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 What is microfinance?
 Microfinance in recent times
 Reforms & Growth in microfinance
 Objectives & Scope in microfinance
 Challenges & How to face them ?
 Models of M.F.i in India
 Poverty and Penetration of micfrofinance
 Categories of Micro Credit
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þ What are the words that come to your
mind when you hear the word
microfinance?

þ Microfinance = provision of financial

services to the poor
 Microfinance Institution has been practiced over
a long period we can say since centuries

Earlier concept of Micro Finance

 ³Chit funds´ in India, ³tandas´ in Mexico, ³arisan´

in Indonesia, ³cheetu´ in Sri Lanka, ³tontines´ in
west Africa .
h Ithas grown considerably in last two
decades.
h MFIs help in increasing the assets, child
education, better health facilities etc.
h Poor are still lagging behind
h MFI¶s are providing loans to farmers
h Farmer faces problem everyday because of
the poor quality of seeds, and intermediaries
which leads them to commit suicide
h Government Attention Required !
i ?irected lending to disadvantaged borrowers and
sectors.

i Interest rates supported by subsidies.

i Increasing the number of branches so that more

poors come under the umbrella.

i Relaxation was granted to the rural banks on whom

they should lend
þ Increase in the number of branches from 1833 in
1969, to around 32,538 at present.

þ 49% of all scheduled commercial bank branches

are rural.

þ The proportion of borrowings of rural households

has also considerably rising from 7% in the year
1961 to 60 per cent now .
V High default rates.

V Improper implementation of programmes.

V Lack in policy design.

V Commercial banks were not accepting that lending to

the poor could be a viable activity.
 Against 741 million people 500 million people
unserved.

 Population per branch is also very high touching

23k approx.

 Usage of savings account is as low as 18%

 The number of villages per branch is as high as

19.
þ Accept deposits so as to promote savings

þ MFI must be able to capture the saving where

money is earned because poor people are unable
to frequently travel to deposit money at distinct
branches

þ Payment facility should be made available to

mobile operators as business correspondence

þ Identifying opportunity in the market

þ It needs to work on what kind of programs to be
run?

þ Which programs can show the impact?

þ And up to what extent it can be increased.

 What drives savings and credit behavior?

 What is the reason for default?

 Why don¶t poor people/households go for

profitable activity?

 How do households face shocks and risks?

 ?o household saves if so then how?

 Savings should be promoted more and more by the MFI¶s
.

 Microfinance sector institutions need to be socially

motivated.

 There is need for consumer protection .

 The offering products such as insurance, remittances and

pensions by tying up with mainstream providers should be
properly monitored.
 Regulation is essential

 Avoiding over regulation that hamper innovation

and unduly increases transaction costs is also
equally important.

 Time & energy required to reckon this Sector.

 Growth is the significant issue that¶s triggers a

transformation.
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Once microfinance institutions are engaged

in deposit taking in order to mobilize
household savings, they become financial
intermediaries
 Microfinance institutions should be subjected to a
minimum capital requirement which is lower than
that applicable to commercial banks .

 A more stringent capital adequacy rate should be

maintained because microfinance institutions
provide uncollateralized loans .
 Must achieve excellent repayments and provide
access to clients

 Must have the capacity to meet high

performance standards

 Microfinance institutions need to find ways to cut

down on their administrative costs and also to
broaden their resource base
 Mobilizing savings

 Accessing capital markets

 Loan funds

 Effective institutional development support

 SHGs i.e; Self Help Groups

 Microfinance institutions (MFIs)

 The village moneylender

 The microfinance institutions can contribute a lot to
eradicate poverty from the economy

 There are certain steps/measures are needed to attain

inclusive growth

 There is a challenge to find the flexibility in the level in

credit instrument that could make it match the multiple
credit requirements of the low income borrowers
without imposing unbearably high cost of monitoring
its end-use upon the lenders
 A promising solution is to provide multi-purpose
loans or composite credit for income generation,
housing improvement and consumption support

 In spite of the large network of bank branches and

ATMs that exist in cities, many of the poor find
their financial needs largely unmet
 Agriculturejournals.cz

 IFMR research by Sudha Krishnan pg no. 11

 Adams, ?ale W. , ³Taking a fresh look at informal finance,´

in Informal finance in low income countries, ed. ?ale
Adams and ? Fitchett (Oxford: West view Press, 1992).

 Sa-?han: Enhancing Financial Flows to the Poor: The Way

Forward ± Summary of the Sub-Group Reports Presented
to the Empowered Committee on Financial Flows to the
Unorganized Sector. New ?elhi: Sa-?han.

 NABAR? website.