MICROFINANCE- SERVICE PROVIDERS Building blocks for the

development of nation

PRESENTED BY

M.TULASINADH

R.MAHESH

K.B.N PG COLLEGE

17/02/2012

2 Source: Text

“IF You are Uplifting

The Poor,

Your Uplifting

The Nation”

-> Mahatma Gandhi

THE WAY TO UPLIFT THE POOR

Micro Finance is the supply of loans, savings, and other basic financial service to the poor .

To most, micro finance means providing very poor families with very small loans (micro credit) to help them engage in productive activities or grow their tiny businesses. -> Financial Gateway

3 Source: Text

The pioneering of modern microfinance of often credited to Dr Mohd Yunus, who began experimenting by lending to poor women in the village of jobra, Bangladesh, during his tenure as a professor of economist at Chittagong university in1970s. He went on to find Grameen Bank in 1983, and won Noble Peace Prize in 2006.Since then, innovations of micro finance have continued and providers of financial services to the poor continue to evolve. Today the world bank estimates that about 160 million people in developing countries are served by microfinance.

“BEGGERS TURNED AS SALES EXECUTIVES”

‘ MOHD YUNUS’

4 Source: Text

HISTORY OF MICRO FINANCE

KEY FEATURES OF MFI

5 Source: Text

LEND TO THE POOR PEOPLE & DONT TAKE

SECURITY

PREFER SAVING OVER BORROWING &

SMALL SHORT TERM LOANS

COST COVERING INTEREST RATES

&GROUP APPARAISAL AND GUARENTEE

PREFER WOME N CUSTOMERS OVER

MEN

KEY FEATURES OF MICROFINANCE

FINANCING MODEL IN MFI

6 Source: Text

• A SHG is a group of about 10 to 20 people, usually women, from a similar class and region, who come together to form savings and credit organization. They pooled financial resources to make small interest bearing loans to their members. This process creates an ethic that focuses on savings first. The setting of terms and conditions and accounting of the loan are done in the group by designated members.

• 15 to 50 SHGs make up a Cluster / VO with either one or two representatives from each SHG. Depending on geography, several clusters or VOs come together to form an apex body or an SHG Federation.

7 Source: Text

SHG-MODEL-FEDERATION

SHG-BANK LINKAGE

• A most notable milestone in the SHG movement was when NABARD launched the pilot phase of the SHG Bank Linkage programme in February 1992. This was the first instance of mature SHGs that were directly financed by a commercial bank. The informal thrift and credit groups of poor were recognised as bankable clients. Soon after, the RBI advised commercial banks to consider lending to SHGs as part of their rural credit operations thus creating SHG Bank Linkage.

• The linking of SHGs with the financial sector was good for both sides. The banks were able to tap into a large market, namely the low-income households, transactions costs were low and repayment rates were high. The SHGs were able to scale up their operations with more financing and they had access to more credit products.

8 Source: Text

SERVICE PROVIDERS

INFORMAL –

SERVICE PROVIDERS:

9 Source: Text

Major Providers

• Moneylenders,

• Pawnbrokers,

• Savings collectors

• Money-guards

• Input supply shops

Advantages

• Understand each other’s financial circumstances

• Can offer very flexible, convenient and fast services.

Disadvantages

• Services can also be costly

• Choice of financial products limited and very short-term.

• Services that involve savings are also risky; many people lose their money.

Formal financial institutions

.

10 Source: Text

Major Providers

•State banks

•Agricultural development banks

•Savings banks

•Rural banks

•Non-bank financial institutions.

Advantages

• Regulated and supervised,

• Offer a wider range of financial services

• Control a branch network that can extend across the country and internationally.

Disadvantages

• Little financial skill

• Can run into trouble when the economy turns down

CHALLENGES

The challenges in building a sound microfinance industry include:

Inappropriate donor subsidies

Poor regulation and supervision of deposit-taking microfinance institutions(MFIs)

Few MFIs that meet the needs for saving remittance or insurance

Limited management capacity of MFIs

Institutional inefficiencies

Need for more dissemination and rural agricultural finance methodologies.

11 Source: Text

SUGGESTIONS

strong and efficient microfinance institution

financial infrastructure

lower interest rate

Government role

RBI regulations

A new category of NBFC should be created

Special incentives

All SHGs particularly in the backward regions should be consider under one umbrella

12 Source: Text

FUTURE OUTLOOK

The Indian micro finance sector has expected to grow nearly ten times by 2012 by a size of about Rs 325 billion from the current market size Rs 27 billion, at a compounded annual growth rate of 76%, with out the people living below $1.25 day. The total demand of the micro credit in the country is Rs550 billion at an annual average loan size of Rs 6,000. Thus even 2012 only about 50% of the market demand may be covered

13 Source: Text

FUTURE OUTLOOK

.

14 Source: Text

CONCLUSION

Microcredit is provided not only to the poor countries but also the world’s richest countries . The success of microcredit model has been judged disproportionately from a lenders' perspective and not from the borrowers. When access to credit is combined with other services such as additional financial services, Enterprise development, and welfare related services are expected to diminish the adverse effect. Furthermore, the use of microcredit programmes in development should be limited to the nature of the potentially helpful tool that they are-for opening doors of economic opportunity for the poor in helping to alleviate the economic resources trap that they often face.

15 Source: Text

16 Source: Text