Awareness of schemes and services of mf is

1.1 ABOUT TOPIC:

Micro-finance refers to small savings, credit and insurance services extended to socially and
economically disadvantaged segments of society. In the Indian context terms like "small and
marginal farmers", " rural artisans" and "economically weaker sections" have been used to broadly
define micro-finance customers. The recent Task Force on Micro Finance has defined it as
"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 improve
living standards". At present, a large part of micro finance activity is confined to credit only.
Women constitute a vast majority of users of micro-credit and savings services.

Microfinance providing very poor families with small loans to help and them engage in productive
activities or grow their very small businesses. Like, many poor people need and use financial
services all the time. They save and borrow, invest in home repairs and improvements and meet
occasional and domestic expenses such as food d and school fees. However, there are some 500
million very low income entrepreneurs in the world and about 5% have access to financial services.
Indeed, financial services available to the poor often have serious limitations in terms of cost, risk
and convenience. As a result, microfinance has come to include a broader range of services. The
industry has come to realize that the poor and the very poor that lack access to traditional formal
financial institutions require a variety of financial products.

In 1980s, microfinance programs have improved upon original methodologies and extended beyond
conventional thinking. First, microfinance demonstrated that poor people, and especially women,
had excellent repayment rates (and often, rates that performed better than those in formal financial
sectors). And second, that the poor were willing and able to pay interest rates that would allow the
microfinance institutions (MFIs) to cover costs.

1.2 PURPOSE OF MICRO FINANCE:

Microfinance brings the power of credit to the grassroots by way of loans to the poor, without
requirement of collateral or previous credit record. Experience shows that microfinance can help
the poor to increase income, build viable businesses, and reduce their vulnerability to external

Awareness of Schemes and Services of Micro Finance Institutes 1|Page

shocks. It can also be a powerful instrument for self-empowerment by enabling the poor,
especially women, to become economic agents of change. Poverty is multi-dimensional, and by
providing access to financial services, microfinance plays an important role in the fight against the
many aspects of poverty. Access to credit allows poor people to take advantage of economic
opportunities - for their homes, their domestic environments and their communities. For instance,
income generation from a business helps not only the business activity expand but also contributes
to household income and its attendant benefits on food security, children's education, etc.
Moreover, for women who, in many contexts, are secluded from public space, transacting with
formal institutions can also build confidence and empowerment.

Recent research has revealed the extent to which individuals around the poverty line are vulnerable
to shocks such as illness of a wage earner, weather, theft, or other such events. These shocks
produce a huge claim on the limited financial resources of the family unit, and, absent effective
financial services, can drive a family so much deeper into poverty that it can take years to recover.

1.3 IMPORTANCE OF TOPIC:

The biggest importance is to bringing financial services to poor people and making them financial
sustainable by economies of scale effect. In India the National Bank for Agriculture and Rural
Development (NABARD) finances more than 500 banks that on lend funds to self help groups
(SHG). SHGs comprise twenty or fewer members, of whom the majorities are women from the
poorest castes and tribes. Nearly 1.4 million SHGs comprising approximately 20 million women
now borrow from banks, which make the Indian SHG-Bank Linkage model the largest
microfinance program in the world. Similar programs are evolving in Africa and Southeast Asia
with the assistance of organizations like Opportunity International, Catholic Relief Services,
CARE, APMAS and Oxfam. Also helps in the development of an economy by giving everyday
people the chance to establish a sustainable means of income. Eventual increases in disposable
income will lead to economic development and growth.

1.4 IMPORTANCE OF STUDY:

 To learn about various aspect of micro finance.

 To analyze the history of micro finance.

 To get familiar with the organization culture and environment.


2.1 INTRODUCTION:

India Info Line Ltd was founded in 1995 by a group of professionals with impeccable educational
qualification and professional credentials. India Info Line is listed on BSE and NSE with a market
capitalization of over $ 150 million.

5paisa is the trade name of the India Info Line securities private limited, a wholly owned
subsidiary of India Info Line ltd. 5paisa holds membership of both the leading stock exchange of
India viz. the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) and is also a
depository participant with NSDL and CDSL. It has tied up with the leading banks for funds
transfer facilities Viz. City Bank, Centurion Bank, ICICI Bank and UTI Bank. The group has a
membership of a Multi Commodities Exchange (MCX), National Commodities and Derivative
Exchange of India (NCDEX) and the Dubai Gold and Commodities Exchange (DGCX).

The India info Line group has a significance presence across the country with over 500 branches
in over 300 cities across India. All these offices are networked and connected with the corporate
office in Mumbai. The group has invested significantly in technology and research, the result of
which are there for everyone to see. The 5paisa trading interface is one of the most advanced
platforms available to retail investor in India. The group has membership on BSE and NSE for
equities trading. It has a SEBI license for portfolio management under which, various schemes are
offered, which have been continentally beating the benchmark indices since inception.

2.2 VISION OF COMPANY:

Our vision is to be the „Most Respected Financial Services Company‟ in India. We can remain
true to our vision by being the best and not necessarily the biggest or the fastest. Many-a-time,
expectations of employees, customers, shareholders and society seem conflicting, but a deeper
insight reveals that they complement one another and in fact, can be achieved only together.


2.3 PRODUCT PROFILE:

1. Equity Broking:
2. Portfolio management services:
3. Investment banking:
4. Home loans:
5. Mutual funds, fixed deposit, IPO’s, bonds, post office:

Equity Broking:

It offers trading in both the cash as well as the derivative segments. It is one of the largest online
players. It provides Cash trading in NSE and BSE Market as well as commodity trading also
offered by India Infoline in these two markets.

Portfolio management services:

It includes provide advisory base services based on the requirement of the clients. This includes
portfolio creation, portfolio restructuring and portfolio management. A portfolio management
service which is offered by India Infoline is as a SEBI registered portfolio manager and all the
activities is perform by India Infoline in order to guide its clients so that they can make good
investment decision.

Investment banking:

It means Investment banking and corporate advisory under the category-1 merchant-banking
license. It includes service like Consultancy to guide or give advice related to the different area of
investment and in investment banking also.

Home loans:

It includes Home loans and other loan products. All the work related to the loan and services is
also offered by company (IIFl)


Mutual funds, fixed deposit, IPO’s, bonds, post office:

It includes saving and several other investment products. Like Mutual fund (equity based and debt
based both). Risk free return that is government bond other bond, fixed deposits, saving in post
office etc.

BSE cash NSE cash
trading trading

NSE Future and Financial Commodities
Option Markets Trading
Services

IPO Trading Mutual Funds

(Financial Services Provided by IIFl)


2.4 MANAGEMENT TEAM:

The management team of the INDIA INFOLINE includes the following members:

Mr. Nirmal Jain:

Nirmal Jain is the founder and Chairman of India Info Line Ltd. He holds an MBA degree from
IIM Ahmadabad, and is a Chartered Accountant (All India Rank 2) and a Cost Accountant. He
has had an impeccable professional and academic track record. He started his career in 1989 with
Hindustan Lever Limited. During his stint with Hindustan Lever, he handled a variety of
responsibilities, including exports and trading in agro commodities with Rs.3bn annual turnover.
He then joined hands with two local brokers to set up their equity research division, Inquire, in
1994. His work set new standards for equity research in India. In 1995, he founded his own
independent financial research company, now known as India Info Line Ltd.

Mr. R. Venkataraman:

R Venkataraman is the co-promoter and Executive Director of India Info Line Ltd. He holds a B.
Tech degree in Electronics and Electrical communications engineering from IIT Kharagpur and
an MBA degree from IIM Bangalore. He has held senior managerial positions in various divisions
of ICICI Limited, including ICICI Securities Limited, their investment banking joint venture with
J P Morgan of USA and with BZW and Taib Capital Corporation Limited. He has also held the
position of Assistant Vice President with G E Capital Services India Limited in their private
equity division. He has varied experience of more than 14 years in the financial services sector.

The Board of Directors:

Apart from Nirmal Jain and R Venkataraman, the Board of Directors of India Info Line
comprises:

Mr. Sat Pal Khattar (Non Executive Director)
Mr. Arun K. Purvar (Independent Director)
Mr.Nilesh Vikamsey (independent director)
Mr.Kranti Sinha (independent director)


3.1 HISTORY OF MICRO FINANCE:

The history of micro financing can be traced back as long to the middle of the 1800s when the
theorist Lysander Spooner was writing over the benefits from small credits to entrepreneurs and
farmers as a way getting the people out of poverty. But it was at the end of World War II with
the Marshall plan the concept had a big impact.

The today use of the expression micro financing has its roots in the 1970s when organizations,
such as Grameen bank of Bangladesh with the microfinance pioneer Mohammad Yunus, where
starting and shaping the modern industry of micro financing. Another pioneer in this sector is
Akhtar Hameed Khan. At that time a new wave of microfinance initiatives introduced many
new innovations into the sector. Many pioneering enterprises began experimenting with loaning
to the underserved people. The main reason why microfinance is dated to the 1970s is that the
programs could show that people can be relied on to repay their loans and that it‟s possible to
provide financial services to poor people through market based enterprises without subsidy.
Shore bank was the first microfinance and community development bank founded 1974 in
Chicago.

An economical historian at Yale named Timothy Guinnane has been doing some research on
Friedrich Wilhelm Raiffeisen´s village bank movement in Germany which started in 1864 and by
the year 1901 the bank had reached 2 million rural farmers. Timothy Guinnane means that already
then it was proved that microcredit could pass the two tests concerning people‟s payback moral
and the possibility to provide the financial service to poor people.

Today the World Bank estimates that more than 16 million people are served by some 7000
microfinance institutions all over the world. CGAP expert means that about 500 million families
benefits from these small loans making new business possible. In a gathering at a Microcredit
Summit in Washington DC the goal was reaching 100 million of the world‟s poorest people by
credits from the world leaders and major financial institutions.

The year 2005 was proclaimed as the international year of Microcredit by The Economic and
Social Council of the United Nations in a call for the financial and building sector to “fuel” the
strong entrepreneurial spirit of the poor people around the world.


 ORIGIN OF MICRO-FINANCE IN INDIA:

A self-help group (SHG) is a group of about 10 to 20 persons from a homogenous background
who come together for addressing the common problems. They collect voluntary savings on a
regular basis and use the pooled resources to make small interest bearing loans to their members.

In 1991-92, a pilot project for linking about 500 SHG with banks, in order to formally utilize their
savings and financing them was launched by National Bank for Agriculture and Rural
Development (NABARD). In 1994, the Reserve Bank of India (RBI) constituted a working group
of (Non-government Organization) NGOs and SHGs. Based on the recommendation of this
group, RBI took some serious measures in April 1996 like starting SGH – bank linkage
programme.

In 1999, Government has taken active interest and then in the successive Budgets some or the
other announcements are made by Finance Ministers. However, in Budget Speech of 2005,
Finance Minister has put thrust on Micro Finance Institutes (MFIs) and advised the RBI issue
liberal guideline for MFIs. Finance Minister has also announced “Micro Finance Development
and Equity Fund” of Rs. 200 crore.


 Growth and Origin of Micro Finance:

Year Milestone

Middle of Lysander Spooner was writing over the benefits from small credits to
the 1800s entrepreneurs and farmers as a way getting the people out of poverty.

1864-1991 An economical historian at Yale named Timothy Guinnane has been doing
some research on Friedrich Wilhelm Raiffeisen´s village bank movement in
Germany which started in 1864 and by the year 1901 the bank had reached 2
million rural farmers.

1970 At that time organizations, such as Grameen bank of Bangladesh with the
microfinance pioneer Mohammad Yunus, where starting and shaping the
modern industry of micro financing.

1974 Shore bank was the first microfinance and community development bank
founded 1974 in Chicago.

1991-92 A pilot project for linking about 500 SHG with banks, in order to formally
utilize their savings and financing them was launched by National Bank for
Agriculture and Rural Development (NABARD).

1994 In 1994, the Reserve Bank of India (RBI) constituted a working group of
(Non-government Organization) NGOs and SHGs.

1996 Based on the recommendation of NGOs and SHGs, RBI took some serious
measures in April 1996 like starting SGH – bank linkage programme.

2000 Lok capital initiative launched with grant from Rockefeller Foundation.

2003 Incorporated lok-foundation

2005-07 In 2005 Launched India operations, In 2005-06 Fundraising, marketing team
building, pipeline. The year 2005 was proclaimed as the international year of
Microcredit by The Economic and Social Council of the United Nations in a
call for the financial and building sector to “fuel” the strong entrepreneurial
spirit of the poor people around the world.

2008-09 Enter for MFI partnerships in 2008 to 2009

2010 Enter to continue partnerships till sep 2011


3.2 CURRENT SCENARIO:

 The International year of Microcredit consists of five goals:

1. Assess and promote the contribution of microfinance to the MFIs
2. Make microfinance more visible for public awareness and understanding as a very important part
of the development situation
3. The promotion should be inclusive the financial sector
4. Make a supporting system for sustainable access to financial services
5. Support strategic partnerships by encouraging new partnerships and innovation to build and
expand the outreach and success of microfinance for all.

The economics professor Mohammad Yunus and the founder of Grameen Bank were awarded the
Nobel Prize 2006 for his efforts. The press release from nobelprize.org states: “The Norwegian
Nobel Committee has decided to award the Nobel Peace Prize for 2006, divided into two equal
parts, to Muhammad Yunus and Grameen Bank for their efforts to create economic and social
development from below. Lasting peace cannot be achieved unless large population groups find
ways in which to break out of poverty. Micro-credit is one such means. Development from below
also serves to advance democracy and human rights. Muhammad Yunus has shown himself to be
a leader who has managed to translate visions into practical action for the benefit of millions of
people, not only in Bangladesh, but also in many other countries.

Loans to poor people without any financial security had appeared to be an impossible idea. From
modest beginnings three decades ago, Yunus has, first and foremost through Grameen Bank,
developed micro-credit into an ever more important instrument in the struggle against poverty.
Grameen Bank has been a source of ideas and models for the many institutions in the field of
micro-credit that have sprung up around the world. Every single individual on earth has both the
potential and the right to live a decent life. Across cultures and civilizations, Yunus and Grameen
Bank have shown that even the poorest of the poor can work to bring about their own
development. Micro-credit has proved to be an important liberating force in societies where
women in particular have to struggle against repressive social and economic conditions.
Economic growth and political democracy cannot achieve their full potential unless the female
half of humanity participates on an equal footing with the male.
Yunus‟s long-term vision is to eliminate poverty in the world. That vision cannot be realized by

Awareness of Schemes and Services of Micro Finance Institutes 10 | P a g e

means of micro-credit alone. But Muhammad Yunus and Grameen Bank have shown that, in the
continuing efforts to achieve it, micro-credit must play a major part.

 SHG-Bank linkage program failed to benefit poorer states:

A Self Help Group is a group of 10-20 women or men who work for the capacity building of
themselves. The goal of Self help groups (SHG) is to become effective agents of change. They
serve as a platform to establish the banking with the poor which is reliable, accountable and a
profitable business. SHG also enables livelihood opportunities for village women through micro–
credit with the existing banks in the area.

The SHG-Bank linkage program that evolved in India as a micro-credit model has proved
successful in southern states but failed to achieve its goal to benefit poorer states, says an
occasional paper by Pankaj Kumar and Ramesh Golait titled „Bank Penetration and SHG-Bank
Linkage Programme: A Critique‟, published by RBI this month.

The report says, “SBLP was conceived to fill the existing gap in the formal financial network
and extending the outreach of banking to the poor. However, the present distribution of the SBLP
is skewed against the poorer regions of the country. While less than one-fifth of total loans to
SHGs went into the Eastern and Central Regions taken together, they accounted for more than
three-fifth of the total poor in India.”

Introduced in 1991-92, the SHG-Bank linkage program (SBLP) reached 3.4 million as of March
2008, received Rs. 22,268 crore in credits, benefitted 4.1 crore poor households in gaining access
to the formal banking system. While the number of beneficiary SHGs shot up from 32,995 in
1998-99 to 34, 77,965 in 2007-08 or recording a two-third rise, the banks have almost doubled
their cumulative loans to SHGs each year, the paper said.
In turn it has led to a four-fold increase in the average loans per SHG from Rs. 16,816 in 1999-
2000 to Rs. 63,926 in 2007-08
Even the SHGs per lacs population varied in southern and eastern states. As of March 2008, 891
SHGs in Andhra Pradesh and 435 in Kerala benefitted while Assam accounted for 3.1% of the
total SHGs and the rest of the six States had a negligible share. Since the impact of the SHG
model is uneven, the paper suggests remedial measures like performance-linked incentives to


banks, creation of specific funds to address the regional imbalances in the SBLP, formation of
SHGs around activities of rural such as construction and renovation of minor irrigation tanks,
feeder channels and rural roads.
“The aftermath of nationalization witnessed a remarkable spread of the banking system to the
unbanked and under-banked rural areas. However, the dependence on informal sources of credit
has not decreased in rural areas. The problem accentuated as banks veered away from rural to
urban India. The relative decline of commercial banking network in the rural areas runs contrary
to the objective of financial inclusion and is a formidable challenge in the way of faster and more
inclusive growth,” remarked the authors. The other activities suggested in the paper suggested
included embedding livelihood activities, micro-insurance and grain banks in the SHG model to
make it successful across all the states in the country.

 Financial Performance of MFIs:

The RBI had brought in a condition of Qualifying Asset by which the MFIs should create loans
assets that would meet certain conditions like maximum loan amount of Rs. 50000, at least 75
percent of loan to be given for income generation purpose etc. for availing loan under priority
sector credit schemes from the banks.

The data provides evidence to reasonably conclude that Indian MFIs in general possess
Qualifying Asset.

The cost structure of MFIs showed that the operating cost of MFIs has been, in general, higher
than what the “Malegam” Committee had estimated last year. MFIs, in all likelihood, would find
it difficult to contain the Margin Cap (Yield over Borrowing cost) of 12 percent set by the RBI.
MFIs may be able to restrict their loan interest rate within the cap of 26 percent.


3.3 MICRO FINANCE IN INDIA:

The absence of savings in Indian microfinance has distinguished it till now from microfinance in
most other countries, and has been likened to "walking on one leg" since without savings
microfinance is not microfinance at all but microcredit. There is a widespread misconception that
the poor are too poor to save, and that they need credit, not savings facilities. On the contrary,
savings is probably a more widely felt need than credit, and takes place through a variety of
savings mechanisms and institutions in the informal sector.29 Like the rest of us, the poor are
looking for savings services which are convenient, safe, liquid, and can preferably be used to
leverage loans.

3.3.1 Demand of Micro Finance Services in India:

Due to its large size and population of around 1000 million, India's GDP ranks among the top 15
economies of the world. However, around 300 million people or about 60 million households, are
living below the poverty line. It is further estimated that of these households, only about 20
percent have access to credit from the formal sector. Additionally, the segment of the rural
population above the poverty line but not rich enough to be of interest to the formal financial
institutions also does not have good access to the formal financial intermediary services,
including savings services.

A group of micro-finance practitioners estimated the annualized credit usage of all poor families
(rural and urban) at over Rs 45,000 corers, of which some 80 percent is met by informal sources.
This figure has been extrapolated using the numbers of rural and urban poor households and their
average annual credit usage (Rs 6000 and Rs 9000 pa respectively) assessed through various
micro studies.

Credit on reasonable terms to the poor can bring about a significant reduction in poverty. It is
with this hypothesis; micro credit assumes significance in the Indian context. With about 60
million households below or just above the austerely defined poverty line and with more than 80
percent unable to access credit at reasonable rates, it is obvious that there are certain issues and
problems, which have prevented the reach of micro finance to the needy. With globalization and


liberalization of the economy, opportunities for the unskilled and the illiterate are not increasing
fast enough, as compared to the rest of the economy. This is leading to a lopsided growth in the
economy thus increasing the gap between the haves and have-nots. It is in this context, the
institutions involved in micro finance have a significant role to play to reduce this disparity and
lead to more equitable growth.

3.3.2 Demand for Credit:

In terms of demand for micro-credit, there are three segments:
At the very bottom in terms of income and assets, and most numerous, are those who are landless
and are engaged in agricultural work on a seasonal basis, and manual laborers in forestry, mining,
household industries, construction and transport. This segment requires, first and foremost,
consumption credit during those months when they do not get labor work, and for contingencies
such as illness. They also need credit for acquiring small productive assets, such as livestock,
using which they can generate additional income. The next market segment is small and marginal
farmers and rural artisans, weavers and those self employed in the urban informal sector as
hawkers, vendors, and workers in household microenterprises. This segment mainly needs credit
for working capital, a small part of which also serves consumption needs. In rural areas, one of
the main uses of working capital is for crop production. This segment also needs term credit for
acquiring additional productive assets, such as irrigation pump sets, bore wells and livestock in
case of farmers, and equipment (looms, machinery) and work sheds in case of non-farm workers.
This market segment also largely comprises the poor but not the poorest.

The third market segment is of small and medium farmers who have gone in for commercial crops
such as surplus paddy and wheat, cotton, groundnut, and others engaged in dairying, poultry,
fishery etc. Among non-farm activities, this segment includes those in villages and slums,
engaged in processing or manufacturing activity, running provision stores, repair workshops, tea
shops, and various service enterprises. These persons are not always poor, though they live barely
above the poverty line and also suffer from inadequate access to formal credit. One market
segment, which is of great importance to micro-credit, is women. The 1991 Census figures reveal
that out of total 2.81 million marginal workers, 2.54 million were women and their further break-
up shows that out of a total of 2.67 million rural marginal workers, 2.44 million were females.
Further, many more women were willing to work. This has been corroborated by the results of a


survey done by the National Sample Survey Organization (NSSO), 43rd round, which has
revealed that there is a wide variety of work which rural women combine with household work.

In the NSSO survey it has also been estimated that a large percentage of rural women in the age
group of 15 years and above, who are usually engaged in household work, are willing to accept
work at household premises (29.3%), in activities such as dairy (9.5%), poultry (3 %), cattle
rearing, spinning and weaving (3.4%), tailoring (6.1%) and manufacturing of wood and cane
products etc. Amongst the women surveyed, 27.5% rural women were seeking regular full-time
work, and 65.3% were seeking part-time work. To start or to carry on such work, 53.6 % women
wanted initial finance on easy terms, and 22.2 % wanted working capital facilities, as can be seen
from the table below:

Assistance Required (by women Percent of
marginal workers seeking or available Women Seeking
For work at their household premises). Assistance
No assistance 2.1
Initial finance on easy terms 53.6
Working capital facilities 22.2
Raw materials availability 4.6
Marketing 1.7
Training 10.5
Accommodation 0.4
Other assistance 4.9
Total 100
(Source: NSSO survey 2007)

3.3.3 DEMAND FOR SAVING AND INSURANCE SERVICES:

The demand for savings services is ever higher than for credit. Studies of rural households in
various states in India show that the poor, particularly women, are looking for a way to save small
amounts whenever they can. The irregularity of cash flows and the small amounts available for
savings at one time, deter them from using formal channels such as banks. In urban areas also this
is true, in spite of better banking facilities, as shown by the experience of the SEWA Bank,
Ahmadabad. The poor want to save for various reasons – as a cushion against contingencies like


illness, calamities, death in the family, etc; as a source of equity or margin to take loans; and
finally, as a liquid asset. The safety of savings is of higher concern that interest rates. The demand
for savings services is high in rural areas as well, as can be seen from a recent study of women‟s
savings and credit movement in Andhra Pradesh. Almost all women‟s groups in their early years
begin with regular savings and their savings exceed the loans they give from their funds. Of
course, part of this lower demand for credit is the inadequate absorption capacity of women,
which comes from long years of exclusion from the economic sphere outside their homes. The
demand for insurance services, though not very well articulated, is also substantial. This comes
from the fact that not only incomes of microfinance customers low, but are also highly variable.
Insurance by the poor is needed for assets such as livestock and pump sets, for shelter. Crop
insurance could be very useful to the rural poor. Finally, insurance against illness, disability and
death would also reduce the shocks caused by such contingencies, which lead the poor into taking
loans at such times at high interest.

3.3.4 SUPPLY OF MICRO FINANCE SERVICES:

RBI data shows that informal sources provide a significant part of the total credit needs of the
rural population. The magnitude of the dependence of the rural poor on informal sources of
credit can be observed from the findings of the All India Debt and Investment Survey, 1992,
which shows that the share of the non-institutional agencies (informal sector) in the
outstanding cash dues of the rural households was 36 percent. However, the dependence of
rural households on such informal sources had reduced of their total outstanding dues steadily
from 83.7 percent in 1961 to 36 percent in 1991. This is shown in the table below.

 Outstanding from Informal Sources as a Percentage of Total Dues, for
Various Occupational Categories of Rural Households:

YEAR CULTIVATOR NON CULTIVATOR ALL
1961 81.6 89.5 83.7
1981 36.8 63.3 70.8
2001 30.7 48.7 38.8
2011 24.5 39.2 36.0


Source: (formal institutional sources 2000) Among formal institutional sources, banks and
co-operatives provided credit support to almost 56 percent of the rural households, while
professional and agricultural money lenders were providing credit to almost one sixth of the
rural households. The details by source are given below:

 Sources of Credit for Rural Households, 1991:

(Source: All India Debt and Investment Survey, 1992)

Credit agency households Percentage of rural
Government 6.1
Co-operative societies 21.6
Commercial banks and RRBs 33.7
Insurance 0.3
Provident fund 0.7
Other institutional sources 1.6
All institutional sources 64
Landlord 4
Agricultural moneylenders 7
Professional moneylenders 10.5
Relatives and friends 5.5
Others 9
all non institutional agencies 36
All agencies 100

Though the overall share of institutional credit for rural households has gone up steadily,
households in the lower asset groups were more dependent on the non-institutional credit
agencies. The share of debt from the non-institutional credit agencies was 58 percent in the
case of lowest asset group of "less than Rs 5,000" as against a low of 19 percent in the
highest asset group of "Rs 2.5 lakh and above".


 Share of Debt from Institutional and Non-institutional Sources, by Asset
Holdings of Households:

Household Assets Institutional Non-institutional ALL
(Rs 000) Agency Agency
Share as % Share as %
Less Than 5 42 58 100
5-10 47 53 100
10-20 44 56 100
20-30 68 32 100
30-50 55 45 100
50-70 53 47 100
70-100 61 39 100
100-150 61 39 100
150-200 68 32 100
250 And Above 81 19 100
All Classes 64 36 100

(Source: Debt and Investment Survey, GoI, 1992)

Over the decades following India's independence in 1947, Government of India (GOI) has
made concerted efforts to provide micro-finance to the rural poor through the formal financial
sector namely the co-operatives. However, the limited success of the co-operatives in the mid
fifties to the sixties forged the need for nationalization of commercial banks (CB) in 1971 and
the establishment of a large network to reach every village, and every segment of the
population. In the mid-1970s, Regional Rural Banks (RRB) was also established to continue
further the outreach of the banking sector in reaching the rural poor. All these programs were
supported by a policy of mandated credit programs for the low-income households that were
supported by the Integrated Rural Development Program

(IRDP), launched in 1980. The IRDP was designed to provide a mix of subsidy from the
government and credit from the banking system to enable the asset acquisition of the poor.


As a result of these programs, India has one of the largest banking networks in the world with
close to 50,000 CB outlets; 14,420 RRBs; and 90,000 primary agricultural co operative
societies. Close to 43 percent of the CB, and RRB branches are located in the rural areas.
Even more impressive is the fact that, there is a financial intermediary branch for every
15,000 households, and a co-operative in every village.

Due to the extensive expansion of the banking network and emphasis on lending to small
borrowers, there have been a lot of small loans by banks. In terms of amount, this was 13.2
percent of the total credit outstanding from commercial banks and RRBs. As per RBI data for
March 1994, the number of accounts below Rs 25,000 was 5.6 million, or 93.6 percent of
total loan accounts, with 18.6 percent of the outstanding amount. Of these, accounts with
outstanding below Rs 7500 comprised 80.5 percent of the number of accounts and 49.5
percent of amount outstanding. In terms of purpose, 45.8 percent of amount was for small
agricultural loans, 20.2 percent for industry and 18.8 percent for trade and services. By March
1997, the number of small borrowable accounts with a credit limit below Rs 25,000, had
come down by as many 0.6 million accounts to 5.0 million, or 90.1 percent of the outstanding
loan accounts. This decline in number of accounts clearly shows the post liberalization trend,
with banks concentrating their efforts on larger loans and becoming ever more reluctant to
extend credit to small borrowers.

While banks have been engaged in financing small borrowers, the manner in which this is
being done can hardly be called micro-finance. The procedures are cumbersome, the staff
unfriendly and the transaction costs high. Repeat loans, except for crop production, are rare,
even for borrowers who have repaid fully. Furthermore, even though the many of the loans
extended to the poor by the public sector financial institutions are subsidized, their ultimate
cost to the borrowers is high: factoring in out-of-pocket costs, payments to middle men, wage
and business loss due to time spent in getting the loan approved. Effectively, the total cost of
funds to the borrower ranges between 22–30 percent as against the 12-14 percent nominal
lending rates specified for commercial bank loans below Rs 200,000. All this results in low
repayment rates, leading to a vicious cycle of non-availability and non repayment.


 Supply of Savings and Insurance Services:

In the case of savings services, again while banks have provided access to a large number of
small depositors, the demand is nowhere near being met, particularly for small frequent
"recurring" deposits. Hence the poor turn to other means such as chits, bishis and savings
mobilization companies like Peerless and Sahara. Many such companies are fly-by night and
as a result, the poor lose their money. The RBI has tightened up deposit taking activity since
1997, but this has, perversely, also led to legitimate MFIs being not allowed to take deposits
and thus provide savings services to the poor.
Transaction costs of savings in formal institutions were as high as 10 percent for the rural
poor, because of small average transaction size and distance of the bank from villages. The
supply of insurance services to the poor has been increased substantially over the 1990s, and
there are a large number of low premium schemes covering them against death, accidents,
natural calamities, and loss of assets due to fire, theft, etc. However, the usage is limited by
low awareness among the poor. Crop and livestock insurance, however, are quite expensive
and their reach to the poor is negligible. Livestock and asset insurance was extended to the
poor along with the IRDP subsidized loans, and thus remained scheme driven, with little
awareness among the customers.

 Highlights of the Bharat Microfinance Report:

Outstanding Portfolio (in Rs. Crore)

SBLP 10,644 16,900

Sa-Dhan, 223 MFIs 3,456 5,954

Total 13,582 21,961
Client Outreach (in million persons)
SBLP 16.01 21.57

Sa-Dhan, 223 MFIs 10.04 14.1

Total 24.55 33.55


Sa-Dhan Quick-data set is the most timely – the quickest – of any segment of the financial sector.
India Microfinance is proud to take once again the lead in disclosing performance over the last
financial year which ended on 31st March 2008. Highlights recorded are Growth of MFI- loan
portfolios passed 70% annually between March 2006 and March 2008. The strongest impulse
came from medium – often urban – MFIs in 2006/07 and from large MFIs in 2007/08. Indian
MFIs are true to their mission of serving the poor strata of society. A stable 8 out of 10 clients
have been provided loans sized less than Rs. 10,000. The loan segment between Rs. 5,000 and Rs
10,000 has been growing strongest. This can be explained by two impulses: On one hand,
microfinance customers mature to bigger loans over the loan cycles. On the other hand, urban
microfinance starts with comparatively bigger loans than rural finance. Indian MFIs serve 4.1
million clients from the SC/ST background. The reported number of SC/ST has been growing
alongside the rate of total outreach, thus the SC/ST-share is stable at 3 out of 10 clients.

India's MFIs operate in 209 out of 331 poorest districts of the country; up by 5% over the
previous year. Large MFIs are particularly active in expanding their operations to the poorest
districts; many of them serving poorest than other districts. Urban Microfinance is emerging as a
strong growth driver; between March 2006 and March 2008, 1 out of 3 new clients was from the
urban background. One Quarter of all MFI clients is from the urban background.

 Moreover, the microfinance bill excludes the larger, and more rapidly growing part of the
sector:

One of the major omissions in the bill is that it excludes MFIs registered as NBFCs and S 25
companies, which account for nearly all the large MFIs, and the larger part of total microcredit in
the country. Their number is steadily increasing, as more and NGO-MFIs transform themselves
into companies for the reasons discussed above. The argument usually adduced for keeping
NBFCs outside the purview of the bill is that they are already regulated by the RBI.


 Percentage distribution of debt among indebted labor households by source of debt:

Sr.no. Source of debt Households
With cultivated Without cultivated
All
land land
1 Government 4.99 5.76 5.37
2 Co-operative societies 16.78 9.46 13.09
3 Banks 19.91 14.55 17.19
4 employers 5.35 8.33 6.86
5 Money lenders 28.12 35.23 31.70
6 Shop keepers 6.76 7.47 7.13
7 Relatives/friends 14.58 15.68 15.14
8 Other sources 3.51 3.52 3.52
Total 100 100 100
Source:
Rural labor enquiry report on indebtedness among rural labor households (55th Round of N.S.S.)
1999-2000

The table above reveals that most of the rural labor households prefer to raise loan from the non-
institutional sources. About 64% of the total debt requirement of these households was met by the
non-institutional sources during 1999-2000. Money lenders alone provided debt (Rs.1918) to the
tune of 32% of the total debt of these households as against 28% during 1993- 94. Relatives and
friends and shopkeepers have been two other sources which together accounted for about 22% of
the total debt at all-India level. The institutional sources could meet only 36% of the total credit
requirement of the rural labor households during 1999-2000 with only one percent increase over
the previous survey in 1993-94. Among the institutional sources of debt, the banks continued to
be the single largest source of debt meeting about 17 percent of the total debt requirement of these
households. In comparison to the previous enquiry, the dependence on co-operative societies has
increased considerably in 1999-2000. During 1999-2000 as much as 13% of the debt was raised
from this source as against 8% in 1993-94. However, in the case of the banks and the government
agencies it decreased marginally from 18.88% and 8.27% to 17.19% and 5.37% respectively
during 1999-2000 survey.


3.4 Banking Expansion:

Starting in the late 1960s, India was the home to one of the largest state interventions in the
rural credit market. This phase is known as the “Social Banking” phase. It witnessed the
nationalization of existing private commercial banks, massive expansion of branch network in
rural areas, mandatory directed credit to priority sectors of the economy, subsidized rates of
interest and creation of a new set of regional rural banks (RRBs) at the district level and a
specialized apex bank for agriculture and rural development (NABARD) at the national level.

The Net State Domestic Product (NSDP) is a measure of the economic activity in the state and
comparing it with the utilization of bank credit or bank deposits indicates how much economic
activity is being financed by the banks and whether there exists untapped potential for
increasing deposits in that state.

E.g. In the year 2003-2004 the percentage of bank deposits to NSDP is pretty high at
around75%-80% in Bihar and Jharkhand or these states are not as under banked as thought to
be.2.5 Microfinance Social Aspects Micro financing institutions significantly contributed to
gender equality and women‟s empowerment as well as poor development and civil society
strengthening. Contribution to women‟s ability to earn an income led to their economic
empowerment, increased well being of women and their families and wider social and political
empowerment. Microfinance programs targeting women became a major plank of poverty
alleviation and gender strategies in the 1990s. Increasing evidence of the centrality of gender
equality to poverty reduction and women‟s higher credit repayment rates led to a general
consensus on the desirability of targeting women.


Financial
Institution
SHG

SHG
Donors MFI

SHG

Private
equity


4.1 PROBLEM OF STUDY:

 To know the awareness of schemes and services of Micro Finance Institutes Among Surat
City.

4.2 OBJECTIVES OF THE PROJECT:

 To know exact and depth concept of the Micro Finance.
 To apply theoretical knowledge of Finance subject in practical way in business field.
 To know the working methodology of microfinance in India.
 To gain knowledge about functioning of microfinance with the help of participating
organization of Micro Finance
 A brief analysis of various institutions providing financial assistance to poor people.
 Assessing development impact of microfinance programs on various aspect like poverty,
economy etc.
 Analyze the various kinds of effects of microfinance institution.
 To know how the women can be empowered through these microfinance programs.

4.3 RESEARCH DESIGN:

There are three types of research design. 1. Exploratory research design 2.descriptive
research design. 3. Casual research design.

Here Descriptive Research Design is opted. Descriptive Research focuses on particular
aspects or dimension for formulating more sophisticated study. Like here we only
considering schemes and services of MFIs. Descriptive Research provides data about
population being studied.


4.4 DATA COLLECTION:

Research Methodology means tools and method used by researcher to gathering data and
analyzing them. The data can be collected mainly by two types of methods primary and
secondary data here researcher use primary data.

PRIMARY DATA:

The data which are collected by own and are not been collected by any other person in the
past are known as primary data. Here researcher collects data through structural
questionnaire.

4.5 SAMPLING:
Sampling includes all the activity related to the how, when, from whom we collect
information.

4.5.1 Sampling Method:
Here researcher used convenient and random sampling Method.

4.5.2 Sample Size:
Researcher uses 200 people out of total population so sample size is 200.

4.5.3 Target Population:
In this study target population is General people.

4.5.4 Time Period:
For this study time period is 2 month.

4.5.5 Geographical Area:
Here researcher selects varachha region in Surat city.


4.6 BENEFITS OF STUDY:

 This study will help to know the view of customer towards the microfinance.
 For this study MFIs know how to improve their performance and market potential for
MFIs.
 For this we are easily know customer requirement and their preference
 For this study we can know the approaches of bank towards MFIs.
 For this we can easily know the customer approach.

4.7 SCOPE OF THE STUDY:

1. There is Huge demand and supply gap.
2. Employment opportunity.
3. Huge un-tapped Market.
4. Opportunity for Pvt. Banks, NBFCs, Foreign Banks to enter this business segment.
5. High number of people access to informal sources of finance.
6. Concentrating on few people only and mainly in urban areas.

4.8 LIMITATION OF STUDY:

1. Primary data: for the collection of data the questionnaire is used but it takes more time to
collect data as compare to the secondary one.
2. Lack of reference: for studying the topic in depth more information are require but to fill
up the questionnaire decide sample frame is very difficult.
3. Micro Finance is very vast topic so it‟s not possible to connect each and every aspects of
this topic into my project and it is not possible to collect all the data and information
necessary for the deep study as certain data and documents were confidential.


5.1 INTRODUCTION:
Microfinance is defined as any activity that includes the provision of financial services such as
credit, savings, and insurance to low income individuals which fall just above the nationally
defined poverty line, and poor individuals which fall below that poverty line, with the goal of
creating social value. The creation of social value includes poverty alleviation and the broader
impact of improving livelihood opportunities through the provision of capital for micro
enterprise, and insurance and savings for risk mitigation and consumption smoothing. A large
variety of actors provide microfinance in India, using a range of microfinance delivery methods.
Since the ICICI Bank in India, various actors have endeavored to provide access to financial
services to the poor in creative ways. Governments also have piloted national programs, NGOs
have undertaken the activity of raising donor funds for on-lending, and some banks have
partnered with public organizations or made small inroads themselves in providing such services.
This has resulted in a rather broad definition of microfinance as any activity that targets poor and
low-income individuals for the provision of financial services. The range of activities undertaken
in microfinance include group lending, individual lending, the provision of savings and
insurance, capacity building, and agricultural business development services. Whatever the form
of activity however, the overarching goal that unifies all actors in the provision of microfinance
is the creation of social value.

5.2 WHAT IS MICRO FINANCE?

According to International Labor Organization (ILO), “Microfinance is an economic
Development approach that involves providing financial services through institutions to low
Income clients”. In India, Microfinance has been defined by “The National Microfinance
Taskforce, 1999” as “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 improve living standards”. "The poor stay poor, not because they are
lazy but because they have no access to capital."

The dictionary meaning of „finance‟ is management of money. The management of money
denotes acquiring & using money. Micro Finance is buzzing word, used when financing for
micro entrepreneurs. Concept of micro finance is emerged in need of meeting special goal to
empower under-privileged class of society, women, and poor, downtrodden by natural
reasons or men made; caste, creed, religion or otherwise. The principles of Micro Finance are


founded on the philosophy of cooperation and its central values of equality, equity and
mutual self-help. At the heart of these principles are the concept of human development and
the brotherhood of man expressed through people working together to achieve a better life for
themselves and their children.

Traditionally micro finance was focused on providing a very standardized credit product. The
poor, just like anyone else, (in fact need like thirst) need a diverse range of financial
instruments to be able to build assets, stabilize consumption and protect themselves against
risks. Thus, we see a broadening of the concept of micro finance--- our current challenge is to
find efficient and reliable ways of providing a richer menu of micro finance products. Micro
Finance is not merely extending credit, but extending credit to those who require most for
their and their family‟s survival. It cannot be measured in term of quantity, but due weighting
to quality measurement. How credit availed is used to survive and grow with limited means.

 Who are the clients of Micro Finance?

The typical micro finance clients are low-income persons that do not have access to formal
financial institutions. Micro finance clients are typically self-employed, often household-
based entrepreneurs. In rural areas, they are usually small farmers and others who are
engaged in small income-generating activities such as food processing and petty trade. In
urban areas, micro finance activities are more diverse and include shopkeepers, service
providers, artisans, street vendors, etc. Micro finance clients are poor and vulnerable non-
poor who have a relatively unstable source of income. Access to conventional formal
financial institutions, for many reasons, is inversely related to income: the poorer you are the
less likely that you have access. On the other hand, the chances are that, the poorer you are,
the more expensive or onerous informal financial arrangements. Moreover, informal
arrangements may not suitably meet certain financial service needs or may exclude you
anyway. Individuals in this excluded and under-served market segment are the clients of
micro finance.
As we broaden the notion of the types of services micro finance encompasses, the potential
market of micro finance clients also expands. It depends on local conditions and political
climate, activeness of cooperatives, SHG & NGOs and support mechanism. For instance,
micro credit might have a far more limited market scope than say a more diversified range of


financial services, which includes various types of savings products, payment and remittance
services, and various insurance products. For example, many very poor farmers may not
really wish to borrow, but rather, would like a safer place to save the proceeds from their
harvest as these are consumed over several months by the requirements of daily living.
Central government in India has established a strong & extensive link between NABARD
(National Bank for Agriculture & Rural Development), State Cooperative Bank, District
Cooperative Banks, Primary Agriculture & Marketing Societies at national, state, district and
village level.

5.3 NEED FOR MICRO FINANCE:

 India is said to be the home of one third of the world‟s poor; official estimates range from
26 to 50 percent of the more than one billion population.
 About 87 percent of the poorest households do not have access to credit.
 The demand for microcredit has been estimated at up to $30 billion; the supply is less than
$2.2 billion combined by all involved in the sector.
 Due to the sheer size of the population living in poverty, India is strategically significant in
the global efforts to alleviate poverty and to achieve the Millennium Development Goal of
halving the world‟s poverty by 2015.
 Microfinance has been present in India in one form or another since the 1970s and is now
widely accepted as an effective poverty alleviation strategy.
 Over the last five years, the microfinance industry has achieved significant growth in part
due to the participation of commercial banks. Despite this growth, the poverty situation in
India continues to be challenging.
 Some principles that summarize a century and a half of development practice were
encapsulated in 2004 by Consultative Group to Assist the Poor (CGAP) and endorsed by
the Group of Eight leaders at the G8 Summit on June 10, 2004:
 Poor people need not just loans but also savings, insurance and money transfer services.
 Microfinance must be useful to poor households: helping them raise income, build up assets
and/or cushion themselves against external shocks.


 “Microfinance can pay for itself.” Subsidies from donors and government are scarce and
uncertain, and so to reach large numbers of poor people, microfinance must pay for itself.

 Microfinance means building permanent local institutions.

 Microfinance also means integrating the financial needs of poor people into a country‟s
mainstream financial system. “The job of government is to enable financial services, not to
provide them.”

 “Donor funds should complement private capital, not compete with it.”

 “The key bottleneck is the shortage of strong institutions and managers.” Donorsshould
focus on capacity building.

 Interest rate ceilings hurt poor people by preventing microfinance institutions from covering
their costs, which chokes off the supply of credit.

 Microfinance institutions should measure and disclose their performance – both financially
and socially.

Microfinance can also be distinguished from charity. It is better to provide grants to families
who are destitute, or so poor they are unlikely to be able to generate the cash flow required
to repay a loan. This situation can occur for example, in a war zone or after a natural
disaster.


5.3.1 Financial needs and services:
In developing economies and particularly in the rural areas, many activities that would be
classified in the developed world as financial are not monetized: that is, money is not used to
carry them out. Almost by definition, poor people have very little money. But circumstances
often arise in their lives in which they need money or the things money can buy. In Stuart
Rutherford‟s recent book The Poor and Their Money, he cites several types of needs:

 Lifecycle Needs: such as weddings, funerals, childbirth, education, homebuilding,
widowhood, old age.

 Personal Emergencies: such as sickness, injury, unemployment, theft, harassment or
death.

 Disasters: such as fires, floods, cyclones and man-made events like war or bulldozing of
dwellings.

 Investment Opportunities: expanding a business, buying land or equipment, improving
housing, securing a job (which often requires paying a large bribe), etc.

Poor people find creative and often collaborative ways to meet these needs, primarily
through creating and exchanging different forms of non-cash value. Common substitutes for
cash vary from country to country but typically include livestock, grains, jewelers and
precious metals. As Marguerite Robinson describes in The Microfinance Revolution, the
1980s demonstrated that “microfinance could provide large-scale outreach profitably,” and
in the 1990s, “microfinance began to develop as an industry”. In the 2000s, the microfinance
industry‟s objective is to satisfy the unmet demand on a much larger scale, and to play a role
in reducing poverty. While much progress has been made in developing a viable,
commercial microfinance sector in the last few decades, several issues remain that need to
be addressed before the industry will be able to satisfy massive worldwide demand.

The obstacles or challenges to building a sound commercial microfinance industry include:

 Inappropriate donor subsidies

 Poor regulation and supervision of deposit-taking MFIs

 Few MFIs that mobilize savings

 Limited management capacity in MFIs Institutional inefficiencies.

 Need for more dissemination and adoption of rural, agricultural microfinance.


5.4 BENIFITS OF MICRO FINANCE:

Customarily, one had to apply for a loan in order to start a business, but that proved to be an
obstacle to people with poor credit. However, microfinance institutions now offer basic
financial services like savings, insurance and loans to unprivileged people. Microfinance
institutions provide such services to the less fortunate; it can be a commercial bank, credit
union, credit cooperative, or a financial non-government organization.

 Provide access to funding

Typically, the less privileged acquire financial services such as loans through an informal
relationship, which might prove to be costly and unreliable. In addition, most banks do not
view the unprivileged as viable clients due to employment history or unstable credit and lack
of financial security. Microfinance institutions often dismiss such requirements by providing
small loans at flexible rates.

 Encourage self-sufficiency and entrepreneurship

Unprivileged people might have profitable business plans, but they lack sufficient funds to
meet the start-up costs. These loans give clients enough capital to get their plans off the
ground and then begin turning revenue. They can pay off their loans in time then continue to
gain revenue from the business indefinitely.

 Manage risk

Microfinance can give unprivileged people enough capital stability, which gives them
financial security from sudden monetary problems. Also, savings allow for improved
nutrition, reduced illness, better living conditions and educational investment.

 Empower Women

Microcredit also empowers women since they are the major beneficiaries. In the past, women
were not able to participate in economic activities. Microfinance institutions now provide
women with the capital they require to start business projects. This gives them more
confidence and allows them to participate in decision making, thereby encouraging gender
equality.


5.5 MICRO FINANCE PRODUCT:

Micro Credit:

It is a small amount of money loaned to a client by a bank or other institution.
Microcredit can be offered, often without collateral, to an individual or through group
lending.

Micro Savings:

These are deposit services that allow one to save small amounts of money for future use.
Often without minimum balance requirements, these savings accounts allow households to
save in order to meet unexpected expenses and plan for future expenses.

Micro Insurance:

It is a system by which people, businesses and other organizations make a payment to share
risk. Access to insurance enables entrepreneurs to concentrate more on developing their
businesses while mitigating other risks affecting property, health or the ability to work.

Remittance:

These are transfer of funds from people in one place to people in another, usually across
borders to family and friends. Compared with other sources of capital that can fluctuate
depending on the political or economic climate, remittances are a relatively steady source of
funds.


5.6 MICRO FINANCE INSTITUTIONS:

5.6.1 Working method of micro finance institute:

 Role of micro finance:
The micro credit of microfinance programmed was first initiated in the year 1976 in
Bangladesh with promise of providing credit to the poor without collateral , alleviating
poverty and unleashing human creativity and endeavor of the poor people. Microfinance
impact studies have demonstrated that Microfinance helps poor households meet basic needs
and protects them against risks.

The use of financial services by low-income households leads to improvements in household
economic welfare and enterprise stability and growth. By supporting women‟s economic
participation, microfinance empowers women, thereby promoting gender-equity and
improving household well being. The level of impact relates to the length of time clients have
had access to financial services.

 The Origin of Micro Finance:

Although neither of the terms microcredit or microfinance were used in the academic
literature nor by development aid practitioners before the 1980s or 1990s, respectively, the
concept of providing financial services to low income people is much older. While the
emergence of informal financial institutions in Nigeria dates back to the 15th century, they
were first established in Europe during the 18th century as a response to the enormous
increase in poverty since the end of the extended European wars (1618 – 1648). In 1720 the
first loan fund targeting poor people was founded in Ireland by the author Jonathan Swift.
After a special law was passed in 1823, which allowed charity institutions to become formal
financial intermediaries a loan fund board was established in 1836 and a big boom was
initiated. Their outreach peaked just before the government introduced a cap on interest rates
in 1843. At this time, they provided financial services to almost 20% of Irish households.
The credit cooperatives created in Germany in 1847 by Friedrich Wilhelm Raiffeisen‟s
served 1.4 million people by 1910. He stated that the main objectives of these cooperatives


“should be to control the use made of money for economic improvements, and to improve
the moral and physical values of people and also, their will to act by themselves.”

In the 1880s the British controlled government of Madras in South India, tried to use the
German experience to address poverty which resulted in more than nine million poor Indians
belonging to credit cooperatives by 1946. During this same time the Dutch colonial
administrators constructed a cooperative rural banking system in Indonesia based on the
Raiffeisen‟s model which eventually became Bank Rakyat Indonesia (BRI), now known as
the largest MFI in the world.

 Micro Finance Today:

In the 1970s a paradigm shift started to take place. The failure of subsidized government or
donor driven institutions to meet the demand for financial services in developing countries let
to several new approaches. Some of the most prominent ones are presented below. Bank
Dagan Bali (BDB) was established in September 1970 to serve low income people in
Indonesia without any subsidies and is now “well-known as the earliest bank to institute
commercial microfinance”. While this is not true with regard to the achievements made in
Europe during the 19th century, it still can be seen as a turning point with an ever increasing
impact on the view of politicians and development aid practitioners throughout the world. In
1973 ACCION International, a United States of America (USA) based nongovernmental
organization (NGO) disbursed its first loan in Brazil and in 1974 Professor Muhammad
Yunus started what later became known as the Grameen Bank by lending a total of $27 to 42
people in Bangladesh. One year later the Self-Employed Women‟s Association started to
provide loans of about $1.5 to poor women in India. Although the latter examples still were
subsidized projects, they used a more business oriented approach and showed the world that
poor people can be good credit risks with repayment rates exceeding 95%, even if the interest
rate charged is higher than that of traditional banks. Another milestone was the
transformation of BRI starting in 1984. Once a loss making institution channeling
government subsidized credits to inhabitants of rural Indonesia it is now the largest MFI in
the world, being profitable even during the Asian financial crisis of 1997 – 1998.

In February 1997 more than 2,900 policymakers, microfinance practitioners and
representatives of various educational institutions and donor agencies from 137 different


Countries gathered in Washington D.C. for the first Micro Credit Summit. This was the start
of a nine yearlong campaign to reach 100 million of the world poorest households with credit
for self employment by 2005. According to the Microcredit Summit Campaign Report
67,606,080 clients have been reached through 2527 MFIs by the end of 2002, with
41,594,778 of them being amongst the poorest before they took their first loan. Since the
campaign started the average annual growth rate in reaching clients has been almost 40
percent. If it has continued at that speed more than 100 million people will have access to
microcredit by now and by the end of 2005 the goal of the microcredit summit campaign
would be reached. As the president of the World Bank James wolfensohn has pointed out,
providing financial services to 100 million of the poorest households means helping as many
as 500 – 600 million poor people.

5.6.2 Strategic policy initiative:

Some of the most recent strategic policy initiatives in the area of Microfinance taken by the
government and regulatory bodies in India are:

Working group on credit to the poor through SHGs, NGOs, NABARD, 1995
The National Microfinance Taskforce, 1999
Working Group on Financial Flows to the Informal Sector (set up by PMO), 2002
Microfinance Development and Equity Fund, NABARD, 2005

Working group on Financing NBFCs by Banks- RBI.


5.7 INDIA TOP MICRO FINANCE INSTITUTIONS:

Sr.no. Name of MICRO FINANCE INSTITUTE
1. SKS Micro Finance Ltd (SKSMPL)
2. Spandana Sphoorty pvt Ltd (SSFL)
3. Share Microfin Ltd (SML)
4. Asmitha Microfin Ltd (AML)
5. Shri Kshetra Dharmashala Rural Development Project (SKDRDP)
6. Bharatiya Samruddhi Finance Ltd (BSFL)
7. Bandhan
8. Cashpor Micro Credit (CMC)
9. Grama Vidiyal Micro Finance Pvt Ltd (GVMFL)
10. Grammen Financial Service Pvt Ltd (GFSPL)
11. Madura Micro Finance Ltd (MMFL)
12. BSS Micro Finance Pvt Ltd (BMPL)
13. Equitas Micro Finance India Pvt Ltd (Equitas)
14. Bandhan Financial Service Pvt Ltd (BFSPL)
15. Sarvodaya Nano Finance Ltd (SNFL)
16. BWDA Finance Limited (BFL)
17. Ujjivan Financial Services Pvt Ltd (UFSPL)
18. Future financial Services Ltd (FFSL)
19. ESAF Microfinance Investments Pvt Ltd (EMFIL)
20. S.M.I.L.E Micro Finance Ltd
21. SWAWS Credit Corporation India Pvt Ltd (SCCI)
22. Sanghmithra Rural Financial Services (SRFS)
23. Saadhana Microfin Society (Saadhana)
24. Gram Utthan


25. Rashtriya Seva Samithi (RASS)
26. Sahara Utsarga Welfare Society (SUWS)
27. Sonata Finance Pvt Ltd (Sonata)
28 Rashtriya Gramin Vikas Nidhi (CSP)
29. Arohan Financial Services Ltd (AFSL)
30. Janlakshmi Financial Services Pvt Ltd (JFSPL)
31. Annapurana Financial Services Pvt Ltd (Annapurana)
32. Hand in Hand Tamil nadu (HiH)
33. Payakaraopeta Women‟s Mutually Aided Co-operative Thrift and
Credit Society (PWMACTS)
34. Aadarsh Welfare Society (AWS)
35. Adhikar
36. Village Financial Services Pvt Ltd (VFSPL)
37. Sahara Uttarayan
38. RORES Micro Entrepreneur Development Trust (RMEDT)
39. Centre For Rural Reconstruction through Social Action (CReSA)
40. Indur Intideepam Macs Federation Ltd (IIMF)
41. Welfare Organisation For Multipurpose Mass Awareness Network
(WOMAN)
42. Initiative For Development Foundation (IDF)
43. Swayamshree Micro Credit Services (SMCS)
44. Janodaya Trust
45. Community Development Centre (CDC)


5.8 MAJOR SCHEMES OFFERED BY MFIs:

1. GIDKA (Group Insurance Scheme for Khadi Artisan)

With a view to provide safe and secured life to Khadi Artisan a Group Insurance Scheme for
Khadi Artisans has been introduced. The Scheme covers all the spinners, weavers, pre
spinning artisans and post-weaving artisans engaged in Khadi activity, associated with Khadi
Institutions (NGO‟s) throughout the Country. Contribution: Under the scheme, a yearly
contribution of Rs. 200 is made per artisan out of which Rs. 25 is paid by the Artisan and rest
is borne by Khadi Institution (NGO), CKVI and Social Security Fund of Government of
India.

2. DRDA (The District Rural Development Agency)

The district Rural Development Agency is visualized as specialized and professional agency
capable of managing the anti-poverty programmes of the Ministry of Rural Development on
the one hand and to effectively relate these to the overall effort of poverty eradication in the
district.

3. NIRD (National Institute of Rural Development)

National Institute of Rural Development (NIRD) facilitates rural development through
government and non-governmental initiatives. NIRD is the country‟s apex body for
undertaking training, research, action and consultancy functions in the rural development
sector. It works as an autonomous organization supported by the Ministry of Rural
Development, Government of India.

4. NRRDA (National Rural Road Development)

Construction of rural roads brings multifaceted benefits to the hitherto deprived rural areas
and also an effective poverty reduction strategy. Pradhan Mantri Gram Sadak Yojana


(PMGSY) was taken up by the Government of India with an objective to provide connectivity
to the unconnected Habitations in the rural areas. In 2002 the National Rural Roads

Development Agency (NRRDA) was established to extend support to PMGRY through
advice on technical specifications, project appraisal and management of a system of National
Quality Monitors, Management of Monitoring Systems and submission of Periodic Reports to
the Ministry of Rural Development.

5. CAPART (Council for Advancement of People‟s Action and Rural Technology)

Council for Advancement of People‟s Action and Rural Technology (CAPART) is an
autonomous body registered under the Societies Registration Act, 1860 and is functioning
under the aegis of the Ministry of Rural Development. CAPART is involved in catalyzing
and co-coordinating the emerging partnership between Voluntary Organizations and the
Government of India for sustainable development of Rural Areas.

6. RIDF (Rural Infrastructure Development Fund)

Beneficiaries:
It provides by State Governments, Panchayat Raj Institutions (PRIs), Non- Governmental
Organizations‟ (NGOs) and Self-Help Groups (SHGs). Activities Covered: Primary Schools,
Primary Health Centres, Village Haats, Joint Forest Management, Terminal and Rural
Market, Rain Water Harvesting, Fish Jetties, Mini Hydel and System Improvement Projects
in Power Sector, Rural Drinking Water Supply Scheme, Citizen Information Centres,
Anganwadi Centres and Shishu Shiksha Kendras.
Methodology:
All new “project concepts” received are placed before the Projects Sanctioning Committee
(PSC) for the approval before accepting detailed projects.


Data Analysis of Questionnaire:
1. Which alternative do you prefer to get financial help?

Institutes no. of % of Respondent
respondent
Government Subsidies 40 20
private institute 50 25
MFIs 20 10
Bank loan 90 45
Other 0 0
Total 200 100

no.of respondent and %
no.of respondent

90

50
40

20

0

Govrnment Subsidies private institute MFIs Bank loan Other

Interpretation:

From above chart it is clear that Most of people are used to get financial help from Bank as Bank Loan
and it‟s about 22.5% and about 12.5%, 10% and 5% from private institute, government subsidies and
MFIs respectively.


2. Do you know which agency provide MF?

Institutes no. of % of
respondent respondent
NGO 30 15
SHG Federation 40 20
Bank 80 40
All of above 50 25
Total 200 100

no.of respondent

80

50
40
30

NGO SHG Federation Bank All of above

Interpretation:

From above it is clear that 25% of people are aware about all agencies which Micro Finance and
rest are known about only few agencies as 40%, 20%, 15% of people aware about Bank, SHG-
federation and NGO respectively.


3. How do you come to know about MFIs?

source no of % of respondent
respondent
Through reference 120 60
Advertisement 68 34
Internet 92 46
Radio 88 44
T.V 122 61
Other 0 0
Total 200 100

no of respondent

120 122

92
88

68

0

Through Advertisement Internet Radio T.V Other
reference

Interpretation:

Most of people are come to know about Micro Finance institutes through reference and TV and
46%, 44% and 34% of people are from internet, radio and advertisement. So, TV and reference are
effective source of MFIs to spread awareness


4. Have you ever use micro finance from any MFIs?

yes no Total

no. of respondent 16 184 200
% of respondent 8 92 100

% of respondent

8%

yes

no

92%

Interpretation:

From the above chart it is clear that only 8% of population is using Micro Finance from
Micro Finance Institutes.


5. Are you aware about basic lending methodology that followed by the MFIs?

yes no total

% of respondent

16%

yes

no

84%

Interpretation:

Most of people (84% of people) are not aware about basic lending methodology used by Micro
Finance Institutes; however 16% of people are aware about basic lending methodology which is
more than uses of Micro finance.


6. Which basic lending methodology do you know for providing MF?

no. of % of respondent
respondent
Grameen bank 9 28.13
ASA methodology 5 15.63
Village banking 9 28.13
Individual lending 11 34.38
Other 0 0


no.of respondent

11

9 9

5

0

Grameen bank ASA methodology Village banking Individual lending Other

Interpretation:

From the above chart we can say that Individual Methodology is well known because its
awareness is 34% which is more than rest of. Also 28% of people are aware about Grameen
bank and village banking Methodology.


7. Are you aware about different Schemes offered by MFIs?

yes no Total


% of respondent

15%

yes

no

85%

Interpretation:

As usual, from the above chart we can conclude that only 15% of people are aware about different
Schemes which are offered by various Micro Finance Institutes.


8. If yes which schemes do you aware about that MFIs provided for rural development
purpose?

no. of respondent % of respondent
GIDKA (Group Insurance Scheme for Khadi 18 60
Artisan)
DRDA (The District Rural Development 8 26.67
Agency)
NIRD (National Institute of Rural Development) 4 13.33
NRRDA (National Rural Road Development) 10 33.33
CAPART (Council for Advancement of People‟s 8 26.67
Action and Rural Technology)
RIDF (Rural Infrastructure Development Fund) 6 20
RIF (Rural Innovation Fund) 4 13.33
Other 0 0

no.of respondent
18

10
8 8
6
4 4

0

GIDKA (Group DRDA (The NIRD NRRDA CAPART RIDF (Rural RIF (Rural Other
Insurance District Rural (National (National (Council for Infrastructure Innovation
Scheme for Development Institute of Rural Road Advancement Development Fund)
Khadi Artisan) Agency) Rural Development) of People’s Fund)
Development) Action and
Rural
Technology)

Interpretation:

Here we can see that 60% of people are aware about GIDKA scheme and 33%, 26%, 26% of
people are aware about NRRDA, RIDF and DRDA schemes provided by MFIs. Other schemes are
not very much aware to the people as compare to above.


9. Are you aware about different product/services provided by MFIs?

yes no Total

22%

yes

no

78%

Interpretation:

From above we can say that Most of people (78% of people) are not aware about product and
services offered by Micro Finance Institutes only 22% of population is aware about Product
and services.


10. Which Product/Services do you aware about provided by MFIs?

respondent
Insurance: Burial 6 13.64
Insurance: Property 12 27.27
Insurance: Medical 24 54.55
Credit loans/Business Loan 14 31.82
Credit Consumption 12 27.27
Housing Finance 24 54.55
Saving Plans 12 27.27
Training 6 13.64
Remittance 2 4.55

no.of respondent

24 24

14
12 12 12

6 6
2

Interpretation:

Insurance (Medical) and Housing Finance are most known product of Micro Finance. 27% of
people aware about product i.e. Insurance (property) credit consumption, saving plan. 32% of
people are aware about credit loan or business loan. Other services or product is not very much
familiar by people.


11. Which non-financial service do you know that provided by MFIs?

respondent
Financial literacy training 8 18.18
Skill training 18 40.91
Business management training 2 4.55
Record keeping training 10 22.73
Marketing 18 40.91
Technology improvement 2 4.55
Technical assistance 14 31.82
Technology transfer 6 13.64
Market Referrals 12 27.27
Market Link-aging 2 4.55
Other 0 0

no.of respondent

18 18

14

12

10

8

6

2 2 2

0


Interpretation:

As we can see that, most of people are aware about these three services skill training, marketing,
technical assistance. 18%, 22% and 13% of people are aware about financial literacy training;
record keeping training and technology transfer respectively and only 4% people are aware
about business mgt. training, technology improvement and market link-aging services.

12. Do you aware about different models of Micro Finance used by MFIs?

Yes No
No. of respondent 35 165
% of respondent 17.5 82.5

% of respondent

17.5%

Yes

No

82.5%

Interpretation:

From above chart it is clear that only17.5% people are aware about different model of micro
finance and rests are (82.5%) not aware about models of MF but this 17.5% higher than use of
micro finance.


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