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JAYASHEELA, P.T. DINESHA & HANS BASIL V. (2008) states that Micro finance is a financial service of small quantity provided by financial institutions to the poor. These financial services may include savings, credit insurance, leasing, money transfer, equity transactions etc. that is any type of financial service provided to customers to meet their normal financial needs life cycle, economic opportunity and emergency. A MFI is an organization that acts as an interface between the formal credit delivery institutions and credit seekers, with an aim to assist for the socio economic development of poor and marginalized people. MFIs are essential to encourage micro enterprises and empower local people including women. The geographical distribution of MFIs is very much concentrated in the Southern India where the rural branch network of formal bank is excellent. GUERIN, KUMAR SANTOSH & AGIER I. (2007) states that Over past decades the idea of “female empowerment” has become extremely popular in development agendas, resulting in multiple and often contradictory discourses on gender and development. Very little attention however has been paid to how specific empowerment discourses are received by those constituted as the “beneficiaries” of such programmes. This under-theorization of microfinance as a “lived experience” means that the wide range of complex and often surprising processes through which the concept of empowerment is received, appropriated, accommodated, and sometimes challenged have often been overshadowed. In an effort to explore how women make microfinance their own, this paper has analysed how women take socially embedded critical perspectives towards empowerment, and how the idea of “women’s empowerment” is given meaning through women’s situational constraints, aspirations and expectations. REDDY CS & MANAK SANDEEP (2004) states that Microfinance has evolved over the past quarter century across India into various operating forms and to a varying degree of success. One such form of microfinance has been the development of the self-help movement. Based on the concept of “self-help,” small groups of women have formed in to groups of ten to twenty and operate a savings-first business model whereby the member’s savings are used to fund loans. The results from these self-help groups (SHGs) are promising and have become a focus of intense examination as it is proving to be an effective method of
poverty reduction. The impact of SHGs on women’s empowerment and social security has been invariably an improvement from the status quo but there is a need for support in several areas. The status of women has generally improved as they have developed stronger confidence which has changed gender dynamics and their role in the household. In south India, significant improvements in fertility rates, female literacy, participation in development programmes and economic independence are evident. Women are able to fight for their rights and entitlements and have emerged as a force to be reckoned with. Further, SHGs are becoming more than just financial intermediaries, instead they have emerged into a more political and social unit of society. More importantly, the penetration of microfinance to the poorest of the poor is still weak and needs a wider reach. BASU SUDIPTO) (2007) states that there are many challenges ehich are faced in micro finance, These are as follows:- High cost of service associated with the low-value, high volume and cash intensive nature of the business and the high fixed and variable costs associated with putting in place the physical infrastructure required to broaden the reach. Risk management challenges associated with the high levels of information asymmetry, the tenuous nature of the underlying viability of the economic activity for which funding is sought and the high degree of exposure to exogenous shocks. Staff incentives within any formal organisation paradigm (private or public) that seeks to deliver these services. Inability of a large section of the population to pay for the ease of access to such financial service offerings.
BAHAR HABIBULLAH (2006) states that although micro credit is not the panacea for poverty alleviation and rural upliftment in a developing country, the supportive services of microfinance institutions for primary requisites (such as health, education, and infrastructure) and financial services (such as savings schemes, consumption, investment and insurance services) are essential for the smooth operation of micro credit. In order to improve the performance of the microfinance institutions and micro credit for targeting the poor, the following measures have been suggested: commercial banks should establish separate functional relations with the microfinance institutions to provide the required guidelines, supervision and financial assistance. Close cooperation among the microfinance institutions, banks and organs of the government for social welfare activities is essential for the effective coordination of their activities. An initiative should also be considered to establish a link among the medium sized, small and cottage industries and the corporate sector through the development of subcontracting. Banks and non-bank financial institutions could create funds for the development of subcontracting enterprises. SRIRAM M.S. (2009) states that there have been talks that the microfinance market is overheated, and that there is a bubble in the making. If there is a crisis in the microfinance sector whom would it affect? If we look at this question carefully we realize that it will not affect the poor in a big way. Yes they would lose out on an assured source of lending from the formal sector, but that hopefully would be covered by newer and innovative institutions. The poor have already paid the price for the loans that they got. They would benefit if the loans come at a more moderate rates of interest, but if there is healthy competition even that will happen in the long run. Therefore this entire argument is not about the poor at all. However this argument is certainly about doing business with the poor and with the claim of eradicating poverty.
INDUSTRY PROFILE
MICRO FINANCE AS AN INDUSTRY
Many view rural microcredit as an input, along with business development services, into rural micro-enterprise development. Traditional microfinance products and methodologies generally reflect this model, with products aimed primarily at micro entrepreneurs, especially market vendors, with short loan terms, regular repayment schedules, and ever-increasing loan amounts. Increasingly, a new consensus is emerging among microfinance practitioners, donors and experts. This new view considers microfinance as an industry worth promoting in and of it. Microfinance institutions (MFIs) can be small and medium enterprises at the heart of rural sustainable development. Their development positively correlates with rural business development. A new approach considers a wide range of flexible financial services for a variety of poor clients, not just rural micro-entrepreneurs. This means that micro credit becomes transformed from input into rural enterprise development into a financial service that available to poor people. What this mean to MFIs and donors is the following:
MFIs: Under the current micro-enterprise development model, an MFI offers very
limited number of range of supply driven credit products, which tend to focus fairly narrowly on micro enterprises needs and activities. Loaning for green technological systems is not a usual practice for MFIs. Under the new approach MFIs need to evolve to provide more demand driven flexible and efficient financial services for the rural poor. These flexible demand-driven services would recognize the varying requirements of poor.
Donors: Currently, donors design projects to reach the rural micro-enterprise sector or
other specific target groups. Many of these projects combine credit with business development services, reflecting the traditional micro-enterprise development model. Donors often insist that the MFIs charge "market" or "sustainable" interest rates in order to become developmental activities sustainable. Under the new approach, donors need to
The micro finance initiative in private sector can be traced to the initiative undertaken by Ms.Ela Bhatt for providing banking services to the poor women employed in the unorganized sector in Ahmedabad City of Gujarat State. NABARD during the early eighties conducted a series of research studies in association with MYRADA (a leading NGO from South India) and also independently which showed that despite having a wide network of rural bank branches that implemented specific poverty alleviation programmes and self-employment opportunities through bank credit for almost two decades, a very large number of the poorest of the poor continued to remain outside the fold of the formal banking system. NABARD, however, also took a conscious decision to experiment with other successful strategies such as replicating Grameen, wholesaling funds through NGOMFIs. The dominant model of microfinance – the group lending model pioneered by the Grameen Bank in Bangladesh – socializes the costs of lending to poor women by providing them access to credit on the basis of “social collateral” obtained through membership in borrower groups. Here social capital helps correct for imperfect information about borrowers lacking in formal credit and employment histories and substitutes for collateral by ensuring against default through social sanction and peer enforcement.
BACKGROUND
The NABARD led Pilot Project commenced with the support of the Central Bank of the country, i.e., Reserve Bank of India, from 1992 onwards aimed at promoting and financing 500 SHGs across the entire country, the SHG- bank linkage strategy has come a long way. However, NGOs and MFIs acted as a catalyst for change and helped in bringing about such paradigm shift. They were very successful in combining social and economic agenda with synergistic effect. They also recognized sustainability as the core factor in development The statistics in this field are mind-boggling. During the period April 2003 to March 2004 - 361,731 new SHGs were financed by banks to a tune of Rs 18.55 billion (US $ 412 million) by way of loans. Cumulatively, banks have lent Rs
39.04 billion (US $ 867 million) to 1,079,091 SHGs. NABARD has extended a refinance of Rs 7.06 billion (US $ 156 million) to banks during 2003-04 bring the cumulative refinance amount to Rs 21.24 billion (US $ 472 million). These successes have been achieved only due to strict monitoring and functioning of the NGOs and MFIs. For example, the Non Governmental Organizations (NGOs) and Microfinance institutions promoting SHGs must abide by the international best practices for microfinance, which suggests that good financial analysis is the basis for successful and sustainable microfinance operations leading to the success of the SHG concept. With this understanding of the world of MF, this research was carried out in accordance with the famous phrase “ If you want to evaluate the forest, look at the trees.” Thus it is important to evaluate an institution’s performance with regard to different areas of its operation i.e. product, service, delivery, etc. Microfinance as a developmental and economic tool has caught the imagination of banks and other financial institutions, and NGOs in India. NGOs newly involved in microfinance tend to point to high repayment rates as an indicator of their success. If there is one universal microcredit doctrine, it is that repayment rates of close to 100 percent are within reach if the microfinance institutions conduct their operations along "best practice" lines. "Best practice" explanations for good repayment rates include high frequency collection schedules, tight controls, a good management information system, loan officer incentives, good follow up, and a quick jump on delinquency. On the borrowers' side, the effects of peer pressure in group based schemes, and the attractiveness of products with relatively low transaction costs also explain good repayment rates.
THEORETICAL FRAMEWORK
The Indian microfinance sector is a culmination of several approaches found across the world. Indian microfinance has lapped up the Grameen blueprint; it has replicated some aspects of the Indonesian and the Bolivian model. In addition to the imported artifacts of microfinance, we also have the home-grown model of self-help groups(SHGs). This study aims to understand the economic attractiveness of microfinance both to NGOs
PLAYERS IN MICROFINANCE SECTOR
The different actors on the basis of the roles they play in building of the rural financial structures depending on their needs & goals. i) The Rural poor · Perceive thrift as their strength as also as the bonding factor among themselves. · Realise that timely and adequate credit was preferable and productive than subsidies and doles. · They need hassle-free delivery mechanisms. ii ) NGOs · Act as catalysts of change. · Combine social and economic agenda with synergistic effect. · Recognise sustainability as the core factor in development. iii) Banking system · Accept SHG-bank linkage as a cost effective means of reaching the poor. · Accept peer pressure as collateral substitute for excellent recovery of loans. iv) Government · Formulate supportive policy framework. · Encourage routing of social programmes through SHGs. v) Reserve Bank of India · RBI policy inputs on micro Finance lead to increased involvement of banks. · Liberalise interest rates and deregulated interest rate structure for micro credit, leading to flexibility in lending rates.
vi ) NABARD · Provides inputs in capacity building for banks and partner agencies. · Promotes the idea of organising thrift and credit groups among the NGOs as an add-on activity and encouraged linking them with banks_._
MODEL WISE LINKAGE PROGRAMME
Three different models of credit linkage have been evolved and the model-wise status of credit linkage as on 31 March 2004 is as follows: Model I: SHGs formed and financed by banks In this model, banks themselves take up the work of forming and nurturing the groups , opening their savings accounts and providing them bank loans. Up to march 2004, 20% of the total number of SHGs financed wee from this. This showed an increase of 52 % over the position upto march 2003, reflecting an increased role of banks in promoting and nurturing SHGs. Model II: SHGs formed by formal agencies other than banks, NGOs and others, but directly financed by banks This model continues to have the major share, with 72% of the total number of SHGs financed up to march 204, here NGOs and formal agencies in the field of microfinance act only a s facilitators, they facilitate organizing, forming and nurturing of groups and train 5them in thrift and credit management. Banks give loan directly to these SHGs. Model III: SHGs financed by banks through NGO s and other agencies as financial intermediaries This is the model where in the NGOs take on the additional role of financial intermediation. In areas where the formal banking system faces constraints the NGOs are encouraged to approach a suitable bank for bulk loan assistance. This, in jkturn , is used by the NGO for on lending to the SHGs. In areas where a very large number of SHGs have been financed by bank branches, intermediate agencies like federations of SHGs are
CRISIL List of Top 20 MICRO FINANCE INSTITUTIONS IN INDIA
- SKS Microfinance Ltd (SKSMPL) 2 Spandana Sphoorty Financial Ltd (SSFL) 3 Share Microfin Limited (SML) 4 Asmitha Microfin Ltd (AML) 5 Shri Kshetra Dharmasthala Rural Development Project(SKDRDP) 6 Bhartiya Samruddhi Finance Limited (BSFL) 7 Bandhan Society 8 Cashpor Micro Credit (CMC) 9 Grama Vidiyal Micro Finance Pvt Ltd (GVMFL) 10 Grameen FinancialServices Pvt Ltd (GFSPL) 11 Madura Micro Finance Ltd (MMFL) 12 BSS Microfinance Bangalore Pvt Ltd (BMPL) 13 Equitas Micro Finance India P Ltd (Equitas) 14 Bandhan Financial Services Pvt Ltd (BFSPL) 15 Sarvodaya Nano Finance Ltd (SNFL) 16 BWDA Finance Limited (BFL) 17 Ujjivan Financial Services Pvt Ltd (UFSPL) 18 Futures Financial Services Chittoor Ltd (FFSL) 19 ESAF Microfinance & Investments Pvt. Ltd (EMFIL) 20 S.M.I.L.E Microfinance Limited. (Source:- A study conducted by Unnati A. Mehta, United World School of Business, Mumbai)
MICRO FINANCE INSTITUTIONS IN INDIA
Bandhan
(Ranked 2nd^ by Forbes Magazine in December 2007) Bandhan is working towards the twin objective of poverty alleviation and women empowerment. It started as a Capacity Building Institution (CBI) in November 2000 under the leadership of Mr. Chandra Shekhar Ghosh. During such time, it was giving capacity building support to local microfinance institutions working in West Bengal. Bandhan opened its first microfinance branch at Bagnan in Howrah district of West Bengal in July 2002. Bandhan started with 2 branches in the year 2002-03 only in the state of West Bengal and today it has grown as strong as 412 branches across 6 states of the country! The organization had recorded a growth rate of 500% in the year 2003- and 611% in the year 2004-05. Till date, it has disbursed a total of Rs. 587 crores among almost 7 lakh poor women. Loan outstanding stands at Rs. 221 crores. The repayment rate is recorded at 99.99%. Bandhan has staff strength of more than 2130 employees. Operational Methodology Bandhan follows a group formation, individual lending approach. A group of 10- members are formed. The clients have to attend the group meetings for 2 successive weeks. 2 weeks hence, they are entitled to receive loans. The loans are disbursed individually and directly to the members. Economic and Social Background of Clients Landless and asset less women. Family of 5 members with monthly income less than Rs. 2,500 in rural and Rs. 3,500 in urban. Those who do not own more than 50 decimal (1/2acre) of land or capital of its equivalent value.
in the evening. They were used additionally for accounting work, but that can now be done more cost effectively using computers. The model is also rather meeting intensive which is fine as long as the members have no alternative use for their time but can be a problem as members go up the income ladder. The greatness of the Grameen model is in the simplicity of design of products and delivery. The process of delivery is scalable and the model could be replicated widely. The focus on the poorest, which is a value attribute of Grameen, has also made the model a favourite among the donor community. However, the Grameen model works only under certain assumptions. As all the loans are only for enterprise promotion, it assumes that all the poor want to be self-employed. The repayment of loans starts the week after the loan is disbursed – the inherent assumption being that the borrowers can service their loan from the ex-ante income. SKS Microfinance Many companies say they protect the interests of their customers. Very few actually sit in dirt with them, using stones, flowers, sticks, and chalk powder to figure out if they will be able to repay a $20 loan at $1 a month. With this approach, this company has created its own loyal gang of over 2 million customers. Its borrowers include agricultural laborers, mom-and-pop entrepreneurs, street vendors, home based artisans, and small scale producers, each living on less than $2 a day. It works on a model that would allow micro-finance institutions to scale up quickly so that they would never have to turn poor person away. Its model is based on 3 principles-
- Adopt a profit-oriented approach in order to access commercial capital- Starting with the pitch that there is a high entrepreneurial spirit amongst the poor to raise the funds, SKS converted itself to for-profit status as soon as it got break even and got philanthropist Ravi Reddy to be a founding investor. Then it secured money from parties such as Unitus, a Seattle based NGO that helps promote
micro-finance; SIDBI; and technology entrepreneur Vinod Khosla. Later, it was able to attract multimillion dollar lines of credit from Citibank, ABN Amro, and others.
- Standardize products, training, and other processes in order to boost capacity- They collect standard repayments in round numbers of 25 or 30 rupees. Internally, they have factory style training models. They enroll about 500 loan officers every month. They participate in theory classes on Saturdays and practice what they have learned in the field during the week. They have shortened the training time for a loan officer to 2 months though the average time taken by other industry players is 4-6 months.
- Use Technology to reduce costs and limit errors- It could not find the software that suited its requirements, so it they built their own simple and user friendly applications that a computer-illiterate loan officer with a 12th^ grade education can easily understand. The system is also internet enabled. Given that electricity is unreliable in many areas they have installed car batteries or gas powered generators as back-ups in many areas. Scaling up Customer Loyalty Instead of asking illiterate villagers to describe their seasonal pattern of cash flows, they encourage them to use colored chalk powder and flowers to map out the village on the ground and tell where the poorest people lived, what kind of financial products they needed, which areas were lorded over by which loan sharks, etc. They set people’s tiny weekly repayments as low as $1 per week and health and whole life insurance premiums to be $10 a year and 25 cents per week respectively. They also offer interest free emergency loans. The salaries of loan officers are not tied to repayment rates and they journey on mopeds to borrowers’ villages and schedule loan meetings as early as 7.00 A.M. Deep customer loyalty ultimately results in a repayment rate of 99.5%.
For Financial Institutions and banks
Microfinance has been attractive to the lending agencies because of demonstrated sustainability and of low costs of operation. Institutions like SIDBI and NABARD are hardnosed bankers and would not work with the idea if they did not see a long term engagement – which only comes out of sustainability (that is economic attractiveness). On the supply side, it is also true that it has all the trappings of a business enterprise, its output is tangible and it is easily understood by the mainstream. This also seems to sound nice to the government, which in the post liberalization era is trying to explain the logic of every rupee spent. That is the reason why microfinance has attracted main stream institutions like no other developmental project.
INTRODUCTION
This chapter focuses on the methodology and the techniques used for the collection, classification and tabulation of data. It sheds light on the research problem, the objective of study and its limitations. The later part of this chapter explain the manner in which the data is collected, classified, tabulated and so as to reach on conclusive results. It is written game plan for conducting research.
PROBLEM STATEMENT: To study the role of Micro Finance in Rural
Development in India.
OBJECTIVES OF THE STUDY: The project is designed with an
objective that it will add value to my knowledge. The objectives of the study are:-
- To study loans and advances provided under micro finance for rural development.
- To examine how micro finance helps in women empowerment.
- To analyse the growth and challenges faced by the micro finance.
RESEARCH DESIGN: This study is based on a Descriptive Research Design.
Descriptive research is a type of conclusive research that has as its major objective the description of something-usually market characteristics or functions.
SCOPE OF STUDY: Micro finance is an emerging tool which an economy
can use to develop it. It not only gives finance to poor to establish their small- scale business but also helps in women empowerment.
