PROJECT REPORT ON

CONSUMER FINANCE
IN

Submitted by:
NAME: KANWALJEET ROLL NO: 90642234489

Under the Supervision of:

Dr.Bimal Anjum

For partial fulfillment of the requirement for the degree in MASTER OF BUSINESS ADMINISTRATION from Punjab Technical University

Department Of Business Administration

RIMT INSTITUTE OF ENGINEERING & TECHNOLOGY

MANDI GOBINDGARH (PUNJAB)

ACKNOWLEDGEMENT

Gratitude is the hardest of emotions to express and one often does not find adequate words to convey what one feels The present file is an amalgamation of various thoughts and experiences. The successful completion of this report would have not been possible without the help and guidance of number of people. I take this opportunity to thank all those who have directly or indirectly inspired, directed, and helped me towards successful completion of this final research project report. I m also immensely indebted to my project supervisor Dr. Bimal Anjum for his illuminating observation, encouraging suggestions and constructive criticisms, which have helped me in completing this project report successfully. There are several other people who also deserve much more than mere acknowledgement at their exemplary help. I also acknowledge with deep sense of gratitude to respondents who wholeheartedly helped and cooperated as intended by them.

PREFACE
Project is an important part of theoretical studies. It is of immense importance in the field of management. It offers the student to explore the valuable treasure of experience and exposure to real work followed by the industries and thereby helping the students to bridge the gap between the theories explained in the books and their practical implementations. Project plays an important role in the future building of an individual so that he can better understand the real world in which he has to work in the future. The theory greatly enhances our knowledge and provides opportunities to blend theoretical knowledge with the practical knowledge where we get familiar with certain aspects of the industry. I feel proud to prepare my final research project on Consumer Finance in Rural areas.

INTRODUCTION

INDIAN RURAL MARKET

Indian rural market is very large and diverse. It grows at the rate of four percent and introduces 1.2 million new consumers every year. In India 620 million rural populations, living in 6.25 lakh villages use the services of 36.98 lakh rural retail outlets. Consumer finance is that part of financing that provides assistance to buy consumer electronics and durables. It is one of the potential areas of growth. It indirectly helps in the increase in sales of durables. Companies are increasingly using consumer finance as a market tool. It serves as an incentive to consumer s to upgrade their products, go in for multiple product options etc., with payment being phased out over a few months; it is more manageable for household compared financing institutions have come up facilitating the purchase of consumer durables and thus lading to their demand growth. The arrival of cheaper finance has completely changed buying patterns. Today the size of the consumer finance market is estimated at over Rs.70, 000 crore, clocking an annual growth of over thirty percent. Eight out of ten houses are currently built/buy through loans. Rural markets also account for one third of the consumer finance purchase. Cheaper and more easily available finance has enabled consumers to upgrade and buy costlier products. As a result, buying higher quality goods. In view of changing this scenario, it looks at the major force of growth in consumer finance: i.e., housing finance. The friendly finance schemes have increased off take for both consumer and durable in urban and semi-urban areas. There is flexibility in terms of spreading payments over a period of time, in turn making it much easier. In fact, it is a win-win situation for all concerned. NCAER (2003) reported that the growth in the purchase of white goods that were financed is significantly higher than those, which have not been financed. Rural demand for white goods grew 22.40 per cent in 1999-2000, whereas the growth of financed white goods was 39.60 per 4

cent. With more communication targeted at rural market, the demand can be satisfied only when sufficient funds are available. Providing consumer loans with terms and conditions that satisfy the consumers would increase the demand for consumer loans. If the promotions were made after understanding the mindset of the consumer, it would bring better results. Banks have come up with many kinds of consumer loans schemes to attract the consumers. The interest rates are also competitive. So, the consumer finance sector is a potential area of growth in rural market and can be looked upon for better results in the future.

CONCEPTULISATION:
CONSUMER FINANCE
DEFINITION: Consumer finance in the most basic sense of the word refers to any kind of lending to consumers. However, in the United States financial services industry, the term "consumer finance" often refers to a particular type of business, sub prime branch lending (that is lending to people with less than perfect credit). This branch of the financial services industry is more extensive in the United States than in some other countries, because the major banks in the U.S. are less willing to lend to people with marginal credit ratings than their counterparts in many other countries. Examples of these companies include HSBC Finance, CIT, CitiFinancial, Wells Fargo Financial, and Allied Business Systems, LLC CONSUMER FINANCE IN GENERAL: Consumer finance covers a wide range of activities, including loans from banks and indirect finance such as hire-purchase agreements, and loans by specialist retail finance companies. At the most respectable end of the market, consumer finance is an integral part of retail banking and an important source of unsecured loans However, in many countries some 'consumer finance' companies are little different from loan sharks, offering considerably higher interest rates than those available on other unsecured loans. On another view, however, such companies are beneficial because they offer credit to sectors of society which are otherwise excluded from financial markets, and the credit offered is no worse than the alternative credit cards.

THE TERM AS USED IN THE UNITED STATES: 6

The Consumer Finance industry (meaning branch based subprime lenders) mainly came to fruition in the middle of the twentieth century. At that time these companies were all standalone companies, not owned by banks and an alternative to banks. However, at that time the companies were not focused on subprime lending, instead they attempted to lend to everyone who would accept their high rates of interest. There were many reasons why certain people would:

Banks made it difficult to obtain personal credit. Banks did not have the wide variety of programs or aggressive marketing that they do today. Many people simply didn't like to deal with bank employees and branches, and preferred the more relaxed environment of a consumer finance companies Consumer finance companies focused on lowering the required payment for their customers debts. Many customers would gladly refinance 10,000.00 worth of auto loan debt at 7 percent for a home equity loan at 18 percent because the auto loan would have to be paid off in 5 years while the home equity loan would have a 20 year repayment plan, making the monthly payments for the customer lower (even though overall the customer would end up paying dramatically higher amounts of interest).

However, as the financial services industry evolved and banks and other kinds of financial services companies began offering more consumer credit, consumer finance companies came to serve primarily those with bad credit, who couldn't obtain financing elsewhere. A typical consumer finance office engages in some unsecured, and auto secured, but primarily home equity secured loans. To find new customers, these companies often provide the store financing for furniture stores, pool stores, and other stores where homeowners might shop. When buyers of products at those stores want to pay in installments, it is often a consumer finance company which actually does the loan for that purpose. Since this loan is usually at a high interest rate, the consumer finance company employees will call the customer to offer to refinance the loan as a home equity secured loan at a somewhat lower rate and a lower payment. Besides charging a higher interest rate compensating for their risk, consumer finance companies are usually able to operate successfully because their employees are given more flexibility in structuring loans and in collections than compared to banks.

CONTROVERSIAL PRACTICES OF THE UNITED STATES CONSUMER FINANCE INDUSTRY: The more dubious consumer finance companies are held to engage in the following practices.

Failing to tell people who ask for a loan from the lender that they really have good credit and can get a better deal somewhere else (a subprime loan is usually more expensive than a prime loan). This is one of the primary criticisms of industry and is implied in many others critiques. For example consumer finance companies have been called racist because of branches they might have opened in primarily African American areas. If their customers all had bad credit they would be working in the same way they would elsewhere, but it is implied that they are preying on the communities' lack of knowledge of lower priced alternatives.

Sending live checks through the mail which when used become loans. This can trick some people, and the interest rate is usually purposely high (although disclosed) Charging very high fees on a mortgage refinance. Offering refinance deals that are worse than the previous loan, usually by showing that the new payment will be lower, but not revealing that the new payment does not include taxes and insurance.

Selling single premium credit insurance, also financing that into the loan

Critics consider also the concept and geographical placement of consumer finance stores as a form of "redlining". This is because the sub prime lenders in poorer communities will often be the only local store, yet will be higher priced.

FACING THE CHALLENGES OF POVERTY ALLEVIATION

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The provision of financial services to poor people is an important facet of development which has changed over time, largely due to a shift in pre-conceived ideas and stereotypical thinking about poor people and financial services. It is now generally accepted that it is possible to provide profitable financial services to the poor and there are examples in many countries to prove it. These services involve much more than just providing micro credit. The fact is that poor people prefer access to savings and transmission (or transaction) services before turning to credit. It is also evident from many studies that access to financial services contributes to activities that have a positive impact on poverty alleviation. Access to financial services is therefore an important part of the strategy to assist people to move out of poverty. Expertise and experience in guiding and managing institutions that provide financial services to poor people are lacking in South Africa and on the African continent. This is true for most of the worlds developing countries and has led to an international effort to improve management capacity and understanding of microfinance. The Centre for Microfinance is part of an international programme, financed by the Microfinance Management Institute (www.themfmi.org) with partners in India, the Philippines and Costa Rica.

The Centre fulfils four core functions: Education developing and presenting courses in microfinance at formal and non-formal

levels, including an MBA in Microfinance, a Master Class In Microfinance for students who 9

already obtained an MBA degree, a Certificate in Microfinance and a Certificate in Microfinance Management and Executive Management Courses in Microfinance. Research undertaking research studies in different areas and on diverse aspects of banking services provision to the poor on a continent-wide collaborative basis. Here the focus is on market integration; on member based financial services; rural finance; legislation and regulation and access to finance and also SMME finance. Dissemination of information including research results in the form of conferences,

workshops and publications. Support to other institutions the centre has developed a support programme that assists

educational institutions on the continent in improving education for people working in microfinance.

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CONSUMER DURABLES MUST GO RURAL WAY FOR GROWTH

If the next wave of growth has to come for the consumer durables industry, it will certainly be from rural India and with the help of consumer finance, says a study on the `Role of Consumer Finance in Rural India' conducted by Chennai-based Anugrah Madison and Delhi-based Marketing and Research Team (MART) in the three States of Tamil Nadu, Punjab and Uttar Pradesh. While the consumer durables market is facing a slowdown due to saturation in the urban market, rural consumers are ready to put their money on the counter if consumer finance is made available and basic infrastructure requirements such as electricity and voltage are ironed out. Currently, rural consumers purchase their durables from the nearest towns, leading to increased expenses due to transportation. Hence, purchase is necessarily only done during the harvest, festive and wedding seasons April to June and October to November in North India and October to February in the South, believed to be months `good for buying'. Though penetration of durables is low in the hinterland, the study found that most of the respondents in North India owned at least two television and refrigerator. While 88 per cent of the respondents had TVs, 75 per cent had refrigerators. Almost 70 per cent of the respondents believed that the introduction of financing schemes would help them to purchase more durables of their choice. In fact, the rural consumer's decision to buy, the study revealed, was largely influenced by what his neighbour had purchased and experienced regarding a product. In the South, 77 per cent of respondents owned CTVs, 60 per cent owned mixer-grinders and 19 per cent used pressure cookers. "Penetration of consumer durables would be deeper in rural India if banks were ready to finance them. Banks have shown reluctance in this sector and restrict themselves to tractors and diesel pumps. Hence, rural consumers have to depend on private lenders, some of whom are fly by night operators, for this activity,'' says Mr Pradeep Kashyap, Director, MART, as he reveals that the scenario is fast changing with financial players such as the ICICI entering the fray.

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Mr Kashyap feels that the potential as well as the aspiration is high in the rural areas. "On a broad level, the ability to buy is almost the same as in the urban areas.'' He refers to National Council for Applied Economic Research (NCAER) study that showed urban families with ownership of at least 3 durables per family. Rural India showed one per family. However, only one-third of rural homes in the country are electrified, hence if this infrastructure impediment is removed, the demand could go up three times

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OPERATIONAL DEFINATION
Consumer
According to my study consumer is those person who live in rural area or take any finance from any financial institution or from other sources.

Finance
According to my study finance is a loan that consumer avail from any financial institution or from other sources in terms of personal loan, car loan, two wheeler loan or any type of consumer durable loan.

Financial institution
Financial institution are those institutes who provide loan to consumer that can be public or private bank & these can be any person who lend money on interest.

Rural market
In rural mkt. include both personal & impersonal methods promotion like advertising, sales promotion, personal selling, & other methods. Several constraints like illiteracy, poor communication facilities, infrastructural inadequacies, language diversity, tradition-bound behavior of the rural consumers, unwillingness of the sales people to serve in rural areas, lack of efficient retail network etc. According to: ROHINI Gupta Suri,& Dr.Amrik Singh Sudan Indian journal of marketing

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FINDINGS
Most of respondents i.e. 42% are of 40-50 years age group , 24% are of 50-60 year age group and 18% are of 30-40 years age group . 38% respondents are Farmer , 32% are Serviceman and 16% and 14% are Retailer and Businessman subsequently 31% Respondents are uneducated , 28 % are 10th pass , 21% are 10+2 Pass and 20% are graduate . Its mean that most of the rural population illiterate or Just Literate. 8% respondents have availed Agriculture loan , 34% availed Two wheelers loan , 15% avail personal loan and 43% respondents availed durable loans. 43% respondents come to know about finance from news paper, 31% come to know from TV/Radio, 12% comes to know from friends and 14% comes to about finance from other sources. 54% consumer availed loan from private institutions, 29% availed from Public Banks, while 17% availed loan from other sources like moneylenders. 41% respondents contact with DMA first, 31% contact with Executive and 11% contact with Branch Manager. 62% consumer availed 15 days finance, 28% availed 30 days finance and 10% availed 60 days finance. 12% respondents repayment period is 1 year, 28% respondents repayment period is 3 year , 56% respondents repayment period is 6 years and only 4 % respondents repayment period is more than 6 years . 30% respondents consider documents, 26% consider security , 21% high interest rate and 23% consider Repayment period . 35% respondents are partly satisfied , 45% respondents are fully satisfied and 20% are dissatisfied with the services delivered by banks

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SUGGESTIONS
Promotional efforts like advertisement canopies increase in number of marketing executive, distribution of brochures, sponsoring various shows & function should be increased to increase awareness about Rural Banking and its products and attract customers. Banking sector should also bring a new feature of CC (Cash credit) limit. Service charges for non maintenance of AQB in savings account should be decreased. To demonstrate the use of commercial banking Mobile banking to the customers to remove their queries and problems regarding DBC. The banks should provide for regular and frequent calls to their profitable customers to retain clientele & to make them feel more comfortable and attached to the bank (CRM)

LIMITATIONS

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There were some difficulties that I faced in my study of consumer finance in rural area. The response was not very good and the respondents felt some hesitation while giving any information about their finance. Physical limitation There was physical limitation in my study the consumers were reluctant to respond to my questions. They were not ready to be interactive. Time limitation The time was less and it was not easy to study the exact behavior of the consumers.

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CONCLUSION

My study reveals that banks are playing a significant role in Rural financing and their performance is upto the standard of satisfaction.

The overall study shows that due to low interest rate for rural areas most of rural people go for finance to banks . there are some reasons given below because of those reasons rural people prefer banks for finance Attractive loan schemes Speedy procedure Flexible repayment options Hassle free documentation And other lucrative schemes

Most of banks are using a premium pricing policy and people are getting better value for their money as compared to past .

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BIBLOGRAPHY
Indian journal of marketing. Business India. www.indiaconsumerloan.co.in www.rural_finance.co.in www.ruralmarketing.co.in www.marketingmanagment.com www.marketinginIndia.co.in

www.microfinance.up.ac.za

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ANNEXURE

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