-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
1/92
A Study on Impact of Micro Finance on Women Empowerment
INTRODUCTION
Microfinance is defined as any activity that includes the provision of financial services
such as credit, savings, and insurance to low income individuals which fall just above the
nationally defined poverty line, and poor individuals which fall below that poverty line, with the
goal of creating social value. The creation of social value includes poverty alleviation and the
broader impact of improving livelihood opportunities through the provision of capital for micro
enterprise, and insurance and savings for risk mitigation and consumption smoothing. A large
variety of sectors provide microfinance in India, using a range of microfinance delivery methods.Since many banks in India, various actors have endeavored to provide access to financial
services to the poor in creative ways. overnments also have piloted national programs, !"s
have undertaken the activity of raising donor funds for on#lending, and some banks have
partnered with public organi$ations or made small inroads themselves in providing such services.
This has resulted in a rather broad definition of microfinance as any activity that targets poor and
low#income individuals for the provision of financial services. The range of activities undertaken
in microfinance include group lending, individual lending, the provision of savings and
insurance, capacity building, and agricultural business development services.
The two main mechanisms for the delivery of financial services to such clients are% &'(
)elationship#based banking for individual entrepreneurs and small businesses and &*( roup#
based models, where several entrepreneurs come together to apply for loans and other services as
a group. Microfinance is a movement whose object is +a world in which as many poor and near
poor households as possible have permanent access to an appropriate range of high uality
financial services, including not just credit but also savings, insurance and fund transfers-. Many
of those who promote microfinance generally believe that such access will help poor people out
of poverty. Microfinance is a way to promote economic development, employment and growth
through the support of micro#entrepreneurs and small business.
Pae !
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
2/92
A Study on Impact of Micro Finance on Women Empowerment
In India, the trickle down effects of macroeconomic policies have failed to resolve the
problem of gender ineuality. omen have been the vulnerable section of society and constitute
a si$eable segment of the poverty#struck population. omen face gender specific barriers to
access education health, employment etc. Micro finance deals with women below the poverty
line. Micro loans are available solely and entirely to this target group of women. There are
several reason for this% Among the poor, the poor women are most disadvantaged# they are
characteri$ed by lack of education and access of resources, both of which is reuired to help
them work their way out of poverty and for upward economic and social mobility. The problem
is more acute for women in countries like India, despite the fact that women/s labor makes a
critical contribution to the economy. This is due to the low social status and lack of access to key
resources. 0vidence shows that groups of women are better customers than men, the better
managers of resources. If loans are routed through women benefits of loans are spread wider
among the household.
1y e2tending small loans to poor individuals, microcredit enables its borrowers to take up
income#earning activities that lead to a series of improvements in their economic situation. In
addition to the improved income#earning ability, microcredit has increasingly promoted for its
positive impact on empowerment, especially for women/s empowerment by enabling poor
women to earn an independent income and contribute financially to their household. This is
supposed to give women greater power within the household. Also, microcredit is seen as a tool
in enabling women to free themselves from household confines and get e2posure to the outside
community. The e2posure to the outside community, together with the formation of networks
with other women, is e2pected to lead to greater self#confidence and courage. 3owever, there is
no real consensus among academics on women/s empowerment. Microcredit has a role in
increasing female borrower/s income#earning ability, leading to stronger decision#making power
and ability to overcome gender#related constraints.
Pae "
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
3/92
A Study on Impact of Micro Finance on Women Empowerment
NEED FOR T#E STUD$
Since independence, various governments in India have e2perimented with a large
number of grant and subsidy based poverty alleviation programmes. These programmes were
based on grant4subsidy and the credit linkage was through commercial banks only. 3ence was
adopted the concept of micro#credit in India. In olden days women were restricted to take part in
any social activities and not given roles in decision making in her family. The situation was even
more worsening in rural and remote areas. !ow the situation has been changed. She is given
freedom to do what she wishes. In today/s scenario are women are engaged in income generating
activities. This is because of !" and other financial institution came forward to provide
microfinance to poor women. They believe that a woman is the small credit risk and often
benefits the whole family. The main aim of microfinance is to empower women and poverty
alleviation.
India has adopted the model of e2tending credit to the poorest sector and took a number
of steps to promote micro#financing in the country. So this study is necessary to know more
about microfinance concept. To know how S1M banks are providing microfinance services to poor people and how it helps to promote poor people to improve their standard of living. To
know how S1M banks are improve and develop the savings habit from poor people through
microfinance concept. If anyone wants to get microfinance facility what are all the procedure is
there.
SCOPE OF T#E STUD$
Microfinance initiatives to finance the projects and bring economic development may get
benefitted by implementing innovative approaches and reinforcing their objectives. Most of the
microfinance critics claim that it is 5over#hyped/. 3owever, several success stories have treated it
as the most effective and successful form of poverty mitigation, when implemented under the
proper conditions. Microfinance industry is at the important stage of evolvement. The industry
has already moved away from the traditional loan system to individual loans. hen an individual
Pae %
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
4/92
A Study on Impact of Micro Finance on Women Empowerment
grows his businesses to certain point, he will be paired it with another person, so that they can
become counter guarantee for each other.
O&'ECTI(ES OF T#E STUD$
'( To analy$e the institutional financial assistance given by the bank for the S3 group
members.*( To know the risk is face by the employees in the bank.6( To know the bank action if any microfinance loan holder fails to repay the loan amount.7( To clarify the limitation of microfinance programmes as the tool for women/s empowerment
and the type of support service necessary to ma2imi$e the contribution of microfinance
service.8( To offer suggestions for the betterment of microfinance service to poor women for their
women empowerment and poverty alleviation.
RESEARC# MET#ODO)O*$
Methodology is a way to systematically solve the problem and it is a game plan for
conducting research. And also it is a framework for the study and is used as a guide in collecting
and analy$ing the data.
This is a Secondary data based study conducted at State 1ank of Mysore, 9andavapura
branch. 9andavapura.
Met+od of Data Co,,ection
3ere only Secondary data/s are used for collect the data.
&i( The information is collected through interviewing the 1ank Manager.&ii( The information is collected through the eb site4 Internet&iii( The information is collected through 1ooks, Maga$ines and :ournals.
Stati-tica, Tec+ni.ue-
9ie charts and 1ar charts are used to analy$e the data and to arrive at conclusions.
Pae /
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
5/92
A Study on Impact of Micro Finance on Women Empowerment
)IMITATIONS OF T#E STUD$
'( The study is confined with the rural area. 3ence the results may not be applicable to
urban area.
*( All the information available was from secondary sources and data was very vast toanaly$e properly and accurately.
6( Study being conducted was very wide and analysis reuires e2pertise knowledge and
skills which was lacking.7( The information is collected from indirect sources so in some information data is not
available.
RE(IEW OF )ITERATURE
Pae 0
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
6/92
A Study on Impact of Micro Finance on Women Empowerment
INTRODUCTION
According to International ;abor "rgani$ation &I;"(, +Microfinance is an economic
development approach that involves providing financial services through institutions to low
income clients-.
In India, Microfinance has been defined by +The !ational Microfinance Taskforce, 'ell of the )eserve 1ank "f India , the
Pae 9
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
7/92
A Study on Impact of Micro Finance on Women Empowerment
borrowable amounts up to the limit of )s.*8???4# could be considered as micro credit products
and this amount could be gradually increased up to )s.7????4# over a period of time which
roughly euals to @8?? a standard for South Asia as per international perceptions.
The term micro finance sometimes is used interchangeably with the term micro credit.
3owever while micro credit refers to purveyance of loans in small uantities, the term
microfinance has a broader meaning covering in its ambit other financial services like saving,
insurance etc. as well.
The mantra +Microfinance- is banking through groups. The essential features of the
approach are to provide financial services through the groups of individuals, formed either in
joint liability or co#obligation mode. The other dimensions of the microfinance approach are%
'. It is a tool for empowerment of the poorest.*. Belivery is normally through Self 3elp roups &S3s(.6. It is essentially for promoting self#employment, generally used for%
&a( Birect income generation&b( )earrangement of assets and liabilities for the household to participate in future
opportunities and&c( >onsumption smoothing.
7. It is not just a financing system, but a tool for social change, especially for women.8. 1ecause micro credit is aimed at the poorest, micro#finance lending technology needs to
mimic the informal lenders rather than the formal sector lending. It has to%&a( 9rovide for seasonality&b( Allow repayment fle2ibility&c( =i2 a ceiling on loan si$es.
T#E ORI*IN OF MICROFINANCE
Pae :
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
8/92
A Study on Impact of Micro Finance on Women Empowerment
Although neither of the terms microcredit or microfinance were used in the academic
literature nor by development aid practitioners before the '
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
9/92
A Study on Impact of Micro Finance on Women Empowerment
Approac+
'.!ationali$ation of private
commercial banks
'.9eer#pressure '.!"#M=Is and S3s
gaining more legitimacy
*.02pansion of rural branch
network
*.0stablishment of M=Is,
typically of non#profit origins
*.M=Is emerging as strategic
partners to diverse entities
interested in the low#income
segments
6.02tension of subsidi$ed
credit
6.>onsumer finance emerged
as high growth area
7.0stablishment of )ural
)egional 1anks7.Increased policy regulation
8.0stablishment of ape2
institutions such as !ational
1ank for Agriculture and
)ural Bevelopment and Small
Industries Bevelopment 1ank
of India
8.Increasing
commerciali$ation
P+a-e !@ In the '
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
10/92
A Study on Impact of Micro Finance on Women Empowerment
Microfinance Institutions &M=Is(, largely of non#profit origins, with e2isting development
programs.
P+a-e %@ In *?'*, the third phase in the development of Indian microfinance began, marked by
further changes in policies, operating formats, and stakeholder orientations in the financial
services space. This phase emphasi$es on +inclusive growth- and +financial inclusion.- This
period also saw many !"#M=Is transform into regulated legal formats such as !on#1anking
=inance >ompanies &!1=>s(. >ommercial banks adopted innovative ways of partnering with
!"#M=Is and other rural organi$ations to e2tend their reach into rural markets. M=Is have
emerged as strategic partners to individuals and entities interested in reaching out to IndiaGs low
income client segments.
PO)IC$ ATTENTION TO MICROFINANCE
!redit4)ural >reditG included in the list of permitted non#banking
financial company &!1=>( activities considered for =oreign Birect Investment &=BI(
"==0 ### M=Is acknowledged for the first time in the 1udget Speech by the =inance Minister
+overnment intends to promote M=Is in a big way. The way forward, I believe, is to identify
M=Is, classify and rate such institutions, and empower them to intermediate between the lending
banks and the beneficiaries.-
'anuary "==9 ### Announcement of the business correspondent model
Fe3ruary "==9 ### 1udget Speech by the =inance Minister promises a formal statutory
framework for the promotion, development and regulation of the microfinance sector
Marc+ "==9 ### >omprehensive guidelines by )1I on loan securiti$ation
'u,y "==9 ### )1I master circular allows !"s involved in microfinance to access 02ternal
>ommercial 1orrowings &0>1( up to HSB 8 million &I!) *?.*8 crores( during a year.
Pae !=
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
11/92
A Study on Impact of Micro Finance on Women Empowerment
Marc+ "==: ### =inance Minister introduces the +Micro =inance Sector Bevelopment and
)egulation 1ill *??E- in ;okSabha
MICROFINANCE #ISTORICA) &ACB*ROUND
e can trace the origin of the concept of Microfinance in 1angladesh.
;!>Micro8Finance In-titute- of &an,ade-+
1angladesh has been acknowledged as a pioneer in the field of microfinance.
Br.Muhammad unus, 9rofessor of 0conomics in >hitgaon Hniversity of 1angladesh, was an
initiator of an action research project +rameen 1ankJ.
The project started in '
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
12/92
A Study on Impact of Micro Finance on Women Empowerment
;"> Indian Scenario
India has adopted the 1angladesh/s model in a modified form. To alleviate the poverty
and to empower the women, the micro#finance has emerged as a powerful instrument in the new
economy. ith availability of microfinance, self#help groups &S3/s( and credit management
groups have also started in India. And thus the movement of S3 has spread out in India.
In India, banks are the predominant agency for delivery of micro#credit. In '
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
13/92
A Study on Impact of Micro Finance on Women Empowerment
two decades now. They have joined hands proactively with informal delivery channels to give
microfinance sector the necessary momentum. The data for year *?'?#'' have been presented
and reviewed under two models of microfinance%
;!> S#*8&an )inae Mode,
The S3s#1ank ;inkage 9rogramme has received wide acceptance among multiplicity
of Stake holders, civil society organi$ations, bankers and the international communities.
Around '.* million new S3s had credit link with banks and E.7D million S3s maintained
savings account with bank in the financial year *?'?#''.
;">MFI8&an )inae Proramme
The growth is also higher than corresponding growth under the S3s#1ank ;inkage
9rogramme in *?'?#''. This is due to proactive role of the M=Is in microcredit and
professional management of funds from 1anks.
RO)E OF MICROFINANCE@
The micro credit of microfinance progamme was first initiated in the year '
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
14/92
A Study on Impact of Micro Finance on Women Empowerment
Pae !/
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
15/92
A Study on Impact of Micro Finance on Women Empowerment
!7! Strateic Po,icy Initiati5e-
Some of the most recent strategic policy initiatives in the area of Microfinance taken by the
government and regulatory bodies in India are%• orking group on credit to the poor through S3s, !"s, !A1A)B, '
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
16/92
A Study on Impact of Micro Finance on Women Empowerment
!1=>s are registered under the >ompanies Act, '
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
17/92
A Study on Impact of Micro Finance on Women Empowerment
The '
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
18/92
A Study on Impact of Micro Finance on Women Empowerment
9art of a sectoral strategy for change which identifies opportunities, constraints and
bottlenecks within industries which if addressed can raise returns and prospects for large
numbers of women. 9ossible strategies include linking women to e2isting services and
infrastructure, developing new technology such as labour#saving food processing, building
information networks, shifting to new markets, policy level changes to overcome legislative
barriers and unioni$ation.
1ased on participatory principles to build up incremental knowledge of industries and
enable women to develop their strategies for change &>hen, '
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
19/92
A Study on Impact of Micro Finance on Women Empowerment
and4or operating in remote areas. Such strategies have recently become a focus of interest from
some donors and also the Microcredit Summit >ampaign.
3ere gender lobbies have argued for targeting women because of higher levels of female
poverty and women/s responsibility for household well#being. 3owever although gender
ineuality is recogni$ed as an issue, the focus is on assistance to households and there is a
tendency to see gender issues as cultural and hence not subject to outside intervention.
Although term GempowermentG is freuently used in general terms, often synonymous
with a multi#dimensional definition of poverty alleviation, the term G womenGs empowerment G is
often considered best avoided as being too controversial and political. The assumption is that
increasing women/s access to micro#finance will enable women to make a greater contribution to
household income and this, together with other interventions to increase household well#being,
will translate into improved well#being for women and enable women to bring about wider
changes in gender ineuality.
FINANCIA) SUSTAINA&I)IT$ PARADI*M
The financial self#sustainability paradigm &also referred to as the financial systems
approach or sustainability approach( underlies the models of microfinance promoted since the
mid#'
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
20/92
A Study on Impact of Micro Finance on Women Empowerment
best practice focus on production of a 5financial sustainability inde2/ which charts progress of
programmes in covering costs from incomes.
ithin this paradigm gender lobbies have been able to argue for targeting women on the
grounds of high female repayment rates and the need to stimulate women/s economic activity as
a hitherto underutili$ed resource for economic growth. They have had some success in ensuring
that considerations of female targeting are integrated into conditions of micro#finance delivery
and programme evaluation.
Alongside this focus on female targeting, the term 5empowermentG is freuently used in
promotional literature. Befinitions of empowerment are in individualist terms with the ultimate
aim being the e2pansion of individual choice or capacity for Self#reliance. It is assumed that
increasing women/s access to micro#finance services will in itself lead to individual economic
empowerment through enabling womenGs decisions about savings and credit use, enabling
women to set up micro#enterprise, increasing incomes under their control. It is then assumed that
this increased economic empowerment will lead to increased well#being of women and also to
social and political empowerment.
These paradigms do not correspond systematically to any one organisational model of
micro#finance. Micro#finance providers with the same organisational form e.g. village bank,
rameen model or cooperative model may have very different gender policies and4or emphases
and strategies for poverty alleviation. The three paradigms represent different 5discourses/ each
with its own relatively consistent internal logic in relating aims to policies, based on different
underlying understandings of development. They are not only different, but often seen as
5incompatible discourses/ in uneasy tension and with continually contested degrees of
dominance. In many programmes and donor agencies there is considerable disagreement, lack of
communication and4or personal animosity and promoted by different stakeholders within
organisations between staff involved in micro#finance &generally firm followers of financial self#sustainability(, staff concerned with human development &generally with more sympathy for the
poverty alleviation paradigm and emphasi$ing participation and integrated development( gender
lobbies &generally incorporating at least some elements of the feminist empowerment paradigm(.
hat is of concern in current debates is the way in which the use of apparently similar
terminology of empowerment, participation and sustainability conceals radical differences in
Pae "=
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
21/92
A Study on Impact of Micro Finance on Women Empowerment
policy priorities. Although women/s empowerment may be a stated aim in the rhetoric of official
gender policy and program promotion, in practice it becomes subsumed in and marginali$ed by
concerns of financial sustainability and4or poverty alleviation.
RO)E OF MICROFINANCE IN WOMEN EMPOWERMENT
Microfinance is a powerful tool to assist the stumbling economies to recover and
strengthen, thereby making the lives of millions of poor people more self#respecting and
dignified. Microcredit has made women more productive by providing them opportunity to be
self dependent in terms of their finance, helping them earn, making them aware of their rights
and making them independent which in turn has empowered them. omen are now included
into socio#economic activities of the country, they are contributing to family income and are a part of decision#making process in the family and they are able to e2ercise more control over
their reproductive rights.
Microfinance helps in integrating the financial needs of poor people into a country/s
mainstream financial system. It has been acknowledged that the development of a healthy
national financial system is an important goal and catalyst for the broader goal of national
economic development, which microfinance serves very well. Microfinance helps the poor,
including women in not just obtaining loans but also inculcating in them habits of savings,
investing in insurance policies and money transfer services. It helps them to raise income, be
self#dependent, build up assets and have a better life and better standard of living.
A majority of microfinance programmes target women with a goal to empower them.
Keeping up with the objective of financial viability, an increasing number of micro finance
institutions prefer women members as they believe that they are better and more reliable
borrowers. S+ri Ma+i,a *ri+a Udyo )iat Papad or )iat is an organi$ation that has acted
as a catalyst in empowering poor urban women across India during the last four decades. Starting
as a small group of seven women in '
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
22/92
A Study on Impact of Micro Finance on Women Empowerment
)ural India represents a vast opportunity with its largely unmet demand for financial
services. S1M 1ank seeks to tap the significant rural commercial opportunity as well as create a
social impact on the rural poor. The primary function of )MA is to provide financial solutions
to the vast rural hinterland. The group is thus responsible for all of S1M 1ank/s rural, micro#
banking and agri#business initiatives.
Micro &anin@
The 1usiness focuses on establishing a healthy and profitable lending e2change through
relationships with select M=Is &Microfinance institutions(, and invests in building deeper and
concurrent monitoring and control mechanisms to enable healthy growth of the industry. The
roup is responsible for managing >ommercial 1anking opportunities with M=Is. The group
also manages the 1usiness >orrespondent !etwork to enable S1M 1ank/s resolve towards
financial inclusion.
9robably the most potential solution to ending poverty and enabling people to work their way
into a sustainable, improved situation is called microcredit Microfinance. It has proved to be
immensely valuable. It has become clear that poor need access to money to send their children to
school, to buy medicines they need financial services to reduce their vulnerability. As a result,
worldwide, M=Is have started developing and delivering a range of financial products. Thisreflects Millennium Bevelopment oals &MBs( poverty reduction, education, health and
empowerment.
ender ineuality is a major factor affecting progress towards Millennium Bevelopment
oals. In our country also, micro finance can be a tool for making women self#reliant. These
women can provide their children, including girls, with education which in turn can empower
them, thereby setting a new trend of independent women, enjoying their full potential. "ne of the
powerful approaches to woman empowerment is the movement of S3s, which can transform
woman from being alive to live with dignity. The empowerment of women and improvement of
their status and economic role needs to be integrated into economic development programmes, as
the development of any country is inseparably linked with the status and development of women.
Pae ""
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
23/92
A Study on Impact of Micro Finance on Women Empowerment
MICRO FINANCE INSTRUMENT FOR WOMENS EMPOWERMENT
Micro =inance is emerging as a powerful instrument for poverty alleviation in the new
economy. In India, micro finance scene is dominated by Self 3elp roups &S3s( 1ank
;inkage 9rogramme, aimed at providing a cost effective mechanism for providing financialservices to the +unreached poor-. 1ased on the philosophy of peer pressure and group savings as
collateral substitute , the S3 programme has been successful in not only in meeting peculiar
needs of the rural poor, but also in strengthening collective self#help capacities of the poor at the
local level, leading to their empowerment.
Micro =inance for the poor and women has received e2tensive recognition as a strategy
for poverty reduction and for economic empowerment. Increasingly in the last five years , there
is uestioning of whether micro credit is most effective approach to economic empowerment of
poorest and, among them, women in particular. Bevelopment practitioners in India and
developing countries often argue that the e2aggerated focus on micro finance as a solution for the
poor has led to neglect by the state and public institutions in addressing employment and
livelihood needs of the poor.
>redit for empowerment is about organi$ing people, particularly around credit and
building capacities to manage money. The focus is on getting the poor to mobili$e their own
funds, building their capacities and empowering them to leverage e2ternal credit. 9erception
women is that learning to manage money and rotate funds builds women/s capacities and
confidence to intervene in local governance beyond the limited goals of ensuring access to credit.
=urther, it combines the goals of financial sustainability with that of creating community owned
institutions.
1efore '
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
24/92
A Study on Impact of Micro Finance on Women Empowerment
therefore are not bankable. !evertheless, the e2periences of several S3s reveal that rural poor
are actually efficient managers of credit and finance. Availability of timely and adeuate credit is
essential for them to undertake any economic activity rather than credit subsidy.
The overnment measures have attempted to help the poor by implementing different
poverty alleviation programmes but with little success. Since most of them are target based
involving lengthy procedures for loan disbursement, high transaction costs, and lack of
supervision and monitoring. Since the credit reuirements of the rural poor cannot be adopted on
project lending app roach as it is in the case of organi$ed sector, there emerged the need for an
informal credit supply through S3s. The rural poor with the assistance from !"s have
demonstrated their potential for self help to secure economic and financial strength. Larious case
studies show that there is a positive correlation between credit availability and women/s
empowerment.
PRO&)EM AND C#A))EN*ES
Surveys have shown that many elements contribute to make it more Bifficult for women
empowerment through micro businesses. These elements are%
• ;ack of knowledge of the market and potential profitability, thus Making the choice of
business difficult.
• Inadeuate book#keeping.
• 0mployment of too many relatives which increases social pressure to share benefits.
• Setting prices arbitrarily.
• ;ack of capital.
• 3igh interest rates.
• Inventory and inflation accounting is never undertaken.
• >redit policies that can gradually ruin their business &many customers cannot pay cash
on the other hand, suppliers are very harsh towards women(.
"ther shortcomings includes,
Pae "/
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
25/92
A Study on Impact of Micro Finance on Women Empowerment
'. 1urden of meeting% Time consuming meetings, in particular in programmes based on
group lending, and time consuming income generating activities without reduction of
traditional responsibilities increase women/s work and time burden.
*. !ew 9ressures% 1y using social capital, in#group lending4group collateral programmes,
additional stresses and pressures are introduced, which might increase vulnerability and
reflect disempowerment.
6. )einforcement of traditional gender roles % lack of economic empowerment% Micro
finance assists women to perform traditional roles better and women thus remain trapped in
low productivity sectors, not moving from the group of survival enterprises to micro#
enterprises. There are evidence of men withdrawing their contributions to certain types of
household e2penditures.
C#A))EN*IN* ECONOMIC EMPOWERMENT
3owever impact on incomes is widely variable. Studies which consider income levels
find that for the majority of borrowers income increases are small, and in some cases negative.
All the evidence suggests that most women invest in e2isting activities which are low profit and
insecure and4or in their husband/s activities. In many programmes and conte2ts it is only in a
minority of cases that women can develop lucrative activities of their own through credit and
savings alone.
It is clear that women/s choices about activity and their ability to increase incomes are
seriously constrained by gender ineualities in access to other resources for investment,
responsibility for household subsistence e2penditure, lack of time because of unpaid domestic
work and low levels of mobility, constraints on se2uality and se2ual violence which limit access
to markets in many cultures.
These gender constraints are in addition to market constraints on e2pansion of theinformal sector and resource and skill constraints on the ability of poor men as well as women to
move up from survival activities to e2panding businesses. There are signs, particularly in some
urban markets like 3arare and ;usaka that the rapid e2pansion of micro#finance programmes
may be contributing to market saturation in 5female/ activities and hence declining profits.
Pae "0
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
26/92
A Study on Impact of Micro Finance on Women Empowerment
C#A))EN*IN* WE)) &EIN* AND INTRA #OUSE#O)D RE)ATION
There have undoubtedly been women whose status in the household has improved,
particularly where they have become successful entrepreneurs. 0ven where income impacts have
been small, or men have used the loan, the fact that micro#finance programmes have thought
women worth targeting and women bring an asset into the household may give some women
more negotiating power.
Savings provide women with a means of building up an asset base. omen themselves
also often value the opportunity to be seen to be making a greater contribution to household well#
being giving them greater confidence and sense of self#worth.
3owever women/s contribution to increased income going into households does not
ensure that women necessarily benefit or that there is any challenge to gender ineualities within
the household. omen/s e2penditure patterns may replicate rather than counter gender
ineualities and continue to disadvantage girls. ithout substitute care for small children, the
elderly and disabled, and provision of services to reduce domestic work many programmes
reported adverse effects of women/s outside work on children and the elderly. Baughters in
particular may be withdrawn from school to assist their mothers.
Although in some conte2ts women may be seeking to increase their influence within joint
decision#making processes rather than independent control over income &Kabeer '
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
27/92
A Study on Impact of Micro Finance on Women Empowerment
C#A))EN*IN* SOCIA) AND PO)ITICA) EMPOWERMENT
There have been positive changes in household and community perceptions of women/s
productive role, as well as changes at the individual level. In societies like Sudan and
1angladesh where women/s role has been very circumscribed and women previously had little
opportunity to meet women outside their immediate family there have sometimes been
significant changes. It is likely that changes at the individual, household and community levels
are interlinked and that individual women who gain respect in their households then act as role
models for others leading to a wider process of change in community perceptions and male
willingness to accept change &;akshman, ' in 1angladesh and >I9>)0 in >ameroon, indicate the potential of micro#finance to
form a basis for organi$ation against other issues like domestic violence, male alcohol abuse and
dowry.
3owever there is no necessary link between women/s individual economic empowerment
and4or participation in micro#finance groups and social and political empowerment. These
changes are not an automatic conseuence of microfinance per se. As noted above, women/s
increased productive role has also often had it costs.
There is no necessary link between women/s individual economic empowerment and4or
participation in micro#finance groups and social and political empowerment. These changes are
not an automatic conseuence of microfinance per se. As noted above, women/s increased
productive role has also often had it costs*'.
In most programmes there is little attempt to link micro#finance with wider social and
political activity. In the absence of specific measures to encourage this there is little evidence of
any significant contribution of micro#finance. Micro#finance groups may put severe strains on
womenGs e2isting networks if repayment becomes a problem &!oponen '
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
28/92
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
29/92
A Study on Impact of Micro Finance on Women Empowerment
development services. hen compared to the wider S3 bank linkage movement in India,
private M=Is have had limited outreach. 3owever, we have seen a recent trend of larger
microfinance institutions transforming into !on#1ank =inancial Institutions &!1=>s(. This
changing face of microfinance in India appears to be positive in terms of the ability of
microfinance to attract more funds and therefore increase outreach.
In terms of demand for micro#credit or micro#finance, there are three segments, which
demand funds. They are%
• At the very bottom in terms of income and assets, are those who are landless and engaged
in agricultural work on a seasonal basis, and manual laborers in forestry, mining,
household industries, construction and transport. This segment reuires, first and
foremost, consumption credit during those months when they do not get labor work, andfor contingencies such as illness. They also need credit for acuiring small productive
assets, such as livestock, using which they can generate additional income.
• The ne2t market segment is small and marginal farmers and rural artisans, weavers and
those self#employed in the urban informal sector as hawkers, vendors, and workers in
household micro#enterprises. This segment mainly needs credit for working capital, a
small part of which also serves consumption needs. This segment also needs term credit
for acuiring additional productive assets, such as irrigation pump sets, bore wells and
livestock in case of farmers, and euipment &looms, machinery( and work sheds in case
of non#farm workers.
• The third market segment is of small and medium farmers who have gone in for
commercial crops such as surplus paddy and wheat, cotton, groundnut, and others
engaged in dairying, poultry, fishery, etc. Among non#farm activities, this segment
includes those in villages and slums, engaged in processing or manufacturing activity,
running provision stores, repair workshops, tea shops, and various service enterprises.
These persons are not always poor, though they live barely above the poverty line and
also suffer from inadeuate access to formal credit.
Pae "
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
30/92
A Study on Impact of Micro Finance on Women Empowerment
ell these are the people who reuire money and with Microfinance it is possible. )ight now
the problem is that, it is S3sG which are doing this and efforts should be made so that the big
financial institutions also turn up and start supplying funds to these people. This will lead to a
better India and will definitely fulfill the dream of our late 9rime Minister, Mrs. Indira andhi,
i.e. 9overty.
"ne of the statements is really appropriate here, which is as%
+Money2 -ay- t+e pro5er3 mae- money7 W+en you +a5e ot a ,itt,e2 it i- often ea-y to et
more7 T+e reat difficu,ty i- to et t+at ,itt,e76 Adams Smith.
Today India is facing major problem in reducing poverty. About *8 million people in
India are under below poverty line. ith low per capita income, heavy population pressure,
prevalence of massive unemployment and underemployment, low rate of capital formation,
misdistribution of wealth and assets, prevalence of low technology and poor economics
organi$ation and instability of output of agriculture production and related sectors have made
India one of the poor countries of the world.
W#O ARE T#E C)IENTS OF MICRO FINANCE
The typical micro finance clients are low#income persons that do not have access to
formal financial institutions. Micro finance clients are typically self#employed, often household#
based entrepreneurs. In rural areas, they are usually small farmers and others who are engaged in
small income#generating activities such as food processing and petty trade. In urban areas, micro
finance activities are more diverse and include shopkeepers, service providers, artisans, street
vendors, etc. Micro finance clients are poor and vulnerable non#poor who have a relatively
unstable source of income.
Access to conventional formal financial institutions, for many reasons, is inversely
related to income% the poorer you are the less likely that you have access. "n the other hand, the
chances are that, the poorer you are, the more e2pensive or onerous informal financial
arrangements. Moreover, informal arrangements may not suitably meet certain financial service
Pae %=
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
31/92
A Study on Impact of Micro Finance on Women Empowerment
needs or may e2clude you anyway. Individuals in this e2cluded and under#served market
segment are the clients of micro finance.
As we broaden the notion of the types of services micro finance encompasses, the
potential market of micro finance clients also e2pands. It depends on local conditions and
political climate, activeness of cooperatives, S3 N !"s and support mechanism. =or
instance, micro credit might have a far more limited market scope than say a more diversified
range of financial services, which includes various types of savings products, payment and
remittance services, and various insurance products. =or e2ample, many very poor farmers may
not really wish to borrow, but rather, would like a safer place to save the proceeds from their
harvest as these are consumed over several months by the reuirements of daily living. >entral
government in India has established a strong N e2tensive link between !A1A)B &!ational
1ank for Agriculture N )ural Bevelopment(, State >ooperative 1ank, Bistrict >ooperative
1anks, 9rimary Agriculture N Marketing Societies at national, state, district and village level.
SE)F #E)P *ROUPS ;S#*S>
Self#help groups &S3s( 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 S3s
and actively engage in savings and credit &S4>(, as well as in other activities &income generation,
natural resources management, literacy, child care and nutrition, etc.(. The S4> focus in S3 is
the most prominent element and offers a chance to create some control over capital, albeit in very
small amounts. The S3 system has proven to be very relevant and effective in offering women
the possibility to break gradually away from e2ploitation and isolation.
1asically groups can be of two types%
Se,f #e,p *roup- ;S#*->@ The group in this case does financial intermediation on
behalf of the formal institution. This is the predominant model followed in India.
*rameen *roup-@ In this model, financial assistance is provided to the individual in a
group by the formal institution on the strength of group/s assurance. In other words, individual
loans are provided on the strength of joint liability4co obligation. This microfinance model was
initiated by 1angladesh rameen 1ank and is being used by some of the Micro =inance
Institutions &M=Is( in our country.
Pae %!
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
32/92
A Study on Impact of Micro Finance on Women Empowerment
Microfinance approach is based on certain proven truths which are not always recogni$ed.
These are%
'. That the poor are bankable successful initiatives in micro finance demonstrate that there
need not be a tradeoff between reaching the poor and profitability # micro finance
constitutes a statement that the borrowers are not 5weaker sections/ in need of charity, but
can be treated as responsible people on business terms for mutual profit .*. That almost all poor households need to save, have the inherent capacity to save small
amounts regularly and are willing to save provided they are motivated and facilitated to
do so.6. That easy access to credit is more important than cheap subsidi$ed credit which involves
lengthy bureaucratic procedures # &some institutions in India are already lending to
groups or S3s at higher rates # this may prevent the groups from enjoying a sufficient
margin and rapidly accumulating their own funds, but members continue to borrow at
these high rates, even those who can borrow individually from banks(.7. G9eer pressureG in groups helps in improving recoveries.
#OW SE)F8#E)P *ROUPS WORB
Pae %"
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
33/92
A Study on Impact of Micro Finance on Women Empowerment
!A1A)B &'
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
34/92
A Study on Impact of Micro Finance on Women Empowerment
interest of '*#'6.8F but if we include the transaction costs &number of visits to banks,
compulsory savings and costs incurred for payments to animators4staff4local leaders etc.(
they come out to be as high as *'#*7F.
Semi 8 forma, Sector
The majority of institutional microfinance providers in India are semi#formal
organi$ations broadly referred to as M=Is. )egistered under a variety of legal acts, these
organi$ations greatly differ in philosophy, si$e, and capacity. There are over 8?? non#
government organi$ations &!"s( registered as societies, public trusts, or non#profit
companies. "rgani$ations implementing micro#finance activities can be categori$ed into
three basic groups.
I. "rgani$ations which directly lend to specific target groups and are carrying out all
related activities like recovery, monitoring, follow#up etc.
II. "rgani$ations that only promote and provide linkages to S3s and are not
directly involved in micro lending operations.III. "rgani$ations which are dealing with S3s and plan to start micro#finance
related activities.
Informa, Sector
In addition to friends and family, moneylenders, landlords, and traders constitute the
informal sector. hile estimates of their importance vary significantly, it is undeniable
that they continue to play a significant role in the financial lives of the poor. These are the
organi$ations that provide support to implementing organi$ations. The support may be in
terms of resources or training for capacity building, counseling, networking, etc. They
operate at state4regional or national level. They may or may not be directly involved in
micro#finance activities adopted by the associations4collectives to support implementing
"rgani$ations.
DE(E)OPMENT PROCESS T#ROU*# MICRO FINANCE
Pae %/
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
35/92
Production Needs
Donors and Banks Micro-Finance Government and Banks
Implementing Organizations
AwarenessPromotional !orkIndividualIndividual
Promotion and Formation o" #$Gs
%onsolidation o" #$GsMicro &nterpriseMicro &nterprise
#avings
%onsumption Needs %redit Deliver'
(ecover'
Follow-up Monitoring
Farm (elatedIncome Generation )#ustaina*le + Growt, OrientedNon-Farm (elated
#el"-#ustaina*ilit' o" #$Gs
&conomic &mpowerment t,roug, use o" Micro-%redit as an entr' point "or overall &mpowermen
A Study on Impact of Micro Finance on Women Empowerment
Fiure No7 !
Pae %0
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
36/92
National Financial Institutions Banks Government Funded ProgrammesDonorsBilateral Pro.ects
Implementing Organizations
(esource#upport Organizations
Directl' engaged in Micro-Finance
Indirectl' engaged in Micro-Fin
Individuals
#$Gs
Mem*ers
A Study on Impact of Micro Finance on Women Empowerment
MICRO8FINANCE INTER(ENTIONS T#ROU*# DIFFERENT
OR*ANISATIONS
Pae %9
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
37/92
A Study on Impact of Micro Finance on Women Empowerment
T#E NEED IN INDIA%
• India is said to be the home of one third of the world/s poor official estimates range from
*D to 8? percent of the more than one billion population.
• About CE percent of the poorest households do not have access to credit.• The demand for microcredit has been estimated at up to @6? billion the supply is less
than @*.* billion combined by all involved in the sector.
Bue to the sheer si$e of the population living in poverty, India is strategically significant in
the global efforts to alleviate poverty and to achieve the Millennium Bevelopment oal of
halving the world/s poverty by *?'8. Microfinance has been present in India in one form or
another since the '
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
38/92
A Study on Impact of Micro Finance on Women Empowerment
• Microfinance institutions should measure and disclose their performance both
financially and socially.
Microfinance can also be distinguished from charity. It is better to provide grants to families
who are destitute, or so poor they are unlikely to be able to generate the cash flow reuired to
repay a loan. This situation can occur for e2ample, in a war $one or after a natural disaster.
MICRO FINANCE MODE)S
!7 Micro Finance In-titution- ;MFI->@
M=Is are an e2tremely heterogeneous group comprising !1=>s, societies, trusts and
cooperatives. They are provided financial support from e2ternal donors and ape2 institutions
including the )ashtriyaMahilaKosh &)MK(, SIB1I =oundation for micro#credit and !A1A)B
and employ a variety of ways for credit delivery.
Since *???, commercial banks including )egional )ural 1anks have been providing funds to
M=Is for on lending to poor clients. Though initially, only a handful of !"s were +into-
financial intermediation using a variety of delivery methods, their numbers have increased
considerably today. hile there is no published data on private M=Is operating in the country,
the number of M=Is is estimated to be around C??.
)ea, Form- of MFI- in India
Type- of MFI- E-timate
d
Num3erG
)ea, Act- under w+ic+ Rei-tered
'. Not for Profit MFI-
a.( !" # M=Is
7?? to 8?? Societies )egistration Act, 'CD? or
similar 9rovincial ActsIndian Trust Act, 'CC*
b.( !on#profit >ompanies '? Section *8 of the >ompanies Act,
'ooperative Societies
Pae %?
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
39/92
A Study on Impact of Micro Finance on Women Empowerment
a.( Mutually Aided
>ooperative Societies &MA>S(
and similarly set up institutions
Act enacted by State overnment
6. For Profit MFI-
a.( !on#1anking =inancial
>ompanies &!1=>s(
D Indian >ompanies Act, '
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
40/92
A Study on Impact of Micro Finance on Women Empowerment
/7 Ser5ice Company Mode,
Hnder this model, the bank forms its own M=I, perhaps as an !1=>, and then works hand
in hand with that M=I to e2tend loans and other services. "n paper, the model is similar to the
partnership model% the M=I originates the loans and the bank books them. 1ut in fact, this model
has two very different and interesting operational features%
• The M=I uses the branch network of the bank as its outlets to reach clients. This allows
the client to be reached at lower cost than in the case of a standalone M=I. In case of
banks which have large branch networks, it also allows rapid scale up. In the
partnership model, M=Is may contract with many banks in an arm/s length relationship.
In the service company model, the M=I works specifically for the bank and develops an
intensive operational cooperation between them to their mutual advantage.• The 9artnership model uses both the financial and infrastructure strength of the bank to
create lower cost and faster growth. The Service >ompany 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 M=I managers who are focused on microfinance to introduce
additional products, such as individual loans for S3 graduates, remittances and so on
without disrupting bank operations and provide a more advantageous cost structure for
microfinance.
&an )ed Mode,
The bank led model was derived from the S3#1ank linkage program of !A1A)B.
Through this program, banks financed Self 3elp roups &S3s( which had been promoted by
!"s and government agencies.
Partner-+ip Mode,-
A model of microfinance has emerged in recent years in which a microfinance institution
&M=I( borrows from banks and on#lends to clients few M=Is have been able to grow beyond a
certain point. Hnder this model, M=Is are unable to provide risk capital in large uantities, which
limits the advances from banks. In addition, the risk is being entirely borne by the M=I, which
limits its risk#taking.
Pae /=
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
41/92
A Study on Impact of Micro Finance on Women Empowerment
MA'OR RISBS TO MICROFINANCE INSTITUTIONS
)isk is an integral part of financial services. hen financial institutions issue loans, there
is a risk of borrower default. hen banks collect deposits and on#lend them to other clients &i.e.
conduct financial intermediation(, they put clients/ savings at risk. Any institution that conducts
cash transactions or makes investments risks the loss of those funds. Bevelopment finance
institutions should neither avoid risk &thus limiting their scope and impact( nor ignore risk &at
their folly(. ;ike all financial institutions, microfinance institutions &M=Is( face risks that they
must manage efficiently and effectively to be successful. If the M=I does not manage its risks
well, it will likely fail to meet its social and financial objectives.
Many risks are common to all financial institutions. =rom banks to unregulated M=Is,
these include credit risk, liuidity risk, market or pricing risk, operational risk, compliance and
legal risk, and strategic risk. Most risks can be grouped into three general categories% financial
risks, operational risks and strategic risks,
Maor Ri- Cateorie-
Financia, Ri-- Operationa, Ri-- Strateic Ri--
Credit Ri-
Transaction risk
9ortfolio risk
)i.uidity Ri-
Maret Ri-
Interest rate risk
=oreign e2change Ri-
Investment portfolio
risk
Tran-action Ri-
3uman resources Ri-
Information N technology
risk
Fraud ;Interity> Ri-
)ea, H Comp,iance
Ri-
*o5ernance Ri-
Ineffective oversight
9oor governance structure
Reputation Ri-
Eterna, &u-ine--
Ri--
0vent risk
Financia, Ri--
Pae /!
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
42/92
A Study on Impact of Micro Finance on Women Empowerment
The business of a financial institution is to manage financial risks, which include credit
risks, liuidity risks, interest rate risks, foreign e2change risks and investment portfolio risks.
Most microfinance institutions have put most of their resources into developing a methodology
that reduces individual credit risks and maintaining uality portfolios. Microfinance institutions
that use savings deposits as a source of loan funds must have sufficient cash to fund loans and
withdrawals from savings.
Those M=Is that rely on depositors and other borrowed sources of funds are also
vulnerable to changes in interest rates. =inancial risk management reuires a sophisticated
treasury function, usually centrali$ed at the head office, which manages liuidity risk, interest
rate risk, and investment portfolio risk. As M=Is face more choices in funding sources and more
product differentiation among loan assets, it becomes increasingly important to manage these
risks well.
Credit ri-
>redit risk, the most freuently addressed risk for M=Is, is the risk to earnings or capital
due to borrowers/ late and non#payment of loan obligations. >redit risk encompasses both the
loss of income resulting from the M=I/s inability to collect anticipated interest earnings as well
as the loss of principle resulting from loan defaults. >redit risk includes both transaction risk and
portfolio risk.Transaction risk
Transaction risk refers to the risk within individual loans. M=Is mitigate transaction risk
through borrower screening techniues, underwriting criteria, and uality procedures for loan
disbursement, monitoring, and collection.
Portfolio risk
9ortfolio risk refers to the risk inherent in the composition of the overall loan portfolio.
9olicies on diversification &avoiding concentration in a particular sector or area(, ma2imum loan
si$e, types of loans, and loan structures lessen portfolio risk.
)i.uidity ri-
Pae /"
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
43/92
A Study on Impact of Micro Finance on Women Empowerment
;iuidity risk is the possibility of negative effects on the interests of owners, customers
and other stakeholders of the financial institution resulting from the inability to meet current cash
obligations in a timely and cost#efficient manner.
;iuidity risk usually arises from management/s inability to adeuately anticipate and
plan for changes in funding sources and cash needs. 0fficient liuidity management reuires
maintaining sufficient cash reserves on hand &to meet client withdrawals, disburse loans and fund
une2pected cash shortages( while also investing as many funds as possible to ma2imi$e earnings
&putting cash to work in loans or market investments(.
A lender must be able to honor all cash payment commitments as they fall due and meet
customer reuests for new loans and savings withdrawals. These commitments can be met by
drawing on cash holdings, by using current cash flows, by borrowing cash, or by converting
liuid assets into cash.
Some principles of liuidity management that M=Is use include%
• Maintaining detailed estimates of projected cash inflows and outflows for the ne2t few
weeks or months so that net cash reuirements can be identified.
• Hsing branch procedures to limit une2pected increases in cash needs. =or e2ample, some
M=Is, such as ASA, have put limits on the amount of withdrawals that customers can
make from savings in an effort to increase the M=I/s ability to better manage its liuidity.
• Maintaining investment accounts that can be easily liuidated into cash, or lines of credit
with local banks to meet une2pected needs.
• Anticipating the potential cash reuirements of new product introductions or seasonal
variations in deposits or withdrawals.
;iuidity management has a short#term focus &the section on investment portfolio risk below
discusses longer#term cash management issues(. "ften, liuidity projections are e2tended up to a
year with diminishing detail on the far end of the timeline.
Operationa, Ri--"perational risk arises from human or computer error within daily product delivery and
services. It transcends all divisions and products of a financial institution. This risk includes the
potential that inadeuate technology and information systems, operational problems, insufficient
human resources, or breaches of integrity &i.e. fraud( will result in une2pected losses.
Pae /%
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
44/92
A Study on Impact of Micro Finance on Women Empowerment
This risk is a function of internal controls, information systems, employee integrity, and
operating processes. =or simplicity, this section focuses on just two types of operational risk%
transaction risk and fraud risk.
Tran-action ri-
Transaction risk e2ists in all products and services. It is a risk that arises on a daily basis
in the M=I as transactions are processed.'* Transaction risk is particularly high for M=Is that
handle a high volume of small transactions daily. hen traditional banks make loans, the staff
person responsible is usually a highly trained professional and there is a very high level of cross#
checking. Since M=Is make many small, short#term loans, this same degree of cross#checking is
not cost#effective, so there are more opportunities for error and fraud.
Fraud ri-
Hntil recently, fraud risk has been one of the least addressed risks in microfinance. Also
referred to as integrity risk, fraud risk is the risk of loss of earnings or capital as a result of
intentional deception by an employee or client. The most common type of fraud in an M=I is the
direct theft of funds by loan officers or other branch staff. "ther forms of fraudulent activities
include the creation of misleading financial statements, bribes, kickbacks, and phantom loans.
Strateic Ri--
Strategic risks include internal risks like those from adverse business decisions or improper
implementation of those decisions, poor leadership, or ineffective governance and oversight, as
well as e2ternal risks, such as changes in the business or competitive environment. This section
focuses on three critical strategic risks% overnance )isk, 1usiness 0nvironment )isk, and
)egulatory and ;egal >ompliance )isk.
*o5ernance ri-
"ne of the most understated and underestimated risks within any organi$ation is the risk
associated with inadeuate governance or a poor governance structure. The dangers of poor
governance that nearly resulted in the failure of that institution. Birection and accountability
come from the board of directors, who increasingly include representatives of various
stakeholders in the M=I &investors, borrowers, and institutional partners(. The social mission of
M=Is attracts many high profile bankers and business people to serve on their boards.
Hnfortunately, these directors are often reluctant to apply the same commercial tools that led to
Pae //
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
45/92
A Study on Impact of Micro Finance on Women Empowerment
their success when dealing with M=Is. As M=Is face the challenges of management succession
and the need to recruit managers that can balance social and commercial objectives, the role of
directors becomes more important to ensure the institution/s continuity and focus.
To protect against the risks associated with poor governance structure, M=Is should
ensure that their boards comprise the right mi2 of individuals who collectively represent the
technical and personal skills and backgrounds needed by the institution. Most M=Is name
e2ecutive officers and some create special committees to fulfill specific roles on the board. In
addition, the institutional by#laws should be clear and well written, and accessible to all board
members.
Microfinance institutions are particularly vulnerable to governance risks resulting from
their institutional structure and ownership. "ne of the strongest links to effective governance is
ownership. 1oard members with a financial stake in the institution tend to have stronger
incentives to closely oversee operations. 3owever, many M=Is operate as non#governmental
organi$ations whose board members have no financial stake in the institution. 0ven many
transformed commercial M=Is are primarily owned by the former non#governmental
organi$ation &!"( and therefore the majority of their board members are not real owners. In
addition, many board members of commercial institutions represent public development agencies
and tend to think more like donors than traditional investors. Microfinance institutions that
operate as credit unions face a different type of governance issue their boards comprise client
members, most of which are net borrowers whose focus could be more on reducing lending rates
than on the institution/s wellbeing.
0ffective governance reuires clear lines of authority for the board and management. The
board should have a clear understanding of its mandate, including its duties of care, loyalty and
obedience. M=Is can demonstrate short#term financial success without effective governance, but
effective governance is needed to see the institution through difficulties that are bound to arise
over the long#term. It is the board/s responsibility to oversee senior management and hold them
accountable for strategic decisions. If board members fail to fulfill their duties effectively, the
M=I risks financial loss as a result of poor decision making or inadeuate strategic planning.
Reputation Ri-
Pae /0
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
46/92
A Study on Impact of Micro Finance on Women Empowerment
)eputation risk refers to the risk to earnings or capital arising from negative public
opinion, which may affect an M=I/s ability to sell products and services or its access to capital or
cash funds. )eputations are much easier to lose than to rebuild, and should be valued as an
intangible asset for any organi$ation.
Most successful M=Is cultivate their reputations carefully with specific audiences, such
as with customers &their market(, their funders and investors &sources of capital(, and regulators
or officials. A comprehensive risk management approach and good management information
reporting helps an M=I speak the +language- of financial institutions and can strengthen an
M=I/s reputation with regulators or sources of funding.
Eterna, 3u-ine-- en5ironment ri-
1usiness environment risk refers to the inherent risks of the M=I/s business activity and
the e2ternal business environment. To minimi$e business risk, the microfinance institution must
react to changes in the e2ternal business environment to take advantage of opportunities, to
respond to competition, and to maintain a good public reputation. In 1olivia, for e2ample, many
microfinance institutions have lost clients and reported lower profit margins as a result of
increased competition in the past couple of years. As in most businesses, it is often easier to
focus on internal risks than to recogni$e shifts in the e2ternal marketplace that can potentially
affect the M=I.M=Is need to check the validity of their assumptions against reality on a periodic basis,
and respond accordingly. A risk management framework establishes a discipline in which those
uestions are encouraged and asked freuently &e.g., compare actual results to budget and assess
the reasons for variances(. hile e2ternal business risks are out of an M=I/s direct control, the
M=I can still anticipate them and prepare for their impact.
Anticipating and preparing for possible events or risks is the M=I/s responsibility. In
1angladesh, microfinance institutions face the risk of floods, which can increase their credit and
liuidity risk when borrowers businesses are slowed or destroyed or their homes are damaged
and in need of immediate repairs. Some M=Is maintain higher cash reserves during the flood
season. As M=Is become formal financial institutions and more linked to the financial and
political economy, they become more vulnerable to e2ternal risk e2posures. hile microfinance
Pae /9
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
47/92
A Study on Impact of Micro Finance on Women Empowerment
institutions can rarely prevent e2ternal risks from occurring, they can often take preventative
actions to minimi$e their impact on the institution.
In general, the best way for an M=I to reduce e2ternal risks is to integrate an effective
system of risk management into its culture and operations. An effective risk management system
should encourage directors and senior managers to ask whether they are prepared for certain
possible internal and e2ternal situations and whether they have built in sufficient cushion for
une2pected events.
RISB MANA*EMENT PROCESS FO))OWED &$ MFI
!7 Identify2 a--e--2 and prioriti4e ri--
The first step in risk assessment is to identify risks. To identify risks, the M=I reviews its
activities, function by function, and asks several uestions. =or e2ample, the M=I e2amines the
credit and lending operations, and reviews funding sources, loan transactions and portfolio
management processes. hile this can create a laundry list of minor risks &many of which should
be managed by branch, regional, or product managers(, it should also highlight the major risks
that are most significant to the M=I and reuire management/s close attention. Since product
differentiation is becoming more prevalent in M=Is, the M=I should assess each product/s
specific risk profile. =or e2ample, housing loans are likely to have higher delinuency and loss
rates than the loans for income#generating activities.
In this case, the relative si$e and severity of risk in that housing portfolio reuires
management/s special attention. In addition, the M=I should evaluate risks in individual lending
separately from peer group lending. 1ecause individual loans tend to be larger and are often
made without co#guarantees, individual loan portfolios can be riskier and represent a different
type of risk e2posure than group lending portfolios. 1y categori$ing and evaluating activities
according to their risk profiles, M=Is can better understand risks and can take action to reducelarge e2posures and avoid losses.
"7 De5e,op -trateie- to mea-ure ri-
After the board and management define priorities, they can develop strategies that guide
the organi$ation/s management of those risks. The board typically develops policies and sets the
Pae /:
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
48/92
A Study on Impact of Micro Finance on Women Empowerment
outer parameters for the business activities of an organi$ation. ithin those broad policies,
management then develops guidelines and procedures for day#to#day operations.
The board of directors is responsible for reviewing and approving policies that minimi$e
risk to the M=I &within its business strategy(, protect the fiduciary interests of investors and
depositors, and ensure that the M=I fulfills its mission. The 1oard usually reviews these polices
on an annual basis &unless an event prompts a more freuent review( to ask whether any
adjustments are needed or if management recommends any changes. These policies set the
tolerable range of risk, within which management should operate. Management develops the
detailed guidelines and operational policies and procedures that fit within those broad policies.
Management should recommend any changes in policies to the board, along with a rationale for
each proposed change.
The goal is to make conscious, informed decisions about which risks to take, what is an
acceptable level of risk, and what cost#benefit tradeoff is reasonable. It is the board/s
responsibility to ensure that the M=I is making informed decisions about how much risk is
tolerable and that there is sufficient capital and liuidity for the M=I to absorb any financial loss,
should it occur. M=Is can make several choices on how to mitigate a risk. They can% accept the
risk as part of doing business &e.g. a cost of credit risk is annual loan losses( mitigate the risk to
bring it to reasonable levels through carefully#designed policies and procedures &e.g. centrali$ed
disbursement, group lending, etc( eliminate the risk entirely &e.g. security to prevent physical
property loss or computer back#up for the management information systems( or transfer the risk
to someone else &e.g. buy insurance against certain losses(.
In each case, management and the board must evaluate the cost4benefit tradeoffs. 0ach of
these strategies entails some cost, either in staff time, e2penses, or opportunity costs. =or
e2ample, trying to eliminate credit risk would not be a good use of an M=I/s resources. It would
reuire changes in the target customer, and additional personnel to monitor borrowers closely
and pursue delinuent loans to avoid loss. The costs to the M=I in terms of increased personnel,
lower productivity, fewer loans to new customers &opportunity cost(, and significant management
time, would e2ceed the potential benefit of protected revenues. Alternatively, the M=I should set
a range of acceptable loan loss and delinuency rates, and monitor its portfolio carefully,
watching for trends that suggest that those ranges might be e2ceeded.
Pae /?
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
49/92
A Study on Impact of Micro Finance on Women Empowerment
It is important to distinguish reasonable risk from risk avoidance or elimination. Too
much emphasis on risk avoidance can translate into incentives for staff to avoid poorer borrowers
and weaken the mission of the M=I. Many M=Is design a set of controls and indicators that
allows them to monitor the outcomes of their policies on borrower composition and target
customer base.
%7 De-in operationa, po,icie- and procedure- to mitiate ri-
In most cases, an M=I lives with certain risks and designs a lending methodology and
system of controls and monitoring tools to ensure that a( risk does not e2ceed acceptable levels,
and b( there is sufficient capital or liuidity to absorb the loss if it occurs. These controls might
include%
• 9olicies and procedures at the branch level to minimi$e the freuency and scale of the
risk &e.g. dual signatures reuired on loans or disbursements of savings(.
• Technology to reduce human error, speed data analysis and processing.
• Management information systems that provide accurate, timely and relevant data so
managers can track outputs and detect minor changes easily.
• Separate lines of information flow and reconciliation of portfolio management
information and cash accounting in the field to identify discrepancies uickly.
These are all e2amples of the internal controls M=Is use to maintain reasonable levels of risk
in their activities ex-ante, before operations. They are built into program design, procedures and
daily operations.
=or e2ample, an M=I that offers individual loans in addition to group loans, must adapt the
operational guidelines and procedures to mitigate the risks of individual lending. The borrower
screening and business assessment process will be different since the M=I is relying on the cash
flow from the business to repay the loan rather than group co#guarantees. hile loan
disbursement procedures may remain the same as in traditional lending, loan monitoring may
reuire more freuent client visits, due to the lack of co#guarantors. ood management
information systems are critical to monitoring and mitigating risk. As >harles aterfield noted in
his article on MIS systems, +As microfinance institutions scale up their operations the needs for
timely and accurate information increases indeed the reliability of the management information
systems is often the difference between the success and failure of the institution.-
Pae /
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
50/92
A Study on Impact of Micro Finance on Women Empowerment
Managers cannot monitor or manage risk without timely and relevant information. =or
e2ample, M=Is that operate through a decentrali$ed branch or unit office network have
encouraged branch#level cash reconciliation and management reporting to detect problems early
and act uickly, reducing the risk that small problems grow into larger ones. 1ranch managers
can review delinuent borrowers and reconciliation of cash and program numbers on a daily or
weekly basis, allowing prompt corrective action. Many M=Is hold branches accountable for
being a profit center, giving branch managers responsibility for cash and program reconciliation,
choosing whether to fund loans with savings or borrow from head office, and tracking e2penses
relative to interest and fee income.
Becentrali$ed branch networks have other risk management advantages. =raud or personnel
problems tend to be locali$ed to a branch or region, limiting the scale of potential financial loss
compared to that within a highly centrali$ed M=I. 3owever, such decentrali$ed M=Is need a
strong organi$ational culture and good information system to ensure that policies and procedures
are standardi$ed and consistently followed. ithout a high level of discipline, operational and
transaction risks increase.
/7 Imp,ement into operation- and a--in re-pon-i3i,ity
The ne2t step is for management to integrate those policies, procedures and controls into
operations and assign managers to oversee them. In the implementation process, management
should seek input from operational staff on the appropriateness of the selected policies,
procedures and controls. "perational staff can offer insight into the potential implications of the
controls in their specific areas of operation. If it is possible that the control measure will have an
impact on clients, then management should speak with line staff to understand the potential
repercussions.
In addition, M=Is can use client surveys or interviews to understand clients/ reactions to a
new operational procedure or internal control measure. Some might believe that since the M=I
integrates all employees into the risk management system, it is unnecessary to assign
responsibility. 3owever, there is an old adage that says, +If something is everyone/s
responsibility, it is no one/s.- To effect change, the risk management system must assign clear
responsibility to someone to implement the risk controls and ensure that they are respected.
Ideally, the person should be a senior manager with operations e2perience and authority.
Pae 0=
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
51/92
A Study on Impact of Micro Finance on Women Empowerment
The M=I must determine who is responsible for monitoring and ensuring that the right
senior managers &or board of directors( receive relevant and useful infor mation, and that specific
personnel will be held accountable for implementing changes. The designated person must be
accountable to the board and senior management and must have the authority to implement
changes as needed. 1y assigning this level of responsibility to the position, the M=I reinforces
the importance of risk management throughout the organi$ation. >learly identifying a risk
manager and making his or her responsibilities very clear, increases the likelihood that the steps
will be implemented successfully.
07 Te-t effecti5ene-- and e5a,uate re-u,t-
Management must regularly check the operating results to ensure that risk management
strategies are indeed minimi$ing the risks as desired. The M=I evaluates whether the operational
systems are working appropriately and having the intended outcomes. The M=I assesses whether
it is managing risks in the most efficient and cost#effective manner. 1y linking the internal audit
function to risk management, the M=I can systematically address these uestions. To fully verify
the accuracy of the M=I/s accounts and reduce uncontrolled fraud and credit risks, the M=I
should incorporate client visits into the audit processes. ood management reporting is essential
to understanding whether these controls are effective, i.e. yielding the intended results. =or
e2ample, South Shore 1ank in >hicago has monthly board meetings to review a series of reports
with key ratios e2pressed as monthly trends. These include monthly loan asset uality reports
&delinuency by aging category is e2pressed as a percentage of total loans, loan losses as a
percentage of total loans and total loan disbursements( and funds management reports &liuidity
measured by loans to deposits and cash available to lend, investment portfolio mi2, interest rate
risk, and any funding risk for grantfunded activities(.
Trend and ratio reporting is the most efficient way for directors or senior managers to
absorb large amounts of information uickly. =ollowing trends allows the institution to +manage
by e2ception.- Managers can scan the trends in key ratios and focus on those areas where the
trends are not positive or where there has been a change, thereby focusing their limited time on
the most important issues. )atio analysis is one of the most useful tools in managing financial
institutions, since the relationships between different numbers are often more important than the
absolute numbers. This is especially true for large scale or uickly growing M=Is. Management
Pae 0!
-
8/18/2019 A Study on Impact of Microfinance on Women Empowerment
52/92
A Study on Impact of Micro Finance on Women Empowerment
reporting should provide information on actual results compared to budget, showing the
variance, and tracks key ratios and numbers relevant to the M=I/s operations.
97 Re5i-e po,icie- and procedure- a- nece--ary
1ased on the summary reporting and internal audit findings, the board reviews risk
policies for necessary adjustments. To be most effective, the internal audit should report directly
to the M=I/s board of directors. hile only significant internal audit findings are reported to the
board, the directors should ensure that necessary revisions are uickly made to the systems,
policies and procedures, as well as the operational workflow to minimi$e the potential for loss.
The internal audit report may make specific recommendations on how to strengthen risk
management areas depending on the audit scope. Management is responsible for designing the
specific changes, and in doing so should seek input from the internal audit team as well as branch
staff to ensure that operational changes are appropriate and will not result in unforeseen, negative
conseuences to the M=I or its clients. M=Is are increasingly adapting and adding new products
to offer customers more choices and to differentiate their products from the competition. ith
new products and product changes come new credit risks, operational risks, and liuidity risks,
which reuire new risk management strategies.
Ten *uide,ine- f