RESEARCH METHODOLOGY

A
PROJECT
ON

FEASIBILITY OF MICROFINANCE
IN URBAN AREAS

SUBMITTED BY

PRESENTED TO

DR. C. G. D’ LIMA

RIZVI INSTITUTE OF MANAGEMENT STUDIES & RESEARCH

1
 TABLE OF CONTENTS

EXECUTIVE SUMMARY..............................................................................................................3

OBJECTIVE OF THE STUDY...................................................................................................3

MAJOR FINDINGS................................................................................................................4

IMPLICATIONS......................................................................................................................4

MICROFINANCE.......................................................................................................................5

EVOLUTION AND RECENT DEVELOPMENTS.............................................................................5

TERMS USED......................................................................................................................7

REASON FOR SUCCESS OF MICRO FINANCE...........................................................................7

OBJECTIVE OF THE STUDY.......................................................................................................9

VARIABLES STUDIED............................................................................................................9

HYPOTHESIS FRAMED..........................................................................................................9

TOOLS USED FOR THE STUDY.............................................................................................10

TECHNIQUES OF ANALYSIS.................................................................................................10

SEMANTIC DIFFERENTIAL SCALE................................................................................................11

LIKERT’S SCALE....................................................................................................................13

ANALYSIS.............................................................................................................................16

ONE WAY ANOVA TO TEST IF GENDER HAS AN IMPACT ON THE SCORE.......................................16

ONE WAY ANOVA TO TEST IF GENDER HAS AN IMPACT ON THE SCORE.......................................17

T – TEST TO TEST WHETHER URBAN PEOPLE VALUE PEER ACCEPTANCE.................................19

T – TEST TO TEST WHETHER PEOPLE ARE SATISFIED WITH THEIR EXISTING SOURCE OF FINANCE......22

CONCLUSION........................................................................................................................24

2
 EXECUTIVE SUMMARY

OBJECTIVE OF THE STUDY

Microfinance has proved to be a successful step towards poverty

alleviation and empowerment in rural area.

The objective of this study is to find out how feasible will the
replication of micro finance model be in urban area. It also tries
to gauge the openness of urban people towards microfinance.
The study also compares the effectiveness of microfinance vis-à-
vis the other sources of finance available.

It is a feasibility study which we intend to share with the people

who wish to implement microfinance in urban area.

Micro finance is based on ‘joint liability’, which means that any

one member defaulting on the loan repayment will cause the
entire group to be denied credit in future. Likert’s Scale was
used to understand the attitude of urban people towards their
social standing and the amount of importance they attach to it,
which would in effect impact their attitude towards repayment.

We also tested if gender had a role to play with respect to

repayment tendency.

Semantic Differential Scale was used to understand the degree

of satisfaction of below poverty line people regarding various
sources of finance.

3
4
MAJOR FINDINGS

As a result of the study, we concluded that although urban

people had the same degree of integrity as rural people in terms
of liability and attitude towards their peers, the Semantic scale
showed that they were quite content with the available sources
of finance and did not feel the need to have micro finance
services.

IMPLICATIONS

If a micro-finance institution plans to launch micro finance

service in urban areas, it may be successful in terms of having
little non-performing assets, however it will first have to
popularize the concept, so that the target customers are more
open to the idea and understand the relative benefits that it will
have over existing sources of finance.

5
 MICROFINANCE

Microfinance can be defined as financial services targeting and

catering to clients who are excluded from the traditional financial
system on account of their lower economic status. Microfinance can
include micro-credit, micro-savings, micro-insurance and payment
services.

Micro-credit is the extension of small loans to micro-entrepreneurs

who lack collateral and do not qualify for traditional bank loans. In
developing countries especially, micro-credit enables very poor people
to engage in self-employment projects that generate income. Micro-
credit is crucial to the microfinance field by providing access to
financial capital.

For several decades, many economies, including the Indian,

experimented with subsidized credit for the poor. But the only tangible
outcome perhaps was the increase in Non-Performing Assets (NPA).
Then came the realisation that the core issue for the poor was access
to credit rather than the cost of credit. In fact one of the contributions
of microfinance can possibly be the ‘end of interest rate debate’.
Microfinance has proved time and again that it is access and not
interest rates that are a constraint for the poor. Another discovery
followed, that the poor can and will save, and can indeed use a wide
range of financial services such as remittances facilities and insurance
products. The most well known and cited international example of a
micro-credit institution is the Grameen Bank in Bangladesh. But there
are numerous others. Even during the Asian financial crisis, Bank

6
Rayat Indonesia not only survived but thrived; as did BancoSol in
Bolivia.

EVOLUTION AND RECENT DEVELOPMENTS

Starting in the 1970s, experimental programs in Bangladesh, Brazil,

and a few other countries extended tiny loans to groups of poor
women to invest in micro-businesses. This type of microenterprise
credit was based on solidarity group lending in which every member of
a group guaranteed the repayment of all members. These
"microenterprise lending" programs had an almost exclusive focus on
credit for income generating activities (in some cases accompanied by
forced savings schemes) targeting very poor (often women)
borrowers.

• ACCION International, an early pioneer, was founded by a law

student, Joseph Blatchford, to address poverty in Latin America's
cities. Begun as a student-run volunteer effort in the
shantytowns of Caracas with $90,000 raised from private
companies, ACCION today is one of the premier microfinance
organizations in the world, with a network of lending partners
that spans Latin America, the United States and Africa.

• SEWA Bank

In 1972 the Self Employed Women's Association (SEWA) was

registered as a trade union in Gujarat (India), with the main
objective of "strengthening its members' bargaining power to
improve income, employment and access to social security." In

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 1973, to address their lack of access to financial services, the
members of SEWA decided to found "a bank of their own".

• Grameen Bank

In Bangladesh, Professor Muhammad Yunus addressed the

banking problem faced by the poor through a programme of
action-research. With his graduate students in Chittagong
University in 1976, he designed an experimental credit
programme to serve them. It spread rapidly to hundreds of
villages. Through a special relationship with rural banks, he
disbursed and recovered thousands of loans, but the bankers
refused to take over the project at the end of the pilot phase.
They feared it was too expensive and risky in spite of his
success. Eventually, through the support of donors, the Grameen
Bank was founded in 1983 and now serves more than 4 million
borrowers. The initial success of Grameen Bank also stimulated
the establishment of several other giant microfinance
institutions like BRAC, ASA, Proshika, etc.

• BASIX in India reduced transportation and transaction costs for

its clients and decreased staff expenses by establishing tellers in
manned phone booths operating in India. The company
operating the phone booths receives a service fee and phone
booth operators are being trained in basic collection operations
and accounting. BASIX is currently redesigning the project after
the pilot and preparing it for re-launching.
TERMS USED

Poverty line

8
People earning between Rs 1500 to Rs. 3500

Self help group

Self-Help Group (SHG) is a small voluntary association of poor people,
preferably from the same socio-economic background. They come
together for the purpose of solving their common problems through
self-help and mutual help. The SHG promotes small savings among its
members. The savings are kept with a bank. This common fund is in
the name of the SHG. Usually, the number of members in one SHG
does not exceed twenty.

Joint liability
If parties have joint liability, then they are each liable up to the full
amount of the relevant obligation. So if a husband and wife take out a
loan from a bank, the loan agreement will normally provide that they
are to be "jointly liable" for the full amount. If one party dies,
disappears or is declared bankrupt, the other remains fully liable

REASON FOR SUCCESS OF MICRO FINANCE

Important reason for success of Grameen bank the pioneer of Micro

Finance are its women borrowers. As of January, 2008, Grameen bank
has 7.44 million borrowers, 97 percent of whom are women. It has
repayment rate of 99%.

Hunger and poverty are women issue rather then male issue. Women
experience hunger and poverty in much more intense way then men.
The women, not men, have to suffer every moment with their poverty

9
stricken children, to whom they gave birth. They have to bear the grief
of their children’s hungriness, pain of their sick children lacking
enough treatment or medicine, and so on. The mother has to go
through the traumatic experience of not being able to breastfeed her
infant during the days of famine and scarcity. The men, the heads of
the households, of most of such poverty stricken families stay outside
home for most of the day (morning to evening). They even stay
outside for many days or weeks in search of work or to do work. If one
of the family member has to starve, it is an unwritten law it has to be
mother. Being poor in Bangladesh is tough for everyone, but being
poor women is toughest of all. When she is given the smallest
opportunity, she struggles extra hard to get out of poverty. A poor
women is totally insecure: she is insecure in her husband’s house
because he can throw her out any time he wishes. If she is divorced
and returns to her parents, she becomes disgraces and is unwanted
there. So given any opportunity a poor woman wants to build up her
security. In Bangladesh it became evident that destitute women
adapted quicker and better to self-help process than men.

Borrower must join a group of other borrowers who all share some
responsibility for other members’ loans and are encouraged to make
group decisions. So there is considerable peer pressure and support
from the group to encourage them to pay it all back.

Eligibility for a subsequent loan depends upon repayment of first loan,

borrowers know that they cannot borrow again if they don’t repay the
first loan.

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 OBJECTIVE OF THE STUDY

Microfinance has proved to be a successful step towards poverty

alleviation and empowerment in rural area.

The objective of this study is to find out how feasible will the
replication of micro finance model be in urban area. We will also try to
gauge the openness of people towards microfinance. The study shall
also compare the effectiveness of microfinance vis-à-vis the other
sources of finance available.

It is a feasibility study which we intend to share with the people who

wish to implement microfinance in urban area.

The study will collect data on factors which have contributed to

success of microfinance in rural area, and to compare to factors
existing situation in urban area on those parameters.

VARIABLES STUDIED

Independent variable: Gender

Dependent variable: Attitude towards joint liability, satisfaction
towards existing credit sources
Product features: No collateral required, joint liability, form of self
help group

HYPOTHESIS FRAMED

Research Hypothesis

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Micro Finance is feasible in urban areas
Sample studied (for testing the openness)
Technique: - Snowball sampling
Size: - 14
Nature: - People earning between Rs 1500 to Rs 3500 per month
residing or working in suburbs of Bandra

TOOLS USED FOR THE STUDY

a) Open Ended Questionnaire with the help of Semantic

Differential Scale and Likert’s Scale
b) Secondary data on micro finance by Grameen Bank and SKS
Micro finance and Co-operative societies
c) Expert Opinions

TECHNIQUES OF ANALYSIS

Quantitative: t-test at 0.05 level of significance, One-way Anova

12
 SEMANTIC DIFFERENTIAL SCALE

OBJECTIVE
To understand the degree of satisfaction of “below poverty line
people” regarding various sources of finance
Money
7 6 5 4 3 2 1
lender

Timely Not Timely

7 6 5 4 3 2 1 Easy (to get)

Difficult (to
get)
7 6 5 4 3 2 1

Not
7 6 5 4 3 2 1
Exploitative
Exploitative

Courteous
Not
7 6 5 4 3 2 1
courteous

Efficient
Inefficient

Co-op credit
7 6 5 4 3 2 1
societies

13
Timely Not Timely

7 6 5 4 3 2 1 Easy (to get)

Difficult (to
get)
7 6 5 4 3 2 1

Not
7 6 5 4 3 2 1
Exploitative
Exploitative

Courteous
Not
7 6 5 4 3 2 1
courteous

Efficient
Inefficient
Peers
7 6 5 4 3 2 1

Timely Not Timely

7 6 5 4 3 2 1 Easy (to get)

Difficult (to
get)
7 6 5 4 3 2 1

Not
7 6 5 4 3 2 1
Exploitative
Exploitative

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 Courteous
Not
7 6 5 4 3 2 1
courteous

Efficient
Inefficient

Chit Funds
7 6 5 4 3 2 1

Timely Not Timely

7 6 5 4 3 2 1 Easy (to get)

Difficult (to
get)
7 6 5 4 3 2 1

Not
7 6 5 4 3 2 1
Exploitative
Exploitative

Courteous
Not
7 6 5 4 3 2 1
courteous

Efficient
Inefficient

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 LIKERT’S SCALE

OBJECTIVE

‘Joint liability’ is an integral component of the micro finance

model. Self help group, a loan disbursal unit in micro finance, is
a group of people of the same socio economic class, who are
generally known to each other. The entire self help group is
jointly liable for the default by even a single member in loan
repayment and has to bear the consequences.
Rural people are generally more conscious of their image among
their peers and there is a fear of being ostracized if they default
in loan payment and bring everyone else in trouble. This factor
has contributed to the success of micro finance in rural areas.
This scale attempts to understand the attitude of urban people
towards their social standing and the amount of importance they
attach to it. This will help us in knowing to what extent the
replication of micro finance model is feasible in urban areas.

1) I greatly admire people who are respected by their

peers

Strongly agree □
Agree □

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 Neutral □
Disagree □
Strongly disagree □

2) A person’s image among his peers is his greatest

asset

Strongly agree □
Agree □
Neutral □
Disagree □
Strongly disagree □

3) What my friends think of me is more important to me

than anything else under any circumstances

Strongly agree □
Agree □
Neutral □
Disagree □
Strongly disagree □

4) I get influenced by what my peers expect me to do

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 Strongly agree □
Agree □
Neutral □
Disagree □
Strongly disagree □

5) A person should never act in such a way that can land

his peers in trouble

Strongly agree □
Agree □
Neutral □
Disagree □
Strongly disagree □

6) A person who betrays his peers should be

severely punished

Strongly agree □
Agree □
Neutral □
Disagree □
Strongly disagree □

7) It would be extremely difficult for me to leave my

neighborhood even if I am not respected there
anymore

Strongly agree □

18
Agree □
Neutral □
Disagree □
Strongly disagree □

19
 DATA ANALYSIS
QUANTITATIVE

Gend Admi Ima Frien Expectati Troub Punishm Neighborh

er re ge ds ons le ent ood
1 5 5 5 3 5 5 5
1 5 5 5 2 5 1 5
2 5 5 5 5 5 5 5
1 5 5 1 2 5 2 5
1 5 1 5 5 5 5 5
1 5 5 5 5 5 5 1
1 5 1 1 1 5 2 5
2 5 5 5 5 5 5 5
2 5 5 5 5 5 5 5
1 4 5 3 3 4 3 1
2 5 5 4 3 5 2 4
2 4 2 2 2 5 5 1
2 5 5 4 3 5 5 3
1 4 5 3 4 5 5 1

LIKERT’S SCALE - DATA

1 : MALE
2: FEMALE

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 ONE WAY ANOVA TO TEST IF GENDER HAS AN IMPACT ON THE SCORE

Steps: Anova in SPSS

Analyses > Compare Means > One way anova > Transfer Dependent variable to
dependent variable box > Transfer Independent variable to Fixed Factor box >
Options > Descriptive > Continue > OK

Ho: Gender does not have any impact on the score

Ha: Gender impacts the score

Descriptive Statistics
Std. 95% Confidence Interval for
N Mean Deviation Std. Error Mean Minimum Maximum

Lower Bound Upper Bound

Admire 1.00 8 4.7500 .46291 .16366 4.3630 5.1370 4.00 5.00
2.00 6 4.8333 .40825 .16667 4.4049 5.2618 4.00 5.00
Total 14 4.7857 .42582 .11380 4.5399 5.0316 4.00 5.00
Image 1.00 8 4.0000 1.85164 .65465 2.4520 5.5480 1.00 5.00
2.00 6 4.5000 1.22474 .50000 3.2147 5.7853 2.00 5.00
Total 14 4.2143 1.57766 .42165 3.3034 5.1252 1.00 5.00
Friends 1.00 8 3.5000 1.77281 .62678 2.0179 4.9821 1.00 5.00
2.00 6 4.1667 1.16905 .47726 2.9398 5.3935 2.00 5.00
Total 14 3.7857 1.52812 .40841 2.9034 4.6680 1.00 5.00
Expectations 1.00 8 3.1250 1.45774 .51539 1.9063 4.3437 1.00 5.00
2.00 6 3.8333 1.32916 .54263 2.4385 5.2282 2.00 5.00
Total 14 3.4286 1.39859 .37379 2.6211 4.2361 1.00 5.00
Trouble 1.00 8 4.8750 .35355 .12500 4.5794 5.1706 4.00 5.00
2.00 6 5.0000 .00000 .00000 5.0000 5.0000 5.00 5.00
Total 14 4.9286 .26726 .07143 4.7743 5.0829 4.00 5.00
Punishment 1.00 8 3.5000 1.69031 .59761 2.0869 4.9131 1.00 5.00
2.00 6 4.5000 1.22474 .50000 3.2147 5.7853 2.00 5.00
Total 14 3.9286 1.54244 .41223 3.0380 4.8191 1.00 5.00
Neighbourhood 1.00 8 3.5000 2.07020 .73193 1.7693 5.2307 1.00 5.00
2.00 6 3.8333 1.60208 .65405 2.1521 5.5146 1.00 5.00
Total 14 3.6429 1.82323 .48728 2.5902 4.6956 1.00 5.00

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 ANOVA

Sum of
Squares Df Mean Square F Sig.
Admire Between Groups .024 1 .024 .122 .732
Within Groups 2.333 12 .194
Total 2.357 13
Image Between Groups .857 1 .857 .327 .578
Within Groups 31.500 12 2.625
Total 32.357 13
Friends Between Groups 1.524 1 1.524 .634 .441
Within Groups 28.833 12 2.403
Total 30.357 13
Expectations Between Groups 1.720 1 1.720 .871 .369
Within Groups 23.708 12 1.976
Total 25.429 13
Trouble Between Groups .054 1 .054 .735 .408
Within Groups .875 12 .073
Total .929 13
Punishment Between Groups 3.429 1 3.429 1.496 .245
Within Groups 27.500 12 2.292
Total 30.929 13
Neighbourhood Between Groups .381 1 .381 .107 .750
Within Groups 42.833 12 3.569
Total 43.214 13

Interpretation
All values of Sig. are greater than 0.05, at the significance level selected
Therefore we accept Ho and reject Ha.
Therefore there is no significant difference between the scores of male and female.

Conclusion
Therefore gender has no impact on the score

22
 T – TEST TO TEST WHETHER URBAN PEOPLE VALUE PEER ACCEPTANCE

One sample t test – steps using SPSS

Analyze > Compare Means > One Sample T – Test > Transfer variables into the
test variable box > Options > Enter the confidence Interval > Continue > OK

Ho: Urban people have a neutral opinion on peer acceptance

Ha: Urban people have a strong opinion on peer acceptance

One-Sample Statistics

Std. Error
N Mean Std. Deviation Mean
Admire 14 4.7857 .42582 .11380
Image 14 4.2143 1.57766 .42165
Friends 14 3.7857 1.52812 .40841
Expectations 14 3.4286 1.39859 .37379
Trouble 14 4.9286 .26726 .07143
Punishment 14 3.9286 1.54244 .41223
Neighbourhood 14 3.6429 1.82323 .48728

One-Sample Test

One-Sample Test

Test Value = 3
90% Confidence Interval
of the Difference
Mean
t df Sig. (2-tailed) Difference Lower Upper
Admire 15.691 13 .000 1.78571 1.5842 1.9873
Image 2.880 13 .013 1.21429 .4676 1.9610

23
Friends 1.924 13 .077 .78571 .0625 1.5090
Expectations 1.147 13 .272 .42857 -.2334 1.0905
Trouble 27.000 13 .000 1.92857 1.8021 2.0551
Punishment 2.253 13 .042 .92857 .1985 1.6586
Neighbourhood 1.319 13 .210 .64286 -.2201 1.5058

Interpretation
At 0.05 level of significance, 4 out of 6 values of Sig. are less than 0.05
Therefore reject Ho. i.e. the observed values are significantly higher than the
hypothesized value which means that the urban people have a strong opinion on
peer acceptance.
Therefore urban people have the tendency to repay the loan

Conclusion
Therefore we conclude that urban people attach a good deal of importance to peer
acceptance.

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SEMANTIC DIFFERENTIAL SCALE

Exploitat Courteo Efficien

Timely Access ive us t
7 7 7 7 7
7 7 7 7 7
3 3 7 7 3
3 3 7 7 4
5 5 7 5 6
7 7 7 7 7
5 6 6 6 6
6 6 6 6 7
7 7 7 7 7
6 7 6 5 7
6 7 6 6 7
5 7 7 7 7
6 6 7 7 7

6 7 7 7 7

25
 T – TEST TO TEST WHETHER PEOPLE ARE SATISFIED WITH THEIR EXISTING SOURCE OF FINANCE

One sample t test – steps using SPSS

Analyze > Compare Means > One Sample T – Test > Transfer Dependent
variables into the test variable box > Options > Enter the confidence Interval >
Continue > OK

Ho: People are neutral about the quality of their existing source of finance
Ha: People are not neutral about the quality of their existing source of finance

One-Sample Test

Test Value = 4
95% Confidence Interval
of the Difference
Mean
t df Sig. (2-tailed) Difference Lower Upper
Timely 4.600 13 .000 1.64286 .8713 2.4144
Access 5.385 13 .000 2.07143 1.2404 2.9024
Exploitative 21.663 13 .000 2.71429 2.4436 2.9850
Courteous 12.315 13 .000 2.50000 2.0614 2.9386
Efficient 6.904 13 .000 2.35714 1.6196 3.0947

One-Sample Statistics

Std. Error
N Mean Std. Deviation Mean
Timely 14 5.6429 1.33631 .35714
Access 14 6.0714 1.43925 .38465
Exploitative 14 6.7143 .46881 .12529
Courteous 14 6.5000 .75955 .20300
Efficient 14 6.3571 1.27745 .34141

26
Interpretation
At 0.05 level of significance, all values of Sig. are less than 0.05
Therefore reject Ho. i.e. the observed values are significantly higher than the
hypothesized value which means that the urban people have a strong opinion on
the quality of their existing source of finance.

Conclusion
Therefore we conclude that people are satisfied with existing sources of finance.

QUALITATIVE ANALYSIS

Do you think you need microfinance services?

No
Yes

Conclusion
Therefore we conclude that urban people do not need Microfinance services.

27
CONCLUSION

As a result of the study, we concluded that although urban

people had the same degree of integrity as rural people in terms
of liability and attitude towards their peers, the Semantic scale
showed that they were quite content with the available sources
of finance and did not feel the need to have micro finance
services.

If a micro-finance institution plans to launch micro finance

service in urban areas, it may be successful in terms of having
little non-performing assets, however it will first have to
popularize the concept, so that the target customers are more
open to the idea and understand the relative benefits that it will
have over existing sources of finance.

28