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Opportunities and Limitations

Nishant Bali
IBS Ahemedabad
Ø Scenario of Micro Finance in India.

Ø Micro-Credits model.

Ø Business model of Grameen Bank

Ø Self Help Groups (SHG’s).

Ø Difference between JLGs and SHGs

Ø NABARD initiatives in Micro finance.

Ø Business Model of SAKHI.

Ø Credit institutions as a Political tool: Debt relief in India.

Ø MFI’s being criticized because of high interest rates.

Ø SWOT Analysis of Micro Finance

Ø Interview of End Users

Ø Future of Micro Finance

Ø Learning from the Project

Scenario of Micro Finance in India
Ø India’s population is more than 1000 million, around 350 million, are
living below the poverty.

Ø Only 20% access loan from the formal sources and 80% from the
informal sources.

Ø Out of that 20% only 10% have access to Micro finance.

Ø Annual credit demand by the poor is estimated to be about Rs 60,000

crores. And only 12,000 crores are disbursed. (April 09)

Ø Customers of Micro Finance are “Small and marginal farmers", " rural
artisans" and "economically weaker sections“
Micro-Credits model 
Ø Focus on, providing the capital for poor women to use their innate
"survival skills" to pull themselves out of poverty.

Ø Lend mostly to women in small groups (credit circles), say of five or


Ø Draw up a weekly or bi-weekly repayment schedule.

Ø In case any member defaults the entire circle is denied access to credit
Business model of GRAMEEN bank
Ø Introduction
• The Grameen Bank started in 1976 by the Nobel Laureate, Professor
Muhammad Yunus in Bangladesh .
• Grameen today has some 2,468 branches in Bangladesh, with a staff of
24,703 people serving 7.34 million borrowers from 80,257 villages.
• Grameen‘s methods are applied in 58 countries — including the United
• Grameen Bank borrowers own 94% of the Bank. The remaining 6% are
owned by the government. (January 09)

Ø Working model of Grameen bank:

• Manager first makes a round to the appointed area to introduce Grameen
policies and programs.
• Try to make the group of 5 people.
• Only two members can obtain loan at first. After 6 weeks of successful
repayment another two can apply for loan. The leader can only receive loan
at last.
• Repayment responsibility solely rests on the individual borrower.
• However if one member of a group defaults, that group will never receive a
loan from Grameen

Ø Two popular scheme by Grameen Bank is:-

• Loan Insurance:-
• Beggars Loan:-
“16 Decisions”
1. We shall follow and advance the four principles of Grameen Bank: Discipline, Unity,
Courage and Hard work – in all walks of our lives.
2. Prosperity we shall bring to our families.
3. We shall not live in dilapidated houses. We shall repair our houses and work towards
constructing new houses at the earliest.
4. We shall grow vegetables all the year round. We shall eat plenty of them and sell the
5. During the plantation seasons, we shall plant as many seedlings as possible.
6. We shall plan to keep our families small. We shall minimize our expenditures. We shall
look after our health.
7. We shall educate our children and ensure that they can earn to pay for their education.
8. We shall always keep our children and the environment clean.
9. We shall build and use pit-latrines.
10. We shall drink water from tube wells. If it is not available, we shall boil water or use
11. We shall not take any dowry at our sons' weddings; neither shall we give any dowry at
our daughter's wedding. We shall keep our centre free from the curse of dowry. We shall not
practice child marriage.
12. We shall not inflict any injustice on anyone; neither shall we allow anyone to do so.
13. We shall collectively undertake bigger investments for higher incomes.
14. We shall always be ready to help each other. If anyone is in difficulty, we shall all help
him or her.
15. If we come to know of any breach of discipline in any centre, we shall all go there and
help restore discipline.
16. We shall take part in all social activities collectively .
Ø The Repayment Mechanism:
• One year loan .
• Equal weekly installments .
• Repayment starts one week after the loan .
• Repayment amounts to 2% per week for fifty weeks .

Ø Criticism of Grameen Bank:

• There are rumors that there repayment rate are fake.
• Grameen Bank clients used their loans for many different purpose .e.g..Dowry,
gambling etc.
The Self Help Group (SGH)
Ø SHGs is a small group of rural poor, who have voluntarily come
forward to form a group for improvement of the social and economic
status of the members.

Ø Homogeneous group of about 15 to 20.

Ø Every member to save small amounts regularly.

Ø Every member learns prioritization and financial discipline.

Ø Condition required for membership for SHG’s

• Members should be between the age group of 21-60 years.
• From one family, only one person can become a member of an SHG. (More
families can join SHGs this way).
• The group normally consists of either only men or only women.
• Members should be homogenous i.e. should have the same social and
Difference between JLGs and SHGs
Ø “Joint Liability Group (JLG) is a group of individuals coming together to
borrow from the financial institution.
NABARD initiatives in Micro finance

Ø National Bank for Agriculture and Rural Development (NABARD) was

established as an apex rural development bank in the year 1982,
through an Act of Parliament.

Ø Role and Function of NABARD:

• Providing Refinance to lending institutions in rural areas.
• Evaluating, monitoring and inspecting the client banks.
• Providing support to NGOs through a variety of schemes.
• Making model projects / development schemes for banks and farmers
• It prepares, on annual basis, rural credit plans for all districts in the
Organizational structure

Board of Director


Managing Director

Executive Director(4)

Head Office Regional Offices(28) Training Establishment(6)

Dept (24)

Sub Office(Andaman & District Development

Nicobar) & Special cell Offices (391)
● Financial Santa Clause (NABARD)
• (NABARD) was established in 1982,with an initial capital of 1400 crores.
• And till March 30, 09 it reached to Rs 1, 00,000 crores with the surplus of Rs
1400 crores.
• Its Reserve and Surplus increased by 10.26% from 07 to 08, and its Cash and
Bank balance and Investment increased by 40.16% and 15.5%. (sources

Ø From where NABARD gets the fund?

Ø How NABARD gives loan to the Institutions?

• NABARD follows the very strange way of providing the loans.
• They give loans to the every ODD number institution i.e.3, 5, 7, 9….
How NABARD manage their repayment
Ø Their Repayment ratio is more than 95%.

Ø NABARD see the credit rating of that institute given by the rating

Ø NABARD analyze the balance sheet and profit and loss statement of the
borrowing institutes.

Ø NABARD sees the past record of the borrowing institutes, their

repayment ratio and the executives who are working in that institutes.
Business model of SAKHI
Ø Introduction
• SAKHI (An Organization for Women) , established in the year 2002.
• Started by veteran Mrs. Alpa Chauhan.
• SAKHI is having three office .(1 ) Dakoor (2 ) Umreth (3) Dahood.

Ø Role and function of SAKHI

• Provide loan to the economic disadvantage people.
• Help them in creating groups.
• Provide them Micro plus loans.
• Help them in establishing their(borrowers) business.
Organization Structure
Ø SAKHI had developed a systematic organizational structure for itself.

Board of Trustees


Operation Finance Mgr Admin Mgr

HR Mgr Mgr Audit Mgr

Area Mgr Audit Team

Brach Mgr



Ø Structure
How SAKHI disburse the Loans?

Sources: Survey on SAKHI

How SAKHI raise capital?
Ø Friends of Women World Bank.(FWWB) (13.5% p.a ).
Ø Indian Bank(13.75% p.a).

Ø Why SAKHI charges such a high rate of interest (18% p.a)?

• The loan doesn’t disburse immediately.
• SAKHI charges same rate, even if above hike there rates.
• High transaction and operating cost.

Ø Is government waiver plan effected there Institution?

• That rule was only for government institution.
• But borrowers also requested them to waive their loan amount.

Ø Practical example of interest calculation.

Debt Relief in India
Ø Political intervention creates serious threat for MFIs.

Ø Easy and Safest way to attract the voters.

Ø Borrowers creates a negative mind set.

Ø The waiver of farm loans , increased defaulters.

Ø Many decent borrowers has effected by this waive of schemes.

Ø Legacy continue, Rs 60,000 crore was declared by Shri P.Chitambaram.

MFI’s being criticized because of high
interest rates:
Ø Most MFI’s financially sustainable by charging interest rates that are high
enough to cover all their costs.

Ø Four key factors determine these rates:

• The cost of funds.
• The MFI's operating expenses.
• Loan losses.
• And profits needed to expand their capital base and fund expected future

Ø There are three kinds of costs the MFI has to cover when it makes
• The cost of the money that it lends.
• The cost of loan defaults.
• Transaction and Operating cost.
Ø For instance, MFI lends is 10 percent, and it experiences defaults of 1
percent of the amount lent, then total Rs 11 for a loan of Rs 100, and Rs
55 for a loan of Rs 500. And the third cost i.e. transaction cost.

Ø Suppose that the transaction cost is Rs 15 per loan and that the loans
are for one year. To break even on the Rs 500 loan, the MFI would
need to collect interest of Rs 50 + Rs 5 + Rs 15 = Rs 70, which
represents an annual interest rate of 13 percent. To break even on the
Rs 100 loan, the MFI would need to collect interest of Rs 10 +Rs 1 + Rs
15 = Rs 26, which is an interest rate of 26 percent.
Rate Ceilings: Not the Answer
Ø There is hue and cry on the high rate of interest which is beigncharged
by many MFI’s.

Ø Policymaker concern over high interest rates.

Ø What are the reasons why rate ceiling can create disaster?
• Rate ceiling will diminishing the return of MFI’s.
• If rates are set to a level less than that required to cover costs, it will lead to
losses and also reduce their creditworthiness and ability to borrow.
• Compelled rate ceiling would increase more poverty in the economy.
SWOT Analysis of micro finance
Ø Strength
• Helped in reducing the poverty.
• Huge networking available.

Ø Weakness
• Not properly regulated.
• High number of people access to informal sources of finance.
• Concentrating on few people only and mainly in urban areas.

Ø Opportunity
• Huge demand and supply gap.
• Employment Opportunity.
• Huge Untapped Market.
• Opportunity for Pvt. Banks, NBFCs, Foreign Banks to enter this business
Interview of End Users
Ø Are you a regular or new customer?

Ø If you are a Regular customer, then can you please tell me

your experience?

Ø What’s your opinion on interest rates?

Ø What you do with that loan amount?

Ø Does the Microfinance Institutions provide you any type of other

benefits other than just loan Amount?

Ø According to you which is better, loan from local Zamidars or from

Future of Micro Finance

Ø Estimated that in next five years, 65% of the poor people will have excess to

Ø Many Pvt. Banks and Foreign Banks would enter this business segment,
because of very low NPAs.

Ø Estimated that 5 % of the number of people below the poverty line will get
reduced in the next 5 years.(World Bank report)
Learning from the project
Ø I learnt in detail the process of Micro Finance, from its need at the grass
root level.

Ø Functioning of various Govt, Semi Govt, & various other delivery


Ø Practical learning of how SHGs are formed.

Ø Practical learning of how the MFIs works.

Ø Most important learning, how it can change the life of the Economic
disadvantaged people.

• “Don’t wait, the time will never be just right. Start where you stand and
work with whatever tools you may have at your commands and the
better tolls will be found as you go along”.

William Surds
Learning from THE Company
Ø Practical learning of Equity, Future & Options market by terminal

Ø Various strategies of Market.

Ø Apart from Micro Finance, Nine mine projects, which helped to relate
to the Present Market conditions.

Ø And the most important thing I learnt from this institution is

Thank you
Mr. Sanjiv Rohilla Mr. Arvind Parmar
Asst. General Manager Operation Manager
Anand. Umreth
Ph No. 9427109121 Ph No. 9925153226

– Mr. Mukesh Gandhi

– Director
– MAS Finance
– Ahemedabad
– Ph No.9825009793