A

Dissertation Report
On
Issue and Success Factors
in
Micro Financing
(SUBMITTED TOWARDS PARTIAL FULFILLMENT OF POST GRADUATE
DIPLOMA IN MANAGEMENT)
(Approved by AICTE, Govt. of India)
ACADEMIC SESSION
(2008-10)

Under the guidance of: Submitted by:
Guide name Your name
Lecturer (college name) PGDM-08/050
COLLEGE ADDE!!
COLLEGE
LOGO
PREFACE
Alignment o" t#e "inance $it# t#e o%erall &trateg' o" t#e com(an' i& a %er' )ig and
toug#e&t c#allenge "or t#e com(an'*
+,-A-CE i& an im(ortant (art o" an' )u&ine&& and managing t#em i& an im(ortant
ta&.*
Our in&titution #a& come "or$ard $it# t#e o((ortunit' to )ridge t#e ga( )'
im(arting modern &cienti"ic management (rinci(le underl'ing t#e conce(t o" t#e
"uture (ro&(ecti%e manager&*
/o t#e em(#a&i& on (ractical a&(ect o" management education t#e "acult' o"
COLLEGE -AME #a& $it# a modern &'&tem o" (ractical training o" re(ute and
"ollo$ing management tec#ni0ue to t#e &tudent a& integral (art o" PGDM*
ACKNOWLEDGEMENT
On t#e %er' out&et o" t#i& re(ort1 , $ould li.e to e2tend m' &incere 3 #eart"elt o)ligation
to$ard& all t#e (er&onage& $#o #a%e #el(ed me in t#i& endea%or* 4it#out t#eir acti%e
guidance1 #el(1 coo(eration 3 encouragement1 , $ould not #a%e made #ead$a' in t#e
(ro5ect*
, am ine""a)l' inde)ted to COLLEGE DIRECTOR NAME "or con&cientiou& guidance and
encouragement to accom(li&# t#i& a&&ignment*
, am e2tremel' t#an."ul and (a' m' gratitude to m' "acult' guide FACULTY
NAME "or #er %alua)le guidance and &u((ort on com(letion o" t#i& (ro5ect in it&
(re&entl'*
, e2tend m' gratitude to COLLEGE -AME "or gi%ing me t#i& o((ortunit'*
, al&o ac.no$ledge $it# a dee( &en&e o" re%erence1 m' gratitude to$ard& m' (arent&
and mem)er o" m' "amil'1 $#o #a& al$a'& &u((orted me morall' a& $ell a&
economicall'*
At la&t )ut not lea&t gratitude goe& to all o" m' "riend& $#o directl' or indirectl'
#el(ed me to com(lete t#i& (ro5ect re(ort*
An' omi&&ion in t#i& )rie" ac.no$ledgement doe& not mean lac. o" gratitude*
Thanking You
Your name
CERTIFICATE FROM THE FACULTY GUIDE
/#i& i& to certi"' t#at t#e (ro5ect $or. entitled ISSUE AND SUCCESS
FACTORS IN MICRO FINANCING i& a )ona"ide $or. carried out )'
YOUR NAMR, a candidate o" t#e PGDM (6008-6070) COLLEGE -AME
under m' guidance and direction*
Signature of the Guide
FACULTY NAME - GUIDE

Table of Contents
EXECUTlVE SUMMARY...................................................................................................... 8
3 lNTRODUCTlON.............................................................................................................. ll
4 SERVlCES PROVlDED BY MlCRO FlNANCE BANK:...................................................l4
l CHALLENGES AND OPPORTUNlTlES OF MlCRO FlNANClNG:...................................l5
2 PRlNClPLES OF MlCRO FlNANCE.................................................................................l7
3 FUNCTlONS OF MlCRO FlANANCE...............................................................................l9
4 MlCRO FlNANCE lN lNDlA..............................................................................................20
Source: Rural labor enquiry report on indebtedness among rural labor households (55th
Round of N.S.S.) l999-2000...............................................................................................22
5 Microfinance Social Aspects............................................................................................. 27
6 Major initiatives in Rural Credit ........................................................................................28
l0.lSEWA Co-operative Bank (l974) .............................................................................28
l0.2 Self Help Groups (SHGs) ........................................................................................29
l0.3 National Bank for Agriculture and Rural Development ............................................29
l0.4Rashtriya Mahila Kosh (RMK),l993 .........................................................................29
l0.5 Small lndustries Development Bank of lndia (SlDBl), l994 ....................................30
l0.6SHG-Bank Linkage Programme (l996) ...................................................................30
l0.7 Microfinance Development and Equity Fund (MD & EF), 200l ...............................3l
7 SELF HELP GROUPS (SHGs).........................................................................................3l
8 MlCRO FlNANCE MODELS.............................................................................................38
l2.lMicro Finance lnstitutions (MFls):.............................................................................38
l2.2Bank Partnership Model............................................................................................39
l2.3Banking Correspondents..........................................................................................39
l2.4Service Company Model........................................................................................... 40
9 Role, Functions and Working Mechanism of Financial lnstitutions...................................4l
l3.llClCl Bank................................................................................................................ 4l
l3.2Bandhan................................................................................................................... 45
l3.3Grameen Bank.......................................................................................................... 48
l3.4 SKS Microfinance.................................................................................................... 49
l0 Marketing of Microfinance Products...............................................................................5l
ll Success Factors of Micro-Finance in lndia....................................................................53
l2 lssues in Microfinance.................................................................................................... 58
FlNDlNGS.......................................................................................................................... 63
CONCLUSlON................................................................................................................... 64
RECOMMENDATlONS...................................................................................................... 65
Access to Credit ................................................................................................................ 65
The poor people's access to credit may be significantly improved through all the channels
of SHG-Bank linkage programme, MFls, Cooperative Banks, State Financial Corporations,
RRB s and PACS. Some MFls (i.e. Grameen Bank model/LABS, NBFCs) have been doing
very well in selected states with dynamic markets and dynamic individuals. Beyond these
jurisdictions, their outreach is non-existent. Any significant up scaling of micro-finance at the
all lndia level will have to depend, therefore, on the large network of banks, the bank-SHG
linkage programme and the MFls. ln addition, the post office network in the country may
also be used to deliver banking services, especially in remote rural areas. The post offices
may be further encouraged to work as "business facilitator" and as "banking correspondent"
in accordance with RBl guidelines. The NABARD may consider setting up a Committee,
consisting of various private and public sector banks, the Ministry of Rural Development,
Small lndustries Development Organisation (SlDO) of Ministry of Small Scale lndustries
(SSl), Rashtriya Mahila Kosh (RMK) of The Ministry of Women and Child Development,
Department of Posts, SlDBl, MFls and the NGOs in the micro finance sector to evolve an
effective strategy to implement the Business Facilitators and Correspondents Model. Such a
strategy should also take into account special target groups such as the SCs/STs and the
minorities through their respective National Finance Corporations. The Eleventh Plan may
target to extend micro-finance to at least 80 percent of the BPL households. ....................65
REFERRENCES................................................................................................................ 72
List of Tables and Figures
Table l: Distribution of lndebted Rural Households: Agency wise.......................................20
Figure l: Percentage of Rural Household according to the Distribution Agency..................2l
Table 2:Percentage distribution of debt among indebted Rural Labor Households by source
of debt................................................................................................................................. 22
Figure 2: Percentage distribution of debt among indebted Rural Labor Households by
source of debt...................................................................................................................... 23
Table 3:Relative share of Borrowing of Cultivator Households(in per cent).........................24
Table 4:Distribution based on Asset size of Rural Households (in per cent)........................25
Table 5: Comparative Analysis of Micro-finance Services offered to the poor.....................36
Table 6: Legal Forms of MFls in lndia............................................................................38
EXECUTIVE SUMMARY
Micro"inance mean& (ro%iding %er' (oor "amilie& $it# %er' &mall loan&
(micro credit) to #el( t#em engage in (roducti%e acti%itie& /&mall
)u&ine&&e&* O%er time1 micro"inance #a& come to include a )roader range
o" &er%ice& (credit1 &a%ing&1 in&urance1 etc*) a& $e #a%e come to reali8e
t#at t#e (oor and t#e %er' (oor $#o lac. acce&& to traditional "ormal
"inancial in&titution& re0uire a %ariet' o" "inancial (roduct&*
/#e Ele%ent# +i%e Year Plan aim& at inclu&i%e gro$t# and "a&ter reduction
o" (o%ert'* Micro +inance can contri)ute immen&el' to t#e "inancial
inclu&ion o" t#e (oor $it#out $#ic# it $ill )e di""icult "or t#em to come
out o" t#e %iciou& c'cle o" (o%ert'* /#ere i& a need to &trengt#en all t#e
a%aila)le c#annel& o" (ro%iding credit to t#e (oor &uc# a& !9G- :an.
Lin.age (rogramme&1 Micro +inance ,n&titution&1 Coo(erati%e :an.&1
!tate "inancial cor(oration&1 egional ural :an.& and Primar'
Agricultural Credit !ocietie&* /#e &trengt# o" t#e micro "inance indu&tr'
lie& in it& in"ormalit' and "le2i)ilit' $#ic# &#ould )e (rotected and
encouraged*
Landlord&1 local &#o(.ee(er&1 trader&1 &u((lier& and (ro"e&&ional mone'
lender&1 and relati%e& are t#e in"ormal &ource& o" micro-credit "or t#e (oor1
)ot# in rural and ur)an area&*
/#e &ector $#ic# i& &till in it& in"anc' "ace& &#ortage o" e2(erienced
con&ultant&/man(o$er/e2(ert&* /#ere i& a need to #a%e good 0ualit'
(ro"e&&ional&1 trained in )e&t (ractice& in go%ernance "or e""ecti%e
cor(orate go%ernance* A need-)a&ed ca(acit' )uilding (rogramme to meet
t#e re0uirement& o" all categorie& o" Micro +inance Organi&ation& (M+O&)
i& e&&ential to )ring a)out &u&taina)ilit' in t#e &ector* !ome o" t#e
im(ortant area& $#ere ca(acit' )uilding i& needed are tran&"ormation1 )e&t
(ractice&1 intere&t rate management1 deli%er' management1 managing
gro$t#1 ri&. mitigation1 (roduct de&igning1 mar.et re&earc# etc*
,t i& m' (lea&ure and (ri%ilege to t#an. to FACULTY NAME "or #er
%alua)le contri)ution& $it#out $#ic# it $ould not #a%e )een (o&&i)le to
(re(are t#i& re(ort
2. RESEARCH METHODOLOGY
2.1.Research Objectives
7* +ind out t#e i&&ue o" t#e micro "inance
6* Com(arati%e Anal'&i& o" Micro-"inance !er%ice& o""ered to t#e
(oor*
;* 9o$ doe& t#e client o" t$o main model& o" micro"inance1 t#e !9G
and t#e M+, model1 di""er<
=* Doe& t#e le%el o" inde)tedne&& to mone'lender& de(end on t#e t'(e
o" micro "inance model one i& client o"<
2.2.Type of Research - E2(lorator' e&earc#
2.3.Data sources: /#e re&earc# i& )a&ed on &econdar' data and t#e
data i& collected "rom %ariou& $e)&ite&1 >ournal&1 Maga8ine&1
Article& and e&earc# Pa(er*
2.4.Data Analysis:
Abbreviations
-A:AD- -ational :an. "or Agriculture and ural De%elo(ment*
M+,&- Micro +inance ,n&titution&*
!9G&- !el" 9el( Grou(&*
:- egional ural :an.*
DDA- Di&trict ural De%elo(ment Aut#orit'*
!,D:,- !mall ,ndu&trie& De%elo(ment :an. o" ,ndia*
:,- e&er%e :an. o" ,ndia*
-:+C&- -on-:an.ing +inancial Cor(oration&*
LA:&-Local Area :an.&*
-GO&- -on-Go%ernmental Organi&ation&
+LDG- +ir&t Lo&& De"ault Guarantee*
,C/- ,n"ormation and Communication /ec#nolog'*
!G!Y- !$arna5a'anti Gram !$aro8gar Yo5ana*
M+O&- Micro +inance Organi&ation&*
,DP- ,ntegrated ural De%elo(ment Programme*
>LG- >oint Lia)ilit' Grou(*
M+DE+- Micro"inance De%elo(ment 3 E0uit' +und*
PAC!- Primar' Agricultural Coo(erati%e &ocietie&*
M?- a&#tri'a Ma#ila ?o&#*
:- egional ural :an.
!:LP- !9G :an. Lin.age Program*
3 INTRODUCTION
Micro"inance i& de"ined a& an' acti%it' t#at include& t#e (ro%i&ion o"
"inancial &er%ice& &uc# a& credit1 &a%ing&1 and in&urance to lo$ income
indi%idual& $#ic# "all 5u&t a)o%e t#e nationall' de"ined (o%ert' line1 and
(oor indi%idual& $#ic# "all )elo$ t#at (o%ert' line1 $it# t#e goal o"
creating &ocial %alue* /#e creation o" &ocial %alue include& (o%ert'
alle%iation and t#e )roader im(act o" im(ro%ing li%eli#ood o((ortunitie&
t#roug# t#e (ro%i&ion o" ca(ital "or micro enter(ri&e1 and in&urance and
&a%ing& "or ri&. mitigation and con&um(tion &moot#ing* A large %ariet' o"
actor& (ro%ide micro"inance in ,ndia1 u&ing a range o" micro"inance
deli%er' met#od&* !ince t#e "ounding o" t#e Grameen :an. in
:anglade&#1 %ariou& actor& #a%e endea%ored to (ro%ide acce&& to "inancial
&er%ice& to t#e (oor in creati%e $a'&* Go%ernment& #a%e (iloted national
(rogram&1 -GO& #a%e underta.en t#e acti%it' o" rai&ing donor "und& "or
on-lending1 and &ome )an.& #a%e (artnered $it# (u)lic organi8ation& or
made &mall inroad& t#em&el%e& in (ro%iding &uc# &er%ice&* /#i& #a&
re&ulted in a rat#er )road de"inition o" micro"inance a& an' acti%it' t#at
target& (oor and lo$-income indi%idual& "or t#e (ro%i&ion o" "inancial
&er%ice&* /#e range o" acti%itie& underta.en in micro"inance include grou(
lending1 indi%idual lending1 t#e (ro%i&ion o" &a%ing& and in&urance1
ca(acit' )uilding1 and agricultural )u&ine&& de%elo(ment &er%ice&*
4#ate%er t#e "orm o" acti%it' #o$e%er1 t#e o%erarc#ing goal t#at uni"ie&
all actor& in t#e (ro%i&ion o" micro"inance i& t#e creation o" &ocial %alue*
3.1 Microfinance Definition
According to ,nternational La)or Organi8ation (,LO)1 @Microfinance is an
economic development approac tat involves providin! financial
services tro"! instit"tions to lo# income clientsA*
,n ,ndia1 Micro"inance #a& )een de"ined )' @/#e -ational Micro"inance
/a&."orce1 7BBBA a& @provision of trift, credit and oter financial
services and prod"cts of ver$ small amo"nts to te poor in r"ral, semi-
"r%an or "r%an areas for ena%lin! tem to raise teir income levels and
improve livin! standardsA*
3.2 Strategic Policy Initiatives
!ome o" t#e mo&t recent &trategic (olic' initiati%e& in t#e area o"
Micro"inance ta.en )' t#e go%ernment and regulator' )odie& in ,ndia areC
4or.ing grou( on credit to t#e (oor t#roug# !9G&1 -GO&1
-A:AD1 7BB5
/#e -ational Micro"inance /a&."orce1 7BBB
4or.ing Grou( on +inancial +lo$& to t#e ,n"ormal !ector (&et u(
)' PMO)1 6006
Micro"inance De%elo(ment and E0uit' +und1 -A:AD1 6005
4or.ing grou( on +inancing -:+C& )' :an.&- :,
3.3 Activities in Microfinance
Microcredit: ,t i& a &mall amount o" mone' loaned to a client )' a )an. or
ot#er in&titution* Microcredit can )e o""ered1 o"ten $it#out collateral1 to an
indi%idual or t#roug# grou( lending*
Micro savings: /#e&e are de(o&it &er%ice& t#at allo$ one to &a%e &mall
amount& o" mone' "or "uture u&e* O"ten $it#out minimum )alance
re0uirement&1 t#e&e &a%ing& account& allo$ #ou&e#old& to &a%e in order to
meet une2(ected e2(en&e& and (lan "or "uture e2(en&e&*
Micro insurance: ,t i& a &'&tem )' $#ic# (eo(le1 )u&ine&&e& and ot#er
organi8ation& ma.e a (a'ment to &#are ri&.* Acce&& to in&urance ena)le&
entre(reneur& to concentrate more on de%elo(ing t#eir )u&ine&&e& $#ile
mitigating ot#er ri&.& a""ecting (ro(ert'1 #ealt# or t#e a)ilit' to $or.*
Remittances: /#e&e are tran&"er o" "und& "rom (eo(le in one (lace to
(eo(le in anot#er1 u&uall' acro&& )order& to "amil' and "riend&* Com(ared
$it# ot#er &ource& o" ca(ital t#at can "luctuate de(ending on t#e (olitical
or economic climate1 remittance& are a relati%el' &tead' &ource o" "und&*
Legal Regulations
:an.& in ,ndia are regulated and &u(er%i&ed )' t#e e&er%e :an. o" ,ndia
(:,) under t#e :, Act o" 7B;=1 :an.ing egulation Act1 egional
ural :an.& Act1 and t#e Coo(erati%e !ocietie& Act& o" t#e re&(ecti%e
&tate go%ernment& "or coo(erati%e )an.&*
-:+C& are regi&tered under t#e Com(anie& Act1 7B5D and are go%erned
under t#e :, Act* /#ere i& no &(eci"ic la$ catering to -GO& alt#oug#
t#e' can )e regi&tered under t#e !ocietie& egi&tration Act1 78D01 t#e
,ndian /ru&t Act1 78861 or t#e rele%ant &tate act&* /#ere #a& )een a &trong
reliance on &el"-regulation "or -GO M+,& and a& t#i& a((lie& to -GO
M+,& mo)ili8ing de(o&it& "rom client& $#o al&o )orro$* /#i& tendenc' i&
a concern due to en"orcement (ro)lem& t#at tend to ari&e $it# &el"-
regulator' organi8ation&* ,n >anuar' 60001 t#e :, e&&entiall' created a
ne$ legal "orm "or (ro%iding micro"inance &er%ice& "or -:+C& regi&tered
under t#e Com(anie& Act &o t#at t#e' are not &u)5ect to an' ca(ital or
li0uidit' re0uirement& i" t#e' do not go into t#e de(o&it ta.ing )u&ine&&*
A)&ence o" li0uidit' re0uirement& i& concern to t#e &a"et' o" t#e &ector
4 SERVICES PROVIDED BY MICRO FINANCE
BANK:
!o man' &er%ice& (ro%ide )' M+,* Pro%iding loan&E car "inancingE #ome
"inancing1 (er&onnel loan&1 taleemi loan&*
PROVIDING LOANS:
/#e im(ortant &er%ice i& (ro%ided )' M" i& gi%en loan* /#e&e loan& are
(ro%ided "rom &ome (roducti%e acti%itie& li.eE &tarting ne$ )u&ine&&1
e2(an&ion o" )u&ine&&E im(ro%ing li"e etc*
CAR FINANCING:
M+, al&o a&&i&t t#o&e (eo(le $#o cannot (a' total amount at once* !o1 t#e&e
M+, ga%e t#em car on in&tallment& li.e F:L car "inancing &c#eme i& too
(o(ular and too man' (eo(le ta.ing ad%antage "rom t#i& &c#eme*
HOME FINANCING:
Pa.i&tan i& a (oor countr'* Purc#a&ing (o$er o" Pa.i&tan i& %er' lo$* !o
man' (eo(le are li%ing on rent* /#e' cannot #a%e too man' amount& to
(urc#a&e #ome&* M+,G& (ro%ide loan& )e con&idering t#eir 5o) &ta)ilit' and
ta.e &ecurit' "or it*
PERSONNEL LOANS:
M+, al&o o)tain (er&onnel loan&* /#o&e (eo(le $#o #a%e (ermanent
em(lo'ment and &ta)le 5o)&* /#i& credit "acilit' de(end& on t#e income o" an
indi%idual*
TALEEMI LOANS:
M+, al&o (ro%ide "inancial aid to t#e &tudent& $#o cannot )are educational
e2(en&e& )ut $ant to &tud'* M+, a&&i&t t#em in return o" &ome &ecurit' and it
$ould #a%e to (a' a"ter com(leting t#e education*
1 CHALLENGES AND OPPORTUNITIES OF MICRO
FINANCING:
/#e Go%ernment #a& indicated it& $illingne&& to &(eed u( t#e (ace o"
&tructural re"orm& to meet t#e ma5or c#allenge& o"
REDUCING POVERTY:
/#e )a&ic motto o" t#e go%ernment to eliminate t#e (o%ert' and )ring (ro&(erit'
in t#e countr'* M+, (ro%iding &mall loan& and ot#er credit "acilitie& to t#e (oor
and lo$-income grou(&E $#ic# are )eginning (o&iti%e c#anging li.e t#eir
&tandard o" li%ing grou( and earning #a%e increa&ed
IMPROVING SOCIAL INDICATORS:
,nade0uate acce&& to (roducti%e re&ource& and &ocial &er%ice& #a& re&ulted
lo$ &ocial indicator& and lo$ em(lo'ment o((ortunitie&* /#i& &ituation i&
com(ounded in rural area&E $#ere acce&& i& more di""icuilt* !o1 )'
(ro%iding &mall loan& and credit "acilitie& t#e' can o%er come t#i& i&&ue
and can im(ro%e &ocial indicator&*
IMPROVING THE FISCAL AND BALANCE OF PAYMENTS
POSITIONS:
Pakistan is a poor country whose balance of payment always in deficit,
because of low productivity, lack of resources and lack of productive
men's power. lf MlF provide loans new business can be established. And
export of Pakistan can be improved which create balance of payments.
RESTORING INVESTOR CONFIEDENCE:
Due to (oor econom' o" Pa.i&tan in%e&tor& are #e&itating to in%e&t t#eir
mone' in Pa.i&tan )ut M+,G& can )oo&t u(* :ecau&e (ro%ide loan& to local
(eo(le ne$ )u&ine&& $ill &ta)le* Econom' $ill go u( and t#i& &ituation
ma' moti%ate to t#em "or in%e&ting t#eir "und&*
2 PRINCIPLES OF MICRO FINANCE
Poor people need a variety of financial services, not just loans*
Li.e e%er'one el&e1 t#e (oor need a range o" "inancial &er%ice& t#at are
con%enient1 "le2i)le1 and a""orda)le* De(ending on circum&tance&1 t#e'
$ant not onl' loan&1 )ut al&o &a%ing&1 in&urance1 and ca&# tran&"er
&er%ice&*
Microfinance is a powerful tool to fight poverty*
4#en (oor (eo(le #a%e acce&& to "inancial &er%ice&1 t#e' can earn more1
)uild t#eir a&&et&1 and cu&#ion t#em&el%e& again&t e2ternal &#oc.&* Poor
#ou&e#old& u&e micro"inance to mo%e "rom e%er'da' &ur%i%al to (lanning
"or t#e "utureC t#e' in%e&t in )etter nutrition1 #ou&ing1 #ealt#1 and
education*
Microfinance is about building permanent local financial
institutions*
+inance "or t#e (oor re0uire& &ound dome&tic "inancial in&titution& t#at
(ro%ide &er%ice& on a (ermanent )a&i&* /#e&e in&titution& need to attract
dome&tic &a%ing&1 rec'cle t#o&e &a%ing& into loan&1 and (ro%ide ot#er
&er%ice&* A& local in&titution& and ca(ital mar.et& mature1 t#ere $ill )e
le&& de(endence on "unding "rom donor& and go%ernment&1 including
go%ernment de%elo(ment )an.&*
Micro credit is not the best tool for everyone or every situation*
De&titute and #ungr' (eo(le $it# no income or mean& o" re(a'ment need
ot#er .ind& o" &u((ort )e"ore t#e' can ma.e good u&e o" loan&* ,n man'
ca&e&1 ot#er tool& $ill alle%iate (o%ert' )etterH"or in&tance1 &mall grant&1
em(lo'ment and training (rogram&1 or in"ra&tructure im(ro%ement&*
4#ere (o&&i)le1 &uc# &er%ice& &#ould )e cou(led $it# )uilding &a%ing&*
The role of government is to enable financial services, not to
provide them directly*
-ational go%ernment& &#ould &et (olicie& t#at &timulate "inancial &er%ice&
"or (oor (eo(le at t#e &ame time a& (rotecting de(o&it&* Go%ernment& need
to maintain macroeconomic &ta)ilit'1 a%oid intere&t rate ca(&1 and re"rain
"rom di&torting mar.et& $it# &u)&idi8ed1 #ig#-de"ault loan (rogram& t#at
cannot )e &u&tained*
The key bottleneck is the shortage of strong institutions and
managers*
Micro"inance i& a &(eciali8ed "ield t#at com)ine& )an.ing $it# &ocial
goal&* !.ill& and &'&tem& need to )e )uilt at all le%el&C manager& and
in"ormation &'&tem& o" micro"inance in&titution&1 central )an.& t#at
regulate micro"inance1 ot#er go%ernment agencie&1 and donor&* Pu)lic and
(ri%ate in%e&tment& in micro"inance &#ould "ocu& on )uilding t#i&
ca(acit'1 not 5u&t mo%ing mone'*
3 FUNCTIONS OF MICRO FIANANCE
!mall loan&1 t'(icall' "or $or.ing ca(italE
,n"ormal a((rai&al o" )orro$er& and in%e&tment&E
Acce&& to re(eat and larger loan& )a&ed on de)t ca(acit' and
re(a'ment (er"ormanceE
!ecure &a%ing& (roduct&*
/o (ro%ide "inancing "acilitie&1 $it# or $it#out collateral !ecurit'
/o acce(t de(o&it&
/o encourage in%e&tment& in &uc# cottage indu&trie& and income
generating (ro5ect& "or (oor (er&on& a& ma')e (re&cri)edE
/o mo)ili8e and (ro%ide "inancial and tec#nical a&&i&tance and
training to micro enter(ri&e&
/o in%e&t in &#are& o" an')od' cor(orate1 t#e o)5ecti%e o" $#ic# i&
to (ro%ide micro"inance &er%ice& to (oor (er&on&
4 MICRO FINANCE IN INDIA
At (re&ent lending to t#e economicall' acti%e (oor )ot# rural and ur)an i&
(egged at around & I000 crore& in t#e ,ndian )an.&G credit out&tanding*
A& again&t t#i&1 according to e%en t#e mo&t con&er%ati%e e&timate&1 t#e
total demand "or credit re0uirement& "or t#i& (art o" ,ndian &ociet' i&
&ome$#ere around & 61001000 crore&*
De(ri%ed o" t#e )a&ic )an.ing "acilitie&1 t#e rural and &emi ur)an ,ndian
ma&&e& are &till rel'ing on in"ormal "inancing intermediarie& li.e mone'
lender&1 "amil' mem)er&1 "riend& etc*
Table 1 : Distribution of Indebted Rural Households: Agency wise
Credit Agency Percentage of Rural Households
Government 6.1
Cooperative Societies 21.6
Commercial banks and RRBs 33.7
Insurance 0.3
Provident Fund 0.7
Other Institutional Sources 1.6
All Institutional Agencies 64.0
Landlord 4.0
Agricultural Moneylenders 7.0
Professional Moneylenders 10.5
Relatives and Friends 5.5
Others 9.0
All Non Institutional Agencies 36.0
All Agencies 100.0
Source: Debt and Investment Survey
Figure 1 : Percentage of Rural Household according to the
Distribution Agency
!eeing t#e "igure& "rom t#e a)o%e ta)le1 it i& e%ident t#at t#e &#are o"
in&titutional credit i& muc# more no$*
/#e a)o%e &ur%e' re&ult &#o$& t#at till 7BB71 in&titutional credit accounted
"or around t$o-t#ird& o" t#e credit re0uirement o" rural #ou&e#old&* /#i&
&#o$& a com(arati%el' )etter (enetration o" t#e )an.ing and "inancial
in&titution& in rural ,ndia*
Table 2:Percentage distribution of debt among indebted Rural Labor
Households by source of debt
Sr. No. Source of debt Households
4it#
culti%ated
land
4it#out
culti%ated
land
All
1 Go%ernment =*BB 5*ID 5*;I
2 Co-o(erati%e !ocietie& 7D*I8 B*=D 7;*0B
3 :an.& 7B*B7 7=*55 7I*7B
4 Em(lo'er& 5*;5 8*;; D*8D
5 Mone' lender& 68*76 ;5*6; ;7*I0
6 !#o(-.ee(er& D*ID I*=I I*7;
7 elati%e&/+riend& 7=*58 75*D8 75*7=
8 Ot#er !ource& ;*57 ;*56 ;*56
/otal 700*00 700*00 700*00
Source: Rural labor enquiry report on indebtedness among rural
labor households (55
th
Round of N.S.S.) 1999-2000
/#e ta)le a)o%e re%eal& t#at mo&t o" t#e rural la)our #ou&e#old& (re"er to
rai&e loan "rom t#e non-in&titutional &ource&* A)out D=J o" t#e total de)t
re0uirement o" t#e&e #ou&e#old& $a& met )' t#e non-in&titutional &ource&
during 7BBB-6000* Mone' lender& alone (ro%ided de)t (&*7B78) to t#e
tune o" ;6J o" t#e total de)t o" t#e&e #ou&e#old& a& again&t 68J during
7BB;-B=* elati%e& and "riend& and &#o(.ee(er& #a%e )een t$o ot#er
&ource& $#ic# toget#er accounted "or a)out 66J o" t#e total de)t at all-
,ndia le%el*
Figure 2 : Percentage distribution of debt among indebted Rural
Labor Households by source of debt
/#e in&titutional &ource& could meet onl' ;DJ o" t#e total credit
re0uirement o" t#e rural la)our #ou&e#old& during 7BBB-6000 $it# onl'
one (ercent increa&e o%er t#e (re%iou& &ur%e' in 7BB;-B=* Among t#e
in&titutional &ource& o" de)t1 t#e )an.& continued to )e t#e &ingle large&t
&ource o" de)t meeting a)out 7I (ercent o" t#e total de)t re0uirement o"
t#e&e #ou&e#old&* ,n com(ari&on to t#e (re%iou& en0uir'1 t#e de(endence
on co-o(erati%e &ocietie& #a& increa&ed con&idera)l' in 7BBB-6000*
During 7BBB-6000 a& muc# a& 7;J o" t#e de)t $a& rai&ed "rom t#i& &ource
a& again&t 8J in 7BB;-B=* 9o$e%er1 in t#e ca&e o" t#e )an.& and t#e
go%ernment agencie& it decrea&ed marginall' "rom 78*88J and 8*6IJ to
7I*7BJ and 5*;IJ re&(ecti%el' during 7BBB-6000 &ur%e'*
Table 3 :Relative share of Borrowing of Cultivator Households(in per
cent)
Sources of Credit 1951 1961 1971 1981 1991 2002
`
Non Institutional B6*I 87*; D8*; ;D*8 ;0*D ;8*B
Of whih!
Moneylenders DB*I =B*6 ;D*7 7D*7 7I*5 6D*8
Institutional I*; 78*I ;7*I D;*6 DD*; D7*7
Of whih!
Cooperative
Societies,etc
;*; 6*D 66*0 6B*8 ;0*0 ;0*6
Commercial banks 0*B 0*D 6*= 68*8 ;5*6 6D*;
Unspecified - - - - ;*7 -
Total 700*0 700*0 700*0 700*0 700*0 700*0
` All India Debt and Investment Survey, NSSO, 59
th
round, 2003
Source: All India Debt and Investment Surveys
/a)le &#o$& t#e increa&ing in"luence o" mone'lender& in t#e la&t decade*
/#e &#are o" mone'lender& in t#e total non in&titutional credit $a&
declining till 7B871 &tarted (ic.ing u( "rom t#e 7BB0& and reac#ed 6I (er
cent in 6007*
At t#e &ame time t#e &#are o" commercial )an.& in in&titutional credit #a&
come do$n )' almo&t t#e &ame (ercentage (oint& during t#i& (eriod*
/#oug#1 t#e &#are o" coo(erati%e &ocietie& i& increa&ing continuou&l'1 t#e
gro$t# #a& "lattened during t#e la&t t#ree decade&*
Table 4:Distribution based on Asset size of Rural Households (in per
cent)
Household Assets (Rs
000)
Institutional
Agency
Non-Institutional
Agency
All
Less than 5 =6 58 700
5-10 =I 5; 700
10-20 == 5D 700
20-30 D8 ;6 700
30-50 55 =5 700
50-70 5; =I 700
70-100 D7 ;B 700
100-150 D7 ;B 700
150-250 D8 ;6 700
250 and above 87 7B 700
All classes DD ;= 700
Source: Debt and Investment Survey
/#e #ou&e#old& $it# a lo$er a&&et &i8e $ere una)le to "ind "inancing
o(tion& "rom "ormal credit di&)ur&ement &ource&* /#i& $a& due to t#e
re0uirement o" (#'&ical collateral )' )an.ing and "inancial in&titution& "or
di&)ur&ing credit* +or #ou&e#old& $it# le&& t#an & 601000 $ort# o"
(#'&ical a&&et&1 t#e mo&t con%enient &ource o" credit $a& non in&titutional
agencie& li.e landlord&1 mone'lender&1 relati%e&1 "riend&1 etc*
Loo.ing at t#e "inding& o" t#e &tud' commi&&ioned )' A&ia tec#nical
De(artment o" t#e 4orld :an. (7BB5)1 t#e (ur(o&e or t#e rea&on )e#ind
ta.ing credit )' t#e rural (oor $a& con&um(tion credit1 &a%ing&1
(roduction credit and in&urance*
Con&um(tion credit con&tituted t$o-t#ird& o" t#e credit u&age $it#in
$#ic# almo&t t#ree-"ourt#& o" t#e demand $a& "or &#ort (eriod& to meeting
emergent need& &uc# a& illne&& and #ou&e#old e2(en&e& during t#e lean
&ea&on* Almo&t entire demand "or t#e con&um(tion credit $a& met )'
in"ormal &ource& at #ig# to e2(loiti%e intere&t rate& t#at %aried "rom ;0 to
B0 (er cent (er annum* Almo&t I5 (er cent o" t#e (roduction credit ($#ic#
accounted "or a)out one-t#ird o" t#e total credit a%ailed o" )' t#e rural
ma&&e&) $a& met )' t#e "ormal &ector1 mainl' )an.& and coo(erati%e&*
Banking Expansion
!tarting in t#e late 7BD0&1 ,ndia $a& t#e #ome to one o" t#e large&t &tate
inter%ention& in t#e rural credit mar.et* /#i& (#a&e i& .no$n a& t#e @!ocial
:an.ingA (#a&e*
,t $itne&&ed t#e nationali8ation o" e2i&ting (ri%ate commercial )an.&1
ma&&i%e e2(an&ion o" )ranc# net$or. in rural area&1 mandator' directed
credit to (riorit' &ector& o" t#e econom'1 &u)&idi8ed rate& o" intere&t and
creation o" a ne$ &et o" regional rural )an.& (:&) at t#e di&trict le%el
and a &(eciali8ed a(e2 )an. "or agriculture and rural de%elo(ment
(-A:AD) at t#e national le%el*
/#e -et !tate Dome&tic Product (-!DP) i& a mea&ure o" t#e economic
acti%it' in t#e &tate and com(aring it $it# t#e utili8ation o" )an. credit or
)an. de(o&it& indicate& #o$ muc# economic acti%it' i& )eing "inanced )'
t#e )an.& and $#et#er t#ere e2i&t& unta((ed (otential "or increa&ing
de(o&it& in t#at &tate*
E*g* ,n t#e 'ear 600;-600= t#e (ercentage o" )an. de(o&it& to -!DP i&
(rett' #ig# at around I5J-80J in :i#ar and >#ar.#and or t#e&e &tate& are
not a& under )an.ed a& t#oug#t to )e*
5 Microfinance Social Aspects
Micro "inancing in&titution& &igni"icantl' contri)uted to gender e0ualit'
and $omenG& em(o$erment a& $ell a& (ro (oor de%elo(ment and ci%il
&ociet' &trengt#ening* Contri)ution to $omenG& a)ilit' to earn an income
led to t#eir economic em(o$erment1 increa&ed $ell )eing o" $omen and
t#eir "amilie& and $ider &ocial and (olitical em(o$erment*
Micro"inance (rogram& targeting $omen )ecame a ma5or (lan. o" (o%ert'
alle%iation and gender &trategie& in t#e 7BB0&* ,ncrea&ing e%idence o" t#e
centralit' o" gender e0ualit' to (o%ert' reduction and $omenG& #ig#er
credit re(a'ment rate& led to a general con&en&u& on t#e de&ira)ilit' o"
targeting $omen*
,ndia to-da' #a& an e2ten&i%e )an.ing in"ra&tructure com(ri&ing o%er
;01000 rural and &emi-ur)an )ranc#e& o" commercial )an.&1 o%er 7=1000
)ranc#e& o" egional ural )an.& (:&)1 around 761000 )ranc#e& o"
Di&trict Coo(erati%e Credit :an.& (DCC:&) and 71761000 Primar'
Agricultural Credit !ocietie& (PAC!) at t#e %illage le%el (around DD1000
PAC! are &tated to )e "unctionalE t#e remaining are dormant)*
7
A%aila)ilit' o" "inance1 moreo%er1 tilt& t#e em(lo'ment &cenario in "a%our
o" &el"-em(lo'ment %i&-K-%i& $age em(lo'ment* An added dimen&ion i&
t#e em(o$erment o" $omen $it# ea&ier a%aila)ilit' o" micro-"inance to
t#em* Going )' t#e e&timate& (ro%ided earlier1 t#e demand "or (roduction
credit in t#e countr' toda' i& e0ual to &*7I000 crore (er annum $#erea&
t#e total credit out&tanding under micro-"inance i& merel' &*5000 crore*
/#u&1 t#ere i& de"initel' a need to increa&e t#e "lo$ o" credit1 )ot# "or
con&um(tion and Production to t#e rural &ector*
7
6 Major initiatives in Rural Credit
Go%ernmentG& initiati%e to reduce (o%ert' )' im(ro%ing acce&& to
"inancial &er%ice& to (oor &tarted &ince inde(endence* ,ndiaL&
o%er$#elming ma5orit' o" (oor i& located in rural area& and t#i& moti%ated
t#e go%ernment to gi%e &(ecial attention to rural credit* +ollo$ing t#e
re(ort o" All ,ndia ural Credit !ur%e' in mid 7B50G&1 t#e !tate too.
crucial &te(& in re%ie$ing Coo(erati%e &tructure including t#e (artner&#i(
o" !tate in coo(erati%e&* Al&o t#e (olic' initiati%e o" L&ocial )an.ingG
conce(t de&cri)ed a& @t#e ele%ation o" t#e entitlement& o" (re%iou&l'
di&ad%antaged grou(& to "ormal credit e%en i" t#i& ma' entail a $ea.ening
o" t#e con%entional )an.ing (ractice&A led to t#e nationali&ation o"
commercial )an.& in 7BDB1 ado(tion o" direct lending (rogramme& to rural
area& and de%elo(ment o" credit in&titution& &uc# a& egional ural :an.&
(:&)* Go%ernment initiati%e& during t#e +ourt# Plan "ocu&ed on
marginal "armer& and agricultural la)ourer& )ringing indi%idual "amil' a&
t#e )a&ic )orro$ing unit* ,ntegrated &u&taina)le income generating acti%it'
$a& (romoted t#roug# &u)&idi8ed lending under ,ntegrated ural
De%elo(ment Programme (,DP) and it& &u)&e0uent %ariation& including
t#e current &el"-em(lo'ment (rogramme .no$n a& !$aran5a'anti Gram
!$aro8gar Yo5ana (!G!Y)

10.1 SEWA Co-operative Bank (1974)
/#e im(lementation o" "ormal lending (rogramme& to$ard& t#e (oor
&u""er "rom t#e di""icultie& &uc# a& o" e2act targeting1 &creening (ro)lem&
o" di&tingui&#ing good and )ad )orro$er& and u&uall' lending agencie&
$onGt )e a)le to en&ure t#e (roducti%e u&age o" loan&* Al&o1 t#e #ig#
tran&action co&t& incurred in lending to t#e (oor made t#e "ormal lending
agencie& lea%e t#e (oor un-)an.ed*
/#e ,ndian coo(erati%e credit &tructure meant to em(o$er t#e (oor $a&
not %er' &ucce&&"ul a& it $a& ca(tured )' a "e$ (o$er"ul and )ecau&e o"
e2ce&&i%e go%ernmental inter"erence and regulation* /#e &earc# "or an
alternati%e to t#e "ormal )an.ing &ector and an e""ecti%e "inancial &'&tem
to cater to t#e need& o" t#e (oor1 e&(eciall' t#e rural (oor1 continued* /#e
origin o" micro"inance can )e traced to t#e e&ta)li&#ment o" t#e !E4A
coo(erati%e )an. in 7BI=1 to (ro%ide )an.ing &er%ice& to t#e (oor $omen
em(lo'ed in t#e unorgani&ed &ector in A#meda)ad in Gu5arat*
10.2 Self Help Groups (SHGs)
Go%ernment initiati%e& during &e%entie& and t#e +ourt# +i%e Year Plan
"ocu&ed on &mall and marginal "armer& and agricultural la)ourer&*
,ntegrated &u&taina)le income generation acti%it' $a& (romoted under
,ntegrated ural De%elo(ment Programme* ,nade0uacie& in#erent in
running (rogram& "ocu&&ed on indi%idual #ou&e#old& called "or &#i"t to a
grou( )a&ed a((roac#* /#e "ir&t &te( to$ard& &etting u( &el" #el( grou(&
(!9G&) $a& ta.en )' MYADA and it )uilt u(on rural c#it "und& and
in"ormal lending net$or.& to e%ol%e a credit management grou(*
10.3 National Bank for Agriculture and Rural Development
,n 7BBB7-B61 -A:AD launc#ed t#e !9G-:an. Lin.age Programme on
a (ilot )a&i& to "inance !9G& acro&& t#e countr' t#roug# t#e "ormal
)an.ing &'&tem* 9ig# re(a'ment rate& )' t#e !9G& encouraged t#e )an.&
to "inance !9G&*
10.4 Rashtriya Mahila Kosh (RMK),1993
/#e &ucce&& o" t#e conce(t o" micro-credit t#roug# &el" #el( grou(&
(!9G&)
#a& encouraged t#e Go%ernment o" ,ndia to e&ta)li&# a -ational le%el
Micro
Credit organi8ation /a&#tri'a Ma#ila ?o&# (M?) (-ational Credit +und
"or 4omen) under t#e Mini&tr' o" 4omen and C#ild De%elo(ment in
7BB;1 $it# an initial cor(u& o" &*;7 crore* /#e o)5ecti%e $a& to #el(
$omen organi&e income generating acti%itie& to im(ro%e t#eir &ocio
economic& &tatu&* M? #ad di&)ur&ed cumulati%e loan o" & 757 crore u(
to >ul' 600D1 )ene"iting 5*50 la.# $omen and t#e reco%er' rate i& a)o%e
B7J*
10.5 Small Industries Development Bank of India (SIDBI), 1994
,n 7BB=1 !mall ,ndu&trie& De%elo(ment :an. o" ,ndia (!,D:,) launc#ed a
(ilot &c#eme to (ro%ide "inancial a&&i&tance )' $a' o" loan& to -GOG& "or
(ro%iding credit to t#e (oor #ou&e#old&1 e&(eciall' $omen* A &mall
amount o" grant al&o accom(anied t#e loan& &o a& to )uild ca(acit' o" t#e
intermediate& and end-u&er&* /#e (rogramme did not ac#ie%e t#e de&ired
o)5ecti%e* A large num)er o" -GO& $ere not a)le to u( &cale t#eir lending
o(eration& )ecau&e o" di""icultie& li.e intere&t rate ca( on lending1 &ecurit'
&ti(ulation& etc* !,D:, reoriented it& Micro +inance Programme in 7BBB
)' addre&&ing t#e $ea.ne&& o" t#e (ilot &c#eme1 $it# an o)5ecti%e to
create a national net$or. o" large and %ia)le Micro +inance ,n&titution&
"rom t#e "ormal and in"ormal &ector* /#e (rogramme (ro%ide& need )a&ed
a&&i&tance )' $a' o" term loan& to (artner in&titution& "or meeting t#eir on
lending "und re0uirement&* ,t& (rogramme too. o"" &lo$l'* /#e )an. $a&
a)le to im(ro%e it& (ort"olio )' 700J eac# 'ear "or t#e la&t t#ree 'ear& in a
ro$* ,t #ad &anctioned &*;60 crore "inancial a&&i&tance during 600D a&
again&t & 78B*I; crore during 6005*
10.6 SHG-Bank Linkage Programme (1996)
,n 7BBD1 e&er%e :an. o" ,ndia included "inancing o" !9G& a& a main
&tream acti%it' o" )an.& under t#e (riorit' &ector lending (rogramme&*
/#e !9G :an. lin.age (rogramme co%ered o%er 6=*; million "amilie& )'
Marc# 6005* Fnder t#e :an.-!9G Lin.age Programme 6*6=
million!9G& $ere lin.ed1 u( to ;7
&t
Marc# 600D1 o" $#ic# B0 (ercent are
$omenG& grou(&*
10.7 Microfinance Development and Equity Fund (MD & EF), 2001
Go%ernment o" ,ndia1 in 6007 re-de&ignated t#e e2i&ting Micro +inance
De%elo(ment +und a& Micro +inance De%elo(ment and E0uit' +und $it#
t#e o)5ecti%e o" "acilitating and &u((orting t#e orderl' gro$t# o" t#e
micro"inance &ector1 )' e&(eciall' a&&i&ting t#e $omen and %ulnera)le
&ection& o" t#e &ociet' and al&o )' &u((orting t#eir ca(acit' )uilding* /#e
&i8e o" t#e "und $a& al&o en#anced "orm t#e e2i&ting &*700 crore to
&*600 crore* /#e additional amount $a& to )e contri)uted )' e&er%e
:an. o" ,ndia1 -A:AD and t#e commercial )an.& in t#e (ro(ortion
=0C60C60*
7 SELF HELP GROUPS (SHGs)
!el"- #el( grou(& (!9G&) (la' toda' a ma5or role in (o%ert' alle%iation in
rural ,ndia* A gro$ing num)er o" (oor (eo(le (mo&tl' $omen) in %ariou&
(art& o" ,ndia are mem)er& o" !9G& and acti%el' engage in &a%ing& and
credit (!/C)1 a& $ell a& in ot#er acti%itie& (income generation1 natural
re&ource& management1 literac'1 c#ild care and nutrition1 etc*)* /#e !/C
"ocu& in t#e !9G i& t#e mo&t (rominent element and o""er& a c#ance to
create &ome control o%er ca(ital1 al)eit in %er' &mall amount&* /#e !9G
&'&tem #a& (ro%en to )e %er' rele%ant and e""ecti%e in o""ering $omen t#e
(o&&i)ilit' to )rea. graduall' a$a' "rom e2(loitation and i&olation*
How self-help groups work -A:AD (7BBI) de"ine& !9G& a& M&mall1
economicall' #omogenou& a""init' grou(& o" rural (oor1 %oluntaril'
"ormed to &a%e and mutuall' contri)ute to a common "und to )e lent to it&
mem)er& a& (er t#e grou( mem)er&N deci&ionM*
Mo&t !9G& in ,ndia #a%e 70 to 65 mem)er&1 $#o can )e eit#er onl' men1
or onl' $omen1 or onl' 'out#1 or a mi2 o" t#e&e* A& $omenN& !9G& or
&ang#a #a%e )een (romoted )' a $ide range o" go%ernment and non-
go%ernmental agencie&1 t#e' no$ ma.e u( B0J o" all !9G&*
/#e rule& and regulation& o" !9G& %ar' according to t#e (re"erence& o"
t#e mem)er& and t#o&e "acilitating t#eir "ormation* A common
c#aracteri&tic o" t#e grou(& i& t#at t#e' meet regularl' (t'(icall' once (er
$ee. or once (er "ortnig#t) to collect t#e &a%ing& "rom mem)er&1 decide to
$#ic# mem)er to gi%e a loan1 di&cu&& 5oint acti%itie& (&uc# a& training1
running o" a communal )u&ine&&1 etc*)1 and to mitigate an' con"lict& t#at
mig#t ari&e* Mo&t !9G& #a%e an elected c#air(er&on1 a de(ut'1 a trea&urer1
and &ometime& ot#er o""ice #older&*
Mo&t !9G& &tart $it#out an' e2ternal "inancial ca(ital )' &a%ing regular
contri)ution& )' t#e mem)er&* /#e&e contri)ution& can )e %er' &mall (e*g*
70 & (er $ee.)* A"ter a (eriod o" con&i&tent &a%ing& (e*g* D mont#& to one
'ear) t#e !9G& &tart to gi%e loan& "rom &a%ing& in t#e "orm o" &mall
internal loan& "or micro enter(ri&e acti%itie& and con&um(tion* Onl' t#o&e
!9G& t#at #a%e utili8ed t#eir o$n "und& $ell are a&&i&ted $it# e2ternal
"und& t#roug# lin.age& $it# )an.& and ot#er "inancial intermediarie&*
9o$e%er1 it i& generall' acce(ted t#at !9G& o"ten do not include t#e
(oore&t o" t#e (oor1 "or rea&on& &uc# a&C
(a) Social factors (t#e (oore&t are o"ten t#o&e $#o are &ociall'
marginali8ed )ecau&e o" ca&te a""iliation and t#o&e $#o are mo&t &.e(tical
o" t#e (otential )ene"it& o" collecti%e action)*
(b) Economic factors (t#e (oore&t o"ten do not #a%e t#e "inancial
re&ource& to contri)ute to t#e &a%ing& and (a' mem)er&#i( "ee&E t#e' are
o"ten t#e one& $#o migrate during t#e lean &ea&on1 t#u& ma.ing grou(
mem)er&#i( di""icult)*
(c) Intrinsic biases of the implementing organizations (a& t#e (oore&t o"
t#e (oor are t#e mo&t di""icult to reac# and moti%ate1 im(lementing
agencie& tend to lea%e t#em out1 (re"erring to "ocu& on t#e ne2t $ealt#
categor')*
Sources of capital and links between SHGs and Banks
!9G& can onl' "ul"ill a role in t#e rural econom' i" grou( mem)er& #a%e
acce&& to "inancial ca(ital and mar.et& "or t#eir (roduct& and &er%ice&*
4#ile t#e grou(& initiall' generate t#eir o$n &a%ing& t#roug# t#ri"t
($#ere)' t#ri"t im(lie& &a%ing& created )' (o&t(oning almo&t nece&&ar'
con&um(tion1 $#ile &a%ing& im(l' t#e e2i&tence o" &ur(lu& $ealt#)1 t#eir
aim i& o"ten to lin. u( $it# "inancial in&titution& in order to o)tain "urt#er
loan& "or in%e&tment& in rural enter(ri&e&* -GO& and )an.& are gi%ing
loan& to !9G& eit#er a& Mmatc#ing loan&M ($#erea& t#e loan amount i&
(ro(ortionate to t#e grou(N& &a%ing&) or a& "i2ed amount&1 de(ending on
t#e grou(N& record o" re(a'ment1 recommendation& )' grou( "acilitator&1
collateral& (ro%ided1 etc*
How SHGs save
!el"-#el( grou(& mo)ili8e &a%ing& "rom t#eir mem)er&1 and ma' t#en on-
lend t#e&e "und& to one anot#er1 u&uall' at a((arentl' #ig# rate& o" intere&t
$#ic# re"lect t#e mem)er&G under&tanding o" t#e #ig# return& t#e' can
earn on t#e &mall &um& in%e&ted in t#eir micro-enter(ri&e&1 and t#e e%en
#ig#er co&t o" "und& "rom mone' lender&* ," t#e' do not $i&# to u&e t#e
mone'1 t#e' ma' de(o&it it in a )an.* ," t#e mem)er&G need "or "und&
e2ceed& t#e grou(G& accumulated &a%ing&1 t#e' ma' )orro$ "rom a )an.
or ot#er organi8ation1 &uc# a& a micro-"inance non-go%ernment
organi8ation1 to augment t#eir o$n "und*
/#e &'&tem i& %er' "le2i)le* /#e grou( aggregate& t#e &mall indi%idual
&a%ing and )orro$ing re0uirement& o" it& mem)er&1 and t#e )an. need&
onl' to maintain one account "or t#e grou( a& a &ingle entit'* /#e )an.er
mu&t a&&e&& t#e com(etence and integrit' o" t#e grou( a& a micro-)an.1
)ut once #e #a& done t#i& #e need not concern #im&el" $it# t#e indi%idual
loan& made )' t#e grou( to it& mem)er&1 or t#e u&e& to $#ic# t#e&e loan&
are (ut* 9e can treat t#e grou( a& a &ingle cu&tomer1 $#o&e total )u&ine&&
and tran&action& are (ro)a)l' &imilar in amount to t#e a%erage "or #i&
normal cu&tomer&1 )ecau&e t#e' re(re&ent t#e com)ined )an.ing )u&ine&&
o" &ome t$ent' Lmicro-cu&tomer&G* An' )an. )ranc# can #a%e a &mall or a
large num)er o" &uc# account&1 $it#out #a%ing to c#ange it& met#od& o"
o(eration*
Fnli.e man' cu&tomer&1 demand "rom !9G& i& not (rice-&en&iti%e*
,lliterate %illage $omen are &ometime& )etter )an.er& t#an &ome $it#
more (ro"e&&ional 0uali"ication&* /#e' .no$ t#at ra(id acce&& to "und& i&
more im(ortant t#an t#eir co&t1 and t#e' al&o .no$1 e%en t#oug# t#e'
mig#t not )e a)le to calculate t#e "igure&1 t#at t#e t'(ical micro-enter(ri&e
earn& $ell o%er 500J return on t#e &mall &um in%e&ted in it (9ar(er1 M1
7BBI1 (* 75)* /#e grou(& t#u& c#arge t#em&el%e& #ig# rate& o" intere&tE
t#e' are #a((' to ta.e ad%antage o" t#e generou& &(read t#at t#e
-A:AD &u)&idi8ed )an. lending rate o" 76J allo$& t#em1 )ut t#e' are
al&o $illing to )orro$ "rom -GO/M+,& $#ic# on-lend "und& "rom !,D:,
at 75J1 or "rom Lne$ generationG in&titution& &uc# a& :a&i2 +inance at
78*5J or 67J*
SHGs-Bank Linkage Model
-A:AD i& (re&entl' o(erating t#ree model& o" lin.age o" )an.& $it#
!9G& and -GO&C
Model - 1: ,n t#i& model1 t#e )an. it&el" act& a& a !el" 9el( Grou(
Promoting ,n&titution (!9P,)* ,t ta.e& initiati%e& in "orming t#e grou(&1
nurture& t#em o%er a (eriod o" time and t#en (ro%ide& credit to t#em a"ter
&ati&"'ing it&el" a)out t#eir maturit' to a)&or) credit* A)out 7DJ o" !9G&
and 7;J o" loan amount& are u&ing t#i& model (a& o" Marc# 6006)*
Model - 2: ,n t#i& model1 grou(& are "ormed )' -GO& (in mo&t o" t#e
ca&e&) or )' go%ernment agencie&* /#e grou(& are nurtured and trained )'
t#e&e agencie&* /#e )an. t#en (ro%ide& credit directl' to t#e !9G&1 a"ter
o)&er%ing t#eir o(eration& and maturit' to a)&or) credit* 4#ile t#e )an.
(ro%ide& loan& to t#e grou(& directl'1 t#e "acilitating agencie& continue
t#eir interaction& $it# t#e !9G&* Mo&t lin.age e2(erience& )egin $it# t#i&
model $it# -GO& (la'ing a ma5or role* /#i& model #a& al&o )een (o(ular
and more acce(ta)le to )an.&1 a& &ome o" t#e di""icult "unction& o" &ocial
d'namic& are e2ternali8ed* A)out I5J o" !9G& and I8J o" loan amount&
are u&ing t#i& model*
Model - 3: Due to %ariou& rea&on&1 )an.& in &ome area& are not in a
(o&ition to e%en "inance !9G& (romoted and nurtured )' ot#er agencie&*
,n &uc# ca&e&1 t#e -GO& act a& )ot# "acilitator& and micro- "inance
intermediarie&* +ir&t1 t#e' (romote t#e grou(&1 nurture and train t#em and
t#en a((roac# )an.& "or )ul. loan& "or on-lending to t#e !9G&* A)out BJ
o" !9G& and 7;J o" loan amount& are u&ing t#i& model*
Table 5: Comparative Analysis of Micro-finance Services offered to
the poor
!ourceC * Arunac#alam - Alternati%e /ec#nologie& in t#e ,ndian Micro-
"inance ,ndu&tr'
Life insurances for self-help group members
/#e Fnited ,ndia ,n&urance Com(an' #a& de&igned t$o PLL,& ((er&onal
line li"e in&urance&) "or $omen in rural area&* /#e com(an' $ill )e
targeting &el"-#el( grou(&1 o" $#ic# t#ere are around 6001000 in t#e
countr'1 $it# 75-60 $omen in a grou(* /#e t$o (olicie& are
(7) t#e Mot#er /ere&a 4omen 3 C#ildren Polic'1 $it# t#e aim o" gi%ing
to t#e $oman in t#e e%ent o" accidental deat# o" #er #u&)and and to
&u((ort #er minor c#ildren in t#e e%ent o" #er deat#1 and
(6) /#e Fnimicro 9ealt# !c#eme1 gi%ing (er&onal accident and
#o&(itali8ation co%er& )e&ide& co%er "or damage to d$elling due to "ire
and allied (eril&*
!ourceC
#tt(C//$$$*#induonnet*com/6006/76/05/&torie&/60067605077I6700*#tm
8 MICRO FINANCE MODELS
12.1Micro Finance Institutions (MFIs):
M+,& are an e2tremel' #eterogeneou& grou( com(ri&ing -:+C&1 &ocietie&1
tru&t& and coo(erati%e&* /#e' are (ro%ided "inancial &u((ort "rom e2ternal
donor& and a(e2 in&titution& including t#e a&#tri'a Ma#ila ?o&# (M?)1
!,D:, +oundation "or micro-credit and -A:AD and em(lo' a %ariet' o"
$a'& "or credit deli%er'*
!ince 60001 commercial )an.& including egional ural :an.& #a%e )een
(ro%iding "und& to M+,& "or on lending to (oor client&* /#oug# initiall'1
onl' a #and"ul o" -GO& $ere @intoA "inancial intermediation u&ing a
%ariet' o" deli%er' met#od&1 t#eir num)er& #a%e increa&ed con&idera)l'
toda'* 4#ile t#ere i& no (u)li&#ed data on (ri%ate M+,& o(erating in t#e
countr'1 t#e num)er o" M+,& i& e&timated to )e around 800*
Table 6 : Legal Forms of MFIs in India
Types of MFIs Estimated
Number`
Legal Acts under which Registered
7* Not for Profit MFIs
a*) -GO O M+,&
=00 to 500 !ocietie& egi&tration Act1 78D0 or
&imilar Pro%incial Act&
,ndian /ru&t Act1 7886
)*) -on-(ro"it Com(anie& 70 !ection 65 o" t#e Com(anie& Act1 7B5D
6* Mutual Benefit MFIs
a*) Mutuall' Aided Coo(erati%e
!ocietie& (MAC!) and &imilarl'
&et u( in&titution&
600 to 650 Mutuall' Aided Coo(erati%e !ocietie&
Act enacted )' !tate Go%ernment
;* For Profit MFIs
a*) -on-:an.ing +inancial
Com(anie& (-:+C&)
D ,ndian Com(anie& Act1 7B5D
e&er%e :an. o" ,ndia Act1 7B;=
/otal I00 - 800
Source: NABARD website
12.2Bank Partnership Model
/#i& model i& an inno%ati%e $a' o" "inancing M+,&* /#e )an. i& t#e lender
and t#e M+, act& a& an agent "or #andling item& o" $or. relating to credit
monitoring1 &u(er%i&ion and reco%er'* ,n ot#er $ord&1 t#e M+, act& a& an
agent and ta.e& care o" all relation&#i(& $it# t#e client1 "rom "ir&t contact
to "inal re(a'ment* /#e model #a& t#e (otential to &igni"icantl' increa&e
t#e amount o" "unding t#at M+,& can le%erage on a relati%el' &mall e0uit'
)a&e*
A &u) - %ariation o" t#i& model i& $#ere t#e M+,1 a& an -:+C1 #old& t#e
indi%idual loan& on it& )oo.& "or a $#ile )e"ore &ecuriti8ing t#em and
&elling t#em to t#e )an.* !uc# re"inancing t#roug# &ecuriti8ation ena)le&
t#e M+, enlarged "unding acce&&* ," t#e M+, "ul"il& t#e @true &aleA criteria1
t#e e2(o&ure o" t#e )an. i& treated a& )eing to t#e indi%idual )orro$er and
t#e (rudential e2(o&ure norm& do not t#en in#i)it &uc# "unding o" M+,& )'
commercial )an.& t#roug# t#e &ecuriti8ation &tructure*
12.3Banking Correspondents
/#e (ro(o&al o" @)an.ing corre&(ondent&A could ta.e t#i& model a &te(
"urt#er e2tending it to &a%ing&* ,t $ould allo$ M+,& to collect &a%ing&
de(o&it& "rom t#e (oor on )e#al" o" t#e )an.* ,t $ould u&e t#e a)ilit' o"
t#e M+, to get clo&e to (oor client& $#ile rel'ing on t#e "inancial &trengt#
o" t#e )an. to &a"eguard t#e de(o&it&* /#i& regulation e%ol%ed at a time
$#en t#ere $ere genuine "ear& t#at "l'-)'-nig#t agent& (ur(orting to act
on )e#al" o" )an.& in $#ic# t#e (eo(le #a%e con"idence could mo)ili8e
&a%ing& o" gulli)le (u)lic and t#en %ani&# $it# t#em* ,t remain& to )e &een
$#et#er t#e mec#anic& o" &uc# relation&#i(& can )e $or.ed out in a $a'
t#at minimi8e& t#e ri&. o" mi&u&e*
12.4Service Company Model
Fnder t#i& model1 t#e )an. "orm& it& o$n M+,1 (er#a(& a& an -:+C1 and
t#en $or.& #and in #and $it# t#at M+, to e2tend loan& and ot#er &er%ice&*
On (a(er1 t#e model i& &imilar to t#e (artner&#i( modelC t#e M+,
originate& t#e loan& and t#e )an. )oo.& t#em* :ut in "act1 t#i& model #a&
t$o %er' di""erent and intere&ting o(erational "eature&C
(a) /#e M+, u&e& t#e )ranc# net$or. o" t#e )an. a& it& outlet& to reac#
client&* /#i& allo$& t#e client to )e reac#ed at lo$er co&t t#an in t#e ca&e
o" a &tandOalone M+,* ,n ca&e o" )an.& $#ic# #a%e large )ranc# net$or.&1
it al&o allo$& ra(id &cale u(* ,n t#e (artner&#i( model1 M+,& ma' contract
$it# man' )an.& in an arm& lengt# relation&#i(* ,n t#e &er%ice com(an'
model1 t#e M+, $or.& &(eci"icall' "or t#e )an. and de%elo(& an inten&i%e
o(erational coo(eration )et$een t#em to t#eir mutual ad%antage*
(b) The Partnership model u&e& )ot# t#e "inancial and infrastr"ct"re
&trengt# o" t#e )an. to create lo$er co&t and "a&ter gro$t#* /#e !er%ice
Com(an' Model #a& t#e (otential to ta.e t#e )urden o" o%er&eeing
micro"inance o(eration& o"" t#e management o" t#e )an. and (ut it in t#e
#and& o" M+, manager& $#o are "ocu&ed on micro"inance to introduce
additional (roduct&1 &uc# a& indi%idual loan& "or !9G graduate&1
remittance& and &o on $it#out di&ru(ting )an. o(eration& and (ro%ide a
more ad%antageou& co&t &tructure "or micro"inance*
9 Role, Functions and Working Mechanism of Financial
Institutions
13.1ICICI Bank
,C,C,G& micro"inance (ort"olio #a& )een increa&ing at an im(re&&i%e &(eed*
+rom 701000 micro"inance client& in 60071 ,C,C, :an. i& no$ (6005)
lending to 7*6 million client& t#roug# it& (artner micro"inance in&titution&1
and it& out&tanding (ort"olio #a& increa&ed "rom &* 0*60 )illion (F!P=*5
million) to &* B*B8 )illion (F!P66I million)* A "e$ 'ear& ago1 t#e&e
client& #ad ne%er )een &er%ed )' a "ormal lending in&titution*
/#ere i& an increa&ing &#i"t in t#e micro"inance &ector "rom grant-gi%ing to
in%e&tment in t#e "orm o" de)t or e0uit'1 and ,C,C, )elie%e& grant mone'
&#ould )e limited to t#e creation o" "acilitati%e in"ra&tructure* @4e need to
&to( &ending go%ernment and "unding agencie& t#e &ignal t#at
micro"inance i& not a commerciall' %ia)le &'&temA1 &a'& -ac#i.et Mor1
E2ecuti%e Director o" ,C,C, :an.*
A& a re&ult o" )an.& entering t#e game1 t#e &ector #a& c#anged ra(idl'*
@/#ere i& no deart# o" "und& toda'1 a& )an.& are loo.ing into M+,&
"a%ora)l'1 unli.e a "e$ 'ear& agoA1 &a'& Padma5a edd'1 t#e CEO o" one
o" ,C,C, :an.G& ma5or M+, (artner&1 !(andana*
Partnership Models
A model o" micro"inance #a& emerged in recent 'ear& in $#ic# a
micro"inance in&titution (M+,) )orro$& "rom )an.& and on-lend& to
client&E "e$ M+,& #a%e )een a)le to gro$ )e'ond a certain (oint* Fnder
t#i& model1 M+,& are una)le to (ro%ide ri&. ca(ital in large 0uantitie&1
$#ic# limit& t#e ad%ance& "rom )an.&* ,n addition1 t#e ri&. i& )eing
entirel' )orne )' t#e M+,1 $#ic# limit& it& ri&.-ta.ing*
The MFI as Collection Agent
/o addre&& t#e&e con&traint&1 ,C,C, :an. initiated a (artner&#i( model in
6006 in $#ic# t#e M+, act& a& a collection agent in&tead o" a "inancial
intermediar'* /#i& model i& uni0ue in t#at it com)ine& de)t a& me88anine
"inance to t#e M+, (Me88anine "inance com)ine& de)t and e0uit'
"inancingC it i& de)t t#at can )e con%erted )' t#e lender into e0uit' in t#e
e%ent o" a de"ault*
/#i& &ource o" "inancing i& ad%antageou& "or M+,& )ecau&e it i& treated
li.e e0uit' in t#e )alance-&#eet and ena)le& it to rai&e mone' $it#out
additional e0uit'1 $#ic# i& an e2(en&i%e "inancing &ource*)*/#e loan& are
contracted directl' )et$een t#e )an. and t#e )orro$er1 &o t#at t#e ri&. "or
t#e M+, i& &e(arated "rom t#e ri&. in#erent in t#e (ort"olio* /#i& model i&
t#ere"ore li.el' to #a%e %er' #ig# le%eraging ca(acit'1 a& t#e M+, #a& an
a&&ured &ource o" "und& "or e2(anding and dee(ening credit* ,C,C, c#o&e
t#i& model )ecau&e it e2(and& t#e retail o(eration& o" t#e )an. )'
le%eraging com(arati%e ad%antage& o" M+,&1 $#ile a%oiding co&t&
a&&ociated $it# entering t#e mar.et directl'*
Securitization
Anot#er $a' to enter into (artner&#i( $it# M+,& i& to &ecuriti8e
micro"inance (ort"olio&* ,n 600=1 t#e large&t e%er &ecuriti8ation deal in
micro"inance $a& &igned )et$een ,C,C, :an. and !9AE Micro"in Ltd1
a large M+, o(erating in rural area& o" t#e &tate o" Andra Prade&#*
/ec#nical a&&i&tance and t#e collateral de(o&it o" F!P;651000 (B;J o" t#e
guarantee re0uired )' ,C,C,) $ere &u((lied )' Grameen +oundation F!A*
Fnder t#i& agreement1 ,C,C, (urc#a&ed a (art o" !9AEG& micro"inance
(ort"olio again&t a con&ideration calculated )' com(uting t#e -et Pre&ent
Qalue o" recei%a)le& amounting to &* 675 million (F!P=*B million) at an
agreed di&count rate* /#e intere&t (aid )' !9AE i& almo&t =J le&& t#an
t#e rate (aid in commercial loan&* Partial credit (ro%i&ion $a& (ro%ided )'
!9AE in t#e "orm o" a guarantee amounting to 8J o" t#e recei%a)le&
under t#e (ort"olio1 )' $a' o" a lien on "i2ed de(o&it* /#i& deal "ree& u(
e0uit' ca(ital1 allo$ing !9AE to &cale u( it& lending* On t#e ot#er #and1
it allo$& ,C,C, :an. to reac# ne$ mar.et&* And )' trading t#i& #ig#
0ualit' a&&et in ca(ital mar.et&1 t#e )an. can #edge it& o$n ri&.&*
Beyond Microcredit
Micro"inance doe& not onl' mean microcredit1 and ,C,C, doe& not limit
it&el" to lending* ,C,C,G& !ocial ,nitiati%e Grou(1 along $it# t#e 4orld
:an. and ,C,C, Lom)ard1 t#e in&urance com(an' &et u( )' ,C,C, and
Canada Lom)ard1 #a%e de%elo(ed ,ndiaG& "ir&t inde2-)a&ed in&urance
(roduct* /#i& in&urance (olic' com(en&ate& t#e in&ured again&t t#e
li.eli#ood o" dimini&#ed agricultural out(ut/'ield re&ulting "rom a
&#ort"all in t#e antici(ated normal rain"all $it#in t#e di&trict1 &u)5ect to a
ma2imum o" t#e &um in&ured* /#e in&urance (olic' i& lin.ed to a rain"all
inde2*
Technology
One o" t#e main c#allenge& to t#e gro$t# o" t#e micro"inance &ector i&
acce&&i)ilit'* /#e ,ndian conte2t1 in $#ic# I0J o" t#e (o(ulation li%e& in
rural area&1 re0uire& ne$1 in%enti%e c#annel& o" deli%er'* /#e u&e o"
tec#nologie& &uc# a& .io&.& and &mart card& $ill con&idera)l' reduce
tran&action co&t& $#ile im(ro%ing acce&&* /#e ,C,C, :an. tec#nolog'
team i& de%elo(ing a &erie& o" inno%ati%e (roduct& t#at can #el( reduce
tran&action co&t& con&idera)l'* +or e2am(le1 it i& (iloting t#e u&age o"
&mart card& $it# !e$a :an. in A#meda)ad* /o ma2imi8e t#e )ene"it& o"
t#e&e inno%ation&1 t#e de%elo(ment o" a #ig# 0ualit' &#ared )an.ing
tec#nolog' (lat"orm $#ic# can )e u&ed )' M+,& a& $ell a& )'
coo(erati%e& )an.& and regional rural )an.& i& needed* ,C,C, i& &trongl'
encouraging &uc# an e""ort to ta.e (lace* 4i(ro and ,n"o&'&1 ,-+le21
;i,n"otec#1 &ome o" t#e )e&t ,ndian in"ormation tec#nolog' com(anie&
&(eciali8ed in "inancial &er%ice&1 and ot#er&1 are in t#e (roce&& o"
de%elo(ing e2actl' &uc# a (lat"orm* At a recent tec#nolog' $or.&#o( at
t#e ,n&titute "or +inancial Management e&earc# in C#ennai1 t#e ,C,C,
:an. Alternate C#annel& /eam (re&ented t#e )ene"it& o" in%e&ting in a
common tec#nolog' (lat"orm &imilar to t#o&e u&ed in main&tream )an.ing
to &ome o" t#e mo&t (romi&ing M+,&*
The Centre for Microfinance Research
,C,C, )an. #a& created t#e Centre "or Micro"inance e&earc# (CM+) at
t#e ,n&titute "or
+inancial Management e&earc# (,+M) in C#ennai* /#roug# re&earc#1
re&earc#-)a&ed ad%ocac'1 #ig# le%el training and &trateg' )uilding1 it aim&
to &'&tematicall' e&ta)li&# t#e lin.& )et$een increa&ed acce&& to "inancial
&er%ice& and t#e (artici(ation o" (oor (eo(le in t#e larger econom'* /#e
CM+ e&earc# Fnit &u((ort& initiati%e& aimed at under&tanding and
anal'8ing t#e "ollo$ing i&&ue&C im(act o" acce&& to "inancial &er%ice&E
contract and (roduct de&ign&E con&traint& to #ou&e#old (roducti%it'E
com)ination o" micro"inance and ot#er de%elo(ment inter%ention&E
e%idence o" credit con&traint&E co&t& and (ro"ita)ilit' o" micro"inance
organi8ation&E im(act o" M+, (olicie& and &trategie&E (eo(leG& )e#a%ior
and (&'c#olog' $it# re&(ect to "inancial &er%ice&E economic& o" micro-
enter(ri&e&E and t#e e""ect o" regulation&*
+inall'1 t#e CM+ recogni8e& t#at $#ile M+,& aim to meet t#e credit
need& o" (oor #ou&e#old&1 t#ere are ot#er mi&&ing mar.et& and con&traint&
"acing #ou&e#old&1 &uc# a& #ealt#care1 in"ra&tructure1 and ga(& in
.no$ledge* /#e&e #a%e im(lication& in term& o" t#e &cale and (ro"ita)ilit'
o" client enter(ri&e& and e""icienc' o" #ou&e#old )udget allocation1 $#ic#
in turn im(act& #ou&e#old $ell-)eing* /#e CM+ Micro"inance !trateg'
Fnit $ill addre&& t#e&e i&&ue& t#roug# a &erie& o" $or.&#o(& $#ic# $ill
)ring toget#er M+, (ractitioner& and &ectoral e2(ert& (in energ'1 $ater1
road&1 #ealt#1 etc)* /#e latter $ill )ring to t#e ta)le .no$ledge o" )e&t
(ractice& in t#eir &(eci"ic area&1 and eac# con&ultation $or.&#o( $ill re&ult
in long-term colla)oration )et$een $it# M+,& "or im(lementing &(eci"ic
(ilot&
13.2 Bandhan
:and#an i& $or.ing to$ard& t#e t$in o)5ecti%e o" (o%ert' alle%iation and
$omen em(o$erment* ,t &tarted a& a Ca(acit' :uilding ,n&titution (C:,)
in -o%em)er 6000 under t#e leader&#i( o" Mr* C#andra !#e.#ar G#o&#*
During &uc# time1 it $a& gi%ing ca(acit' )uilding &u((ort to local
micro"inance in&titution& $or.ing in 4e&t :engal*
:and#an o(ened it& "ir&t micro"inance )ranc# at :agnan in 9o$ra#
di&trict o" 4e&t :engal in >ul' 6006* :and#an &tarted $it# 6 )ranc#e& in
t#e 'ear 6006-0; onl' in t#e &tate o" 4e&t :engal and toda' it #a& gro$n
a& &trong a& =76 )ranc#e& acro&& D &tate& o" t#e countr'R /#e organi8ation
#ad recorded a gro$t# rate o" 500J in t#e 'ear 600;-0= and D77J in t#e
'ear 600=-05* /ill date1 it #a& di&)ur&ed a total o" &* 58I crore& among
almo&t I la.# (oor $omen* Loan out&tanding &tand& at &* 667 crore&* /#e
re(a'ment rate i& recorded at BB*BBJ* :and#an #a& &ta"" &trengt# o" more
t#an 67;0 em(lo'ee&*
Operational Methodology
:and#an "ollo$& a grou( "ormation1 indi%idual lending a((roac#* A grou(
o" 70-65 mem)er& are "ormed* /#e client& #a%e to attend t#e grou(
meeting& "or 6 &ucce&&i%e $ee.&* 6 $ee.& #ence1 t#e' are entitled to
recei%e loan&* /#e loan& are di&)ur&ed indi%iduall' and directl' to t#e
mem)er&*
Economic and Social Background of Clients
Landle&& and a&&et le&& $omen
+amil' o" 5 mem)er& $it# mont#l' income le&& t#an &*
61500 in rural and &* ;1500 in ur)an
/#o&e $#o do not o$n more t#an 50 decimal (7/6acre) o"
land or ca(ital o" it& e0ui%alent %alue
Loan Size
/#e "ir&t loan i& )et$een &* 71000 O &* I1000 "or t#e rural area& and
)et$een &* 71000 O &* 701000 "or t#e ur)an area&* A"ter t#e re(a'ment1
t#e' are entitled to recei%e a &u)&e0uent loan $#ic# i& & 71000 - 51000
more t#an t#e (re%iou& loan*
Service Charge
:and#an c#arge& a &er%ice c#arge o" 76*50J "lat on loan amount*
:and#an initiall' c#arged 7I*50J* 9o$e%er "rom 7&t >ul' 60051 it #a&
&la&#ed do$n it& lending rate to 75*00J* /#en it $a& "urt#er reduced to
76*50J in Ma' 600D* /#e rea&on i& o)%iou&* A& o%erall (roducti%it'
increa&ed1 o(erational co&t& decrea&ed* :and#an1 )eing a non (ro"it
organi8ation $anted t#e )ene"it o" lo$ co&t& to ultimatel' tric.le do$n to
t#e (oor*
Monitoring System
/#e %ariou& "eature& o" t#e monitoring &'&tem areC
A ; tier monitoring &'&tem O egion1 Di%i&ion and 9ead
O""ice
Ea&' re(orting &'&tem $it# a (re&cri)ed c#ec.li&t "ormat
Accounta)ilit' at all le%el& (o&t monitoring (#a&e
Cro&&- c#ec.ing at all t#e le%el&
/#e management team o" :and#an &(end& B0*00J o" time
at t#e "ield
Liability structure for Loans
4#en a mem)er $ant& to 5oin :and#an1 &#e at "ir&t #a& to get inducted
into a grou(* A"ter &#e get& inducted into t#e grou(1 t#e entire grou(
(ro(o&e& #er name "or a loan in t#e e&olution :oo.* /$o mem)er& o" t#e
grou( along $it# t#e mem)erG& #u&)and #a%e to &ign a& guarantor& in #er
loan a((lication "orm* ," &#e "ail& to (a' #er $ee.l' in&tallment1 t#e grou(
in&ert& (eer (re&&ure on #er* /#e &ole (ur(o&e o" t#e a)o%e &tructure i&
&im(l' to create (eer (re&&ure*
13.3 Grameen Bank
/#e Grameen Model $#ic# $a& (ioneered )' Pro" Mu#ammed Yunu& o"
Grameen :an. i& (er#a(& t#e mo&t $ell .no$n1 admired and (racti&ed
model in t#e $orld* /#e model in%ol%e& t#e "ollo$ing element&*
R 9omogeneou& a""init' grou( o" "i%e
R Eig#t grou(& "orm a Centre
R Centre meet& e%er' $ee.
R egular &a%ing& )' all mem)er&
R Loan (ro(o&al& a((ro%ed at Centre meeting
R Loan di&)ur&ed directl' to indi%idual&
R All loan& re(aid in 50 in&talment&
/#e Grameen model "ollo$& a "airl' regimented routine* ,t i& %er' co&t
inten&i%e a& it in%ol%e& )uilding ca(acit' o" t#e grou(& and t#e cu&tomer&
(a&&ing a te&t )e"ore t#e lending could &tart* /#e grou( mem)er& tend to
)e &elected or at lea&t &trongl' %etted )' t#e )an.* One o" t#e rea&on& "or
t#e #ig# co&t i& t#at &ta"" mem)er& can conduct onl' t$o meeting& a da'
and t#u& are occu(ied "or onl' a "e$ #our&1 u&uall' earl' morning or late
in t#e e%ening* /#e' $ere u&ed additionall' "or accounting $or.1 )ut t#at
can no$ )e done more co&t e""ecti%el' u&ing com(uter&* /#e model i& al&o
rat#er meeting inten&i%e $#ic# i& "ine a& long a& t#e mem)er& #a%e no
alternati%e u&e "or t#eir time )ut can )e a (ro)lem a& mem)er& go u( t#e
income ladder*
/#e greatne&& o" t#e Grameen model i& in t#e &im(licit' o" de&ign o"
(roduct& and deli%er'* /#e (roce&& o" deli%er' i& &cala)le and t#e model
could )e re(licated $idel'* /#e "ocu& on t#e (oore&t1 $#ic# i& a %alue
attri)ute o" Grameen1 #a& al&o made t#e model a "a%ourite among t#e
donor communit'*
9o$e%er1 t#e Grameen model $or.& onl' under certain a&&um(tion&* A&
all t#e loan& are onl' "or enter(ri&e (romotion1 it a&&ume& t#at all t#e (oor
$ant to )e &el"-em(lo'ed* /#e re(a'ment o" loan& &tart& t#e $ee. a"ter t#e
loan i& di&)ur&ed O t#e in#erent a&&um(tion )eing t#at t#e )orro$er& can
&er%ice t#eir loan "rom t#e e2-ante income*
13.4 SKS Microfinance
Man' com(anie& &a' t#e' (rotect t#e intere&t& o" t#eir cu&tomer&* Qer'
"e$ actuall' &it in dirt $it# t#em1 u&ing &tone&1 "lo$er&1 &tic.&1 and c#al.
(o$der to "igure out i" t#e' $ill )e a)le to re(a' a P60 loan at P7 a mont#*
4it# t#i& a((roac#1 t#i& com(an' #a& created it& o$n lo'al gang o" o%er 6
million cu&tomer&*
,t& )orro$er& include agricultural la)orer&1 mom-and-(o( entre(reneur&1
&treet %endor&1 #ome )a&ed arti&an&1 and &mall &cale (roducer&1 eac# li%ing
on le&& t#an P6 a da'* ,t $or.& on a model t#at $ould allo$ micro-"inance
in&titution& to &cale u( 0uic.l' &o t#at t#e' $ould ne%er #a%e to turn (oor
(er&on a$a'*
,t& model i& )a&ed on ; (rinci(le&-
7* Adopt a profit-oriented approach in order to access
commercial capital- !tarting $it# t#e (itc# t#at t#ere i& a #ig#
entre(reneurial &(irit among&t t#e (oor to rai&e t#e "und&1 !?!
con%erted it&el" to "or-(ro"it &tatu& a& &oon a& it got )rea. e%en and
got (#ilant#ro(i&t a%i edd' to )e a "ounding in%e&tor* /#en it
&ecured mone' "rom (artie& &uc# a& Fnitu&1 a !eattle )a&ed -GO
t#at #el(& (romote micro-"inanceE !,D:,E and tec#nolog'
entre(reneur Qinod ?#o&la* Later1 it $a& a)le to attract
multimillion dollar line& o" credit "rom Citi)an.1 A:- Amro1 and
ot#er&*
6* Standardize products, training, and other processes in order to
boost capacity- /#e' collect &tandard re(a'ment& in round
num)er& o" 65 or ;0 ru(ee&* ,nternall'1 t#e' #a%e "actor' &t'le
training model&* /#e' enroll a)out 500 loan o""icer& e%er' mont#*
/#e' (artici(ate in t#eor' cla&&e& on !aturda'& and (ractice $#at
t#e' #a%e learned in t#e "ield during t#e $ee.* /#e' #a%e
&#ortened t#e training time "or a loan o""icer to 6 mont#& t#oug#
t#e a%erage time ta.en )' ot#er indu&tr' (la'er& i& =-D mont#&*
;* Use Technology to reduce costs and limit errors- ,t could not
"ind t#e &o"t$are t#at &uited it& re0uirement&1 &o it t#e' )uilt t#eir
o$n &im(le and u&er "riendl' a((lication& t#at a com(uter-illiterate
loan o""icer $it# a 76
t#
grade education can ea&il' under&tand* /#e
&'&tem i& al&o internet ena)led* Gi%en t#at electricit' i& unrelia)le
in man' area& t#e' #a%e in&talled car )atterie& or ga& (o$ered
generator& a& )ac.-u(& in man' area&*
Scaling up Customer Loyalty
,n&tead o" a&.ing illiterate %illager& to de&cri)e t#eir &ea&onal (attern
o" ca&# "lo$&1 t#e' encourage t#em to u&e colored c#al. (o$der and
"lo$er& to ma( out t#e %illage on t#e ground and tell $#ere t#e (oore&t
(eo(le li%ed1 $#at .ind o" "inancial (roduct& t#e' needed1 $#ic# area&
$ere lorded o%er )' $#ic# loan &#ar.&1 etc* /#e' &et (eo(leG& tin'
$ee.l' re(a'ment& a& lo$ a& P7 (er $ee. and #ealt# and $#ole li"e
in&urance (remium& to )e P70 a 'ear and 65 cent& (er $ee.
re&(ecti%el'* /#e' al&o o""er intere&t "ree emergenc' loan&* /#e
&alarie& o" loan o""icer& are not tied to re(a'ment rate& and t#e'
5ourne' on mo(ed& to )orro$er&G %illage& and &c#edule loan meeting&
a& earl' a& I*00 A*M* Dee( cu&tomer lo'alt' ultimatel' re&ult& in a
re(a'ment rate o" BB*5J*
Leveraging the SKS brand
,t& (a'o"" come& "rom #ig# %olume&* /#e' are gro$ing at 600J
annuall'1 adding 50 )ranc#e& and 71D01000 ne$ cu&tomer& a mont#*
/#e' are al&o u&ing t#eir dee( di&tri)ution c#annel& "or &elling &oa(1
clot#e&1 con&umer electronic& and ot#er (ac.aged good&*
10 Marketing of Microfinance Products
1. Contract Farming and Credit Bundling
:an.& and "inancial in&titution& #a%e )een (artner& in contract "arming
&c#eme&1 &et u( to en#ance credit* :a&icall'1 t#i& i& a doa)le model* Fnder
&uc# an arrangement1 cro( loan& can )e e2tended under tie-u(
arrangement& $it# cor(orate "or (roduction o" #ig# 0ualit' (roduce $it#
&ta)le mar.eting arrangement& (ro%ided O and onl'1 (ro%ided O t#e (rice
&etting mec#ani&m "or t#e "armer i& a((ro(riate and "air*
2. Agri Service Centre - Rabo India
a)o ,ndia +inance P%t Ltd* #a& e&ta)li&#ed agri-&er%ice centre& in rural
area& in coo(eration $it# a num)er o" agri-in(ut and "arm &er%ice&
com(anie&* /#e &er%ice& (ro%ided are &imilar to t#o&e in contract "arming1
)ut $it# additional "le2i)ilit' and a $ider range o" (roduct& including
in%entor' "inance* :e&ide& (ro%iding &torage "acilitie&1 eac# centre rent&
out "arm mac#iner'1 (ro%ide& agricultural in(ut& and in"ormation to
"armer&1 arrange& credit1 &ell& ot#er &er%ice& and (ro%ide& a "orum "or
"armer& to mar.et t#eir (roduct&*
3. Non Traditional Markets
!imilarl'1 Mot#er Dair' +ood& Proce&&ing1 a $#oll' o$ned &u)&idiar' o"
-ational Dair' De%elo(ment :oard (-DD:) #a& e&ta)li&#ed auction
mar.et& "or #orticulture (roducer& in :angalore* /#e o(eration& and
maintenance o" t#e mar.et i& done )' -DD:* /#e (ro5ect1 $it# an outla'
o" &*75 la.#1 co%er& 600 #orticultural "armer& a&&ociation& $it# 501000
gro$er mem)er& "or $#ole&ale mar.eting* /#eir (roduce i& (lanned $it#
(roduction and &u((l' a&&urance and (ro%ide& )ot# gro$er& and )u'er& a
common (lat"orm to negotiate )etter rate&*
4 Apni Mandi
Anot#er inno%ation i& t#at o" /#e Pun5a) Mandi :oard1 $#ic# #a&
e2(erimented $it# a L"armer&G mar.etG to (ro%ide &mall "armer& located in
(ro2imit' to ur)an area&1 direct acce&& to con&umer& )' elimination o"
middlemen* /#i& e2(eriment .no$n a& MA(ni MandiM )elong& to )ot#
"armer& and con&umer&1 $#o mutuall' #el( eac# ot#er* Fnder t#i&
arrangement a &um o" &* 5*6 la.# i& &(ent "or (ro%iding (la&tic crate& to
7000 "armer&* Eac# "armer get& 5 crate& at a &u)&idi8ed rate* At t#e mandi
&ite1 t#e :oard (ro%ide& )a&ic in"ra&tructure "acilitie&* At t#e "arm le%el1
e2ten&ion &er%ice& o" di""erent agencie& are (ooled in* /#e&e include
in(ut& &u)&idie&1 )etter 0ualit' &eed& and loan& "rom :an.&* A(ni Mandi
&c#eme (ro%ide& &el"-em(lo'ment to (roducer& and #a& eliminated &ocial
in#i)ition& among t#em regarding t#e retail &ale o" t#eir (roduce*
11 Success Factors of Micro-Finance in India
O%er t#e la&t ten 'ear&1 &ucce&&"ul e2(erience& in (ro%iding "inance to
&mall entre(reneur and (roducer& demon&trate t#at (oor (eo(le1 $#en
gi%en acce&& to re&(on&i%e and timel' "inancial &er%ice& at mar.et rate&1
re(a' t#eir loan& and u&e t#e (roceed& to increa&e t#eir income and a&&et&*
/#i& i& not &ur(ri&ing &ince t#e onl' reali&tic alternati%e "or t#em i& to
)orro$ "rom in"ormal mar.et at an intere&t muc# #ig#er t#an mar.et rate&*
Communit' )an.&1 -GO& and gra&& root &a%ing& and credit grou(& around
t#e $orld #a%e &#o$n t#at t#e&e microenter(ri&e loan& can )e (ro"ita)le
"or )orro$er& and "or t#e lender&1 ma.ing micro"inance one o" t#e mo&t
e""ecti%e (o%ert' reducing &trategie&*
A. For NGOs
7* /#e "ield o" de%elo(ment it&el" e2(and& and &#i"t& em(#a&i& $it#
t#e (ull o" idea&1 and -GO& (er#a(& more readil' ado(t ne$ idea&1
e&(eciall' i" t#e re&ource& re0uired are &mall1 entr' and e2it are
ea&'1 ta&.& are ((ercei%ed to )e) &im(le and (eo(leG& acce(tance i&
#ig# O all c#aracteri&tic& (real or (re&umed) o" micro"inance*
6* Can%a&&ing )' %ariou& actor&1 including t#e -ational :an. "or
Agriculture and ural De%elo(ment (-A:AD)1 !mall ,ndu&trie&
De%elo(ment :an. o" ,ndia (!,D:,)1 +riend& o" 4omenG& 4orld
:an.ing (+44:)1 a&#tri'a Ma#ila ?o&# (M?)1 Council "or
Ad%ancement o" Peo(leG& Action and ural /ec#nologie&
(CAPA/)1 a&#tri'a Gramin Qi.a& -id#i (GQ-)1 %ariou&
donor "unded (rogramme& e&(eciall' )' t#e ,nternational +und "or
Agricultural De%elo(ment (,+AD)1 Fnited -ation& De%elo(ment
Programme (F-DP)1 4orld :an. and De(artment "or
,nternational De%elo(ment1 F? (D+,D)S1 and latel' commercial
)an.&1 #a& greatl' added to t#e idea (ull* ,nduced )' t#e
$orld$ide "ocu& on micro"inance1 donor -GO& too #a%e )een
"unding micro"inance (ro5ect&* One mig#t call it t#e &u((l' (u&#*
;* All .ind& o" t#ing& "rom .#adi &(inning to -ade( com(o&t to
)al$adi& do not (roduce &uc# concrete re&ult& and &u&tained
intere&t among )ene"iciarie& a& micro"inance* Mo&t -GO-led
micro"inance i& $it# (oor $omen1 "or $#om acce&& to &mall loan&
to meet dire emergencie& i& a %alued outcome* /#u&1 0uic. and
#ig# Lcu&tomer &ati&"actionG i& t#e F!P t#at #a& attracted -GO& to
t#i& trade*
=* /#e idea a((ear& &im(le to im(lement* /#e mo&t common route
"ollo$ed )' -GO& i& (romotion o" !9G&* ,t i& im(licitl' a&&umed
t#at no Ltec#nical &.illG i& in%ol%ed* :e&ide&1 e2ternal re&ource& are
not needed a& !9G& )egin $it# t#eir o$n &a%ing&* /#o&e -GO&
t#at #a%e acce&& to re%ol%ing "und& "rom donor& do not #a%e to
$orr' a)out "inancial (er"ormance an' $a'* /#e c#ic.en& $ill
e%entuall' come #ome to roo&t )ut in t#e "ir&t "lu&#1 it &eem& all &o
ea&'*
5* +or man' -GO& t#e idea o" Lorgani&ingG O "orming a &amu#a O #a&
in#erent a((eal* Grou(& connote em(o$erment and organi&ing
$omen i& a dou)le )onu&*
D* +inall'1 to man' -GO&1 micro"inance i& a $a' to "inancial
&u&taina)ilit'* E&(eciall' "or t#e medium-to-large -GO& t#at are
a)le to acce&& )ul. "und& "or on-lending1 "or e2am(le "rom !,D:,1
t#e intere&t rate &(read could )e an attracti%e &ource o" re%enue
t#an an uncertain1 #ig#l' com(etiti%e and increa&ingl' di""icult-to-
rai&e donor "unding*
B. For Financial Institutions and banks
Micro"inance #a& )een attracti%e to t#e lending agencie& )ecau&e o"
demon&trated &u&taina)ilit' and o" lo$ co&t& o" o(eration* ,n&titution& li.e
!,D:, and -A:AD are #ard no&ed )an.er& and $ould not $or. $it#
t#e idea i" t#e' did not &ee a long term engagement O $#ic# onl' come&
out o" &u&taina)ilit' (t#at i& economic attracti%ene&&)*
On t#e &u((l' &ide1 it i& al&o true t#at it #a& all t#e tra((ing& o" a )u&ine&&
enter(ri&e1 it& out(ut i& tangi)le and it i& ea&il' under&tood )' t#e
main&tream* /#i& al&o &eem& to &ound nice to t#e go%ernment1 $#ic# in
t#e (o&t li)erali&ation era i& tr'ing to e2(lain t#e logic o" e%er' ru(ee
&(ent* /#at i& t#e rea&on $#' micro"inance #a& attracted main&tream
in&titution& li.e no ot#er de%elo(mental (ro5ect*
Per#a(& t#e mo&t im(ortant "actor t#at got )an.& in%ol%ed i& $#at one
mig#t call t#e (olic' (u&#*
Gi%en t#at mo&t o" our )an.& are in t#e (u)lic &ector1 (u)lic (olic' doe&
#a%e &ome in"luence on $#at t#e' $ill or $ill not do* ,n t#i& ca&e1 (olic'
$a& "ollo$ed )' diligent1 i" meandering1 (romotional $or. )' -A:AD*
/#e (olic' c#ange a)out a decade ago )' :, to allo$ )an.& to lend to
!9G& $a& initiall' "ollo$ed )' a &e%en-(age memo )' -A:AD to all
)an. c#airmen1 and later )' &en&iti&ation and training (rogramme& "or
)an. &ta"" acro&& t#e countr'* !e%eral #undred &uc# (rogramme& $ere
conducted )' -GO& alone1 eac# in%ol%ing 75 to 60 )an. &ta""1 all (aid "or
)' -A:AD* /#e (olic' (u&# $a& &$eetened )' t#e -A:AD re"inance
&c#eme t#at o""er& muc# more "a%oura)le term& (700J re"inance1 $ider
&(read) t#an "or ot#er rural lending )' )an.&* -A:AD al&o did &ome
&'&tem &etting $or. and )an.& latel' #a%e )een gi%en target&* /#e
can%a&&ing1 training1 re"inance and clo&e "ollo$ u( )' -A:AD #a&
re&ulted in $ide&(read )an. in%ol%ement*
Moreo%er1 "or )an.& t#e o(erating co&t o" micro"inance i& (er#a(& muc#
le&& t#an "or (ure M+,&* /#e )an.& alread' #a%e a %a&t net$or. o"
)ranc#e&* /o t#e e2tent t#at an -GO #a& alread' (romoted !9G& and t#e
!9G (ort"olio i& (er"orming )etter t#an t#e re&t o" t#e rural (i" not t#e
entire) (ort"olio1 micro"inance %ia !9G& in t#e $or&t ca&e $ould re(re&ent
marginal addition to co&t and $ould o"ten reduce marginal co&t t#roug#
)etter ca(acit' utili&ation* ,n t#e (roce&& t#e )an. al&o earn& )ro$nie
(oint& $it# (olic' ma.er& and meet& it& (riorit' &ector target&*
,t doe& not ta.e muc# anal'&i& to "igure out t#at t#e mar.et "or "inancial
&er%ice& "or t#e 50-D0 million (oor #ou&e#old& o" ,ndia1 cou(led $it#
a)out t#e &ame num)er $#o are tec#nicall' a)o%e t#e (o%ert' line )ut are
&e%erel' under-&er%ed )' t#e "inancial &ector1 i& a %er' large one*
Moreo%er1 a& in an' emerging mar.et1 t#oug# t#e (ercei%ed ri&.& are
#ig#er1 t#e &(read& are muc# greater* /#e traditional commercial mar.et&
o" cor(orate&1 )u&ine&&1 trade1 and no$ e%en #ou&ing and con&umer
"inance are )eing &oug#t )' all t#e )an.&1 leading to (rice com(etition and
$a"er t#in &(read&*
+urt#er1 )an.-grou(& are moti%ated )' a num)er o" cro&&-&elling
o((ortunitie& in t#e mar.et1 "or de(o&it&1 in&urance1 remittance& and
e%entuall' mutual "und&* !ince t#e larger )an.& are o""ering all t#e&e
&er%ice& no$ t#roug# t#eir grou( com(anie&1 it )ecome& im(erati%e "or
t#em to e2(and t#eir di&tri)ution c#annel& a& "ar and dee( a& (o&&i)le1 in
t#e #o(e o" ca(turing t#e entire "inancial &er%ice& )u&ine&& o" a #ou&e#old*
+inall'1 )ot# agri-in(ut and (roce&&ing com(anie& &uc# a& E,D Parr'1 "a&t-
mo%ing con&umer good& (+MCG) com(anie& &uc# a& 9indu&tan Le%er&1
and con&umer dura)le com(anie& &uc# a& P#ili(& #a%e reali&ed t#e
(otential o" t#i& )ig mar.et and are acti%el' u&ing !9G& a& entr' (oint&*
!ome amount o" "ree-riding i& ta.ing (lace #ere )' com(anie&1 "or t#e'
are u&ing c#annel& $#ic# $ere )uilt at a &igni"icant co&t to -GO&1 "unding
agencie& and/or t#e go%ernment*
On t#e $#ole1 t#e economic attracti%ene&& o" micro"inance a& a )u&ine&& i&
getting e&ta)li&#ed and t#i& i& a &ure &te( to$ard& main&treaming* 4e
.no$ t#at main&treaming i& a mi2ed )le&&ing1 and one tend& to e2c#ange
&cale at t#e co&t o" o)5ecti%e&* !o it need& to )e $atc#ed care"ull'*
12 Issues in Microfinance
1. Sustainability
/#e "ir&t c#allenge relate& to &u&taina)ilit'* M+, model i&
com(arati%el' co&tlier in term& o" deli%er' o" "inancial &er%ice&* An
anal'&i& o" ;D leading M+,& )' >indal 3 !#arma &#o$& t#at 8BJ M+,&
&am(le $ere &u)&id' de(endent and onl' B $ere a)le to co%er more
t#an 80J o" t#eir co&t&* /#i& i& (artl' e2(lained )' t#e "act t#at $#ile
t#e co&t o" &u(er%i&ion o" credit i& #ig#1 t#e loan %olume& and loan &i8e
i& lo$* ,t #a& al&o )een commented t#at M+,& (a&& on t#e #ig#er co&t
o" credit to t#eir client& $#o are Lintere&t in&en&iti%eG "or &mall loan&
)ut ma' not )e &o a& loan &i8e& increa&e* ,t i&1 t#ere"ore1 nece&&ar' "or
M+,& to de%elo( &trategie& "or increa&ing t#e range and %olume o" t#eir
"inancial &er%ice&*
2. Lack of Capital
/#e &econd area o" concern "or M+,&1 $#ic# are on t#e gro$t# (at#1 i&
t#at t#e' "ace a (aucit' o" o$ned "und&* /#i& i& a critical con&traint in
t#eir )eing a)le to &cale u(* Man' o" t#e M+,& are &ociall' oriented
in&titution& and do not #a%e ade0uate acce&& to "inancial ca(ital* A& a
re&ult t#e' #a%e #ig# de)t e0uit' ratio&* Pre&entl'1 t#ere i& no relia)le
mec#ani&m in t#e countr' "or meeting t#e e0uit' re0uirement& o"
M+,&*
/#e ,PO i&&ue )' Me2ico )a&ed LCom(artamo&G $a& not acce(ted )'
(uri&t& a& t#e' t#oug#t it de"ied t#e mi&&ion o" an M+,* /#e ,PO al&o
)roug#t "ort# t#e i&&ue o" %aluation o" an M+,*
/#e )oo. %alue multi(le i& currentl' t#e dominant %aluation
met#odolog' in micro"inance in%e&tment&* ,n t#e ca&e o" &tart u(
M+,&1 u&ing a )oo. %alue multi(le doe& not do 5u&tice to t#e
underl'ing %alue o" t#e )u&ine&&* /'(icall'1 &tart u(& are lo&& ma.ing
and #ence t#e )oo. %alue continuall' reduce& o%er time until t#e' #it
)rea. e%en (oint* A )oo. %alue multi(lier to %alue &tart u(& $ould
decrea&e t#e %alue a& t#e organi8ation u&e& u( ca(ital to )uild it&
)u&ine&&1 t#u& accentuating t#e negati%e rat#er t#an t#e (o&iti%e*
3. Financial service delivery
Anot#er c#allenge "aced )' M+,& i& t#e ina)ilit' to acce&& &u((l'
c#ain* /#i& c#allenge can )e o%ercome )' e2(loring &'nergie&
)et$een micro"inance in&titution& $it# e2(erti&e in credit deli%er' and
communit' mo)ili8ation and )u&ine&&e& o(erating $it# (roduction
&u((l' c#ain& &uc# a& agriculture* /#e latter (la'er& $#o )ring $it#
t#em an under&tanding o" &imilar client &egment&1 a)ilit' to create
microenter(ri&e o((ortunitie& and $illingne&& to nurture t#em1 $ould
)e .een on directing micro"inance to &uc# o((ortunitie&* /#i& ena)le&
M+,& to increa&e t#eir client )a&e at no additional co&t&*
/#o&e )u&ine&&e& t#at (rocure "rom rural ,ndia &uc# a& agriculture and
dair' o"ten identi"' "inance a& a con&traint to %alue creation* !uc#
)u&ine&&e& ma' "ind com(lementaritie& )et$een an M+,G& &.ill& in
management o" credit (roce&&e& and t#eir o$n &trengt#& in &u((l'
c#ain management*
,/C Limited1 $it# it& &trong &u((l' c#ain logi&tic&1 rural (re&ence and
an inno%ati%e tran&action (lat"orm1 t#e ec#ou(al1 #a& &tarted e2(loring
&'nergie& $it# "inancial &er%ice (ro%ider& including M+,& t#roug#
(ilot& $it# %egeta)le endor& and "armer&* !imilarl'1 large +,& &uc# a&
!(andana "ore&ee a larger role "or t#em&el%e& in t#e rural econom'
a)l' &u((orted )' %alue creating (artner&#i(& $it# (la'er& &uc# a&
Ma#indra and 4e&tern Fnion Mone' /ran&"er*
,/C #a& initiated a (ilot (ro5ect called L(u&#cart& &c#emeG along $it#
:A!,T (a micro"inance organi8ation in 9'dera)ad)* Fnder t#i& (ilot1
it $or.& $it# t$ent' $omen #ead load %endor& &elling %egeta)le& o"
around 70- 75 .g& (er da'* :A!,T e2tend& $or.ing ca(ital loan& o"
&*701000/- 1 ca(acit' )uilding and )u&ine&& de%elo(ment &u((ort to
t#e $omen* ,/C (ro%ide& &u((ort t#roug# &u((l' c#ain inno%ation&
)'C
7* Ma.ing t#e C#ou(al +re&# &tore& a%aila)le to t#e %endor&1 t#i&
a%oid& t#e #a&&le o" )argaining and unrelia)ilit' at t#e traditional
mandi& (local %egeta)le mar.et&)* /#e $omen are a)le to re(leni&#
t#e &toc. "rom t#e &tore& a& man' time& in t#e da' a& re0uired* /#i&
#a& (o&iti%e im(lication& "or 0ualit' o" t#e (roduce &old to t#e end
con&umer*
6* Continuou&l' e2(erimenting to increa&e e""icienc'1 augmenting
income& and reducing energ' u&age acro&& t#e %alue c#ain* +or
in&tance1 it #a& "orged a (artner&#i( $it# -ational ,n&titute o"
De&ign (-,D)1 a (ioneer in t#e "ield o" de&ign education and
re&earc#1 to de&ign u&er-"riendl' (u&#cart& t#at can reduce t#e
(#'&ical )urden*
;* /a.ing le&&on& "rom t#e (#armaceutical and telecom &ector to
identi"' tec#nologie& t#at can &a%e energ' and en&ure tem(erature
control in (u&# cart& in order to maintain 0ualit' o" t#e %egeta)le&
t#roug#out t#e da'* /#e model augment& t#e income& o" t#e
%endor& "rom around &*;0-=0 (er da' to an a%erage o" &*750 (er
da'* +rom an en%ironmental (oint o" %ie$1 (u&# cart& are muc#
more energ' e""icient a& o((o&ed to "i2ed "ormat retail outlet&*
4. HR Issues
ecruitment and retention i& t#e ma5or c#allenge "aced )' M+,& a&
t#e' &tri%e to reac# more client& and e2(and t#eir geogra(#ical &co(e*
Attracting t#e rig#t talent (ro%e& di""icult )ecau&e candidate& mu&t
#a%e1 a& a (rere0ui&ite1 a mind&et t#at "it& $it# t#e organi8ationG&
mi&&ion*
Man' main&tream commercial )an.& are no$ entering micro"inance1
$#o are (oac#ing &ta"" "rom M+,& and M+,& are una)le to retain t#em
"or ot#er 5o) o((ortunitie&*
85J o" t#e (oore&t client& &er%ed )' micro"inance are $omen*
9o$e%er1 $omen ma.e u( le&& t#an #al" o" all micro"inance &ta""
mem)er&1 and "ill e%en "e$er o" t#e &enior management role&* /#e
c#allenge in mo&t countrie& &tem& "rom cultural notion& o" $omenG&
role&1 "or e2am(le1 $#ile $omen are &ingle t#ere mig#t )e a greater
$illingne&& on t#e (art o" $omenG& "amilie& to let t#em $or. a& "ront
line &ta""1 )ut a& &oon a& t#e' marr' and certainl' once t#e' &tart
#a%ing c#ildren1 it )ecome& unacce(ta)le* Long di&tance& and long
#our& a$a' "rom t#e "amil' are di""icult "or $omen to accommodate
and "or t#eir "amilie& to under&tand*
5. Microinsurance
+ir&t )ig i&&ue in t#e microin&urance &ector i& de%elo(ing (roduct& t#at
reall' re&(ond to t#e need& o" client& and in a $a' t#at i& commerciall'
%ia)le*
!econdl'1 t#ere i& &trong need to en#ance deli%er' c#annel&* /#e&e
deli%er' c#annel& #a%e )een relati%el' $ea. &o "ar* Microin&urance
com(anie& o""er minimal (roduct& and do not $ant to go "or$ard and
o""er com(le2 (roduct& t#at ma' re&(ond )etter* Microin&urance need&
a deli%er' c#annel t#at #a& ea&' acce&& to t#e lo$-income mar.et1 and
(re"era)l' one t#at #a& )een engaged in "inancial tran&action& &o t#at
t#e' #a%e control& "or managing ca&# and t#e a)ilit' to trac. di""erent
indi%idual&*
/#irdl'1 t#ere i& a need "or mar.et education* Peo(le eit#er #a%e no
in"ormation a)out
microin&urance or t#e' #a%e a negati%e attitude to$ard& it* 4e #a%e to
counter t#at* 4e #a%e to &ome#o$ get (eo(le - $it#out #a%ing to &it
do$n at a ta)le - to under&tand $#at in&urance i&1 and $#' it )ene"it&
t#em* /#at $ill #el( to dem'&ti"' microin&urance &o t#at $#en agent&
come1 (eo(le are $illing to engage $it# t#em*
6. Adverse selection and moral hazard
/#e 5oint lia)ilit' mec#ani&m #a& )een relied u(on to o%ercome t#e
t$in i&&ue& o" ad%er&e &election and moral #a8ard* /#e grou( lending
model& are contingent on t#e a%aila)ilit' o" &.illed re&ource& "or grou(
(romotion and entail a ge&tation (eriod o" &i2 mont#& to one 'ear*
9o$e%er1 t#ere i& not &u""icient under&tanding o" t#e dri%er& o" de"ault
and credit ri&. at t#e le%el o" t#e indi%idual* /#i& #a& con&trained t#e
de%elo(ment o" indi%idual model& o" micro "inance* /#e grou( model
$a& an inno%ation to o%ercome t#e &(eci"ic i&&ue o" t#e 0ualit' o" t#e
(ort"olio1 gi%en t#e ina)ilit' o" t#e (oor to o""er collateral* 9o$e%er1
"rom t#e (er&(ecti%e o" &caling u( micro "inancial &er%ice&1 it i&
im(ortant to (roacti%el' di&co%er model& t#at $ill ena)le direct
"inance to indi%idual&*
FINDINGS
Comparison of alternative microfinance model client
,n t#i& &tud' a mode&t attem(t #a& )een made to di""erentiate )et$een
t#e client c#aracteri&tic& o" t#e t$o micro"inance model (re%alent in
t#e &tud' area*
Level of literacy
/#e #ead o" t#e #ou&e#old& inter%ie$ed $ere illiterate $it# =6 (ercent
re(orting t#e' #ad ne%er )een &c#ool*
Housing
Given the rural "ocu& o" our &tud'1 it come& a& no &ur(ri&e t#at o%er B5
(ercent o" our re&(ondent& li%e in t#e &el" Oo$ned d$elling&*
Landholdings and sources of income
Only 25 percent o" t#e #ou&e#old& $ere &el" em(lo'ed among !9G
client&* An intere&ting "act to note i& t#at all t#e M+, client& $ere &el"
em(lo'ed engaged in dair' acti%itie&1 o$ning &mall tea or tailoring
&#o(& and $or.ing a& &treet #a$.er&
CONCLUSION
/#e )a&ic idea o" micro "inancing i& &im(le- i" (oor are (ro%ided
acce&& to "inancial &er%ice&1 including credit1 t#e' ma' %er' $ell )e
a)le to &tart a e2(and a micro enter(ri&e t#at $ill allo$ t#em to )rea.
out o" (o%ert'* ,n totalit'1 it& "ocu& i& on eradication o" (o%ert' "orm
gra&& le%el1 $omen u(li"tment1 creating &mall and medium enter(ri&e&
and t#ere"ore ta.e& care o" de%elo(ment o" an' econom' "rom $it#in
Com(aring t$o micro"inance model& in t#e re&earc# area re%eal& t#at
t#e le%el o" inde)tedne&& to mone'lender& i& #ig#er in t#e ca&e o"
client& o" M+, model* !uc# ca&e& illu&trate t#e di""icultie& M+, client&G
"ace $#en t#e' #a%e un(roducti%e "inancial re0uirement& or t#e' are
com(elled to en&ure (rom(t and regular loan re(a'ment& t#roug#
"urt#er )orro$ing "rom e%en mone' lender&* /#i& ma.e& (o%ert'
$or&e in t#e &#ort run1 and ma.e& it #arder to e&ca(e "rom (o%ert'-and
indeed can )e &ource o" (o%ert'-and indeed can )e &ource o" (o%ert'
and ine0ualit' @tra(&A

RECOMMENDATIONS
Access to Credit
/#e (oor (eo(leG& acce&& to credit ma' )e &igni"icantl' im(ro%ed
t#roug# all t#e c#annel& o" !9G-:an. lin.age (rogramme1 M+,&1
Coo(erati%e :an.&1 !tate +inancial Cor(oration&1 : & and PAC!*
!ome M+,& (i*e* Grameen :an. model/LA:!1 -:+C&) #a%e )een
doing %er' $ell in &elected &tate& $it# d'namic mar.et& and d'namic
indi%idual&* :e'ond t#e&e 5uri&diction&1 t#eir outreac# i& non-e2i&tent*
An' &igni"icant u( &caling o" micro-"inance at t#e all ,ndia le%el $ill
#a%e to de(end1 t#ere"ore1 on t#e large net$or. o" )an.&1 t#e )an.-
!9G lin.age (rogramme and t#e M+,&* ,n addition1 t#e (o&t o""ice
net$or. in t#e countr' ma' al&o )e u&ed to deli%er )an.ing &er%ice&1
e&(eciall' in remote rural area&* /#e (o&t o""ice& ma' )e "urt#er
encouraged to $or. a& @)u&ine&& "acilitatorA and a& @)an.ing
corre&(ondentA in accordance $it# :, guideline&* /#e -A:AD
ma' con&ider &etting u( a Committee1 con&i&ting o" %ariou& (ri%ate
and (u)lic &ector )an.&1 t#e Mini&tr' o" ural De%elo(ment1 !mall
,ndu&trie& De%elo(ment Organi&ation (!,DO) o" Mini&tr' o" !mall
!cale ,ndu&trie& (!!,)1 a&#tri'a Ma#ila ?o&# (M?) o" /#e
Mini&tr' o" 4omen and C#ild De%elo(ment1 De(artment o" Po&t&1
!,D:,1 M+,& and t#e -GO& in t#e micro "inance &ector to e%ol%e an
e""ecti%e &trateg' to im(lement t#e :u&ine&& +acilitator& and
Corre&(ondent& Model* !uc# a &trateg' &#ould al&o ta.e into account
&(ecial target grou(& &uc# a& t#e !C&/!/& and t#e minoritie& t#roug#
t#eir re&(ecti%e -ational +inance Cor(oration&* /#e Ele%ent# Plan
ma' target to e2tend micro-"inance to at lea&t 80 (ercent o" t#e :PL
#ou&e#old&*
Formation of Consortiums by Banks
:ot# (u)lic and (ri%ate &ector )an.& #a%e t#e e2(erti&e in "inancial
intermediation* All t#e )an.& &#ould come toget#er and "ormulate a
&trateg' at t#e national le%el to co%er all region& o" t#e countr' and to
addre&& t#e need& o" t#e M+O&* /#e di""erent )an.& ma' "orm
Lcon&ortium&G to le%erage eac# ot#erG& ad%antage& and $or. out &uita)le
&trategie& to addre&& t#e need& o" micro-"inance at t#e national le%el*
ele%ant LGuideline& on Micro-+inanceG )ot# "or t#e M+, model and t#e
:an.-!9G lin.age model1 ma' )e (re(ared )' -A:AD "or t#e "ield
le%el o""icer&* !ome incenti%e& ma' al&o )e introduced to encourage
lending to t#e (oor* ,nternal monitoring ma' al&o )e "urt#er &trengt#ened
to c#ec. e2(loitation o" t#e (oor )' un&cru(ulou& element&*
Uniform Legal Framework
/o "acilitate t#e e2(an&ion o" micro credit1 t#e Centre &#ould (re(are a
model :ill on Mone' Lending and circulate it among t#e !tate
Go%ernment& re0ue&ting t#em to enact &imilar &tate legi&lation&* /#e
e&er%e :an. #a& con&tituted a L/ec#nical Grou( "or e%ie$ o"
Legi&lation& on Mone'-lendingG* /#e grou( i& alread' dra"ting a model
:ill $#ic# i& e2(ected to )e com(leted )' >une ;0* /#i& dra"t )ill can )e
u&ed a& an in(ut "or (re(aring model )ill )' t#e Central Go%ernment*
National Policy on Micro Finance
At (re&ent1 )ot# Go%ernment and t#e (ri%ate agencie& in%ol%ed in micro
"inance #a%e de%i&ed t#eir o$n indi%idual &trategie& in "urt#erance o" t#eir
goal&* A)&ence o" com(re#en&i%e national le%el (olic' #a& #indered t#e
orderl' gro$t# o" t#e &ector* /#ere i& an urgent need "or a concerted e""ort
on t#e (art o" t#e %ariou& agencie& and t#e &er%ice& (ro%ider& in%ol%ed in
t#e &ector to come toget#er to e%ol%e a coordinated &trateg' "or a "a&ter
and &moot#er gro$t# o" t#e
&ector* /#e (ro(o&ed )ill on micro "inance ma' addre&& &ome o" t#e
i&&ue&* /#e LregulatorG (ro(o&ed in t#e L:illG ma' #a%e to come out $it# a
detailed &trateg' on i&&ue& li.e coordination among %ariou& agencie&1
accounting and auditing1 tran&(arenc'1 good go%ernance1 con&umer
(rotection1 micro in&urance1 &tati&tic& 3 re&earc#1 rate o" intere&t1 &u)&idie&
etc*1 .ee(ing in mind t#e "act t#at t#e &trengt# o" t#e micro-"inance
indu&tr' lie& in it& in"ormalit' and "le2i)ilit'*
Uneven Geographical Growth
One o" t#e ma5or rea&on& "or t#e une%en gro$t# o" t#e &ector i& t#e
a)&ence o" conduci%e &ocio-economic and (olitical &et-u(* -A:AD
introduced &(ecial incenti%e& in t#e nort#1 nort#-ea&tern and $e&tern
&tate&* /#e Mini&tr' o" ural De%elo(ment1 Mini&tr' o" !mall !cale
,ndu&trie&1 -A:AD and !,D:, ma' de%i&e "urt#er need )a&ed incenti%e
&c#eme& "or a "a&ter and e%en gro$t# o" t#e &ector in all (art& o" t#e
countr' in con&ultation $it# Mini&tr' o" +inance and :,* !,D:, #a& al&o
ta.en (o&iti%e &te(& to reac# t#e under&er%ed &tate& t#roug# t#e (ort"olio
ri&. "und &c#eme o" t#e mini&tr' o" !!, and t#roug# it& o$n &(ecial
e""ort&*
Mobilisation of Savings by MFIs
/#e a)&ence o" &a%ing&1 a(art "rom !9G& and M+, coo(erati%e&1 #a&
un"ortunatel' )een one o" t#e "eature& o" ,ndian Micro "inance and it
(re%ent& (ro%iding "inancial &er%ice to t#e (oor* /#e ,ndian M+,& &ur%i%e
on )orro$ed "und&1 unli.e ot#er countrie& $#ere &a%ing& "und a large
&#are o" lending* /#e regulator' en%ironment onl' allo$& coo(erati%e& to
collect &a%ing&* /#e M+,& ma' )e allo$ed to mo)ili&e &a%ing& at lea&t
"rom t#eir mem)er& under a regulator' "rame$or. monitored )' t#e
-A:AD* /#e (ro(o&ed Micro"inance :ill i& e2(ected to addre&& t#i&
i&&ue*
Cost Covering Interest Rates
/#ere i& a need to create a$arene&& o" t#e need to c#arge co&t-reco%ering
intere&t rate&* /#e rate o" intere&t c#arged )' t#e M+,& de(end& u(on t#e
co&t o" "und&1 co&t o" deli%er' and (a'ment1 co&t o" (urc#a&ing )ad de)t&
and co&t o" margin&* +or economic %ia)ilit' and &u&taina)le gro$t#1 t#e
M+,& need to c#arge intere&t rate co%ering t#e&e co&t&* Qariou& &tudie&
conducted on t#i& a&(ect indicate t#at M+,& normall' c#arge 67-6= J
intere&t rate "or t#eir &u&tenance* ,nno%ati%e tec#ni0ue& mu&t )e identi"ied
to reduce t#e co&t and t#e intere&t rate* /#e co&t o" deli%er' and collection
o" (a'ment1 $#ic# "orm& a ma5or com(onent o" co&t1 can )e reduced
&u)&tantiall' )' u&ing t#e (ro(o&ed Common !er%ice Centre&1 $#ic# can
)e &#ared )' ot#er agencie& al&o* /#e &ector &#ould ma.e all attem(t& to
reduce t#e rate o" intere&t )' mean& o" e""icienc' en#ancing inno%ation&
$it# t#e aid o" tec#nolog'*
Credit-Linked Subsidy
/#e (olic' o" (ro%iding credit-lin.ed &u)&id' to !9G& and indi%idual&
ma' )e re%i&ited* /#ere are !9G& $#ic# are )orro$ing "rom )an.& on a
continuou& )a&i& $it#out claiming &u)&idie&* A com(re#en&i%e &tud' ma'
)e commi&&ioned to &tud' t#e incidence and e""ect& o" &u)&id' a& (art o"
t#e 77
t#
Plan and to $or. out modalitie& and long term &trategie& to u&e t#e
&u)&idie& more (roducti%el' and e""ecti%el'*
Role of Technology
/#e net$or. o" internet ena)led ,n"ormation and Communication
/ec#nolog' (,C/) acce&& (oint& termed a& Common !er%ice Centre&
(C!C)1 700000 in num)er acro&& t#e countr' )eing im(lemented )' t#e
De(artment o" ,n"ormation /ec#nolog' (D,/)1 Mini&tr' o"
Communication& and ,n"ormation /ec#nolog'1 Go%ernment o" ,ndia al&o
ma' )e utili8ed "or im(ro%ing t#e reac# and &(read o" %ariou& Micro-
+inance and Po%ert' Alle%iation !c#eme& in rural area& in t#e countr'*
+urt#er1 t#e D,/ ma' coordinate $it# -A:AD1 Mini&tr' o" ural
De%elo(ment1 !a-D#an and PADA- to integrate t#e LCom(uter Mun&#i
!'&temG o" accounting into t#e ,C/ ena)led C!C&*
ATMs and Gramteller (rural ATM) ma' )e located in t#e Po&t O""ice&*
/#e Common !er%ice Centre& )eing de%elo(ed )' t#e De(artment o"
,n"ormation /ec#nolog' ma' al&o )e lin.ed to Po&t O""ice& to &'nergi&e
t#e tec#nolog' induction $it# e2(erience o" Po&t& to #andle "inancial
(roduct&* /#e (ro(o&ed multi-(ur(o&e uni0ue ,D )a&ed &mart card &'&tem
can al&o )e utili&ed "or e""ecti%e deli%er' o" micro-credit*
NABARD, SIDBI, Ministry of Rural Development and Sa-Dhan,
$#ic# i& alread' $or.ing to e%ol%e a &tandard )oo. .ee(ing (rocedure
along $it# t#e ,n&titute o" C#artered Accountant& o" ,ndia1 ma' come
toget#er to e%ol%e a &tandardi8ed1 &im(li"ied and )oo. .ee(ing (rocedure
"or all "orm& micro "inance organi&ation&1 $#ic# $ould not onl'
under&tand t#e #ealt# o" t#e micro "inance organi&ation )ut al&o #el( in
accurate and timel' di&clo&ure o" "inancial &tatement& and annual re(ort&*
+urt#er1 t#e LCom(uter Mun&#i !'&temG de%elo(ed )' PADA- and
$#ic# a((ear& to #a%e )een ado(ted &ucce&&"ull' "or maintenance o"
account& ma' al&o )e integrated into t#e o%erall &trateg' o" &im(li"'ing t#e
accounting (rocedure*
Maintaining Standard Accounting System
/#e guideline&/)e&t (ractice& "or !9G-:an. lin.age& and micro"inance
ma' )e i&&ued )' -A:AD1 co%ering auditing and monitoring
mec#ani&m&* :, ma' conduct e%aluation &tudie& a& and $#en re0uired*
Extension Services
-eed "or e2ten&ion &er%ice& in t#e di""erent economic acti%itie& o" cro(
#u&)andr'1 animal #u&)andr'1 agro 3 rural indu&trie& i& )eing $idel'
recogni&ed "or guidance and coun&elling o" !9G&/indi%idual&1 to #el(
t#em c#oo&e u&e"ul acti%itie& and ac0uire t#e re0uired &.ill&* /#e&e
e2ten&ion &er%ice& ma' not al$a'& )e (ro%ided in-#ou&e t#roug# t#e line
de(artment& o" t#e !tate Go%ernmentE rat#er t#e' ma' )e (ro%ided )' t#e
(ri%ate &ector (eg* -GO&/M+,&) ado(ting t#e PPP model rein"orced )'
%ia)ilit' ga( "unding* /#e line de(artment& ma'1 ne%ert#ele&&1 continue to
"unction a& a(e2 in&titution& determining t#e o)5ecti%e& and term& o"
contract "or t#e (ri%ate &ector (artici(ation*
Micro Insurance
Micro in&urance &#ould )e (ercei%ed a& a .e' &er%ice in t#e "inancial
need& (ac.age o" t#e (eo(le and in con5unction $it# micro &a%ing& and
micro credit could go a long $a' in .ee(ing t#e %ulnera)le &egment a$a'
"rom t#e (o%ert' tra( and could )e an integral com(onent o" "inancial
inclu&ion*
/#e ,n&urance egulator' and De%elo(ment Aut#orit' (,DA) #a&
noti"ied Micro ,n&urance egulation& in -o%em)er1 6005 $it# "ocu& on
t#e direction1 de&ign and deli%er' o" t#e (roduct& including tie u( $it# li"e
and non li"e in&urance (la'er& "or integration o" (roduct to addre&& %ariou&
ri&.&1 introduction o" a &tandalone Micro ,n&urance deli%er' c#annel
con&i&ting o" -GO1 !9G and M+,&*1 enlarging t#e &er%ice acti%itie&
entru&ted to micro in&urance agent1 i&&ue o" Polic' document& in &im(le
%ernacular language etc*
/#e ,DA ma' continue to gi%e ade0uate (riorit' to t#e micro in&urance
&ector $it# "ocu& on remo%ing t#e con&traint& and "urt#er de%elo(ing t#e
&ectoMicro in&urance i& increa&ingl' o""ered )' M+,& acting a& agent& o"
t#e in&urance com(anie&* Li"e in&urance i& common among M+, mem)er&
and &ome o" t#e mem)er& are al&o a%ailing a&&et in&urance1 mainl' loan
"inanced a&&et&* ,n&urance i& le&& $ide&(read under t#e !9G model* M+,&
and ot#er ci%il &ociet' organi8ation& are )eginning to o""er #ealt#
in&urance1 $#ic# i& o" greate&t rele%ance "or (o%ert' alle%iation*-A:AD
ma' con&ider coordinating $it# %ariou& in&urance com(anie&1 !,D:,1
Mini&tr' o" ural De%elo(ment1 Mini&tr' o" !!,1 -GO& and t#eir
a&&ociation& to )ring out "le2i)le micro in&urance &c#eme&1 co%ering not
onl' loan "inanced a&&et& )ut al&o li"e1 #ealt#1 cro(1 animal #u&)andr'1
etc *
Capacity Building
!ome "inancial in&titution&1 (articularl' !,D:,1 are t'ing u( $it# ca(acit'
)uilding (ro%ider& to (ro%ide a&&i&tance to t#e micro"inance in&titution&* A
need-)a&ed ca(acit' )uilding (rogramme to meet t#e re0uirement& o" all
categorie& o" M+O& i& e&&ential to )ring a)out &u&taina)ilit' in t#e &ector*
!ome o" t#e im(ortant area& o" ca(acit' )uilding are tran&"ormation1 )e&t
(ractice&1 intere&t rate management1 deli%er' management1 managing
gro$t#1 ri&. mitigation1 (roduct de&igning etc* Additional in"ra&tructure
"or ca(acit' )uilding ma' )e created on PPP )a&i& $it# a((ro(riate
go%ernment a&&i&tance*
Formalities to access the credit are required to be simplified to ena)le
&emi literate and illiterate cu&tomer& to acce&& credit* /#e deli%er'
mec#ani&m al&o need& to )e &im(li"ied to (ro%ide ea&' acce&& to )ot#
credit and $or.ing ca(ital* Acti%itie& &uita)le "or $omen ma' )e
identi"ied ta.ing into con&ideration t#eir traditional &.ill&* A %ariet' o"
enter(ri&e& ma' )e o""ered to t#e $omen to &elect t#e )e&t &uited "or t#em*
Con&tant "eed)ac. on t#e mar.et $ould al&o ena)le t#e $omen
entre(reneur& to im(ro%e t#e (roduct de&ign& and mar.eting*
Transparency
/#e )orro$er need& to )e (rotected "rom (racti&e& li.e lending $it#out
regard "or t#e )orro$er& a)ilit' to re(a'1 dece(ti%e rate o" intere&t and
a)u&i%e collection tec#ni0ue&* :orro$er& /con&umer (rotection la$& ma'
)e de&igned to ta.e care o" a)u&i%e lending and collection (ractice& )'
de"ining t#em and )' ma.ing (ro%i&ion "or e""ecti%e com(laint redre&&al
mec#ani&m&* /#e con&umer (rotection la$& mu&t al&o (ro%ide "or
tran&(arent di&clo&er o" intere&t rate1 co&t and ot#er term& o" lending* /#e
con&umer la$& mu&t al&o educate t#e con&umer on good mone'
management (ractice& "or earning1 &(ending1 &a%ing1 )orro$ing and
in%e&ting*
Availability of Information/Statistics
4it# a %ie$ to de%elo(ing a detailed data )a&e o" t#e micro-"inance &ector1
it ma' )e de&ira)le to conduct (eriodic &ur%e'& o" all t#e micro-"inance
organi&ation& in t#e countr' and t#eir o(eration&* /#e &ur%e' can )e
conducted 5ointl' )' t#e -!!O and t#e &tate go%ernment&*
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Political 4ee.l'1 Marc# ;71 600I
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77* !#ri Y ! P /#orat1 Managing Director1 -A:AD1 @Micro"inance
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/eam o" !ocial ,nitiati%e& Grou(1 ,C,C, :an.1 @!caling u(
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