi known as

Pradhan Mantri Jan-DhanYojana, which will help the normal people to maintain an

account with zero balance.

b) Economic Factors: The economic factors such as GDP, Monetary Policies etc. affectthe

banking sector. The current GDP growth of India is 7.4%, this tremendous expansion in

GDP has affected the Banking Industry in its growth. As per the current monetary policy

the RBI has decided to cut the Repo rate by 0.25% that is 7.5% these are the economic

factors that affect the banking industry.

c) Social Factors: The major social factors that affect the change in the lifestyle of

thepeople. As the people are well educated and well-earned the people may go for

luxurious lifestyle. Another social factor is population, there is an increase in the Indian

population year by year. Another social factor is literacy rate of the Country. Education

has polished the lifestyle of the people in India that they wanted their children and rest of

the children in the country to be educated. Therefore there is an increase in literacy rate.

d) Technological Factors: The recent technological innovation in the industry like

mobilebanking and internet banking has brought significant changes in the industry. Due

to this technological impact customers have moved into technological banking rather than

counter banking. Internet and mobile banking helps the customers to bank anywhere at

any time.

e) Legal Factors: The legal factors of the banking industry is regulated by the ReserveBank

of India. The RBI norms guide the banks in the financial sector, the act is known as

Banking Regulation Act. Recently two financial institutions were given the title as Bank,

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they are IDFC and Bandhan

f) Environmental Factors: The environmental factors which affect the banking industryis

the growth in the other industry such as agriculture industry, in the service sector etc.

impacts the banking industry.

INCEPTION OF DHANLAXMI BANK Dhanlaxmi Bank Ltd. is a private sector bank, incorporated in the year 1927 at Thrissur, Kerala.

It was initiated by a group of enterprising and ambitious entrepreneurs. Over 88 years Dhanlaxmi

Bank with its rick heritage earned great trust and goodwill of their clients. This was due to the

strong belief in the need to seek innovation, deliver best services and demonstrate responsibility

towards the customers that made them excel. They mainly focus on customizing services and

personalizing relations. Presently it has 280 branches and 396 Automated Teller Machines

(ATMs) spread across India. Currently they are showing their presence at Kerala, Tamil Nadu,

Karnataka, Andhra Pradesh, Maharashtra, Gujarat, Delhi, West Bengal, Madhya Pradesh,

Punjab, Uttar Pradesh, Rajasthan, Chandigarh, Goa, and Haryana. On 10th August 2010 the bank

changed its name from Dhanalakshmi Bank Ltd to Dhanlaxmi Bank Ltd. The Bank is now a

depository participant of National Security Depository Limited (NSDL). It offers Demat services

at all its branches. It also offers an online trading in association with Destimoney Securities. It

partnered with AG InfoTech for the installation of its ATMs. Its offers service with the issue of

VISA debit and credit cards to their customers. It also offers Insurance service in partnership

with Bajaj Allianz Life Insurance as Bancassurance Partner. It is listed at both NSE and BSE. HISTORY Dhanlaxmi Bank Ltd was incorporated on 14th November 1927 as Dhanalakshmi Bank Ltd at

Thrissur, Kerala. The bank initially started with a capital of Rs. 11,000 and with a work force of

7 employees. The bank first set up its branch outside Kerala in the year 1975 at Chennai Mount

Road. In the 1977 the bank was given the title of a Scheduled Commercial Bank by Reserve

Bank of India. By the 1980s the bank made a strong network of 100 Branches across the

Country. In the year 1991 the company issued 2, 30, 000 shares. In the year 1992 they opened a

branch at VeerappanChataram Tamil Nadu. It also opened an extension counter at Hyderabad.

Later that year the Trivandrum branch became a full-fledged branch and also opened a branch at

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peelamedu, Coimbatore. It is also issued 3, 50, 000 shares. In the year 1993, it was a

modernization era for the bank. On 28th January 1993 the bank inaugurated EDP section at the

Central office. They also initiated a technological improvement in banking through the

installation of computers at their most three regional branches. The bank grew outstandingly

during those years. By 1994 the bank issued rights equity shares at a premium of Rs. 25 per

share. In the 1995 the bank participated in 60 public issues in the capacity of Bankers to issue

and extended underwriting support to 104 public issues. New branches were opened at

Kozhikode District, Malappuram District and Ernakulam District. Later that year the bank issued

80, 00, 000 equity shares of Rs.10 each at a premium of Rs. 40 per Share. In the year 1996 the

entered into leasing business. They opened new branches at Tamil Nadu, Bangalore, and Kerala.

In the same year 82, 35, 545 equity shares of Rs.10 each were issued at a premium of Rs.40 per

share, these were allotted through public issue. In 1997 the bank celebrated its 70years of service to the country. The bank’s corporate

philosophy was ‘service to the poor and needy’. The bank converted its 11 other branches to

computerized. The Investment Information and Credit Rating Agency rated the bank’s bond

issue with ‘LA’ rating which indicated adequate safety. The Thrissur branch were granted a full-

fledged foreign exchange license by the Reserve Bank of India. By 1998 the bank launched two

deposit schemes named Dhanam Plus and Dhanam Double Plus at Bangalore. In the year 1999

the bank computerized 70% of its business transactions. On October 28th the bank launched

DhanamKisan Card. They also launched an online website too. The Thrissur branch introduced

web-based banking services. By the year 2000 the bank opened seven-day banking at selected

branches at Trivandrum, Ernakulum and Bangalore. On 23rd August 2001 it inaugurated its first

ATM at Chennai. In the year 2002 Dhanlaxmi Bank introduced new Home Loan Scheme called

Dhanam platinum jubilee home loan advantage. Later that year bank tied up with MetLife India

to distribute Life Insurance products of MetLife India. By 2003 the bank introduced a product

called DhanLife with MetLife India. They also tied up with United India Insurance in order to

market their products via the bank’s branches. It inaugurated it Mumbai Treasury Department on 29th October 2003. Many more events took place after 2003. By the

year 2010 the bank launched Mobile Banking, gift card, 300-day deposit, Forex card and also

launched a series of Gold coins. By 2012 they entered into Silver Retail Business.

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SLOGAN “Tann-Mann-Dhan”- was a campaign initiated by the bank.- was the first slogan used by the bank. “Relationships…….forever” is the new slogan of Dhanlaxmi Bank Pvt. Ltd. VISION AND MISSION STATEMENT

VISION Banking on relationship forever. MISSION To become a strong and innovative bank with integrity and social responsibility to maximize customer satisfaction as well as that of the employees, shareholder and society. BOARD OF DIRECTORS

1. Mr.Susobhan Sinha (RBI Additional Director)

2. Mr.Rohit Jain (RBI Additional Director)

3. Dr.Lakshmy Devi K.R (Director)

4. Mr.Chella K Srinivasan (Independent Director)

5. Mr K Jayakumar (Independent Director)

6. Mr. P Mohanan (Independent Director)

7. Mr. P.G Jayakumar (Managing Director & CEO)

8. Mr. T.Y Prabhu (Chairman)

PRODUCTS AND SERVICES There are many products for Dhanlaxmi Bank. The following are few of the products availed by them. The products are categorized into personal banking, corporate banking, NRI banking, technology products etc.

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1. Personal Banking- Super Power Current Accounts, Power Current Accounts,

Premium Current Accounts, Suvidha Current Accounts, Regular Current Accounts,

Housing Loans, Car Loans, Personal Loans, Educational Loans, Business Loans,

Loans against National Savings Certificates, Loans against Insurance Policies, Gold

Loans / Overdraft against Gold, Loan Against Property, Mortgage Loans, Basic

Savings Bank Accounts, Regular Savings Accounts, Accounts with Sweep Facility,

Smart Salary Savings Accounts, Insta-Money, Foreign Currency Cash, Foreign

Currency Demand Drafts, International Remittances, Forex Travel Card, Cumulative

Deposit Certificates, Term Deposits, Tax Advantage Deposits, Recurring Deposits,

Senior Citizen's Deposits, Doubling Term Deposits, Financial Planning, Life

Insurance, General Insurance, Gold coins, Silver bars, Mutual Funds etc.

2. Corporate Banking- Letter of Credit/ Bank Guarantees, Packing/ Past Shipments,Project Finance, Working Capital Finance, Trade Advances, Term Loan, Machinery and Equipment Loan, Corporate Salary Accounts etc.

3. NRI Banking- NRE Accounts, NRO Accounts, Recurring and Term Deposits,

FCNR (B) Deposits, Resident Foreign Currency Accounts, Draft Drawing Arrangements, Rupee Drawing Arrangements, Money Transfer Services etc.

4. Micro, Agri.& SME Banking- Micro Credit Loans, SHG Loans, Agri.

GoldLoan,Kissan Credit Card cum Savings Accounts, Working Capital Facilities,

Cash Credit / Over Draft, Packing Credit, Post Shipment Credit, Buyers / Suppliers

Credit, Letter of Credit / Bank Guarantees, Bill / Invoice Discounting etc.

5.Technology Products- Retail Internet Banking, Corporate Internet Banking.

BillPayment Facility, Mobile Banking, Interbank Mobile Payment Service (IMPS),

e-IT Return filing, Mobile / DTH Prepaid recharge, Gift Cards, International Debit

Cards, Gold / Platinum Credit Cards, RTGS / NEFT, Payment Gateways, Point of

Sale (POS) Machines, Depository Services, Locker Facilities, Electronic Clearing

System, SWIFT Facility, Door Step Banking.

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DEPARTMENTS AND ITS FUNCTIONS

• Credit and Monitoring

• Recovery

• Audit

• Administration and Business Development

• Legal

• IT CREDIT AND MONITORING The Credit and Monitoring department deals with providing credit to the customers. The main

purpose of this department is to evaluate the customers and find out whether they are eligible for

the loan they have applied for. The bank monitors all the financial statements of the customers

and then provide them loan. The customer who have defaulted in the past are not considered for

credit facility. The credit department makes a proposal for credit and it send to the board of

directors for approval. Once BOD approves the credit is provided to the customers. RECOVERY The Recovery Department located at the Regional office of Dhanlaxmi Bank follow up the NPA

accounts. This is done to bring borrowers to compromise settlements by negotiating with the

borrowers and later place recommendation. They also identify the defaulters and file suit against

them. The main purpose of this department is to recover the loan money from their customers. AUDIT The Audit is responsible to do the internal auditing of the entire bank that is all the branches that belongs to the bank. The auditor of the bank evaluate all the financial transaction and financial files of the bank. This is done before the external audit. ADMINISTRATION AND BUSINESS DEVELOPMENT The main purpose administration and business development department is to carry out daily work of the bank. This department prepares the Budget and target for the bank. It also deals with the complaints registered by the customers. It also shares RBI Circular to all branches.

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LEGAL DEPARTMENT The legal department in Dhanlaxmi Bank plays different roles like Documentation, Litigation,

Advisory role, Industrial Relation, Knowledge enrichment and other responsibility. In the

documentation role they prepare the loan documents of the bank for general advances, retail

credit, Agri& MF etc. They monitor the documents provided to them. In Litigation they follow

up and review monthly the suits filed accounts which is above Rs. 1 lakh. They also monitor the

claims against the bank. In the Advisory role they advise on various legal issues and furnishes

various legal opinions on various matters referred by other departments. They enrich the

knowledge by the circulation of important legal decision which affects bankers. They also settle

the claims of deceased constituents’ accounts and monitor the non-banking assets. IT DEPARTMENT The IT department in Dhanlaxmi Bank deals with software used for controlling all the

branches in the region. Any problem with the software is dealt by the IT person appointed by

the bank. The software used by the bank is called VNC Viewer.

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ORGANIZATIONAL STRUCTURE

Board of Directors

Departmental Heads

Regional Office Head

Branch Manger

Branch

Operations

Manager

CO RO

Cashier CRM

RMR SALES

Figure 3.1: Organizational Structure

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Dhanlaxmi Bank Pvt Ltd follows line hierarchy. In this type of hierarchy the managers are responsible for achieving the organization’s objective by executing the key functions such as business administration and development etc.

SWOT Analysis is a structured planning method that is used to evaluate thestrength, weakness,

opportunities and threats of a business or new project involved. STRENGTHS

1) Experience-The Bank has got rich experience of 80 years in the Banking Industry.

2) Unlimited transaction through ATM from any bank without charge- for most of the banks

the ATM transaction are limited. In case of Dhanlaxmi Bank the customer can draw from any

bank ATM for any number of times without any Bank charges.

3) Technology- The bank has the flexibility to adapt to the changes in the technology. Currently

the bank has implemented a technology platform covering 100% of its operations under the Core

Banking Solution Platform.

4) Has around 280 branches, 4400 employees and over 500 ATMs. - The bank has around 280

branches in India which has around 4400 employees and 500 ATMS.

WEAKNESS 1) Marketing is very limited as compared to other banks. - The bank does not run much

advertisements through television, newspapers and other social medias when other banks

supports many causes, given public campaigns about their banks.

2) Lack of retail banking as compared to popular banks. - The major banks in India mainly focus

on retail banking. They offers many products and services on retail banking such as saving

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account, personal loans, debit card, credit cards etc. whereas Dhanlaxmi Bank focuses on the

corporate banking, NRI banking, Micro &Agri Banking etc.

OPPORTUNITIES

1) Rural banking for higher penetration. – Rural banking is an upcoming trend in the banking

business, the bank has been planning to expand it base on rural areas where banking is very

limited.

2) International banking, especially where Indians are present. – Another opportunity is

expansion of the banks services across the world, which helps them to retain their NRI customers

and build FDI in other countries.

3) Expansion- increasing focus on diversification of deposits in Northern and Western parts of

India.

THREATS 1) Union- presence of strong union which leads to friction between the top management and

employees.

2) Economic slowdown – the recession in the country affects the banking industry to a large

extend. The flow of money through banks reduces, which will adversely affect the banking

industry.

3) Highly competitive environment – the banking industry has become the highly competitive

area as new banks are emerging into the banking business

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CHAPTER I

PROBLEM FORMULATION

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II.1.1 Title of the Study

“Impact of micro finance lending on Self help groups”

II.1.2. Background of the Study

Micro finance is a credit methodology which employs effective collateral substitute for short

term and working capital loans to micro enterprenurs.To enhance international development the

United Nation Organization announced the million development goals aimed at eradicating

poverty, in this regard micro finance is the form of financial development that has its primary

aim to alleviate poverty. The UNO had celebrated the year 2005 as a year of micro credit as a

result this financing instrument is perceived worldwide as a very effective tool against hunger

and poverty.The banking industry offers a structured route for alleviating poverty and women

empowerment and developing the poor people of the society through micro finance loans. The

micro finance facility inculcates savings attitude among the members of the self help group,

develops financial inclusion and increases the income of the members of the SHG’s

II.1.3. Statement of the Problem

Microfinance is expected to play a significant tool in poverty alleviation and development of

small scale industries. The majority of microfinance clients in India today access financial

services through SHG’s. The microfinance helps the poor people to increase their savings habbit

and thereby increase their standard of living. Through this study it was proposed to analyze the

impact of microfinance lending among Self Help Group’s.

II.1.4. Relevance of the Study

Micro finance refers to a self regulating demand driven credit delivery mechanism where in the

asset less poor save and borrows out of group funds for both consumption and for productive

purposes. Micro finance helps borrowers their way out of poverty syndrome of late. The

emerging of the self help groups in the different parts of the country act as grass root mechanism

to provide credit out of group funds. The savings made by the members are pooled and used as a

revolving fund to provide for consumption and production purposes. Loans are advanced to the

members of the group on the basis of priority determined by the groups and the bank access the

balance of the groups’ savings, the parameters issued by the NABARD and the marks the groups

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get out of these parameters and depending on the origin date of the group. There is no denying

the fact that microfinance helps borrowers has become a necessary for the sustainable

development of the SHG’s. It has proven to be an effective and popular measure in the ongoing

struggle against poverty and increase their standard of living also empowerment of women and

enabling the low income people access to financial institutions and to borrow at low bank rates

without any collateral deposit and start to run small business. The study is mainly conducted to

analyze how the poor people have impacted with the microfinance programme of the bank.

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CHAPTER 2 RESEARCH PROCESS

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II.2.1. Objectives of the Study

The broad objective of the study was to understand the impact of microfinance on self help groups. So in the light of the research topic, the objective of this study is to show:

• How microfinance works and how it impacts on the SHG’s by using group lending methodology for reducing poverty.

• To study various procedures of banks towards micro finance programs.

• To understand the bank’s profitability under micro finance.

• The impact of micro finance on living standards, women empowerment and poverty alleviation.

• To get practical knowledge on how SHG’s are formed and graded for the purpose of micro finance.

II.2.2. Scope of the Study

The survey is an attempt to study the impact of micro finance among self help groups

present in and around Thrissur area with reference to Dhanlaxmi Bank. It involves

understanding the basic concept of microfinance and how microfinance provides a better

platform the self help groups and increasing their standard of living and savings.

Factors influencing theimpact of microfinance lending among the self-help groups.

This analysis would help to identify how the banks provide the microfinance lending to

the SHG’s and how the SHG’s are formed and on what parameters are they provided

credit facility.

In the banks point of view this study helps to understand the impact of microfinance on

the overall performance of the bank.

It also helps in understanding how the microfinance increases the savings habit among

the clients through a SHG model of micro financing.

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II.2.3. Research Design

The type of research carried out was Descriptive, location Thrissur District. Descriptive research,

also known as statistical research, describes data and characteristics about the population or

phenomenon being studied. Descriptive research answers the questions who, what, where, when,

"why" and how. It includes survey and fact findings through enquiries too.

II.2.4. Tools for Data Collection

Questionnaire was used as a tool for primary data collection.

II.2.5. Methods of Data Collection

Questionnaire method and interview method was used to get responses. Participants were asked

to fill up the questionnaires handed over to them. The respondents were approached during their

free time or during the grading process by the bank in order to get the correct response.

Secondary data was collected from articles, websites and magazines.

II.2.6. Sampling and Sample Size

Data has been collected from a sample unit – customers applying for the microfinance loan with

reference to Dhanlaxmi Bank, Thrissur area. Sample size taken for this study is 120. The area of

the population is customers applying for microfinance loan. Convenience sampling technique

was used. Accidental sampling (sometimes known as grab, convenience or opportunity

sampling) is a type of non-probability sampling which involves the sample being drawn from

that part of the population which is close to hand. That is, a population is selected because it is

readily available and convenient. It may be through meeting the person or including a person in

the sample when one meets them or chosen by finding them through technological means such as

the internet or through phone.

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II.2.7. Methodology of the study

It basically involves quantitative, qualitative and exploratory research. Quantitative data was

used to analyze the savings of the members of the self help groups. Qualitative data was used to

analyze the SHG model of micro financing hence tools like questionnaires; interviews were used

for collection of data for the study. The study was conducted on customers applying for the

microfinance loan with reference to Dhanlaxmi Bank, Thrissur area. The study predominantly

depends on primary data. Attempts were made to elicit response from the members of the SHG

groups. Primary data was collected by employing a structured questionnaire.

II.2.8.LITERATURE REVIEW

Mohammed AnisurRahman (2007)

Has examined that about microfinance and to investigate the impact of microfinance on the poor

people of the society with the main focus on Bangladesh. We mainly concise our thesis through

client’s (the poor people, who borrowed loan from microfinance institutions) perspective and

build up our research based on it. Therefore, the objective of this study is to show how

microfinance works, by using group lending methodology for reducing poverty and how it

affects the living standard (income, saving etc.) of the poor people in Bangladesh. Microfinance

has the positive impact on the standard of living of the poor people and on their life style. It has

not only helped the poor people to come over the poverty line, but has also helped them to

empower themselves.

SusyCheston (2002)

Has examined that Microfinance has the potential to have a powerful impact on women’s

empowerment. Although microfinance is not always empowering for all women, most women do

experience some degree of empowerment as a result. Empowerment is a complex process of

change that is experienced by all individuals somewhat differently. Women need, want, and

profit from credit and other financial services. Strengthening women’s financial base and

economic contribution to their families and communities plays a role in empowering them.

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Product design and program planning should take women’s needs and assets into account. By

building an awareness of the potential impacts of their programs, MFIs can design products,

services, and service delivery mechanisms that mitigate negative impacts and enhance positive

ones.

Linda Mayoux (Feb 2006)

Has examined that Micro-finance programmes not only give women and men access to savings

and credit, but reach millions of people worldwide bringing them together regularly in organized

groups. Through their contribution to women’s ability to earn an income, micro-finance

programmes can potentially initiate a series of ‘virtuous spirals’ of economic empowerment,

increased well-being for women and their families and wider social and political empowerment

Banks generally use individual rather than group-based lending and may not have scope for

introducing non-financial services. This means that they cannot be expected to have the type of

the focused empowerment strategies which NGOs have

EoinWrenn (2005)

Has examined that microfinance creates access to productive capital for the poor, which together

with human capital, addressed through education and training, and social capital, achieved

through local organization building, enables people to move out of poverty (1999). By providing

material capital to a poor person, their sense of dignity is strengthened and this can help to

empower the person to participate in the economy and society. The impact of microfinance on

poverty alleviation is a keenly debated issue as we have seen and it is generally accepted that it is

not a silver bullet, it has not lived up in general to its expectation (Hulmeand Mosley, 1996).

However, when implemented and managed carefully, and when services are designed to meet the

needs of clients, microfinance has had positive impacts, not just on clients, but on their families

and on the wider community.

Cheston& Kuhn (2004)

Has examined that in their study concluded that micro-finance programmes have been very

successful in reaching women. This gives micro-finance institutions an extraordinary opportunity

to act intentionally to empower poor women and to minimize the potentially negative impacts

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some women experiences. We also found increased respect from and better relationships with

extended family and in-laws. While there have been some reports of increased domestic

violence, Hashemi and Schuler found a reduced incidence of violence among women who were

members of credit organizations than among the general population.

Dr. JyotishPrakashBasu (2006)

Has examined that the two basic research questions. First, the paper tries to attempt to study how

a woman’s tendency to invest in safer investment projects can be linked to her desire to raise her

bargaining position in the households. Second, in addition to the project choice, women

empowerment is examined with respect to control of savings, control of income, control over

loans, control over purchasing capacity and family planning in some sample household in

Hooghly district of West Bengal. The empowerment depends on the choice of investment of

project. The choice of safe project leads to more empower of women than the choice of uncertain

projects. The Commercial Banks and Regional Rural banks played a crucial role in the formation

of groups in the SHGs -Bank Linkage Program in Andhra Pradesh whiles the Cooperative Banks

in West Bengal.

Chintamani Prasad Patnaik (March 2012)

Has examined that microfinance seems to have generated a view that microfinance development

could provide an answer to the problems of rural financial market development. While the

development of microfinance is undoubtedly critical in improving access to finance for the

unserved and underserved poor and low-income households and their enterprises, it is inadequate

to address issues of rural financial market development. It is envisaged that self-help groups will

play a vital role in such strategy. But there is a need for structural orientation of the groups to suit

the requirements of new business. Microcredit movement has to be viewed from a long-term

perspective under SHG framework, which underlines the need for a deliberate policy implication

in favour of assurance in terms of technology back-up, product market and human resource

development.

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.Pillai (1995)

Has examined that the emergence of liberalization and globalization in early 1990's aggravated

the problem of women workers in unorganized sectors from bad to worse as most of the women

who were engaged in various self-employment activities have lost their livelihood. Microfinance

is emerging as a powerful instrument for poverty alleviation in the new economy. In India,

Microfinance scene is dominated by Self Help Group (SHGs)-Bank Linkage Programme as a

cost effective mechanism for providing financial services to the "Unreached Poor" which has

been successful not only in meeting financial needs of the rural poor women but also in

strengthening collective self-help capacities of the poor leading to their empowerment. Micro

finance is necessary to overcome exploitation, create confidence for economic self-reliance of

the rural poor, particularly among rural women who are mostly invisible in the social structure.

Micro finance can contribute to solving the problems of inadequate housing and urban services

as an integral part of poverty alleviation programmes. The challenge lies in finding the level of

flexibility in the credit instrument that could make it match the multiple credit requirements of

the low income borrower without imposing unbearably high cost of monitoring its end use upon

the lenders.

Crabb, P. (2008)

Has examined that the relationship between the success of microfinance institutions and the

degree of economic freedom in their host countries. Many microfinance institutions are currently

not self-sustaining and research suggests that the economic environment in which the institution

operates is an important factor in the ability of the institution to reach this goal, furthering its

mission of outreach to the poor. The sustainability of the micro lending institutions is analyzed

here using a large cross-section of institutions and countries. The results show that microfinance

institutions operate primarily in countries with a relatively low degree of overall economic

freedom and that various economic policy factors are important to sustainability.

Fehr, D. and G. Hishigsuren. (2006)

Has examined that microfinance institutions (MFIs) provide financial services to the poorest

households. To date, funding of MFI activities has come primarily from outright donor grants,

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government subsidies, and often debt capital, including debt with non-market terms favorable to

the MFI. These traditional sources of MFI financing may not be sufficient to allow MFIs to

provide maximum services. There is a subset of the pool of mainstream equity investors who

would consider investing in MFI opportunities, even knowing that they would not expect to earn

the full economic rate of return that such investments would otherwise require. However, as part

of their investment evaluation process, these investors would ask: What would the market

determine required expected rate of return for my MFI investment be? What return on

investment (ROI) do I expect to earn on my MFI investment? Is the difference in the above two

returns acceptable given my level of social motivation? How will I "monetize" my investment

and when? The purpose of this article is to employ modern corporate finance techniques to

address these questions.

Srinivasan, Sunderasan (2007)

Has examined that micro banking facilities have helped large numbers of developing country

nationals by supporting the establishment and growth of microenterprises. And yet, the

microfinance movement has grown on the back of passive replication and needs to be revitalised

with new product offerings and innovative service delivery. Renewable Energy systems viz.,

solar home systems, biogas digesters, etc., serve to improve indoor air quality, provide superior

light and extend working and study hours. Such applications are not inherently income

generating and returns on such investments accrue from cost avoidance, but should qualify for

micro funding, as such 'quality of life' investments, reflect borrower maturity and simultaneously

contribute to MFI sustainability.

Basu, P., Srivastava (2005)

Has examined that the current level and pattern of access to finance for India's rural poor and

examines some of the key microfinance approaches in India, taking a close look at the most

dominant among these, the Self Help Group (SHG) Bank Linkage initiative. It empirically

analyzes the success with which SHG Bank Linkage has been able to reach the poor, examines

the reasons behind this, and the lessons learned. The analysis in the paper draws heavily on a

recent rural access to finance survey of 6,000 households in India, undertaken by the authors.

The main findings and implications of the paper are as follows: India's rural poor currently have

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very little access to finance from formal sources. Microfinance approaches have tried to fill the

gap. Among these, the growth of SHG Bank Linkage has been particularly remarkable, but

outreach remains modest in terms of the proportion of poor households served. The paper

recommends that, if SHG Bank Linkage is to be scaled-up to offer mass access to finance for the

rural poor, then much more attention will need to be paid towards: the promotion of high quality

SHGs that are sustainable, clear targeting of clients, and ensuring that banks linked to SHGs

price loans at cost-covering levels. At the same time, the paper argues that, in an economy as

vast and varied as India's, there is scope for diverse microfinance approaches to coexist. Private

sector micro financiers need to acquire greater professionalism, and the government, too, can

help by creating a flexible architecture for microfinance innovations, including through a more

enabling policy, legal and regulatory framework. Finally, the paper argues that, while

microfinance can, at minimum, serve as a quick way to deliver finance to the poor, the medium-

term strategy to scale-up access to finance for the poor should be to 'graduate' microfinance

clients to formal financial institutions. The paper offers some suggestions on what it would take

to reform these institutions with an eye to improving access for the poor.

Gallardo, Joselito (1999)

Has examined that the Bank should maximize opportunities to expand the use of leasing as an

approach to financial intermediation in Bank projects to promote the development of small

businesses and microenterprises. In most developing countries, capital markets are relatively

undeveloped and banks are often unable or unwilling to undertake term lending. Operations in

microenterprises and small businesses are cash-flow-oriented but rarely have organized historical

financial records or the assets needed for collateral for conventional bank financing. Gallardo

explores the potential of leasing as an option to expand small businesses' access to medium-term

financing for capital equipment and new technology. In a lease-financing contract, the lessor-

financier retains ownership of the asset, lease payments can be tailored to fit the cash-flow

generation patterns of the lessee-borrower's business, and the security deposit is smaller than the

equity stake required in conventional bank financing. Other small businesses require medium-

term financing to acquire the tools and equipment needed to support production growth and

expansion. Gallardo examines and compares the Bank's experience: Lease financing was used to

promote the development of small businesses in Pakistan, as part of a microenterprise

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development loan project. For a Bank-supported alternative-energy project in Indonesia, a

variant of lease financing-the hire-purchase contract-is being used in marketing and distribution

by private distributors of photovoltaic solar home systems. Lease financing was used by

Grameen Trust in Bangladesh to finance the purchase of small tools and equipment and in other

countries to promote the growth of alternative energy systems. This paper-a product of the

Development Research Group-is part of a larger effort in the group to identify appropriate

policies for environmental regulation in developing countries. The study was funded by the

Bank's Research Support Budget under the research project "The Economics of Industrial

Pollution Control in Developing Countries"

Muhammad Yunus (1998)

Has examined that this approach to poverty reduction at the macro-level is inadequate. The

primary causes of poverty are not lack of human capital or lack of demand for labor. Lack of

demand for labor is only a symptom, not a cause, of poverty. Poverty is caused by our inadequate

understanding of human capabilities and by our failure to create enabling theoretical

frameworks, concepts, institutions and policies to support those capabilities. My main argument

is that economics as we know it is not only unhelpful in getting the poor out of poverty; it may

even be a hindrance. In this paper, I would like to explore those institutions that perpetuate

poverty, share my experiences with an effective poverty alleviation institution, and present my

thoughts on the future of poverty alleviation. Before addressing these points, however, I would

like to provide a useful framework to define the concept of "the poor" more concretely.

Ashta, A. & De Selva, R. (2009)

Hass examined that the relationship between microfinance and religion, and provides future

research directions in this area. Religious institutions often play a crucial role in establishing

microfinance systems, but interactions between microfinance and religion have received little

attention of researchers. Some of the topics addressed by articles reviewed in this paper include

the impact of the Great Irish Famine on Irish loan funds, indigenization within support groups for

chronically ill Haitian women, impact of religion on borrowing patterns of Jordanian micro-

entrepreneurs, Islamic microfinance in Pakistan and Indonesia, spirituality as an asset in a

Christian initiative role of religious leaders in identifying entrepreneurial talent, microfinance

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and charity in Thailand and the Philippines, and extensive socio-economic studies in Bangladesh

and India.

Ernest Aryeetey (2005)

Has examined that informal finance and microfinance suitable for financing growing small to

medium size enterprises (SMEs) in Sub-Saharan Africa? First, I present the characteristics of

informal finance, focusing on size, structure, and scope of activities. Informal finance has not

been very attractive for the private sector. Indeed, the informal sector has considerable

experience and knowledge about dealing with small borrowers, but there are significant

limitations to what it can lend to growing microbusinesses. Second, I discuss some recent trends

in microfinance. While externally driven microfinance projects have surfaced in Africa, their

performance relative to small business finance has not been as positive as in Asia and Latin

America. Third, I introduce some possible steps toward a new reform agenda that will make

informal and microfinance relevant to private sector development, including focusing on links

among formal, semi-formal and informal finance and how these links can be developed.

Yunus (2003)

Has examined that count 130 McMaster School for Advancing Humanity on women to spread

the word to their neighbors and friends about the success of these loans. The testimony is

expected to convince others to seek out Grameen for help. Yunus also encourages members to

save some of their money in case they fall on hard times, such as natural disasters, or to use this

money for other opportunities. In 1977, Yunus founded Grameen Bank after working for six

months to get a loan from the Janata Bank. Yunus realized that having groups of people take out

a loan was a better plan for success than giving loans to individuals. He describes the process by

which Grameen Bank lends money. Loan repayments are to be made in very small amounts, and

in the first project, Yunus chose a villager to be in charge of collecting the repayments.

Shannon Doocy, Dan Norell, ShimelesTeffera, and Gilbert Burnham (2005)

Has examined that Management decision making in MFIs is becoming increasingly tied to

collecting information about social performance. This paper examines the impact of participation

in an Ethiopian microfinance program on indicators of socioeconomic status including wealth,

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income, and home or land ownership. A survey assessing these outcomes was conducted in May

2003 in two predominantly rural sites in Southern Ethiopia and included 819 households. The

article discusses management decisions made as the result of survey findings about

socioeconomic status and food security to increase retention rates and to facilitate client savings.

Additionally, the management was prompted to increase the number of female clients and raise

the proportion of female loan officers. This paper illustrates how data from routine monitoring

and evaluation can be linked to MFI management decision making, which ultimately results in

providing better microfinance services. Household asset data indicates that participation in the

WISDOM microfinance program did not result in increased household wealth. Significant

differences in household income were not observed between participant groups in either survey

site and client status was not a significant predictor of income in univariate or multivariate

regression models.

John A. Brett. (2006)

Has examined that having borrowed money from a microfinance organization to start a small

business, many women in El Alto, Bolivia are unable to generate sufficient income to repay their

loans and so must draw upon household resources. Working from the women's experience and

words, this article explores the range of factors that condition and constrain their success as

entrepreneurs. The central theme is that while providing the poor access to credit is currently

very popular in development circles, the social and structural context within which some women

operate so strongly constrains their productive activity that they realize a net income loss at the

household level instead of the promised benefits of entrepreneurship. This paper explores the

social and structural realities in which women seek out and accept debt beyond their capacity to

repay from the proceeds of their business enterprise. By examining some of the "hidden costs" of

microfinance participation, this paper argues for a shift from evaluation on outcomes at the

institutional level to outcomes at the household level to identify the forces and factors that

condition women's success as micro-entrepreneurs. While there has been much discussion on the

benefits of microcredit lending and increasing critique of it on both ideological and substantive

grounds, there have been few ethnographically informed studies on consequences to users.

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NidhiyaMenon (2006)

Has examined that this paper studies the benefits of participation in micro-finance programs,

where benefits are measured in terms of the ability to smooth the effect of seasonal shocks that

cause consumption fluctuations. It is shown that although membership in these programs is an

effective instrument in combating inter-seasonal consumption differences, there is a threshold

level of length of participation beyond which benefits begin to diminish. Returns from

membership are modelled using an Euler equation approach. Fixed effects non-linear least

squares estimation of parameters using data from 24 villages of the Grameen Bank suggests that

returns to participation, as measured by the ability to smooth seasonal shocks, begin to decline

after approximately two years of membership. This implies that membership alone no longer has

a mitigating marginal effect on seasonal shocks to per capita consumption after four years of

participation. Such patterns suggest that the ability to smooth consumption as a function of

length of membership, need not accrue indefinitely in a linear fashion; Reprinted by permission

of Frank Cass & Co. Ltd.

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CHAPTER 3 PRESENTATION AND ANALYSIS OF

DATA

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II.3.1. Univariate Analysis

II.3.1.1.a. Table showing classification of respondents based on Gender:

Gender

Frequency Percent Valid Percent Cumulative

Percent

Valid

male 38 32.2 32.2 32.2

female 82 67.8 67.8 100.0

Total 120 100.0 100.0

II.3.1.1.b. Chart showing classification of respondents based on Gender:

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Interpretation

Out of 120 respondents, 32.2 % were males and 67.8% were females. The most of the respondents were women that testify to the fact that most of the beneficiaries of micro finance are female because we have selected people randomly without any bias towards gender.

There are good reasons to target women by MFI’s because gender discrimination is one of the major causes of poverty, slower economic growth, weaker governance and lower standards of living and women are comparatively poorer than men. However women contribute more decisively to the well being of their family comparatively more than men.

II.3.1.2.a. Table showing classification of respondents based on Age:

Age

Frequency Percent Valid Percent Cumulative

Percent

Valid

less than 25 10 9.1 9.1 9.1

25-40 67 55.4 55.4 64.5

40 and above 43 35.5 35.5 100.0

Total 120 100.0 100.0

II.3.1.2.b. Chart showing classification of respondents based on Age:

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Interpretation

• 9.1% of the respondents are in the age group less than 25 years.

• 55.4 % of the respondents are in the age group from 25-40 years.

• 35.5% of the respondents are in the age group 40 above.

II.3.1.3.a. Table showing classification of respondents based on Education:

Education

Frequency Percent Valid Percent Cumulative

Percent

Valid

Xth 92 76.9 76.9 76.9

XIIth 20 16.5 16.5 93.4

Degree 8 6.6 6.6 100.0

Total 120 100.0 100.0

II.3.1.3.b. Chart showing classification of respondents based on Education:

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Interpretation

• 76.9% of the respondents were Xth. • 16.5% of the respondents were XIIth • 6.6% of the respondents had Degree.

II.3.1.4.a. Table showing family members of the respondent:

No of members in family

Frequency Percent Valid Percent Cumulative

Percent

Valid

less than 2 members 18 15.7 15.7 15.7

2-5 members 60 49.6 49.6 65.3

more than 5 members 42 34.7 34.7 100.0

Total 120 100.0 100.0

II.3.1.4.b. Chart showing the family members of the respondents:

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Interpretation

• 15.7% of the respondents have less than 2 members in their family • 49.6% of the respondents have 2-5 members in their family • 34.7% of the respondents have more than 5 members in their family.

II.3.1.5.a. Table showing classification of respondents based on their business experience before entering this program:

Business experience before this program

Frequency Percent Valid Percent Cumulative

Percent

Valid

yes 44 37.2 37.2 37.2

no 76 62.8 62.8 100.0

Total 120 100.0 100.0

II.3.1.5.b Chart showing the classification of respondents on their business experience before entering this program:

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Interpretation

• 37.2% of the respondents had business experience before entering this program • 62.8% of the respondents have no business experience before entering this program

II.3.1.6.a. Table showing respondents source of initial capital:

Source of initial capital

Frequency Percent Valid Percent Cumulative

Percent

Valid

personal savings 7 5.8 5.8 5.8

friendsandrelatives 9 7.4 7.4 13.2

loan from MFI 88 72.7 72.7 86.0

Others 16 14.0 14.0 100.0

Total 120 100.0 100.0

II.3.1.6.b Chart showing the source of initial capital of the respondents:

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Interpretation

• 5.8% respondents source of initial capital was from personal savings • 7.4% of the respondents source of initial capital was from friends&relatives • 72.7% of the respondents source of initial capital was from loans of MFI’s • 14% of the respondents source of initial capital was from others.

II.3.1.7.a. Table showing respondents loan amount received as micro finance from Dhanlaxmi Bank:

Amount of loan received as microfinance from bank

Frequency Percent Valid Percent Cumulative

Percent

Valid

5000-10000 52 43.0 43.0 43.0

more than 10000 68 57.0 57.0 100.0

Total 120 100.0 100.0

II.3.1.7.b. Chart showing the amount of loan taken as microfinance by the respondents:

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Interpretation:

• 43% of the respondents received micro finance amount as less than5000 • 57% of the respondents received micro finance amount above 10000

II.3.1.8.a. Table showing whether respondent’s degree of satisfaction towards interest rates of micro finance:

Rate of interest of micro credit is reasonable

Frequency Percent Valid Percent Cumulative

Percent

Valid

strongly disagree 24 19.8 19.8 19.8

disagree 6 5.0 5.0 24.8

neutral 8 7.4 7.4 32.2

agree 52 43.0 43.0 75.2

strongly agree 30 24.8 24.8 100.0

Total 120 100.0 100.0

II.3.1.8.b.Chart showing the satisfaction level of the respondents towards the interest rate of micro finance:

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Interpretation

• 19.8% of the respondents strongly disagree with the rate of interest of micro finance.

• 5% of the respondents disagree with the rate of interest of micro finance

• 7.4% of the respondents is neutral towards the rate of interest of micro finance

• 43% of the respondents agree with the rate of interest of micro finance

• 24.8% of the respondents strongly agree with the rate of interest of micro finance.

II.3.1.9.a. Table showing how respondent’s satisfaction level towards procedure for obtaining loans from the bank:

Procedure for obtaining loans is easier than conventional banking

Frequency Percent Valid Percent Cumulative

Percent

Valid

disagree 6 5.8 5.8 5.8

neutral 4 3.3 3.3 9.1

agree 35 28.9 28.9 38.0

strongly agree 75 62.0 62.0 100.0

Total 120 100.0 100.0

II.3.1.9.b. Chart showing the respondents satisfaction level towards procedure for obtaining loans from the bank:

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Interpretation

• 5.8% of the respondents disagree with the satisfaction level of procedures for obtaining

loans from MFI’s

• 3.3% of the respondents are neutral towards the procedures for obtaining loans from

MFI’s

• 28.9% of the respondents agree with the the procedures for obtaining loans from MFI’s

• 62.0% of the respondents strongly agree with the the procedures for obtaining loans from

MFI’s

II.3.1.10.a. Table showing respondents increase in income:

Income has increased

Frequency Percent Valid Percent Cumulative

Percent

Valid

disagree 19 15.7 15.7 15.7

agree 24 19.8 19.8 35.5

strongly agree 77 64.5 64.5 100.0

Total 120 100.0 100.0

II.3.1.10.b.Chart showing respondents increase in income:

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Interpretation

• 15.7% of the respondents disagree with the increase of income • 19.8% of the respondents agree with the increase in income • 64.5% of the respondents strongly agrees with the increase in income

II.3.1.11.a. Table showing respondents increase in savings:

Savings has increased

Frequency Percent Valid Percent Cumulative

Percent

Valid

disagree 14 11.6 11.6 11.6

neutral 7 5.8 5.8 17.4

agree 41 33.9 33.9 51.2

strongly agree 58 48.8 48.8 100.0

Total 120 100.0 100.0

II.3.1.11.b. Chart showing the respondents increase in savings:

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Interpretation

• 11.6% of the respondents disagrees with the increase in savings

• 5.8% of the respondents are neutral towards increase in savings

• 33.9% of the respondents agree towards increase in savings

• 48.8% respondents strongly agree towards the increase in savings

II.3.1.12.a. Table showing respondents better access to education:

Better access to education

Frequency Percent Valid Percent Cumulative

Percent

Valid

Stronglydisagree 8 6.6 6.6 6.6

Disagree 7 5.8 5.8 12.4

agree 49 40.5 40.5 52.9

strongly agree 56 47.1 47.1 100.0

Total 120 100.0 100.0

II.3.1.12.b.Chart showing respondents better access to education:

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Interpretation

• 6.6% of the respondents strongly disagree with level of satisfaction towards better access

to education

• 5.8% of the respondents disagree with level of satisfaction towards better access to

education

• 40.5% of the respondents agree with level of satisfaction towards better access to

education

• 47.1% of the respondents strongly agree with level of satisfaction towards better access to

education.

II.3.1.13.a. Table showing respondents satisfaction level towards better access to healthcare:

Better access to health care

Frequency Percent Valid Percent Cumulative

Percent

Valid

strongly disagree 25 20.7 20.7 20.7

disagree 11 9.9 9.9 30.6

agree 37 30.6 30.6 61.2

strongly agree 47 38.8 38.8 100.0

Total 120 100.0 100.0

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II.3.1.13.b.Chart showing respondents satisfaction towards better access to healthcare:

Interpretation:

• 20.7% of the respondents strongly disagree with the level of satisfaction towards better access to health care.

• 9.9% of the respondents disagree with the level of satisfaction towards better access to health care.

• 30.6% of the respondents agree with the level of satisfaction towards better access to health care.

• 38.8% of the respondents strongly agree with the level of satisfaction towards better access to health care.

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II.3.1.14.a. Table showing respondents satisfaction level towards better financial situation of the family:

Better financial situation of family

Frequency Percent Valid Percent Cumulative

Percent

Valid

strongly disagree 14 11.6 11.6 11.6

disagree 7 5.8 5.8 17.4

neutral 2 1.7 1.7 19.0

agree 35 29.8 29.8 48.8

strongly agree 62 51.2 51.2 100.0

Total 120 100.0 100.0

II.3.1.14.b.Chart showing the respondents satisfaction level towards better financial situation of the family:

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Interpretation

• 11.6% of the respondents strongly disagree with the level of satisfaction towards

financial situation of the family

• 5.8% of the respondents disagree with the level of satisfaction towards financial situation

of the family

• 1.7% of the respondents are neutral with the level of satisfaction towards financial

situation of the family

• 29.8% of the respondents are agree with the level of satisfaction towards financial

situation of the family

• 51.2% of the respondents strongly agree with the level of satisfaction towards financial

situation of the family

II.3.1.15.a. Table showing respondents satisfaction level towards role in increase of decision

making process:

Role in decision making has increased

Frequency Percent Valid Percent Cumulative

Percent

Valid

strongly disagree 24 19.8 19.8 19.8

disagree 2 1.7 1.7 21.5

agree 31 25.6 25.6 47.1

strongly agree 63 52.9 52.9 100.0

Total 120 100.0 100.0

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II.3.1.15.b.Chart showing respondents satisfaction level towards role in increase of decision

making process:

Interpretation

• 19.8% of the respondents strongly disagree with their level of satisfaction towards

increase in decision making process.

• 1.7%of the respondents disagree with their level of satisfaction towards increase in

decision making process.

• 25.6% of the respondents agree with their level of satisfaction towards increase in

decision making process.

• 52.9% of the respondents strongly agree with their level of satisfaction towards increase

in decision making process.

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II.3.1.16.a. Table showing whether respondents received any operational assistance from the

bank in running the business:

Operational assistance received from MFI was helpful

Frequency Percent Valid Percent Cumulative

Percent

Valid

strongly disagree 15 12.4 12.4 12.4

disagree 6 5.0 5.0 17.4

neutral 6 5.8 5.8 23.1

agree 26 21.5 21.5 44.6

strongly agree 67 55.4 55.4 100.0

Total 120 100.0 100.0

II.3.1.16.b.Chart showing whether respondents received any operational assistance from the bank

in running the business:

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Interpretation

• 12.4% of the respondents strongly disagrees with the level of satisfaction towards

operational assistance from the bank.

• 5% of the respondents disagree with the level of satisfaction towards operational

assistance from the bank.

• 5.8% of the respondents are neutral with the level of satisfaction towards operational

assistance from the bank.

• 21.5% of the respondents are agree with the level of satisfaction towards operational

assistance from the bank.

• 55.4% of the respondents strongly agree with the level of satisfaction towards operational

assistance from the bank

II.3.1.17.a. Table showing respondents satisfaction towards increase in employment

opportunities:

Employment opportunities have increased

Frequency Percent Valid Percent Cumulative

Percent

Valid

strongly disagree 3 2.5 2.5 2.5

disagree 3 2.5 2.5 5.0

neutral 18 15.7 15.7 20.7

agree 36 29.8 29.8 50.4

strongly agree 60 49.6 49.6 100.0

Total 120 100.0 100.0

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II.3.1.17.b.Chart showing respondents satisfaction level towards increase in employment opportunities:

Interpretation

• 2.5% of the respondents strongly disagree with increase in employment opportunities.

• 2.5% of the respondents disagree with increase in employment opportunities.

• 15.7% of the respondents are neutral with increase in employment opportunities.

• 29.8% of the respondents agree with increase in employment opportunities.

• 49.6% of the respondents with increase in employment opportunities.

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II.3.1.18.a. Table showing respondents satisfaction level towards improvement in living standard

of family:

Improvement in the standard of living of family

Frequency Percent Valid Percent Cumulative

Percent

Valid

strongly disagree 1 .8 .8 .8

neutral 4 4.1 4.1 5.0

agree 58 47.9 47.9 52.9

strongly agree 57 47.1 47.1 100.0

Total 120 100.0 100.0

II.3.1.18.b.Chart showing respondents improvement in living standard of family:

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Interpretation

• 0.8% of the respondents strongly disagree with improvement in living standard of family

• 4.1% of the respondents are neutralwith improvement in living standard of family

• 47.9% of the respondents agree with improvement in living standard of family

• 47.1% of the respondents strongly agree with improvement in living standard of family

Descriptive Statistics

N Minimum Maximum Mean Std. Deviation

Statistic Statistic Statistic Statistic Std. Error Statistic

rate of interest of micro

credit is reasonable

120 1 5 3.48 .130 1.432

procedure for obtaining

loans is easier than

conventional banking

120 2 5 4.47 .074 .817

operational assistance

received from MFI was

helpful

120 1 5 4.02 .127 1.393

employment opportunities

have increased

120 1 5 3.45 .148 1.628

Valid N (listwise) 120

The following table displays the mean and standard deviation for four variables, procedure for loan taking, operational assistance, employment opportunity and reasonability of the interest rate of micro credit. All these variables show satisfaction level to be more than average level of satisfaction.

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Correlations

income has

increased

savings has

increased

income has increased

Pearson Correlation 1 .600

Sig. (2-tailed) .002

N 120 120

savings has increased

Pearson Correlation .600 1

Sig. (2-tailed) .002

N 120 120

This means that as one variable increases in value, the second variable also increase in value.

Similarly, as one variable decreases in value, the second variable also decreases in value. This is

called a positive correlation. In our example, our Pearson’s r value of 0.600 was positive. Since

our Pearson’s r is positive, we can conclude that when the income r increases the savings also

increases. We can conclude that there is a statistically significant correlation between the two

variables. That means, increases or decreases in one variable do significantly relate to increases

or decreases in the second variable.

Generally people take the loan to change their economic condition by operating business or

investing in other activities. After maintaining their expenditures they think about savings which

would help to improve their living standard.

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Descriptive Statistics

N Minimum Maximum Mean Std. Deviation

Statistic Statistic Statistic Statistic Std. Error Statistic

Improvement in the standard

of living of family

120 1 5 3.80 .117 1.282

better acess to eductaion 120 1 5 4.16 .103 1.133

better acess to health care 120 1 5 3.32 .135 1.484

better financial situation of

family

120 1 5 4.03 .122 1.347

Valid N (listwise) 120

The above descriptive statistics of different variables related to living standards. All variable

have mean value above the minimum statistic and shows positive perceptions of the people about

these attributes.

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EVALUATION OF SELF HELP GROUPS NAME OF THE SHG

DATE OF FORMATION

INITIAL INVESTMENT

SAVINGS NO OF MEMBERS

Nature of Business

Sreemannamswayamsahayasankham-NSS

20-2-2010 Rs.25 Rs.144000 20 Agriculture

Shreyasswayamsankham-NSS 11-12-2011 Rs.70 Rs.252000 15 Agriculture

Aiswaryaswayamsankham 8-4-2007 Rs.20 Rs.72000 15 Agriculture

Sreenandhasahayam 13-9-2008 Rs.30 Rs.230400 20 Agriculture

Shree Sasthavanithasankham 5-7-2012 Rs.50 Rs.115200 12 Agriculture

Kairali SHG 12-6-2009 Rs.10 Rs.50400 15 Agriculture

SreeDurga SHG 7-3-2010 Rs.20 Rs.57600 10 Agriculture

Muringoor-SHG 5-4-2008 Rs.50 Rs.288000 15 Agriculture

Darshana-SHG 3-4-20011 Rs.15 Rs.72000 20 Agriculture

Krishna-SHG 12-6-2009 Rs.10 Rs.50400 15 Agriculture

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IMPACT OF MICRO FINANCE FROM THE BANKS PERSPECTIVE:

The micro finance has a huge impact on the banks as in its impact is on the profitability of the

banks. The data from the secondary sources shows that every bank has to achieve certain targets

as per the norms of the Reserve Bank Of India, which is known as the Priority Sector Lending

Targets. As per the norms micro finance is a part of the Priority Sector Lending Target for the

bank, so it’s the responsibility of the banks to issue huge loans under micro finance and achieve

their target with the RBI. The micro finance lending forms around 20%-30% of the priority

sector lending targets. Bank credit to MFIs extended for on-lending to individuals and also to

members of SHGs / JLGs is eligible for categorization as priority sector advance under

respective categories viz., Agriculture, Micro, Small and Medium Enterprises, Social

Infrastructure and Others subject to the criteria laid down in Para IX of the Master Circular

FIDD.CO.Plan.BC.04/04.09.01/2015-16 dated July 1, 2015 on Priority Sector Lending- Targets

and Classification.

Priority Sector includes the following categories:

(i) Agriculture

(ii) Micro, Small and Medium Enterprises

(iii) Export Credit

(iv) Education

(v) Housing

(vi) Social Infrastructure

(vii) Renewable Energy

(viii) Others

The targets and sub-targets for banks under priority sector are as follows:

Agriculture: 18 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure,

whichever is higher. Within the 18 percent target for agriculture, a target of 8 percent of ANBC

or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher is prescribed

for Small and Marginal Farmers, to be achieved in a phased manner i.e.,7 per cent by March

2016 and 8 per cent by March 2017.Foreign banks with 20 branches and above have to achieve

the Agriculture Target within a maximum period of five years starting from April 1, 2013 and

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ending on March 31, 2018 as per the action plans submitted by them and approved by RBI. The

sub-target for Small and Marginal farmers would be made applicable post 2018 after a review in

2017.

Micro Enterprises: 7.5 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet

Exposure, whichever is higher to be achieved in a phased manner i.e. 7 per cent by March 2016

and 7.5 per cent by March 2017. The sub-target for Micro Enterprises for foreign banks with 20

branches and above would be made applicable post 2018 after a review in 2017.

Priority sector loans to the following borrowers are eligible to be considered under Weaker Sections category:-

1. Small and Marginal Farmers

2. Artisans, village and cottage industries where individual credit limits do not exceed 1 lakh

3. Beneficiaries under Government Sponsored Schemes such as National Rural Livelihoods Mission (NRLM), National Urban Livelihood Mission (NULM) and Self Employment Scheme for Rehabilitation of Manual Scavengers (SRMS)

4. Scheduled Castes and Scheduled Tribes

5. Beneficiaries of Differential Rate of Interest (DRI) scheme

6. Self Help Groups

7. Distressed farmers indebted to non-institutional lenders

8. Distressed persons other than farmers, with loan amount not exceeding per borrower to prepay their debt to non-institutional lenders

9. Individual women beneficiaries up to 1 lakh per borrower

10. Persons with disabilities

Overdrafts upto 5,000/- under Pradhan Mantri Jan-DhanYojana (PMJDY) accounts, provided the borrowers’ household annual income does not exceed 100,000/- for rural areas and 1,60,000/- for non-rural areas

11. Minority communities as notified by Government of India from time to time.

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• The micro finance loan is considered be an unsecured loan because the bank lends the

micro finance loan without any collateral so since it is an unsecured loan it involves

higher risk which implies higher the risk higher the return. Since the interest rate is high

and fixed same for every banks as per the norms of the NABARD the micro finance

lending has a huge impact on the bank, profitably. The bank issues the loan to the SHG as

a whole and not to an individual person so here in micro finance there is joint liability to

each member of the SHG group to pay back the loan on time usually within 36 months.

So from the banks perspective there are not much chances of the micro finance loan to be

a non performing asset. The bank provides the loan to the SHG on behalf of the various

micro finance institutions such as NSS. SNDP, AMRITANANDAMAYI and

CHRISTIAN community so these MFI’s provides the bank with a loan security when

issued to the SHG’s under these communities. The bank mainly directly links with these

Micro finance institutions and provides loans to SHG’s under these.

• The bank has also merged with other micro finance institutions such as ESAF,

MUTHOOT MINI to source funds to the SHG’s under these micro finance institutions.

The banks has an indirect link to reach the SHS’s to maximize their portfolio under

micro finance sector and achieve their targets under priority sector lending targets and for

the empowerment of micro small and medium enterprises.

• The bank also has another impact through the micro finance as these micro finance loans

helps in financial inclusion. The banks encourage the members of the SHG to open a

Savings account with the bank and also provide loans to more women of the

underdeveloped society which helps in women empowerment.

• The bank as in has no asset backed with this micro finance loan, all the micro finance

loans are issues under the purpose of agriculture and these SHG members are supported

through micro finance institutions there have been no asset backed.

• The bank conducts its recovery of loan through a method of revenue recovery wherein

the bank issues a notice to the members of the SHG and to the village office mentioning

the details of the defaulters.

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CHAPTER 4 SUGGESTIONS / RECOMMENDATIONS

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• It has been found that year by year the loans provided to SHG’s are increasing, this

shows that banks are encouraging microfinance sector as well.

• The savings account held by the SHG member have increased, this shows that the savings

habit of the people have increased.

• The profitability of the bank is increasing

• Most of the SHG members feel there is high accessibility of loans from SHG

• Most of the SHG members are borrowing repeatedly and are able to generate more

income from the micro finance loan.

• The bank should take adequate measures to make the SHG’s aware about the government

schemes.

• The bank should move to more rural areas and give training regarding formation of

SHG’s.

• Microfinance schemes are highly associated to build up of social and economic

empowerment.

• The bank should try to understand the proper end use of the loan taken by the SHG

members

• The bank should also engage motivating, training the members for skill development of

the members of the self help groups.

• The bank also should diversify their portfolio in lending to the unprivileged section of the

society.

• Most of the SHG members felt that the rate of interest of the micro finance was

reasonable and they had repeated borrowing from the bank.

• Most of the SHG members felt that due to micro finance their there has been

improvement in their living standards of the family.

• Most of the SHG members felt that their has been better access to education and health

due to micro finance.

• Most of the SHG members felt that there employment opportunities’ increases due to

micro finance.

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BIBLIOGRAPHY

• WWW.EBSCO.COM • WWW.DHANBANK.COM • WWW.NABARD.ORG • WWW.WIKEPEDIA.ORG • WWW.MONEYCONTROL.COM

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ANNEXURE QUESTIONNAIRE I am Aakash Asokan studying Masters Program at Rajagiri Centre for Business Studies.

I have designed the following questionnaire for the study of the impact of Microfinance on the

Self Help Groups and further scope of development, which is required for my project work as an

integral part of our study. I would highly appreciate if you fill this two-page questionnaire. It will take approximately 10-15 minutes. 1. Gender:

Male Female 2. Age:

Less than 25 years (25-40) years 40 and above 3. Education: Xth XIIth Diploma Degree 4. Number of members in your family?

Less than 2 members (2-5) Members More than 5 Members 5. Did you have any business experience before entering this program?

Yes No 6. What is the source of your initial capital?

Personal Savings Friends and relatives Loan from MFIs Others 7. What amount of loan you have received as a help from the Dhanlaxmi Bank as microfinance?

Less than 5 thousand (5-10) thousand More than 10 thousand

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8. The numbers of following table indicates the degree of satisfaction or agreement level (on a scale of 1-5*) of the household or a person after he or she has received loan from a microfinance institution. Please circle the number, which accurately reflects your opinion

The rate of interest of micro credit is Strongly disagree Strongly agree

reasonable 1 2 3 4 5

The procedure of obtaining loans from MFIs is Strongly disagree Strongly agree

easier than conventional banking 1 2 3 4 5

Strongly disagree Strongly agree

The income has increased 1 2 3 4 5

Strongly disagree Strongly agree

The savings has increased 1 2 3 4 5

Strongly disagree Strongly agree

Better access to education 1 2 3 4 5

Strongly disagree Strongly agree

Better access to healthcare 1 2 3 4 5

Strongly disagree Strongly agree

Better Financial situation of the family 1 2 3 4 5

Strongly disagree Strongly agree

Role in decision making process has increased 1 2 3 4 5

Operational assistance received from MFIs Strongly disagree Strongly agree

was helpful to run the business 1 2 3 4 5

Strongly disagree Strongly agree

Employment opportunities have increased 1 2 3 4 5

Improvement in the living standard of the Strongly disagree Strongly agree

family 1 2 3 4 5

∗ ‘1’ represents the lowest level of satisfaction or high disagreement, whereas ‘5’ represents the highest level of satisfaction or high agreement