Micro Finance,

Macro Impact

Presentation on

Micro Finance

Sushil Chokhandre

Presented by:

Sushil Chokhandre

Sushil.chokhandre@yahoo.com

Updated on : Feb 2014

Micro finance

Sushil Chokhandre

Provision of financial services such as

savings,

credit &

insurance

to unemployed or low-income individuals or groups which fall below the poverty line

Current Scenario – Indian Market

• India's GDP growth is expected to slow to an 11-yearlow of less than 5% in the fiscal year ending March.

• 35-37% population below poverty level.

• 450 million unbanked people in India who live in ruralareas

• 87% of the rural households do not have access to

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• 87% of the rural households do not have access tocredit.

• Estimated credit demand: USD 14 bn

• Demand met so far: USD 700mn

• Next 3-5 years, around 65% of the rural population willhave access to MFIs.

Current Micro-Finance industry

ICRA report:

• The market potential:Rs.1.4-Rs 2.5 lakh crore.

• Current size of the microfinance market:

Rs.60,000crore.

• The loan requirements are huge in rural areas but

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• The loan requirements are huge in rural areas but

MFIs are extending only small-value loans.

• a typical loan size is Rs. 10,000 and many borrow

from two MFIs which is lower than the Rs. 35,000-

45,000 loans that many households are

demanding.

• Growth: at 30-35 per cent a year over the next

three years.

• The delinquency rate of Microfinance Institutions(MFIs) has declined by 20% between April andOctober 2013.

• Microfinance institutions lending close to Rs.30,000cr in current fiscal, 30% increase in qtr ended Oct-13 & Growth is expected to increase by 40 per centnext fiscal.

Current Scenario – Micro-finance Industry

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• The aggregate gross loan portfolio of microfinanceinstitutions (MFIs) grew by 54 per cent in thesecond quarter ended 30-09-13, compared with thesame period last year.

• Over 90% of the MFIs (other than those under corporate debt

restructuring) showed positive growth.

• MFIs received total debt funding of Rs. 3,780 crore,of which, 86% came from banks and rest from otherfinancial institutions.

Microfinance companies

• Micro Finance Institutions (MFIs) are the key players in helping andsupporting the cause of financial inclusion.

• Micro-finance companies in India usually borrow from mainstream banksand provide loans as small as $US200 to poor borrowers, mostly women,for starting small businesses such as buying livestock.

• The micro-loan companies operate in areas where there are no bankbranches and people traditionally have relied on loan sharks who charge

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branches and people traditionally have relied on loan sharks who chargeexorbitant rates.

• The MFIs are reaching to the 70% of the poorest districts of India

Few Major MFIs -

– SKS Microfinance.

– Grama Vidiyal

– Asmitha Microfinance

– Cashpro Microfinance

– Trident microfinance

– Samridhi Microfinance

Types of MFIs

• MFIs include non-governmental organizations (NGOs), credit unions, non-bank financial intermediaries, and evenafew commercial banks.

• Classification:

– Not for Profit MFIs

– NGO-MFIs

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– Non-Profit Companies

– Mutual Benefit MFIs

– Mutually Aided CooperativeSocieties (MACS) and set up institutions.

– For Profit MFIs

– Non-Banking Financial Companies ( NBFCs)

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Micro finance models

• Conventional Method

– community-based or in-house banking

• Bank Partnership Model

– The bank acts as the lender and the MFI acts asan agent which takes care of work related tosupervision, recovery and credit monitoring.

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• Banking Correspondents

– MFIs are allowed to collect the savings from thetargeted population on behalf of the bank.

• Service Company Model

– Bank forms its own MFI perhaps as an NBFC, andthen it works together with that particular MFI toprovide loans and other services.

Micro Finance - Streams

• Demand Stream�

• Forum of clients– primary poor SHGs and un-organisedindividual clients.

• Association/organisations of poor SHGs and its federations,cooperatives (community ownership and governance)

• Enabling Stream�

• Promotional institutions: NGOs, philathropic institutions,donors

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donors

• Regulatory institutions: RBI/ State and Central Goverments.

• Supply Stream�

**Savings and credit

• Commercial ,rural and Private Banks

• Cooperative banks

• Speacialised developemtn financial institutions ( housingbanks, SIDBI)

• Insurance companies

• Post office

SWOT Analysis - Strength

• Reliable business model.

• Reduces poverty

• Attract investors looking to spread risksand diversify their portfolios.

• Focus on consumer protection,transparency, and governance.

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transparency, and governance.

• Strong support from banks & NGOswho are able to access bulk funds foron-lending.

• Huge networking available.

• SHG bank linkages- widely adoptedapproach involving bank, NGOs & poor

SWOT Analysis: Weaknesses

• Not properly regulated.

• High interest rate than the rates chargedon normal bank loans.

• High transaction cost

• Large segment is still untouched due toaccess problem.

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• Many poor still prefers informal providers(local Zamindars, Chit Funds) of financewhich charge at a high interest rate.

• MFIs targets WOMEN.

• Many places in States such as UttarPradesh, Bihar and Madhya Pradesh areunder-served.

• Loan fatigue- poor recovery, politicized

Opportunities

• Rate ceilings from Govt.

• Huge demand and supply gap

• Huge potential & heavy need for this market.

• Participation of private industries andinstitutions.

Inclusion of innovative models and initiatives.

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• Inclusion of innovative models and initiatives.

• Employment Opportunity

• Opportunity for Pvt. Banks

• Government should encourage competition,capacity building, and innovation to lowerinterest rates, and costs in microfinance.

Threats

• Neophyte Industry

• Global financial storm

• Uncertain regulatory future due to theunderlined concerns.

• High Competition

policies and procedures of central banks

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• policies and procedures of central bankswhich might pose hurdles to poor people.

• Risks to MFIs – Credit risk, Operational risk,strategic risk, liquidity risk, market risk,fraud and legal risks, reputation risk,External business risk.

• Over involvement of Government

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This presentation has been made from my understanding of the concept through internet, through various sources..

This ppt is for reference only.