A RESEARCH PROJECT REPORT On Impact of Micro Finance on Living Standard Empowerment and Poverty Alleviation of Poor Women: A Case

Study of North India Submitted to: Kurukshetra University, Kurukshetra in partial fulfillment for the degree of Master of Business Administration (Session -)Under the Supervision of: Submitted by:Ms. Shelly SinghalFaculty MBA Uni. Roll. No...MAIMT MBA (F)MAHARAJA AGRASEN INSTITUTE OF MANAGEMENT & TECHNOLOGY (ISO 90012008),JAGADHRI-135003 (YAMUNA NAGAR), Approved by AICTE and HRD Ministry, affiliated to Kurukshetra University, Kurukshetra 1

DECLARTIONI hereby declare that this research project report entitled "Impact of Micro Finance onLiving Standard Empowerment and Poverty Alleviation of Poor Women: A CaseStudy of North India submitted by me for the partial fulfillment of the degree ofMaster of Business Administration, submitted to Kurukshetra University,Kurukshetra is an original work done by me.I also hereby declare that this project report has not been submitted at any time to anyother university or institute for the award of any Degree or Diploma. (student name) 2

ACKNOWLEDGEMENTThe project on Impact of Micro Finance on Living Standard Empowerment andPoverty Alleviation of Poor Women: A Case Study of North India would not haveseen the light of the day without the following people and their priceless support andcooperation. Hence I extend my gratitude to all of them.As a student of MAHARAJA AGARSEN INSTITUTE OF MGT & TECH,JAGADHRI. I would first of all like to express my gratitude to Dr. Raj Kumar,Director, MAIMTfor granting me permission to undertake the project report in theiresteemed organization.I would also like to express my sincere thanks to Mr.AdarshAggarwal (H.O.D MBADepartment) for supporting me and being always there for me whenever I needed.During the actual research work, Ms. Shelly Singhal (Research Guide) and other officestaff who set the ball rolling for my project. They had been a source of inspirationthrough their constant guidance; personal interest; encouragement and help. I conveymy sincere thanks to them. In spite of their busy schedule they always found time

toguide me throughout the project. I am also grateful to them for reposing confidence inmy abilities and giving me the freedom to work on my project. Without their invaluablehelp I would not have been able to do justice to the project.I express my sincere thanks to Ms. Shelly Singhal, Faculty MBA, MAIMT for thevaluable suggestion & making this project a real successful. (Student name) PREFACE 3 MBA Students of Kurukshetra University are required to undergo Research Project asan integral part of curriculum.To accomplish this project as Impact of Micro Financeon Living Standard Empowerment and Poverty Alleviation of Poor Women: ACase Study of North India there is need to become familiar with the project.It can be possible through theoretical inputs as well as practical exposure in which mypractical knowledge is helpful acquired at the college. I have also done this study fromsecondary sources. 4 CHAPTER 1INTRODUCTION 5 IntroductionMicrofinance 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 povertyline, and poor individuals which fall below that poverty line, with the goal of creating social value. Thecreation of social value includes poverty alleviation and the broader impact of improving livelihoodopportunities through the provision of capital for micro enterprise, and insurance and savings for riskmitigation and consumption smoothing. A large variety of sectors provide microfinance in India, usinga range of microfinance delivery methods. Since the ICICI Bank in India, various actors haveendeavored to provide access to financial services to the poor in creative ways. Governments also havepiloted 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 inproviding such services. This has resulted in a rather broad definition of microfinance as any activitythat targets poor and low-

income individuals for the provision of financial services. The range ofactivities undertaken in microfinance include group lending, individual lending, the provision ofsavings and insurance, capacity building, and agricultural business development services. Whateverthe form of activity however, the overarching goal that unifies all actors in the provision ofmicrofinance is the creation of social value.Microfinance DefinitionAccording to International Labor Organization (ILO), Microfinance is an economic developmentapproach that involves providing financial services through institutions to low income clients.In India, Microfinance has been defined by The National Microfinance Taskforce, 1999 asprovision of thrift, credit and other financial services and products of very small amounts to the poorin rural, semi-urban or urban areas for enabling them to raise their income levels and improve livingstandards."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 denotesacquiring & using money. Micro Finance is buzzing word, used when financing for microentrepreneurs. 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 ofcooperation and its central values of equality, equity and mutual self-help. At the heart of theseprinciples are the concept of human development and the brotherhood of man expressed throughpeople working together to achieve a better life for themselves and their children. 6 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 ableto build assets, stabilize consumption and protect themselves against risks. Thus, we see a broadeningof the concept of micro finance--- our current challenge is to find efficient and reliable ways ofproviding a richer menu of micro finance

products. Micro Finance is not merely extending credit, butextending credit to those who require most for their and familys survival. It cannot be measured interm of quantity, but due weightage to quality measurement. How credit availed is used to survive andgrow with limited means.Concept and Features of Micro-finance: 1. It is a tool for empowerment of the poorest. 2. Delivery is normally through Self Help Groups (SHGs). 3. It is essentially for promoting self-employment, generally used for: (a) Direct income generation (b) Rearrangement of assets and liabilities for the household to participate in future opportunities and (c) Consumption smoothing. 4. It is not just a financing system, but a tool for social change, specially for women. 5. Because micro credit is aimed at the poorest, micro-finance lending technology needs to mimic the informal lenders rather than the formal sector lending. It has to: (a) Provide for seasonality (b) Allow repayment flexibility (c) Fix a ceiling on loan sizes. 7 Microfinance approach is based on certain proven truths which are not always recognized. These are: 1. That the poor are bankable; successful initiatives in micro finance demonstrate that there need not be a tradeoff between reaching the poor and profitability - micro finance constitutes a statement that the borrowers are not weaker sections in need of charity, but can be treated as responsible people on business terms for mutual profit . 2. That almost all poor households need to save, have the inherent capacity to save small amounts regularly and are willing to save provided they are motivated and facilitated to do so. 3. That easy access to credit is more important than cheap subsidized credit which involves lengthy bureaucratic procedures - (some institutions in India are already lending to groups or SHGs at higher rates - this may prevent the groups from enjoying a sufficient margin and rapidly accumulating their own funds, but members continue to borrow at these high rates, even those who can borrow individually from banks). 4. Peer pressure in groups helps in improving recoveries. 8 CHAPTER 2LITRATURE REVIEW 9

Mohammed AnisurRahaman (2007)Has examined that about microfinance and to investigate the impact of microfinance on the poorpeople of the society with the main focus on Bangladesh. We mainly concise our thesis throughclients (the poor people, who borrowed loan from microfinance institutions) perspective and build upour research based on it. Therefore, the objective of this study is to show how microfinance works, byusing group lending methodology for reducing poverty and how it affects the living standard (income,saving etc.) of the poor people in Bangladesh. Microfinance has the positive impact on the standard ofliving of the poor people and on their life style. It has not only helped the poor people to come over thepoverty line, but has also helped them to empower themselves.SusyCheston (2002)Has examined that Microfinance has the potential to have a powerful impact on womensempowerment. Although microfinance is not always empowering for all women, most women doexperience some degree of empowerment as a result. Empowerment is a complex process of changethat is experienced by all individuals somewhat differently. Women need, want, and profit from creditand other financial services. Strengthening womens financial base and economic contribution to theirfamilies and communities plays a role in empowering them. Product design and program planningshould take womens needs and assets into account. By building an awareness of the potential impactsof their programs, MFIs can design products, services, and service delivery mechanisms that mitigatenegative impacts and enhance positive ones.Linda Mayoux (Feb 2006)Has examined that Micro-finance programmes not only give women and men access to savings andcredit, but reach millions of people worldwide bringing them together regularly in organized groups.Through their contribution to womens ability to earn an income, micro-finance programmes canpotentially initiate a series of virtuous spirals of economic empowerment, increased well-being forwomen and their families and wider social and political empowerment Banks generally use individualrather than group-based lending and may not have scope for introducing non-financial services. Thismeans that they cannot be expected to have the type of the focused empowerment

strategies whichNGOs haveEoinWrenn (2005)Has examined that microfinance creates access to productive capital for the poor, which together withhuman capital, addressed through education and training, and social capital, achieved through localorganization building, enables people to move out of poverty (1999). By providing material capital to a 10 poor person, their sense of dignity is strengthened and this can help to empower the person toparticipate in the economy and society. The impact of microfinance on poverty alleviation is a keenlydebated issue as we have seen and it is generally accepted that it is not a silver bullet, it has not livedup in general to its expectation (Hulmeand Mosley, 1996). However, when implemented and managedcarefully, and when services are designed to meet the needs of clients, microfinance has had positiveimpacts, not just on clients, but on their families and on the wider community.Cheston& Kuhn (2004)Has examined that in their study concluded that micro-finance programmes have been very successfulin reaching women. This gives micro-finance institutions an extraordinary opportunity to actintentionally to empower poor women and to minimize the potentially negative impacts some womenexperiences. We also found increased respect from and better relationships with extended family andinlaws. While there have been some reports of increased domestic violence, Hashemi and Schulerfound a reduced incidence of violence among women who were members of credit organizations thanamong the general population.Dr. JyotishPrakashBasu (2006)Has examined that the two basic research questions. First, the paper tries to attempt to study how awomans tendency to invest in safer investment projects can be linked to her desire to raise herbargaining position in the households. Second, in addition to the project choice, women empowermentis examined with respect to control of savings, control of income, control over loans, control overpurchasing capacity and family planning in some sample household in Hooghly district of WestBengal. The empowerment depends on the choice of investment of project. The choice of safe projectleads to more empower of women than the choice of uncertain projects. The Commercial Banks

andRegional Rural banks played a crucial role in the formation of groups in the SHGs -Bank LinkageProgram in Andhra Pradesh whiles the Cooperative Banks in West Bengal.Chintamani Prasad Patnaik (March 2012)Has examined that microfinance seems to have generated a view that microfinance development couldprovide an answer to the problems of rural financial market development. While the development ofmicrofinance is undoubtedly critical in improving access to finance for the unserved and underservedpoor and low-income households and their enterprises, it is inadequate to address issues of ruralfinancial market development. It is envisaged that self-help groups will play a vital role in suchstrategy. But there is a need for structural orientation of the groups to suit the requirements of newbusiness. Microcredit movement has to be viewed from a long-term perspective under SHG 11 framework, which underlines the need for a deliberate policy implication in favour of assurance interms of technology back-up, product market and human resource development.Hunt, J &Kasynathan (2002)Has examined that poor women and men in the developing world need access to microfinance anddonors should continue to facilitate this. Research suggests that equity and efficiency arguments fortargeting credit to women remain powerful: the whole family is more likely to benefit from credittargeted to women, where they control income, than when it is targeted to men. Microfinance mustalso be re-assessed in the light of evidence that the poorest families and the poorest women are notable to access credit. A range of microfinance packages is required to meet the needs of the poorest,both women and men. Donors need to revisit arguments about the sustainability of microfinanceprogrammes. Financial sustainability must be balanced against the need to ensure that some creditpackages are accessible to the poorest.R.Prabhavathy (2012)Has examined that collective strategies beyond micro-credit to increase the endowments of thepoor/women enhance their exchange outcomes the family, markets, state and community, and socio-cultural and political spaces are required for both poverty reduction and women empowerment.

Eventhough there were many benefits due to micro-finance towards women empowerment and povertyalleviation, there are some concerns. First, these are dependent on the programmatic and institutionalstrategies adopted by the intermediaries, second, there are limits to how far microcredit interventionscan alone reach the ultra-poor, third the extent of positive results varies across household headship,caste and religion and fourth the regulation of both public and private infrastructure in the context ofLPG to sustain the benefits of social service providers.Reginald Indon (2007)Has examined that informal businesses represent a very large cross-section of economic enterprisesoperating in the country. Informal businesses may be classified as either the livelihood/ survival typeor the entrepreneurial/ growth-oriented type. Livelihood enterprises are those which show very limitedpotential for growth in both income and employment generation. There are existing policies, programand services that directly/ indirectly cover informal. Variety of support programs, services andinformation are currently being offered by different institutions. These programs and support servicesfail to reach or remain inaccessible to informal business operators and owners. This is borne out of andperpetuated by lopsided economic policies and poor governance that inadvertently encumber informalbusinesses from accessing mainstream resources and services. 12 Mallory A. Owen (2006)Has examined that microfinance has signaled a paradigm shift in development ideology. Using myexperiences with microfinance in a fishing village in Senegal, this study will address the claims drivingthe microfinance movement, debate its pros and cons and pose further questions about its validity andwidespread implementation. Instead of lifting people out of poverty and empowering women,microfinance may have regressive long term potential for borrowers. How loans get used is a centraltheme of this essay. How microfinance and the notion of the entrepreneur fit into the rural,Senegalese cultural context is also addressed. Microfinance programs should be implemented withcomplementary measures that

challenge the systematic causes of inequality examined in this article.The microfinance model (group lending based on joint liability) uses the social capital generated bygroup membership to ensure that loans get refinanced. If one woman fails to pay back her loan, sheputs her entire loan group at jeopardy. As a result, Womens participation in microenterprise does notshow any signs of creating the new forms of solidarity among women that the advocates ofempowerment desire. Instead, women are placed under enormous pressure to maintain existing modesof social relationships, on which depends not only the high rates of loan repayments but also thesurvival of families.Jennifer Meehan (2004)Has examined that it will need to do three things simultaneously. First, it will need to rapidly scale up,in key markets, like India, home to high numbers of the worlds poor. Second, in this process, clearpriority is needed for philanthropic, quasi-commercial and commercial financing for the business plansof MFIs targeting the poorest segments of the population, especially women. Third, microfinance willneed to realize its possibility as a broad platform and movement, more than simply an intervention andindustry. The pioneering financings completed by leading, poverty-focused MFIs have shown theindustry what is possible large amounts of financing that allows for rapid expansion of financialservices to new poor customers. The MFIs offer a model to others that are interested in tapping thefinancial markets. If leading MFIs continue on their present course and adopt some or all of thesuggestions offered, financial market interest or more specifically, debt capital market interest inleading, poverty-focused MFIs is expected to grow.Jacob Levitsky and Leny van Oyen (1999)Has examined that micro-businesses to large corporations, located in large urban centres, in rural areasand in the formal and informal sectors. Financing needs are therefore of varying nature. In describingexperiences, a link is made between size of enterprises, financing schemes/instruments and typicaldelivery channels. When referring to enterprises in this paper, focus is predominantly on businesses, 13

both existing and potential, in the manufacturing sector and related services. It is clear from this paperthat increasing the volume of finance available and the delivery of such funds in various appropriateforms, to support enterprises in Africa, is a difficult challenge. Central banks have to be given moreindependence, strengthened with qualified, experienced personnel, able to fulfil adequately the role ofsupervising and monitoring the performance of commercial banks in the provision of loans to thoseenterprises able to make effective use of them. Formal financial institutions such as commercial banksand, in a few cases, development banks, have to be encouraged and pressed to make appropriate loansto those who have proved themselves by paying off a number of loans they have received from NGOsor from formal financial institutions. The minimalist credit approach has clear limitations, and forcredit schemes to be effective and have impact, complementary services are needed.Marguerite S. Robinson (1995)Has examined that HIIDs role in the formulation of the initial hypotheses and HIIDs contributions inplanning and coordinating the underlying research, advising on the policies and implementationstrategies that put concept into practice, analysing the results, and disseminating the findings. Drawingon work in Asia, Africa, and Latin America, the paper analyses the paradigm shift in microfinancefrom government and donor-funded subsidized credit to sustainable financial intermediation. This shifthas occurred because of the work of many people in many countries. This paper, however, is limited toHIIDs contribution. The policy implications of the new microfinance for governments, donors, banks,and NGOs are explored. HIID is advising BRI on its program for international visitors. In addition,HIID is analysing and teaching - in universities, financial institutions, donor agencies, banksuperintendences, and NGOs - the principles and the results of the new microfinance paradigm.Pillai (1995)Has examined that the emergence of liberalization and globalization in early 1990s aggravated theproblem of women workers in unorganized sectors from bad to worse as most of the women who wereengaged in various self-employment activities have lost their livelihood. Microfinance is emerging as apowerful instrument for poverty

alleviation in the new economy. In India, Microfinance scene isdominated by Self Help Group (SHGs)-Bank Linkage Programme as a cost effective mechanism forproviding financial services to the "Unreached Poor" which has been successful not only in meetingfinancial needs of the rural poor women but also in strengthening collective self-help capacities of thepoor leading to their empowerment. Micro finance is necessary to overcome exploitation, createconfidence for economic self-reliance of the rural poor, particularly among rural women who aremostly invisible in the social structure. Micro finance can contribute to solving the problems ofinadequate housing and urban services as an integral part of poverty alleviation programmes. Thechallenge lies in finding the level of flexibility in the credit instrument that could make it match the 14 multiple credit requirements of the low income borrower without imposing unbearably high cost ofmonitoring its end use upon the lenders.Crabb, P. (2008)Has examined that the relationship between the success of microfinance institutions and the degree ofeconomic freedom in their host countries. Many microfinance institutions are currently not self-sustaining and research suggests that the economic environment in which the institution operates is animportant factor in the ability of the institution to reach this goal, furthering its mission of outreach tothe poor. The sustainability of the micro lending institutions is analyzed here using a large cross-section of institutions and countries. The results show that microfinance institutions operate primarilyin countries with a relatively low degree of overall economic freedom and that various economicpolicy factors are important to sustainability.Fehr, D. and G. Hishigsuren. (2006)Has examined that microfinance institutions (MFIs) provide financial services to the pooresthouseholds. To date, funding of MFI activities has come primarily from outright donor grants,government subsidies, and often debt capital, including debt with non-market terms favorable to theMFI. These traditional sources of MFI financing may not be sufficient to allow MFIs to providemaximum services. There is a subset of the pool of mainstream equity investors who would considerinvesting in MFI

opportunities, even knowing that they would not expect to earn the full economic rateof return that such investments would otherwise require. However, as part of their investmentevaluation process, these investors would ask: What would the market determine required expectedrate of return for my MFI investment be? What return on investment (ROI) do I expect to earn on myMFI investment? Is the difference in the above two returns acceptable given my level of socialmotivation? How will I "monetize" my investment and when? The purpose of this article is to employmodern corporate finance techniques to address these questions.Demirguc-Kunt, A. and Martinez, P.M.S. (2005)Has examined that this paper (i) presents new indicators of banking sector penetration across 99countries, based on a survey of bank regulatory authorities, (ii) shows that these indicators predicthousehold and firm use of banking services, (iii) explores the association between the outreachindicators and measures of financial, institutional, and infrastructure development across countries, and(iv) relates these banking outreach indicators to measures of firms financing constraints. In particular,we find that greater outreach is correlated with standard measures of financial development, as well aswith economic activity. Controlling for these factors, we find that better communication and transport 15 infrastructure, and better governance are also associated with greater outreach. Government ownershipof financial institutions translates into lower access, while more concentrated banking systems areassociated with greater outreach. Finally, firms in countries with higher branch and ATM penetrationand higher use of loan services report lower financing obstacles, thus linking banking sector outreachto the alleviation of firms financing constraints.Srinivasan, Sunderasan (2007)Has examined that micro banking facilities have helped large numbers of developing country nationalsby supporting the establishment and growth of microenterprises. And yet, the microfinance movementhas grown on the back of passive replication and needs to be revitalised with new product offeringsand innovative service delivery. Renewable Energy systems viz., solar home

systems, biogas digesters,etc., serve to improve indoor air quality, provide superior light and extend working and study hours.Such applications are not inherently income generating and returns on such investments accrue fromcost avoidance, but should qualify for micro funding, as such quality of life investments, reflectborrower maturity and simultaneously contribute to MFI sustainability.Basu, P., Srivastava (2005)Has examined that the current level and pattern of access to finance for Indias rural poor and examinessome of the key microfinance approaches in India, taking a close look at the most dominant amongthese, the Self Help Group (SHG) Bank Linkage initiative. It empirically analyzes the success withwhich SHG Bank Linkage has been able to reach the poor, examines the reasons behind this, and thelessons learned. The analysis in the paper draws heavily on a recent rural access to finance survey of6,000 households in India, undertaken by the authors. The main findings and implications of the paperare as follows: Indias rural poor currently have very little access to finance from formal sources.Microfinance approaches have tried to fill the gap. Among these, the growth of SHG Bank Linkagehas been particularly remarkable, but outreach remains modest in terms of the proportion of poorhouseholds served. The paper recommends that, if SHG Bank Linkage is to be scaled-up to offer massaccess to finance for the rural poor, then much more attention will need to be paid towards: thepromotion of high quality SHGs that are sustainable, clear targeting of clients, and ensuring that bankslinked to SHGs price loans at cost-covering levels. At the same time, the paper argues that, in aneconomy as vast and varied as Indias, there is scope for diverse microfinance approaches to coexist.Private sector micro financiers need to acquire greater professionalism, and the government, too, canhelp by creating a flexible architecture for microfinance innovations, including through a moreenabling policy, legal and regulatory framework. Finally, the paper argues that, while microfinancecan, at minimum, serve as a quick way to deliver finance to the poor, the medium-term strategy toscale-up access to finance for the poor should be to graduate microfinance clients to formal financial 16

institutions. The paper offers some suggestions on what it would take to reform these institutions withan eye to improving access for the poor.Robinson, M. (2001)Has examined that the timing of this book is excellent it has few close substitutes in terms of itssweeping overview of the terrain, and the revolution is now so advanced that the time is right for ahistory, or at least a retrospective. As with any revolution, however, splits have emerged within themovement. On one side are those who argue that the way forward is to require microfinanceinstitutions to meet the test of financial sustainability essentially, requiring these institutions to covertheir costs, even if this means that the very poorest of the poor remain underserved. Against this, thepoverty lending approach emphasizes the importance of outreach, especially to the very poorestborrowers, as a poverty fighting approach.Gallardo, Joselito (1999)Has examined that the Bank should maximize opportunities to expand the use of leasing as anapproach to financial intermediation in Bank projects to promote the development of small businessesand microenterprises. In most developing countries, capital markets are relatively undeveloped andbanks are often unable or unwilling to undertake term lending. Operations in microenterprises andsmall businesses are cash-flow-oriented but rarely have organized historical financial records or theassets needed for collateral for conventional bank financing. Gallardo explores the potential of leasingas an option to expand small businesses access to medium-term financing for capital equipment andnew technology. In a lease-financing contract, the lessor-financier retains ownership of the asset, leasepayments can be tailored to fit the cash-flow generation patterns of the lessee-borrowers business, andthe security deposit is smaller than the equity stake required in conventional bank financing. Othersmall businesses require medium-term financing to acquire the tools and equipment needed to supportproduction growth and expansion. Gallardo examines and compares the Banks experience: Leasefinancing was used to promote the development of small businesses in Pakistan, as part of amicroenterprise development loan project. For a Bank-supported alternative-energy project inIndonesia, a variant of lease financing-the hire-

purchase contract-is being used in marketing anddistribution by private distributors of photovoltaic solar home systems. Lease financing was used byGrameen Trust in Bangladesh to finance the purchase of small tools and equipment and in othercountries to promote the growth of alternative energy systems. This paper-a product of theDevelopment Research Group-is part of a larger effort in the group to identify appropriate policies forenvironmental regulation in developing countries. The study was funded by the Banks ResearchSupport Budget under the research project "The Economics of Industrial Pollution Control inDeveloping Countries" 17 Muhammad Yunus (1998)Has examined that this approach to poverty reduction at the macro-level is inadequate. The primarycauses of poverty are not lack of human capital or lack of demand for labor. Lack of demand for laboris only a symptom, not a cause, of poverty. Poverty is caused by our inadequate understanding ofhuman capabilities and by our failure to create enabling theoretical frameworks, concepts, institutionsand policies to support those capabilities. My main argument is that economics as we know it is notonly unhelpful in getting the poor out of poverty; it may even be a hindrance. In this paper, I wouldlike to explore those institutions that perpetuate poverty, share my experiences with an effectivepoverty alleviation institution, and present my thoughts on the future of poverty alleviation. Beforeaddressing these points, however, I would like to provide a useful framework to define the concept of"the poor" more concretely.Ashta, A. & De Selva, R. (2009)Hass examined that the relationship between microfinance and religion, and provides future researchdirections in this area. Religious institutions often play a crucial role in establishing microfinancesystems, but interactions between microfinance and religion have received little attention ofresearchers. Some of the topics addressed by articles reviewed in this paper include the impact of theGreat Irish Famine on Irish loan funds, indigenization within support groups for chronically ill Haitianwomen, impact of religion on borrowing patterns of Jordanian micro-entrepreneurs, Islamicmicrofinance in Pakistan and Indonesia, spirituality as an asset in a Christian initiative

role of religiousleaders in identifying entrepreneurial talent, microfinance and charity in Thailand and the Philippines,and extensive socio-economic studies in Bangladesh and India.Ernest Aryeetey (2005)Has examined that informal finance and microfinance suitable for financing growing small to mediumsize enterprises (SMEs) in Sub-Saharan Africa? First, I present the characteristics of informal finance,focusing on size, structure, and scope of activities. Informal finance has not been very attractive for theprivate sector. Indeed, the informal sector has considerable experience and knowledge about dealingwith small borrowers, but there are significant limitations to what it can lend to growingmicrobusinesses. Second, I discuss some recent trends in microfinance. While externally drivenmicrofinance projects have surfaced in Africa, their performance relative to small business finance hasnot been as positive as in Asia and Latin America. Third, I introduce some possible steps toward a newreform agenda that will make informal and microfinance relevant to private sector development,including focusing on links among formal, semi-formal and informal finance and how these links canbe developed. 18 Yunus (2003)Has examined that count 130 McMaster School for Advancing Humanity on women to spread theword to their neighbors and friends about the success of these loans. The testimony is expected toconvince others to seek out Grameen for help. Yunus also encourages members to save some of theirmoney in case they fall on hard times, such as natural disasters, or to use this money for otheropportunities. In 1977, Yunus founded Grameen Bank after working for six months to get a loan fromthe Janata Bank. Yunus realized that having groups of people take out a loan was a better plan forsuccess than giving loans to individuals. He describes the process by which Grameen Bank lendsmoney. Loan repayments are to be made in very small amounts, and in the first project, Yunus chose avillager to be in charge of collecting the repayments.Monique Cohen (2002)Has examined that the ideas presented in this paper are designed to direct the arena of discoursetowards a more holistic market driven or client focused microfinance agenda. Currently, the

debate onmarket-driven microfinance is primarily framed by the problems of competition and dropouts amongestablished MFIs. The solutions to the problems are defined in terms of more responsive products, thecreation of new products, and the restructuring of existing ones. Appropriate products will not onlybenefit the operations of an institution they will also have a positive impact on the wellbeing of theclient, reducing the risk of borrowing and the poors vulnerability. In presenting current thinking on aclient -led agenda, this paper finds itself in a precarious position in the midst of this debate. Client-ledmodels are still in their infancy, and the fact that this topic is the theme of this special edition of theJournal of Development Studies is itself an important milestone. When this author began to focus onclients in microfinance six years ago, the notion that clients deserved a voice in the design and deliveryof services was dismissed out of hand.Shannon Doocy, Dan Norell, ShimelesTeffera, and Gilbert Burnham (2005)Has examined that Management decision making in MFIs is becoming increasingly tied to collectinginformation about social performance. This paper examines the impact of participation in an Ethiopianmicrofinance program on indicators of socioeconomic status including wealth, income, and home orland ownership. A survey assessing these outcomes was conducted in May 2003 in two predominantlyrural sites in Southern Ethiopia and included 819 households. The article discusses managementdecisions made as the result of survey findings about socioeconomic status and food security toincrease retention rates and to facilitate client savings. Additionally, the management was prompted toincrease the number of female clients and raise the proportion of female loan officers. This paperillustrates how data from routine monitoring and evaluation can be linked to MFI management 19 decision making, which ultimately results in providing better microfinance services. Household assetdata indicates that participation in the WISDOM microfinance program did not result in increasedhousehold wealth. Significant differences in household income were not observed between participantgroups in either survey site and client status was not a

significant predictor of income in univariate ormultivariate regression models.John A. Brett. (2006)Has examined that having borrowed money from a microfinance organization to start a small business,many women in El Alto, Bolivia are unable to generate sufficient income to repay their loans and somust draw upon household resources. Working from the womens experience and words, this articleexplores the range of factors that condition and constrain their success as entrepreneurs. The centraltheme is that while providing the poor access to credit is currently very popular in development circles,the social and structural context within which some women operate so strongly constrains theirproductive activity that they realize a net income loss at the household level instead of the promisedbenefits of entrepreneurship. This paper explores the social and structural realities in which womenseek out and accept debt beyond their capacity to repay from the proceeds of their business enterprise.By examining some of the "hidden costs" of microfinance participation, this paper argues for a shiftfrom evaluation on outcomes at the institutional level to outcomes at the household level to identify theforces and factors that condition womens success as micro-entrepreneurs. While there has been muchdiscussion on the benefits of microcredit lending and increasing critique of it on both ideological andsubstantive grounds, there have been few ethnographically informed studies on consequences to users.NidhiyaMenon (2006)Has examined that this paper studies the benefits of participation in micro-finance programs, wherebenefits are measured in terms of the ability to smooth the effect of seasonal shocks that causeconsumption fluctuations. It is shown that although membership in these programs is an effectiveinstrument in combating inter-seasonal consumption differences, there is a threshold level of length ofparticipation beyond which benefits begin to diminish. Returns from membership are modelled usingan Euler equation approach. Fixed effects non-linear least squares estimation of parameters using datafrom 24 villages of the Grameen Bank suggests that returns to participation, as measured by the abilityto smooth seasonal shocks, begin to decline after approximately two years of membership. Thisimplies that membership alone no longer has a

mitigating marginal effect on seasonal shocks to percapita consumption after four years of participation. Such patterns suggest that the ability to smoothconsumption as a function of length of membership, need not accrue indefinitely in a linear fashion.;Reprinted by permission of Frank Cass & Co. Ltd. 20 CHAPTER 3INDUSTRY PROFILE 21 The Origin of MicrofinanceAlthough neither of the terms microcredit or microfinance were used in the academic literature nor bydevelopment aid practitioners before the 1980s or 1990s, respectively, the concept of providingfinancial services to low income people is much older.While the emergence of informal financial institutions in Nigeria dates back to the 15th century, theywere first established in Europe during the 18th century as a response to the enormous increase inpoverty since the end of the extended European wars (1618 1648). In 1720 the first loan fundtargeting poor people was founded in Ireland by the author Jonathan Swift. After a special law waspassed in 1823, which allowed charity institutions to become formal financial intermediaries a loanfund board was established in 1836 and a big boom was initiated. Their outreach peaked just before thegovernment introduced a cap on interest rates in 1843. At this time, they provided financial services toalmost 20% of Irish households. The credit cooperatives created in Germany in 1847 by FriedrichWilhelm Raiffeisen served 1.4 million people by 1910. He stated that the main objectives of thesecooperatives should be to control the use made of money for economic improvements, and to improvethe 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 Germanexperience to address poverty which resulted in more than nine million poor Indians belonging tocredit cooperatives by 1946. During this same time the Dutch colonial administrators constructed acooperative rural banking system in Indonesia based on the Raiffeisen model which eventually becameBank Rakyat Indonesia (BRI), now known as the largest MFI in the world.EVOLUTION OF MICROFINANCE IN INDIA (1960 TO

TODAY)Microfinance in India emerged as an effort to reach out to the unbanked, lower income segments ofthe population 1960 to 1980 1990 2000 Phase 1: Social Banking Phase 2: Financial Systems Phase 3: Financial Inclusion Approach1.Nationalization of private 1.Peer-pressure 1.NGOMFIs and SHGs gainingcommercial banks more legitimacy2.Expansion of rural branch 2.Establishment of 2.MFIs emerging as strategicnetwork MFIs,typically of non-profit partners to diverse entities origins interested in thelow-income segments3.Extension of subsidized credit 3.Consumer finance emerged 22 ashighgrowth area4.Establishment of Rural 4.Increased policy regulationRegional Banks5.Establishment of apex 5.Increasing commercializationinstitutionssuch as NationalBank for Agricultureand RuralDevelopment and SmallIndu-stries Development Bank ofIndia Table 3.1Phase 1: In the 1960s, the credit delivery system in rural India was largely dominated by thecooperative segment. The period between 1960 and 1990, referred to as the social banking phase.This phase includes nationalization of private commercial banks, expansion of rural branch networks,extension of subsidized credit, establishment of Regional Rural Banks (RRBs) and the establishmentof apex institutions such as the National Bank for Agriculture and Rural Development (NABARD) andthe Small scale Industries Development Board of India (SIDBI).Phase 2: After 1990, India witnessed the second phase financial system approach of credit delivery.In this phase NABARD initiated the Self Help Group (SHG) Bank Linkage Bank Linkage program,which links informal womens groups to formal banks. This concept held great appeal for non-government organizations (NGOs) working with the poor, prompting many of them to collaborate withNABARD in the program. This period also witnessed the entry of Microfinance Institutions (MFIs),largely of non-profit origins, with existing development programs.Phase 3: In 2000, the third phase in the development of Indian microfinance began, marked by furtherchanges in policies, operating formats, and stakeholder orientations in the financial services space.This phase emphasizes on inclusive growth and financial

inclusion. This period also saw manyNGO-MFIs transform into regulated legal formats such as Non-Banking Finance Companies (NBFCs).Commercial banks adopted innovative ways of partnering with NGO-MFIs and other ruralorganizations to extend their reach into rural markets. MFIs have emerged as strategic partners toindividuals and entities interested in reaching out to Indias low income client segments. 23 Policy Attention to Microfinance After 20001999 --- Official definition of microfinance by RBIAugust 2000 --- Micro Credit/Rural Credit included in the list of permitted non-banking financialcompany (NBFC) activities considered for Foreign Direct Investment (FDI)2005 --- MFIs acknowledged for the first time in the Budget Speech by the Finance MinisterGovernment intends to promote MFIs in a big way. The way forward, I believe, is to identify MFIs,classify and rate such institutions, and empower them to intermediate between the lending banks andthe beneficiaries.January 2006 --- Announcement of the business correspondent modelFebruary 2006 --- Budget Speech by the Finance Minister promises a formal statutory framework forthe promotion, development and regulation of the microfinance sectorMarch 2006 --- Comprehensive guidelines by RBI on loan securitizationJuly 2006 --- RBI master circular allows NGOs involved in microfinance to access ExternalCommercial Borrowings (ECB) up to USD 5 million (INR 20.25 crores) during a year.March 2007 --- Finance Minister introduces the Micro Finance Sector Development and RegulationBill 2007 in LokSabhaEntities in Micro Finance:-Indian Microfinance dominated by two operational approaches: SHG Initiated by NABARD through SHG Bank Linkage Program. Largest outreach to microfinance clients in the world. MFIs Emerged in the late 1990s to harness social and commercial funds. Today the number of Indian MFIs has increased and crossed 1000.SHGs and MFIs disbursement till 2007USD 3.7 billionsSHGs comprise twenty or fewer members, of whom the majority are women from the poorest castesand tribes. Members save small amounts of money, as little as a few rupees a month in a group

fund.Members may borrow from the group fund for a variety of purposes ranging from household 24 emergencies to school fees. Banks typically lend up to four rupees for every rupee in the group fund.Groups pay a reasonable 12-24% annual rate of interest. Nearly 1.4 million SHGs comprisingapproximately 20 million women now borrow from banks, which makes the Indian SHGBankLinkage model the largest microfinance program in the world.MFI is an organization that offers financial services to low income populations. Almost all of theseoffer microcredit and only take back small amounts of savings from their own borrowers, not from thegeneral public. Term refers to a wide range of organizations - NGOs, credit unions, cooperatives,private commercial banks and non-bank financial institutions.Microfinance TodayIn the 1970s a paradigm shift started to take place. The failure of subsidized government or donordriven institutions to meet the demand for financial services in developing countries let to several newapproaches. Some of the most prominent ones are presented below.Bank Dagan Bali (BDB) was established in September 1970 to serve low income people in Indonesiawithout any subsidies and is now wellknown as the earliest bank to institute commercialmicrofinance. While this is not true with regard to the achievements made in Europe during the 19thcentury, it still can be seen as a turning point with an ever increasing impact on the view of politiciansand development aid practitioners throughout the world. In 1973 ACCION International, a UnitedStates of America (USA) based non-governmental organization (NGO) disbursed its first loan inBrazil and in 1974 Professor Muhammad Yunus started what later became known as the GrameenBank by lending a total of $27 to 42 people in Bangladesh. One year later the Self-EmployedWomens Association started to provide loans of about $1.5 to poor women in India. Although thelatter examples still were subsidized projects, they used a more business oriented approach and showedthe world that poor people can be good credit risks with repayment rates exceeding 95%, even if theinterest rate charged is higher than that of traditional banks. Another

milestone was the transformationof BRI starting in 1984. Once a loss making institution channeling government subsidized credits toinhabitants of rural Indonesia it is now the largest MFI in the world, being profitable even during theAsian financial crisis of 1997 1998.In February 1997 more than 2,900 policymakers, microfinance practitioners and representatives ofvarious educational institutions and donor agencies from 137 different countries gathered inWashington D.C. for the first Micro Credit Summit. This was the start of a nine yearlong campaign toreach 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 through2527 MFIs by the end of 2002, with 41,594,778 of them being amongst the poorest before they tooktheir first loan. Since the campaign started the average annual growth rate in reaching clients has beenalmost 40 percent. If it has continued at that speed more than 100 million people will have access to 25 microcredit by now and by the end of 2005 the goal of the microcredit summit campaign would bereached. As the president of the World Bank James Wolfensohn has pointed out, providing financialservices to 100 million of the poorest households means helping as many as 500 600 million poorpeople.Need for Micro-Finance: The gap between Demand and SupplySince independence, various governments in India have experimented with a large number of grantand subsidy based poverty alleviation programmes. These programmes were based on grant/subsidyand the credit linkage was through commercial banks only.Hence was adopted the concept of micro-credit in India. Success stories in neighboring countries, likeGrameen Bank in Bangladesh, Bank Rakiat in Indonesia, Commercial & Industrial Bank in Philippinesetc, gave further boost to the concept in India in the 1980s. India thus adopted the similar model ofextending credit to the poorest sector and took a no. of steps to promote micro-financing in thecountry. Since the 1950s, various governments in India have experimented with a large number ofgrant and subsidy based poverty alleviation programmes. Studies show that these

mandatory anddedicated subsidized financial programmes, implemented through banking institutions, have not beenfully successful in meeting their social and economic objectives:The common features of these programmes were:- Target orientation Based on grant/subsidy, and Credit linkage through commercial banks.These programmes:- Were often not sustainable Perpetuated the dependent status of the beneficiaries Depended ultimately on government employees for delivery Led to misuse of both credit and subsidy and Were treated at best as poverty alleviation interventions.Who are the clients of micro finance?The typical micro finance clients are low-income persons that do not have access to formal financialinstitutions. Micro finance clients are typically self-employed, often household-based entrepreneurs. Inrural areas, they are usually small farmers and others who are engaged in small income-generatingactivities such as food processing and petty trade. In urban areas, micro finance activities are more 26 diverse and include shopkeepers, service providers, artisans, street vendors, etc. Micro finance clientsare 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, thepoorer you are, the more expensive or onerous informal financial arrangements. Moreover, informalarrangements 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 ofmicro finance clients also expands. It depends on local conditions and political climate, activeness ofcooperatives, SHG & NGOs and support mechanism. For instance, micro credit might have a far morelimited market scope than say a more diversified range of financial services, which includes varioustypes of savings products, payment and remittance services, and various insurance products. Forexample, many very poor farmers may not really

wish to borrow, but rather, would like a safer place tosave the proceeds from their harvest as these are consumed over several months by the requirements ofdaily living. Central government in India has established a strong & extensive link between NABARD(National Bank for Agriculture & Rural Development), State Cooperative Bank, District CooperativeBanks, Primary Agriculture & Marketing Societies at national, state, district and village level.The Need in India:- India is said to be the home of one third of the worlds 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 globalefforts to alleviate poverty and to achieve the Millennium Development Goal of halving the worldspoverty by 2015. Microfinance has been present in India in one form or another since the 1970s and isnow widely accepted as an effective poverty alleviation strategy. Over the last five years, themicrofinance industry has achieved significant growth in part due to the participation of commercialbanks. 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 in2004 by Consultative Group to Assist the Poor (CGAP) and endorsed by the Group of Eight leaders atthe G8 Summit on June 10, 2004: Poor people need not just loans but also savings, insurance and money transfer services. 27 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 countrys 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. Donors should 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 aredestitute, or so poor they are unlikely to be able to generate the cash flow required to repay a loan. Thissituation can occur for example, in a war zone or after a natural disaster.Financial needs and Financial services:-In developing economies and particularly in the rural areas, many activities that would be classified inthe 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 livesin which they need money or the things money can buy.In Stuart Rutherfords 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. 28 Poor people find creative and often collaborative ways to meet these needs, primarily through creatingand exchanging different forms of noncash value. Common substitutes for cash vary from country tocountry but typically include livestock, grains, jewellery and precious metals.As Marguerite Robinson describes in The Microfinance Revolution, the 1980s demonstrated thatmicrofinance could provide large-scale outreach profitably, and in the 1990s, microfinance beganto develop as an industry. In the 2000s, the microfinance industrys objective is to satisfy

the unmetdemand on a much larger scale, and to play a role in reducing poverty. While much progress has beenmade in developing a viable, commercial microfinance sector in the last few decades, several issuesremain that need to be addressed before the industry will be able to satisfy massive worldwidedemand.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 methodologiesRole of Microfinance:-The micro credit of microfinance progamme was first initiated in the year 1976 in Bangladesh withpromise of providing credit to the poor without collateral , alleviating poverty and unleashing humancreativity and endeavor of the poor people. Microfinance impact studies have demonstrated that 1. Microfinance helps poor households meet basic needs and protects them against risks. 2. The use of financial services by low-income households leads to improvements in household economic welfare and enterprise stability and growth. 3. By supporting womens economic participation, microfinance empowers women, thereby promoting gender-equity and improving household well-being. 4. The level of impact relates to the length of time clients have had access to financial services.1.1 Strategic Policy InitiativesSome of the most recent strategic policy initiatives in the area of Microfinance taken by thegovernment 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 29 Microfinance Development and Equity Fund, NABARD, 2005 Working group on Financing NBFCs by Banks- RBI1.2 Activities in MicrofinanceMicrocredit: 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

futureuse. Often without minimum balance requirements, these savings accounts allow households to save inorder to meet unexpected expenses and plan for future expenses.Micro insurance: It is a system by which people, businesses and other organizations make a paymentto share risk. Access to insurance enables entrepreneurs to concentrate more on developing theirbusinesses while mitigating other risks affecting property, health or the ability to work.Remittances: These are transfer of funds from people in one place to people in another, usually acrossborders to family and friends. Compared with other sources of capital that can fluctuate depending onthe political or economic climate, remittances are a relatively steady source of funds.1.3 Legal RegulationsBanks in India are regulated and supervised by the Reserve Bank of India (RBI) under the RBI Act of1934, Banking Regulation Act, Regional Rural Banks Act, and the Cooperative Societies Acts of therespective state governments for cooperative banks.NBFCs are registered under the Companies Act, 1956 and are governed under the RBI Act. There isno specific law catering to NGOs although they can be registered under the Societies Registration Act,1860, the Indian Trust Act, 1882, or the relevant state acts. There has been a strong reliance on self-regulation for NGO MFIs and as this applies to NGO MFIs mobilizing deposits from clients who alsoborrow. This tendency is a concern due to enforcement problems that tend to arise with self-regulatoryorganizations. In January 2000, the RBI essentially created a new legal form for providingmicrofinance services for NBFCs registered under the Companies Act so that they are not subject toany capital or liquidity requirements if they do not go into the deposit taking business. Absence ofliquidity requirements is concern to the safety of the sector. 30 Development Process through Micro FinanceDonors and Banks MicroFinance Governmentand Banks Implementing Organisations Individual Awareness/Promotional Work Individual Promotion and Formation of SHGs Micro Enterprise Consolidation of SHGs Micro Enterprise SavingsConsumption Needs Credit Delivery Production Needs Recovery Follow-up Monitoring Income Generation Farm Related (Sustainable &

Growth Non-Farm Related Oriented) Self-Sustainability of SHGs Economic Empowerment through use of Micro-Credit as an entry point for overall Empowerment Figure 3.1 31 Micro-finance interventions through different organisations National Government Funded Donors/Bilateral Financial Banks Programmes Projects Institutions Implementing OrganisationsResource/Support Indirectly Organisations engaged in Directly engaged in Micro-Finance Micro-Finance Individuals SHGs Members Figure 3.2 32 Microfinance in IndiaAt present lending to the economically active poor both rural and urban is pegged at around Rs.7000crores in the Indian banks credit outstanding. As against this, according to even the most conservativeestimates, the total demand for credit requirements for this part of Indian society is somewhere aroundRs.2,00,000 crores.Microfinance changing the face of poor IndiaMicro-Finance is emerging as a powerful instrument for poverty alleviation in the new economy. InIndia, micro-Finance scene is dominated by Self Help Groups (SHGs) - Banks linkage Programme,aimed at providing a cost effective mechanism for providing financial services to the unreached poor.In the Indian context terms like "small and marginal farmers", " rural artisans" and "economicallyweaker sections" have been used to broadly define microfinance customers. Research across the globehas shown that, over time, microfinance clients increase their income and assets, increase the numberof years of schooling their children receive, and improve the health and nutrition of their families.A more refined model of micro-credit delivery has evolved lately, which emphasizes the combineddelivery of financial services along with technical assistance, and agricultural business developmentservices. When compared to the wider SHG bank linkage movement in India, private MFIs have hadlimited outreach. However, we have seen a recent trend of larger microfinance institutionstransforming into Non-Bank Financial Institutions (NBFCs). This changing face of microfinance inIndia appears to be positive in terms of the ability of microfinance to attract more funds and thereforeincrease outreach. In

terms of demand for micro-credit or micro-finance, there are three segments, which demandfunds. They are: At the very bottom in terms of income and assets, are those who are landless and engaged in agricultural work on a seasonal basis, and manual labourers in forestry, mining, household industries, construction and transport. This segment requires, first and foremost, consumption credit during those months when they do not get labour 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 micro-enterprises. This segment mainly needs credit for working capital, a small part of which also serves consumption needs. This segment also needs term credit for acquiring additional productive assets, such as irrigation pumpsets, borewells and livestock in case of farmers, and equipment (looms, machinery) and worksheds in case of non-farm workers. 33 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.Well these are the people who require money and with Microfinance it is possible. Right now theproblem is that, it is SHGs which are doing this and efforts should be made so that the big financialinstitutions also turn up and start supplying funds to these people. This will lead to a better India andwill definitely fulfill the dream of our late Prime Minister, Mrs. Indira Gandhi, i.e. Poverty.One of the statements is really appropriate here, which is as:Money, says the proverb makes money. When you have got a little, it is often easy to get

more. Thegreat difficulty is to get that little.Adams Smith.Today India is facing major problem in reducing poverty. About 25 million people in India are underbelow poverty line. With low per capita income, heavy population pressure, prevalence of massiveunemployment and underemployment, low rate of capital formation, misdistribution of wealth andassets , prevalence of low technology and poor economics organization and instability of output ofagriculture production and related sectors have made India one of the poor countries of the world.Present Scenario of India:India falls under low income class according to World Bank. It is second populated country in theworld and around 70 % of its population lives in rural area. 60% of people depend on agriculture, as aresult there is chronic underemployment and per capita income is only $ 3262. This is not enough toprovide food to more than one individual. The obvious result is abject poverty, low rate of education,low sex ratio, exploitation. The major factor account for high incidence of rural poverty is the lowasset base. According to Reserve Bank of India, about 51 % of people house possess only 10% of thetotal asset of India .This has resulted low production capacity both in agriculture (which contributearound 22-25% of GDP) and Manufacturing sector. Rural people have very low access toinstitutionalized credit (from commercial bank).Poverty alleviation programmes and conceptualization of Microfinance:There has been a continuous effort of planners of India in addressing the poverty. They have come upwith development programmes like Integrated Rural Development progamme (IRDP), National RuralEmployment Programme (NREP), Rural Labour Employment Guarantee Programme (RLEGP) etc. 34 But these progamme have not been able to create massive impact in poverty alleviation. Theproduction oriented approach of planning without altering the mode of production could not but resultof the gains of development by owners of instrument of production. The mode of production doesremain same as the owners of the instrument have low access to credit which is the major factor ofproduction. Thus in Nineties National bank for agriculture and rural development(NABARD)

launchespilot projects of Microfinance to bridge the gap between demand and supply of funds in the lowerrungs of rural economy. Microfinance the buzzing word of this decade was meant to cure the illness ofrural economy. With this concept of Self Reliance, Self Sufficiency and Self Help gained momentum.The Indian microfinance is dominated by Self Help Groups (SHGs) and their linkage to Banks.Deprived of the basic banking facilities, the rural and semi urban Indian masses are still relying oninformal financing intermediaries like money lenders, family members, friends etc.Distribution of Indebted Rural Households: Agency wiseCredit Agency Percentage of Rural HouseholdsGovernment 6.1Cooperative Societies 21.6Commercial banks and RRBs 33.7Insurance 0.3Provident Fund 0.7Other Institutional Sources 1.6All Institutional Agencies 64.0Landlord 4.0Agricultural Moneylenders 7.0Professional Moneylenders 10.5Relatives and Friends 5.5Others 9.0All Non Institutional Agencies 36.0All Agencies 100.0 Table 3.2Self Help Groups (SHGs)Self- help groups (SHGs) play today a major role in poverty alleviation in rural India. A growingnumber of poor people (mostly women) in various parts of India are members of SHGs and activelyengage in savings and credit (S/C), as well as in other activities (income generation, natural resourcesmanagement, literacy, child care and nutrition, etc.). The S/C focus in the SHG is the most prominent 35 element and offers a chance to create some control over capital, albeit in very small amounts. TheSHG system has proven to be very relevant and effective in offering women the possibility to breakgradually away from exploitation and isolation.How self-help groups workNABARD (1997) defines SHGs as "small, economically homogenous affinity groups of rural poor,voluntarily formed to save and mutually contribute to a common fund to be lent to its members as perthe group members decision".Most SHGs in India have 10 to 25 members, who can be either only men, or only women, or onlyyouth, or a mix of these. As womens SHGs or sangha have been promoted by a wide range ofgovernment and non- governmental agencies, they now make up 90% of all SHGs.The rules and regulations of

SHGs vary according to the preferences of the members and thosefacilitating their formation. A common characteristic of the groups is that they meet regularly(typically once per week or once per fortnight) to collect the savings from members, decide to whichmember to give a loan, discuss joint activities (such as training, running of a communal business, etc.),and to mitigate any conflicts that might arise. Most SHGs have an elected chairperson, a deputy, atreasurer, and sometimes other office holders.Most SHGs start without any external financial capital by saving regular contributions by themembers. These contributions can be very small (e.g. Rs.10 per week). After a period of consistentsavings (e.g. 6 months to one year) the SHGs start to give loans from savings in the form of smallinternal loans for micro enterprise activities and consumption. Only those SHGs that have utilized theirown funds well are assisted with external funds through linkages with banks and other financialintermediaries.Micro Finance Models 1. Micro Finance Institutions (MFIs): MFIs are an extremely heterogeneous group comprising NBFCs, societies, trusts and cooperatives. They are provided financial support from external donors and apex institutions including the RashtriyaMahilaKosh (RMK), SIDBI Foundation for micro-credit and NABARD and employ a variety of ways for credit delivery. Since 2000, commercial banks including Regional Rural Banks have been providing funds to MFIs for on lending to poor clients. Though initially, only a handful of NGOs were into financial intermediation using a variety of delivery methods, their numbers have increased considerably today. While there is no published data on private MFIs operating in the country, the number of MFIs is estimated to be around 800. 36 Legal Forms of MFIs in India Types of MFIs Estimated Legal Acts under which Registered Number* 1. Not for Profit MFIs 400 to 500 Societies Registration Act, 1860 or similar Provincial Acts a.) NGO - MFIs Indian Trust Act, 1882 b.) Non-profit Companies 10 Section 25 of the Companies Act, 1956 2. Mutual Benefit MFIs 200 to 250 Mutually Aided Cooperative Societies a.) Mutually Aided Cooperative Act enacted by State Government

Societies (MACS) and similarly set up institutions 3. For Profit MFIs 6 Indian Companies Act, 1956 a.) Non-Banking Financial Reserve Bank of India Act, 1934 Companies (NBFCs) Total 700 800 Table 3.32. Bank Partnership Model This model is an innovative way of financing MFIs. The bank is the lender and the MFI acts as an agent for handling items of work relating to credit monitoring, supervision and recovery. In other words, the MFI acts as an agent and takes care of all relationships with the client, from first contact to final repayment. The model has the potential to significantly increase the amount of funding that MFIs can leverage on a relatively small equity base. A sub - variation of this model is where the MFI, as an NBFC, holds the individual loans on its books for a while before securitizing them and selling them to the bank. Such refinancing through securitization enables the MFI enlarged funding access. If the MFI fulfills the true sale criteria, the exposure of the bank is treated as being to the individual borrower and the prudential exposure norms do not then inhibit such funding of MFIs by commercial banks through the securitization structure.3. Banking Correspondents The proposal of banking correspondents could take this model a step further extending it to savings. It would allow MFIs to collect savings deposits from the poor on behalf of the bank. It would use the ability of the MFI to get close to poor clients while relying on the financial strength of the bank to safeguard the deposits. This regulation evolved at a time when there were 37 genuine fears that fly-by-night agents purporting to act on behalf of banks in which the people have confidence could mobilize savings of gullible public and then vanish with them. It remains to be seen whether the mechanics of such relationships can be worked out in a way that minimizes the risk of misuse. 4. Service Company Model Under this model, the bank forms its own MFI, perhaps as an NBFC, and then works hand in hand with that MFI to extend loans and other services. On paper, the model is similar to the partnership model: the MFI originates the loans and the bank books them. But in fact, this model has two very different and interesting operational features: The MFI uses the branch network of the bank as its

outlets to reach clients. This allows the client to be reached at lower cost than in the case of a standalone MFI. In case of banks which have large branch networks, it also allows rapid scale up. In the partnership model, MFIs may contract with many banks in an arms length relationship. In the service company model, the MFI works specifically for the bank and develops an intensive operational cooperation between them to their mutual advantage. The Partnership model uses both the financial and infrastructure strength of the bank to create lower cost and faster growth. The Service Company Model has the potential to take the burden of overseeing microfinance operations off the management of the bank and put it in the hands of MFI managers who are focused on microfinance to introduce additional products, such as individual loans for SHG graduates, remittances and so on without disrupting bank operations and provide a more advantageous cost structure for microfinance.Bank Led ModelThe bank led model was derived from the SHG-Bank linkage program of NABARD. Through thisprogram, banks financed Self Help Groups (SHGs) which had been promoted by NGOs andgovernment agencies.ICICI Bank drew up aggressive plans to penetrate rural areas through its SHG program. However,rather than spending time in developing rural infrastructure of its own, in 2000, ICICI Bank announcedmerger of Bank of Madura (BoM), which had significant presence in the rural areas of South India,especially Tamil Nadu, with a customer base of 1.9 million and 87 branches. Bank of Maduras SHGdevelopment program was initiated in 1995. Through this program, it had formed, trained and initiatedsmall groups of women to undertake financial activities like banking, saving and lending. By 2000, ithad created around 1200 SHGs across Tamil Nadu and provided credit to them. 38 Partnership ModelsA model of microfinance has emerged in recent years in which a microfinance institution (MFI)borrows from banks and on-lends to clients; few MFIs have been able to grow beyond a certain point.Under this model, MFIs are unable to provide risk capital in large quantities, which limits the advancesfrom banks. In addition, the risk is being entirely borne

by the MFI, which limits its risk-taking.This model aimed at synergizing the comparative advantages and financial strength of the bank withsocial intermediation, mobilization power and infrastructure of MFIs and NGOs. Through this model,ICICI Bank could save on the initial costs of developing rural infrastructure and micro creditdistribution channels and could take advantage of the expertise of these institutions in rural areas.Initially, ICICI Bank started off by lending to MFIs and NGOs in order to provide the necessaryfinancial support to their activities. Later, ICICI Bank came up with a plan where the NGO/MFIcontinued to promote their microfinance schemes, while the bank met the financial requirements of theborrowers.TYPES OF ORGANIZATIONThese organizations are classified in the following categories to indicate the functional aspects coveredby them within the micro finance framework. The aim, however, is not to "typecast" an organization,as these have many other activities within their scope:Microfinance providers in India can be classified under three broad categories: formal, semiformal,and informal. Formal Sector The formal sector comprises of the bankssuch as NABARD, SIDBI and other regional rural banks (RRBs). They primarily provide credit for assistance in agriculture and micro-enterprise development and primarily target the poor. Their deposit at around Rs.350 billion and of that, around Rs.250 billion has been given as advances. They charge an interest of 12-13.5% but if we include the transaction costs (number of visits to banks, compulsory savings and costs incurred for payments to animators/staff/local leaders etc.) they come out to be as high as 21- 24%. Semi - formal Sector The majority of institutional microfinance providers in India are semi-formal organizations broadly referred to as MFIs. Registered under a variety of legal acts, these organizations greatly differ in philosophy, size, and capacity. There are over 500 non-government organizations 39 (NGOs) registered as societies, public trusts, or non-profit companies. Organizations implementing micro-finance activities can be categorized into three basic groups. I. Organizations which directly lend to specific target groups and are carrying out all related activities like recovery,

monitoring, follow-up etc. II. Organizations who only promote and provide linkages to SHGs and are not directly involved in micro lending operations. III. Organizations which are dealing with SHGs and plan to start microfinance related activities. Informal Sector In addition to friends and family, moneylenders, landlords, and traders constitute the informal sector. While estimates of their importance vary significantly, it is undeniable that they continue to play a significant role in the financial lives of the poor. These are the organizations that provide support to implementing organizations. The support may be in terms of resources or training for capacity building, counseling, networking, etc. They operate at state/regional or national level. They may or may not be directly involved in micro-finance activities adopted by the associations/collectives to support implementing Organizations.Grameen BankThe Grameen Model which was pioneered by Prof MuhammedYunus of Grameen Bank is perhaps themost well-known, admired and practiced model in the world. The model involves the followingelements. Homogeneous affinity group of five Eight groups form a Centre Centre meets every week Regular savings by all members Loan proposals approved at Centre meeting Loan disbursed directly to individuals All loans repaid in 50 installmentsThe Grameen model follows a fairly regimented routine. It is very cost intensive as it involves buildingcapacity of the groups and the customers passing a test before the lending could start. The groupmembers tend to be selected or at least strongly vetted by the bank. One of the reasons for the highcost is that staff members can conduct only two meetings a day and thus are occupied for only a few 40 hours, usually early morning or late in the evening. They were used additionally for accounting work,but that can now be done more cost effectively using computers. The model is also rather meetingintensive which is fine as long as the members have no alternative use for their time but can be aproblem as members go up the income ladder.The greatness of the Grameen model is in the simplicity of design of products and delivery. Theprocess of delivery is scalable and the model could be

replicated widely. The focus on the poorest,which is a value attribute of Grameen, has also made the model a favourite among the donorcommunity.However, the Grameen model works only under certain assumptions. As all the loans are only forenterprise promotion, it assumes that all the poor want to be self-employed. The repayment of loansstarts the week after the loan is disbursed the inherent assumption being that the borrowers canservice their loan from the ex-ante income.SKS Microfinance(CEO-VikramAkula)Many companies say they protect the interests of their customers. Very few actually sit in dirt withthem, using stones, flowers, sticks, and chalk powder to figure out if they will be able to repay a $20loan at $1 a month. With this approach, this company has created its own loyal gang of over 2 millioncustomers.Its borrowers include agricultural laborers, mom-and-pop entrepreneurs, street vendors, home basedartisans, and small scale producers, each living on less than $2 a day. It works on a model that wouldallow micro-finance institutions to scale up quickly so that they would never have to turn poor personaway.Its model is based on 3 principles- 1. Adopt a profit-oriented approach in order to access commercial capital- Starting with the pitch that there is a high entrepreneurial spirit amongst the poor to raise the funds, SKS converted itself to for-profit status as soon as it got break even and got philanthropist Ravi Reddy to be a founding investor. Then it secured money from parties such as Unitus, a Seattle based NGO that helps promote micro-finance; SIDBI; and technology entrepreneur VinodKhosla. Later, it was able to attract multimillion dollar lines of credit from Citibank, ABN Amro, and others. 2. Standardize products, training, and other processes in order to boost capacity- They collect standard repayments in round numbers of 25 or 30 rupees. Internally, they have factory style training models. They enroll about 500 loan officers every month. They participate in theory classes on Saturdays and practice what they have learned in the field during the week. They 41 have shortened the training time for a loan officer to 2 months though the average time taken by other industry players is 4-6 months. 3. Use

Technology to reduce costs and limit errors- It could not find the software that suited its requirements, so it they built their own simple and user friendly applications that a computer- illiterate loan officer with a 12th grade education can easily understand. The system is also internet enabled. Given that electricity is unreliable in many areas they have installed car batteries or gas powered generators as back-ups in many areas.Scaling up Customer LoyaltyInstead of asking illiterate villagers to describe their seasonal pattern of cash flows, they encouragethem to use colored chalk powder and flowers to map out the village on the ground and tell where thepoorest people lived, what kind of financial products they needed, which areas were lorded over bywhich loan sharks, etc. They set peoples tiny weekly repayments as low as $1 per week and healthand whole life insurance premiums to be $10 a year and 25 cents per week respectively. They alsooffer interest free emergency loans. The salaries of loan officers are not tied to repayment rates andthey journey on mopeds to borrowers villages and schedule loan meetings as early as 7.00 A.M. Deepcustomer loyalty ultimately results in a repayment rate of 99.5%.Leveraging the SKS brandIts payoff comes from high volumes. They are growing at 200% annually, adding 50 branches and1,60,000 new customers a month. They are also using their deep distribution channels for selling soap,clothes, consumer electronics and other packaged goods.Marketing of Microfinance Products:- 1. Contract Farming and Credit Bundling Banks and financial institutions have been partners in contract farming schemes, set up to enhance credit. Basically, this is a doable model. Under such an arrangement, crop loans can be extended under tie-up arrangements with corporate for production of high quality produce with stable marketing arrangements provided and only, provided the price setting mechanism for the farmer is appropriate and fair. 2. Agri Service Centre Rabo India Rabo India Finance Pvt. Ltd. has established agri-service centres in rural areas in cooperation with a number of agri-input and farm services companies. The services provided are similar to those in contract farming, but with additional flexibility and a wider range of products including

inventory finance. Besides providing storage facilities, each centre rents out farm 42 machinery, provides agricultural inputs and information to farmers, arranges credit, sells other services and provides a forum for farmers to market their products. 3. Non Traditional Markets Similarly, Mother Dairy Foods Processing, a wholly owned subsidiary of National Dairy Development Board (NDDB) has established auction markets for horticulture producers in Bangalore. The operations and maintenance of the market is done by NDDB. The project, with an outlay of Rs.15 lakh, covers 200 horticultural farmers associations with 50,000 grower members for wholesale marketing. Their produce is planned with production and supply assurance and provides both growers and buyers a common platform to negotiate better rates. 4. ApniMandi Another innovation is that of The Punjab Mandi Board, which has experimented with a farmers market to provide small farmers located in proximity to urban areas, direct access to consumers by elimination of middlemen. This experiment known as "ApniMandi" belongs to both farmers and consumers, who mutually help each other. Under this arrangement a sum of Rs.5.2 lakh is spent for providing plastic crates to 1000 farmers. Each farmer gets 5 crates at a subsidized rate. At the mandi site, the Board provides basic infrastructure facilities. At the farm level, extension services of different agencies are pooled in. These include inputs subsidies, better quality seeds and loans from Banks. ApniMandi scheme provides self-employment to producers and has eliminated social inhibitions among them regarding the retail sale of their produce.Commercial banksas Microfinance VehiclesCommercial banks recently have stepped into the realm of microfinance. They have taken tentative butvery important steps toward distributing Microfinance loans to the poor. One advantage of theseinstitutions is that they bring in the risks management practices that they regularly use in theircommercial operations risk management practices that they regularly use in their commercialoperations. The other important aspect they bring in is the professional credit appraisal practices thatare used in their normal

operations. These important features combined with a mission to provide thepoor entrepreneurs will enhance the social lives and they can run their business effectively with properaccess to credit. In some cases, successful microfinance NGOs have transformed themselves into forprofit commercial banks (BancoSol of Bolivia is a prime example of a microfinance NGO that hassuccessfully transformed itself into a for-profit commercial bank). This transformation from a not-for-profit institution into for-profit organization has increased the focus of these organizations on financialself-sufficiency. This transformation has been possible because commercial banks have entered thisarena bringing in key concepts like self-sufficiency, proper credit appraisal and risk managementpractices. But there are some issues that have to be dealt with by the banks before embarking on theMicrofinance journey. 43 They are: 1. Banks Outreach 2. Clarity in objectivesBanks outreach is one of the most crucial aspects that must be critically examined by them beforeentering into microfinance sector. One reason for it is that most of the commercial banks have little orno rural presence with rate exceptions such as India, where rural banking was a priority and there is asignificant presence of commercial banks in the rural areas. They have to decide whether to start theirown branches in rural areas if they do not have any or partner with other banks or other microfinanceinstitutions in order to get a foothold in the rural finance sector. The other issue that has to be resolvedis the clarity in the bank in dealing with its microfinance operations. They have to decide whether itwill be completely independent operation or it will be part of their existing rural banking framework.For example, ICICI banks microfinance operation is a completely independent operation and it doesnot have any link with its commercial banking operation. Once these major issues are sorted outcommercial banks will have enough leverage to approach the microfinance sector with confidence.MICROFINANCE INSTITUTIONSMicrofinance institutions are perhaps one of the most important vehicles to reach the rural poor. Theseinstitutions can act as very important tool to provide the rural entrepreneurs with micro-loans, whichwill

help them to start their own businesses and sustain them. One advantage that these institutionshave over other financial services delivery vehicles is the focus. While NGOs have to straddle withvarious non-financial and financial services activities and commercial bank with other operations.MFIs can solely focus on providing the financial service to the poor since the very objective of startingthis kind of institution is to provide financial services in the rural areas. There are many examples ofMFIs that has done some stellar work in this area such as ACCION International, BancoSol andGrameen Bank. These institutions have helped many people in enhancing their lives and achieving adecent social status in the societies that they are living in. The key advantages that they have over theother forms of microfinance are: Focus is solely on providing financial services. It can provide whole gamut of services from loans to insurance.However, it has also some advantages like sustainability of these institutions. Most of the MFIsincluding Grameen bank are still donor supported organization and many of them still depend onoutside funds for their survival. Only some have like BancoSol have made successful transition fromdonor supported financially self-sustained organization. 44 Apart from these there are several other important mechanisms through while microfinance is providedlike mutual community groups, regional woman group like Development of Women and Child inRural Area (DWCRA) and other local organizations. However, they have not played a significant rolein the microfinance movement till now and they can play a major role in providing rural financialservices in the long run.ICICI Bank launches new initiative in micro-finance ICICI Bank has taken a stake of under 20 per cent in Financial Information Network and Operations Private Ltd (FINO), which was launched on Thursday, July 13, 2001. FINO would provide technological solutions as well as services to finance providers to reach the underserved in the country. ICICI Bank is the lead facilitator. According to Mr. NachiketMor, Deputy Managing Director, ICICI Bank, FINO is an independent entity. "We would reduce our stake in the company when required," he said. ICICI Bank expects to target 200

micro-finance institutions (MFIs) by March 2007, he said, speaking on the sidelines of the press conference to launch FINO. At present, the bank has tie- ups with 100 MFIs. FINO is an initiative in the micro-finance sector. It would target 300-400 million people who do not have access to basic financial services, said Mr. Manish Khera, CEO, FINO. The company has an authorized capital of Rs.50 crore. MFIs, NBFCs, RRBs, co-operative banks, etc. would directly or indirectly tie up with FINO to use its services, he said. FINO would charge Rs.25-30 per account every year.Core banking productsFINO has partnered with IBM and i-flex to offer core banking products. It would also provide creditbureau services, which includes individual customer credit rating and analytics based on transactionhistory. It also launched biometric cards for customers, which would be a proof of identity and givecollateral to them. The card would also offer multiple products including savings, loans, insurance,recurring deposits, fixed deposits and remittances. The company would also build-up customerdatabase, thus bringing them into mainstream banking."There was a need for automated structured data system like FINO," said Mr. Mor. "Essential pieces ofinfrastructure are missing in India. We lack credittracking mechanism; therefore there was a need foran intervention like FINO."The company expects to reach 25 million customers in five years and two million customers by theend of 2007. 45 FINO aims bringing scale to "micro" business leading to lowering of costs for the local financialinstitutions (LFIs) and act as an internal technology department for the LFIs, said Mr. Khera.The company is working on providing technological solutions in insurance, especially the healthinsurance sector to the under-privileged," he said. It is interacting with Nabard, SIDBI and other banksto give shape to what FINO does, said Mr. Khera.ICICI Banks thrust on micro-financeCHENNAI, MARCH 9. ICICI Bank has entered into partnerships with various microfinanceinstitutions (MFI) and non-Government organizations (NGOs) to scale up its micro lending business.Addressing presspersons here, today, NachiketMor, Executive Director, ICICI Bank, said, thepartnership model would provide

assured source of funding to NGOs and MFIs. The bank hadextended advances to the tune of Rs.150 crores as on February 29, this year, under this scheme, Mr.Mor said.The bank had acquired a network of self-help groups (SHGs) developed by the erstwhile Bank ofMadura after its merger with ICICI Bank. Since then the SHG programme had grown substantially and10,175 groups had been promoted reaching out to 2.03 lakh women spread across 2,398 villages, theExecutive Director said.One of the micro finance institutions, `Microcredit Foundation of India, established by K. M.Thiagarajan, former Chairman of Bank of Madura in 2002, had initiated a programme for microcreditthrough self-help groups.ICICI Bank has entered into a memorandum of understanding with Microcredit Foundation tooutsource SHG development, maintenance of groups, credit linkage and recovery of loans.Financial Institutions and banksMicrofinance has been attractive to the lending agencies because of demonstrated sustainability and oflow costs of operation. Institutions like SIDBI and NABARD are hardnosed bankers and would notwork with the idea if they did not see a long term engagement which only comes out of sustainability(that is economic attractiveness).On the supply side, it is also true that it has all the trappings of a business enterprise, its output istangible and it is easily understood by the mainstream. This also seems to sound nice to thegovernment, which in the post liberalization era is trying to explain the logic of every rupee spent.That is the reason why microfinance has attracted mainstream institutions like no other developmentalproject. 46 Perhaps the most important factor that got banks involved is what one might call the policy push.Giventhat most of our banks are in the public sector, public policy does have some influence on what theywill or will not do. In this case, policy was followed by diligent, if meandering, promotional work byNABARD. The policy change about a decade ago by RBI to allow banks to lend to SHGs was initiallyfollowed by a seven-page memo by NABARD to all bank chairmen, and later by sensitization andtraining programmes for bank staff across the country. Several hundred such programmes wereconducted by NGOs alone, each involving 15 to 20 bank

staff, all paid for by NABARD. The policypush was sweetened by the NABARD refinance scheme that offers much more favorable terms (100%refinance, wider spread) than for other rural lending by banks. NABARD also did some system settingwork and banks lately have been given targets. The canvassing, training, refinance and close follow upby NABARD has resulted in widespread bank involvement.Moreover, for banks the operating cost of microfinance is perhaps much less than for pure MFIs. Thebanks already have a vast network of branches. To the extent that an NGO has already promoted SHGsand the SHG portfolio is performing better than the rest of the rural (if not the entire) portfolio,microfinance via SHGs in the worst case would represent marginal addition to cost and would oftenreduce marginal cost through better capacity utilization. In the process the bank also earns browniepoints with policy makers and meets its priority sector targets.It does not take much analysis to figure out that the market for financial services for the 50-60 millionpoor households of India, coupled with about the same number who are technically above the povertyline but are severely under-served by the financial sector, is a very large one. Moreover, as in anyemerging market, though the perceived risks are higher, the spreads are much greater. The traditionalcommercial markets of corporates, business, trade, and now even housing and consumer finance arebeing sought by all the banks, leading to price competition and wafer thin spreads.Further, bank-groups are motivated by a number of cross-selling opportunities in the market, fordeposits, insurance, remittances and eventually mutual funds. Since the larger banks are offering allthese services now through their group companies, it becomes imperative for them to expand theirdistribution channels as far and deep as possible, in the hope of capturing the entire financial servicesbusiness of a household.Finally, both agri-input and processing companies such as EID Parry, fast-moving consumer goods(FMCG) companies such as Hindustan Levers, and consumer durable companies such as Philips haverealized the potential of this big market and are actively using SHGs as entry points. Some amount offreeriding is taking place here by companies, for they are using channels which

were built at asignificant cost to NGOs, funding agencies and/or the government.On the whole, the economic attractiveness of microfinance as a business is getting established and thisis a sure step towards mainstreaming. We know that mainstreaming is a mixed blessing, and one tendsto exchange scale at the cost of objectives. So it needs to be watched carefully. 47 The RBI will now directly regulate microfinance sectorThe Reserve Bank of India has now decided to bunch together the beleaguered microfinance sector asa niche segment within the category of non-banking financial companies (NBFC).This means it will now be the direct regulator of this sector in line with the recommendations of theMalegam Committee which made recommendations in this regard after the Andhra microfinancefiasco.Under guidelines issued on Friday, the RBI has directed all existing microfinance institutions (MFIs)who can meet its new regulatory norms to register as NBFC-MFIs by April 2012. Those who do notmeet the norms cannot, henceforth, lend more than 10 percent of their total assets to the sector.The conditions set for NBFC-MFIs include the following: They must have minimum net owned funds of Rs.5 crore (Rs.2 crore if they operate in the North-East). Their capital adequacy ratio (CAR) has to be 15 percent. This ratio is the measure of a banks capital weighed against its risk assets (loans). Since MFIs in Andhra are stuck up to their necks in bad debts, the RBI has given them a one-year concession in capital adequacy. MFIs with more than 25 percent exposure to Andhra Pradesh need to maintain only 12 percent CAR in the first year. MFIs cannot lend at more than 26 percent interest, and margins on borrowed funds cannot exceed 12 percent. This means if MFIs can borrow cheap say at 10 percent the interest rate cap on lending is 22 percent, and not 26 percent. As far as lending is concerned, not more than two MFIs can lend to the same borrower while one borrower cannot be a member of two groups simultaneously. The frequency of repayment installments can be decided by the borrower. MFIs should have higher cutoffs for lending in urban and semi-urban areas. MFIs have to start provisioning for defaults, and loans

that are not serviced for more than 90 days should be classified as nonperforming.The Reserve Bank has had to step in because states were beginning to impose their own regulations.This is what happened in Andhra Pradesh, where the state issued an ordinance last October whenreports of borrower suicides and unfair debt collection methods were reported. The MFI boomcollapsed immediately after the Andhra law was imposed.In its recent report on Trend and Progress of the Banking in India, 2011 -12, the RBI had expressedconcern over states bringing in their own regulations. This was queering the pitch for big MFIs withbusiness across several states since they would have to follow different laws in different states. 48 The collapse of MFIs in Andhra Pradesh also sent a clear warning signal those MFIs needed a singleregulatory environment especially since micro financing is seen as one way of improving financialinclusion.The National Bank for Agriculture and Rural Development (Nabard) was one of the choices forregulating MFIs, but since it has its own lending exposures to rural areas, the mantle finally fell on theRBI itself.The MFI industry is likely to welcome the new norms, barring the one capping interest rates. In thecurrent high interest rate scenario and high default rates, the 26 percent limit will squeeze theirmargins.MICROFINANCE AND WOMEN EMPOWERMENTWomen as micro and small entrepreneurs have increasingly become the key target group for microfinance programs. Consequently, providing access to micro finance facilities is not only considered apre-condition for poverty alleviation, but also considered as a strategy for empowering women. Indeveloping countries like INDIA micro finance is playing an important role, promoting genderequality and is helping in empowering women so that they can live quality life with dignity.The study conducted by FINCA Client Poverty Assessment conducted in 2003 revealed that of theinterviewed clients 81 percent were women, and it was found that food security was 15 percent higheramong their village banking clients than non-clients. The report also showed clients to have 11 percentmore of their children enrolled in school with an 18 percent increase in healthcare benefits. Clientshousing security was

reported as 18 percent higher than non-clients. The assessment concluded thatmicrofinance improved the wellbeing of women clients and their families.Microfinance has a positive effect on the empowerment of women by creating an empowermentindicator.These indicators can be based on the following factors: Mobility. Economic security- enables poor women in making them economic agents of change by increasing their income and productivity. Ability to make small purchases. Ability to make larger purchases. Involvement in major household decisions. Relative freedom from domination within the family. Political and legal awareness. Involvement in political campaigning and protests. 49 To access to markets and information. They become more confident. They get a better control of the resources. They can confront systemic gender inequalitiesBEIJING CONFERENCE 1995 HAD IDENTIFIED CERTAIN INDICATORS OF WOMENEMPOWERMENTImportant among them are as follows: Increase in self-esteem, individual and collective confidence Increase in articulation, knowledge and awareness on health, nutrition reproductive rights, law and literacy Increase an decrease in personal leisure time and time for child care; Increase on decrease of workloads in new programmes Change in roles and responsibility in family & community. Visible increase on decrease in violence on women and girls; Responses to, changes in social customs like child marriage, dowry, discrimination against widows Visible changes in womens participation level attending meeting, participating and demanding participation Increase in bargaining and negotiating power at home, in community and the collective Increase access to and ability to gather information Formation of women collectives Positive changes in social attitudes Awareness and recognition of womens economic contribution within and outside the household; Womens decision-making over her work and incomeWOMENS EMPOWERMENT AND MICRO FINANCE: DIFFERENT PARADIGMSConcern with womens access to credit and assumptions about contributions to womensempowerment are not new. From the early 1970s womens movements in a number of countriesbecame increasingly interested in the

degree to which women were able to access poverty-focusedcredit programmes and credit cooperatives. In India organizations like SelfEmployed WomensAssociation (SEWA) among others with origins and affiliations in the Indian labour and womensmovem ents identified credit as a major constraint in their work with informal sector women workers. 50 a) Feminist Empowerment ParadigmThe feminist empowerment paradigm did not originate as a Northern imposition, but is firmly rootedin the development of some of the earliest micro-finance programmes in the South, including SEWAin India. It currently underlies the gender policies of many NGOs and the perspectives of some of theconsultants and researchers looking at gender impact of micro-finance programmes (e.g. Chen 1996,Johnson, 1997).Here the underlying concerns are gender equality6 and womens human rights. Womensempowerment is seen as an integral and inseparable part of a wider process of social transformation.The main target group is poor women and women capable of providing alternative female role modelsfor change. Increasing attention has also been paid to mens role in challenging gender inequality.Microfinance is promoted as an entry point in the context of a wider strategy for womens economicand socio-political empowerment which focuses on gender awareness and feminist organization. Asdeveloped by Chen in her proposals for a sub sector approach to micro credit, based partly on SEWAsstrategy and promoted by UNIFEM, microfinance must be:Part of a sectorial strategy for change which identifies opportunities, constraints and bottlenecks withinindustries which if addressed can raise returns and prospects for large numbers of women. Possiblestrategies include linking women to existing services and infrastructure, developing new technologysuch as labour-saving food processing, building information networks, and shifting to new markets,policy level changes to overcome legislative barriers and unionization.Based on participatory principles to build up incremental knowledge of industries and enable womento develop their strategies for change (Chen, 1996). Economic empowerment is however defined inmore than individualist terms to include issues such as

property rights, changes intra-householdrelations and transformation of the macro-economic context. Many organizations go further thaninterventions at the industry level to include gender-specific strategies for social and politicalempowerment. Some programmes have developed very effective means for integrating genderawareness into programmes and for organizing women and men to challenge and change genderdiscrimination. Some also have legal rights support for women and engage in gender advocacy. Theseinterventions to increase social and political empowerment are seen as essential prerequisites foreconomic empowerment.b) Poverty Reduction ParadigmThe poverty alleviation paradigm underlies many NGO integrated poverty-targeted communitydevelopment programmes. Poverty alleviation here is defined in broader terms than market incomes toencompass increasing capacities and choices and decreasing the vulnerability of poor people.The main focus of programmes as a whole is on developing sustainable livelihoods, communitydevelopment and social service provision like literacy, healthcare and infrastructure development. 51 There is not only a concern with reaching the poor, but also the poorest. Although term empowermentis frequently used in general terms, often synonymous with a multi-dimensional definition of povertyalleviation, the term womens empowerment is often considered best avoided as being toocontroversial and political.c) Financial Sustainability ParadigmThe financial self-sustainability paradigm (also referred to as the financial systems approach orsustainability approach) underlies the models of microfinance promoted since the mid-1990s by mostdonor agencies and the Best Practice guidelines promoted in publications by USAID, World Bank,UNDP and CGAP.The ultimate aim is large programmes which are profitable and fully self-supporting in competitionwith other private sector banking institutions and able to raise funds from international financialmarkets rather than relying on funds from development agencies. The main target group, despiteclaims to reach the poorest, is the bankable poor: small entrepreneurs and farmers. This emphasis onfinancial

sustainability is seen as necessary to create institutions which reach significant numbers ofpoor people in the context of declining aid budgets and opposition to welfare and redistribution inmacro-economic policy.These paradigms do not correspond systematically to any one organizational model of micro-finance.Micro-finance providers with the same organizational form e.g. village bank, Grameen model orcooperative model may have very different gender policies and/or emphases and strategies for povertyalleviation. The three paradigms represent different discourses each with its own relatively consistentinternal logic in relating aims to policies, based on different underlying understandings ofdevelopment. They are not only different, but often seen as incompatible discourses in uneasytension and with continually contested degrees of dominance. In many programmes and donoragencies there is considerable disagreement, lack of communication and/or personal animosity andpromoted by different stakeholders within organizations between staff involved in micro-finance(generally firm followers of financial selfsustainability), staff concerned with human development(generally with more sympathy for the poverty alleviation paradigm and emphasizing participation andintegrated development) gender lobbies (generally incorporating at least some elements of the feministempowerment paradigm). What is of concern in current debates is the way in which the use ofapparently similar terminology of empowerment, participation and sustainability conceals radicaldifferences in policy priorities. Although womens empowerment may be a stated aim in the rhetoricof official gender policy and program promotion, in practice it becomes subsumed in and marginalizedby concerns of financial sustainability and/or poverty alleviation. 52 Micro Credit and Womens EmpowermentBefore 1990s, credit schemes for rural women were almost negligible. The concept of womens creditwas born on the insistence by women oriented studies that highlighted the discrimination and struggleof women in having access to credit. However, there is a perceptible gap in financing genuine creditneeds of the poor

especially women in the rural sector.There are certain misconceptions about the poor people that they need loan at subsidized rates ofinterest on soft terms, they lack education, skills, capacity to save, credit-worthiness and therefore arenot bankable. Nevertheless, the experiences of several SHGs(self-help groups) reveal that rural poorare actually efficient managers of credit and finance. Availability of timely and adequate credit isessential for them to undertake any economic activity rather than credit subsidy.The Government measures have attempted to help the poor by implementing different povertyalleviation programmes but with little success. Since most of them are target-based involving lengthyprocedures for loan disbursements, high transaction costs, and lack of supervision and monitoring.Banks often suffer from poor repayment leading to a high level of non-performing assets NPAs (non-performing assets).Since the credit requirements of the rural poor cannot be adopted on project lending approach as it is inthe case of organized sector, there emerged the need for an informal credit supply through SHGS. Therural poor with the assistance from NGOs have demonstrated their potential for self-help to secureeconomic and financial strength. Various case studies show that there is a positive correlation betweencredit availability and womens empowerment.Microfinance refers to the provision of financial services to low-income clients, including consumersand the self-employed. Microfinance programmes are currently being promoted as a key strategy forsimultaneously addressing both poverty alleviation and womens empowerment. Where financialservice provision leads to the setting up or expansion of microenterprises there are a range of potentialimpacts including: Increasing womens income levels and control over income leading to greater levels of economic independence Access to networks and markets giving wider experience of the world outside the home, access to information and possibilities for development of other social and political roles. Enhancing perceptions of womens contribution to household income and family welfare, increasing womens participation in household decisions about expenditure and other issues and leading to greater expenditure on womens welfare.The term micro finance is of recent origin and is

commonly used in addressing issues related topoverty alleviation, financial support to micro entrepreneurs, gender development etc. There is, 53 however, no statutory definition of micro finance. The taskforce on supportative policy and RegulatoryFramework for Microfinance has defined microfinance as Provision of thrift, credit and otherfinancial services and products of very small amounts to the poor in rural, semi-urban or urban areasfor enabling them to raise their income levels and improve living standards. The term Microliterally means small. But the task force has not defined any amount. However as per Micro CreditSpecial Cell of the Reserve Bank Of India , the borrowal amounts up to the limit of Rs.25000/couldbe considered as micro credit products and this amount could be gradually increased up to Rs.40000/-over a period of time which roughly equals to $500 a standard for South Asia as per internationalperceptions. The term micro finance sometimes is used interchangeably with the term micro credit.However while micro credit refers to purveyance of loans in small quantities, the term microfinancehas a broader meaning covering in its ambit other financial services like saving, insurance etc. as well.The mantra Microfinance is banking through groups. The essential features of the approach are toprovide financial services through the groups of individuals, formed either in joint liability or co-obligation mode.The other dimensions of the microfinance approach are:- Savings/Thrift precedes credit Credit is linked with savings/thrift Absence of subsidies Group plays an important role in credit appraisal, monitoring and recovery.EMPOWERMENT: FOCUS ON POOR WOMENWomen have been the vulnerable section of society and constitute a sizeable segment of the poverty-struck population. Women face gender specific barriers to access education health, employment etc.Micro finance deals with women below the poverty line. Micro loans are available solely and entirelyto this target group of women. There are several reason for this: Among the poor , the poor women aremost disadvantaged they are characterized by lack of education and access of resources, both ofwhich is required to help them work their way out of poverty and for upward economic and socialmobility.

The problem is more acute for women in countries like India, despite the fact that womenslabor makes a critical contribution to the economy. This is due to the low social status and lack ofaccess to key resources. Evidence shows that groups of women are better customers than men, thebetter managers of resources. If loans are routed through women benefits of loans are spread wideramong the household. Since womens empowerment is the key to socio economic development of thecommunity; bringing women into the mainstream of national development has been a major concern ofgovernment. The ministry of rural development has special components for women in its programmes.Funds are earmarked as Womens component to ensure flow of adequate resources for the same. 54 Besides SwarnagayantiGrameenSwarazgarYojona (SGSY), Ministry of Rural Development isimplementing other scheme having womens component .They are the Indira AwasYojona (IAJ),National Social Assistance Programme (NSAP), Restructured Rural Sanitation Programme,Accelerated Rural Water Supply programme (ARWSP) the (erstwhile) Integrated Rural DevelopmentProgramme (IRDP), the (erstwhile) Development of Women and Children in Rural Areas (DWCRA)and the JowaharRozgarYojana (JRY).MICRO FINANCE INSTRUMENT FOR WOMENS EMPOWERMENTMicro Finance is emerging as a powerful instrument for poverty alleviation in the new economy. InIndia, micro finance scene is dominated by Self Help Groups (SHGs) Bank Linkage Programme,aimed at providing a cost effective mechanism for providing financial services to the unreachedpoor. Based on the philosophy of peer pressure and group savings as collateral substitute , the SHGprogramme has been successful in not only in meeting peculiar needs of the rural poor, but also instrengthening collective selfhelp capacities of the poor at the local level, leading to theirempowerment. Micro Finance for the poor and women has received extensive recognition as a strategyfor poverty reduction and for economic empowerment. Increasingly in the last five years , there isquestioning of whether micro

credit is most effective approach to economic empowerment of poorestand, among them, women in particular. Development practitioners in India and developing countriesoften argue that the exaggerated focus on micro finance as a solution for the poor has led to neglect bythe state and public institutions in addressing employment and livelihood needs of the poor. Credit forempowerment is about organizing people, particularly around credit and building capacities to managemoney. The focus is on getting the poor to mobilize their own funds, building their capacities andempowering them to leverage external credit. Perception women is that learning to manage money androtate funds builds womens capacities and confidence to intervene in local governance beyond thelimited goals of ensuring access to credit. Further, it combines the goals of financial sustainability withthat of creating community owned institutions.Before 1990s, credit schemes for rural women were almost negligible. The concept of womens creditwas born on the insistence by women oriented studies that highlighted the discrimination and struggleof women in having the access of credit. However, there is a perceptible gap in financing genuinecredit needs of the poor especially women in the rural sector. There are certain misconception aboutthe poor people that they need loan at subsidized rate of interest on soft terms, they lack education,skill, capacity to save, credit worthiness and therefore are not bankable. Nevertheless, the experienceof several SHGs reveals that rural poor are actually efficient managers of credit and finance.Availability of timely and adequate credit is essential for them to undertake any economic activityrather than credit subsidy. The Government measures have attempted to help the poor by 55 implementing different poverty alleviation programmes but with little success. Since most of them aretarget based involving lengthy procedures for loan disbursement, high transaction costs, and lack ofsupervision and monitoring. Since the credit requirements of the rural poor cannot be adopted onproject lending app roach as it is in the case of organized sector, there emerged the need for aninformal credit supply through SHGs. The rural poor with the assistance from NGOs havedemonstrated their

potential for self-help to secure economic and financial strength. Various casestudies show that there is a positive correlation between credit availability and womens empowermentA real life Examples:-Lakshmi, a 22-year-old school dropout, lived in a remote village of Tamil Nadu. Instead of gettingmarried and starting a family like any other village girl of her age in India, she wanted to set up on herown business. Lakshmi started an Internet kiosk in her village, offering services like e-mail, Internetchat and tips on health and education. The kiosk was partially financed by ICICI Bank and was set upin association with n-Logue Communications. Latha, a 29-year-old married woman with three childrenborrowed Rs.18000 to set up a small provision store in Kothaipalli, a small village, in the north ofAndhra Pradesh. Within a year, she started earning Rs.3500 a month from the store. With this money,she was able to provide her children a good education at a local private school. She was a part of a selfhelp group in Andhra Pradesh which received financial assistance from ICICI Bank. These are real-lifeexamples to illustrate how the micro-lending initiatives of ICICI Bank affected the lives of poorwomen in India. 56 CHAPTER 4OBJECTIVES AND RESEARCH METHODOLOGY 57 INTRODUCTIONThis chapter focuses on the methodology & the techniques used for the collection, classification &tabulation of data. It light on the research problem, the objective of study & its limitaions.OBJECTIVES OF THE STUDY: To study the impact of micro finance in empowering the social economic status of women and developing of social entrepreneurship. To know about relationship between SHGs members, micro finance banks and entrepreneurs women. To clarify the limitation of microfinance programmes as the tool for womens empowerment and the type of support service necessary to maximize the contribution of microfinance service. To study potential hurdles in the development of women entrepreneurship.RESEARCH METHODOLOGYResearch methodology is a way to systematically solve the problem. It is a game plan for conductingresearch. In this we describe various steps that are taken by the researcher.All progress is born of

inquiry. Doubt is often better than overconfidence, for it leads to inquiry andinquiry leads to invention.Research in a common parlance is a search for knowledge. Research is an art of scientific andsystematic investigation. Thus research comprises defining and redefining problems, formulatinghypothesis or suggested solutions; collecting, organizing and evaluating data, making deductions andreaching conclusions. Research methodology is the arrangement of condition for collection andanalysis of data in a manner that aims to combine relevance to the research purpose with economy inprocedure. Research Methodology is the conceptual structure within which research is conducted. Itconstitutes the blueprint for the collection measurement and analysis of the data.Research methodology is a framework for the study and is used as a guide in collecting and analyzingthe data. It is a strategy specifying which approach will be used for gathering and analyzing the data. italso includes time and cost budget since most studies are done under these two constraints. Theresearch methodology includes overall research design, the sampling procedure, the data collectionmethod and analysis procedure. 58 TYPE OF RESEARCH USED:-Descriptive ResearchIn the study descriptive research design has been used. As descriptive research design is thedescription of state of affairs, as it exists at present. In this type of research the researcher has nocontrol over the variables; he can only report what has happened or what is happeningDescriptive research designs are those design which are concerned with describing the characteristicsof particular individual or of the group. In descriptive and diagnostic study the researcher must be ableto define clearly what he wants to measure and must find adequate method for measuring it.METHOD OF DATA COLLECTIONAfter the research problem has been identified and selected the next step is to gather the requisite data.While deciding about the method of data collection to be used for the researcher should keep in mindtwo types of data i.e. primary and secondary. TYPES OF DATA PRIMARY SECONDRY DATA DATA Figure 4.1Primary DataThe primary data are those, which are collected afresh and for the first

time, and thus happened to beoriginal in character. We can obtain primary data either through observation or through directcommunication with respondent in one form or another or through personal interview. 59 PRIMARY DATA OBSERVATION INTERVIEW QUETIONAIRE SCHEDULE METHOD METHIOD METHOD METHOD Figure 4.2Secondary DataThe secondary data on the other hand, are those which have already been collected by someone elseand which have already been passed through the statistical processes. When the researcher utilizessecondary data then he has to look into various sources from where he can obtain them. For e.g. books,magazine, newspaper, internet, publications and reports.In this study data have been taken fromvarious secondary sources like: Internet Books Magazines Newspapers Journals 60 CHAPTER 5 ANALYSIS ANDINTERPRETATION OF DATA 61 Objective 1:-To study the impact of micro finance in empowering the social economic status ofwomen and developing of social entrepreneurship.AmountInCrore/No. in Lakhs Particular Year Total SHGs All Women SHGs % ofWomanGroups No. Amount No. Amount No. Amount SHG Savingswith 2009-10 69.53 6198.71 53.10 4498.66 76.4 72.6 banks as on 31st March 2010-11 74.62 7016.30 60.98 5298.65 81.7 75.5 Loan disbursed to 2009-10 15.87 14453.3 12.94 12429.37 81.6 86 SHGs during the 2010-11 11.96 14547.73 10.17 12622.33 85 86.8 year Loan outstanding 2009-10 48.51 28038.28 38.98 23030.36 80.30 82.1 against SHGs as on 2010-11 47.87 31221.17 39.84 26123.75 83.2 83.7 31st March Table 5.1Total No. of Loan disbursed:- Particular 2009-10 2010-11 Total SHGs 15.87 11.96 All Women SHGs 12.94 10.17 Table 5.2 18 16 14 12 10 2009-10 8 2010-11 6 4 2 0 Total SHGs All Women SHGs Figure 5.1Total Amount of loan disbursed:- 62 Particular 2009-10 2010-11 Total SHGs 6198.71 7016.30 All Women SHGs 4498.66 5298.65 Table 5.3 8000 7000 6000 5000 4000 2009-10

2010-11 3000 2000 1000 0 Total SHGs All Women SHGs Figure 5.2INTERPRETATION: - According to main objective to know the economic and social developmentof women entrepreneurship. Above table show the economic development of women. In 2009-10loansdisbursed amount to women is 12429.37crore and 2010-11 is 12622.33crore. In 2009-10 SHG Savingsamount to women is 4498.66crore and 2010-11 is 5298.65crore and in 2009-10 loan outstandingamounts to women is 23030.36crore and 2010-11 is 26123.75crore. That shows the economicdevelopment of women.Objective 2:-To know about relationship between SHGs members, micro finance banks andentrepreneurs women. 63 Savings of SHGs with public sector commercial banks as on 31st March 2011 Amount Rs. Lakh Details of SHGs Saving linked Out Of Total SHGsExclusiveSr. with Banks Women SHGs Name of The BankNo. No. Of No. of Saving No. Of No. of Saving SHGs Members Amount SHGs Members AmountDelhi 1 Allahabad Bank 30 320 14.00 30 320 14.00 2 Bank of Baroda 383 3775 62.83 377 3685 60.96 3 Bank of India 35 552 6.73 35 552 6.73 4 Indian Bank 815 8956 43.59 789 8675 38.39 5 Central Bank of India 8 80 0.30 8 80 0.30 6 Syndicate Bank 19 173 2.58 16 165 2.54 7 Punjab National Bank 760 7600 108.42 705 7050 103.99 8 State Bank of India 751 9012 31.00 751 9012 31.00 Table 5.4 Amount Rs. Lakh 64 Details of SHGs Saving linked Out Of Total SHGs- ExclusiveSr. Name of The Bank with Banks Women SHGsNo. No. Of No. of Saving No. Of No. of Saving SHGs Members Amount SHGs Members AmountPunjab 1 Allahabad Bank 304 3040 9.40 95 950 2.94 2 Bank of Baroda 150 1200 50.30 142 710 24.50 3 Bank of India 374 4452 25.43 271 3253 18.76 4 Canara Bank 159 1936 9.53 137 1502 7.28 5 Central Bank of India 540 6022 64.42 354 4106 42.06 6 Punjab & Sind Bank 1113 11744 50.89 745 7911 31.08 7 Punjab National Bank 4315 46575 2041.77 2105 22073 183.38 8 State Bank of India 3944 47328 89.00 3156 37872 71.00 Table 5.5 Amount Rs. Lakh 65

Details of SHGs Saving linked Out Of Total SHGs- ExclusiveSr. with Banks Women SHGs Name of The BankNo. No. Of No. of Saving No. Of No. of SavingAmount SHGs Members Amount SHGs MembersHaryana1 Bank of Baroda 152 725 16.00 129 350 2.602 Bank of India 139 1398 42.15 31 290 2.203 Canara Bank 453 4925 52.25 390 4052 37.59 Central Bank of4 482 5296 28.72 350 3844 19.14 India5 Indian Bank 114 1710 3.63 114 1710 3.63 Punjab & Sind6 704 7040 49.76 411 4110 28.57 Bank Punjab National7 10703 109260 7002.82 8037 84148 4264.17 Bank8 State Bank of India 4984 59808 207.00 4190 50280 170.00 Table 5.6 66

Amount Rs. Lakh Details of SHGs Saving linked Out of Total SHGsExclusiveSr. with Banks Women SHGs Name of The BankNo. No. of No. of Saving No. Of No. of Saving SHGs Members Amount SHGs Members AmountHimachal Pradesh 1 Bank of India 46 465 11.50 0 0 0.00 2 Canara Bank 118 1440 4.65 118 1440 4.65 3 Central Bank of India 412 4244 48.21 324 3382 33.68 4 Indian Bank 39 585 2.37 39 585 2.37 5 Punjab & Sind Bank 92 920 11.62 53 530 6.73 6 Punjab National Bank 18049 182407 1127.80 12301 123010 946.24 7 State Bank of India 6794 81528 126.00 5436 65232 100.00 8 UCO Bank 993 11432 333.19 760 8680 259.91 Table 5.7INTERPRETATION:-There are four states which show the relationship between Banks SHGs andwomen SHGs. According to above table it show the total saving of women SHGs with total SHGs andtotal saving of SHGs with banks. There are more % of women SHGs saving out of total SHGs saving.In Delhi region 2010-11 highest SHG Savings amount to women in Punjab national bank is 103.99lakh and lowest in Central Bank of India is 0.30 lakh. In Punjab region 2010-11 highest SHG Savingsamount to women in Punjab National Bank is 183.38 lakh and Lowest in Allahabad Bank is 2.94lakh.In Haryana region 2010-11 highest SHG Savings amount to women in Punjab National Bank is4264.17 lakh and Lowest in Bank of India is 2.20 lakh. In Himachal Pradesh region 2010-11 highestSHG Savings amount to women in Punjab National Bank is 946.24 lakh and Lowest in Bank of Indiais 0.00 Lakh. It shows the good relationship of women SHGs with SHGs group and banks. 67

Objective 3:- To clarify the limitation of microfinance programmes as the tool for womensempowerment and the type of support service necessary to maximize the contribution of microfinanceservice. Figure 5.3CHALLENGES FACED BY THE WOMEN ENTREPRENEURSChallenges are faced by the women entrepreneurs due to many reasons. Some of the challenges facedby the women entrepreneurs include- Intense competition from similar products, limited knowledge, production and quality standards as well as low confidence and morale. Many women started their own business due to the adverse circumstances, such as loss of spouses, divorce or financial hardship. Lack of follow up and holding support (i.e. Capital, market linkages, technical information and marketing techniques) after receiving Entrepreneurship development training. A risk averse mindset. Inadequate capital. Networking problem (i.e. with raw supplier to buyer of products) Insufficient management and marketing skills. Low level of motivation and courage. Lack of support from male members (of the families) as well as banks 68

Large magnitude of the target group of poor people. Attitudinal rigidities. Difficulty in creating awareness among people. Limited resources with the NGOs. Large requirements of training and sensitization of issues. Limited number of experienced intervention agencies. Diversities of situations due to wide coverage.OVERCOMING THE CHALLENGESThe challenges faced by the women entrepreneurs can be overcome with the help of the followingmeasures- Creating the Importance of Entrepreneurship program and skills training, and MF and support under single roof. Training programme operating in several states helped NGOS-MFIs provide their microfinance clients different set of skills for successfully running enterprises. Provide micro credit for livelihood support and to micro enterprises development. Encouraging women entrepreneur to utilize the loans for productive purposes and have the potential to become entrepreneur. Establishing a network of SHG to serve as a self -help community for micro enterprises development activities. Social recognition of women leading an enterprise. Developing female mentors, trainers and

advisors. Establishing sources of credit.Objective 4:-To study potential hurdles in the developing of women entrepreneurship.Role of Microfinance Services:-1. Do not restrict loan use: - Access to financial services provides the poor with the opportunity toaccumulate assets, to reduce their vulnerability to shocks (such as illness or death in the household,crop failure, theft, dramatic price fluctuations, the payment of dowries) and to invest in income-generation activities. It also enables them to improve the quality of their lives through better education,health and housing. One of the most important roles of access to credit is that it enables the poor todiversify their incomes. Most poor households do not have one source of income or livelihood. Insteadthey pursue a mix of activities, depending on the season, prices, their health and other contingencies.This may include growing their own food, working for others, running small production or tradingbusinesses, hunting and gathering, and accessing loans. 69 What to do?Microfinance organizations should allow for the fact that microentrepreneurs have a variety of uses forfunds, not only for the activity for which a loan is formally given but also for household operations andother family enterprises. It would be too risky for the poor, particularly the poorest of the poor, toinvest all their income in a single activity. If the single activity or enterprise failed, the consequencesof this would be much greater than if they had several sources of income. Providers of quality financialservices recognize this and place relatively few restrictions on loan use. Most microfinanceorganizations do not monitor client loans to ensure that the loan is being used for its stated purposebecause they recognize that it is part of the survival strategy of poor clients to make an ongoingstream of economic choices and decisions. The clients themselves know how best to manage theirfunds.Example: Kamala Ranis diversified activities (Bangladesh). Kamala Rani is an experienced borrower.She has taken loans three times. She invested her small, first loan (1,000 taka) in her husbandsbusiness. He trades in bamboo and sells bamboo products in his shop. Kamala also provides labour tomake bamboo mats. When she obtained her second loan (2,000 taka), she used it to make largecontainers

for storing crops and other products, which she sells fromhome to wholesalers and villagers.Next she borrowed another 4,000 taka, primarily to buy a cow. She can repay her loan from her profitsfrom selling milk and from her investment in her husbands business. She still makes mats and otherbamboo products, which she plans to sell at the end of the year, when the price of the mats will go up.She can take advantage of this increase in the price of the mats because she has other sources ofincome to make her weekly loan instalment payments. Like other low- income clients, Kamala Ranisdiversified activities enable her to maximize returns from investment.2. Provide access to financial services, not subsidies:-For microenterprises, the most common constraint is the lack of access to working capital to grow theirbusiness. Low-income entrepreneurs want rapid and continued access to financial services rather thansubsidies, and they are able and willing to pay for these services from their profits. Most microentrepreneurs borrow small amounts for short-term working capital needs. The returns from theireconomic activities are normally sufficient to pay high interest rates for loans and still make a profit.Micro entrepreneurs value the opportunity to borrow and save with MFIs since they provide servicesthat are cheaper than those that would normally be available to poor clients or that would be entirelyunavailable to them. Moneylenders charge very high interest rates, often many times the rate chargedby MFIs, and the moneylenders terms may not be suited to the borrower. Micro entrepreneurs haveconsistently demonstrated that they will pay the full interest cost to have continued access to financialservices from MFIs.What to do? 70 MFIs cannot afford to subsidize loans. If the organization is to provide loans on an on-going basis, itmust charge interest rates that allow it to cover its costs. These costs tend to be high because providingunsecured, small loans costs significantly more than loans in traditional banking. The costs to theinstitution include operating costs, the cost of obtaining the funds for loans, and the cost of inflation.MFIs cannot rely on governments and donors as long-term sources of funding. They must be able togenerate

their own income from revenues, including interest and other fees. Since the poor seekcontinued and reliable access to financial services and are able and willing to pay for it, it isadvantageous to both the institution and the clients to charge interest rates that cover the cost of theservicesExamples: Client demand as an indicator. If clients repay their loans, pay full-cost interest rates andremain in a programme as borrowers or savers, it is a very good indication that they value theseservices. A detailed, independent review of the microfinance activities of the United Nations CapitalDevelopment Fund (UNCDF) in Africa, Asia and Latin America found evidence that poor clients werewilling to pay the interest rates necessary to provide these services. Even when they have to pay thefull cost of those services, they use them and come back to use them again and again. Continued andreliable access to credit and savings services is what is most needed. Subsidized lending programsprovide a limited volume of cheap loans. When these are scarce and desirable, the loans tend to beallocated predominantly to a local elite with the influence to obtain them, bypassing those who needsmaller loans.In addition, there is substantial evidence from developing countries worldwide thatsubsidized rural credit programs result in high arrears, generate losses both for the financial institutionadministering the programs and for the government or donor agencies, and depress institutional savingand, consequently, the development of profitable, viable rural financial institutions."3. Financial services contribute to womens empowerment:-Women entrepreneurs have attracted special interest from MFIs because they almost always make upthe poorest segments of society, they have fewer economic opportunities, and they are generallyresponsible for child-rearing, including education, health and nutrition. Given their particularlyvulnerable position, many MFIs seek to empower women by increasing their economic position insociety. Experience shows that providing financial services directly to women aids in this process.Women clients are also seen as beneficial to the institution because they are seen as creditworthy.Women have generally demonstrated high repayment and savings rates.What to do?MFIs interested in serving women should understand the specific

needs of women clients and attractwomen as customers. Women often have fewer economic opportunities than men. Women also facecultural barriers that often restrict them to the home (for example, the institution of the veil, or purdah),making it difficult for them to access finance services.Women have more traditional roles in theeconomy and may be less able to operate a business outside of their homes. Women also tend to have 71 disproportionally large household obligations. Loan sizes may need to be smaller, given that womensbusinesses tend to be smaller than mens. They tend to focus on trade, services and lightmanufacturing. Womens businesses are often based in the home and frequently use family labour.Loans to women should allow women to balance their household and business activities, for example,by not requiring that too much time be spent in meetings and holding meetings in convenient locations.The gender of loan officers may also affect the level of female participation in financial services,depending on the social context.Examples:Women and empowerment. Regardless of culture or national context, impact assessments have foundpositive results for women with access to financial services. For instance, a study on the impact ofmicrofinance on poverty alleviation in East Africa, conducted by the UNDP MicroSaveAfricaprogramme, found that participation in a microfinance institution "typically strengthens the position ofthe woman in her family. Not only does access to credit give the woman the opportunity to make alarger contribution to the family business, but she can also deploy it to assist the husbands businessand act as the familys banker - all of which increase her prestige and influence within the household."Access to networks and markets giving wider experience of the world outside the home, access toinformation and possibilities for development of other social and political roles Enhancing perceptions of womens contribution to household income and family welfare, increasing womens participation in household decisions about expenditure and other issues and leading to greater expenditure on womens welfare More general improvements in attitudes to womens role in

the household and community Many programmes have had negative as well as positive impacts on women. Where women have set up enterprises this has often led to small increases in access to income at the cost of heavier workloads and repayment pressures. Within schemes, impacts often vary significantly between women. There are differences between women in different productive activities and between women from different backgrounds. Positive impact on non-participants cannot be assumed, even where women participants are able to benefit. Women microentrepreneurs are frequently in competition with each other and the poorest micro-entrepreneurs may be disadvantaged if programmes do not include them. 72 CHAPTER 6FINDINGS AND LIMITAIONS 73 FINDINGS Micro financial institutions play a very important role today to provide the micro finance to the women entrepreneure. Mostly MFI provide the assistance to the women entrepreneur through MFI- bank linkage programme. SKS is the largest micro financial institute which providing the micro finance through different ways. It also coming up with their IPO to get the more capital to increase their functioning From the current situation we can understand that today the main focus of micro finance industry is to empower the woman thats why more loans are provided to woman and on easy terms. From the total SHG more SHG are coming in which only women are member because women can better run a business and his family. Narega and SGSY Swaranjyanti Gram SwarojgarYojna are one of the schemes which are introduced by the government to help the poor people Schemes are provided by the government to poor people but there is less people who avail the benefit from these schemes. There are many challenges face by women to doing the business as entrepreneur like lack of capital, networking problems etc. But these challenges can be overcoming with the help of Provide micro credit for livelihood support and to micro enterprises development, establishing sources of credit. With the help of relationship data we can see that there are more percentage of women SHGs out of total SHGs. So that is good indicator for women

entrepreneur. The loan distributed data show increase the % of loan amount to women as compare to last year. This show the economic development of women entrepreneur.LIMITATIONS TIME CONSTRAINT Shortage of time was a very big constraint due to which some area of micro finance has been included in the study. RESOURCE CONSTRAINT Availability of data was a constraint due to which only secondary data is considered, which is available, and also there are some MFIs whose data was not available SECONDARY DATA 74 All the information available was from secondary sources and data was very vastto analyze properly & accuratelyWIDE AREA TO STUDY Study being conducted was very wide & analysis require expertise knowledge & skills which was lackingNO DIRECT SOURCE OF INFORMATION AVAILABLEThe information is collected from indirect sources so in some information data is not availableFUTURE ANALYSISThe whole study was based on historical data which was not much useful in analysis of presentand prediction of future. 75 CHAPTER 7 CONCLUSION, IMPLICATIONS ANDRECOMMENDATIONS 76 ConclusionTraditionally women have been marginalized. A high percentage of women are among the poorest ofthe poor. Microfinance activities can give them a means to climb out of poverty. Microfinance couldbe a solution to help them to extend their horizon and offer them social recognition and empowerment.Numerous traditional and informal system of credit that was already in existence before micro financecame into vogue. Viability of micro finance needs to be understood from a dimension that is farbroader- in looking at its long-term aspects too.A conclusion that emerges from this account is that micro finance can contribute to solving theproblems of inadequate housing and urban services as an integral part of poverty alleviationprogrammes. The challenge lies in finding the level of flexibility in the credit instrument that couldmake it match the multiple credit requirements of the low income

borrower without imposingunbearably high cost of monitoring its end use upon the lenders. A promising solution is to providemultipurpose lone or composite credit for income generation, housing improvement and consumptionsupport. Consumption loan is found to be especially important during the gestation period betweencommencing a new economic activity and deriving positive income.India is the country where a collaborative model between banks, NGOs, MFIs and Womensorganizations is furthest advanced. It therefore serves as a good starting point to look at what we knowso far about Best Practice in relation to micro-finance for womens empowerment and how differentinstitutions can work together.It is clear that gender strategies in micro finance need to look beyond just increasing womens accessto savings and credit and organizing self -help groups to look strategically at how programmes canactively promote gender equality and womens empowerment. On the other hand, thank to womenscapabilities to combine productive and reproductive roles in microfinance activities and society hasenabled them to produce a greater impact as they will increase at the same time the quality of life ofthe women micro-entrepreneur and also of her family.SUGGESTION Credit is important for development but cannot by itself enable very poor women to overcome their poverty. 77 Making credit available to women does not automatically mean they have control over its use and over any income they might generate from micro enterprises. In situations of chronic poverty it is more important to provide saving services than to offer credit. A useful indicator of the tangible impact of micro credit schemes is the number of additional proposals and demands presented by local villagers to public authorities. Globalization will not be allowed to expand the gap between the rich and the poor. Affluent countries cannot continue to dump aid on needy nations; developing countries must not be permitted to ignore the needs of their impoverished population. As the poor are vulnerable it is not sufficient for us just to provide micro credit, but to have a series of support systems provided at the appropriate time.Government can contribute most

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