Analyze the trends in the growth of microfinance industry in India in last ten years.

(200 Words)

[Economy Q] Micro finance and its problems The Sketchy details about micro-finance are as following. Poor people want to start some small business, but dont have money and banks are not interested in doing lengthy paper-work to lend them small amount of money. So poor people end up going to moneylenders, who charge 36% interest rate and then poors remain indebted forever. To fix the problem, Government came up with a microfinance solution. Basically Government gives money to NABARD (National Bank for Agriculture and Rural Development). NABARD supplies it to local cooperative banks etc. Poor ladies from village gather up and make self-help groups. They pool some money lets say 5000/- And NABARD gives them 20000/- on very low interest rate, so they can start some small business like wafer-chips, embroidary, greeting cards, soaps, detergent etc. As they start earning profit, they slowly start repaying the debt in small amounts like 100-200 Rs. Since theyve formed a group, theyre less vulnerable and more likely to repay the money back. All sounds good on paper. Mohd.Yunus even got a Noble for this, with his Gramin bank in Bangladesh. And you can read all rosy-feel-good stories about it in The Frontline, Yojana and Kurukshetra. But when you add corrupt politicians, indifferent-bureaucrates, crony NGOs and agents to this Microfinance equation, everything changes. Problems in Micro-finance 1. Compare potato chips business between some poor self-help group vs. giant companies like Lays, Kurkure etc. SHG can never match in the supply-line, package quality, advertizement and retail distribution agents like them. Same about soap giants like Lifebouy or Nirma. So ultimately only a few SHG survive the competition and make some money [Generally those with traditional-handicraft stuff exporting to America]. Rest of them get disbanded after initial enthusiasm and so cannot pay back the loans. Although NABARD gener ally doesnt go on tough loan recovery like those moneylenders or banks do (because thatd cost votes in elections) 2. Whatever alleged 2 week-business-training theyre given by Government is all those namesake powerpoint dudesstuff. While you know that to compete your product against some big company like Lays, Kurkure, Nirma or Lifebouy you need lot more exhaustive and rigorous training, exposure and a mentor. 3. Sometimes before elections, big Loan-melas are held on the instance of local politicians, so every villager ends up getting some loan of small amount, but most cannot payback.

4. There are some good for nothing crony NGOs, who create ghost SHGs, get the loans sanctioned, give a share to the officers and everybody enjoys life. 5. Microfinance gives only a small amount of loan, while for starting a business you need a little big. For example, they give 20000/- for your one project, while you need 1 lakh rupees, so either you put 4 new flimsy-projects under different categories to make up the money or go to moneylender to get the rest amount on higher interest rate. 6. the lack of entrepreneurial culture at rural level means whatever little money they make is wasted in wedding ceremony or repaying previous loans to money-lenders, instead of investing it back in their business. So money made, doesnt bring more money. 7. In Andhra pradesh there are more than 10,000 SHGs (highest in the country), it accounts for about 40 per cent of MFI lending across the country of about Rs 30,000 crore, and is currently facing a crisis due to bad loans and MFIs using coercion to recover loans, even leading to suicides. [Economy Q] Non-Banking Financial Company (NBFC)

Non-Banking Financial Company (NBFC) is a type of company and not a bank. So NBFC cannot accept or give demand deposits, fixed deposit, demand drafts, credit cards, ATM cards or cheques like a normal bank. NBFC is mainly involved in giving loans. Its more like a sophisticated moneylender for example Mannapuram gold loans, it gives you loan when you deposit your gold with them. Manapuram finance is an NBFC and not a bank. [Economy] Regional Rural Banks vs Cooperative Banks

1. What is NABARD?

o o

How does it give money to villagers? Where is the office?

2. Regional Rural Banks

o o o o o o o o

Where do they operate? What do they do? How were they born? What is ordinance? Who owns RRB? Give some examples of RRB? Whats their problem? K. C. Chakrabarty Committee on RRB, 2009

3. What is Co-operative bank?

o o

Loans and Co-operative Banks How to scam using Cooperative bank?

4. Upcoming article: What is NABARD?

National Bank for Agriculture and Rural Development (NABARD) It is the top development bank. It was established in 82 by a special act of parliament: to provide cheap loan to villagers. Government of India holds 99% stake. How does it give money to villagers?

It takes money from RBI, World Bank and other international funding institutes. It loans this money to Regional Rural banks and to NBFC (Non-Banking Finance Companies) working in Microfinance sector. Recall that Muthoot Finance is also an NBFC, but It cannot get money from NABARD. (although they may be giving gold-loans to villagers!) Where is the office?

NABARDs Headquarter = in Mumbai RBI Headquarter = in same Mumbai. (and NOT in Delhi)

Now two more types of Banks: Regional Rural Banks (RRB) and Cooperative Banks. Regional Rural Banks Where do they operate? As the name suggests, they are located in rural / semi-urban areas. What do they do? They give loans, mostly to small and marginal farmers, agricultural laborers and rural artisans. How were they born?

They were established under Government ordinance in mid-1970s. What is ordinance?

When parliament is not in session, President can make an act on advice of the cabinet. Such law is called ordinance. Who owns RRB? RRBs are jointly owned by

Govt. of India, the concerned State Government and Sponsor Banks Ownership in the proportion of 50%, 15% and 35% respectively

Give some examples of RRB?

Dena Gujarat Gramin Bank Andhra Pradesh Grameena Vikas Bank Vidharbha Kshetriya Gramin Bank Paschim Banga Gramin Bank Whats their problem?

Same as Air-India and Kingfisher: Loss making. Out of political compulsions, they hold Loan-melas to give mass-loans to farmers (during Election-years) but later cannot recover the money. Sometimes loans given to undeserving people, due to political pressure. Makes sense huh? Government owns 99% in NABARD >> NABARD Gives money to RRBs, I hope you get the picture. K. C. Chakrabarty Committee on RRB, 2009

RRBs are not functioning properly; they need new capital infusion of Rs 2,200 crore by 2011-12. Performance of RRBs should be monitored by state level committees headed by finance secretaries of state governments with officers from the NABARD, etc. (Better his report prepare it thoroughly for General Studies Mains.)

Coming to the second type of banks: What is Co-operative bank?

Copy pasting from Rediff.com Theyre small-sized units organized in the co-operative sector (mostly Rich-businessmen and relatives of politicians gather-up and open such banks in a city/ small town) These banks, until 1996, could only lend for non-agricultural purposes. Cooperative Banks in India are registered under the Co-operative Societies Act. These banks provide most services such as savings and current accounts, safe deposit lockers, loan or mortgages to private and business customers. Co-operative banks function on the basis of no-profit no-loss. Co-operative banks, as a principle, do not pursue the goal of profit maximization. Therefore, these banks do not focus on offering more than the basic banking services. Loans and Co-operative Banks

Co-operative banks give cheaper auto loans compared to private banks. The criteria for getting a loan from a UCB are less stringent than for a loan from a commercial bank. For instance, when taking an education loan, it does not matter whether the course you are going for is recognized or not!

End of copypasting rediff.com How to scam using Cooperative bank?

Step 1: Gang up a few heavy weight politically connected people, and Open a cooperative bank. Step 2: take deposits from common-men, borrow some money from RBI, but give loans only to your friends and relatives and dont ask them to pay EMI. Step 3: Keep doing this, until the bank collapses. Step 4: Now pay bribe to police and run away to any foreign country. Some big scams: Madhupura Bank-Ketan Parekh, Aadarsh Bank, etc.

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