135140774 micro financing
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MICROFINANCING
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INTRODUCTION
Microfinance is the provision of financial
servicesto low-incomeclients, includingconsumers and the self-employed, who
traditionally lack access to bankingand
related services
http://en.wikipedia.org/wiki/Financial_serviceshttp://en.wikipedia.org/wiki/Financial_serviceshttp://en.wikipedia.org/wiki/Low-incomehttp://en.wikipedia.org/wiki/Self-employedhttp://en.wikipedia.org/wiki/Bankinghttp://en.wikipedia.org/wiki/Bankinghttp://en.wikipedia.org/wiki/Self-employedhttp://en.wikipedia.org/wiki/Self-employedhttp://en.wikipedia.org/wiki/Self-employedhttp://en.wikipedia.org/wiki/Low-incomehttp://en.wikipedia.org/wiki/Low-incomehttp://en.wikipedia.org/wiki/Low-incomehttp://en.wikipedia.org/wiki/Financial_serviceshttp://en.wikipedia.org/wiki/Financial_services -
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FEATURES OF MICRO-FINANCE
It is a tool for empowerment of the poorest.
Delivery is normally through Self Help Groups (SHGs).
It is essentially for promoting self-employment, generally used for: Direct income generation
Consumption smoothing.
It is not just a financing system, but a tool for social change, specially
for women.
Because micro credit is aimed at the poorest, micro-finance lendingtechnology needs to mimic the informal lenders rather than the formal
sector lending. It has to:
Provide for seasonality
Allow repayment flexibility
Fix a ceiling on loan sizes.
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SCOPE OF MICROFINANCE
Micro Financing has greatest scope in the world especially in
developing countries. Because mostly people dont have high
income and low purchasing power and MF institutions target
market as low income group and it is common impression that
poor people need and use a variety of financial services
including deposits, loans etc. they use financial services for
some reason like seize business opportunities, improve homer
and living standard, deal with large cope with emergencies.
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FUNCTIONS OF MICRO FIANANCE
Small loans, typically for working capital;
Informal appraisal of borrowers and investments;
Access to repeat and larger loans based on debt capacity and repaymentperformance;
Secure savings products.
To provide financing facilities, with or without collateral Security
To accept deposits
To encourage investments in such cottage industries and income generating
projects for poor persons as maybe prescribed; To mobilize and provide financial and technical assistance and training to micro
enterprises
To invest in shares of any body corporate, the objective of which is to provide
microfinance services to poor persons
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KEY PLAYERS IN MF SYSTEM
NABARD
Reserve Bank of India Self Help Groups
Micro Finance Institutions (MFIs)
NGOs
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Models of microfinance
The SHG-Bank Linkage Model
Partnership Model Service company model
Banking Correspondents
Bank Partnership Model
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SELF HELP GROUPS (SHGS)
Self- help groups (SHGs) play today a major role in poverty
alleviation in rural India. A growing number of poor people
(mostly women) in various parts of India are members of SHGsand actively engage in savings and credit (S/C), as well as in
other activities (income generation, natural resources
management, literacy, child care and nutrition, etc.).
The S/C focus in the SHG is the most prominent element and
offers a chance to create some control over capital. The SHGsystem has proven to be very relevant and effective in offering
women the possibility to break gradually away from exploitation
and isolation.
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BANK PARTNERSHIP MODEL
This model is an innovative way of financing MFIs. The bank is
the lender and the MFI acts as an agent for handling items ofwork relating to credit monitoring, supervision and recovery.
The model has the potential to significantly increase the amount
of funding that MFIs can leverage on a relatively small equity
base.
A sub - variation of this model is where the MFI, as an NBFC,holds the individual loans on its books for a while before
securitizing them and selling them to the bank. Such
refinancing through securitization enables the MFI enlarged
funding access
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BANKING CORRESPONDENTS
The proposal of banking correspondents could take
this model a step further extending it to savings. It
would allow MFIs to collect savings deposits fromthe poor on behalf of the bank. It would use the
ability of the MFI to get close to poor clients while
relying on the financial strength of the bank to
safeguard the deposits.
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BANK LED MODEL
The bank led model was derived from the SHG-Bank
linkage program of NABARD. Through this program,
banks financed Self Help Groups (SHGs) which hadbeen promoted by NGOs and government agencies.
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PARTNERSHIP MODELS
This model aimed at synergizing the comparative
advantages and financial strength of the bank and
infrastructure of MFIs and NGOs.
Through this model, ICICI Bank could save on the
initial costs of developing rural infrastructure and
micro credit distribution channels and could take
advantage of the expertise of these institutions inrural areas.
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SERVICE COMPANY MODEL
Under this model, the bank forms its own MFI, perhaps as an
NBFC, and then works hand in hand with that MFI to extend
loans and other services. Service Company Model has the potential to take the burden of
overseeing microfinance operations off the management of the
bank and put it in the hands of MFI managers who are focused
on microfinance to introduce additional products, such as
individual loans for SHG graduates, remittances and so onwithout disrupting bank operations and provide a more
advantageous cost structure for microfinance.
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Challenges in Micro Finance
High Volume of Financial Transaction but value wisevery low
Majority of the financial transactions are off-site innature
Geographic spread of operations and density ofcustomers
Lack of infrastructure facilities like power, broadband
etc Unsecured lending and no documented financial
history is available
Combination of above, lead to high operating cost
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Role in poverty alleviation
The key to alleviating poverty is how effectively the tools offood, shelter, basic education, opportunities foremployment, health and medical services, financialservices, infrastructure, markets and communication aredeployed either singularly or severally to the poor. Povertyis a pervasive problem in our society. Spanning across theworld, poverty exists in different levels and various forms.At the current threshold of $1.25 a day, the World Bank
estimates that around 25% of the population in developingregions lives below the poverty line. This figure translatesto 1.3 billion people living in poverty, or about 20% of theglobal population
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Contd
Microfinance is the provision of financial services to the poor,aiming to empower low-income populations by providing themwith access to credit and other financial services. Through
microfinance institutions (MFI), the poor can obtain collateral-free loans at relatively low interest rates and use the money forcreating micro enterprises (small businesses owned by poorpeople), funding childrens education, and improving homes,among others. Aside from micro credit, MFIs have alsodeveloped numerous financial products, such as micro-insurance and micro-mortgage that are designed toaccommodate the poors financial needs.
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THANK YOU
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