201 1

MBA RESEARCH PROJECT

SABUJ GHOSH

The report is submitted as partial fulfillment of the Requirement of MBA Program of PTU.

Plot Y8, Block EP, Sector V, Salt Lake, Kolkata - 700091, India. |Page

APPROVED BY JOINT COMMITTEE OF UGC-DEC- AICTE, MINISTRY OF HRD, GOVT: OF INDIA.

RESEARCH PROJECT

STUDENT NAME: SABUJ GHOSH MBA Speciali a!i"#: FINANCE Re$i%!&a!i"# ' R"ll N" -()))*+)+) E,ail I- : %a./0)$1"%12$,ail.c", MOB- (34453)65*.

A PROJECT REPORT ON:|Page 2

7MICRO-FINANCE MANAGEMENT 8 CRITICA9 ANA9YSIS IN INDIA:

;i!1 O&$a#i a!i"# Re<e&e#ce%:-

=DS MFI

FACU9TY GUIDE:
NAME: BARNASREE CHANDRA

>FACU9TY OF FINANCE?

BRAIN;ARE BUSINESS SCHOO9

DEC9ARATION

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I a, Sa./0 G1"%1, 1e&e.@ -ecla&e !1a! !1e P&"0ec! e#!i!le- Mic&"-<i#a#ce C&i!ical A#al@%i% 8 Ope&a!i"# Ma#a$e,e#! %/.,i!!e- !" !1e P/#0a. Tec1#ical U#iAe&%i!@ i# pa&!ial </l<ill,e#! <"& !1e aBa&- "< !1e De$&ee "< MASTER IN BUSINESS ADMINISTRATION a#- !1a! !1e P&"0ec! 1a% #"! p&eAi"/%l@ <"&,e- !1e .a%i% <"& !1e aBa&- "< a#@ "!1e& -e$&ee, Dipl",a, A%%"cia!e %1ip, Fell"B%1ip "& "!1e& !i!le.

Place: Da!e: Si$#a!/&e "< !1e Ca#-i-a!e%.

AC=NO;9EDGEMENT

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T1e %a!i%<ac!i"# a#- e/p1"&ia !1a! acc",pa#ie- !1e %/cce%%</l c",ple!i"# "< a#@ !a%C B"/l- .e i#c",ple!e Bi!1"/! !1e ,e#!i"# "< !1e pe"ple B1" ,a-e i! p"%%i.le, B1"%e c"#%!a#! $/i-a#ce a#e#c"/&a$e,e#! c&"B#e- "/! e<<"&! Bi!1 %/cce%%. I !aCe !1i% "pp"&!/#i!@ !" eDp&e%% "/& -eep %e#%e "< $&a!i!/-e a#- &e%pec! !" "/& S/pe&Ai%"& BARNASREE CHANDRA Fac/l!@ Me,.e& "< FINANCE <"& !1e Aal/a.le $/i-a#ce, BRAIN;ARE BUSINESS SCHOO9 >Pl"! Y E,Bl"cC EP, Sec!"& F V, Sal! 9aCe, ="lCa!a -*+++()? I#-ia a#- ="!alipa&a DeAel"p,e#! S"cie!@ >=DS MFI?, A&a.i-a pall@, N"apa&a, ="lCa!a-)53 , <"& p&"Ai-i#$ /% Bi!1 e%%e#!ial <acili!ie% <"& c",ple!i#$ a#- p&e%e#!i#$ !1i% p&"0ec!. I a, $&ea!l@ i#-e.!e- !" !1ei& 1elp, B1ic1 1a% .ee# "< i,,e#%e Aal/e a#- 1a% pla@e- a ,a0"& &"le i# .&i#$i#$ !1i% !" a %/cce%%</l c",ple!i"#. I B"/l- liCe !" !1a#C "/& <a,il@ a#- <&ie#-% <"& !1ei& c"#%!a#! %/pp"&! a#e#c"/&a$e,e#! !1&"/$1"/! "/& p&"0ec!.

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ABSTRACT OF THE PROJECT

9ea&#i#$ <&", !1e p&"0ec!

G T1e Hi%!"&@ "< M"-e&# Mic&"<i#a#ce. I lea&#! i# -e!ail !1e p&"ce%% "< Mic&" Fi#a#ce, <&", i!% #eea! !1e $&a%% &""! leAel. GF/#c!i"#i#$ "< Aa&i"/% G"A!:, Se,i G"A!: 8 Aa&i"/% "!1e& -eliAe&@ c1a##el%. GP&ac!ical lea&#i#$ "< 1"B SHG% a&e <"&,e-. GP&ac!ical lea&#i#$ "< 1"B !1e MFI% B"&C. GM"%! i,p"&!a#! lea&#i#$, 1"B i! ca# c1a#$e !1e li<e "< !1e Ec"#",ic -i%a-Aa#!a$e- pe"ple.

9ea&#i#$ <&", !1e C",pa#@

G Mic&"<i#a#ce Re$/la!i"# i# I#-ia. GMic&" Fi#a#ce M"-el. GMic&"<i#a#ce Ma#a$e,e#!, C&i!ical A#al@%i%. GP&ac!ical lea&#i#$ "< EH/i!@, F/!/&e 8 Op!i"#% ,a&Ce! .@ !e&,i#al !&a-i#$. GVa&i"/% %!&a!e$ie% "< Ma&Ce!. GApa&! <&", Mic&" Fi#a#ce, Ni#e ,i#e p&"0ec!%, B1ic1 1elpe- !" &ela!e !" !1e P&e%e#! Ma&Ce! c"#-i!i"#%. GB/%i#e%% M"-el.

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TABLE OF CONTENTS PAGE GDEC9ARATION GAC=NO;9EDGEMENT GABSTRACT OF THE PROJECT 3 I 6

C1ap!e& )- I#!&"-/c!i"# E 5- T1e Hi%!"&@ "< M"-e&# Mic&"<i#a#ce E 4- OAe&AieB C1ap!e& 3- G"Ae&#,e#!J% &"le %/pp"&!i#$ ,ic&"<i#a#ce I- Mic&"<i#a#ce S"cial A%pec!% 6- T1e Nee- i# I#-ia *- Mic&"-Fi#a#ci#$ Re$/la!i"# i# I#-ia E- Mic&" Fi#a#ce M"-el% (- C""&-i#a!i#$ Mic&"<i#a#ce E<<"&!% i# I#-ia )+- Mic&"<i#a#ce S!&a!e$ic ))- Mic&"<i#a#ce Ma#a$e,e#! )5- C&i!ical A#al@%i% )4- Mic&"-Fi#a#ce Acc"/#!i#$ a#- Ma#a$e,e#! I#<"&,a!i"# S@%!e,% )3- Capi!al ReH/i&e,e#!% )I- DeAel"p,e#! F/#)6- NABARDK% S/pp"&! !" ,ic&"<i#a#ce I#%!i!/!i"#% >MFI%? )*- B/%i#e%% M"-el "< =DS MFI )(- S/cce%% Fac!"&% "< Mic&"-Fi#a#ce i# I#-ia 5+- F/!/&e "< Mic&" Fi#a#ce 5)- T"p I+ Mic&"<i#a#ce I#%!i!/!i"#% i# I#-ia 55- Mic&"<i#a#ce I#-ia S/,,i! 5+)+ ( )5 )4 )3 )3 )6 )E )( 55 5* 43 3) 34 3I 36 I6 I* I( 6)

Rec",,e#-a!i"#% a#- %/$$e%!i"#%

ACRONOMY

65
65

C"#cl/%i"#
Re<e&e#ce%

64
63

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). I#!&"-/c!i"#
A. A."/! Mic&"<i#a#ce: Microfinance is a general term to describe financial services to low-income individuals or to those who do not have access to t pical ban!ing services. Microfinance is also the idea that low-income individuals are capable of lifting themselves out of povert if given access to financial services. "hile some studies indicate that microfinance can pla a role in the battle against povert # it is also recogni$ed that is not alwa s the appropriate method# and that it should never be seen as the onl tool for ending povert . Microfinance is defined as an activit that includes the provision of financial services such as credit# savings# and insurance to low income individuals which fall %ust above the nationall defined povert line# and poor individuals which fall below that povert line# with the goal of creating social value. The creation of social value includes povert alleviation and the broader impact of improving livelihood opportunities through the provision of capital for micro enterprise# and insurance and savings for ris! mitigation and consumption smoothing. A large variet of actors provide microfinance in &ndia# using a range of microfinance deliver methods. 'ince the &(&(& Ban! in &ndia# various actors have endeavored to provide access to financial services to the poor in creative wa s. )overnments also have piloted national programs# *)+s have underta!en the activit of raising donor funds for on-lending# and some ban!s have partnered with public organi$ations or made small inroads themselves in providing such services. This has resulted in a rather broad definition of microfinance as an activit that targets poor and low-income individuals for the provision of financial services. The range of activities underta!en in microfinance include group lending# individual lending# the provision of savings and insurance# capacit building# and agricultural business development services. "hatever the form of activit however# the overarching goal that unifies all actors in the provision of microfinance is the creation of social value. ,Microfinance refers to small scale financial services for both credits and deposits- that are provided to people who farm or fish or herd- operate small or micro enterprise where goods are produced# rec cled# repaired# or traded- provide services- wor! for wages or commissions- gain income from renting out small amounts of land# vehicles# draft animals# or machiner and tools- and to other individuals and local groups in developing countries in both rural and urban areas.. Marguerite '. Robinson.

5. T1e Hi%!"&@ "< M"-e&# Mic&"<i#a#ce A. ABSTRACT: &n the late /012s the concept of microfinance had evolved. Although# microfinance have a long histor from the beginning of the 32th centur we will concentrate mainl on the period after /042. Man credit groups have been operating in man countries for several ears# for e5ample# the 6chit funds6 7&ndia8# tontines6 7"est Africa8# 6susus6 7)hana8# 6pasana!u6 7Bolivia8 etc. Besides# man formal saving and credit institutions have been wor!ing for a long time throughout the world. 9uring the earl and mid /002s various credit institutions had been formed in :urope b some organi$ed poor people from both the rural and urban areas. These institutions were named (redit Unions# People;s Ban! etc. The main aim of these institutions was to provide eas access to credit to the poor people who were neglected b the big financial institutions and ban!s.
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&n the earl /012s# few e5perimental programs had started in Bangladesh# Bra$il and some other countries. The poor people had been given some small loans to invest in micro-business. This !ind of micro credit was given on the basis of solidarit group lending# that is# each and ever member of that group guaranteed the repa ment of the loan of all the members. Man ban!s and financial institutions have been pioneering the microfinance program after /012. These are listed below. B. ACCION I#!e&#a!i"#al: This institution had been established b a law student of <atin America to help the poor people residing in the rural and urban areas of the <atin American countries. Toda # in 322=# it is one of the most important microfinance institutions of the world. &ts networ! of lending partner comprises not onl <atin America but also U' and Africa. C. SE;A Ba#C: &n /01># the 'elf :mplo ed "omen;s Association 7':"A8 of )u%arat 7in &ndia8 formed a ban!# named as Mahila ':"A (ooperative Ban!# to access certain financial services easil . Almost ? thousand women contributed their share capital to form the ban!. Toda the number of the ':"A Ban!;s active client is more than >2#222. D. GRAMEEN Ba#C: (redit unions and lending cooperatives have been around hundreds of ears. @owever# the pioneering of modern microfinance is often credited to 9r. Mohammad Aunus# who began e5perimenting with lending to poor women in the village of Bobra# Bangladesh during his tenure as a professor of economics at (hittagong Universit in the /012s. @e would go on to found )rameen Ban! in /0=> and win the *obel Peace Price in 3224. 'ince then# innovation in microfinance has continued and providers of financial services to the poor continue to evolve. Toda # the "orld Ban! estimates that about /42 million people in developing countries are served b microfinance. )rameen Ban! 7Bangladesh8 was formed b the *obel Peace Pri$e 732248 winner 9r Muhammad Aounus in /0=>. This ban! is now serving almost ?22# 2222 poor people of Bangladesh. *ot onl that# but also the success of )rameen Ban! has stimulated the formation of other several microfinance institutions li!e# A'A# BRA( and PR+'@&CA . 4. OAe&AieB A. Mic&"<i#a#ce De<i#i!i"#:
According to &nternational <abor +rgani$ation 7&<+8# DMicrofinance is an economic development approach that involves providing financial services through institutions to low income clientsE. &n &ndia# Microfinance has been defined b DThe *ational Microfinance Tas!force# /000E as Dprovision of thrift# credit and other financial services and products of ver small amounts to the poor in rural# semi-urban or urban areas for enabling them to raise their income levels and improve living standardsE. 6The poor sta poor# not because the are la$ but because the have no access to capital. 6Microfinance is the suppl of loans# savings# and other basic financial services to the poor.6 |Page 9

As these financial services usuall involve small amounts of mone - small loans# small savings# etc. - the term 6microfinance6 helps to differentiate these services from those which formal ban!s provide &t;s eas to imagine poor people don;t need financial services# but when ou thin! about it the are using these services alread # although the might loo! a little different. 6Poor people save all the time# although mostl in informal wa s. The invest in assets such as gold# %ewelr # domestic animals# building materials# and things that can be easil e5changed for cash. The ma set aside corn from their harvest to sell at a later date. The bur cash in the garden or stash it under the mattress. The participate in informal savings groups where ever one contributes a small amount of cash each da # wee!# or month# and is successivel awarded the pot on a rotating basis. 'ome of these groups allow members to borrow from the pot as well. The poor also give their mone to neighbors to hold or pa local cash collectors to !eep it safe. 6@owever widel used# informal savings mechanisms have serious limitations. &t is not possible# for e5ample# to cut a leg off a goat when the famil suddenl needs a small amount of cash. &n-!ind savings are sub%ect to fluctuations in commodit prices# destruction b insects# fire# thieves# or illness 7in the case of livestoc!8. &nformal rotating savings groups tend to be small and rotate limited amounts of mone . Moreover# these groups often require rigid amounts of mone at set intervals and do not react to changes in their members; abilit to save. Perhaps most importantl # the poor are more li!el to lose their mone through fraud or mismanagement in informal savings arrangements than are depositors in formal financial institutions. DPoor rarel access services through the formal financial sector. The address their need for financial services through a variet of financial relationships# mostl informal.6

B. R"le "< Mic&"<i#a#ce:

The micro credit of microfinance prename was first initiated in the ear /014 in Bangladesh with promise of providing credit to the poor without collateral # alleviating povert and unleashing human creativit and endeavor of the poor people. Microfinance impact studies have demonstrated that /. Microfinance helps poor households meet basic needs and protects them against ris!s. 3. The use of financial services b low-income households leads to improvements in household economic welfare and enterprise stabilit and growth. >. B supporting women.s economic participation# microfinance empowers women# thereb promoting genderequit and improving household well being. ?. The level of impact relates to the length of time clients have had access to financial services. (. Di<<e&e#ce .e!Bee# ,ic&" c&e-i! a#- ,ic&"<i#a#ce: Micro credit refers to ver small loans for unsalaried borrowers with little or no collateral# provided b legall registered institutions. (urrentl # consumer credit provided to salaried wor!ers based on automated credit scoring is usuall not included in the definition of micro credit# although this ma change. Microfinance t picall refers to micro credit# savings# insurance# mone transfers# and other financial products targeted at poor and low-income people.

9. B"&&"Be&%:
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Most micro credit borrowers have micro enterprisesFunsalaried# informal income-generating activities. @owever# micro loans ma not predominantl be used to start or finance micro enterprises. 'cattered research suggests that onl half or less of loan proceeds are used for business purposes. The remainder supports a wide range of household cash management needs# including stabili$ing consumption and spreading out large# lump cash needs li!e education fees# medical e5penses# or lifec cle events such as weddings and funerals. 'ome MG&s provide non-financial products# such as business development or health services. (ommercial and government-owned ban!s that offer microfinance services are frequentl referred to as MG&s# even though onl a portion of their assets ma be committed to financial services to the poor.

:. Ac!iAi!ie% i# Mic&"<i#a#ce:
Mic&" c&e-i!: &t is a small amount of mone loaned to a client b a ban! or other institution. Micro credit can be offered# often without collateral# to an individual or through group lending. Mic&" %aAi#$%: These are deposit services that allow one to save small amounts of mone for future use. +ften without minimum balance requirements# these savings accounts allow households to save in order to meet une5pected e5penses and plan for future e5penses Micro insuranceH &t is a s stem b which people# businesses and other organi$ations ma!e a pa ment to share ris!. Access to insurance enables entrepreneurs to concentrate more on developing their businesses while mitigating other ris!s affecting propert # health or the abilit to wor!. Re,i!!a#ce%: These are transfer of funds from people in one place to people in another# usuall across borders to famil and friends. (ompared with other sources of capital that can fluctuate depending on the political or economic climate# remittances are a relativel stead source of funds. P&"-/c! De%i$#: The starting point isH how do MG&s decide what product s to offerI The actual loan products need to be designed according to the demand of the target mar!et. Besides the important question of what ris!s to cover# organi$ations also have to decide whether the want to bundle man different benefits into one bas!et polic # or whether it is more appropriate to !eep the product simple. Gor mar!eting purposes# MG&,s sometimes prefer the bas!et cover# since it can ma!e the policies sound comprehensive# but is that the right approach for the low-income mar!etI After pic!ing products# one must also understand how the are priced. "hat assumptions do the organi$ations ma!e with regard to operating costs# ris! premiums# and reinsurance# and how did the come to those conclusionsI "ould their clients be willing to pa more for greater benefitsI Grom price# the logical ne5t set of questions involves efficienc . &ndeed# given the relative high costs of delivering large volumes of small policies# ma5imi$ing efficienc is a critical strateg to ensuring that the products are affordable to the low-income mar!et. +ne wa is to ma!e the products mandator # which increases volumes# reduces transaction costs and minimi$es adverse selection. "hat does an organi$ation lose b offering mandator insurance# and how does it overcome the disadvantagesI MG&,s can combine a mandator product with some voluntar features to ma!e the service more us to mar-oriented while. Tec1#iH/e% "< P&"-/c! De%i$#: To design a loan product to meet borrower needs it is important to understand the cash pattern of the borrowers. (ash pattern is important so far as the affect the debt capacit of the borrowers. <enders must ensure that borrowers have sufficient cash inflow to cover loan pa ments when the are due efficienc depends less on the deliver model than on the simplicit of the product or product menu. 'imple products wor! best because the are easier to administer and easier for clients to understand. Another efficienc strateg is to use technolog to reduce paperwor!# manual processing and errors. MG&s need to conduct a costing anal sis to determine how much the need to earn in commission to cover their administrative e5penses.

G. MFIJ% P&"-/c!% a#- i!% Ma#a$e,e#!:

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P&"-/c! 8 %e&Aice% "< Mic&"<i#a#ce Fi#a#cial Se&Aice% /. (redit 'ervices-i 'mall (redit# 'mall Business (redit. 3. 9eposit 'ervices - Joluntari 'avings 'ervices# Manda tor 'avings. O!1e& Fi#a#cial Se&Aice% Micro-insurance# <ife &nsurance # @ealth &nsurance # <oan for @ousing# :ducation# @ealth. N"# Fi#a#cial Se&Aice% Gamil @ealth and 'anitation :ducation# Ginancial :ducation# Micro-entrepreneur Training.

). T1e ,ic&"-c&e-i!% ,"-el:

KThe model is fairl straightforward and simple. KGocus on %ump-starting self-emplo ment# providing the capital for poor women to use their innate 6survival s!ills6 to pull themselves out of povert . K<end to women in small groups 7credit circles8# sa of five or seven. K Ma!e loans of small amounts to two out of five. K The three who have not received loans will be eligible onl when this first round of loans has been repaid. K 9raw up a wee!l or bi-wee!l repa ment schedule. K &n case an member defaults the entire circle is denied access to credit. K Ban!s have been given freedom to formulate their own lending norms !eeping in view ground realities. The have been as!ed to devise appropriate loan and savings products and the related terms and conditions including si$e of the loan# unit cost# unit si$e# maturit period# grace period# margins# etc.

4. G"Ae&#,e#!J% &"le %/pp"&!i#$ ,ic&"<i#a#ce

G"Ae&#,e#!J% most important role is not provision of retail credit services# for reasons mentioned in )overnment can contribute most effectivel b H K'etting sound macroeconomic polic that provides stabilit and low inflation. KAvoiding interest rate ceilings - when governments set interest rate limits# political factors usuall result in limits that are too low to permit sustainable deliver of credit that involves high administrative costsFsuch as tin loans for poor people. 'uch ceilings often have the announced intention of protecting the poor# but are more li!el to cho!e off the suppl of credit. KAd%usting ban! regulation to facilitate deposit ta!ing b solid MG&s# once the countr has e5perience with sustainable microfinance deliver . K(reating government wholesale funds to support retail MG&s if funds can be insulated from politics# and the can hire and protect strong technical management and avoid disbursement pressure that force fund to support unpromising MG&s. KPromote microfinance as a !e vehicle in tac!ling povert # and as vital part of the financial s stem. K(reate policies# regulations and legal structures that Kencourage responsive# sustainable microfinance. K:ncourage a range of regulated and unregulated institutions that meet performance standards. |Page 12

K:ncourage competition# capacit building and innovation to lower costs and interest rates in microfinance.
G'upport autonomous# wholesale structures.

RBI data shows that informal sources provide a significant part of the total credit needs of the rural population. The magnitude of the dependence of the rural poor on informal sources of credit can be observed from the findings of the All &ndia 9ebt and &nvestment 'urve # /003# which shows that the share of the *on-institutional agencies 7informal sector8 in the outstanding cash dues of the rural households were >4 percent. @owever# the dependence of rural households on such informal sources had reduced of their total outstanding dues steadil from =>.1 percent in /04/ to >4 percent in /00/.

I. Mic&"<i#a#ce S"cial A%pec!%

Micro financing institutions significantl contributed to gender equalit and women.s empowerment as well as poor development and civil societ strengthening. (ontribution to women.s abilit to earn an income led to their economic empowerment# increased well being of women and their families and wider social and political empowerment. Microfinance programs targeting women became a ma%or plan! of povert alleviation and gender strategies in the /002s. &ncreasing evidence of the centralit of gender equalit to povert reduction and women.s higher credit repa ment rates led to a general consensus on the desirabilit of targeting women. Sel< Help G&"/p% >SHG%?: 'elf- help groups 7'@)s8 pla toda a ma%or role in povert alleviation in rural &ndia. A growing number of poor people 7mostl women8 in various parts of &ndia are members of '@)s and activel engage in savings and credit 7'L(8# as well as in other activities 7income generation# natural resources management# literac # child care and nutrition# etc.8. The 'L( focus in the '@) is the most prominent element and offers a chance to create some control over capital# albeit in ver small amounts. The '@) s stem has proven to be ver relevant and effective in offering women the possibilit to brea! graduall awa from e5ploitation and isolation. SaAi#$% %e&Aice% 1elp p""& pe"ple: 'avings has been called the Dforgotten half of microfinance.E Most poor people now use informal mechanisms to save because the lac! access to good formal deposit services#. The ma tuc! cash under the mattress- bu animals or %ewelr that can be sold off later# or stoc!pile inventor or building materials. These savings methods tend to be ris! Fcash can be stolen# animals can get sic!# and neighbors can run off. +ften the are illiquid as well M one cannot sell %ust the cow.s leg when one needs a small amount of cash. Poor people want secure# convenient deposit services that allow for small balances and eas access to funds. MG&s that offer good savings services usuall attract far more savers than borrowers. ;",e#J% i#-ica!"&% "< e,p"Be&,e#! !1&"/$1 ,ic&"<i#a#ce: KAbilit to save and access loans K+pportunit to underta!e an economic activit NKMobilit -+pportunit to visit nearb towns KAwareness- local issues# MG& procedures# ban!ing transactions K'!ills for income generation |Page 13

NK9ecision ma!ing within the household K )roup mobili$ation in support of individual clients- action on.

6. T1e Nee- i# I#-ia

&ndia is said to be the home of one third of the world.s poor- official estimates range from 34 to O2 percent of the more than one billion population. P About =1 percent of the poorest households do not have access to credit. P The demand for micro credit has been estimated at up to Q>2 billion- the suppl is less than Q3.3 billion combined b all involved in the sector. 9ue to the sheer si$e of the population living in povert # &ndia is strategicall significant in the global efforts to alleviate povert and to achieve the Millennium 9evelopment )oal of halving the world.s povert b 32/O. Microfinance can also be distinguished from charit . &t is better to provide grants to families who are destitute# or so poor the are unli!el to be able to generate the cash flow required to repa a loan. This situation can occur for e5ample# in a war $one or after a natural disaster. "hile &ndia is one of the fastest growing economies in the world# povert runs deep throughout countr . About two thirds of &ndia.s more than /billion people live in rural areas and almost /12 million of them are poor. Gor more than 3/ percent of them# povert is a chronic condition. Three out of four of &ndia.s poor live in rural areas of the countr . Povert is deepest among scheduled castes and tribes in the countr .s rural areas. The micro-finance scene in &ndia is dominated b 'elf @elp )roups 7'@)s8 - Ban!s lin!age program for over a decade now. As the formal ban!ing s stem alread has a vast branch networ! in rural areas# it was perhaps wise to find wa s and means to improve the access of rural poor to the e5isting ban!ing networ!. This was tried b routing financial. &ndian microfinance is poised for continued growth and high valuation but faces pressing challenges and opportunities thatFleft unaddressedFcould negativel impact the long-term future of the industr . The industr needs to move past a single-minded focus on scale# e5pand the depth and breadth of products and services offered# and focus on the double bottom line and over indebtedness to effectivel address the ris!s facing the industr . *. Mic&"-Fi#a#ci#$ Re$/la!i"# i# I#-ia

A-Aa#!a$e "< Re$/la!i"#: Gollowing are the advantages and benefits of regulation and supervision of LMG&sH
i. Protects the interest of the depositorsii. Put in place prudential norms# standards and practicesiii. Provides sufficient information about the true ris!s faced b the ban!sLMG&siv. Promoters s stemic stabilit and thereb sustains public confidence in the ban!sLMG&sv. Prevents a ban!.sLMG&.s failureLpotential dangers through timel interventionsvi. Penali$es the violations# misconducts# non-compliance to the norms of behaviorvii. Provides invaluable advisor inputs for problem-solving and overall improvement of the ban!sLMG&sviii. Promoters safe# strong and sound ban!ingLMG s stem and effective ban!ingLMG polic and |Page 14

i5. Promotes and enhances orderl economic growth and development. A. U#i<ie- Re$/la!i"# S@%!e,: =./= at present# all the regulator aspects of microfinance are not centrali$ed. Gor e5ample# while the Rural Planning and (redit 9epartment 7RP(98 in RB& loo!s after Rural lending# MG-*BG(s are under the control of the 9epartment of *on-Ban!ing 'upervision 79*B'8 and :5ternal (ommercial Borrowings are loo!ed after b the Goreign :5change 9epartment. The (ommittee feels that RB& ma consider bringing all regulator aspects of microfinance under a single# mechanism. Gurther# supervision +f MG-*BG(s could be delegated to *ABAR9 b RB&. B. 9e$al <"&,% "< MFI% i# I#-ia: MFI% a#- 9e$al F"&,%: "ith the current phase of e5pansion of the '@) M Ban! lin!age programmed and other MG initiatives in the countr # the informal micro finance sector in &ndia is now beginning to evolve. The MG&s in &ndia can be broadl sub-divided into three categories of organi$ational forms as given in Table /. "hile there is no published data on private MG&s operating in the countr # the number of MG&s is estimated to be around =22. @owever# not more than /2 MG&s are reported to have an outreach of /22#222 micro finance clients. An overwhelming ma%orit of MG&s are operating on a smaller scale with clients ranging Between O22 to /O22 per MG&. The geographical distribution of MG&s is ver much lopsided with concentration in the southern &ndia where the rural branch networ! of formal ban!s is e5cellent. &t is estimated that the share of MG&s in the total micro credit portfolio of formal R informal institutions is about = per cent. K*ot for profit MG&s governed b societies registration act# /=42 or &ndian trusts act /==3 K*on profit companies governed b section 3O of the companies act# /0O4 KGor profit MG&s regulated b &ndian companies act# /0O4 K*BG( governed b RB& act# /0>?. K(ooperative societies b cooperative societies act enacted b state government. 9e$al F"&,% "< MFI% i# I#-ia: T@pe% "< MFI% /. N"! <"& P&"<i! MFI% a.8 *)+ - MG&s b.8 *on-profit (ompanies /2 3. M/!/al Be#e<i! MFI% 322 to 3O2 a.8 Mutuall Aided (ooperative 'ocieties 7MA('8 and similarl set up institutions >. F"& P&"<i! MFI% a.8 *on-Ban!ing Ginancial (ompanies 7*BG(s8 4 E%!i,a!eN/,.e&G ?22 to O22 9e$al Ac!% /#-e& B1ic1 Re$i%!e&e'ocieties Registration Act# /=42 or similar Provincial Acts &ndian Trust Act# /==3 'ection 3O of the (ompanies Act# /0O4 Mutuall Aided (ooperative 'ocieties Act enacted b 'tate )overnment

&ndian (ompanies Act# /0O4 Reserve Ban! of &ndia Act# /0>?

Total 122 - =22 K The estimated number includes onl those MG&s# which are actuall underta!ing lending activit .

C. Rec",,e#-a!i"# .@ RBI Mic&" C&e-i! I#%!i!/!i"#%: P (ompan <aw Board to allow '@)s to be members of 'ection 3O of the companies act. |Page 15

P There will be no ceiling in respect of loan amount e5tended b 'ection 3O companies to '@)showever '@)s# to provide credit not e5ceeding Rs. O2222L- per member of the '@). RB& ma consider issuing revised instructions. P As regards capital# to encourage more flow of donationsL contributions# donors to be e5empted from income ta5 under 'ection //( of the &T Act. P As regards capital adequac # since there is no mandator capital requirement# minimum standards need not be considered. P 'avings of '@)s promoted b 'ection 3O companies be maintained with permitted organi$ations. P (omplete income ta5 e5emption for 'ection 3O companies purve ing micro credit 7to the donor and to the receiver8. )overnment to consider complete e5emption from &T for income earned# as the main purpose of the organi$ation is to empower the poor. &ndian microfinance is poised for continued growth and high valuation but faces pressing challenges and opportunities thatFleft unaddressedFcould negativel impact the long-term future of the industr . The industr needs to move past a single-minded focus on scale# e5pand the depth and breadth of products and services offered# and focus on the double bottom line and over indebtedness to effectivel address the ris!s facing the industr .

E. Mic&" Fi#a#ce M"-el% A. Mic&"<i#a#ce P&"Ai-e&%: a. Mic&"<i#a#ce I#%!i!/!i"#%: A microfinance institution 7MG&8 is an organi$ation that provides microfinance services. MG&s range from small non-profit organi$ations to large commercial ban!s. Most MG&s started as notfor-profit organi$ations li!e *)+s 7non-governmental organi$ations8# credit unions and other financial cooperatives# and state-owned development and postal savings ban!s. An increasing number of MG&s are now organi$ed as for-profit entities# often because it is a requirement to obtaining a license from ban!ing authorities to offer savings services. Gor-profit MG&s ma be organi$ed as *on-Ban!ing Ginancial (ompanies 7*BG(s8# commercial ban!s that speciali$e in microfinance# or microfinance departments of full-service ban!s.
The micro finance service providers include ape5 institutions li!e *ational Ban! for Agriculture and Rural 9evelopment 7*ABAR98# 'mall &ndustries 9evelopment Ban! of &ndia 7'&9B&8# and# Rashtri a Mahila Cosh 7RMC8. At the retail level# (ommercial Ban!s# Regional Rural Ban!s# and# (ooperative ban!s provide micro finance services. Toda # there are about 42#222 retail credit outlets of the formal ban!ing sector in the rural areas comprising /3#222 branches of district level cooperative ban!s# over /?#222 branches of the Regional Rural Ban!s 7RRBs8 and over >2#222 rural and semi-urban branches of commercial ban!s besides almost 02#222 cooperatives credit societies at the village level. +n an average# there is at least one retail credit outlet for about O#222 rural people. This ph sical reaching out to the far-flung areas of the countr to provide savings# credit and other ban!ing services to the rural societ is an unparalleled achievement of the &ndian ban!ing s stem. &n the this paper an attempt is made to deal with various aspects relating to emergence of private micro finance industr in the conte5t of prevailing legal and regulator environment for private sector rural and micro finance operators. MG&s are an e5tremel heterogeneous group comprising *BG(s# societies# trusts and cooperatives. The are provided financial support from e5ternal donors and ape5 institutions including the Rashtri a Mahila Cosh 7RMC8# '&9B& Goundation for micro-credit and *ABAR9 and emplo a variet of wa s for credit deliver . |Page 16

'ince 3222# commercial ban!s including Regional Rural Ban!s have been providing funds to MG&s for on lending to poor clients. Though initiall # onl a handful of *)+s were DintoE financial intermediation using a variet of deliver methods# their numbers have increased considerabl toda . "hile there is no published data on private MG&s operating in the countr # the number of MG&s is estimated to be around =22. MG&s are an e5tremel heterogeneous group comprising *BG(s# societies# trusts and cooperatives. The are provided financial support from e5ternal donors and ape5 institutions including the Rashtri a Mahila Cosh 7RMC8# '&9B& Goundation for micro-credit and *ABAR9 and emplo a variet of wa s for credit deliver . 'ince 3222# commercial ban!s including Regional Rural Ban!s have been providing funds to MG&s for on lending to poor clients. Though initiall # onl a handful of *)+s were DintoE financial intermediation using a variet of deliver methods# their numbers have increased considerabl toda . "hile there is no published data on private MG&s operating in the countr # the number of MG&s is estimated to be around =22. .. F"& NGO%:/. The field of development itself e5pands and shifts emphasis with the pull of ideas# and *)+s perhaps more readil adopt new ideas# especiall if the resources required are small# entr and e5it are eas # tas!s are 7perceived to be8 simple and people.s acceptance is high M all characteristics 7real or presumed8 of microfinance. 3. (anvassing b various actors# including the *ational Ban! for Agriculture and Rural 9evelopment 7*ABAR98# 'mall &ndustries 9evelopment Ban! of &ndia 7'&9B&8# Griends of "omen.s "orld Ban!ing 7G""B8# Rashtri a Mahila Cosh 7RMC8# (ouncil for Advancement of People.s Action and Rural Technologies 7(APART8# Rashtri a )ramin Ji!as *idhi 7R)J*8# various donor funded programmes especiall b the &nternational Gund for Agricultural 9evelopment 7&GA98# United *ations 9evelopment Programme 7U*9P8# "orld Ban! and 9epartment for &nternational 9evelopment# UC 79G&98S# and latel commercial ban!s# has greatl added to the idea pull. &nduced b the worldwide focus on microfinance# donor *)+s too have been funding microfinance pro%ects. +ne might call it the suppl push. >. All !inds of things from !hadi spinning to *adep compost to balwadis do not produce such concrete results and sustained interest among beneficiaries as microfinance. Most *)+-led microfinance is with poor women# for whom access to small loans to meet dire emergencies is a valued outcome. Thus# quic! and high ,customer satisfaction. is the U'P that has attracted *)+s to this trade. ?. The idea appears simple to implement. The most common route followed b *)+s is promotion of '@)s. &t is implicitl assumed that no ,technical s!ill. is involved. Besides# e5ternal resources are not needed as '@)s begin with their own savings. Those *)+s that have access to revolving funds from donors do not have to worr about financial performance an wa . The chic!ens will eventuall come home to roost but in the first flush# it seems all so eas . O. Gor man *)+s the idea of ,organi$ing. M forming a samuha M has inherent appeal. )roups connote empowerment and organi$ing women is a double bonus. 4. Ginall # to man *)+s# microfinance is a wa to financial sustainabilit . :speciall for the medium-to-large *)+s that are able to access bul! funds for on-lending# for e5ample from '&9B&# the interest rate spread could be an attractive source of revenue than an uncertain# highl competitive and increasingl difficult-to-raise donor funding. C. Se&Aice C",pa#@ M"-el: &n this conte5t# the 'ervice (ompan Model developed b A((&+* and used in some of the <atin American (ountries is interesting. The model ma hold significant interest for state owned ban!s and private ban!s with large branch networ!s. Under this model# the ban! forms its own MG&# |Page 17

perhaps as an *BG(# and then wor!s hand in hand with that MG& to e5tend loans and other services. +n paper# the model is similar to the partnership modelH the MG& originates.

9. C""&-i#a!i#$ Mic&"<i#a#ce E<<"&!% i# I#-ia

*ABAR9 coordinates the microfinance activities in &ndia at internationalL nationalL state L district levels. These include organi$ing internationalLnational "or!shops# 'eminars# etc for e5perience sharing# +rgani$ing *ational and 'tate level Meets of Ban!ers and *)+s etc .9issemination of best practices in '@) L microfinance.

A. O!1e& I#i!ia!iAe%: Micro enterprise 9evelopment Programmer 7M:9P8 for Matured '@)s
The progression of '@) members to ta!e up micro enterprise involves intensive training and hand holding on various aspects including understanding mar!et# potential mapping and ultimatel fine tuning s!ills and entrepreneurship to manage the enterprise. @ence# a separate# specific and focused s!ill-building programme ,Micro :nterprise 9evelopment Programmed 7M:9P8. has been formulated. This involves organi$ing short duration# location specific programmers on s!ill up gradation L development for setting up sustainable micro-enterprises b matured '@) members. The duration of training programme can var between > to /> da s# depending upon the ob%ective and nature of training. The training ma be conducted b agencies that have bac!ground and professional competenc in the field of micro enterprise 9evelopment with an e5pertise in s!ill development.

B. Sc1e,e <"& Capi!al' EH/i!@ S/pp"&! !" Mic&"-Fi#a#ce I#%!i!/!i"#% >MFI%? <&", MFDEF: The
scheme attempts to provide capitalLequit support to Micro Ginance &nstitutions 7MG&s8 so as to enable them to leverage capitalLequit for accessing commercial and other funds from ban!s# for providing financial services at an affordable cost to the poor# and to enable MG&s to achieve sustainabilit in their credit operations over a period of >-O ears. C. Sc1e,e <"& <i#a#cial a%%i%!a#ce !" .a#C%' MFI% <"& &a!i#$ "< Mic&" Fi#a#ce I#%!i!/!i"#% >MFI%?: &n

order to identif MG&s# classif and rate such institutions and empower them to intermediate between the lending ban!s and the clients# *ABAR9 has decided to e5tend financial assistance to (ommercial Ban!s and Regional Rural Ban!s b wa of grant. The ban!s can avail the services of credit rating agencies# M-(R&<# &(RA# (AR: and Planet Ginance in addition to (R&'&< for rating of MG&s. The financial assistance b wa of grant for meeting the cost of rating of MG&s would be met b *ABAR9 to the e5tent of /22T of the total professional fees sub%ect to a ma5imum of Rs.>#22#222L-L-. The remaining cost would be borne b the concerned MG&. The cost of local hospitalit 7including boarding and lodging8 towards field visit of the team from the credit rating Agenc # as a part of the rating e5ercise# would also be borne b the MG&. Those MG&s which have a minimum loan outstanding of more than Rs. O2.22 la!h 7Rupees fift la!h onl 8 and ma5imum of Rs /2 crore 7Rupees Ten crore onl 8 would be considered for rating and support under the scheme. Ginancial assistance b wa of grant would be available onl for the first rating of the MG&.
MG&s availing (apital 'upport andLor Revolving Gund Assistance from *ABAR9 are also eligible for reimbursement of O2T of the cost of professional fee charged b (redit Rating Agenc for second rating sub%ect to a ma5imum of Rs./.O2 la!h 7i.e O2T of Rs.> la!h8. This will be in addition to the re-imbursement of professional fee for first rating of the MG&.

D. Re<i#a#ce %/pp"&! !" .a#C% <"& <i#a#ci#$ MFI%: The scheme is to provide /22T refinance to ban!s
for financing MG&s. &nterest rate on refinance to (ommercial Ban!s and Regional Rural Ban!s on their |Page 18

loans to MG&s for on lending to clients will be at >T less than that charged b ban!s sub%ect to minimum interest rate of 1.OT for all regions and all eligible purposes. The revised rate of interest is applicable to refinance disbursed on or after 2/ March 32/2. 'ourceH *ABAR9 website

10. Mic&"<i#a#ce S!&a!e$ic

S!&a!e$ic Ma#a$e,e#!: 'trategic management is a field that deals with the ma%or intended and emergent initiatives ta!en b general manager on behalf of owners# involving utili$ation of resources# to enhance the performance of rams in their e5ternal environments. &t entails. U#-e&%!a#-i#$ ,ic&"<i#a#ce %!&a!e$ie%: This report e5plores strategic issues shaping the future of the MG& sector in &ndia. The stud approached (:+s of select MG&s with a set of issues ranging from concerns to competition and sought their opinions about future strategies. The report draws from their responses# and states thatH

Guture strateg is about being strong on processes and being overtl client-centric'uccess is a prudential combination of three factors# namel # culture# beliefs and aspirations(ulture is about the degree of trust rather than the rate of interestRis! management s stems of economicall wea!er families are built on their beliefs about dependabilit and accessMicro credit stories have revealed ingenious wa s that clients have used their loans for purposes that satisfied their aspirations.

Ginall # the sector# at about Rs. /?#222 crore 7appro5imatel U'Q> bn8 loo!s large# but is small b an business scale. (ompetition and unhealth practices are overshadowing the good wor! and reputation earned over man ears. MG&s in &ndia need to overcome these challenges in the future. S!&a!e$ic P"lic@ I#i!ia!iAe%: 'ome of the most recent strategic polic initiatives in the area of Microfinance ta!en b the government and regulator bodies in &ndia areH "or!ing group on credit to the poor through '@)s# *)+s# *ABAR9# /00O. The *ational Microfinance Tas!force# /000."or!ing )roup on Ginancial Glows to the &nformal 'ector 7set up b PM+8# 3223.Microfinance 9evelopment and :quit Gund# *ABAR9# 322O."or!ing group on Ginancing *BG(s b Ban!s- RB&.
A. P&"-/c!-,a&Ce! ,a!&iD:

A mar!et penetration strateg is a business-as-usual strateg # where the MG& focuses on achieving growth b selling e5isting products in e5isting mar!ets. This can be done through more competitive pricing strategies# increased promotional activities# and more liberal terms and conditions.

Gor e5ample# the MG& ma develop strategic alliances to begin

|Page

19

KAdapted from Ansoff /0O1. B. T1e BCG G&"B!1-S1a&e Ma!&iD: The B() )rowth-'hare Matri5 is a portfolio planning model developed b Bruce @enderson of the Boston (onsulting )roup in the earl /012;s. &t is based on the observation that a compan ;s business units can be classified into four categories based on combinations of mar!et growth and mar!et share relative to the largest competitor# hence the name 6growth-share6. Mar!et growth serves as a pro5 for industr attractiveness# and relative mar!et share serves as a pro5 for competitive advantage. The growth-share matri5 thus maps the business unit positions within these two important determinants of profitabilit . BCG G&"B!1-S1a&e Ma!&iD

This framewor! assumes that an increase in relative mar!et share will result in an increase in the generation of cash. This assumption often is true because of the e5perience curve- increased relative mar!et share implies that the firm is moving forward on the e5perience curve relative to its competitors# thus developing a cost advantage. A second assumption is that a growing mar!et requires investment in assets to increase capacit and therefore results in the consumption of cash. Thus the position of a business on the growth-share matri5 provides an indication of its cash generation and its cash consumption. @enderson reasoned that the cash required b rapidl growing business units could be obtained from the firm;s other business units that were at a more mature stage and generating significant cash. B investing to become the mar!et share leader in a rapidl growing mar!et# the business unit could move along the e5perience curve and develop a cost advantage. Grom this reasoning# the B() )rowth-'hare Matri5 was born. T1e <"/& ca!e$"&ie% a&e: |Page 20

D"$% - 9ogs have low mar!et share and a low growth rate and thus neither generate nor consume a large amount of cash. @owever# dogs are cash traps because of the mone tied up in a business that has little potential. 'uch businesses are candidates for divestiture. L/e%!i"# ,a&C% - Uuestion mar!s are growing rapidl and thus consume large amounts of cash# but because the have low mar!et shares the do not generate much cash. The result is large net cash consumption. A question mar! 7also !nown as a 6problem child68 has the potential to gain mar!et share and become a star# and eventuall a cash cow when the mar!et growth slows. &f the question mar! does not succeed in becoming the mar!et leader# then after perhaps ears of cash consumption it will degenerate into a dog when the mar!et growth declines. Uuestion mar!s must be anal $ed carefull in order to determine whether the are worth the investment required to grow mar!et share. S!a&% - 'tars generate large amounts of cash because of their strong relative mar!et share# but also consume large amounts of cash because of their high growth rate- therefore the cash in each direction appro5imatel nets out. &f a star can maintain its large mar!et share# it will become a cash cow when the mar!et growth rate declines. The portfolio of a diversified compan alwa s should have stars that will become the ne5t cash cows and ensure future cash generation. Ca%1 c"B% - As leaders in a mature mar!et# cash cows e5hibit a return on assets that is greater than the mar!et growth rate# and thus generate more cash than the consume. 'uch business units should be 6mil!ed6# e5tracting the profits and investing as little cash as possible. (ash cows provide the cash required to turn question mar!s into mar!et leaders# to cover the administrative costs of the compan # to fund research and development# to service the corporate debt# and to pa dividends to shareholders. Because the cash cow generates a relativel stable cash flow# its value can be determined with reasonable accurac b calculating the present value of its cash stream using a discounted cash flow anal sis. Under the growth-share matri5 model# as an industr matures and its growth rate declines# a business unit will become either a cash cow or a dog# determined solel b whether it had become the mar!et leader during the period of high growth. "hile originall developed as a model for resource allocation among the microfinance business units in a corporation# the growth-share matri5 also can be used for resource allocation among products within a single business unit. &ts simplicit is its strength - the relative positions of the firm;s entire business portfolio can be displa ed in a single diagram. 9i,i!a!i"#% The growth-share matri5 once was used widel # but has since faded from popularit as more comprehensive models have been developed. 'ome of its wea!nesses areH Mar!et growth rate is onl one factor in industr attractiveness# and relative mar!et share is onl one factor in competitive advantage. The growth-share matri5 overloo!s man other factors in these two important determinants of profitabilit . The framewor! assumes that each business unit is independent of the others. &n some cases# Microfinance business unit that is a 6dog6 ma be helping other business units gain a competitive advantage. The matri5 depends heavil upon the breadth of the definition of the mar!et. A business unit ma dominate its small niche# but have ver low mar!et share in the overall industr . &n such a case# the definition of the mar!et can ma!e the difference between a dog and a cash cow. "hile its importance has diminished# the B() matri5 still can serve as a simple tool or viewing a corporation;s business portfolio at a glance# and ma serve as a starting point for discussing resource allocation among strategic business units. C. OAe&all S!&a!e$@: |Page 21

KGorming and nurturing small# homogeneous and participator self-help groups 7'@)s8 of the poor has toda emerged as a potent tool for human development. This process enables the poor# especiall the women from the poor households# to collectivel identif and anal ses the problems the face in the perspective of their social and economic environment. &t helps them to pool their meager resources# human and financial# and priorities their use for solving their own problems. KThe emphasis on regular thrift collection and its use to solve immediate problems of consumption and production not onl helps to meet their most urgent needs# but also trains them to handle larger financial resources more s!illfull # prudentl and with a more lasting impact. K:ncourage '@)s to become a forum for man social sector interventions. D. SHG-Ba#C 9i#Ca$e P&"$&a,,e&: A Gacilitating '@)s to access credit from formal ban!ing channels. '@)-Ban! <in!age Programmer has proved to be the ma%or supplementar credit deliver s stem with wide acceptance b ban!s# *)+s and various government departments. E. Capaci!@ B/il-i#$:

(apacit building must be tailored to meet the differing needs of the nascentLemerging MG&s and of the e5pandingLmature MG&s. There is a pressing need to develop comprehensive# relevant and integrated training modules on a wide range of topics to professionali$e &ndian microfinance M thus building the much sought-after second tier management in MG&s. The industr continues to grow# and so does the demand for competent middle management. (urrentl # these are t picall sourced b MG&s from the rural institutes of management. But these rural institutes are using curricula largel based on the one developed b '&9B& nearl a decade ago M and it is high time to revisit this curriculum# to update it both in terms of content 7to reflect the new realities in &ndia microfinance8 and in terms of its deliver 7to use multi-mediaLpractical e5amples# and thus bring the courses to life with video clips# case studies and field-based e5ercises that ta!e the students out into the field8.
11. Mic&"<i#a#ce Ma#a$e,e#!: A. O.0ec!iAe%: The programmer aims at enabling the participants to gain a clear understanding of various policies# conceptual# and operational issues involved in developing effective and successful microfinance interventions. B. I##"Aa!iAe Me!1"-"l"$ie%: Tin amount of loan to large number of borrowers at their doorstep is a costl operation compared to revenue income. (ost reduction is also an essential element in microfinance operation. Reducing cost can be possible either offering larger loan si$e or b innovating no conventional Management which is less costl . T1e e%%e#ce% "< i##"Aa!iAe ,a#a$e,e#! a&e a% <"ll"B%: /. 'peciali$ed operation. 3. 9ocumentation of essential information onl . >. 'imple product# simple loan application and verification process. ?. Absence of grant guarantee. |Page 22

O. 'taff recruitment in no conventional manner. 4. +n the %ob training 7each one teaches one8. 1. 'imple standard loan register along with ledger and cash boo! abandoning the boo!!eeperLcashier. =. 'tandard furniture# fi5ture and collective use of facilities in the office. 0. 9ecentrali$ed branch structure. /2. Branch level financial planning. //. 'trong monitoring from mid and head office. /3. "ritten Manual. C. Mic&"<i#a#ce ;"&Ci#$ E#Ai&"#,e#!: @ow can microfinance institutions 7MG&s8 help improve wor!ing conditionsI @ow can the contribute to %ob creationI And how can MG&s help reduce child laborI 'hould MG&s have an interest in addressing these and other decent wor! issuesI These are some of the questions that the &<+ intends to address through an e5perimental global action research programmer 7322=-32//8 in partnership with microfinance &nstitutions interested in promoting decent wor!. Access to micro credit or other financial services can help improve the decent wor! status. (onditional loans# credit with education# incentives li!e interest rate rebates# lin!ages with social partners and *)+s as well as the provision of micro insurance# conditional cash transfers or health care can be effective wa s to reduce child labor# decrease vulnerabilities# raise awareness and create incentives to improve wor!ing conditions. E#a.li#$ E#Ai&"#,e#!: Gavorable environment for microfinance in different manners are prevailing in most developing countries. Gavorable environment is not onl among )overnment but also among general public# civil societ # media and various institutions within the countr needed for favorable growth of microfinance for povert reduction. Though )overnment is favorable in general to microfinance in man countries but specific modalities of *)+sL MG&s determine the nature of favorable. D. C/&&e#! C1alle#$i#$ I%%/e%: /. (apacit BuildingH The long-term future of the micro-finance sector depends on MG&s being able to achieve operational# financial and institutional sustainabilit . 3. &nnovationH Tin amount of loan to large number of borrowers at their doorstep is a costl operation compared to revenue income. (ost reduction is also an essential element in microfinance operation. Reducing cost can be possible either offering larger loan si$e or b innovating no conventional Management which is less costl . >. GundingH A substantial outreach is a guarantee of efficienc that can pla a large part in leveraging funds. ?. +utreachH A substantial outreach is a guarantee of efficienc that can pla a large part in leveraging funds. E. HR I%%/e%: Recruitment and retention is the ma%or challenge faced b MG&s as the strive to reach more clients and e5pand their geographical scope. Attracting the right talent proves difficult because candidates must have# as a prerequisite# a mindset that fits with the organi$ation.s mission. |Page 23

Man mainstream commercial ban!s are now entering microfinance# who are poaching staff from MG&s and MG&s are unable to retain them for other %ob opportunities. =OT of the poorest clients served b microfinance are women. @owever# women ma!e up less than half of all microfinance staff members# and fill even fewer of the senior management roles. The challenge in most countries stems from cultural notions of women.s roles# for e5ample# while women are single there might be a greater willingness on the part of women.s families to let them wor! as front line staff# but as soon as the marr and certainl once the start having children# it becomes unacceptable. <ong distances and long hours awa from the famil are difficult for women to accommodate and for their families to understand. F. Mic&"<i#a#ce T&ai#i#$ 8 Capaci!@ B/il-i#$ Me!1"-%: /. Microfinance Training Methodolog and @ow to Build :fficient "or!forceI 3. 'taff Motivation R Built in (ost effective Training (omponent. >. @uman Resource Planning and 9evelopment. ?. )ood )overnance. G. S;OT MATRIM <"& Mic&"<i#a#ce Ma#a$e,e#!: STRENGTHS ). 5. 4. 3. I. 6. *. E. (. EDpe&ie#ce- %e#i"& ,a#a$e,e#! Tea,. R"./%! IT %@%!e,. Clea& a#- Bell -e<i#e- HR p"lic@. I#</%i"# "< "B# eH/i!@ - c",,i!,e#! <&", p&","!e&%. P&"ce%% i##"Aa!i"#. Cla&i!@ a#- $""- /#-e&%!a#-i#$ "< Ai%i"#. T&a#%pa&e#c@ a! all leAel%. Pla#% <"& Aal/e a--e- a#- liAeli1""- %/pp"&! %e&Aice% >9DS?. S1a&e- "B#e&%1ip.

;EA=NESSES ). 5. 4. 3. I. 9i,i!e- &e%"/&ce%. Mic&" ,a#a$i#$. S!a&! /p "&$a#i%a!i"#N !1e&e<"&e, @e! !" i#%!i!/!i"#ali%e !1e %!a#-a&- p&"ce%%e%. A!!&ac!i#$'H"l-i#$ "# !" !1e %!a<< !ill !1e !i,e Be .ec",e e%!a.li%1e- pla@e&%. Re<i#e !1e p&"ce%%e% <"& $&"B!1.

OPPORTUNITIES ). 5. 4. 3. H/$e P"!e#!ial Ma&Ce!. Sc"pe "< i#!&"-/ci#$ liAeli1""- &ela!e- %e&Aice%. Fi#a#cial c&/#c1 i% 1elpi#$ "&$a#i%a!i"# !" .e c"%! c"#%ci"/% a#- e<<ec!iAe. IT %@%!e,%.

THREATS ). Fi#a#cial c&i%i%. 5. I#c&ea%i#$ c",pe!i!i"#. 4. I#c&ea%i#$ c",pe!i!i"#. |Page 24

3. P""& .a#Ci#$ i#<&a%!&/c!/&e. I. P"li!ical i#%!a.ili!@. H. Mic&"<i#a#ce Ope&a!i"# ,a#a$e,e#!: /. Capaci!@ B/il-i#$: The long-term future of the micro-finance sector depends on MG&s being able to achieve operational# financial and institutional sustainabilit . The constraints and challenges var with the different t pes and development stage of MG&s. Most MG&s are currentl operating below operational viabilit and use grant funds from donors for financing up-front costs of establishing new groups and covering initial losses incurred until the lending volume builds up to a brea!-even level. The MG&s are generall constrained in reaching a brea!-even level and finall achieving sustainabilit # primaril due to a narrow client and product base# high operational and administrative costs for delivering credit to the poor# and their inabilit to mobili$e requisite resources. Moreover# lac! of technical manpower# operational s stems# infrastructure and M&' are prevalent. &n view of the above# to scale up micro-finance initiatives at a faster pace# a special effort is required for capacit building of the Micro Ginance &nstitutions. &n this bac!ground# 'GM( has in the past under the 9G&9 collaboration 7which has since come to an end on March >/#32208 provided need based capacit building support to the partner MG&s# in the initial ears# to enable them to e5pand their operations# cover their managerial# administrative and operational costs besides helping them achieve self-sufficienc in due course. 5. 9iH/i-i!@ Ma#a$e,e#!: &n view of the fact that liquidit is a ma%or concern of man of the middle level MG&s and a small wor!ing capital support can go a long wa in their better liquidit management and thus pave wa for faster growth# 'GM( has introduced a special short term loan scheme# <iquidit Management 'upport 7<M'8 for the long term partners. 4. EH/i!@: Provision of equit capital to the *BG(-MG&s is perceived as an emerging requirement of the micro finance sector in &ndia. '&9B& provides equit capital to eligible institutions not onl to enable them to meet the capital adequac requirements but also to help them leverage debt funds. Ceeping in tune with the sect oral requirements# the ban! has also introduced quasi-equit products vi$.# optionall convertible Preference share capital- optionall convertible debt and optionall convertible 'ubordinate debt for new generation MG&s which are generall in the pre-brea!even stage requiring special dispensation for capital support b wa of a mi5 of Tier & and Tier && capital. 3. T&a#%<"&,a!i"# 9"a#:The Transformation <oan 7T<8 product is envisaged as a quasi-equit t pe support to partner MG&s that are in the process of transforming themselves L their e5isting structure into a more formal and regulated set-up for e5clusivel handling micro finance operations in a focused manner. Being quasi-equit in nature# T< helps the MG&s not onl in enhancing their equit base but also in leveraging loan funds and e5panding their micro credit operations on a sustainable basis. The product has the feature of conversion into equit after a specified period of time sub%ect to the MG& attaining certain structural# operational and financial benchmar!s. This non-interest bearing support facilitates the oung but well performing MG&s to ma!e long term institutional investments and acts as a constant incentive to transform themselves into formal and regulated entities. I. Mic&" E#!e&p&i%e 9"a#%: &n order to build and strengthen new set of intermediaries for Micro :nterprise <oans# the Ban! has formulated new scheme for Micro :nterprise <oans. &nstitutionsL MG&s with minimum fund requirement of Rs. 3O la!h p.a. and having considerable e5perience in financial intermediationL facilitating or setting up of enterprisesL providing escort services to ''&L tin unitsL networ!ing or active interface with ''&s etc. and having professional e5pertise and capabilit to handle on-lending transactions shall be eligible under the dispensation. The institutions would be selected based on their relevant e5perience# potential to e5pand# |Page 25

professional management# transparenc in operations and well laid-out s stems besides qualifiedL trained manpower. <ending to be based strictl on an intensive in-house appraisal supplemented with the credit rating b an independent professional agenc . Rela5ed securit norms more or less on line with micro credit dispensation to be adopted to reduce procedural bottlenec!s as well as to facilitate eas disbursements. 6. 9"a# S@#-ica!i"#: Ceeping in view the increased fund requirement of ma%or partner MG&s# the Ban! has also underta!en fee based s ndication arrangement where loan requirement is comparativel higher. *. Mic&"<i#a#ce Ope&a!i"#%: a. Mar!eting 'trateg and Microfinance (lients Targeting Methodolog . b. Microfinance Products# 'ervices and <ending Procedures. c. Microfinance <ending Methodolog H &ndividual and )roup <ending. d. Micro finance &ndian <ending Methodolog . e. &nstitutional Business Planning for Microfinance Program4. Ginancial Planning R Anal sais. f. 'avings and (redit Management. g. Program +perational Policies and Procedures. h. Accounting and Record Ceeping. i. Auditing for Microfinance +peration. %. Management &nformation ' stem. !. Branch Manager <eadership TrainingH Managing# (ontrolling# and Reporting Tools. l. 9etection of Graud and &nternal (ontrol. m. Monitoring and 'upervision ' stem. n. 9elinquencies and its Management.

I. Clie#!% "< ,ic&" <i#a#ce: The t pical micro finance clients are low-income persons that do not have access to formal financial institutions. Micro finance clients are t picall self-emplo ed# often household-based entrepreneurs. &n rural areas# the are usuall small farmers and others who are engaged in small income-generating activities such as food processing and pett trade. &n urban areas# micro finance activities are more diverse and include shop!eepers# service providers# artisans# street vendors# etc. Micro finance clients are poor and vulnerable non-poor who have a relativel unstable source of income. a. T1e %iD p&i#ciple% "< clie#! p&"!ec!i"# a&e:

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1. AA"i-a#ce "< OAe&-I#-e.!e-#e%%H Providers will ta!e reasonable steps to ensure that credit will be
e5tended onl if borrowers have demonstrated an adequate abilit to repa and loans will not put the borrowers at significant ris! of over-indebtedness. 'imilarl # providers will ta!e adequate care that noncredit# financial products# such as insurance# provided to low-income clients are appropriate. 5. T&a#%pa&e#! a#- Rea%"#a.le P&ici#$H The pricing# terms and conditions of financial products 7including interest charges# insurance premiums# all fees# etc.8 are transparent and will be adequatel disclosed in a form understandable to clients. 4. App&"p&ia!e C"llec!i"#% P&ac!ice%: 9ebt collection practices of providers will not be abusive or coercive. 3. E!1ical S!a<< Be1aAi"&: 'taff of financial service providers will compl with high ethical standards in their interaction with microfinance clients and such providers will ensure that adequate safeguards are in place to detect and correct corruption or mistreatment of clients. I. Mec1a#i%,% <"& Re-&e%% "< G&ieAa#ce%H Providers will have in place timel and responsive mechanisms for complaints and problem resolution for their clients. 6. P&iAac@ "< Clie#! Da!aH The privac of individual client data will be respected# and such data cannot be used for other purposes without the e5press permission of the client 7while recogni$ing that providers of financial services can pla an important role in helping clients achieve the benefits of establishing credit histories8. J. S"cial pe&<"&,a#ce ,ea%/&e,e#!: The 'ocial Performance Tas! Gorce defines social performance asH 6The effective translation of an institution;s social mission into practice in line with accepted social values that relate to serving larger numbers of poor and e5cluded people- improving the qualit and appropriateness of financial services- creating benefits for clientsand improving social responsibilit of an MG&.EMost MG&s have a social mission that the see as more basic than their financial ob%ective# or at least co-equal with it. There is a great deal of truth in the adage that institutions manage what the measure. 'ocial performance measurement helps MG&s and their sta!eholders focus on their social goals and %udge how well the are meeting them. 'ocial indicators are often less straightforward to measure# and less commonl used than financial indicators that have been developed over centuries. Toda .s increasing use of social measures reflects an awareness that good financial performance b an MG& does not automaticall guarantee client interests are being appropriatel advanced. )5. C&i!ical A#al@%i%

A. MFI% C&i!ical I%%/e%: MG&s can pla a vital role in bridging the gap between demand R suppl
of financial services if the critical challenges confronting them are addressed. S/%!ai#a.ili!@: The first challenge relates to sustainabilit . &t has been reported in literature that the MG& model is comparativel costlier in terms of deliver of financial services. An anal sis of >4 leading MG&s3 b Bindal R 'harma shows that =0T MG&s sample were subsid dependent and onl 0 were able to cover more than =2T of their costs. This is partl e5plained b the fact that while the cost of supervision of credit is high# the loan volumes and loan si$e is low. &t has also been commented that MG&s pass on the higher cost of credit to their clients who are ,interest insensitive. for small loans but ma not be so as loan si$es increase. &t is# therefore# necessar for MG&s to develop strategies for increasing the range and volume of their financial services.

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9acC "< Capi!al: The second area of concern for MG&s# which are on the growth path# is that the face a paucit of owned funds. This is a critical constraint in their being able to scale up. Man of the MG&s are sociall oriented institutions and do not have adequate access to financial capital. As a result the have high debt equit ratios. Presentl # there is no reliable mechanism in the countr for meeting the equit requirements of MG&s. As ou !now# the Micro Ginance 9evelopment Gund 7MG9G8# set up with *ABAR9# has been augmented and re-designated as the Micro Ginance 9evelopment :quit Gund 7MG9:G8. This fund is e5pected to pla a vital role in meeting the equit needs of MG&s. B"&&"Bi#$%: &n comparison with earlier ears# MG&s are now finding it relativel easier to raise loan funds from ban!s. This change came after the ear 3222# when RB& allowed ban!s to lend to MG&s and treat such lending as part of their priorit sector-funding obligations. Private sector ban!s have since designed innovative products such as the Ban! Partnership Model to fund. 'ourceH &ssues in 'ustainabilit of MG&s# Bindal R 'harma. T"p )3 Mic&"<i#a#ce I#%!i!/!i"#% i# I#-ia .@ G&"B!1 "< N/,.e& "< ac!iAe B"&&"Be&%.

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B. P&".le,% <"& Al!e&#a!iAe Mic&"-Fi#a#ce I#%!i!/!i"#%: The main aim with which the alternative
MG&s have come up is to bridge the increasing gap between the demand and suppl . A vast ma%orit of them set up as *)+s for getting access to funds as# the e5isting practices of mainstream financing institutions such as '&9B& and *ABAR9 and even of the institutions speciall funding alternatives# such RMC and G""B# is to fund onl *)+s# or *)+ promoted '@)s. As a result# the largest incentive to enter such services remains through the nonprofit route. The alternative finance institutions also have not been full successful in reaching the need . T1e&e a&e ,a#@ &ea%"#% <"& !1i%: ). Ginancial problems leading to setting up of inappropriate legal structures. 5. <ac! of commercial orientation. 4. <ac! of proper governance and accountabilit . 3. &solated and scattered. (. Ri%C: This loo!s at the qualit of their loan portfolio measured as the percent of the portfolio at ris! greater than >2 da s. And return# which is measured as a combination of return on equit and return on assets. Grom this above table we can notice that the Ris! of companies is measured as the percentage of Portfolio at Ris! 7PAR8 which means and returns is measured as a combination of R+A and R+:. Re!/&# "# A%%e!% >ROA?: A Return on Assets is an indication of how well an MG& is managing its asset base to ma5imi$e its profits. The ratio does not evaluate the source of the asset base M whether through debt or equit # but simpl the return of the portfolio and other revenue generated from investments and operations. A return on assets should be positive. There is a positive relationship between Return on Assets and the Portfolio to Assets ratio discussed in the ne5t section. MG&s that maintain most of their assets in the loan portfolio tend to brea! even sooner# and generate higher returns on their assets- provided the loan portfolio performs well and other costs are also controlled. Re!/&# "# A%%e!% V *et +perating &ncome M Ta5esWWWW Average Assets Trend: An increasing Return on Assets is positive. Return on Assets 7R+A8 indicates how well an MG& is managing its assets to optimi$e its profitabilit . The ratio includes not onl the return on the portfolio# but also all other revenue generated from investments and other operating activities. Grom the above list we can notice that# there are seven companies of &ndia in top O2 companies in the world. There is a huge potential for &ndia to grow in this sector# because out of total O22 million poor people from all over the world# who is getting beneficial from the micro finance institutions# =2 to 02 million are from &ndia onl . 'o there is still a huge mar!et and opportunities in this segment. The total loan that the MG&,s had provided to the poor people in &ndia crosses Rs 3? billion till +ctober 2=. And this is onl ?2T of the total poor. &f this turns into /22T# then we will see the new face of &ndia.

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Re!/&# "# EH/i!@: A Return on :quit is probabl one of the most important profitabilit indicators for commercial ban!s and MG&s# particularl in comparison with other institutions. The return is measured onl in relation to what the MG& has built from operating surpluses# or what it has generated through donations or other contributed sources. The shareholders of a for-profit MG& or ban!# is ver interested in this ratio# as it is a measure of their investment choice# and its abilit to pa dividends. &ncreasing equit also strengthens the MG&.s capital structure and its abilit to leverage debt financing. As mar!ets mature and competition increases# Return on :quit ma level off and maintain a positive position without increasing dramaticall or at all. Re!/&# "# EH/i!@ V *et +perating &ncome M Ta5esWWWW Average :quit Trend: An increasing Return on Equity is positive.

@. Ri%C Ma#a$e,e#!: Ris! management is a discipline for dealing with the possibilit that some future event will cause harm. &t provides strategies# techniques# and an approach to recogni$ing and confronting an threat faced b an organi$ation in fulfilling its mission. Ris! management ma be as uncomplicated as as!ing and answering three basic questionsH Ma0"& Ri%C% !" Mic&"<i#a#ce I#%!i!/!i"#%:
Fi#a#cial Ri%C% C&e-i! Ri%C Transaction ris! Portfolio ris! 9iH/i-i!@ Ri%C Ma&Ce! Ri%C &nterest rate ris! Goreign e5change ris! &nvestment portfolio ris! Ope&a!i"#al Ri%C% T&a#%ac!i"# Ri%C @uman resources Ris! &nformation R technolog Ris! F&a/- >I#!e$&i!@? Ri%C 9e$al 8 C",plia#ce Ri%C S!&a!e$ic Ri%C G"Ae&#a#ce Ri%C &neffective oversight Poor governance structure Rep/!a!i"# Ri%C ED!e&#al B/%i#e%% Ri%C% :vent ris!

'ourcesH - www. 'cribd.com This are the most significant ris!s 7with the most potentiall damaging consequences for the MG&8# how the interact# and current challenges faced b MG&s. a. Fi#a#cial Ri%C%: Most MG&s focus on financial ris!s# including credit# liquidit # &nterest rate# and investment ris!s. Mentioned under are the ris!s which are ver critical for the MG&,s.

1. C&e-i! &i%C: (redit ris!# the most frequentl addressed ris! for MG&s# is the ris! to earnings or
capital due to borrowers. late and non-pa ment of loan obligations. (redit ris! encompasses both the loss of income resulting from the MG&,s inabilit to collect anticipated interest earnings as well as the loss of principle resulting from loan defaults. (redit ris! includes both transaction ris! and portfolio ris!.

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2. T&a#%ac!i"# &i%C: Transaction ris! refers to the ris! within individual loans. MG&s mitigate
transaction ris! through borrower screening techniques# underwriting criteria# and qualit procedure for loan disbursement# monitoring# and collection.

3. P"&!<"li" &i%C: Portfolio ris! refers to the ris! inherent in the composition of the overall loan
portfolio. Policies on diversification# ma5imum loan si$e# t pes of loans# and loan structures lessen the portfolio ris!. 4. <iquidit ris!H <iquidit ris! is the Xris! that an MG& cannot meet its obligations on a timel basis <iquidit ris! usuall arises from management,s inabilit to adequatel anticipate and plan for changes in funding sources and cash needs. :fficient <iquidit Management requires maintaining sufficient cash reserves on hand 7to meet client withdrawals# disburse loans and fund une5pected cash shortages8 while also investing as man funds as possible to ma5imi$e earnings. <iquidit management is an ongoing effort to stri!e a balance between having too much cash and too little cash. O. &nterest rate ris!H &nterest rate ris! is the ris! of financial loss from changes in mar!et interest rates. The greatest interest rate ris! occurs when the cost of funds goes up faster than the financial institution can or is willing to ad%ust its lending rates. Ma#a$e i#!e&e%! &a!e &i%C: To reduce the mismatch between short-term variable rate liabilities and long-term fi5ed rate loans# managers ma refinance some of the short-term borrowings with long-term fi5ed rate borrowings. This might include offering one and two- ear term deposits as a product and borrowing five to /2 ear funds from other sources. 'uch a step reduces interest rate ris! and liquidit ris!# even if the MG& pa s a slightl higher rate on those funding sources. To boost profitabilit # MG&s ma purposel Xmismatch assets and liabilities in anticipation of changes in interest rates. &f the asset liabilit managers thin! interest rates will fall in the near future# the ma decide to ma!e more long-term loans at e5isting fi5ed rates# and shorten the term of the MG&,s liabilities. B lending long and borrowing short# the MG& can ta!e advantage of the cheaper funding in the future# while loc!ing in the higher interest rates on the asset side. &n this case# the MG& has increased the interest rate ris! in the hope of improving the profitabilit of the ban!. . Ope&a!i"#al Ri%C%: +perational ris! arises from human or computer error within dail service or product deliver . This ris! includes the potential that inadequate technolog and information s stems# operational problems# insufficient human resources# or breaches of integrit 7i.e. fraud8 will result in une5pected losses. Two t pes of operational ris!H transaction ris! and fraud ris!H 1. T&a#%ac!i"# &i%C: Transaction ris! is particularl high for MG&s that handle a high volume of small transactions dail . 'ince MG&s ma!e man small# short-term loans# this same degree of cross-chec!ing is not cost-effective# so there are more opportunities for error and fraud. As more MG&s offer additional financial products# including savings and insurance# the ris!s multipl and should be carefull anal $ed as MG&s e5pand those activities 2. F&a/- &i%C: Graud ris! is the ris! of loss of earnings or capital as a result of intentional deception b an emplo ee or client. The most common t pe of fraud in an MG& is the direct theft of funds b loan officers or other branch staff. +ther forms of fraudulent activities include the creation of misleading financial statements# bribes etc. Mi#i,i e <&a/- &i%C: To introduced an education campaign to encourage clients to spea! out against corrupt staff and group leaders. This standardi$ed all loan policies and procedures so that the staff cannot ma!e an decision outside the regulations. To :stablished an inspection unit that performs random operational chec!s.

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c. S!&a!e$ic Ri%C%: 'trategic ris!s include internal ris!s li!e those from adverse business decisions or improper implementation of those decisions# poor leadership# or ineffective governance and oversight# as well as e5ternal ris!s# such as changes in the business or competitive environment. This section focuses on two critical strategic ris!sH )overnance Ris!# Business :nvironment Ris!.

1. G"Ae&#a#ce &i%C: )overnance ris! is the ris! of having an inadequate structure or bod to ma!e
effective decisions. The Ginancial crisis# described above illustrates the dangers of poor governance that nearl resulted in the failure of that institution. 2. ED!e&#al ./%i#e%% e#Ai&"#,e#! &i%C: Business environment ris! refers to the inherent ris!s of the MG&,s business activit and the e5ternal business environment. To minimi$e business ris!# the microfinance institution must react to changes in the e5ternal business environment to ta!e advantage of opportunities# to respond to competition# and to maintain a good public reputation. MFI ,a#a$e !1ei& &epa@,e#! a#- &i%C ,a#a$e,e#!: Ris! is an integral part of financial services. "hen financial institutions issue loans# there is a ris! of borrower default. "hen ban!s collect deposits and on-lend them to other clients 7i.e. conduct financial intermediation8# the put clients. savings at ris!. Most MG&',s provides the loans without or with smaller portion of deposit or# so for them repa ment of interest or principal is ver ris! . All MG&,s face ris!s that the must manage efficientl and effectivel to be successful. "hen poorl managed ris!s begin to result in financial losses# donors# investors# lenders# borrowers and savers tend to lose confidence in the organi$ation and funds begin to dr up. "hen funds dr up# an MG& is not able to meet its social ob%ective of providing services to the poor and quic!l goes out of business.

d. Be#e<i! "< Ri%C Ma#a$e,e#!: :arl warning s stem for potential problemsH A s stematic process for
evaluating and measuring ris! identifies problems earl on# before the become larger problems or drain management time and resources. <ess time fi5ing problems means more time for production and growth. Better information on potential consequences# both positive and negative. A proactive and forward-thin!ing organi$ational culture will help managers identif and assess new mar!et opportunities# foster continuous improvement of e5isting operations# and more effectivel performance incentives with the organi$ation,s strategic goals. :ncourages cost-effective decisionma!ing and more efficient use of resources. e. I#!e&e%! Ra!e%: Most MG&.s financiall sustainable b charging interest rates that are high enough to cover all their costs. F"/& Ce@ <ac!"&% -e!e&,i#e !1e%e &a!e%: PThe cost of funds. PThe MG&;s operating e5penses. P<oan losses. PAnd profits needed to e5pand their capital base and fund e5pected future growth. T1e&e a&e !1&ee Ci#-% "< c"%!% !1e MFI 1a% !" c"Ae& B1e# i! ,aCe% ,ic&" l"a#%: PThe cost of the mone that it lends. PThe cost of loan defaults. PTransaction and +perating cost. Gor instance# MG& lends is /2 percent# and it e5periences defaults of / percent of the amount lent# then total Rs // for a loan of Rs /22# and Rs OO for a loan of Rs O22. And the third cost i.e. transaction cost. The interest rates are deregulated not onl for private MG&s but also for formal ba!ing sector. &n the conte5t of softening of interest rates in the formal ban!ing sector# the comparativel higher interest rate 7/3 to 3? per cent per annum8 charged b the MG&s has become a contentious issue. The high interest rate collected b the MG&s from their poor clients is perceived as e5ploitative. &t is argued that raising interest rates too high could undermine the social and economic impact on poor clients. 'ince most MG&s have lower business volumes# their transaction costs are far higher than that of the formal ban!ing channels. The high cost structure of MG&s would affect their sustainabilit in the long run. |Page 32

MFI .ei#$ c&i!ici e- .eca/%e "< 1i$1 i#!e&e%! &a!e:Most MG&,s financiall sustainable b charging interest rates that are high enough to cover all their costs. The problem is that the administrative costs are inevitabl higher for tin micro lending than for normal ban! lending. As a result# interest rates in sustainable microfinance institutions 7MG&s8 are substantiall higher than the rates charged on normal ban! loans. F"/& Ce@ <ac!"&% -e!e&,i#e !1e%e &a!e%: /. The cost of funds# 3. the MG&;s operating e5penses# >. <oan losses# ?. And profits needed to e5pand their capital base and fund e5pected future growth. Gormula to decide the interest rate isH R V A: Y << Y (G Y C - && /M << "here A: is administrative e5penses# << is loan losses# (G is the cost of funds# C is the desired (apitali$ation rate and && is investment income. EDa,ple: 'uppose that the transaction cost is Rs /O per loan and that the loans are for one ear. To brea! even on the Rs O22 loan# the MG& would need to collect interest of Rs O2 Y Rs O Y Rs /O V Rs 12# which represents an annual interest rate of /> percent. To brea! even on the Rs /22 loan# the MG& would need to collect interest of Rs /2 YRs / Y Rs /O V Rs 34# which is an interest rate of 34 percent.

f. S;OT A#al@%i%: '"+T stands for 'trength# "ea!ness# +pportunit # and Threat.
S!&e#$!1 P @elped in reducing the povert H The main aim of Micro Ginance is to provide the loan to the individuals who are below the povert line and cannot able to access from the commercial ban!s. As we !now that &ndian# more than >O2 million people in &ndia are below the povert and for them the Micro Ginance is more than the life. B providing small loans to this people Micro finance helps in reducing the povert . P @uge networ!ing availableH Gor MG&s and for borrower# both the huge networ! is there. &n &ndia there are man more than >O2 million who are below the povert line# so for MG&s there is a huge demand and networ! of people. And for borrower there are man small and medium si$e MG&s are available in even remote areas. ;eaC#e%% P *ot properl regulatedH &n &ndia the Rules and Regulation of Micro Ginance &nstitutions are not regulated properl . &n the absent of the rules and regulation there would be high case of credit ris! and defaults. &n the shed of the proper rules and regulation the Micro finance can function properl and efficientl . P @igh number of people access to informal sourcesH According to the "orld Ban! report =2T of the &ndian poor can,t access to formal source and therefore the depend on the informal sources for their borrowing and that informal charges ?2 to /32T p.a. P (oncentrating on few people onl H &ndia is considered as the second fastest developing countr after (hina# with )9P over =.OT from the past O ears. But this all interesting figures are %ust because of few people. &ndia,s 12T of the population lives in rural area# and that portion is not full touched. Opp"&!/#i!@ P @uge demand and suppl gapH There is a huge demand and suppl gap among the borrowers and issuers. &n &ndia around >O2 million of the people are poor and onl few MG&s there to serving them. |Page 33

There is huge opportunit for the MG&s to serve the poor people and increase their living standard. The annual demand of Micro loans is nearl Rs 42#222 crore and onl O?O4 crore are disbursed to the borrower.7 April 208 :mplo ment +pportunit H Micro Ginance helps the poor people b not onl providing them with loan but also helps them in their businesseducate them and their children etc. 'o in this Micro Ginance helping in increase the emplo ment opportunit for them and for the societ . P @uge Untapped Mar!etH &ndia,s total population is more than /222 million and out of >O2 million is living below povert line. 'o there is a huge opportunit for the MG&s to meet the demand of that unsaved customers and Micro Ginance should not leave an stones unturned to grab the untapped mar!et. P +pportunit for Pvt. Ban!sH Man Pvt. Ban!s are sh ing awa from to serve the people are unable to access big loans# because of the high intervention of the )ovt. but the door open for the Pvt. Pla ers to get entr and with fle5ible rules Pvt. Ban!s are attracting towards this segment. T1&ea! P @igh (ompetitionH This is a serious threat for the Micro Ginance industr # because as the more pla ers will come in the mar!et# their competition will rise # and we !now that the MG&s has the high transaction cost and after entrant of the new pla ers there transaction cost will rise further# so this would be serious threat. P *eoph te &ndustr H Basicall Micro Ginance is not a new concept in &ndia# but that was all b informal sources. But the formal source of finance through Micro Ginance is novice# and the rules are also not properl placed for it. P +ver involvement of )ovt.H This is the biggest that threat that man MG&s are facing. Because the e5cess of an thing is in%urious# so in the same wa the e5cess involvement of )ovt. is a serious threat for the MG&s. :5cess involvement definition is li!e waive of loans# ma!e new rules for their personal benefit etc. )4. Mic&"-Fi#a#ce Acc"/#!i#$ a#- Ma#a$e,e#! I#<"&,a!i"# S@%!e,% The basic components of an accounting s stem are fairl universal and applicable to all org 'ource documents form the basis of all transactions. A (hart of Accounts is a numbered s stem that is structured to (lassif and organi$e transactions b account. The %ournals cash %ournals# general %ournals# or ban! %ournals record each and ever transactions or ad%ustment. The are summari$ed monthl # cross-totaled and posted to the general ledger. The general ledger holds a record for each account in the (hart of Accounts. &t accumulates the totals posted from the %ournals to provide monthl and annual revenue and e5penses for reporting periods. &t accumulates all the accounts of the Balance 'heet. These accounting records and processes form the basis of all accounting s stems. Most MG&s choose computeri$ed. The following diagram illustrates a DgenericE financial management information s stem in a microfinance institution# whether its clients are individuals# 'elf @elp )roups# 'olidarit )roups# or Boint <iabilit )roups# and regardless of its legal structure or registration. The accounting s stem follows the usual flow from transaction to the parathion of financial statements. +ne of the most distinctive aspects of the accounting s stem for microfinance institutions is that financial and operational activit must be trac!ed b Branch. <oan information should also be trac!ed b (redit +fficer# b product and b area if needed. This is critical for internal management R monitoring. Another distinctive aspect of accounting for MG&s is that the loan trac!ing s stem for client transactions acts as a subsidiar ledger. (lient transactions must be entered into both s stems# but can be summari$ed in the accounting general ledger. 'ome loan trac!ing s stems are manual# but it is a huge challenge to handle a large number of clients# produce reports Rage loans with great efficienc in a manual s stem. Most MG&s prefer automated s stems# particularl loan trac!ing s stems that are integrated with# and lin!ed to a general ledger. The following diagram shows the connection between the two s stems.

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34

Acc"/#!i#$ S@%!e, a#- Clie#! P"&!<"li" S@%!e, >MIS? Mic&"<i#a#ce

The MG& financial management s stems illustrated dose not operates in a vacuum. There are four distinct areas that guide R govern a well-managed R effective financial s stem.
A. P"&!<"li" Rep"&!: &s it a number reflecting a period of time 7e.g. the &ncome 'tatement# and some numbers from the Portfolio Report8I &s the number reflective of information from a point in time M as from the Balance 'heetI "hen &ncome 'tatement numbers or an number reflecting a period of activit is used to calculate a ratio# the second component of the ratio must also reflect a period of activit . Therefore# some of the ratio components ta!e the average of Balance 'heet numbers. Remember to note these distinctions in the ratio calculations.

G)3 MFI i# I#-ia G&"B!1 "< G&"%% 9"a# P"&!<"li" |Page 35

B. A%%e! a#- 9ia.ili!@ Ma#a$e,e#! YielV (ash Received from &nterest# Gees and (ommissions on <oan PortfolioWWW Average )ross <oan Portfolio TrendH An increasing ield is positive although it will level off as it nears the effective interest rate. a. Ba%ic Fi#a#cial Ma#a$e,e#! a#- Ra!i" A#al@%i% <"& MFI%: MG& sta!eholders e5pect MG& senior managers to ensure that strong and adequate financial s stems are in place in the MG&. Therefore# it is essential that MG& managers have a solid understanding and appreciation of the financial and accounting s stems. The Basic Ginancial Management and Ratio Anal sis for MG&s offer a practical training in basic financial management and ratio anal sis for MG&s. &t provides an overview of the !e aspects of accounting in microfinance institutions describes the primar financial statements and portfolio reports of MG&s and describes the commonl accepted financial ratios used for monitoring# reporting and measuring MG& performance. Performance ratios cover four general areas of MG& operationsH sustainabilit or profitabilit # asset and liabilit management# portfolio qualit and productivit and efficienc . &ts helps develop clarit on the need of the different financial statements# the relation between them. The training helps develop s!ills to anal $e these statements and calculate different ratios which will give the correct picture on the financial health of the organi$ation. This is done through supporting documents# diagrammatic representations# and e5ercises. Ginancial ratios are useful indicators of a firm;s performance and financial situation. Ginancial ratios can be used to anal $e trends and to compare the firm;s financials to those of other firms. .. 9i%! "< MFIJ% a#- !1ei& Ce@ Ra!i"%: 9iH/i-i!@ Ra!i"% These ratios actuall show the relationship of a firm,s cash and other current assets to its current liabilities. Two ratios are discussed under <iquidit ratios. The areH /. (urrent ratio 3. Uuic!L Acid Test ratio. /. (urrent ratioH This ratio indicates the e5tent to which current liabilities are covered b those assets e5pected to be converted to cash in the near future. (urrent assets normall include cash# mar!etable securities# accounts receivables# and inventories. (urrent liabilities consist of accounts pa able# short-term notes pa able# current maturities of long-term debt# accrued ta5es# and other accrued e5penses 7principall wages8. (urrent RatioV(urrent AssetsL(urrent <iabilities.

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36

C"%! "< F/#-% Ra!i" C"%! "< F/#-% V Ginancial :5pense on Gunding <iabilities 7Average 9eposits Y Average Borrowings8 Trend: The Cost of Funds may indicate a level of maturity of the MFI. A decreasing Cost of Funds ratio is generally positive. hen Financial E!penses are ad"usted to include free or su#sidi$ed funding% the ratio &ill sho& the actual financial cost of funds needed to fund or capitali$e the MFI. De.! !" EH/i!@ De.!'EH/i!@ V <iabilitiesWWWW :quit Trend: An increasing de#t'equity ratio indicates the MFI(s capacity to attract de#t funding #ased on its capital strength of its o&n equity. Too lo& a ratio might indicate that the MFI is not ma!imi$ing its equity #ase. Too high a factor may #e ris)y for investors% and may spell cash flo& challenges during difficult times 9iH/i- Ra!i" 9iH/i- Ra!i" V (ash Y Trade &nvestmentsWWWWW 79emand 9eposits Y short-term Time 9eposits Y 'hort-term Borrowings Y &nterest Pa able on Gunding <iabilities Y Accounts Pa able And other 'hort-term <iabilities8 Trend: *o single ratio or trend provides the +correct, or +adequate, means to monitor cash levels. Managers must have clear policies in place to ensure that cash is availa#le &hen needed for all MFI operations and activities -an)ing requirements and ris) tolerance &ill affect the ratio... Ri%C C"Ae&a$e Ra!i" Ri%C C"Ae&a$e Ra!i" V WWWWWWAllowance for <oan <ossesWWWWWW Portfolio at Ris! over >2 da s Trend: A fairly constant% sta#le ratio is desired. .udden changes usually indicate a deterioration or improvement in portfolio quality or an e!cess or shortage in the Allo&ance for /oan /osses account. c. Capaci!@ "< MFI%: &t is now recogni$ed that widening and deepening the outreach of the poor through MG&s has both social and commercial dimensions. 'ince the sustainabilit of MG&s and their clients complement each other# it follows that building up the capacities of the MG&s and their primar sta!eholders are pre-conditions for the successful deliver of fle5ible# client responsive and innovative microfinance services to the poor. @ere# innovations are important both of social intermediation# strategic lin!ages and new approaches centered on the livelihood issues surrounding the poor# and the re-engineering of the financial products offered b them as in the case of the Ban! Partnership model. ). Ba#C Pa&!#e&%1ip M"-el: This model is an innovative wa of financing MG&s. The ban! is the lender and the MG& acts as an agent for handling items of wor! relating to credit monitoring# supervision and recover . &n other words# the MG& acts as an agent and ta!es care of all relationships with the client# from first contact to final repa ment. |Page 37

The model has the potential to significantl increase the amount of funding that MG&s can leverage on a relativel small equit base. A sub - variation of this model is where the MG&# as an *BG(# holds the individual loans on its boo!s for a while before securiti$ing them and selling them to the ban!. 'uch refinancing through securiti$ation enables the MG& enlarged funding access. &f the MG& fulfils the Dtrue saleE criteria# the e5posure of the ban! is treated as being to the individual borrower and the prudential e5posure norms do not then inhibit such funding of MG&s b commercial ban!s through the securiti$ation structure. 5. Ba#Ci#$ C"&&e%p"#-e#!%: The proposal of Dban!ing correspondentsE could ta!e this model a step further e5tending it to savings. &t would allow MG&s to collect savings deposits from the poor on behalf of the ban!. &t would use the abilit of the MG& to get close to poor clients while rel ing on the financial strength of the ban! to safeguard the deposits. (urrentl # RB& regulations do not allow ban!s to emplo agents for liabilit - i.e. deposit - products. This regulation evolved at a time when there were genuine fears that fl -b -night agents purporting to act on behalf of ban!s in which the people have confidence could mobili$e savings of gullible public and then vanish with them. &t remains to be seen whether the mechanics of such relationships can be wor!ed out in a wa that minimi$es the ris! of misuse. 4. Se&Aice C",pa#@ M"-el: &n this conte5t# the 'ervice (ompan Model developed b A((&+* and used in some of the <atin American (ountries is interesting. The model ma hold significant interest for state owned ban!s and private ban!s with large branch networ!s. Under this model# the ban! forms its own MG&# perhaps as an *BG(# and then wor!s hand in hand with that MG& to e5tend loans and other services. +n paper# the model is similar to the partnership modelH the MG& originates. 4. MFI M"-el: Under this model# the ban! forms its own MG&# perhaps as an *BG(# and then wor!s hand in hand with that MG& to e5tend loans and other services. +n paper# the model is similar to the partnership modelH the MG& originates the loans and the ban! boo!s them. But in fact# this model has two ver different and interesting operational featuresH 7a8 The MG& uses the branch networ! of the ban! as its outlets to reach clients. This allows the client to be reached at lower cost than in the case of a standMalone MG&. &n case of ban!s which have large branch networ!s# it also allows rapid scale up. &n the partnership model# MG&s ma contract with man ban!s in an arms length relationship. &n the service compan model# the MG& wor!s specificall for the ban! and develops an intensive operational cooperation between them to their mutual advantage. 7b8 The Partnership model uses both the financial and infrastructure strength of the ban! to create lower cost and faster growth. The 'ervice (ompan Model has the potential to ta!e the burden of overseeing microfinance operations off the management of the ban! and put it in the hands of MG& managers who are focused on microfinance to introduce additional products# such as individual loans for '@) graduates# remittances and so on without disrupting ban! operations and provide a more advantageous cost structure for microfinance. MG&s are an e5tremel heterogeneous group comprising *BG(s# societies# trusts and cooperatives. The are provided financial support from e5ternal donors and ape5 institutions including the Rashtri a Mahila Cosh 7RMC8# '&9B& Goundation for micro-credit and *ABAR9 and emplo a variet of wa s for credit deliver . |Page 38

'ince 3222# commercial ban!s including Regional Rural Ban!s have been providing funds to MG&s for on lending to poor clients. Though initiall # onl a handful of *)+s were DintoE financial intermediation using a variet of deliver methods# their numbers have increased considerabl toda . "hile there is no published data on private MG&s operating in the countr # the number of MG&s is estimated to be around =22.

5. F"& NGO% M"-el: There are a large number of *)+s that have underta!en the tas! of financial intermediation. Ma%orit of these *)+s are registered as Trust or 'ociet . Man *)+s have also helped '@)s to organi$e themselves into federations and these federations are registered as Trusts or 'ocieties. Man of these federations are performing non-financial and financial functions li!e social and capacit building activities# facilitate training of '@)s# underta!e internal audit# promote new groups# and some of these federations are engaged in financial intermediation. The *)+ MG& varies significantl in their si$e# philosoph and approach. Therefore these *)+s are structurall not the right t pe of institutions for underta!ing financial intermediation activities# as the b elaws of these institutions are generall restrictive in allowing an commercial operations. These organi$ations b their charter are non-profit organi$ations and as a result face several problems in borrowing funds from higher financial institutions. The *)+ MG&s# which are large in number# are still outside the purview of an financial regulation. These are the institutions for which polic and regulator framewor! would need to be established.
Al"#$ Bi!1 -eAel"pi#$ %aAi#$ a#- c&e-i! <acili!ie%, !1e NGO% e#$a$e i#: >/8 Providing Basic :ducation. 738 9eveloping a sense of @ealth and @ giene. 7>8 :ncourage famil planning. 7?8 (reating Awareness about environment protection. 7O8Most important# nurturing an environment of gender equalit . These activities are the rudiments of sustained economic development. Ba%icall@, !1e MFI% i# I#-ia a&e "< !1&ee ca!e$"&ie%: 7i8 *ot for profit MG&# which include the *)+sI 7ii8 Mutual Benefit MG&s# which include mutuall -aided co-operative credit. 7iii8 Gor Profit MG&s# which include the *on-Ban!ing Ginancial (ompanies 7*BG(8I

6. N"#-P&"<i! C",pa#ie% a% MFI%:

Man *)+s felt that combining financial intermediation with their core competenc activit of social intermediation is not the right path. &t was felt that a financial institution including a compan set up for this purpose better does ban!ing function. Gurther# if MG&s are to demonstrate that ban!ing with the poor is indeed profitable and sustainable# it has to function as a distinct institution so that cross subsidi$ation can be avoided. +n account of these factors# *)+ MG&s are of late setting up a separate *on-Profit (ompanies for their micro finance operations. The MG& is prohibited from pa ing an dividend to its members. &n terms of Reserve Ban! of &ndia.s *otification dated /> Banuar 3222# relevant provisions of RB& Act# /0>? as applicable to *BG(s will not appl for *BG(s . |Page 39

7i8 7ii8 7iii8

licensed under 'ection 3O of (ompanies Act# /0O4# providing credit not e5ceeding Rs. O2#222 7Q///38 for a business enterprise and Rs. /# 3O#222 7Q311=8 for meeting the cost of a dwelling unit to an poor person# and# not accepting public deposits

7. M/!/al Be#e<i! MFI%H The 'tate (ooperative Acts did not provide for an enabling framewor! for
emergence of business enterprises owned# managed and controlled b the members for their own development. 'everal 'tate )overnments therefore enacted the Mutuall Aided (ooperative 'ocieties 7MA('8 Act for enabling promotion of self-reliant and vibrant co-operative 'ocieties based on thrift and self-help. MA(' en%o the advantages of operational freedom and virtuall no interference from government because of the provision in the Act that societies under the Act cannot accept share capital or loan from the 'tate )overnment. Man of the '@) federations# promoted b *)+s and development agencies of the 'tate )overnment# have been registered as MA('. Reserve Ban! of &ndia# even though the ma be providing financial service to its members# does not regulate MA('. 8. F"& P&"<i! MFI%:*on Ban!ing Ginancial (ompanies 7*BG(8 are companies registered

under (ompanies Act# /0O4 and regulated b Reserve Ban! of &ndia. :arlier# *BG(s were not regulated b RB& but in /001 it was made obligator for *BG(s to appl to RB& for a certificate of registration and for this certificate *BG(s were to have minimum *et +wned funds of Rs 3O la!hs and this amount has been graduall increased. RB& introduced a new regulator framewor! for those *BG(s who want to accept public deposits. All the *BG(s accepting public deposits are sub%ected to capital adequac requirements and prudential norms. There are onl a few MG&s in the countr that are registered as *BG(s. Man MG&s view *BG(s more preferred legal form and are aspiring to be *BG(s but the are finding it difficult to meet the requirements stipulated b RB&. The number of *BG(s having e5clusive focus on MG is negligible. 14. Capi!al ReH/i&e,e#!%
*)+-MG&s# non-profit companies. MG&s# and mutual benefit MG&s are regulated b the specific act in which the are registered and not b the Reserve Ban! of &ndia. These are therefore not sub%ected to minimum capital requirements# prudential norms etc. *)+ MG&s to become *BG(s are required to have a minimum entr capital requirement of Rs. 32 million 7Q 2.O million8. As regards prudential norms# *BG(s are required to achieve capital adequac of /3T and to maintain liquid assets of /OT on public deposits.

A. F"&ei$# I#Ae%!,e#!: Goreign investment b wa of equit is permitted in *BG( MG&s sub%ect to a minimum investment of QO22#222. &n view of the minimum level of investment# onl two *BG(s are reported to have been able to raise the foreign investment. @owever# a large number of *)+s in the development empowerment are receiving foreign fund b wa of grants. At present# over Rs.?2# 222 million 7Q ==0 million8 ever ear flows into &ndia to *)+s for a whole range of activities including microfinance. &n a wa # foreign donors have facilitated the entr of *)+s into micro finance operations through their grant assistance. B. Dep"%i! M".ili a!i"#:
*ot for profit MG&s are barred# b the Reserve Ban! of &ndia# from mobili$ing an t pe of savings. Mutual benefit MG&s can accept savings from their members. +nl rated *BG( MG&s rated b approved credit rating agencies are permitted to accept deposits. The quantum of deposits that could be raised is lin!ed to their net owned funds. 40 |Page

C. B"&&"Bi#$%:
&nitiall # bul! of the funds required b MG&s for on lending to their clients was met b ape5 institutions li!e *ational Ban! for Agriculture and Rural 9evelopment# 'mall &ndustries 9evelopment Ban! +f &ndia# and# Rashti a Mahila Cosh. &n order to widen the range of lending institutions to MG&s# the Reserve Ban! of &ndia has roped in (ommercial Ban!s and Regional Rural Ban!s to e5tend credit facilities to MG&s since Gebruar 3222. Both public and private ban!s in the commercial sector have e5tended si$eable loans to MG&s at interest rate ranging from = to // per cent per annum. Ban!s have been given operational freedom to prescribe their own lending norms !eeping in view the ground realities. The intention is to augment flow of micro credit through the conduit of MG&s. &n regard to e5ternal commercial borrowings 7:(B8 b MG&s# not-for-profit MG&s are not permitted to raise :(B. The current polic effective from >/ Banuar 322?# allows onl corporate registered under the (ompanies Act to access :(B for permitted end use in order to enable them to become globall competitive pla ers.

D. I#!e&e%! Ra!e%:
The interest rates are deregulated not onl for private MG&s but also for formal ba!ing sector. &n the conte5t of softening of interest rates in the formal ban!ing sector# the comparativel higher interest rate 7/3 to 3? per cent per annum8 charged b the MG&s has become a contentious issue. The high interest rate collected b the MG&s from their poor clients is perceived as e5ploitative. &t is argued that raising interest rates too high could undermine the social and economic impact on poor clients. 'ince most MG&s have lower business volumes# their transaction costs are far higher than that of the formal ban!ing channels. The high cost structure of MG&s would affect their sustainabilit in the long run.

E. C"lla!e&al &eH/i&e,e#!%:
All the legal forms of MG&s have the freedom to waive ph sical collateral requirements from their clients. The credit polic guidelines of the RB& allow even the formal ban!s not to insist on an t pe of collateral and margin requirement for loans up to Rs O2#222 7Q//228. Re$/la!i"# 8 S/pe&Ai%i"#: &ndia has a large number of MG&s var ing significantl in si$e# outreach and credit deliver methodologies. Presentl # there is no regulator mechanism in place for MG&s e5cept for those that are registered as *BG(s. As a result# MG&s are not required to follow standard rule and it has allowed man MG&s to be innovative in its approach particularl in designing new products and processes. But the flip side is that the management and governance of MG&s generall remains wea!# as there is no compulsion to adopt widel accepted s stems# procedures and standards. Because the sector is unregulated# not much is !nown about their internal health. F"ll"Bi#$ C",,i!!ee% 1aAe eDa,i#e- !1e &"a- ,ap <"& &e$/la!i"# a#- %/pe&Ai%i"# "< MFI%: Tas! Gorce 7appointed b *ABAR98 Report on Regulator and 'upervision Gramewor! for MG&s# /000. 7Cindl see publications 'ection for a complete report "or!ing )roup 7constituted b )overnment of &ndia8 on <egal R Regulation of MG&s# 3223 &nformal )roups 7appointed b RB&8 on Micro Ginance which studied issues relating to 7i8 7ii8 7iii8 7iv8 |Page 'tructure R'ustainabilit # Gunding Regulations and (apacit Building# 322> 41

Advisor (ommittee 7appointed b RB&8 on flow of credit to agriculture and related activities from the Ban!ing ' stem# 322?. The (ommittee observed that while a few of the MG&s have reached significant scales of outreach# the MG& sector as a whole is still in evolving phase as is reflected in wide debates ranging around 7i8 desirabilit of *)+s ta!ing up financial intermediation# 7ii8 unproven financial and organi$ational sustainabilit of the model# 7iii8 high transaction costs leading to higher rates of interest being charged to the poor clients# 7iv8 absence of commonl agreed performance# accounting and governance standards# 7v8 heav e5pectations of low cost funds# including equit and the start up costs# etc. The current debate on development of a regulator s stem for the MG&s focuses on three stages. 'tage one to ma!e the MG&s appreciate the need for certain common performance standards# stage two - ma!ing it mandator for the MG&s to get registered with identified or designated institutions and stage three - to encourage development of networ! of MG&s which could function as quasi 'elf-Regulator +rgani$ations 7'R+s8 at a later date or identif ing a suitable organi$ation to handle the regulator arrangements. The (ommittee recommended that while the MG&s ma continue to wor! as wholesalers of microcredit b entering into tie-ups with ban!s and ape5 development institutions# more e5perimentation have to be done to satisf about the sustainabilit of the MG& model. 'uch e5perimentation needs to be encouraged in areas where ban!s are still not meeting adequate credit demand of the rural poor. &n regard to offering thrift products# the (ommittee felt that# while the *)+-MG&s can continue to e5tend micro credit services to their clients# the could pla an important role in facilitating access of their clients to savings services from the regulated ban!s. As regards allowing *)+-MG&s to access deposits from public L clients# the (ommittee considers that in view of the need to protect the interests of depositors# the ma not be permitted to accept public deposits unless the compl with the e5tant regulator framewor! of the Reserve Ban! of &ndia. As no depositors; interest is involved where the do not accept public deposits# the Reserve Ban! of &ndia need not regulate MG&s. As regards the high interest rates being charged b the MG&s# the (ommittee felt that the lenders to MG&s ma ensure that these institutions adopt a ,cost-plus- reasonable-margin. approach in determining the rates of interest on loans to clients.

15. DeAel"p,e#! F/#A. Mic&" Fi#a#ce DeAel"p,e#! a#- EH/i!@ F/#- >MFDEF? F S!&/c!/&e a#- G/i-eli#e%: 9uring 322O-24# )overnment of &ndia has decided to redesign ate the e5isting MG9G as microfinance 9evelopment and :quit Gund 7MG9:G8. &t has also been decided to enhance the fund si$e from the e5isting Rs/22 crore to Rs 322 crore. The additional amount of Rs /22 crore will be contributed b Reserve Ban! of &ndia# *ABAR9 and the commercial ban!s in the same proportion as earlier 7?2H?2H328. B. O.0ec!iAe%: The ob%ective of the redesignated Gund is to facilitate and support the orderl growth of the microfinance sector through diverse modalities for enlarging the flow of financial services to the poor particularl for women and vulnerable sections of societ consistent with sustainabilit . C. Ac!iAi!ie% !" .e %/pp"&!e- <&", "/! "< !1e MFDEF:
|Page 42

The Gund will be utili$ed to support interventions to eligible institutions and sta!eholders. The components of assistance will include# inter alia# the following purposesH a. Capaci!@ B/il-i#$: i8 ii8 iii8 Training of '@)s and other groups for livelihood# s!ill up gradation and micro enterprise development. (apacit building of staff of institutions involved in microfinance promotion such as Ban!s# *)+s# government departments# *ABAR9# etc. (apacit building of MG&s.

b. F/#-i#$ S/pp"&!: /. (ontributing equit Lother forms of capital support to MG&s# service providers# etc. 3. Providing financial support for start-up and on-lending for microfinance activities. >. 'upporting 'elf @elp Promotion initiatives of ban!s and other '@P&s. ?. Meeting on a selective basis the operational deficit of financial intermediar *)+sLMG&s at the start up stage. O. Rating of MG&s and self regulation. c. MIS: /. 'upporting s stems management in regard to M&'# accounting# internal controls# audits and impact assessment. 3. Building an appropriate data base and supporting development thereof. Regulator R 'upervisor Gramewor!. 3. >. Recommending regulator and supervisor framewor! based on an on-going review. d. S!/-ie% 8 P/.lica!i"#%: 1. (ommissioning studies# consultancies# action research# evaluation studies# etc# relating to the sector. 2. Promoting seminars# conferences and other mechanisms for discussion and dissemination. 3. )ranting support for research. 4. 9ocumentation# Publication and dissemination of MG literature. 5. An other activities recommended b the Advisor Board to Gund. e. Eli$i.le I#%!i!/!i"#%: Gollowing t pes of structures# communit based organi$ations and institutions# would be eligible for support from the GundH /. TrainingH '@)s# (B+s# *)+sLJAs# Ban!s# MG&s# *ABAR9# Training :stablishments# networ!s# service providers. 3. Gunding supportH *)+sLJAs# (B+s# MG&s# and Ban!s.
|Page 43

>. M&'H '@)s# *)+sLJAs# Ban!s# MG&s# *ABAR9. ?. Regulator and 'upervisor Gramewor!H Ban!s# MG&s# 'R+s# *)+s LJAs L MG& *etwor!s# *ABAR9. O. 'tudies and PublicationsH Ban!s# MG&s# *ABAR9# Training and Research +rgani$ations# Academic institutions and Universities. 4. An other organi$ation as ma be decided b the Advisor Board from time to time. f. M"-e "< A%%i%!a#ce: Mode of assistance from the Gund will include the followingH K Promotional support for training and other promotional measures. K <oans and advances including soft loans. K Revolving Gund Assistance 7RGA8 to *)+sL MG&s. K :quit and quasi equit support to MG&s. K Administrative subsidies and grants. K Administering (harges. g. A-Ai%"&@ B"-@ !" MFDEF: The Advisor Board shall guide and render advice on the various aspects relating to the micro finance sector. The Board ma determine its own procedures for da -to-da wor!ing including constitution of committees# tas! forces etc# for e5amination of various issues. The advisor board will meet at such intervals as deemed necessar but in an case once in a quarter to review the status and progress of outflow and to render polic advice in respect of orderl growth and development of the sector. 16. NABARDK% S/pp"&! !" ,ic&"<i#a#ce I#%!i!/!i"#% >MFI%?
Reali$ing the importance of MG&s in the deliver of financial services to the poor and their potential for e5pansion of services in remote and lesser-ban!ed areas# *ABAR9 has been e5tending technical and fund support to this sector. 'ome of the concerns that necessitated *ABAR9 to commence this support in /00> wereH /8 the need to provide timel credit to the poor in under ban!ed regions and ii8 to further improve the outreach of rural credit deliver s stem through alternate credit deliver mechanisms. *ABAR9;s support is being provided to various forms of microfinance institutions covering MG&s# second tier MG lending institutions# )rameen ban! replicators# *)+-MG&s# '@) Gederations etc. *ABAR9 provides loan funds in the form of Revolving Fund Assistance 0RFA1 to *)+-MG&s on a ver selective basis. The RGA is generall provided for a period of O to 4 ears and is necessaril to be used for on lending to mG clients 7'@)s or individuals8. &n addition# the agencies are also sanctioned# on a case-to-case basis# grant assistance for partl meeting the salar of field level staff# infrastructure development and operational deficits during the initial ears. (umulativel # as at the end of Bune 322?# Rs 34.0= crore 7Rs 340.=2 million8 has been sanctioned as RGA to >/ *)+-MG&s and Rs. 2.O= crore 7Rs O.= million8 has been sanctioned as grant to various *)+s. The amount e5cludes Rs >.? million sanctioned under '@) Post +ffice lin!age programme in Tamilnadu. |Page 44

9uring the ear 322>-2?# loan support of Rs. =? million was sanctioned to two agencies vi$. /8 Griends of "orld "omen Ban!ing# &ndia 7Rs. 1? million8 for on-lending to small *)+s R 38 Calan%iam 9evelopment Ginancial 'ervices-a section 3O compan promoted b 9@A* Goundation 7Rs /2 million8 for on lending to '@)s. *ABAR9 also provides technical support in the form of capacit building of staff of MG&s and also ban!ers in appraisal of MG&s for providing wholesale resource support. 'ince 3223# training programmes on 2Appraisal of MFIs2 are being conducted through Ban!ers &nstitute of Rural 9evelopment 7B&R98# <uc!now. These training programmes are intended to equip the sta!eholders to appreciate the nuances in financing *)+-MG&s and also enhance the flow of loan able funds from mainstream financial &nstitutions li!e ban!s. 'peciall designed capacit building programmes are also being organi$ed for (hief :5ecutives R other staff of *)+s on promotion as well as managing of self help groups on a regular basis through our regional offices# in association with reputed resource *)+s R training establishments. 55. B/%i#e%% M"-el "< =DS MFI A? I#!&"-/c!i"#: Cotalipara 9evelopment 'ociet 7C9'8 is basicall a *BG( 7*on Ban!ing Ginancial (ompan 8. The provide minimum loan of /222 and ma5imum ?2#222. MA' Ginance is one of the blooming private MG& in the current era. The are having a sufficient amount of capital with them for their future growth. Cotalipara 9evelopment 'ociet registered as a 'ociet 7*)+8 under "est Bengal 'ociet Registration Act /04/ came into being in /0=0 and was in /00/# C.9.'. is a *on-govt. 'ocial 'ervice +rgani$ation wor!ing in the field of Rural 9evelopment for the poor people. (ommunit development and also povert alleviation is the main focus of this +rgani$ation. C.9.'. is a multi service *)+ having under ta!en interventions in the field of primar health care# education# (hild right# mother R child health care# (ontrol of Blindness# Jocational training# water harvesting environment conservation and Micro- credit. Although C.9.'. is basicall based on the main principle of causing socialeconomic empowerment of the poor. B? =DS Vi%i"#: C9'; vision is to povert alleviation# women empowerment R egalitarian 'ociet free from e5ploitation and ever bod in this global life with humanit and prosperit . C? =DS Mi%%i"#: C9' envision itself as a financiall self sustainable Micro-finance &nstitution with a wide base of ownership. &t is committed to strengthening the 'ocio-:conomic status of the poor women in rural and urban areas b providing technical and financial services on continued basis for establishing their identit and selfimage. &t constantl endeavors b cost-effective Methods creating a culture of competence and e5cellence. D? 9e$al S!a!/%: Registered under 'ociet Registration Act# of /04/. E? O.0ec!iAeH /. "omen :mpowermentH C9' Believes that X"omen participation is the most effective instrument in bringing about change in their wa of life both economic well-being and adoption of new practices in changing the socio-economic environment. &n order to bring about women participation and their decision ma!ing and negotiating power about their rights in all wal!s in life. 3. "omen @ealthH @ealth leads to prosperit . <ow endowments# production possibilities# and e5change option for women from disadvantage section in rural marginali$ed the women- this marginali$ation often results in neglecting the health issues of women and children.

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>. "omen :conomic 9evelopmentH +ur ob%ective is to strengthen women,s economic capacit as entrepreneursLproducers# off farm econom and traditional activities. C9' is committed to address factors leading to femini$ation of povert and gender inequalit . ?. "omen and natural resourcesH +ur observation is that women are most effective b degradation of natural resources. "e are promoting environment awareness and natural resources conservation activities through women,s participation at village level. F? R"le a#- F/#c!i"#: K@elping in eradication of povert . KProviding finance for the enlistment of the individuals. K@elps the borrower in establishing their business. G? ADDRESS: )? Hea- O<<ice 'anta *ir# *oapara# Arabinda Pall Barasat# Col!ataF/3? 9ist-*orth 3? Parganas "est Bengal# &ndia Mobile H Y0/ 2>> >304OO40 :mail &d H i#<"2C-%,<i."&$ 5? Re$. O<<ice: Pioneer Par! 7Mat8 Barasat 9ist-*orth 3? Parganas# Col!ata--/3? "est Bengal# &ndia 4? Japa# O<<ice: P.+->OO-2214 '@&M+CARAC+ /024# @&)A'@& MAT'UAAMA-'@&# 'A&TAMA-C:*# BAPA* T:< Y GAZH 722=/8?0>-3O3OO1 TelH 722=/8=2>O3320>2 O2>113=?=0# 12441=01?2 :-mailH baid an[solid.ocn.ne.%p

H? Mic&"-Fi#a#ce P&"$&a,: /. C9' has been established in the ear /00/. 3. 9irectl started implementing Micro-finance since /001. >. C9' provides financial 'ustainable 9evelopment Approach for DPovert Alleviation R "omen :mpowermentE. ?. Ginancial 'ervices to the poor women# landless# Asset less. O. Monthl famil income not more than &*R Rs.3O22L- in rural &*R Rs.>O22 in urban. 4. /22T women and possesses not more than O2 decimal of land. 1. '@) Model is largel based on A'A# Bangladesh. =. C9' provide small capital to medium entrepreneurs for e5pansion their business. 'ecurit 9eposit C9' received /2T 'ecurit against <oan. .? =DS Fiel- Ope&a!i"#:

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Ope&a!i"#%: -The organi$ation has a three tier s stem at the field- Branch# Regions# 9ivision- personnel associated with each tier are based at the Gield. B&a#c1: A Branch in the field is the centre of all actions. The branch serves as a residence for field staff 7G+LBM8 and an office unit from where activities of branch originate and are managed. The Branch Managers supervise the activities of the G+s and also administer branch operation. BMs hold regular meetings with their G+s for efficient branch operation. As a part of their regular monitoring. Branch Manager visits the borrower.s house regularl . Re$i"#: All the branches are distributed under /> regions. :ach region consists of 4-1 branches.Thirteen Regional Manager loo!s after all regions. The Regional Manager does not have an separate office and staff to conduct hisLher wor!. The Regional +ffice is situated at the centre branch at a region. The Regional Manager regularl monitors the activities of a branch at least twice in a month. DiAi%i"#: There are > divisions. :ach division consists of ?-O regions. The 9ivisional Manager 79M8 loo!s after a division. As a part of his monitoring process# he visits /3 branches in a month. @is monitoring contains varied facts vi$. supervision of Regional Manager wor!# stud of Branch growth# fund plan and utili$ation and the li!e. Besides these there is one +peration Manager at the head for the smooth functioning of the field. Although +peration Manager is located at the head office# he pla s a vital role in field operations. &n fact# it is Mandator for the +peration Manager to spend 3 wee!s a month in the field. @e is endowed with specific power and is capable of ta!ing decision independentl . I#!e&#al A/-i!: C9' has a team of = people 7inclusive of the Manager &nternal Audit8 wor!ing under the internal audit section. +ut of these = people# 3 of them are based at the head office and the rest 4 are based in the field each branch is audited ever five si5 months. The Manager &nternal Audit coordinates and supervised the activates of the &nternal Auditors 7&.A.8. The &.A. submit their report to the Manager &nternal Audit who is turn compilesL consolidates the some and finall places it before the (hief :5ecutive 9irectors. The Manager &nternal Audit is directl accountable to the (hief :5ecutive 9irector 7(:98. +nce the (:9 goes through the report# the instructs the &mplement +fficer and the +peration Manager to ta!e necessar steps it required. Around /O-32 branches are audited each month is C9' in certain cases# the auditors ma be given instructions to conduct follow up audits. Audit is also conducted in the <ogistics 9epartment at the head office once a ear.

a? Mic&"<i#a#ce Ope&a!i"# S!&/c!/&e:

|Page Program Associate *BG(

47

c? MFI P"&!-F"li" S!a!/% Rep"&!: F"& !1e ,"#!1 e#-e- 4+!1 J/l@- 5+)+ |Page 48

N" "< .&a#c1e% N" "< Ailla$e c"Ae&eN" "< ac!iAe $&"/p% N" "< ,e,.e&% N" "< ac!iAe ."&&"Be& A,"/#! "< l"#e "/!%!a#-i#$ >i# R%.? C/,/la!iAe #" "< l"#e -i%./&%e C/,/la!iAe a,"/#! "< l"#e -i%./&%e >i# R%.? -? Me!1"-"l"$@: C&e-i! DeliAe&@ Me!1"-"l"$@: Clie#!'B"&&"Be&:

EE 5,4E4 6,43( (*,))) *5,*35 53*,4*5,5(4 5((,I)5 ),IEI,IEI,I5(

K/T women# mostl land less R asset less. K '@. C9' follows A'A Modif Model. K /22) M /2-32 Members in a group. C9' developed and tested a sustainable credit model in "est Bengal. The model is largel based on A'A# Bangladesh approach organi$ing the people of focused into groups# under the territor of particular branch of C9'. There are generall /2-32 members in a group# based in village. "ith an average number of 32 in each group. :ach '@) members meets once in a wee!# at a fi5ed da # place and time. All the members are required to attend the wee!l meeting and repa their installments. The are required to deposit their securit and repa their loan installment. The '@) members ta!e all decision regarding the number of the loaner and amount of loan to be given to an borrower in that '@) meeting. C9' provides collateral free loans to its members# )roup liabilit is absent from C9';s credit program. &t is not the group but the individual who is held responsible for delinquenc . The Micro-credit services of C9' assist the group members to become economicall self-sufficient <oan proposal are screened and approved b the '@) during their wee!l meeting participation and group responsibilit are the essential elements of the loan process. After approval the loan proposal is submitted to the branch office through field staff. The loan disburses to the borrower in cash in the branch office. The Micro-credit services of C9' assist the group members to become economicall self-sufficient# <oan proposal are screened and approved b the '@) during their wee!l meeting participation and group responsibilit are the essential elements of the loan process. After approval the loan proposal is submitted to the branch office through field staff. The loan disburses to the borrower in cash in the branch office. Members have to wait onl = wee!s after their registration to get the /st |Page 49

loan. The installment process is followed for repa ment and the first installment is deposited with service charge is calculated flat on the principal of the loan. There is different si$e of small loan. &t ma be generall from Rs. 3222 to /O222L-. The duration of this loan is one ear and ?4 equal installments cover its repa ment. e? =DS Mic&"<i#a#ce R/le%: )? R/le% "< 9"a#: K<oans disburse = wee!s after formation of the '@). K02 T attendance in wee!l meeting. K /st installment after 1 da s in equal wee!l installment. K <ast > installments can be repaid at a time. K <oan sanction b the BM. 5? G&"/p F"&,a!i"# R/le: C9' start with formation of '@) through identif ing of target poor women eligible for membership through informal village surve # /2-3O poor women are formed a self-half )roup and their age /=-OO ears. /. :ach of the group has three group leader President# 'ecretar R (ashier are responsible for collection# securit deposit and loan repa ments during the group meeting. 3. The '@) model is largel based on A'A Bangladesh. >. :ach of the group organi$es wee!l meeting in a fi5ed da # place and time. ?. :ver member is required to attend the meeting. O. '@) member ta!e all the decision in the meeting. 4? C&e-i! R/le: 7i8 <oan disburses = wee!s after formation of the '@). 7ii8 02T attendance in wee!l meeting. 7iii8 /st installment after 1 da s in equal wee!l installment. 7iv8 <ast > installment can be repaid at a time. 7v8 <oan sanction b the BM.

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3? P&"-/c!%:/8 C9' has ? loan Products

<oan term M&)A 7'@)8 :ducation loan Gestival loan7Term8 Repa ment (harge Processing fees &nsurance fees &nterest Rate :ducation loan7&nterest8 38 &nsurance Product

?4 wee!s ?O wee!s /3 wee!s "ee!l /.22 T /.O2 T /O T /3.O2 T

/. C9' tie up with <ife &nsurance (ompan for Borrower insurance. 3. &n case of untimel demise of (lients the successor of the e5pired Borrower will get the benefit of the Borrower insurance and the loan is e5empted from repa ment. >. @ealth &nsurance ?.+ther Activities O. Ris! Gund 4.C9' receives /Tprocessing fees before loan disbursement. &n case the (lient.s husband e5pired in that case the client will get the benefit from the ris! fund and the out standing loan is e5empted from repa ment. 9"a# Cla%%i<ie--p/&p"%e Bi%eO *on farm enterprises loan - O3T Transport ----------------------- 34T (ottage &ndustr -------------- /2T Animal @usbandr -------------- 4T Agriculture -----------------------4T

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e? B/%i#e%% P&"ce%%: 9"a# P"&!<"li" 'ecurit 9eposit (umulative no of loan 9isbursed Amount of <oan 9isbursed *o. of Active Borrowers Amount of <oan +utstanding Average <oan 'i$e Borrower per <oan +fficer <oan Amount Per <oan +fficer Repa ment Rate Rs. 4# 31>/?/O /?>O2O Rs. O3#2222222 =??O= Rs. 3?#2222222 3=>1 /?2 Rs. ?O124O Rs. ?O124O

<? =DS A&ea Ope&a!i"#: '< *o. /. 3. >. ?. O. 4. 1. =. 0. *ame of the 9istricts *A9&A @++)<A *+RT@ 3? PAR)A*A' '+UT@ 3? PAR)A*A' BUR9"A* @+"RA@ MUR'@&9ABA9 C+<CATA MA<9A *umber +f Bloc! 0 /4 /0 /3 ? > = ? / *umber +f Branches >2 /3 >> 4 4 / / / / *umber +f Members /1>/> OO11 >42OO ?/?4 >/=1 >?4 /023 O?2 ?3?

"est Bengal

$? Ope&a!i"# Hi$1li$1!
Pa%! I Yea&% Ac!iAi!ie%: |Page 52

1? =DS 9e#-e&%:

1. A5is Ban! 2. United Ban! of &ndia 3. Griends of "omen.s "orld Ban!ing &ndia 7G.".".B.8 4. 'mall &ndustries 9evelopment Ban! of &ndia 5. "est Bengal Bac!ward (lass 9evelopment Ginance (orporation 6. "est Bengal Minorit 9evelopment Ginance (orporation. 7. Rashtri a Mahila Cosh# 79epartment of "omen and (hild 9evelopment# govt. of &ndia8. 8. &(&(& Ban!.
i? 7S/cce%% S!"&@: Gee!a Pa/l )eeta Paul is a landless woman belonging to +.B.(. communit who lives in the hamlet of 3? pgs 7*8 in "est Bengal with her husband# Mr. @aripada Paul is also landless labour wor!ing in his self profession Potter . )eeta and her husband lived on ver heard life with their three children out of which two are school going. )eeta Paul herself found out the '.@.). and 9uttapu!ur Branch office of C.9.'. in her won village. There she was inspired b field organi$er of C.9.'. to enlarge her Potter business. 'he became please and interested to provide more fund from C.9.'. to her business. 'o she got a loan of Rs. 1222L- 7seven thousand8 to develop her tools for the same. Both her husband and she herself did the same in order to enlarge their business and got the best profit. After ?2 wee!s# the got another loan of Rs. =222 7:ight thousand8 while the got more profit. As a result the are passing the life in a peace with their children and !eep up the social culture properl . 'he admires the C.9.'. for her development of business and her con%ugal life. 9"a# C@cle )%! 5#4&3!1 |Page 9"a# A,"/#! *+++ E+++ (+++ )5+++ M"#!1l@ I#c",e )E++ 4+++ F 3+++ 3+++ F 3I++ 3I++ - *I+++ 53

0? DIRECTORJS Rep"&! To the members of C9' Micro credit 'ervices private limited our 9irectors have pleasure in presenting 'econd Annual Report of our (ompan together with the Audited 'tatement of Accounts for the financial ear ended >/st March 3220. )? Fi#a#cial Ac!iAi!ie% 'l. *o. /. 3. >. Particulars Total &ncome Total :5penditure Profit before &nterest 9epreciation R Ta5 9epreciation Profit Before Ta5 Profit after Ta5 Aear ended >/.2>.2= 4/1/>1.22 O?2/O2.22 140=1.22 Aear ended >/.2>.20 32?4=/.22 /01304.22 1>=O.22

O. 4. =.

?=O41.22 140=1.22 >?4O?.22

>>4?.22 1>=O.22 3442.22-

5? B/%i#e%% Ac!iAi!ie% Presentl our compan operates in one district in Col!ata in the state of "est Bengal. The main activities of the compan during the ear were Micro <oans. The other relevant business parameters were as follows. 'l. *o . /. 3. >. ?. Particulars Aear ended >/.2>.2= O?1 ?O2 O2==222.22 /4?OO34.22 Aear ended >/.2>.21 O00 >3? 3/>2222.22 /1O2?>O.22

Total *o. of Member Total *o. Borrowers Total amount of loan disbursed Total *o. amount of loan outstanding

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54

54. S/cce%% Fac!"&% "< Mic&"-Fi#a#ce i# I#-ia: +ver the last ten ears# successful e5periences in providing finance to small entrepreneur and producers demonstrate that poor people# when given access to responsive and timel financial services at mar!et rates# repa their loans and use the proceeds to increase their income and assets. This is not surprising since the onl realistic alternative for them is to borrow from informal mar!et at an interest much higher than mar!et rates. (ommunit ban!s# *)+s and grass root savings and credit groups around the world have shown that these microenterprise loans can be profitable for borrowers and for the lenders# ma!ing microfinance one of the most effective povert reducing strategies.
a. P&".le,% <"& Al!e&#a!iAe Mic&"-Fi#a#ce I#%!i!/!i"#% The main aim with which the alternative MG&s have come up is to bridge the increasing gap between the demand and suppl . A vast ma%orit of them set up as *)+s for getting access to funds as# the e5isting practices of mainstream financing institutions such as '&9B& and *ABAR9 and even of the institutions speciall funding alternatives# such RMC and G""B# is to fund onl *)+s# or *)+ promoted '@)s. As a result# the largest incentive to enter such services remains through the nonprofit route. The alternative finance institutions also have not been full successful in reaching the need . T1e&e a&e ,a#@ &ea%"#% <"& !1i%: KGinancial problems leading to setting up of inappropriate legal structures. K<ac! of commercial orientation. K<ac! of proper governance and accountabilit . K&solated and scattered. 24. F/!/&e "< Mic&" Fi#a#ce : Microfinance in &ndia is in crisis because of the bac!lash against lenders in the southern state of Andhra Pradesh# the heart of the industr # where politicians have ordered borrowers not to repa their debts. The industr also faces an uncertain regulator future with the state introducing new restrictions on lenders and Ginance Minister Pranab Mu!her%ee sa ing last wee! he would formulate new rules to govern the industr once he receives a report from a committee of the Reserve Ban! of &ndia. &ndian microfinance is poised for continued growth and high valuation but faces pressing challenges and opportunities thatFleft unaddressedFcould negativel impact the long-term future of the industr . The industr needs to move past a single-minded focus on scale# e5pand the depth and breadth of products and services offered# and focus on the double bottom line and over indebtedness to effectivel address the ris!s facing the industr . :stimated that in ne5t five ears# 4OT of the poor people will have e5cess to MG&s. Man Pvt. Ban!s and Goreign Ban!s would enter this business segment# because of ver low *PAs. :stimated that O T of the number of people below the povert line will get reduced in the ne5t O ears.7"orld Ban! report8. |Page 55

These agents contact several borrowers# thus e5panding the reach of &(&(& Ban! at a low cost. Ta!ing the G'( initiative further# &(&(& Ban! plans to provide farmers credit from sugar companies# seed companies# dair companies# *)+s# micro-credit institutions and food processing industries. '&) has been involved in a pro%ect in the southern state of Tamil *adu to find out how wireless technolog can be applied in the development of low cost models of ban!ing. Another plan to increase the reach in rural areas is to launch mobile ATM services. &(&(& Ban! branded truc!s have started carr ing ATMs through a number of villages. "hile these deaths are tragic# and the wa that lenders are going about collecting pa ments is wrong# the root of the problem is not microfinance and not the interest rates. The problem lies in the wa that MG&.s are going about their business. The s stem itself is sound# and but what must occur is a restricting of the emplo ee base. &f such abuse continues to persist# there will not be a future for microfinance. &n order for a peaceful# progressive future# MG&.s must strictl enforce their lender policies# ma!ing sure to eliminate agent threats as mentioned in the "'B. Thus# restrictions are not necessar # but a restructuring of the microfinance industr is in strong demand. &t will onl be until microfinance polic is solidified and agreed upon b the local and national legislatures that MG&.s regain the trust and reputation the once held as an institution of progress# not abuse. A? T1e F/!/&e: Microfinance e5pansion over the ne5t decade can be e5pected to be an e5tension of what has been achieved so far while overcoming the hurdles that have been posing difficult in effective microfinance operation and its e5pansion. There ma be several participants in this process and their participation ma be seen in the following forms. :5isting microfinance institutions can e5pand their operations to areas where there are no microfinance programs. More *)+s can incorporate microfinance as one of their programs. &n places where there are less micro finance institutions# the government channels at the grassroots level ma be used to serve the poor with microfinance. Postal savings ban!s ma participate more not onl in mobili$ing deposits but also in providing loans to the poor and on lending funds to the MG&s. More commercial ban!s ma participate both in microfinance wholesale and retailing. The man have separate staff and windows to serve the poor without collateral. &nternational *)+s and agencies ma develop or ma help develop microfinance programs in areas or countries where micro financing is not a ver familiar concept in reducing povert . (onsidering that the ma%orit of the >42 million poor households 7urban and rural8 lac! access to formal financial services# the numbers of customers to be reached# and the variet and quantum of services to be rovided are reall large. &t is estimated that 02 million farm holdings# >2 million non-agricultural enterprises and O2 million landless households in &ndia collectivel need appro5 U'Q>2 billion credit annuall . This is about OT of &ndia;s )9P and does not seem an unreasonable estimate. 56

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@owever# =2T of the financial sector is still controlled b public sector institutions. (ompetition# consolidation and convergence are all being discussed to improve efficienc and outreach but significant opposition remains. Man private and foreign ban!s have unveiled their plans to enter the &ndian microfinance sector because of its ver low *PAs and high repa ment rate of more than 0OT in spite of offering loans without an collateral securit . Microfinance is not et at the centre stage of the &ndian financial sector. The !nowledge# capital and technolog to address these challenges however now e5ist in &ndia# although the are not et full aligned. "ith a more enabling environment and surge in economic growth# the ne5t few ears promise to be e5citing for the deliver of financial services to poor people in &ndia 9evelopment of 'mall-'cale :nterprises through microfinance will not onl increase the outreach but will also help the generation of more emplo ment and income for the poor. &t is e5pected that in the following ears there will be considerable deepening of microfinance in this direction along with simultaneous drives to reach and serve the poorest of the poor. But the cru5 of the discussion is that# if the over e5cess involvement of the government would be there in the Micro Ginance sector# than the growth of the Micro Ginance won,t much possible. The )ovt. involvement should limited to the important decisions onl # but not to interfere in each and ever matter of the management.

5I. T"p I+ Mic&"<i#a#ce I#%!i!/!i"#% i# I#-ia:

T1e a."Ae &ep"&! i#cl/-e% -e!aile- p&"<ile% a#- &a!i#$% "< I#-iaJ% !"p Mic&"<i#a#ce I#%!i!/!i"#%: CRISI9 9i%!: T"p I+ Mic&"<i#a#ce I#%!i!/!i"#% i# I#-ia .@ 9"a# A,"/#! O/!%!a#-i#$ <"& 5+)+. /. 'C' Microfinance <td 7'C'MP<8. 3. 'pandana 'phoort Ginancial <td 7''G<8. >. 'hare Micro fin <imited 7'M<8?. Asmitha Micro fin <td 7AM<8. O. 'hri Cshetra 9harmasthala Rural 9evelopment Pro%ect 7'C9R9P8. 4. Bharti a 'amruddhi Ginance <imited 7B'G<8. 1. Bandhan 'ociet . =. (ashpor Micro (redit 7(M(8. 0. )rama Jidi al Micro Ginance Pvt <td 7)JMG<8. /2. )rameen Ginancial'ervices Pvt <td 7)G'P<8. //. Madura Micro Ginance <td 7MMG<8. /3. B'' Microfinance Bangalore Pvt <td 7BMP<8. />. :quitas Micro Ginance &ndia P <td 7:quitas8. |Page 57

/?. Bandhan Ginancial 'ervices Pvt <td 7BG'P<8. /O. 'arvoda a *ano Ginance <td 7'*G<8. /4. B"9A Ginance <imited 7BG<8. /1. U%%ivan Ginancial'ervices Pvt <td 7UG'P<8. /=. Guture Ginancial 'ervices (hittoor <td 7GG'<8. /0. :'AG Microfinance R &nvestments Pvt. <td 7:MG&<8. 32. '.M.&.<.: Microfinance <imited. 3/. '"A"' (redit (orporation &ndia Pvt <td 7'((&8. 33. 'anghamithra Rural Ginancial 'ervices 7'RG'8. 3>. 'aadhana Micro fin. 3?. )ram Utthan Cendrapara. 3O. Rashtri a 'eva 'amithi 7RA''8. 34. 'ahara Utsarga "elfare 'ociet 7'U"'8. 31. 'onata Ginance Pvt <td 7'onata8. 3=. Rashtri a )ramin Ji!as *idhi. 30. Arohan Ginancial 'ervices <td 7AG'<8. >2. Banala!shmi Ginancial 'ervices Pvt <td 7BG'P<8. >/. Annapurna Ginancial 'ervices Pvt <td. >3. @and in @and 7@i@8. >> Pa a!araopeta "omen.s Mutuall Aided (o-operative Thrift and (redit 'ociet 7P"MA(T'8 >? Aadarsha "elfare 'ociet 7A"'8 >O Adhi!ar >4 Jillage Ginancial 'ervices Pvt <td 7JG'P<8 >1 'ahara Uttara an >= R+R:' Micro :ntrepreneur 9evelopment Trust7RM:9T8 >0 (entre for Rural 'ocial Action 7(Re'A8 ?2 &ndur &ntideepam Gederation <td 7&&MG8. ?/ "elfare +rgani$ation for MultipurposeMass Awareness *etwor! 7"+MA*8 |Page 58

?3 Pragathi Mutuall Aided (ooperative (redit and Mar!eting Gederation <td7PMA('8 ?> &ndian Association for 'avings and (redit7&A'(8 ?? 'ewa Mutuall Aided (ooperative Thrift 'ocieties Gederation <td 7'ewa8 ?O &nitiatives for 9evelopment Bangalore# Goundation 7&9G8 ?4 )andhi 'mara!a )rama 'eva Cendram 7)')'C8 ?1 'wa amshree Micro (redit 'ervices 7'M('8 ?= A'+M& ?0 Banoda a Trust O2 (ommunit 9evelopment (entre 7(9(8

56. Mic&"<i#a#ce I#-ia S/,,i! 5+)+: +ver the last si5 ears# the Microfinance &ndia 'ummit# organi$ed b A((:'' 9evelopment 'ervices# has established itself as an international conference dedicated to &ndian microfinance. &t has become the single most important platform for sharing the &ndian e5perience# unique as it is# with a global audience. At the same time# it also provides an avenue to learn about international trends and best practices for adaptation b the &ndian communit of practitioners. Polic ma!ers# practitioners# promoters# academics# researchers and thought leaders share their e5periences on various panels# and about /222 delegates from both within and outside the countr participate in the 'ummit. &t bridges the unnecessar hiatus between models and methodologies and helps to build consensus on the critical challenges and issues. &n the past# the 'ummit themes have helped in focusing on !e issues including PI#cl/%i"#, I##"Aa!i"# a#- I,pac!P 7322O8# PU&.a# Mic&"<i#a#ceP 732248# PF"&,al Fi#a#cial I#%!i!/!i"#% - !1e c1alle#$e% "< -ep!1 a#- .&ea-!1P 732218# PT1e P""& Fi&%!P 7322=8 and PD"i#$ $""- a#- -"i#$ Bell- T1e #ee- <"& .ala#ceP 732208. The microfinance &ndia 'ummit 32/2 will be held on N"Ae,.e& )I-)6, 5+)+ a! H"!el A%1"C, NeB Del1i. The over-arching theme for this ear;s 'ummit is PMi%%i"# "< Mic&"<i#a#ce - Nee- !" Re<lec! a#- Rea<<i&,P. The 'ummit sessions will focus on current trends and issues relating to sustainabilit # transparenc # social performance# commerciali$ation of the sector# client protection# among others.

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59

*Recommendations and suggestions:

U#-e& ,e#!i"# a&e !1e <eB &ec",,e#-a!i"#% a#- %/$$e%!i"#%, B1ic1 I <el! -/&i#$ ,@ p&"0ec! "# Mic&" Fi#a#ce i%:). T1e c"#cep! "< Mic&" Fi#a#ce i% %!ill #eB i# I#-ia. N"! ,a#@ pe"ple a&e aBa&e !1e Mic&" Fi#a#ce I#-/%!&@. S" apa&! <&", G"Ae&#,e#! p&"$&a,,e&%, Be !1e pe"ple %1"/l- %!a#- a#- c&ea!e !1e aBa&e#e%% a."/! !1e Mic&" Fi#a#ce. 5. T1e&e a&e ,a#@ pe"ple B1" a&e %!ill .el"B !1e p"Ae&!@ li#e, %" !1e&e i% a 1/$e -e,a#- <"& MFI% i# I#-ia Bi!1 p&"pe& &/le% a#- &e$/la!i"#%. 4. T1e&e i% 1/$e -e,a#- a#- %/ppl@ $ap, i# ,"#e@ -e,a#- .@ !1e p""& a#- %/ppl@ .@ !1e MFI%. S" !1e&e #ee- !" .e a# ac!iAa!e pa&!icipa!i"# .@ !1e PA!. Sec!"& i# !1i% I#-/%!&@. 3. O#e %!&ic! &ec",,e#-a!i"# i% !1a! !1e&e %1"/l- #"! "Ae& i#A"lAe,e#! "< !1e G"Ae&#,e#! i# MFI%, .eca/%e i! Bill %!@,ie !1e $&"B!1 a#- p&eAe#! !1e "!1e&% MFI% !" e#!e&. I. Acc"&-i#$ !" ,e !1e Mic&" 9"a# %1"/l- .e $iAe# !" !1e B",e# "#l@, Beca/%e .@ !1i% "#l@, MFI% ca# ,ai#!ai# !1ei& &epa@,e#! &a!i" 1i$1, Bi!1"/! a#@ c"lla!e&al%. 6. Ma#@ pe"ple %a@ !1a! !1e i#!e&e%! &a!e c1a&$e .@ !1e MFI% i% Ae&@ 1i$1 a#- !1e&e %1"/l- .e c",pellecap "# i!. B/! B1a! I <el! -/&i#$ ,@ pe&%"#al %/&Ae@, !1a! !1e 1i$1 &a!e% a&e 0/%!i<ia.le. N"B .@ !1i% eDa,ple Be Bill $e! a$&ee. S/pp"%e a .i$ c",,e&cial .a#C $iAe% R% ) ,illi"# !" a# i#-iAi-/al a#- i# !1e %a,e Ba@ a MFI $iAe% R% )++ !" )+.+++ c/%!",e&%. S" i!J% ".Ai"/% !1a! ,a# p"Be& c"%! a#- "pe&a!i#$ c"%! a&e 1i$1e& <"& !1e MFI%. S" acc"&-i#$ !" ,e &a!e% a&e 0/%!i<ia.le, B/! Bi!1 li,i!a!i"#%.

ACRONOMY:

=DS MSP9 OM CED H'O HRD MF MFI |Page

=DS Mic&" c&e-i! %e&Aice% P&iAa!e 9i,i!e-. Ope&a!i"# Ma#a$e& C1ie< EDec/!iAe Di&ec!"& Hea- O<<ice H/,a# Re%"/&ce DeAel"p,e#! Mic&" <i#a#ce Mic&" <i#a#ce I#%!i!/!e 60

MIS NBFC NGO

Ma#a$e,e#! I#<"&,a!i"# S@%!e, N"# Ba#Ci#$ Fi#a#cial C",pa#@ N"# G"Ae&#,e#! O&$a#i a!i"#

Conclusion:

Mic&"<i#a#ce 1a% a l"#$ Ba@ -e%pi!e -"/.!% eDp&e%%e- a#- c&i!ici%, la/#c1e- a."/! i!% Aia.ili!@, i,pac!, a#- p"Ae&!@ <i$1!i#$ capaci!@. T1e&e %1"/l-, 1"BeAe&, .e #" &"", <"& c",place#c@. T1e !a%C "< ./il-i#$ a p"Ae&!@-<&ee B"&l- i% @e! !" .e <i#i%1e-. T1e&e a&e %!ill "Ae& ).5 .illi"# pe"ple liAi#$ i# eD!&e,e p"Ae&!@ "# !1i% pla#e!. T1e@ a&e #"! liAi#$ i# "#e c"/#!&@ "& &e$i"# ./! %p&ea- all "Ae& !1e B"&l-. T1e la%! -eca-e 1a% Bi!#e%%e- a# i,p&e%%iAe $&"B!1 "< ,ic&"<i#a#ceN lacC "< </#-i#$ i% %!ill c"#%i-e&e- a ,a0"& ".%!acle i# !1e Ba@ "< i!% $&"B!1. H"BeAe&, i! i% e#c"/&a$i#$ !1a! !1e %i!/a!i"# i% c1a#$i#$. GiAe# !1e eDpe&ie#ce% "< la&$e a#- <a%! $&"Bi#$ !1e la%! -eca-e 1a% Bi!#e%%e- a# i,p&e%%iAe $&"B!1 "< ,ic&"<i#a#ceN lacC "< </#-i#$ i% %!ill c"#%i-e&e- a ,a0"& ".%!acle i# !1e Ba@ "< i!% $&"B!1. H"BeAe&, i! i% e#c"/&a$i#$ !1a! !1e %i!/a!i"# i% c1a#$i#$. GiAe# !1e eDpe&ie#ce% "< la&$e a#<a%! $&"Bi#$ Mic&"<i#a#ce, !1e&e a&e le%%"#% <"& "!1e&% B1" Ba#! !" i#c&ea%e !1ei& "/!&eac1 a#"pe&a!e "# a %/%!ai#a.le .a%i%. F"&!/#a!el@, !1e&e i% a# i#c&ea%i#$ aBa&e#e%% a."/! !1e p"Be& "< ,ic&"<i#a#ce, a#- !1e #ee- !" %/pp"&! i!% $&"B!1. Ma#@ pla@e&% 1aAe c",,i!!e- !1e,%elAe% !" i!% p&","!i"#. G"Ae&#,e#!% a&e !aCi#$ a# i#c&ea%i#$ i#!e&e%! i# i!. M"&e .a#C%, ."!1 #a!i"#al a#- i#!e&#a!i"#al a&e c",i#$ <"&Ba&- Bi!1 -i<<e&e#! %/pp"&! pacCa$e%. NGO-MFI pa&!#e&%1ip% a&e "# !1e i#c&ea%e. NeB i#%!&/,e#!% a&e .ei#$ /%e- !" %"lAe !1e p&".le, "< </#-i#$. I! i% eDpec!e- !1a! i# !1e c",i#$ @ea&% ,"&e i-ea%, i##"Aa!i"#%, c"%! %aAi#$ -eAice%, a#- pla@e&% Bill c"#!i#/e !" &ei#<"&ce !1e ,ic&"<i#a#ce ,"Ae,e#! a#- i#c&ea%e i!% eDpa#%i"#. A! !1e e#- I B"/l- c"#cl/-e !1a!, Mic&" Fi#a#ce I#-/%!&@ 1a% !1e 1/$e p"!e#!ial !" $&"B i# </!/&e, i< !1i% i#-/%!&@ $&"B% !1e# "#e -a@ BeQll all %ee !1e #eB <ace "< I#-ia, ."!1 i# !e&, "< 1i$1 liAi#$ %!a#-a&- a#1appi#e%%. O#e %"l/!i"# .@ B1ic1 Be all ca# 1elp !1e p""& pe"ple, i.e. i# a B1"le @ea& a ,e-i/, a#- a &ic1 cla%% pe"ple %pe#-% ,"&e !1a# R% )+,+++ "# !1e, Bi!1"/! a#@ $""- &ea%"#. I#%!ea- "< !1a!, .@ Ceepi#$ 0/%! ,e&e R%, 4+++ a%i-e a#- -"#a!e !1a! a,"/#! !" !1e MFI%, !1e# a! !1e e#- "< !1e @ea& !1e !"!al a,"/#! i# !1e 1a#-% "< p""& B"/l- .e > aAe&a$e I++ ,illi"# pe"ple GR% 4+++?RR% ),I++,+++,+++,+++ . J/%! i,a$i#e B1e&e B"/l- .e I#-ia i# #eD! )+ @ea&%. P&iAa!e MFI% i# I#-ia, .a&&i#$ a <eB eDcep!i"#%, a&e %!ill <le-$li#$ e<<"&!% a#- a&e !1e&e<"&e /#&e$/la!e-. T1ei& "/!&eac1 i% /#eAe# i# !e&,% "< $e"$&ap1ical %p&ea-. T1e@ %e&Ae ,ic&" <i#a#ce clie#!% Bi!1 Aa&@i#$ H/ali!@ a#- /%i#$ -i<<e&e#! "pe&a!i#$ ,"-el%. Re$/la!"&@ <&a,eB"&C %1"/l- .e c"#%i-e&e- "#l@ a<!e& !1e %/%!ai#a.ili!@ "< MFI ,"-el a% a .a#Ci#$ e#!e&p&i%e <"& !1e p""& i% clea&l@ e%!a.li%1e-. EDpe&i,e#!a!i"# "< MFI ,"-el #ee-% !" .e e#c"/&a$e- e%peciall@ i# a&ea% B1e&e <"&,al .a#C% a&e %!ill #"! ,ee!i#$ a-eH/a!e c&e-i! -e,a#- "< !1e &/&al p""&.

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61

*References:
D&. Ra0 G"pal Se#. P&"<e%%"& 8 I#!e&#al A/-i! O< 8 Fac/l!@ Me,.e& "< >MBM 8 COMMERCE DEPARTMENT?Calc/!!a U#iAe&%i!@.>G/e%! Fac/l!@ <&", BRAIN;ARE BUSINESS SCHOO9?.

Fac/l!@ G/i-e: Ba&#a%&ee C1a#-&a, >Fac/l!@ "< Fi#a#ce? BRAIN;ARE BUSINESS SCHOO9. PTU: App&"Ae- .@ J"i#! C",,i!!ee "< UGC-DEC- AICTE, Mi#i%!&@ O< HRD, G"A!:
O< I#-ia. -e A$1i"#, Bea!&i A&,e#-S&i 8 J"#a!1a# M"&-/c1. T1e Ec"#",ic% "< Mic&"<i#a#ce, T1e MIT P&e%%, Ca,.&i-$e, Ma%%ac1/%e!!%, 5+)+. Dic1!e&, T1",a% a#- Malc"l, Ha&pe& >e-%?. ;1a!J% ;&"#$ Bi!1 Mic&"<i#a#ceT P&ac!ical Ac!i"#, 5++*. 9e-$e&B""-, J"a##a a#- Vic!"&ia ;1i!e. T&a#%<"&,i#$ Mic&"<i#a#ce I#%!i!/!i"#%: P&"Ai-i#$ F/ll Fi#a#cial Se&Aice% !" !1e P""&. ;"&l- Ba#C, 5+)+. Y/#/%, M/1a,,a-. C&ea!i#$ a ;"&l- ;i!1"/! P"Ae&!@: S"cial B/%i#e%% a#- !1e F/!/&e "< Capi!ali%,. P/.lic A<<ai&%, NeB Y"&C, 5++E. T1e F/!/&e "< ,ic&"<i#a#ce i# I#-ia: B@ S/C1Bi#-e& Si#$1 A&"&a, Fi#a#cial Sec!"& Tea,, P"lic@ DiAi%i"#, DFID. S!&a!e$ie% <"& p"Ae&!@ alleAia!i"# !1&"/$1 -"Ae!aili#$ !1e p"!e#!ial "< ,ic&"<i#a#ce P&ac!ice% Bi!1 #"#-!i,.e& <"&e%! p&"-/c!% <&", -ip!e&"ca&p%: 9e%%"#% <&", I#-ia .@ B.P.Pe!1i@a. I#-ia ,ic&"<i#a#ce I#Ae%!,e#! E#Ai&"#,e#! P&"<ile .@ SlaAea C1a#C"Aa, Na!1a#aelG"l-.e&$, Ge#eAieAe Mel<"&-, Hi#- Ta i a#- S1a#e T",l"#%"#. A#il = =1a#-elBal, 7Mic&"<i#a#ce DeAel"p,e#! S!&a!e$@ <"& I#-ia:, Ec"#",ic a#P"li!ical ;eeCl@, Ma&c1 4), 5++*.

RaAe# S,i!1, 7T1e C1a#$i#$ Face "< Mic&"<i#a#ce i# I#-ia-T1e c"%!% a#- .e#e<i!% "< !&a#%<"&,i#$ <&", a# NGO !" a NBFC:, 5+)+. R S&i#iAa%a# a#- M S S&i&a,, 7Mic&"<i#a#ce i# I#-ia- Di%c/%%i"#: Pi@/%1 TiBa&i a#- S M Fa1a-, HDFC, 7C"#cep! pape&-Mic&"<i#a#ce I#%!i!/!i"#% i# I#-ia:. 62

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