Professional Documents
Culture Documents
University of MUMBAI V.P.M R.Z SHAH College of Arts, Science and Commerce.
ACKNOLEDGEMET
It was great pleasure getting a chance to perform a project on MICROFINANCE
My deepest thanks to MUMBAI University for giving me an opportunity to do this project. This is a result of hard work, corporation, guidance and good wishes of many people.
I express my thank my principal of my college prof Suzan for extending her support and my guidance teacher and co ordinator Miss Shruti Souche she gave me the moral support and guided me in different matters regarding this topic. I thank her for her overall support.
I would also thank my institution and the faculty member (Liberian) without whom this project would have been a distant reality. Thank to my family members. last but not the least. I would like to say a million thank to my best friend for lending a helping hand without whom my project would be incomplete.
DECLARATION
CERTIFICATE
Research Design
Purpose of the study
To study in detail the concept of microfinance. To study in detail the implication in Indian context
To study the concept of microfinance To study the Indian economic scenario To study the need of microfinance To study the sources of microfinance To study the challenges of microfinance
Research Methodology
Microfinance
A type of banking service that is provided to unemployed or low-income individuals or groups who would otherwise have no other means of gaining financial services. Ultimately, the goal of microfinance is to give low income people an opportunity to become self-sufficiet by providing a means of saving money, borrowing money and insurance.
Micro financing is not a new concept. Small microcredit operations have existed since the mid 1700s. Although most modern microfinance institutions operate in developing countries, the rate of payment default for loans is surprisingly low - more than 90% of loans are repaid.
Like conventional banking operations, microfinance institutions must charge their lenders interests on loans. While these interest rates are generally lower than those offered by normal banks, some opponents of this concept condemn microfinance operations for making profits off of the poor.
The World Bank estimates that there are more than 500 million people who have directly or indirectly benefited from microfinance-related operations.
INDEX
MICROFINANCE
1. INTRODUCTION
Microfinance is a general term to describe financial services to low-income individuals or to those who do not have access to typical banking services.
Microfinance is also the idea that low-income individuals are capable of lifting themselves out of poverty if given access to financial services. While some studies indicate that microfinance can play a role in the battle against poverty , it is also recognized that is not always the appropriate method, and that it should never be seen as the only tool for ending poverty. Microfinance is defined as any activity that includes the provision of financial services such as credit, savings, and insurance to low income individuals which fall just above the nationally defined poverty line, and poor individuals which fall below that poverty line, with the goal of creating social value. The creation of social value includes poverty alleviation and the broader impact of improving livelihood opportunities through the provision of capital for micro enterprise, and insurance and savings for risk mitigation and consumption smoothing. A large variety of actors provide microfinance in India, using a range of microfinance delivery methods. Since the ICICI Bank in India, various actors have endeavored to provide access to financial services to the poor in creative ways. Governments also have piloted national programs, NGOs have undertaken the acivity raising donor funds for on-lending, and some banks have partnered with public organizations or made small in roads themselves in providing such services. This has resulted in a rather broad definition of microfinance as any activity that target s poor and low-income.
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This has resulted in a rather broad definition of microfinance as any activity that targets poor and low-income individuals for the provision of financial services. The range of activities undertaken in microfinance include group lending, individual lending, the provision of savings and insurance, capacity building, and agricultural business development services. Whatever the form of activity however, the overarching goal that unifies all actors in the provision of microfinance is the creation of social value.
Microfinance refers to small scale financial services for both credits and deposits that are provided to people who farm or fish or herd operate small or micro enterprise where goods are produced, recycled, repaired, or traded provide services work for wages or commissions gain income from renting out small amounts of land, vehicles, draft animals, or machinery and tools and to other individuals and local groups in developing countries in both rural and urban areas.
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Microfinance is a form of financial services for entrepreneurs and small businesses lacking access to banking and related services. The two main mechanisms for the delivery of financial services to such clients are:
(2) Group-based models, where several entrepreneurs come together to apply for loans and other services as a group from renting out small amounts .
In some regions, for example Southern Africa, microfinance is used to describe the supply of financial services to low-income employees, which is closer to the retail finance model prevalent in mainstream banking.
Microfinance is a movement whose object is "a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services, including not just credit but also savings insurance and fund transfers . Many of those who promote microfinance generally believe that such access will help poor people out of poverty . For others, microfinance is a way to promote economic development, employment and growth through the support of micro-entrepreneurs and small businesses
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Definition
According to International Labor Organization (ILO) Microfinance is an economic development approach that involves providing financial services through institutions to low income clients.
In India Microfinance has been defined by The National Microfinance Taskforce 1999 as provision of thrift, credit and other financial services and products of very small l amounts to the poor in rural, semi-urban or urban areas for enabling them to raise their income levels and improve living standards.
"The poor stay poor, not because they are lazy but because they have no access to capital.
"Microfinance is the supply of loans, savings, and other basic financial services to the poor." |
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As these financial services usually involve small amounts of money - small loans, small savings, etc. The term "microfinance" helps to differentiate these services from those which formal banks provide.
"Poor people save all the time, although mostly in informal ways. They invest in assets such as gold, jewelry ,domestic animals, building materials, and things that can be easily exchanged for cash. They may set aside corn from their harvest to sell at a later date. They bury cash in the garden or stash it under the mattress. They participate in informal savings groups where everyone contributes a small amount of cash each day, week, or month, and is successively awarded the pot on a rotating basis. Some of these groups allow members to borrow from the pot as well. The poor also give their money to neighbors to hold or pay local cash collectors to keep it safe.
Poor rarely access services through the formal financial sector. They address their need for financial services through a variety of financial relationships, mostly informal.
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Meaning of Microfinance
Microfinance refers to a variety of financial services that target low-income clients, particularly women. Since the clients of microfinance institutions (MFIs) have lower incomes and often have limited access to other financial services, microfinance products tend to be for smaller monetary amounts than traditional financial services. These services include loans, savings, insurance, and remittances. Microloans are given for a variety of purposes, frequently for microenterprise development. The diversity of products and services offered reflects the fact that the financial needs of individuals, households , and enterprises can change significantly over time, especially for those who live in poverty. Because of these varied needs, and because of the industry's focus on the poor, microfinance institutions often use non-traditional methodologies, such as group lending or other forms of collateral not employed by the formal financial sector.
Loans to poor people by banks have many limitations including lack of security and high operating cost and so Microfinance was developed as an alternative to provide loans to poor people with the goal of creating financial inclusion and equality.
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History of Microfinance
The concept of microfinance is not new. Savings and credit groups that have operated for centuries include the "susus" of Ghana, "chit funds" in India, "tandas" in Mexico, "arisan" in Indonesia, "cheetu" in Sri Lanka, "tontines" in West Africa, and "pasanaku" in Bolivia , as well as numerous savings clubs and burial societies found all over the world.
Between the 1950s and 1970s, governments and donors focused on providing agricultural credit to small and marginal farmers, in hopes of raising productivity and incomes. These efforts to expand access to agricultural credit emphasized supply-led government interventions in the form of targeted credit through state-owned development finance institutions, or farmers' cooperatives in some cases, that received concessional loans and on-lent to customers at below-market interest rates. These subsidized schemes were rarely successful. Rural development banks suffered massive erosion of their capital base due to subsidized lending rates and poor repayment discipline and the funds did not always reach the poor, often ending up concentrated in the hands of better-off farmers. It was not until the mid 1990 that the term microcredit began to be replaced by a new term included not only credit, but also savings and other financial services. "Microfinance" emerged as the t erm of choice to refer to a range of financial services to the poor, that included not only credit, but also savings and other services such as insurance and money transfer.
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1) Global view
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1. Lack of sufficient public knowledge: Knowledge about banks portfolios and their future risk-weight, since this will also depend on whether banks will use the standardized or IRB approaches.
2. Lack of precise knowledge: As to how operational risk costs will be charged. The banks are expected to benefit from sharpening up some aspects of their risk management practices preparation and for the introduction of the operational risk charge.
3. Lack of consistency: at least at this stage, as to how insurance activities will be accounted for. One treatment outlined in the Capital Accord is that banks deduct equity and other regulatory capital investments in insurance subsidiaries and significant minority investments in insurance entities. An alternative to this treatment is to apply a risk weight age to insurance investments.
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Low Degree of Corporate Rating Penetration: India has as few as three established rating agencies and the level of rating penetration is not very significant as, so far, ratings are restricted to issues and not issuers. While Basel II gives some scope to extend the rating of issues to issuers, this would only be an approximation and it would be necessary for the system to move to ratings of issuers. Encouraging ratings of issuers would be a challenge.
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3. Rating risks:
Problems embedded in Basel II norms include rating of risks by rating agencies. Whether the country has adequate number of rating agencies to discharge the functions in a Basel II compliant banking system, is a question for consideration. Further, to what extent the rating agencies can be relied upon is also a matter of debate. Entry norms for recognition of rating agencies should be stricter. Only firms with international experience or background in ratings business should be allowed to enter.
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This is necessarily given that the Indian rating industry is in its growth phase, especially with the implementation of new Basel II capital norms that encourage companies to get rated.
6. Preference for Mortgage Credit to Consumer Credit Lower Risk Weights to Mortgage credit:
Preference for Mortgage Credit to Consumer Credit Lower Risk Weights to Mortgage credit Would accentuate bankers preference towards it vis--vis consumer credit.
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CHAPTER 3
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Axis Bank was the first of the new private banks to have begun operations in 1994, after the Government of India allowed new private banks to be established. The Bank was promoted jointly by the Administrator of the specified undertaking of the Unit Trust of India (UTI - I), Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC) and other four PSU insurance companies, i.e. National Insurance Company Ltd., The New India Assurance Company Ltd., The Oriental Insurance Company Ltd. and United India Insurance Company Ltd.
The Bank as on 30th September, 2011 is capitalized to the extent of Rs. 412.32 crores with the public holding (other than promoters and GDRs) at 52.07%.
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The Agriculture & Small Enterprises Business Committee of AXIS Banks board of directors, which was constituted in June 2003 but has not held any meetings to date, will, in addition to reviewing AXIS Banks strategy for small enterprises and agri-business, also review the quality of the agricultural lending and small enterprises finance credit portfolio. For a discussion of these and other committees, see ''Management''. As shown in the following chart, the Risk, Compliance and Audit Group is organized into six subgroups: CREDIT RISK MANAGEMENT, MARKET RISK MANAGEMENT, ANALYTICS, INTERNAL AUDIT, RETAIL RISK Management and Credit Policies and Reserve Bank of India Inspection. The Analytics Unit develops proprietary quantitative techniques and models for risk measurement. Credit Risk In our lending operations, we are principally exposed to credit risk. Credit risk is the risk of loss that may occur from the failure of any party to abide by the terms and conditions of any financial contract with us, principally the failure to make required payments on loans due to us. We currently measure, monitor and manage credit risk for each borrower and also at the portfolio level. We have a structured and standardized credit approval process, which includes a well-established procedure of comprehensive credit appraisal. Credit Risk Assessment Procedures for Corporate Loans In order to assess the credit risk associated with any financing proposal, AXIS Bank assesses a variety of risks relating to the borrower and the relevant industry. Borrower risk is evaluated by considering the financial position of the borrower by analyzing the quality of its financial statements, its past financial performance, its financial flexibility in terms of ability to raise capital.
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EQUITY RISK:We assume equity risk both as part of our investment book and our trading book. On the investment book, investments in equity shares and preference shares are essentially longterm in nature. Nearly all the equity investment securities have been driven by our project financing activities. The decision to invest in equity shares during project financing activities has been a conscious decision to participate in the equity of the company with the intention of realizing capital gains arising from the expected increases in market prices, and is separate from the lending decision. Trading account securities are recorded at market value. For the purpose of valuation of our available for sale equity investment securities, an assessment is made whether a decline in the fair value, below the amortized cost of the investments, is other than temporary. If the decline in fair value below the amortized cost is other than temporary, the decline is provided for in the income statement. A temporary decline in value is excluded from the income statement and charged directly to the shareholders equity. To assess whether a decline in fair value is temporary, the duration for which the decline had existed, industry and company specific conditions and dividend record are considered. Non-readily marketable securities for which there is no readily determinable fair value are recorded at cost. Venture capital investments are carried at fair value. However, they are generally carried at cost during the first year, unless a significant event occurs that affected the long-term value of the investment.
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LIQUIDITY RISK:Liquidity risk arises in the funding of lending, trading and investment activities and in the management of trading positions. It includes both the risk of unexpected increases in the cost of funding an asset portfolio at appropriate maturities and the risk of being unable to liquidate a position in a timely manner at a reasonable price. The goal of liquidity management is to be able, even under adverse conditions, to meet all liability repayments on time, to meet contingent liabilities, and fund all investment opportunities. We maintain diverse sources of liquidity to facilitate flexibility in meeting funding requirements. We found our operations principally by accepting deposits from retail and corporate depositors and through public issuance of bonds. We also borrow in the short-term inter-bank market. Loan maturities, securitization of assets and loans, and sale of investments also provide liquidity AXIS Bank is exposed to many types of operational risk. Operational risk can result from a variety of factors, including failure to obtain proper internal authorizations, improperly documented transactions, failure of operational and information security procedures, computer systems, software or equipment, fraud, inadequate training and employee errors. AXIS Bank attempts to mitigate operational risk by maintaining a comprehensive system of internal controls, establishing systems and procedures to monitor transactions, maintaining key backup procedures and undertaking regular contingency planning.
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LEGAL RISK:The uncertainty of the enforceability of the obligations of AXIS Banks customers and counterparties, including the foreclosure on collateral, creates legal risk. Changes in law and regulation could adversely affect AXIS Bank. Legal risk is higher in new areas of business where the law is often untested by the courts. AXIS Bank seeks to minimize legal risk by using stringent legal documentation, employing procedures designed to ensure that transactions are properly authorized and consulting internal and external legal advisors.
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PERSONAL BANKING:-
Deposits
Saving account Current account. Fixed deposit.
Pension account.
Loans.
Home loan. Personal loan. Educational loan Loan against securities. Loan against property.
Payment .
Tax payment Stamp duty payment. Bill payment. Card to card money transfer.
online payment.
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Cards.
Debit card. Gift card. International debit cum ATM card. Cash card.
Investment advisory; Mutual funds. Insurance. Fixed income securities. Smart financing planning.
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Chapter : 4
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Research methodology
PRIMRY DATA
Primary information: Personal interview/ Questionnaire
SECONDARY DATA.
Secondary information: Through internet, Manuals, Journals, Audit/Annual reports authors reference book.
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Chapter: 5
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Finding
1. Researcher has found that the bank controls the liquidity risk and all types of risk efficiently.
2. Researcher has found that the bank started managing credit risk and market risk by adopting managerial approach.
3. Researcher has concluded that the bank has adopted risk reward ratio wherein the investor compare the expected returns of an investment to the amount of risk taken to retain these returns.
4. Researcher has also found that the bank ensures an equal balance between profitability and growth rate.
5. Researcher has found that bank has also adopted the ALM system to mange all types of risk.
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Suggestion
The Banks should review Basel II components and develop a vision, strategy and action plan for what is expected to be a suitable framework based on how the banking system evolves over time.
The Banks need regular engagement for sustained support. A qualified long-term advisor would be preferable.
Training and additional assistance to make it easier for the banking system to comply with new guide lines on market and operational risk.
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WEBLIOGRAPHY.
www.axisbank.com
www.rbi.org
www.google.co
www.yahoo.com
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bibliography
BOOKS.
Universal banking reference book. Hand Book on Risk management & Basel II norms
ARTICALS
Risk Management in Banks. -- R S Raghavan Chartered Accountant. Basel Norms challenges in India Swapan Baksh
White Paper the Ripple Effect: How Basel II will impact institutions of all sizes Risk Management Guidelines for Commercial Banks & DFIs.
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CHAPTER:6
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CONCLUSION:Risk management underscores the fact that the survival of an organization depends heavily on its capability to anticipate and prepares for the changes rather than just waiting for the change and reacts to it. The objective of risk management is not to prohibit or prevent risk taking activities but to ensure that the risk are consciously taken with full knowledge clear purpose and understanding so that it can be measure and mitigated. It also prevents. An institution to fail or materially damage its competitive position function of risk mgmt should actually be bank specific dictated by the size and quantity of balance sheet complexity of function technical / professional man man power and the status of MLS in place in that bank balancing risk and return is not an easy task as risk is subjective and not quant table, where is return is objective and measurable if there exist a way of converting the subjectivity of the into a number than the balancing Exercise would be meaning full and much easier.
Risk management is part of corporate governance. It min orientation must be defined by the board of director must be monitored by independent, competent director in the audit committee or the risk management of the companies highly exposed the various risk such as financial institution.
Risk management can also improve the firms capital structure which suggest that companies in good financial health should use there information advantage to establish strategies to hedge future price.
The objectives of risk management is to maximize firm value via the reduction of cost associated with different risk. In conclusion effective regulation of financial institution apparently remains elusive dispite the immense progress seen in the last 25 years.
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ANNEXURE
Self-interview
3) Age?
4) Designation / qualification?
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4) What is best way for the bank to protect them against such risk?