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Institute of Management Studies

DAVV, Indore

A MAJOR RESEARCH PROJECT ON

MICROFINANCING

Submitted in the partial fulfillment for the course requirement of Degree of M.B.A. (D.M) (2007-2009)

GUIDED BY SUBMITTED BY Mrs. NISHA SIDDHIQUI


MANISH KUMAR

IMS, DAVV

MBA (DM) IVTH Sem

INSTITUTE OF MANAGEMENT STUDIES D.A.V.V. INDORE Certificate


To whom so ever it may concern

This is to certify that Mr Manish Kumar, the student of M.B.A.(DM) IVth semester from Institute of Management Studies, Indore has completed his major research project titled Micro Financing under my guidance and supervision. This project is original work of the candidate for the award of any degree/diploma. I am fully satisfied with the project work and recommend its acceptance in the fulfillment o the award of the degree of master of business administration. Date: Mrs.. Nisha Siddhiqui Lecturer IMS, DAVV, Indore.

DECLARATION

I undersigned hereby declare that the project titled Micro Financing is based on my authentic work. The work done by others if referred has been properly acknowledged. I also declare that this Major research project is report of my own individual effort and has not been submitted to any other organization for the reward of any certificate/diploma/degree.

Manish Kumar IV Th Sem. M.B.A. (DM) IMS, DAVV, Indore.

ACKNOWLEDGEMENT

With immense pleasure, I would like to express my sincere thanks and gratitude to IMS,DAVV and all those individuals whose help, support and assistance made the research project a reality. I would like to express my deep sense of gratitude and sincere thanks to Mrs. Nisha Siddhiqui, lecturer IMS, DAVV, Indore. for precious knowledge, for giving her valuable time and efforts in guiding and encouraging me to prepare this Major research project. I would like to express my deep sense of gratitude to my parents for helping me in providing necessary information.

Submitted By: Manish Kumar MBA (DM) IVTH Sem. IMS, DAVV, Indore.

CONTENTS

CERTIFICATE DECLARATION ACKNOWLEDGEMENT INTRODUCTION REVIEW OF LITERATURE RESEARCH OBJECTIVE RESEARCH METHODOLOGY QUESTIONNAIRE DATA ANALYSIS AND INTERPRETATION CONCLUSION AND SUGGESTIONS BIBLIOGRAPHY

INTRODUCTION

As a majority of the Indian population lives in its 650,000-odd villages, there has been a consistent attempt by successive governments since Independence to develop rural India. Despite these attempts, the sad truth is that due to ineffectiveness in government or public delivery systems the policy benefits hardly trickled down to the targeted beneficiaries. As the nation works towards building a physical infrastructure, there is an urgent need to review the manner in which we are building our infrastructure in the rural areas, which hold around 715 million people. The importance of specially building a robust financial infrastructure is apparent when about 290 million of these people survive on less than Rs.20 a day and more than half of them do not have any access to either banking or formal funding infrastructure. It is the lack of access that creates opportunity for local moneylenders to thrive by charging exorbitant lending rates to their clientele. Majorities of them are rural poor and sometimes their inability to repay leads to either selling of their assets or taking of extreme steps like committing suicides. The restricted access to capital and the high cost of servicing create a major social problem; in the absence of inadequate rural enterprises vis--vis job opportunities, the young generation has been migrating from rural to urban areas for a better living. Not only does this create an opportunity for exploitation of these young men and women, it also leads to an incredible pressure on the urban infrastructure in the cities and metros. Establishment of sustainable rural enterprises is no doubt the best way to address this problem. In doing so, it is imperative to create requisite access to financial infrastructure at the grassroots.

Microfinance
refers to the provision of financial services to poor or low-income clients, including consumers and the self-employed. The term also refers to the practice of sustainably delivering those services. Microcredit (or loans to poor microenterprises) should not be confused with microfinance, which addresses a full range of banking needs for poor people.

More broadly, it refers to a movement that envisions a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers. Those who promote microfinance generally believe that such access will help poor people out of poverty.
"Indian

microfinance is the supply of loans, savings, and other basic financial services to the poor." As the financial services of microfinance usually involve small amounts of money small loans, small savings etc. the term "microfinance" helps to differentiate these services from those which formal banks provide. Why are they small? Someone who doesn't have a lot of money isn't likely to want to take out a $5,000 loan, or be able to open a savings account with an opening balance of $1,000. Hence "micro". In the past few years, Indian microfinance has seen unprecedented growth. Despite the growth, there is considerable unmet demand for credit in India. According to a World Bank report, only 9% of poor families in India are covered by microfinance. Of the projected credit requirement of $10909 million, only $1050 million is met by microfinance. Although the demand for credit is widespread, MFIs are not evenly distributed geographically Micro Credit Micro Credit is defined as provision of thrift, credit and other financial services and products of very small amount to the poor in rural, semi-urban and urban areas for enabling them to raise their income levels and improve living standards. Micro Credit Institutions are those, which provide these facilities. Interest rates applicable The reform of the interest rate regime has constituted an integral part of the financial sector reforms initiated in our country in 1991. In consonance with this reform process, interest rates applicable to loans given by banks to micro credit organizations or by the micro credit organizations to Self-Help Groups/member-beneficiaries has been left to their discretion. The interest

rate ceiling applicable to direct small loans given by banks to individual borrowers, however, continues to remain in force. Terms & conditions for accessing micro credit Banks have been given freedom to formulate their own lending norms keeping in view ground realities. They have been asked to devise appropriate loan and savings products and the related terms and conditions including size of the loan, unit cost, unit size, maturity period, grace period, margins, etc. Such credit covers not only consumption and production loans for various farm and non-farm activities of the poor but also include their other credit needs such as housing and shelter improvements.

Origin of Micro Finance:


The origin of micro finance is quite absorbing. Ipso facto, micro finance combines the strengths of both formal and informal systems of purveying credit. Availability of hassle free credit in a systematic manner is the unique feature of micro finance system. Micro finance in informal system was in vogue in India in the form of chit funds, etc., since time immemorial. It came into existence under formal system with the advent of co-operative movement in India in the beginning of the last century. The micro finance is primarily based on the principles of co-operation namely, mutual help, democratic functioning, etc. Though, the co-operative movement was initially envisaged with unlimited liability and small size of societies consisting of homogenous groups, over the years in the quest for improving the viability of co-operatives, large societies with limited liabilities were organized. This apart, the evolution of State partnership in co-operatives with entrenched bureaucracy, etc., distanced cooperative movement from the spirit of micro finance movement. Nevertheless, micro finance movement in its present form is the valuable contribution of Bangladesh to the world and Prof. Mohammed Yunus is considered the father of modern micro finance movement. Mostly the rural poor were caught in the clutches of money lenders as their access to credit from the banking system was constrained due to lack of collaterals and their ignorance. Hence, a beginning was made with a research project at Jabra village by Prof. Mohammed Yunus of Chittagong University way back in 1976 by giving small loans without collaterals to the poor who were

organized into small groups. The idea worked well and demand for credit increased manifold. The process was repeated and the institution promoted by Yunus expanded its operations and came into existence as a specialized institution for financing the rural poor under Grameen Bank Ordinance of the Government of Bangladesh in 1983. The success of Grameen Bank model inspired its replication in one or the other form in many parts of the world. Under Bangladesh model, borrowers or savers join together to form groups consisting of five members to transact the business. The philosophy of voluntarism and one for all and all for one is the backbone of micro finance movement. The group also leads to mutual empowerment along with the advantage of peer pressure on the behavior of group members.

REVIEW OF LITERATURE

A Brief History of Microfinance in India

The post-nationalization period in the banking sector, circa 1969, witnessed a substantial amount of resources being earmarked towards meeting the credit needs of the poor. There were several objectives for the bank nationalization strategy including expanding the outreach of financial services to neglected sectors. As a result of this strategy, the banking network underwent an expansion phase without comparables in the world. Credit came to be recognized as a remedy for many of the ills of the poverty. There spawned several pro-poor financial services, support by both the State and Central governments, which included credit packages and programs customized to the perceived needs of the poor. .The pioneering efforts at this were made by National Bank for Agriculture and Rural Development (NABARD), which was given the tasks of framing appropriate policy for rural credit, provision of technical assistance backed liquidity support to banks, supervision of rural credit institutions and other development initiatives. In the early 1980s, the GoI launched the Integrated Rural Development Program (IRDP), a large poverty alleviation credit program, which provided government subsidized credit through banks to the poor. It was aimed that the poor would be able to use the inexpensive credit to finance themselves over the poverty line. Also during this time, NABARD conducted a series of research studies independently and in association with MYRADA, a leading non-governmental organization (NGO) from Southern India, which showed that despite having a wide network of rural bank branches servicing the rural poor, a very large number of the poorest of the poor continued to remain outside the fold of the formal banking system. These studies also showed that the existing banking policies, systems and procedures, and deposit and loan products were perhaps not well suited to meet the most immediate needs of the poor. It also appeared that what the poor really needed was better access to these services and products, rather than cheap subsidized credit. Against this background, a need was felt for alternative policies, systems and procedures, savings and loan products, other complementary services, and new delivery mechanisms, which would fulfill the

requirements of the poorest, especially of the women members of such households. The emphasis therefore was on improving the access of the poor to microfinance rather than just micro-credit. To answer the need for microfinance from the poor, the past 25 years has seen a variety of microfinance programs promoted by the government and NGOs. Some of these programs have failed and the learning experience from them have been used to develop more effective ways of providing financial services. These programs vary from regional rural banks with a social mandate to MFIs. In 1999, the GoI merged various credit programs together, refined them and launched a new programme called Swaranjayanti Gram Swarazagar Yojana (SGSY). The mandate of SGSY is to continue to provide subsidized credit to the poor through the banking sector to generate self-employment through a self-help group approach and the program has grown to an enormous size. Self-Help Groups: A Keystone of Microfinance in India - Women empowerment & social security MFIs have also become popular throughout India as one form of financial intermediary to the poor. MFIs exist in many forms including co-operatives, Grameen-like initiatives and private sector MFIs. Thrift co-operatives have formed organically and have also been promoted by regional state organizations like the Cooperative Development Foundation (CDF) in Andhra Pradesh. The Grameen-like initiatives following a business model like the Grameen Bank. Private sector MFIs include NGOs that act as financial services providers for the poor and include other support services but are not technically a bank as they do not take deposits. Recently, microfinance has garnered significant worldwide attention as being a successful tool in poverty reduction. In 2005, the GoI introduced significant measures in the annual budget affecting MFIs. Specifically, it mentioned that MFIs would be eligible for external commercial borrowings which would allow MFIs and private banks to do business thereby increasing the capacity of MFIs. Also, the budget talked about plans to introduce a microfinance act that would provide some regulations on the sector. Today, Self-Help Groups and MFIs are the two dominant form of microfinance in India. This report focuses on the aspects of the SHG as an effective means to provide financial services to the poor.

Structure of SHG A SHG is a group of about 10 to 20 people, usually women, from a similar class and region, who come together to form savings and credit organization. They pooled financial resources to make small interest bearing loans to their members. This process creates an ethic that focuses on savings first. The setting of terms and conditions and accounting of the loan are done in the group by designated members. Is Foreign Investment allowed in Micro Credit ProjectsGovt. of India vide their notification dated August 29, 2000 have included Micro Credit/Rural Credit in the list of permitted non-banking financial company (NBFC) activities for being considered for Foreign Direct Investment (FDI)/Overseas Corporate Bodies (OCB)/Non-Resident Indians (NRI) investment to encourage foreign participation in micro credit projects. This covers credit facility at micro level for providing finance to small producers and small micro enterprises in rural and urban areas. What role does a Non-Governmental Organization (NGO) play in provision of Micro Credit A Non-Governmental Organization (NGO) is a voluntary organization established to undertake social intermediation like organizing SHGs of micro entrepreneurs and entrusting them to banks for credit linkage or financial intermediation like borrowing bulk funds from banks for on-lending to SHGs. How many types of micro credit providers are there in India and what is the present legal framework governing them? The position is as: Categories of Providers (a) Domestic Commercial Banks: Public Sector Banks; Private Sector Banks & Legal Framework governing their activities (i) RBI Act 1934/ (ii) BR Act 1949 (iii) SBI Act (iv) SBI Subsidiaries Act

Local Area Banks

(v)Acquisition & Transfer of Undertakings Act 1970 & 1980 i. ii. iii. RRB Act 1976 RBI Act 1934 BR Act 1949 Co-operative Societies Act BR Act 1949 (AACS) RBI Act 1934 (for sch. banks)

(b) Regional Rural Banks

(c) Co-operative Banks

i. ii. iii.

(d) Co-operative Societies (e) Registered NBFCs (f) Unregistered NBFCs

(i) State legislation like MACS (i) RBI Act 1934 (ii) Companies Act 1956 (i) NBFCs carrying on the business of a FI prior to the coming into force of RBI Amendment Act 1997 whose application for CoR has not yet been rejected by the Bank (ii) Sec. 25 of Companies Act
(i) Societies Registration Act 60 (ii) Indian Trusts Act (iii) Chapter IIIC of RBI Act 34 (iv) State Moneylenders Act

(g) Other providers like Societies, Trusts, etc.

Microfinance and Demand Microfinance Services

for

Microfinance is about provision of thrift, credit and other financial services and products of very small amounts to the poor in rural, semi-urban or urban

areas for enabling them to raise their income levels and to improve their living standards (NABARD 1999). In fact, it is tempting to state that there is nothing new about microfinance in India. Banks in India have been giving small loans and have been accepting small deposits. It is reported that about 55% of all loans given by all scheduled commercial banks in India are small loans i.e. less than Rs.25, 000 as on March 2004 (Economic and Political Weekly, March 18-24, 2006, p.1131). However, the number of small borrowal accounts has experienced an absolute decline in recent years. But this is not microfinance as understood in the present context in its true spirit. In today's context, microfinance has certain design principles as described below. The design principles of microfinance are derived from the needs and socioeconomic conditions of the poor and have emerged from the experience of microfinance institutions during the last two to three decades all over the world. These design principles are: small saving or thrift by poor is possible if collected at doorsteps; poor people need small collateral free loans with frequency instead of large loans at a time; non-rigidity of end use is preferred by poor people over rigid end use of small loans; repayment to match with existing family cash flow instead of individual cash flow or project cash flow; rate of interest is not crucial relative to hassle free, timely, adequate and continued credit facility; relatively small repayment periods are preferred, e.g. weekly, fortnightly, monthly, instead of half-yearly, yearly, etc.; intensive supervision is required for microfinance operations; credit plus is preferred over credit alone; women are better customers relative to men; and group method of lending is more successful relative to individual lending.

Studies report that poor rural households require about Rs.6,000/- per annum and a poor urban household requires on an average about Rs.9,000/- per annum (Mahajan et al, 1999). The total credit requirement of rural and urban poor households in India works out to be about Rs.49,500 crores. The estimates, however, have ranged from Rs 30,000 Crore to Rs 200,000 Crore (Economic Times, New Delhi Edition, 29 August, 2005) and shows the magnitude of business that is involved if all poor households are to be reached by formal financial institutions. The current supply figures pertaining to SHG-Bank linkage programme are in the range of Rs 180 billion as on March 2007 (NABARD Website). It is reported that the outreach of formal financial institutions is about 17.2% of rural households in terms of loan accounts (RBI, 2005). Obviously, in terms of individuals it would be much less. However, in terms of saving accounts, this proportion is about 18.4%. It is important to remember that these proportions relate to all rural households and are much less for poor rural households. The point that is notable is that there is huge demand for financial services from poor that has to be met by formal financial institutions or other institutions providing microfinance. The same applies, with added urgency, regarding insurance services for poor which are more scarce to come by. Role of Formal Financial Institutions Experience of formal financial institutions i.e. commercial banks, cooperative banks and RRBs in dealing with poor has not been generally good. Bankers have complained that transaction cost in lending to poor is high. Delinquency and default rates are reported to be high. Regulation of

interest rates by Reserve Bank of India (RBI) has further added to the difficulties of formal financial institutions. Though since 1994, all Cooperative Banks are free to charge rate of interest according to their costs. Since 1996, all Regional Rural Banks (RRBs) have been allowed to charge rate of interest according to their costs. Only Commercial Banks are advised by RBI to link their interest rates with their prime lending rate (PLR) for their loan amounts less than Rs.2 lakh. Other reasons cited by bankers for not lending to poor in rural areas are lack of collateral security, rural areas not being safe, staff not being rural oriented, etc. Poor people also experience problems in dealing with banks. They report that credit from bank is not easily available. Poor people also find the transaction cost of borrowing from banks very high. This cost is over and above the interest that is charged. It includes out of pocket expenses that are incurred in paying travel cost, middleman, and price difference in assets and opportunity cost of their time. Transaction cost for availing saving facilities is also high. This is mainly due to distance and the amount of saving being small. Further, there is a mismatch in loan amounts and terms and conditions of the loan. Because of these reasons, there is a mismatch between what banks can provide and what poor people really need. Self Help Groups and their Linkage with Banks One of the successful ways through which microfinance services are being provided to poor people is through Self-Help Groups. It all started with experiments of some non-government organizations (NGOs) working in south India during early 80s and has now come to be known as Self-Help Group approach to microfinance. With intervention of RBI, National Bank

for Agriculture and Rural Development (NABARD), Small Industries Development Bank of India (SIDBI), Rashtriya Mahila Kosh (RMK) and other organisations, Self Help Group bank linkage has become a supplementary channel for providing financial services from formal financial institutions to poor people. Under this linkage arrangement, SHGs are assessed by bank for bank credit after about 6 months of their functioning. If SHGs are found functioning well, then, bank credit is sanctioned up to four times the savings of the SHG. The various types of possible groups are: (i) Savings and Credit Groups, (ii) Social Forestry Groups, (iii) Water Users' Groups, (iv) Watershed Development Groups, (v) Farmers' Interest Groups, etc. Current Scene of SHG-Bank Linkage Microfinance through SHGs has reached a commendable position and it is currently acknowledged as the biggest microfinance intervention in the world. The progress of the SHG-bank linkage programme since inception is shown below. The programme took off with a humble beginning of linking 255 groups in the first year i.e. 1992-93 with a loan disbursement of Rs 2.9 million only. Average loan per SHG was about Rs 11.37 thousand in 199293 whereas it has grown to Rs 61.68 thousand in the year 2006-07. There has been a tremendous growth in the number of groups over time. More than 29.2 million SHGs with a membership of 40.95 million households are linked to bank credit till March 2007 as shown below. No. of SHGs linked to Banks in India (1992-93 to 2006-2007) Year 1992-93 Cumulative SHGs 255 No. of Bank loan Million) 2.9 (Rs.

1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 Source: Various Reports of NABARD website.

620 6.5 2122 24.5 4757 60.6 8598 118.4 14317 237.6 32995 570.7 114775 1929.8 263825 4809.0 461478 10263.0 717360 20487.0 1079091 39042.0 1628476 68984.6 2238565 113980.0 2924973 180410.0 MCID, NABARD; NABARD (2004) and

The Table above shows that there has been a rapid growth of SHGs that are linked with banks i.e. Commercial banks, Regional Rural Banks and Cooperative banks for meeting credit requirements and other financial needs of SHG members in recent years. Particularly after 2000 the number of SHGs linked to banks has grown exponentially. In addition, there is other experience e.g. the Grameen Bank of Bangladesh model is being replicated in various parts of India. SIDBI is also promoting microfinance through NGOs who are in the business of microfinance. Rashtriya Mahila Kosh (RMK) is also in the business of promoting microfinance in India through NGOs. It is estimated that the total outreach of Microfinance Institutions is about 7.5 million (Sa-Dhan website). If 40 million of SHG-bank linkage are added to this, the total outreach of

microfiance in India would become truly significant keeping in mind that there are about 60 million poor households in India. Impact of SHG-Bank Linkage Programme Microfinancing i.e. provisioning of small financial services and products to poor people is contributing to the process of development by creating conditions that are conducive to human development. It has a strong gender orientation. About 90% SHGs that are linked to banks are reported to be of women as mentioned earlier. Through these groups, women empowerment is taking place. Their participation in economic activities and decision making at household and at society level is increasing. It is making the process of development participatory, democratic, independent of subsidy and sustainable. Therefore, microfinance through SHGs is contributing to poverty reduction in a sustainable manner. Studies have shown overall positive impact of SHG bank linkage programme on the socio-economic conditions of rural poor (Puhazhendi and Badatya, 2002; MYRADA, 2002). It is reported that significant changes in the living standards of SHG members have taken place in terms of increase in income level, assets, savings, borrowing capacity and income generating activities. There are signs of empowerment taking place among women members of SHGs. Emerging Challenges The concept and results of microfinancing through SHGs thus far are so impressive that it is attracting a lot of attention from all corners. There is a real danger that it may be hijacked by unwanted but otherwise influential

agencies including government programmes. Also, a lot needs to be done for sustaining and upscaling the SHG movement. Some challenges that need to be addressed before microfinance through SHGs can significantly contribute to participatory rural development are outlined below: (i) The number of SHGs linked to Banks has reached commendable height. However, many of these groups are not functioning properly. These groups need to be looked after. Normally, groups are promoted under certain programme or project. Once the programme or project is over, the agency withdraws and the groups are left on their own. Such groups need support for sustaining their efforts. This support is crucial and can prove to be vital for the long-term success of SHG-bank linkage programme. (ii)The participatory process of SHG formation is people-based and promotes self-help among the poor. The formation and maturity of SHGs depends on evolving group dynamics and can take up to one to three years. Therefore, hastening the process of SHG formation by setting unrealistic targets could do more harm than good.

Strengths of Indian Micro Finance Sector: India is the largest democracy in the world. Unity in diversity is the greatest strength of India. Despite vast differences in terms of language, caste, religion, etc., driven by the co-operative spirit, people are interwoven with common affiliations and social obligations. The factors like personal rapport and proximity and like-mindedness have added to the spread of the programme.

Broad-based Definition In India definition of Micro-finance is unique in the sense that it has the potential to offer an array of credit and savings products as well as other finance services, which are required by the poor. Micro-finance in India is defined as Provision of thrift credit and other financial services and products of very small amount mainly to the poor in rural and urban areas for enabling them to reach their income level and thereby improving the standard of living". As a result of this broad-based definition, micro-finance institutions are in a better leverage to help the poor. Micro Finance Development Fund There is an urgent need for micro credit providers to shift from a minimalist approach that is offering only financial intermediation to an integrated approach to poverty alleviation taking a more holistic view of the client including provision of enterprise development services like marketing infrastructure, introduction of technology and design development. In this context, the setting up of the Micro Finance Development Fund marks an important step. Pursuant to the announcement of Union Finance Minister in his budget speech for the year 2000-01, this Rs. 100 crore Fund has been created in NABARD to support broadly the following activities: (a) giving training and exposure to self-help group (SHG) members, partner NGOs, banks and govt. agencies; (b) providing start-up funds to micro finance institutions and meeting their initial operational deficits; (c) meeting the cost of formation and nurturing of SHGs; (d) designing new delivery mechanisms; and (e) promoting research, action research, management information systems and dissemination of best practices in micro finance. This Fund is thus expected to address institutional and delivery issues like institutional growth and transformation, governance, accessing new sources of funding, building institutional capacity and increasing volumes. RBI and NABARD have contributed Rs. 40 crore each to this Fund. The balance Rs. 20 crore were contributed by 11 public sector banks. Micro Finance Development Fund (MFDF) in NABARD with a start up contribution of US $ 8.76 million from RBI and US $ 8.76 million from NABARD was set up in 2000-01. Further, US $ 4.38 million was contributed to the fund by 11 commercial banks. As at end-March 2002, the Fund aggregated to US $ 21.33 million. Under this fund, NABARD, banks and other institutions to provide start up funds to micro finance institutions

and infrastructural support for training system, arrangement and data building under micro finance

Greater Freedom to the Micro Finance Institutions: i) RBI has allowed banks to formulate their own models or choose any conduit/ intermediary for extending micro credit. Banks are allowed to choose suitable branch/pocket/ area where micro credit programmes can be implemented. ii) Banks are permitted to prescribe their own lending norms keeping in view the ground realities. iii) Banks are also allowed to devise appropriate loan and saving products and related terms and conditions including the size of loan, unit cost, unit size, maturity period, grace period, margins and purpose of borrowing including for housing and shelter needs. iv) Interest rates on bank's loans given to micro finance institutions are completely deregulated. v) Bank lending under micro finance is treated as part of priority sector targets as well as under sub-target of lending to the weaker sections. vi) The micro finance institutions registered as not for profit NBFCs have been exempted from registration and prudential requirements. RBI has permitted such NBFCs to provide credit not exceeding US $ 0.001 million for business activity and US $ 0.003 million for meeting the cost of a dwelling unit to the poor. vii) Unsecured advances given by banks to SHGs against group guarantees be excluded for the purpose of computation of the prudential norms on unsecured guarantees and advances until further notice. This apart, the Government of India has also allowed foreign direct investment in micro credit to encourage foreign participation in various micro finance projects

Computerisation of Micro finance Operations Generally, the facilitator tracks member accounts at the village level with hand written sheets and passbooks. A good measure of time is devoted to manually updating the records and little time is spent on interface and discussions on economic and social aspects. Elsewhere in southern part of the country, a micro credit institution known as Swayam Krishi Sangam (SKS) has introduced Smart Card into its micro credit programme. The facilitators carry a Hand Held Computer (HHC) to the meeting. The HHC downloads information from the branch computer in the village. Each member has a smart card, which electronically holds member's information and records of transactions. During the meeting, each member inserts her or his smart card in the HHC and transactions are updated both in the smart card and the HHC. At the end of each day, facilitator uploads the information from HHC to branch computer and all accounts are updated. A record along with HHC is kept in the village so that members can confirm their accounts. In this manner smart cards eliminates the need for manual record keeping, which greatly enhances time for interface. Similarly, another micro finance institution popularly known as called SEWA Bank has adopted a specially designed software, which maintains area-wise and occupation-wise information on overdue accounts. This software has been given to field workers, which has greatly facilitated the transaction of business. Computerization has now also made available the services of a substantial part of the workforce, hitherto deployed in operational work-areas for collection purposes. . Up scaling the Outreach to the Urban Poor The emphasis of micro finance programmes in most of the countries has been on rural areas. However, there has been a growing migration of rural poor in search of employment to urban areas. As a consequence, the number of poor in urban areas has multiplied. The access of urban poor to the formal banking sector is equally constrained due to lack of collaterals. Hence, there is a need to expand the outreach of micro finance to cover the urban poor. Recognizing such an imperative, some of the micro finance institutions such as SEWA Bank and SRFS (Sungamitra Rural Financial Services) and also a number of NGOs have started organizing the poor into SHGs and operating on the principles of micro finance in urban areas.

MICRO FINANCE INTERVENTIONS


In the development paradigm, micro-finance has evolved as a need-based policy and programme to cater to the so far neglected target groups (women, poor, rural, deprived, etc.). Its evolution is based on the concern of all developing countries for empowerment of the poor and the alleviation of poverty. Development organizations and policy makers have included access to credit for poor people as a major aspect of many poverty alleviation programmes. Micro-finance programmes have, in the recent past, become one of the more promising ways to use scarce development funds to achieve the objectives of poverty alleviation. Furthermore, certain micro-finance programmes have gained prominence in the development field and beyond. The basic idea of micro-finance is simple: if poor people are provided access to financial services, including credit, they may very well be able to start or expand a micro-enterprise that will allow them to break out of poverty. Thus, micro-finance has become one of the most effective interventions for economic empowerment of the poor. Understanding the Development Process through Micro-finance Micro finance is expected to play a significant role in poverty alleviation and development. The need, therefore, is to share experiences and materials, which will help not only in understanding successes and in failures but also provide knowledge and guidelines to strengthen and expand micro finance programmes. In India, varieties of micro-finance schemes exist and various approaches have been practiced by both GOs and NGOs. Ultimately, the aim is to empower the poor and mainstream them into development. Amongst different approaches of micro-finance schemes, the process and stages remain more or less the same. The development process through a typical micro-finance intervention can be understood with the help of Chart - 2. The ultimate aim is to attain social

and economic empowerment. Successful intervention is therefore, dependent on how each of these stages has been carefully dealt with and also the capabilities of the implementing organizations in achieving the final goal, e.g., if credit delivery takes place without consolidation of SHGs, it may have problems of self-sustainability and recovery. A number of schemes under banks, central and state governments offer direct credit to potential individuals without forcing them to join SHGs. Compilation and classification of the communication materials in the directory is done based on this development process.

Classifying Micro-Finance Interventions There are several Micro-Finance implementing organizations, which provide small loans in India. Some of them have successfully expanded their services to thousands of borrowers. Given the fact that most of these borrowers would not have had access to formal financial institutions, that many of the borrowers utilize the loans to enter and/or expand their informal

sector micro enterprises, and that the informal sector continues to be an important source of livelihood for many poor people, these Micro Finance Organizations (MFOs) may very well have had a major impact on improving the living standards of millions of poor persons as well as on promoting economic growth. The term MFO has been used for all types of implementing organizations facilitating savings and credit and financial activities at individual and/or group level, not going into details of legal and technical aspects of MFOs. Some of these organizations have evolved from small NGOs to become important providers of financial services. Realizing the potentially important role that MFOs play in deepening the benefits of economic growth, In India, there exists a variety of micro finance organizations in government as well as non-government sectors. Leading national financial institutions like the Small Industries Development Bank of India (SIDBI), the National Bank for Agriculture and Rural Development (NABARD) and the Rashtriya Mahila Kosh (RMK) have played a significant role in making micro credit a real movement. In India, the size and types of implementing organizations range from very small to moderately big organizations involved in savings and or credit activities for individuals and groups. These groups also adopt a variety of approaches. However, most of these organizations tend to operate within a limited geographical range. A few exceptions like PRADAN, ICECD, MYRADA, and SEWA have been successful in replicating their experiences in other parts of the country and act as Resource Organisations. In addition, many organizations are involved with SHGs, not only for credit, but also for other purposes like watershed, agriculture, etc. Micro-finance interventions can be identified based on their span of activity, source of funds, route through which it reaches the poor or the coverage. However, it seems that one of the most common practices and approaches prevalent is providing credit through Self-Help Groups. The approach is to make SHGs the main focal point to route all credit to members. Almost all national funding organizations (NABARD, RMK) as well as other Government schemes advocate forming of Self-Help Groups and thus providing or linking with credit. However, many organizations providing individual finance directly also exist. It has been explained in Chart - 3.

The Participating Organisations The preparation of this resource directory covered about 450 organizations involved in micro-finance activities in 11 states of India. These organizations are classified in the following categories to indicate the functional aspects covered by them within the micro finance framework. The

aim, however, is not to "typecast" an organization, as these have many other activities within their scope: 1. Organisations implementing micro-finance activities 2. Resource organizations or support agencies 3. Formal financial institutions - Banks and development organizations, like NABARD, SIDBI, Association of MFOs etc. Organizations Implementing Micro Finance Activities Organisations implementing micro-finance activities can be categorized into three basic groups. I) Organisations which directly lend to specific target groups and are carrying out all related activities like recovery, monitoring, follow-up etc. Some of these organizations are graduating to become exclusive MFOs, but such cases are few. II) Organisations who only promote and provide linkages to SHGs and are not directly involved in micro lending operations. III) Organisations, which are dealing with SHGs and plan to start microfinance related activities. Resource Organizations or Support Agencies These organizations provide support to implementing organizations. The support may be in terms of resources or training for capacity building, counseling, networking, etc. They operate at state/regional or national level. They may or may not be directly involved in micro-finance activities. A few associations to bring such MFOs on one platform have also been initiated in India. Experiences sharing through newsletters and/or meetings/ seminars/training are the methods adopted by the associations/collectives to support implementing organizations.

Formal Financial Institutions - Banks Commercial Banks, Gramin Banks and Rural Banks provide funds to SHGs and also operate their accounts. Funding agencies and development institutions channelise credit through these FIs. Building gender sensitivity and developmental dimensions amongst these agencies is a major need. Banks prefer to route credit through SHGs, though they directly lend to individuals also. Development Agencies/Nodal Agencies in India, development agencies like NABARD, SIDBI and RMK provide funds for credit. They support MFOs and have separate allocations for SHGs and micro-credit. These organizations have developed guidelines and training materials to help MFOs implement micro-credit activities covered under their preview.

RESEARCH OBJECTIVE

RESEARCH OBJECTIVE
The main objectives of the research are as under:

To study how micro financing is helpful for poor households, helping them raise income, build up assets and/or cushion them against external shocks.

To analyze the nature of population going for micro finance.

To analyze the quality of services provided by micro financ and to know satisfaction of customer

RESEARCH METHODOLOGY

RESEARCH METHODOLOGY
Research Methodology talks about the data collection of the project work.The research design method, to be in the study, is of primary in nature and includes the following:

Research done for collecting various details about subject matter using internet and other past researches.

Questionnaire is designed on the basis of learning and is used to collect data from respondents.This method is used in order to make rerference to phenomenon as they exist in the real life and it is really economical in terms of time and resources.

The data so collected through these tools are analysed on statistics using frequency prcentage and chi square method to arrive at the results.

SUBJECT Subject for the study were 30 people of Petlavad. These subjects were drawn randomly .24 men and 6 women were taken for research. This is done in anticipation that such a sampling of subject will provide the necessary variety of information required for the study. RESEARCH INSTRUMENT The instrument used in the study is a self designed questionnaire. The questionnaire comprised of two parts or sections:

Section A consists of 12 questions seeking data reated to general demographic and awareness. Section B consists of 11 close ended questions based on the response (likert) scale giving idea about the satisfaction level of respondents towards the govt. policies and shemes regardinf micro finance ,etc. PROCEDURE I visited petlavad and have a talk to the people taking microfinance,interest charged to them and their view regarding all the policies and subsidy approved by the goverenment for tribal poppulation and also have a talk with the staff of the dhar jhabua grameen bank. After collecting these informations I filled the questionnaire. Petlawad is a town and a nagar panchayat in Jhabua district in the Indian state of Madhya Pradesh. Major town in region are Raipuria, Sarangi, Bamnia and Karwad. As of 2001 India census[2], Petlawad had a population of 12,419. Males constitute 51% of the population and females 49%. Petlawad has an average literacy rate of 71%, higher than the national average of 59.5%: male literacy is 79%, and female literacy is 62%. In Petlawad, 15% of the population is under 6 years of age.

QUESTIONNAIRE RESPONSE PRESENTATION

age Percent Valid 18-28 28-38 38-48 48 & above Total 10.0 36.7 26.7 26.7 100.0

INTERPRETATION: The above table and bar chart indicate that out of total respondents taking microfinance, 3 6.7% fall in the age group of 28-38,26.7% in the age group of38-48 and 48 and above and 10% I the age group of 18-28. It indicate that micro finance is generally taken by the people of more than 28 of age.

gender Gender Male Female Total Valid Percent 80.0 20.0 100.0

INTERPRETATION: The above table and bar chart indicate that out of total respondents 80% are males and 20% are females.

education Percent Valid below10th 10th-12th Graduate Postgraduate Total 40.0 33.3 16.7 10.0 100.0

INTERPRETATION: The above table and bar chart indicate that out of total respondents 40% of the people are educated below 10th , 33.7% have education between 10th-12th,16.7% are graduate while only 10% are post graduate. It indicate that most of the people have education below 10th. Occupation

Occupation Valid business shopkeeper farmer others Total

Valid Percent 26.7 20.0 43.3 10.0 100.0

INTERPRETATION: The above table and bar chart indicate that out of total respondents taking microfinance, 43.3% are farmers,26.7% have the business or starting the business,20% are shopfeepers and other 10% have other occupations. It indicate that micro finance is generally taken by the farmers in the petlavad. farmer

Valid

own land rented land Total Missing System Total

Percent 33.3 13.3 46.7 53.3 100.0

Valid Percent 71.4 28.6 100.0

Cumulative Percent 71.4 100.0

INTERPRETATION: The above table and bar chart indicate that out of total respondents who are farmers,71.4% have their own landwhile21.6% have rented land in the petlavad.

income Frequency 8 8 10 4 30 Percent Valid Percent 26.7 26.7 26.7 26.7 33.3 33.3 13.3 13.3 100.0 100.0 Cumulative Percent 26.7 53.3 86.7 100.0

Valid

below3000 3000-6000 6000-9000 above9000 Total

INTERPRETATION: The above table and bar chart indicate that out of total respondents 33.3% have income between 6000-9000 p.m.,26.7% have income below 3000, other 26.7% have income between 3000-6000 and 13% are above 9000. Time period

Vali 0-36 months d more than 36 months Total

Frequen cy Percent 26 86.7 4 30 13.3 100.0

Valid Cumulativ Percent e Percent 86.7 86.7 13.3 100.0 100.0

INTERPRETATION: The above table and bar chart indicate that86.7% of respondents have taken loan for up to 36 months or up to 3 years while 13.3%have taken loan for more than 3 years. Generally, people take loan from 1to5 years.

The loan has benefited me.

Vali d

Frequenc y Percent N 10 33.3 A 17 56.7 SA 3 10.0 Total 30 100.0

Valid Cumulative Percent Percent 33.3 33.3 56.7 90.0 10.0 100.0 100.0

INTERPRETATION: The above table and bar chart indicate that out of total respondents taking microfinance, 56.7% says that loan has benefited them.i.e. they are agree, 33.3%are neutral and 10% are strongly agree. It indicates that micro finance has benefited most of the people in the petlavad. The loan helped me in fulfilling my purpose.

Valid DA N A SA Total

Frequency 2 8 15 5 30

Percent 6.7 26.7 50.0 16.7 100.0

Valid Cumulative Percent Percent 6.7 6.7 26.7 33.3 50.0 83.3 16.7 100.0 100.0

INTERPRETATION: The above table and bar chart indicate that out of total respondents taking microfinance, 50% are agreed that micro finance helped them in fulfilling their purpose., 26.7% are neutral,16.7% said that they are strongly agree while according to 6.7%through microfinance they couldnt fulfill their purpose. The loan is easily provided.

Valid SDA DA N A Total

Frequency 1 2 10 17 30

Percent 3.3 6.7 33.3 56.7 100.0

Valid Cumulative Percent Percent 3.3 3.3 6.7 10.0 33.3 43.3 56.7 100.0 100.0

INTERPRETATION: The above table and bar chart indicate that out of total respondents 56.7% are saying that micro finance is easily provided,33.3% are neutral,6.6% are disagree and 3.3% are strongly disagree with the statement. The loan sanctioning process is not complicated.

Valid DA N A Total

Frequenc y 9 10 11 30

Percent 30.0 33.3 36.7 100.0

Valid Cumulative Percent Percent 30.0 30.0 33.3 63.3 36.7 100.0 100.0

INTERPRETATION: The above table and bar chart indicate that 36.7% are saying that the loan sanctioning process is not complicated while 30% are disagreeing. And 33.3% are neutral.

The formalities for procuring loan are easy.

Fr equency Valid SDA DA N A SA Total 3 6 9 11 1 30

Percent Valid Percent 10.0 10.0 20.0 20.0 30.0 30.0 36.7 36.7 3.3 3.3 100.0 100.0

Cumulative Percent 10.0 30.0 60.0 96.7 100.0

INTERPRETATION: The above table and bar chart is showing that 36% of the people are agree with the statement The formalities for procuring loan are easy30% are neutral,20% are disagree , 10% are strongly disagree and 3.3% are strongly agree. It indicates that moistly the people are in favor. Number of documents need is not much.

Valid SDA DA N A SA Total

Frequency 3 6 10 7 4 30

Percent 10.0 20.0 33.3 23.3 13.3 100.0

Valid Percent 10.0 20.0 33.3 23.3 13.3 100.0

Cumulative Percent 10.0 30.0 63.3 86.7 100.0

INTERPRETATION: The above table and bar chart is showing that 23.3% of the people are agree with the statement Number of documents need is not much.13.3% are strongly agree,33.3% are neutral while 20% are disagree and 10% are strongly disagree. The govt. policies schemes made for providing subsidy is satisfactory. Frequency Percent Valid Percent Cumulative

Valid

SDA DA N A SA Total

4 10 9 6 1 30

13.3 33.3 30.0 20.0 3.3 100.0

13.3 33.3 30.0 20.0 3.3 100.0

Percent 13.3 46.7 76.7 96.7 100.0

INTERPRETATION: The above table and bar chart indicate that out of total respondents taking microfinance, 33.3% are disagree and 13.3% are strongly disagree with the govt. policies . And 30% are neutral while 20% are agree and other 3.3% are strongly agree. It indicates that most of the people are disagree with the govt. policies regarding subsidy in the petlavad. The subsidy provided by the government is sufficient.

Valid SDA DA N A SA Total

Frequency 10 6 7 6 1 30

Percent 33.3 20.0 23.3 20.0 3.3 100.0

Valid Percent 33.3 20.0 23.3 20.0 3.3 100.0

Cumulative Percent 33.3 53.3 76.7 96.7 100.0

INTERPRETATION: The above table and bar chart indicate that 33.3% of the people are strongly dissatisfied by the subsidy provided by the government,23% are neutral,20% are disagree and other 20% are agree and 3.3% are strongly agree. in the petlavad. The services like repayment of loan and other services provided by the M.F.institutions in the area are good.

Valid

DA N A SA Total

Frequency 4 14 10 2 30

Percent Valid Percent 13.3 13.3 46.7 46.7 33.3 33.3 6.7 6.7 100.0 100.0

Cumulative Percent 13.3 60.0 93.3 100.0

INTERPRETATION: From the above table and bar chart it indicate that 46.7% are neutral, 33.3% of the people are satisfied with the services provided by institutions, while 13.3% are disagree and 6.7% are agree. The interest charge is reasonable. Frequency Percent Valid Percent Cumulative

Valid

SDA DA N A Total

4 4 11 11 30

13.3 13.3 36.7 36.7 100.0

13.3 13.3 36.7 36.7 100.0

Percent 13.3 26.7 63.3 100.0

INTERPRETATION: The above table and bar chart indicate that 36.7% people are neutral; other 36.7% are agree, while 13.3 % of the people are, disagree and strongly disagree respectively. Mostly people are in the favor of interest charged in the petlavad. Loan amount

Frequenc y Valid 0-50000 20 50000-100000 4 1000006 300000 Total 30

Percent 66.7 13.3 20.0 100.0

Valid Cumulative Percent Percent 66.7 66.7 13.3 80.0 20.0 100.0 100.0

INTERPRETATION: The above table and bar chart indicate that in the petlavad, people generally take loan between 0 to 50,000 Rs.which is showing 66.7% in the table while 20% of the respondents have taken the loan amounted between Rs.1,00,000 to 3,00,000 and 13.3% have taken loan between Rs. 50,000 to 1,00,000. intrate

Valid 7% 12% Total

Frequency 21 9 30

Percent 70.0 30.0 100.0

Valid Cumulative Percent Percent 70.0 70.0 30.0 100.0 100.0

INTERPRETATION: The respondent who are taken in the sample are charged the interest with 7% and 12% respectively.

DATA ANALYSIS & INTERPRETATION

Gender * education Cross tabulation Count below1 0th 9 3 12 Education Total 10th- graduat postgradu below10 12th e ate th 8 4 3 24 2 10 1 5 0 3 6 30

gende male r Fema le Total

INTERPRETATION: The table shows that most of the people taking micro finance are educated below 10th are males.

Gender * income Cross tabulation Count below30 00 5 3 8 Income Total 30006000- above90 below30 6000 9000 00 00 5 10 4 24 3 8 0 10 0 4 6 30

gende male r Fema le Total

INTERPRETATION: The above table clearly shows that most of the people taking micro finance are having income between 6000 to 9000 are males.

Education * occupation Cross tabulation Count Occupation busines shopkeep s er Farmer educati below10t on h 10th-12th graduate postgradu ate Total 3 3 2 0 8 2 2 1 1 6 7 4 2 0 13 others 0 1 0 2 3 Total busines s 12 10 5 3 30

INTERPRETATION: The above table clearly shows that amongst the occupation the farmers are less educated than that of others.

Interest rate & int. rate reasonable Cross tabulation Test Statistics11& interest rate Cross tabulat Count Intrate Total

7% intreasonab SDA DA N A 2 3 9 7 21

12% 2 1 2 4 9

7% 4 4 11 11 30

Total Chi-Square Tests

Pearson Chi-Square

Value 1.753(a)

df 3

Asymp. Sig. (2-sided) .625

INTERPRETATION: The above table shows that as the chi square the significance value is 0.625, which is insignificant. It shows that interest rate and the satisfaction level of the people saying interest charge is reasonable are correlated. Cross tab: Occupation and loan benefit Count Loanbenef Total N A SA N Occupatio business 2 5 1 8

n Total

shopkeeper farmer others

2 5 1 10

4 6 2 17

0 2 0 3

6 13 3 30

Chi-Square Tests Pearson Chi-Square Value 2.057(a) Df Asymp. Sig. (2sided) 6 .914

INTERPRETATION: As the chi square, the significance value is 0.914, which is insignificant. So it indicates that businesspersons, shopkeepers, farmers and others taking microfinance do not differ in the benefit they are getting. Occupation * & 8th point Cross tabulation Count SDA occupati business 3 Subsidysuffi DA N 1 2 A 2 SA 0 Total SDA 8

on

shopkeep er farmer others

4 3 0 10

1 4 0 6 Df

1 2 2 7

0 3 1 6

0 1 0 1

6 13 3 30

Total Chi-Square Tests Pearson Chi-Square

Value 10.890

Asymp. Sig. (2sided) 12 .538

INTERPRETATION: As the chi square, the significance value is 0.538, which is insignificant. So it indicates that occupation does not have direct bearing on the opinion that subsidy provided by the government is sufficient. Occupation * fulfilpurpose Cross tabulation Count fulfilpurpose Total DA N A SA DA Occupati business 1 1 5 1 8 on shopkeepe 1 2 2 1 6 r

farmer others Total Chi-Square Tests Value 6.632(a ) df

0 0 2

3 2 8 Asymp. Sig. (2sided) 9 .675

7 1 15

3 0 5

13 3 30

Pearson ChiSquare

INTERPRETATION: The above table shows that as the chi square the significance value is 0.67, which is insignificant. It shows that the occupation does not have the direct bearing on fulfilling of purpose. Occupation * polsatisfac Cross tabulation Count Polsatisfac Total SDA DA N A SA SDA occupati business 1 2 2 3 0 8 on shopkeep 2 2 2 0 0 6 er

farmer others Total Chi-Square Tests Pearson Chi-Square

1 0 4 Value 17.092(a)

4 2 10

5 0 9

3 0 6

0 1 1

13 3 30

Asymp. Sig. df (2-sided) 12 .146

INTERPRETATION: The above table shows that as the chi square the significance value is 0.146, which is insignificant. It shows that the occupation does not have the direct bearing with the govt. policy schemes made for subsidy. education * forma.easy Cross tabulation Count forma.easy Total SDA DA N A SA SDA educati below10th 1 3 3 5 0 12 on 10th-12th 1 2 4 3 0 10 graduate 1 0 1 2 1 5

postgradu ate Total Chi-Square Tests Pearson Chi-Square

0 3 Value 8.088(a)

1 6 df

1 9

1 11 Asymp. Sig. (2-sided) .778

0 1

3 30

12

INTERPRETATION: The above table shows that as the chi square the significance value is 0.146, which is insignificant. It shows that the occupation does not have the direct bearing with the govt. policy schemes made for subsidy. Education * pro.not.com Cross tabulation Count pro.not.com Total DA N A DA educatio below10th 4 3 5 12 n 10th-12th 3 4 3 10 graduate 1 1 3 5 postgraduat 1 2 0 3

e Total Chi-Square Tests Pearson Chi-Square Value 3.918(a) df 6 Asymp. Sig. (2-sided) .688 9 10 11 30

INTERPRETATION: The above table shows that as the chi square the significance value is 0.668, which is insignificant. It shows that the education level does not have the direct bearing with the complexity of the process

CONCLUSION & SUGGESTIONS

CONCLUSIONS AND SUGGESTIONS

Micro finance market in India has made rapid strides both in terms of SHGs linked with the banks and the number of beneficiaries covered. The freedom given by the Reserve Bank of India has paved the way for its fast up scaling. Multi-model approach involving banks, NBFCs, Trusts, Foundations and NGOs has paid rich dividends. Establishment of Micro Finance Development Fund has also helped the various entities for orderly development of micro-finance sector by providing required infrastructure and training system. Some of the impact assessment studies conducted by RBI, NABARD and select micro finance institutions reveal that micro finance has a very positive impact on the lives of the poor. It has emerged as a cost-effective, operationally simple and low-risk strategy for expanding client base and business. It has afforded a positive institutional alternative and has cut into the informal sector hold on rural market. Infact micro finance is making the informal sector accept benchmarking of formal credit. Micro finance is not simply a banking activity; it is emerging as a developmental tool. Micro finance has ushered in the economic independence of women and change in inter & intra-household dynamics. FINDINGS & SUGGESTIONS The survey and analysis of the questionnaire brought out a fact that though rural households are some how benefited through the micro finance but they have to face many problems because of the change of seasons, natural calamities and other geographical problems in the region. While doing the survey in the Petlavad I come to know that only 25 to 30 cases of subsidiary for tribal are approved by the institution and government every year, many of the people could not get the benefit of the subsidy. Micro credit and microfinance is not the answer to all the problems of poverty in developing countries, but it is indeed an 'inducer' to a great many actions that can lead to a better quality of life for the low-income groups. The mission of the micro finance is to help the poor people. They are providing financial help. They view for helping women and children. Women and children have important role to play in the society. The most effective method of mainstreaming the poor and the disadvantaged, particularly women, with the development process of the country is to give them access to formal financial services. In this context,

micro-finance interventions are increasingly being accepted as effective tools for poverty alleviation. The role of banks in the successful micro-finance initiatives gain considerable importance in India, where, unlike in many other developing countries, the formal banking system has a phenomenal reach of about 1,50,000 retail rural outlets. These works out to one retail credit outlet for less than 5,000 rural people or say about 1,000 households. Through this extensive network, the banks have provided credit of almost Rs 25,400 crore to over 5.5 crore rural poor households under different poverty alleviation programmes. With around Rs 15,000 crore added to this as subsidy routed to the poor through the same banking channels, this would normally be regarded as an effective step in meeting the financial needs of the rural population. LIMITATIONS The study is limited to a particular region i.e. petlavad It is showing the situation of Micro financing in the other small villages . So it is not showing the picture of whole India. The sample size is too small to give clear picture of the micro finance.

ANNEXURE

QUESTIONNAIRE

NAME (Optional):__________________________________ AGE 18-28 38-48 28-38 48 and above

GENDER

Male

Female

EDUCATION

Below 10TH Graduate

10TH-12TH Postgraduate

OCCUPATION

Business Farmer

Shopkeepers Others

If FARMER

Own land

Rented land

MONTHLY INCOME

Below 3000 6000-9000

3000-6000 Above 9000

FAMILY MEMBERS

NO. OF DEPENDENTS

AMOUNT OF LOAN

RATE OF INTEREST

PURPOSE OF TAKING LOAN

TIME PERIOD

RESPONSE SCALE (Choose your order of preference and tick mark against it)
Strongly Disagree: SDA Agree: A Disagree: DA Neutral: N

Strongly Agree: SA

SDA SA . 1 The loan has benefited me

DA

2 The loan helped me in fulfilling my purpose 3 The loan is easily provided 4 The loan sanctioning process is not complicated. 5. The formalities for procuring loan are easy 6 Number of documents need is not much

7 The govt. policies schemes made for providing subsidy is satisfactory. .

8 The subsidy provided by government. is sufficient 9 The services like repayment of loan and

other services provided by the MF institutions in the area are good. 11 The interest charge is reasonable.

BIBLIOGRAPHY

(A)WEBSITES:
WWW.GOOGLE SEARCH.COM

stanford.edu/2003/briefing_book/india.html

microfinanceindia.org www.microfinance.in/ wikipedia.org www.microfinanceinsights.com www.un.org.in www.NewLifeMFI.org

Introduction
What is Micro Finance? Microfinance

refers to the provision of financial services to poor or low-income clients, including consumers and the self-employed. The term also refers to the practice of sustainably delivering those services. Microcredit (or loans to poor microenterprises) should not be confused with microfinance, which addresses a full range of banking needs for poor people. More broadly, it refers to a movement that envisions a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers. Those who promote microfinance generally believe that such access will help poor people out of poverty.

Origin of Micro Finance:


The origin of micro finance is quite absorbing. Ipso facto, micro finance combines the strengths of both formal and informal systems of purveying credit. Availability of hassle free credit in a systematic manner is the unique feature of micro finance system. Micro finance in informal system was in vogue in India in the form of chit funds, etc., since time immemorial. It came into existence under formal system with the advent of co-operative movement in India in the beginning of the last century. The micro finance is primarily based on the principles of co-operation namely, mutual help, democratic functioning, etc. Though, the co-operative movement was initially envisaged with unlimited liability and small size of societies consisting of homogenous groups, over the years in the quest for improving the viability of co-operatives, large societies with limited liabilities were organized. This apart, the evolution of State partnership in co-operatives with entrenched bureaucracy, etc., distanced cooperative movement from the spirit of micro finance movement. Nevertheless, micro finance movement in its present form is the valuable contribution of Bangladesh to the world and Prof. Mohammed Yunus is considered the father of modern micro finance movement. Mostly the rural poor were caught in the clutches of money lenders as their access to credit from the banking system was constrained due to lack of collaterals and their ignorance. Hence, a beginning was made with a research project at Jabra village by Prof. Mohammed Yunus of Chittagong University way back in 1976 by giving small loans without collaterals to the poor who were

organized into small groups. The idea worked well and demand for credit increased manifold. The process was repeated and the institution promoted by Yunus expanded its operations and came into existence as a specialized institution for financing the rural poor under Grameen Bank Ordinance of the Government of Bangladesh in 1983. The success of Grameen Bank model inspired its replication in one or the other form in many parts of the world. Under Bangladesh model, borrowers or savers join together to form groups consisting of five members to transact the business. The philosophy of voluntarism and one for all and all for one is the backbone of micro finance movement. The group also leads to mutual empowerment along with the advantage of peer pressure on the behavior of group members.

Literature Review
A Brief History of Microfinance in India

The post-nationalization period in the banking sector, circa 1969, witnessed a substantial amount of resources being earmarked towards meeting the credit needs of the poor. There were several objectives for the bank nationalization strategy including expanding the outreach of financial services to neglected sectors. As a result of this strategy, the banking network underwent an expansion phase without comparables in the world. Credit came to be recognized as a remedy for many of the ills of the poverty. There spawned several pro-poor financial services, support by both the State and Central governments, which included credit packages and programs customized to the perceived needs of the poor. The pioneering efforts at this were made by National Bank for Agriculture and Rural Development (NABARD), which was given the tasks of framing appropriate policy for rural credit, provision of technical assistance backed liquidity support to banks, supervision of rural credit institutions and other development initiatives. In the early 1980s, the GoI launched the Integrated Rural Development Program (IRDP), a large poverty alleviation credit program, which provided government subsidized credit through banks to the poor. It was aimed that the poor would be able to use the inexpensive credit to finance themselves

over the poverty line. Also during this time, NABARD conducted a series of research studies independently and in association with MYRADA, a leading non-governmental organization (NGO) from Southern India, which showed that despite having a wide network of rural bank branches servicing the rural poor, a very large number of the poorest of the poor continued to remain outside the fold of the formal banking system. These studies also showed that the existing banking policies, systems and procedures, and deposit and loan products were perhaps not well suited to meet the most immediate needs of the poor. It also appeared that what the poor really needed was better access to these services and products, rather than cheap subsidized credit. Against this background, a need was felt for alternative policies, systems and procedures, savings and loan products, other complementary services, and new delivery mechanisms, which would fulfill the requirements of the poorest, especially of the women members of such households. The emphasis therefore was on improving the access of the poor to microfinance rather than just micro-credit. To answer the need for microfinance from the poor, the past 25 years has seen a variety of microfinance programs promoted by the government and NGOs. Some of these programs have failed and the learning experience from them have been used to develop more effective ways of providing financial services. These programs vary from regional rural banks with a social mandate to MFIs. In 1999, the GoI merged various credit programs together, refined them and launched a new programme called Swaranjayanti Gram Swarazagar Yojana (SGSY). The mandate of SGSY is to continue to provide subsidized credit to the poor through the banking sector to generate self-employment through a self-help group approach and the program has grown to an enormous size.

Research Problem
In the development paradigm, micro-finance has evolved as a need-based policy and programme to cater to the so far neglected target groups (women, poor, rural, deprived, etc.). Its evolution is based on the concern of all developing countries for empowerment of the poor and the alleviation of poverty. Development organizations and policy

makers have included access to credit for poor people as a major aspect of many poverty alleviation programmes. Micro-finance programmes have, in the recent past, become one of the more promising ways to use scarce development funds to achieve the objectives of poverty alleviation. Furthermore, certain micro-finance programmes have gained prominence in the development field and beyond. The basic idea of micro-finance is simple: if poor people are provided access to financial services, including credit, they may very well be able to start or expand a micro-enterprise that will allow them to break out of poverty. Thus, micro-finance has become one of the most effective interventions for economic empowerment of the poor.

Objective of the study


The main objectives of the research are as under: To study how micro financing is helpful for poor households, helping them raise income, build up assets and/or cushion them against external shocks.

To analyze the nature of population going for micro finance.

To analyze the quality of services provided by micro financ and to know satisfaction of customer

Methodologies
Sources
Book

Magazine Internet Articles

Define Study period


4 months

Methodology of testing To carry on this research project I will adopt the probability sampling method, under which whole strata has the probability of being included in the sample. A sample will be taken and the information will be collected with the help of: Questionnaire Direct interviews The above method will focus on collection of information through Primary Data, apart from this the research project will also take help of the Secondary Data available. The information so collected will be presented in the form of Tables Bar graphs Pie charts Histograms

Bibliography
(A)WEBSITES:

WWW.GOOGLE SEARCH.COM

stanford.edu/2003/briefing_book/india.html
microfinanceindia.org www.microfinance.in/ wikipedia.org www.microfinanceinsights.com www.un.org.in www.NewLifeMFI.org

Institute of Management Studies


DAVV, Indore

Master in Business Administration (Disaster Management) Batch- 2007-09 Synopsis on


MICRO FINANCING

Submitted to:
Prof. Nisha Siddhiqui IMS,DAVV

Submitted by:
Manish Kumar M.B.A (D.M) IVth sem